26 N.E.2d 960 | NY | 1940
We are to determine whether an express stipulation against apportionment, under section 204 of the Surrogate's Court Act, is present in the following clause of the will of Ellen C. McManus, deceased:
"The remaining one of said equal one-twelfth parts, I give, devise and bequeath to my executors hereinafter named *423 or their successors in trust nevertheless, to receive, hold, manage, invest, re-invest and keep invested, to collect and receive the income therefrom and after deducting the necessary and proper charges and expenses of this trust to pay the net income thereof to my grand nephew Edward Whitaker during hislife and upon his death to divide the principal of said trusttogether with any accrued income thereof equally among and to pay the same to my nieces and nephews who may be living at the time of the expiration of said trust * * *."
The life beneficiary, Edward Whitaker, died June 22, 1938, leaving a widow, Jane F. Whitaker, the appellant herein, who appears in this proceeding individually and as executrix of her deceased husband's estate. The respondent, Annie M. Verry, a niece of the testatrix, is the sole remainderman.
Upon the trustee's petition for an accounting and for a construction of the will the Surrogate ruled that the clause quoted above did not contain an express stipulation against apportionment and that all income accruing upon the principal of the trust up to the date of death of the life beneficiary was payable upon his death to his personal representatives. The order of the Appellate Division, which is now before us for review, reversed on the law the Surrogate's decree and remitted the proceeding to Surrogate's Court with directions that a decree be entered adjudging that the clause in controversy constitutes in effect an express stipulation that accrued income should not be apportioned, and that the testamentary trustee account accordingly.
In administering the trust, with special reference to the disposition of income between the estate of the deceased life beneficiary and the remainderman, the trustee was governed by section 204 of the Surrogate's Court Act which, so far as material here, provides as follows:
"§ 204. * * * All rents * * * and other payments of every description made payable or becoming due at fixed periods * * * shall be apportioned so that on the death of any person interested in * * * such payments *424 * * * shall be entitled to a proportion of such * * * payments, according to the time which shall have lapsed from the commencement or last period of payment thereof, as the case may be, including the day of the death of such person, or of the determination of his or her interest, after making allowance and deductions on account of charges on such * * * payments * * *.This section shall not apply to any case in which it shall beexpressly stipulated that no apportionment be made. * * *."
The language employed by the testatrix serves clearly to fix the date when payment of income to the life beneficiary shall cease and payment thereof to the remainderman shall begin. It was only "during his life" that the life beneficiary was to receive the net income from the trust fund created in his favor. "Upon his death" the principal of that fund "together with any accruedincome thereof" was directed to be paid to certain named remaindermen of whom concededly the present respondent is the only one entitled thereto. The language thus chosen is clear and unequivocal and leaves us in no doubt as to the decedent's testamentary intent. It constitutes an express stipulation against apportionment within the statutory exception to be found in section 204 of the Surrogate's Court Act. (Matter ofJuilliard,
It is not disputed that prior to his death there had been paid to the life beneficiary all net income actually received by the trustee. Among the investments made by the trustee are bonds and mortgages which were not in default on the date of the life beneficiary's death and upon which interest was accruing but had not been received by the trustee. Such interest within the terms of the will is "accrued income" from the trust fund which, in view of the presence in the will of an express stipulation against apportionment, is to be paid by the trustee to the remainderman.
The trustee had also invested a portion of the trust funds in four mortgages upon each of which a subsequent *425 default had occurred. Thereafter title to each property which constituted security for the mortgage debt was acquired by the trustee either at foreclosure sale or by purchase of a deed thereof in lieu of foreclosure. In two of such instances the property thus acquired was sold by the trustee after the death of the life beneficiary. The remaining two properties had not been sold on the date of the filing by the trustee of its account on March 20, 1939.
In each of these four instances where the mortgaged property was acquired by the trustee, the property had served as security not alone for trust principal thus invested but also for any unpaid interest upon the mortgage investment. Accordingly, viewing the process of salvaging the four mortgage investments in the light of the requirements of proper administration and fiduciary accountancy the trustee should be guided by the rule which was clearly stated by Judge LOUGHRAN in Matter of Chapal
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We thus reach the problem of determining the rights of the estate of the life beneficiary and the remainderman respectively in the amount credited to the income account resulting from the trustee's effort to save the mortgage investments. We have seen that by reason of defaults in four mortgages and the course taken by the trustee to salvage those investments there came into its hands prior to the death of the life beneficiary title to properties which in each instance had afforded security not alone for the principal indebtedness but for interest upon the mortgage *426 debt. Had such defaults not occurred "during his life" the mortgage interest would have been payable to the life beneficiary as a part of income due to him under the terms of the testamentary trust. In these circumstances the trustee should pay to the estate of the life beneficiary from funds received upon the sale of the four properties such portion thereof as equals the amount of mortgage interest which would have been paid to the life beneficiary — in the proportion represented in the salvaged investments — up to the dates of transfer to the trustee, had no defaults in the mortgage investments occurred. The reason the life beneficiary is entitled to the portion mentioned above is that the transfer of the property to the trustee works a payment of income represented therein. We treat such income as neither accrued nor accruing — it has been paid. All that remains is the administrative act by which the trustee makes distribution thereof.
In thus charting the course for adjusting between the estate of the life beneficiary and the remainderman the payment of income, we have treated as personalty the four properties bought in by the trustee either on foreclosure of investment mortgages or in lieu of foreclosure. The trustee is thus made accountable for the proceeds of the sale of each property so acquired and for the disposition of such proceeds according to the direction of the testatrix. (Lockman v. Reilly,
The order of the Appellate Division should be modified by providing that the proceeding be remitted to Surrogate's Court with directions to enter a decree adjudging that the trustee proceed with the administration of the testamentary trust involved herein in accord with this opinion and thereafter to account, and as thus modified affirmed, with costs to each party filing a brief, payable out of the estate.
LEHMAN, Ch. J., LOUGHRAN, FINCH, RIPPEY, SEARS and CONWAY, JJ., concur.
Ordered accordingly. *428
