Will of Barron

155 N.W. 1087, 163 Wis. 275, 1916 Wisc. LEXIS 199

• Court: Wisconsin Supreme Court
• Decided: May 23, 1916
• Status: Published

Opinion

The following opinion was filed January 11, 1916:

TimxiN, J.

This suit is by the executrix of a life beneficiary of the “income and increase,” against trustees, to recover items which it is claimed should have been paid over to the life beneficiary. Edwin R. Barron died March 23, 1897, testate. After some bequests he devised the residue of his estate to-two of his executors in trust to pay the rents, income, and increase thereof to testator’s brother, the third executor, during the life of the latter, and at the demise of his said brother to other designated beneficiaries during life, the trust to be closed and the property distributed at the death of two of the latter. The trustees had power of sale, investment. and reinvestment On March 9, 1898, the final account of the executors was allowed and they were discharged and the trustees’ liability began. The two executors who were not beneficiaries were the first trustees. On August 4, 1910, the beneficiary, O. H. Barron, died. The evidence is quite meager on all points. It appeared, however, that the testator owned 400 out of 650 shares in the E. R. Barron Co., .a corporation, and also owned the real estate hereinafter mentioned. The appraised value of the corpus of the estate turned over to the trustees was $122,960.62. Some of the property so turned over brought on resale in excess of the inventoried value as follows: Real estate, $4,500; shares of the E. R. Barron Co. sold, $10,125. There was also $666.11 collected from fire insurance companies for loss on building situated on this real estate over and above the amount spent in repair. The total increment of. this kind was $15,291.11. If this were added to the original appraisal it would make a total corpus of $138,251.73. As near as can be ascertained, at the death'of the beneficiary, O. H. Barron, the trust estate inventoried $140,171.66. In this, however, was included profit of $999.50 on United States bonds bought by the trustees and resold; profit on similar purchases of Batavia Bank stock of $825; dividend on Northwestern Bank stock, $880;. sale of rights of stockholders to subscribe for stock, $341.66; profit on shares of E. R. Barron Co. purchased and resold by trustees, $14,137.50. These profits, exclusive of the $880 dividend, amounted to $16,303.66, and if they are subtracted from the value of the trust estate at about the time of the death of the first beneficiary it would leave that trust estate-$123,868. If all these profits last mentioned go to income- and the natural increment or increase belongs to the corpus, there would be a loss on that corpus of $14,383.73. If the natural increment or increase of property which originally formed part of the corpus of the trust estate and the profits, made by the trustees, together amounting to $31,594.77, be subtracted from the present value of the trust estate, it will leave $108,576.89, and show that without the increment and profits above mentioned there must have been losses of the ■corpus of the trust estate to the amount of $14,383.73. The following items are in controversy in this case:

Item 1. $3,663.52.- Forty sixty-fifths of the total profits ■of the E. R. Barron Co. for the year 1897 were $12,974.47. The executors in and by their final account which was allowed, computed or estimated that of the total profits of that corporation for that year $3,663.52 accrued prior to the death of the testator, and after deducting this last sum the corporation declared and paid a dividend of the remainder of the profits. This dividend went to income and was paid over to the beneficiary. At the end of the next fiscal year of the corporation it declared and paid one dividend out of the profits of the last mentioned year, the trustees’ share of which went to income, and another dividend including all the surplus and undivided profits which were accumulated prior to the death of the testator, including the item above mentioned of $3,663.52. The trustees’ share of this last dividend was added by them to corpus. This division for the year T897 of profits before, and those made after, testator’s death was agreed upon. The adult beneficiary as one of the executors-agreed to this, reported it to the county court, and acquiesced in that agreement for more than twelve years, and, acting with the other executors, procured an order of the county court discharging the executors and turning this item with the corpus over to the trustees. This item was properly disallowed by the circuit court. The surplus of a corporation not declared as a dividend cannot be treated as income until it is declared as a dividend, for the obvious reason that what is surplus one year may be swept away by losses the next year. It is a fluctuating quantity. Surplus and undivided profits of a corporation, existing at the time of the death of the testator who is a stockholder, go into the corpus of the trust estate. This division of the profits of the year 1897 and the payment of part thereof to tbe beneficiary and part to tbe corpus of tbe trust estate was something which might be agreed upon and settled between the interested parties, and, as we have seen, such settlement was made. The division was in line with Miller v. Payne, 150 Wis. 354, 136 N. W. 811. The parties were competent to contract on this subject. Matter of Leask, 159 App. Div. 102, 143 N. Y. Supp. 865.

Items 2, 3, and 4^ $4,500, $10,125, and $666.11 = $15,291.11. Certain real property occupied as a store and part of the corpus of the trust estate at the death of the testator was appraised for the trustees at $40,000 and thereafter sold by them for $44,500. Eifty shares of the capital stock of the E. R. Barron Co., part of the original corpus, were sold by the trustees at an advance of $10 per share over the appraised value, and 350 like shares at an advance of $27.50 'per share, making a profit of $10,125. The store building aforesaid was during the administration of the trustees damaged by fire and the amount of insurance received exceeded the amount which they expended for repairs on account of said fire by $666.11. The unearned increment so called, or ■ 'the increase in value of the property constituting the corpus of the trust estate, and the insurance received as indemnity against loss of part of that corpus, all belong to the latter, and these items were properly disallowed.

Items 5, 6, 7a, 8, and 9. $999.50, $825, $880, $315, $26.66, and $14,137.50 = $17,183.66. The trustees bought $10,000 of United States bonds and thereafter resold them at a profit of $999.50. They also bought fifteen shares of the capital stock of the Batavia National Bank and resold them at a profit of $825. This bank was organized in 1904 with a capital stock of $400,000 and a surplus of $100,000. The stock was sold during the year 1909. The only evidence affecting this question which we find is that it had in 1909 undivided profits of $14,000 and in 1910 of $22,000. About October 16, 1900, the trustees purchased forty-four shares of the capital stock of tbe Northwestern National Bank of Minneapolis for $6,600, or $150 per share. The par value of these shares was $100 each. The trustees received thereafter regular quarterly dividends of two and one-half per cent, on said stock, which were paid over to the beneficiary in his lifetime. On or about June 30, 1908, the bank declared and paid an extra dividend of twenty per cent, on the stock, amounting to $880. The surplus and undivided profits of this bank on January 1, 1900, amounted to $421,388.11; on June 30, 1908, $1,242,011.87. The quarterly dividend on the date last mentioned of $25,000 and a special twenty per cent, dividend of $200,000 left the surplus and undivided profits on July 1, 1908, $1,017,071.87. The trustees as owners of these forty-four shares were entitled to subscribe to a proportion of shares in an increase of capitalization of said bank then consummated. The number of shares is not shown. They sold their right for $315 and received this money. There is no showing what was the amount'of the increase of the capital stock or whether it took in all the surplus and undivided profits which existed on July 1, 1908, including the surplus and undivided profits of $421,388.71 which existed at the time the purchase of shares was made; or whether it did not. There is no evidence showing the cost of the new shares. Ordinarily this $315 should be divided between corpus and income in the proportion of 421,388 to 595,683 (omitting fractions), but the plaintiff has furnished in this case no sufficient data upon which to make the division, so we treat it as ordinary profit on investment by the trustees. Stokes’s Estate, 240 Pa. St. 277, 87 Atl. 971; Holbrook v. Holbrook, 74 N. H. 201, 66 Atl. 124. The trustees having invested a part of the trust funds in the stock of the Continental and Commercial National Bank of Chicago, Illinois, and that bank having increased its capital stock, they sold their right to subscribe for their proportion of the increased stock and received on such sale the sum of $26.66. It is not shown whether this bank had any surplus or undivided profits or the amount of its original stock or the amount of the increase. On purchases and resales by them during their term of 377 shares of the capital stock of the E. R. Barron Co. the trustees realized a profit of $14,137.50. This company during this time paid out in dividends each year all its profits for the year.

Of this group of items the circuit court allowed to the plaintiff, as representative of the deceased entitled to the income for life, only the item of $880. above mentioned. That item was clearly a cash dividend and belonged to the income notwithstanding the trustees added $120 to it and applied it on the purchase of additional shares of stock in the same bank. It was properly allowed. Miller v. Payne, supra; Holbrook v. Holbrook, supra. The item received for sale of rights in the Chicago bank must be presumed to represent good will or other increment to the original capital of the bank, increasing the value of the shares above the amount at which they were sold to this extent. That would be the presumption in the absence of evidence. It therefore belongs to the corpus.

Where the trustees have a power of sale and reinvestment the corpus of the trust estate at any given time consists of (1) the identical property which was put into the corpus by the creator of the trust and still remains on hand, plus (2), to balance any money which originally went into the corpus, a like amount of money or property of value equal to such original amount of money, .plus (3), if any of the property which originally went to make the corpus has been sold, money 'in amount, or property in value, equal to that part of the original corpus sold plus the net amount of natural or unearned increment up to that time actually realized upon the property sold which was originally part of the corpus. This keeps the corpus plus its unearned increment intact except in cases of unavoidable loss of corpus. Profits realized on purchases by the trustees and resales of the same property by them should, at the next succeeding income payment day, be divided by placing to corpus whatever is necessary to keep it up to the foregoing figure, thus making good losses of corpus. All profits upon such resales not' necessary for this purpose should be paid out as income. We have no evidence informing us whether any part of the property originally forming part of the corpus remains on hand, but taking values shown by the evidence we have the following:

Value of original corpus. $122,960 62

Unearned increment actually realized on real property sold . 4,500, 00

Insurance money aforesaid.•. 666 11

Same on shares in E. R. Barron Co. 10,125 00

Same on sale of rights. 26 66

Total corpus at death of beneficiary. $138,278 39

Total value of property on hand at death of beneficiary.. $140,171 66 Less item of income above mentioned included. 880 00

Total... $139,291 66

Total amount of profits made on their investments by trustees . $16,303 66

Of this $15,597.62 will be taken to keep the corpus with its lawful increment intact, and $706.04 will be carried to income. Therefore the recovery permitted by the circuit court should be increased by $706.04.

Items 10 and 11. $9,324 and $209.23. After the death of the beneficiary, Charles H. Barron, and on January 1, 1911, the directors of the E. R. Barron Co. declared a dividend, which was received by the trustees on January 10, 1911. The amount of this dividend which came to the stock of that company then in the hands of the trustees amounted to $9,324, and the dividend represented earnings for the year from January 1, 1910, to December 31, 1910. It will be remembered that the beneficiary died August 4th of that year. This dividend belonged to the next life beneficiary and' not to Charles H. Barron, because, not having been declared a dividend during his life, it was not income of the trust estate received during his life and it was not apportionable. Divi-' dends on shares of corporate stock in tbe bands of trustees are not income until sucb dividends are declared by tbe directors of tbe corporation, wbo bave a wide discretion whether to withhold or declare sucb dividends. Interest to tbe amount of $209.23 upon securities held by tbe trustees bad accrued up to tbe date of tbe death of tbe beneficiary, Charles H. Barron, but was not payable until after bis death. Assuming these were ordinary loans on securities, tbe circuit court properly allowed tbe plaintiff tbe interest accrued up to tbe time of the death of tbe beneficiary.

By the Court. — Judgment modified on plaintiff’s appeal by adding to tbe recovery therein allowed plaintiff tbe sum of $706.04, with interest at sis per cent, from tbe commencement of this action, and as so modified affirmed, and on defendants’ appeal judgment affirmed, without costs in either case, except that tbe defendants must pay tbe clerk’s fees.

A motion for a rehearing was denied, with $25 costs, on May 23, 1916.