Jordan v. Jordan

78 N.E. 459, 192 Mass. 337, 1906 Mass. LEXIS 957

• Court: Massachusetts Supreme Judicial Court
• Decided: June 20, 1906
• Status: Published

Opinion

Braley, J.

By the will of the testator after devising in article fifth his mansion house to his wife, the residue of the estate consisting of real and personal property to a large amount is given to trustees “ in trust to manage and invest the same in a careful and prudent manner and receive the income therefrom and after deducting and paying from said income all taxes and other charges incident thereto including a reasonable compensation to the trustees ... to pay to my said wife out of the remainder of said income in case she shall survive me, the yearly sum of twenty-five thousand dollars . . . during the term of her natural life.” He then proceeds, subject to this provision, to provide for his four children and their issue, which as to his son James included only the children by his first wife, by further directing the trustees “to divide all said rest residue and remainder of said estates and property . . . into such a number of equal shares that there shall be one share to be held in trust for the benefit ” of each of them. Upon such division being made it then becomes the duty of the trustees “ to manage such general share in a careful and prudent manner and invest from time to time in a careful and prudent manner such part thereof as may be uninvested and collect and receive the income from such general share and after paying from the income of such general share, all taxes and other charges incident to such general share including a reasonable compensation to the trustees for the time being for their services in respect to such general share, to pay the residue of the income of such general share to the son or daughter of mine for whose benefit such general share is held in trust.” But it is further provided if the trustees find it inconvenient this division need not be made, and only his or her proportionate share of the income need be ascertained and paid over to the beneficiary. This course has been followed as the trustees thus far have treated the estate as undivided. In article sixteen their discretionary powers are defined in these words: “ Full power and authority are hereby given to the trustees for the time being under any article of this my will to change from time to time the investment or reinvestment of the whole or of any part of the property held in trust by such trustees and for this purpose to sell the whole or any part thereof at public auction or by private sale and for such consideration and on such terms as such trustees . . . shall deem expedient and convey the same by good and sufficient deed or deeds in fee or other transfers or conveyances to the purchaser or purchasers discharged of all trusts and receive the proceeds of such sale, but such proceeds shall be invested „ . . in such other property as they shall deem safe and prudent investments, but to be held upon the same trusts. ...” A portion of the personalty has been converted into realty by a purchase of the premises described as the “ Park Square tract,” and by building an apartment house called “Trinity Court,” and while three parcels of real property of which he died seised have been sold, the fee in one has been acquired under the foreclosure of a mortgage held by the testator at his death. With these exceptions and the transfer in compliance with a contract of the testator of certain shares of corporate stock out of a large number owned by him, and the liquidation of his interest in the mercantile firm of which he was a member, there appear to have been no substantial changes in the form of the property as received by them. The widow has since deceased, but the children survive, and from time to time the trustees have rendered accounts of their trust in which receipts, expenditures and investments are shown, and while apparently assented to by the other beneficiaries, the appellant, who originally objected to their allowance on many grounds that under the appeal have become eliminated, still contends that the first six accounts should be reformed so that certain sums paid from income should be charged to capital. These objectians rest upon two grounds, either that the items now in dispute for repairs, alterations and improvements were of such a permanent character that they should have been so charged, or that if the taxes and maintenance of any separate parcel exceeded the income therefrom, the deficit should not have been, finally supplied from the general income, but upon sale of the land should have been taken from principal.

In adapting, after completion, the basement, first story, and other parts of the building erected by them, by providing an elevator, building a stairway, with other minor changes, and furnishing additional equipment of lighting, heating and plumbing, and in remodelling and fitting the third story of another building left by the testator, for the purpose either of securing tenants, or for their accommodation, many changes or improvements were made, some of which it is now contended have been permanent in character. These alterations increased the rental value of the property, and if the total cost both of construction and equipment, of which these items form only a part, come out of the remaindermen, then as no part of this burden is borne by the beneficiaries for life they would receive a benefit wholly at the expense of those who ultimately would participate in a division of the estate at the determination of the trust. Under the large discretionary powers conferred, the trustees, in the exercise of a sound business administration, might find it expedient from time to time to make extensive alterations in the real property in order to obtain tenants and render the whole estate productive, so that the income could be kept either at a fixed standard or increased in amount. They, are found by the auditor to have acted in good faith, and with reasonable judgment in deciding that these changes were advisable. Because of some of these alterations, the buildings may have been intrinsically more valuable than before, and in a certain sense the alterations are permanent in character, but already there has been a partial restoration of one building to its original condition at the expense of capital and what other changes may be reasonably required in the future to obtain and keep tenants cannot of course be anticipated.

In the management of such property details of administration must be left very largely to the sound discretion of those entrusted by the testator with its development as a source of revenue, and, these disbursements having been found justifiable, the apportionment by the trustees so far as it is now in dispute does not appear to have been erroneous. After making an adjustment as to all expenditures which clearly belonged either to capital or income, there remain those in dispute, and these charges though debatable they paid from income. But upon consideration of the principal object sought, which was to retain or increase rental values, no satisfactory reason is shown why these several outlays should not as a whole be treated as being in the nature of occasional repairs or improvements, which did not permanently increase the value of the inheritance, but did enhance income, and to the payment of which capital that already had borne what was plainly deemed its proportional legitimate part should not be made further to contribute. Sohier v. Eldredge, 103 Mass. 345, 351. Little v. Little, 161 Mass. 188, 202. This may be said to be in accordance with the general rule that, in the absence of a different testamentary-direction or of an agreement as to apportionment between the tenant for life and the reversioner, ordinarily taxes, insurance, and all incidental expenses of the maintenance of real property, which forms a part of an estate held in trust, whether left by a testator or purchased by the trustees, are to be paid from income. Parsons v. Winslow, 16 Mass. 361, 368. Little v. Little, ubi supra. Holmes v. Taber, 9 Allen, 246. New England Trust Co. v. Eaton, 140 Mass. 532. Plympton v. Boston Dispensary, 106 Mass. 544. Mandell v. Green, 108 Mass. 277. Bridge v. Bridge, 146 Mass. 373, 376. The case of Stone v. Littlefield, 151 Mass. 485, which the appellant suggests supports a different doctrine, is not in conflict. In that case the ordinary rule that taxes should come out of income was not followed, because they had become a lien on the property when the trustee acquired title under the foreclosure of a mortgage taken by the testator, and their payment was necessary before a satisfactory title could be given to the purchaser to whom he afterwards sold. Upon a sale under such conditions capital either receives the benefit of any gain, or must bear the burden of any loss, and the trustee therefore could not at the expense of income retain the amount of the taxes in anticipation that a sale in fee by him would not produce enough to satisfy the mortgage debt with the incidental disbursements. Worcester City Missionary Society v. Memorial Church, 186 Mass. 531, 539.

Included in the estate were several parcels of realty left by the testator, which taken separately have either been entirely unproductive, or have not produced sufficient income to pay taxes and costs of maintenance, and the trustees have supplied this deficiency from the income received from the remainder of the property. While the two investments in realty made by the trustees need not be considered, as each has yielded sufficient returns to pay taxes and expenses, and the propriety of the purchase of the estate in Park Square is now unquestioned, a sale at a profit above the inventory having been made within a period of five years elapsing after the testator’s death of three parcels of the unproductive real estate, an argument also is urgently pressed that out of the proceeds enough should then have been transferred to income to cover any loss occasioned by this delay. It is settled that trustees without unnecessary delay are to convert unproductive property received from a testator into a fund which will produce revenue, and when so created the right of the life tenant to the income is to be ascertained, and the income computed from the time of the testator’s death. Edwards v. Edwards, 183 Mass. 581, 583, and cases cited. In that case on which the appellant strongly relies the testator directed that his property, the bulk of which consisted of unproductive land, and of speculative investments in stocks carried on margins, should be converted into sound securities, and after paying a small annuity to his son and daughter-in-law the remainder of the income was to go to his wife for life. It is obvious that his sole purpose was to create a permanent fund safely invested, the returns from which should be immediately available for their support. But in the present case the life tenants were not dependent upon the testator, and the scheme of the will plainly indicates that he anticipated that the establishment of the trust fund even before any division into shares became advisable might be prolonged in time. The trustees were not required to divide the estate, which was not only of great value, but nearly one third of which consisted of real property, into “ separate and distinct shares ” if such division was found inconvenient or inexpedient. If this was not done, the testator’s direction was, “ then so long as it shall not be necessary to actually divide the same to hold the same in undivided general shares,” which included these particular investments made by the testator. The cautionary direction found in the twenty-fourth article of his will, while not absolutely binding upon them, is indicative that he contemplated that his trustees if they followed his judgment might delay the conversion. Harvard College v. Amory, 9 Pick. 446, 462. If they adopted this course then their action was in accordance with his suggested intention, and when any of these parcels were converted into money the life tenants were not entitled to have any part of the proceeds treated as income and deducted before the whole fell into principal, for being in receipt of the net income from the entire trust as constituted by him, which is not only shown to have been reasonably adequate, but has been paid to them from the time of his death, they were realizing all the benefit therefrom which he intended, even if a part of the estate during this time remained barren. Lovering v. Minot, 9 Cush. 151, 158. Eldredge v. Heard, 106 Mass. 579. Green v. Crapo, 181 Mass. 55. Edwards v. Edwards, ubi supra.

A further objection is taken to the payment from income of a broker’s commission for negotiating the sale of a parcel of improved realty, but there would seem to be no difference in principle between such a sale, and a similar method of disposing of personalty by trustees, where it has been held that such an appropriation from income was authorized. Heard v. Eldredge, 109 Mass. 258. If the question were open, objections which perhaps could be soundly urged against this rule would call for careful examination, but the rule has been so long settled, and presumably followed by trustees, that it ought not to be disturbed. See New England Trust Co. v. Eaton, 140 Mass. 532, 545.

Decrees are to be entered affirming the decrees of the Probate Court.

Ordered accordingly.