301 Mass. 214 | Mass. | 1938
This is a bill in equity for instructions filed in the Supreme Judicial Court by the plaintiff, in his capacity as sole trustee under an indenture of .trust dated April 11,
Frederic C. Dumaine, Jr., the plaintiff trustee, and Frederic C. Dumaine, Sr., a defendant, are the life tenants under the trust indenture, and the trustees of “Dumaines,” defendants, are the remaindermen. By the terms of the trust instrument certain property was conveyed to the plaintiff in trust “To hold, manage, invest and reinvest the same with all the powers hereinafter set forth, and, after paying the expenses of administering the trust in this instrument set forth,” to pay the net income as therein directed. The trustee is not required to give any bond, and “No trustee under this instrument shall ever be held responsible for any act or omission of any other person nor for any loss or depreciation of any of the trust property unless such loss or depreciation shall have been directly caused by his own dishonesty or gross negligence .... He shall not be responsible for any loss which may occur if he shall have in his absolute and uncontrolled discretion mortgaged, pledged or otherwise encumbered any of the property of this trust fund for the benefit of ‘Dumaines.’ ” Absolute and uncontrolled discretion is given the trustee as to the purchase and retention of securities. No trustee is ever to be liable to any person for any loss occasioned by depreciation of any security or property, and no person
The bill was amended by adding an additional paragraph thereto: “7. The petitioner has sold certain shares of stock during the year 1938 at a profit over and above cost and is in doubt whether, as alleged by the Commissioner of Internal Revenue, he now under the trust instrument may in his discretion distribute the said profit to himself, as life tenant, as income.” The defendants admit the allegations contained in this amendment. The prayers of the bill are (1) whether, under the provision of the trust indenture concerning which instruction is asked, the plaintiff has “the right to determine, contrary to the usual rules of law in this Commonwealth, what money or other property received by him, as trustee under said indenture, is principal or income, or whether said provision is to be construed as a limitation of the liability of the trustee without changing, for the purposes of the trust under said indenture, the usual rules of law of this Commonwealth as to what money or property, received by the trustee, is principal or income,” and (2) “Whether or not the petitioner may in his discretion distribute to the life tenant gains from sales of securities.” The defendant trustees in their brief state that “The precise question to be determined may be stated as follows: — Has the Petitioner, in his capacity as Trustee, the right and the power to distribute now to himself (in his personal capacity), ‘as life tenant,’ a profit derived during the year 1938 as the result of selling certain shares of stock, a part of the trust property, at a price ‘over and above cost’?”
The purposes of the trust are clearly stated to be (1) “to pay so much of the net income as the trustee in his absolute and uncontrolled discretion shall determine, to said Frederic C. Dumaine, Jr. during his life, [2] and upon his death to pay such part of said net income as the trustee in his like absolute and uncontrolled discretion shall determine, to Frederic C. Dumaine . . . [3[ and the balance of said income, if there be any at the end of any year, to carry to capital, [4[ and upon the death of the survivor to
It has often been held that one of the principal requisites for the maintenance of a bill for instructions is the fiduciary possession of a fund of which some disposition is required to be made presently. Bullard v. Chandler, 149 Mass. 532, 538, and cases cited. Saltonstall v. Treasurer & Receiver General, 256 Mass. 519, 528. Hull v. Adams, 286 Mass. 329, 331. Cronan v. Cronan, 286 Mass. 497. Our inquiry will be limited to the question raised by the amendment to the bill, that is, whether the trustee may, in his discretion, distribute to himself, as life tenant, as income, the profit derived by the sale of certain shares of stock in 1938, over and above their cost. The general rule is that, in case of a trust, gains resulting from the purchase and sale of securities are accretions belonging to the principal of the trust fund, rather than income. Williams v. Milton, 215 Mass. 1, 11. Tax Commissioner v. Putnam, 227 Mass. 522, 529. Holcombe v. Ginn, 296 Mass. 415. Such gains ordinarily
Trustees frequently are given power by the trust instrument to pay over a part of the principal to beneficiaries as to whom provision already has been made for payments of
In the case of Minot v. Paine, 99 Mass. 101, 112, it was said, in discussing the right of a beneficiary, who was entitled to income for life, to additional shares of stock distributed to the trustee as dividends on stock already held,
The defendant trustees do not appear to argue that a settlor has no power to confer a discretion upon his trustees to determine what is income and what is principal, but do contend that, under the trust instrument in question, the trustee has no power to determine, contrary to established rules of law in this Commonwealth, what money or other property received by him as trustee is principal or income. This court has uniformly held that trustees in whom a discretion is vested are under an obligation to exercise a “sound judgment and a reasonable and prudent discretion,” Davis, appellant, 183 Mass. 499, 502; that kind of “power and discretion which inheres in a fiduciary relation and not that illimitable potentiality which an unrestrained individual possesses respecting his own property,” Corkery v. Dorsey, 223 Mass. 97, 101; a “soundness of judgment which follows from a due appreciation of trust responsibility,” Boyden v. Stevens, 285 Mass. 176, 179, unless the settlor has expressed an intention that the power of discretion conferred is such that “the court will not interfere
In the case at bar it is pointed out that, in six instances in the trust instrument, the trustee is given an “absolute and uncontrolled discretion” and that these comprehensive and conclusive words • do not appear in the clause under inquiry where the words used are “full power and discretion.” Reverting to the terms of the trust instrument, hereinbefore quoted, it is to be noted that if at the end of any year there is a balance of income, it is to be carried to capital, and that, during the lives of the life tenants (compare North Adams National Bank v. Curtiss, 284 Mass. 330, 336), the trust property may be mortgaged or encumbered for the benefit of “Dumaines,” all of which manifests on the part of the settlor an interest in the remaindermen, possibly to the disadvantage of the life tenants. Compare Cammann v. Abbe, 258 Mass. 427, 429. Moreover, the life tenant’s right to any part of the income depends upon how much the trustee shall determine in “his absolute and uncontrolled discretion” to pay. Then, too, the present trustee is the present life tenant and was the life tenant when the trust was created. Great powers, which powers will enure to his successor, are conferred upon him in the management of the trust. His liability for errors or omissions is posited only upon “his own dishonesty or gross negligence,” and he is not required to furnish any bond.
On the other hand “full power and discretion” to determine whether any money or other property received by the trustee is principal or income, in the light of attendant circumstances and the language of the trust instrument as a whole, would have little significance if construed to mean a discretion so to determine only in cases where there is no settled law to guide. By the terms of the trust instrument he is to have that power and discretion “without being answerable to any person for the manner in which he shall exercise that discretion.”
The power, if uncontrollable, to determine whether any money or other property received by the trustee is principal or income, coupled with the power to pay over to the present life tenant so much of the net income as in his absolute and uncontrolled discretion he shall determine, would give the trustee power to destroy the trust. The settlor had no such intention. In deciding the question which is before us, we think that the scope of our inquiry properly embraces the needs of the life tenants, the continuance of the trust until its manifest purposes are accomplished, and the protection and well-being of the “Dumaines,” of which latter trust the plaintiff is not only a trustee but also a beneficiary. We do not think the clause in issue confers an absolute and uncontrolled discretion. Nor do we think that it limits the trustee to the determination of the matter involved in cases where there is a question of doubt or no rule of law to guide him. We have nothing before us to show the amount of the trust fund. The trust known as "Dumaines” was created on July 31, 1920,
In the case of Tax Commissioner v. Putnam, 227 Mass. 522, where it was held that gains received from sales of stock come within the definitions of "income,” as that word is used in the Forty-fourth Amendment to the Constitution of the Commonwealth, which confers full power on the General Court to levy a tax on income as therein provided, it was said that, in the case of trust estates, profits and gains arising from the increase in value of investments and realized by sale are treated as a part of the principal and not as income. See Harrison v. Commissioner of Corporations & Taxation, 272 Mass. 422, 425. The possibility of conflicting interests between life tenants and remaindermen as to what is principal and income is not of primary importance in determining whether a certain gain to a trust estate is taxable as income. It is important, however, to observe that in one connection a gain is classed as income and in another as principal and that this court sees no inconsistency in such classifications. A settlor of a trust must know that, unless he says something to the contrary in his
Upon consideration of the entire matter, we are of the opinion that the trustee under the clause in question has full power and discretion, after serious and responsible consideration, short of arbitrary, or dishonest conduct or bad faith or fraud, when he has to determine whether any money or other property received by him is principal or income; and that upon this record there is nothing disclosed to prevent him from distributing to himself, in his personal capacity, the profit derived during the year 1938 as the result of selling certain shares of stock, a part of the trust property, at a price “over and above cost.”
Decree is to be entered instructing the trustee accordingly, the details of which are to be fixed by a single justice. Costs as between solicitor and client are to be in the discretion of the single justice, to be paid out of the trust funds.
Ordered accordingly.