200 Misc. 410 | N.Y. Sur. Ct. | 1951
Among the philanthropies established by the last will and testament of the late Cornelia Prime is a trust fund of $100,000 for the benefit of Huntington Hospital, which is administered by the petitioner, Bank of New York and Fifth Avenue Bank, as trustee.
Between the time of the death of deceased and the present, the statutes controlling investments of corporate fiduciaries have changed, as have our economy and social life. Prior to July 1, 1950, the law clearly authorized the investments made by the petitioner in units of its legal common trust fund. (Decedent Estate Law, § 111; Banking Law, § 100-c; Matter of Peck, 198 Misc. 395.) Chapter 464 of the Laws of 1950 (eff. July 1, 1950) substantially changed the scope of investments for trusts including legal common trust funds. Before this date a legal common trust fund was restricted to investing in securities legal for savings banks (L. 1937, ch. 687; L. 1943, ch. 602). After July 1, 1950, the field of investment for a legal common trust fund was liberalized and widened so that the common fund might be invested “ in the manner in which fiduciaries are authorized to invest by section twenty-one of the personal property law.” (L. 1950, ch. 464.)
Paragraphs (a) to (?) of subdivision 1 of section 21 of the Personal Property Law, as amended by chapter 464 of the Laws of 1950, enumerate the kinds and classes of securities in which trustees may invest. These are the traditional 11 legáis ” for investment by fiduciaries. Paragraph (m) of subdivision 1, as amended by chapter 464 of the Laws of 1950, is a distinct innovation in legislative control of fiduciary investments. It permits fiduciaries to invest in corporate securities, including common and preferred stocks, in addition to the securities made eligible for investment by paragraphs (a) to (?) of said subdivision 1. However, certain restrictions are imposed in paragraph (m) on investments made thereunder. One of the limitations is that “ no investment shall be made pursuant to the provisions of this paragraph (m) which, at the time such investment shall be made, will cause the aggregate market value of the investments not made eligible by the preceding paragraphs of this subdivision to exceed thirty-five per cent of the aggregate market value at that time of all of the property of the fund held by such fiduciary ”.
The will under which this trust is administered does not grant the trustee discretionary powers of investment; nor does it prohibit investment in a legal common trust fund. Hence, the question to be determined herein is whether the petitioner is authorized under the modified “ Prudent-Man ” rule which became effective in this State on July 1, 1950, as amended by chapter 627 of the Laws of 1951, to retain the investments it has already made, and to make additional investments, in units of participation in its legal common trust fund, despite the fact that more than 35 % of the Huntington Hospital trust fund is now invested in mortgage part interests which are not eligible investments under paragraphs (a) to (Z) of subdivision 1 of section 21 of the Personal Property Law.
A similar situation was before Surrogate Collins in Matter of Peck (199 Misc. 1051) decided December 6, 1950, before the adoption of the 1951 amendment. There the court held (p. 1058) that an investment in a share of a legal common trust fund was “ not made eligible ” by paragraphs (a) to (Z) of subdivision 1 of section 21 of the Personal Property Law, but by subdivision 3 of section 100-c of the Banking Law, and that the value thereof must, therefore, be included in the total value of the investments comprising the 35% category. Thus, in an estate of $100,000 with $25,000 already invested in a legal common trust fund,, only $10,000 may be invested in nonlegals ($35,000 less $25,000).. In holding thus the court reasoned as follows (p. 1057): “ The recent amendment to the Personal Property Law has broadened the investment powers of fiduciaries but it cannot be construed as an abandonment of long-established policy. The statute must be construed as granting only the additional investment powers
The Legislature thereafter amended paragraph (m) by chapter 627 of the Laws of 1951, effective April 7, 1951. It added several words at the end of said paragraph and thereby made clear its new policy governing trust investments. The last sentence of paragraph (m), the language added by the 1951 amendment being in italics, now reads as follows: ‘ ‘ In determining the aggregate market value of the property of a fund and the percentage of a fund to be invested under the provisions of this paragraph, a fiduciary (i) may rely upon published market quotations as to those investments for which such quotations are available, and upon such valuations of other investments as in his best judgment seem fair and reasonable according to available information, and (ii) shall exclude the value of any investment in a legal common trust fund made pursuant to the hanking law.”
The 1951 amendment changes the result arrived at by Surrogate Collies in the Peck case (199 Misc. 1051, supra). Under the amendment, a fiduciary, in determining the market value in a fund and the percentage of a fund to be invested under paragraph (m), is required to 1 ‘ exclude the value of any investment in a legal common trust fund made pursuant to the banking law. ’ ’
A change of language by the Legislature immediately after a judicial decision is entitled to great weight in determining the future status of the law. (McKinney’s Cons. Laws of N. Y. Book 1, Statutes [1942 ed.], § 75; Matter of Zahriski v. Law, 118 Misc. 471, affd. 203 App. Div. 40.)
The purpose of the 1951 amendment was to resolve the problem presented to Surrogate Colliws in Matter of Peck (199 Misc. 1051, supra) and to make certain in clear language the legislative intent anent investments by corporate fiduciaries in legal common trust funds. (Memorandum by Hon. Justin C. Morgan, chairman of Assembly Judiciary Committee, who introduced the bill, New York State Bar Bulletin, June, 1951, p. 218.) While the latter writings are not binding on this court, they shed light on the intent behind the amendment. Regardless of the foregoing, the language of the amendment is both clear of meaning and convincing as to purpose. The Legislature has now declared in unmistakable language that (m) securities are not to be confounded with units of participation in a legal common trust fund and that each is separate and distinct from and should not affect the other.
This action taken by the Legislature is in trend with today’s tendency to liberalize fiduciary investments and faces the fact that the life of the traditional so-called legal trust is on the ebb. Such is not strange since the legal trust was conceived when our economy was far different from that of now. This court takes notice that to date thirty-six States have already passed common trust fund enabling laws. This widespread acceptance of common trust funds is because experience has demonstrated that common trust funds are the only practical means of providing small- to medium-sized trusts such as the one under consideration with broad investment diversification. This diversification is the best assurance that beneficiaries have of obtaining a stable income. It is the most effective trust device for providing both beneficiaries and remaindermen with reasonable protection against changes in the purchasing power of the dollar. Therefore this sound and sensible means of investment thus provided for trusts of moderate proportions should be encouraged and helped rather than discouraged and hindered. Hence the Legislature has precisely prescribed the limitations within which this can be accomplished.
Accordingly, I hold that although the petitioner is now retaining in the Huntington Hospital trust fund mortgage part interests, the value of which exceeds 35% of the entire trust fund,
Submit decree on notice in accordance with this decision.
