148 Misc. 390 | N.Y. Sur. Ct. | 1932
The only question on this accounting is whether certain claims for legal services by one of the trustees should be approved and allowed. No question arises as to allowances for accounting, commissions or disbursements.
The trustees were husband and wife, she being the survivor of the two life beneficiaries, and he being an attorney at law. After the death of his first wife, who was the deceased life beneficiary,°and on through the last decade and almost until his death, he devoted practically all of his time to his trusteeship.
In 1924 there was an intermediate judicial settlement, and another by the trustees in 1928. In the latter he was allowed conditionally for such legal services the sum of $3,000 out of principal, and also the further sum of $2,625 likewise. Those services ran from July 1, 1924, to March 31, 1928. His estate now asks also for $6,250, out of principal, for his legal services in the trusteeship from April 1, 1928, to June 12, 1932 (aside from allowance for accounting, etc.). The first two sums, totalling $5,625, were paid out of principal, upon the representation that it was satisfactory to the residuaries; but both decrees expressly provided the matter should thereafter be passed upon when the residuary legatees were properly before the court in that regard. At that time the deceased trustee noted in his records, “ the Surrogate expressed some uncer
Both the estate of the deceased trustee, and he himself, took the position that no demand was being made for the service to income in the latter period, 1928-1932. The main question, therefore, is whether the principal of this trust should bear those “ legal ” services by the lawyer trustee.
The will is silent on the subject. It says nothing as to “ net income,” nor as to allocation, or apportionment of charges. The general rule, as shown by Surrogate Wingate in Matter of Shepard (136 Misc. 218), is to charge principal only with such expenses as tend to enhance the value of the principal of the trust, while income must bear all ordinary expenses connected with the continuance of the property in substantially its existing state; and this is especially so where the will gives only the “ net ” income. (See, also, Matter of Lichtenstein, Rochester Daily Record of July 11, 1932.)
In other words, Mr. H. W. Jessup summarizes the rule by saying that expenditures to protect the integrity of the corpus, to avert wastage, etc., are charged to principal; but those made to assure productivity, or for ordinary administration costs, are charged to income.
A further condition attaches here, owing to the fact that this deceased trustee was also an attorney at law. Assuming the nature and result of his services meet the requirements for compelling the principal to bear them, still only such of them are allowable as are not administrative and such as any person might perform, but are purely legal in that they call for admission to the bar as a prerequisite to collecting therefor; and “ such services and the value thereof should be shown by clear and convincing evidence.” (Matter of Fidelity Trust Co., 197 App. Div. 926.) Obviously, services that are administrative do not become “ legal ” services merely by reason of the fact that the person who performs them happens to be a lawyer. (Matter of Owen, 144 Misc. 688.)
The objecting residuaries urge that in the statement of the particulars of those services neither of the conditions has been met; and these objectants ask that the latter claim for $6,250 be denied; and also that the trustees be surcharged with, at least, the major portion of the two advances, totalling $5,625, made to the deceased in 1928, as stated above.
It just so happened that about forty years after testator’s death there occurred a boom in some east-side real estate on the fringe of the nearby downtown business section, which flattened out before 1929; and this speculation affected the values in the vicinity of testator’s homestead, which stood about an eighth of a mile south of Main street. While this boom was on, the estate was fortunate in selling both the homestead and the structures east of it, at the peak of the prices, for $255,000. This money remained intact since, and constitutes the trust fund, except as hereinafter stated as to the residence purchased by the trustees for themselves out of the corpus. This presents no legal ground for averaging the lean years with part of the one fat year — the year of sale, 1924; or with those that followed 1924; nor is it any reason for paying
The second point is that the residuaries can be deemed to have acquiesced in payments to the deceased trustee that imply an unexpressed contract to pay him thereafter at the rate of $1,500 a year for legal services, aside from accounting. The waivers filed in the 1924 accounting, when the proceeds of sale went to set up this trust, expressly consented that the court might allow the
In the third place, counsel for the deceased trustee seems to rest his case mainly on the argument that the services set out in the particulars were “ for the benefit of the principal.” He makes no explicit answer to the point, which was well taken by his adversary, that a person did not need to be a lawyer to perform many of the services embodied in this claim. For those the trustee’s commissions were his compensation. Neither his commissions nor his disbursements are now in question, because the residuaries, in open court, waived that point, as well as the allowances made for the accountings.
The largest part of the claim, if not all, falls under the double test that nothing can be allowed unless such as only a lawyer could collect for,, and at the same time also such as enhanced the value of the principal. The test might be said to be threefold, inasmuch as, in either of the aspects above mentioned, there must have been some necessity for the rendition of any such service. For instance, there are numerous charges made for procuring an order from the surrogate — e. g., for the trustees to shift one of their deposits from one bank to another —that were granted ex parte, and bound nobody but the applicant and were ineffective, and were not necessary, and served only to give a very formal appearance to a bit of the simplest routine of trustee work.
Most of the items will be seen to have been made “ to assure productivity,” and were not of a structural or defensive character; but rather were expenses that are ordinarily made to continue the property in substantially its existing state. Obviously, such fall to income to bear.
One of these trustees is the survivor of her deceased sister and cotenant. She has elected to follow the literal wording of the will so as to enjoy the whole income, at the same time, however, “ reserving,” on the several accountings had herein, the right to have a judicial determination as to the validity, construction or effect of any devise or bequest in testator’s will. As I recall, none of these “ reservations ” expressly mentions the suspension of the power of alienation. On the submission of this claim she asked the court to make such a general reservation in its decision, but the request was denied, in order that any ruling made would have its ordinary effect over as broad a range as possible. She was the only one to raise this point. Any legal investigation of the question .by her
Next, the matter of the trustees’ residence. During the early part of the year 1925 much time was spent by both these trustees in selecting a home for the one of them who was then the surviving life tenant; and by the deceased trustee in regard to the examination of the title thereto, although it was taken under a policy of title insurance; and later on more time was spent as to encroachments and improvements on the residence property. On the representation that the will authorized them so to do, and that the residuaries were satisfied it should be done, these trustees, to buy this property on Pinnacle road, took out of principal the sum of $29,000. This was an outlay of principal that was wholly for the personal use and comfort of these two trustees as their home. It was not an “ investment ” in the ordinary sense of that word as applied to trustees. The statute permits a loan on'.'land, but not a direct, outright purchase. It is now sought to charge to the principal the legal expenses incidental to that purchase, under the provisions of the “ fifteenth ” clause of the will, to the effect that these trustees might sell all realty testator owned at death, “ and invest the proceeds in other real estate or personal property at their discretion.” A similar explanation is given in the 1928 account. Clearly, this language is too general and indefinite to authorize any such departure from ordinary trustee practice. In reviewing the decisions on this point, Mr. H. W. Jessup sums up in these words: “ But where the trustee is given 1 discretion,’ whether 1 absolute ’ is used or not, the courts as a rule will interpret it as ‘ trustee discretion ’ and limit him to acknowledged trustee investments.” (Jessup-Bedf. § 1013, p. 2125.) It was not until after the purchase had been made that it was set out in the 1928 accounting, notice of which the residuaries waived in general terms. There is no record of their having specifically approved this “ investment.” All of the legal expenses incident to the purchase of this home, in the circumstances, should be borne by those who enjoyed it personally, the life beneficiary and her deceased husband, especially in view of its being a misuse
The savings of premiums on the bond of the trustees, by their procuring an order of sequestration in lieu of a bond, was a saving for the life beneficiary; for on her the great overweight of authority places this charge. The cases are gathered in Matter of Lichtenstein (supra), wherein it is pointed out that Matter of Parsons, cited by this claimant, is distinctly a minority holding, which is not conclusive here.
The monument, erected in 1925 at a cost of $803 at testator’s grave, came about fifty years after his death; and it seems to transcend the fourth clause of the will wherein he directed the erection of headstones and footstones on his lot, implying he then had a monument suitable to him. Apparently, the wishes of the life tenants in the circumstances that arose long after testator’s death were favored. Credit for this outlay is allowed in the 1928 accounting; and thus, presumably, was covered by the allowance then made for legal services rendered by the one of the trustees who was a lawyer. At any rate, very little investigation was required into the law on that simple subject; and the petition and ex parte order for its payment was largely an unnecessary formality.
Now, as to the return on the capital gain taxes and the payment thereof, in installments, and by the formality of various orders of court aforesaid, while there is ground to say this concerned the principal, yet the services rendered were not exclusively “ legal ” services. Such returns are commonly made out by lay accountants, trust officers and other bank and corporation officials; and it actually appears in this claim that the deceased trustee on February 16, 1925, had a “ conference with the capital gain expert at the Genesee Valley Trust Company;” and the items of claim show he did- the same thing on February ninth, April fourth and November twentieth; and that on February eleventh he also had a conference with the Deputy Collector of Internal Revenue in this regard. Undoubtedly, he learned a great deal from these practical. “ expert ” men, who are not lawyers. The gross tax paid, on three occasions, did not exceed $1,800 in any one case. The claim shows services rendered on five different dates.
Other legal service is particularized as examining the law and decisions as to usury in the purchase of mortgages. Residuaries are not concerned whether the principal be put out at use, in any form, or left on deposit, even without interest. The life tenant, however, “ to assure productivity ” must, at his own risk, resort to investment, and do so in a legal manner. While usury might
With regard to the credit claimed for procuring the land contract to be drawn so as to take back an installment mortgage for the pinchase price of the Clinton avenue corner, which resulted in certain tax advantage, it seems that such service must have been rewarded by the $7,500 allowance made when the proceeds of that sale were set up in the form of the present trust.
The items of claim also comprise some that are too general to be made the basis of any allowance — for example, “ examining laws and decisions as to the rights and duties of executors and trustees,” frequently, as the Daily Record happened to report them; or “ examining the will with relation to legacies and construction of certain clauses,” etc. The rest of the items are, obviously, not “ legal ” services, or they are such as were necessitated to “ assure productivity;” and need no further discussion.
Although the evidence falls below the standard of being “ clear and convincing ” (supra), in many respects, still there may be something in regard to the capital gain taxes, and the monument, that could be recompensed as a principal charge. Those taxes, as set out in the claim, relate to two years, and to State and Federal governments. In the circumstances, an allowance of $500 out of principal would seem fair recompense for all the strictly legal work this trustee necessarily did to enhance or to defend the principal within the rules above mentioned. As the deceased was at once both lawyer and trustee, this allowance, however, should not be paid, nor credited, until the advances out of principal hereinafter mentioned have first been restored to the principal fund, with interest, under the familiar rule as to a claim for offset in favor of the fiduciary personally against the trust fund in bis hands.
On the confident assurance of the claimant that he could procure the approval of the residuaries, he and his cotrustee withdrew, with the conditional permission of this court as aforesaid, two sums out of principal, amounting to $5,625, and paid them over to the deceased trustee personally on account of this claim for legal services.
The surviving trustee and the estate of the deceased trustee will be held, upon their accounting, jointly and severally bound to restore said sums of principal to the principal fund, with six per cent interest thereon from the respective dates of the several withdrawals. It is enough for this decision to mention only the liability as bearing on this claim for legal service by the trustee.
Enter a decree in accord with this decision, without costs, to the applicant.