Parkhurst v. Ginn

228 Mass. 159 | Mass. | 1917

Rugg, C. J.

This is a petition by the trustees under the will of Edwin Ginn for instructions as to certain of their duties in the execution of their trust. The estate in their hands is something in excess of $2,000,000. Edwin Ginn died on January 21, 1914. He was the founder and senior member of the firm .of Ginn and Company, publishers of educational and other books, and most of his estate was invested in that firm. The scheme of his will, shortly stated, is this: Legacies of different sums, aggregating about $200,000, are given by the first fourteen articles, all of which have been paid in full by the executors. By article sixteen a power of sale is conferred upon the executors and the trustees, and by article seventeen the executors are appointed. This petition does not relate directly to any of these articles. The trust is created by article fifteen, which contains fifteen clauses. By the first seven clauses annuities are given to various persons, principally to members of the testator’s family, amounting at present to $47,400, and having a maximum possibility of $51,000. Chief among these is an annuity of $25,000 to his widow for fife. By clause eight provision is made in considerable detail for the transfer under certain conditions to each of the testator’s two sons of one thousand shares in the firm of Ginn and Company and for the sale by the trustees to each of these sons of a further number of shares, so that each may have an ownership equal to one twelfth of the entire capital of that publishing house. By clause nine provision is made for the retention of the Ginn homestead in Winchester as a part of the trust so long as occupied by his children or grandchildren, a life estate having been created in it for the benefit of his widow by another article. By clause ten direction is given to the trustees respecting the carrying as a part of the body of the trust of certain shares in Ginn and Company, pursuant to powers, rights and options in its partnership articles. By clause eleven provision is made for the World Peace Foundation. By clause twelve the continued investment of the present proportional part of the trust fund in Ginn and Company is expressly declared to be safe and proper. By clause thirteen, as modified by the codicil, pecuniary legacies amounting immediately to $35,000 and having a possible maximum aggregate of $50,000, are given out of the principal of the fund, after adequate provision has been made for the foregoing annuities and gifts of income. By clause fourteen the residue of the estate is divided among certain educational and charitable institutions. Clause fifteen relating to anticipations and deduction of legacies, is not involved in the issues here raised.

1. The first request for instructions is whether the trustees shall set apart any of the trust property as a separate fund for the benefit of the World Peace Foundation. The general plan of article fifteen does not manifest a design for division of the body of the trust into distinct funds for the support of each beneficiary or of several groups of beneficiaries. The gift to the trustees, although most comprehensive of the entire residue of the property of the testator, nevertheless is single in nature. It is to the persons named “in trust, with the following powers and for the following purposes,” succeeded first by the clauses establishing annuities and then by the one for the World Peace Foundation. The form of the gift, so far as it goes, indicates that the fund is a unit.

Other parts of the will confirm the interpretation that the trust is to be administered as one fund. In article two the testator directed that, if the homestead estate is sold during the life of his wife, the proceeds after her death shall “constitute a part of the trust fund hereinafter provided for the general residue of my estate.” In article fifteen, by clauses three and four, gifts are made “from the principal of the trust fund,” by clause four, a gift out of the income of the “trust fund,” and by clause five, a gift “from the income of the trust estate;” by clause ten in two places the trustees are instructed to hold shares of Ginn and Company “as a part of the principal of the trust fund;” and in clause fourteen the testator directs that the balance of seven twentieths of the entire rest and residue of the estate “shall continue to be held by my Trustees for the benefit of the World Peace Foundation, the income to be paid over to said Foundation, subject, however, to the same terms and conditions hereinabove set forth with relation to the payment of the income ... of $800,000 of the principal of said trust fund.” It is not likely that these phrases, referring unmistakably to a single trust fund, would have been used if a separation into several funds had been intended.

The words which state the provision for the World Peace Foundation disclose a plain design that it is not to be a segregated fund but a part of the income of a larger fund. The crucial and operative sentence is this: “I now authorize and instruct my Trustees to pay over annually, or oftener if business convenience may permit, to the said World Peace Foundation, the income, as nearly as said Trustees can conveniently reckon it, of Eight Hundred Thousand Dollars ($800,000.00), but not exceeding Forty Thousand Dollars ($40,000.00) per year.” These are the words of gift. They do not express the idea of a separate fund, nor fairly permit the inference that that was intended. If a fund was to be set apart, there would be no meaning for the words “the income, as nearly as said Trustees can conveniently reckon it.” Yet it is a rule of common sense as well as of testamentary construction that, where reasonably practicable, forceful meaning and effect shall be given to all the words used. The income of a definite fund is a fixed amount. When its expenses are deducted from its receipts an exact sum is found. No reckoning is needed, and it does not depend upon the convenience of anybody to ascertain the income of a separate fund with absolute accuracy. It requires no estimation to discover it without variation from the precise fact. Yet a likelihood of possible variation is the thought conveyed by the operative words of the gift. Those words aptly express the idea that the source from which the income is to flow is a larger fund than needed to produce this single annual payment, earning by its several investments different rates of interest, where the computation of the part of income rightly to be apportioned to $800,000 as an aliquant part of the principal might require reckoning and might be subject to some variation from minute exactness.

Where the testator desired to create separate funds, that purpose is expressed in apposite words. In clause five of article fifteen he directs the trustees in a certain contingency to withhold a part of two of the annuities, “investing such part so withheld in a separate trust fund.” In article two, also, are directions to the trustees to hold the proceeds of the sale of the homestead “in a separate trust” during the life of the widow if it is sold.

The nature of the estate left by the testator, largely invested in the publishing house bearing his name, and the directions which involve a continuance of a considerable part of the fund in the same business, would render difficult any just separation of several funds.

The words of gift to the World Peace Foundation express a double limitation: It is (1) of the income of an amount not exceeding $800,000, and (2) in no event can the annual income exceed $40,000. Both these restrictions can be observed better through a series of years by means of the administration of a larger fund than by the segregation of an amount of securities equalling $800,000 at the beginning but liable to vary materially as time goes on, through almost inevitable changes in the value of investments.

The testator .was a college graduate, and presumably a man of great force, acute intelligence and wide experience, whose life work had been in business closely affiliated with education. He had given prolonged study to the plan for the World Peace Foundation, and had discussed it frequently with his intelligent attorney who drafted the will. The will must be construed giving due weight to the natural inference that words expressive of benefaction for that end were chosen with care for the purpose of disclosing plainly a carefully matured scheme to carry out a long cherished design close to the heart of the testator.

The stray references in clauses thirteen and fourteen to the “$800,000,” and “the fund of $800,000, or thereabouts, originally set aside” for the cause of peace are not expressive of the testator’s main purpose touching that subject and cannot be taken to supply a requirement omitted elsewhere, that either as matter of bookkeeping or of physical segregation, that sum must be actually put apart and treated as a fund distinct from the main fund. At least until the annuities have all or substantially all been paid in full, the foregoing considerations apply; and it seems the manifest purpose of the testator that one great common fund should support all his benefactions under article fifteen except as specified in clause five.

The facts found by the master, assuming that they all are competent and may be considered, do not lead to a different conclusion.

In order to avoid misapprehension it may be added that no instruction is intended to be given as to the manner in which the trustees shall keep their books. That is a matter of administration about which the will contains no direction. The first request for instructions is answered in the negative.

2. The second request is for instruction as to the method by which the amount or rate of income payable to the World Peace Foundation is to be reckoned. The answer to this question, also, depends upon the correct construction of the crucial and operative sentence of gift already quoted from article fifteen, clause eleven. The reasons, which have led to the decision that the residue of the estate given to the trustees is to be treated and administered as a single fund, require the conclusion that the payment to the World Peace Foundation shall be that proportionate part of the total net income of the fund which $800,000 bears to the entire principal of the fund, but not exceeding $40,000 annually. It is the ordinary rule that a gift of income means the net and not the gross income, in the absence of something showing a contrary intent. Watts v. Howard, 7 Met. 478, 482. Stone v. Littlefield, 151 Mass. 485, 488. It would have been simple for the testator to have provided for an annuity of $40,000 if that had been his purpose. He knew how to do that unequivocally for the benefit of members of his family and others to whom he desired to make that kind of gift. It would have been equally simple for him to have given the income of a particular fund or of a fund of a specified amount. He did not make a gift of either kind. But he did direct his trustees, to whom a large general fund is given, to pay over to that beneficiary annually or oftener if permitted by “business convenience . . . the income, as nearly as the said Trustees can conveniently reckon it” of $800,000. These words mean, in their context and in the light of conditions well known to the testator, that the net income of all the investments apportioned equally to the entire principal of the trust property with calculation of the resulting rate is to be taken as the income rate, and that rate computed on $800,000, but in no event to exceed $40,000, shall be paid annually to the World Peace Foundation.

This conclusion is not overcome by the abbreviated reference in clause eleven “to continue the payment of said sum of $40,000.00 to said World Peace Foundation.” These words are not used in defining the gift, but are a chance phrase alluding to that which elsewhere was accurately defined. The homestead estate is to be excluded in considering this aspect of the case. The life use of that property and the income of its proceeds in the event of its sale are given to the widow and it has not yet become a part of the trust fund.

3. The third request for instructions is: “Whether in the reckoning of the income payable to the World Peace Foundation under said will, proceeds of the sales of vacant real estate shall be treated as principal of the trust property, or whether the same shall be apportioned between principal and income.” The unproductive real estate is small compared with the total amount of the fund. The income meets all the requirements of the annuities and for the future appears likely to provide the maximum annual payment to the World Peace Foundation. Under these circumstances and in view of the terms of the gift to the World Peace Foundation it seems to accord more with what may be presumed to have been the intent of the testator to treat the entire proceeds of sales of real estate as principal, thus following Jordan v. Jordan, 192 Mass. 337, rather than to apportion the proceeds between income and principal according to the rule of Edwards v. Edwards, 183 Mass. 581, and of the numerous cases there reviewed.

4. The fourth question relates to the payment of premiums on the bonds of trustees. The payment of such expenses is expressly authorized. R. L. c. 150, § 15. These should be paid out of income and not out of principal. The ordinary expenses of administering a productive trust must be borne by the income, and the one here involved falls in the same class as insurance, taxes, interest on mortgage, repairs and other charges incidental to the management of the trust. Bridge v. Bridge, 146 Mass. 373, 376. Parker v. Ames, 121 Mass. 220. Ogden v. Allen, 225 Mass. 595, 597.

5. The next question relates to the payment of local annual taxes and of the inheritance taxes. It has been decided in Parkhurst v. Treasurer & Receiver General, post, 196, that the World Peace Foundation is a charity and hence not liable to an inheritance tax. That subject, therefore, is eliminated. If the investments of the trust fund are subject to annual taxes, these are to be paid as a part of the expenses of the trust and are to be deducted before the net income can be ascertained. Holmes v. Taber, 9 Allen, 246. Plympton v. Boston Dispensary, 106 Mass. 544, 547.

6. The sixth request for instructions is whether there shall be deducted from the several annuities the amount of Massachusetts inheritance taxes and other taxes assessed thereon. So far as concerns the inheritance tax of this Commonwealth the answer is found in St. 1912, c. 678, § 1, as amended by St. 1913, c. 498, which, referring to the inheritance tax, provides that “All taxes under this act shall be paid out of and chargeable to capital and not income, unless otherwise provided in a will ... or other instrument creating the grant or gift.” This modifies the rule established by Minot v. Winthrop, 162 Mass. 113, 126, that the inheritance tax under the statute then in force was payable out of the annuity. Manifestly there is no other provision in the instant will. As then there is no sequestration of any part of the general trust fund, but it is held as a unit, these taxes must be paid out of it as the capital fund. It is the only “capital” out of which such taxes can be paid. The other taxes assessed against the annuities are to be borne by and paid out of the annuities upon which they are levied. That is the general rule. Sohier v. Eldredge, 103 Mass. 345. There is nothing in this will which shows a determination that the annuities shall be paid in full free from all tax. The expression toward the end of article fifteen, clause fifteen, to the effect that if his estate is too small to meet all the benefactions of his will, “then I expressly provide that all the gifts and annuities provided in this Will, down to and including paragraph XV (9), shall be paid in full before any payment shall be made under paragraph XV (11) to the World Peace Foundation,” does not mean in its context and under all the circumstances that they are to be paid free of taxes. The contingency upon which those words were to become effective has not arisen. There is nothing in Brimblecom v. Haven, 12 Cush. 511, at variance with this conclusion.

To prevent misconception it should be added that the trustees cannot request instructions as to payments made by the executors for taxes or otherwise and allowed in their accounts. What has been said pertains only to present and future difficulties confronting the trustees in the performance of their duties.

7. The seventh request relates to deduction from income, capital or otherwise of the amount of taxes upon the interest of the World Peace Foundation under the will in property of the testator situated in the State of Minnesota “paid by the executors,and charged by said executors against capital of the estate, and no part thereof against income.” It does not appear that the trustees have paid or been asked to pay this tax. Having been paid by the executors, it was a proper subject for accounting by them. Already the executors have filed at least one account, which has been allowed. The fund out of which these taxes were payable is a matter to be settled on the account of the persons who rightly paid the taxes out of properties in their hands. The trustees have received simply the residue of the estate. Their responsibility begins and ends with the administration of that residue. It is not perceived that on the present record the trustees now have a right to request instructions upon this point. Hill v. Moors, 224 Mass. 163, and cases cited.

8. The next request for instruction has a double aspect. The first is whether the annuities are a charge upon both principal and income. That part of the question does not appear to be material in the present state of the trust. But it is apparent from the final sentence of article fifteen that in substance the testator intended that the annuities to his family should be preferred to all other legacies in case of a deficiency, and in case of necessity should be a charge upon both principal and income. The second aspect of this inquiry is whether a fund is to be erected for the support of the annuities. Many of the reasons stated in answering the first inquiry are equally pertinent and decisive as to this. It is the plain purpose of the testator that the entire trust fund treated as a unit is to support the payment of the annuities and that there is to be no division of it for the purpose of establishing separate funds. He thereby avoided a multiplication of the difficulties illustrated by Welch v. Hill, 218 Mass. 327.

9. The ninth request seeks instruction as to the duty of the trustees respecting the shares of Ginn and Company referred to in article fifteen, clause eight, to be kept available for the two sons of the testator. The framework of that clause in connection with the rest of the article does not disclose a fixed purpose on the part of the testator that these shares should be set apart and held separate and distinct from the rest of the fund. The administration of the trust fund as a single entity will enable the trustees to be in a position at all times during the effective life of this clause to comply with that part of the will if and when the conditions precedent arise which would call it into operation. The provisions of that clause are wholly contingent and there is no occasion for special activity respecting them until these contingencies shall come into existence. The reasons already stated lead to the conclusion that no separation of this part of the fund is required.

10. The tenth request relates also to clause eight for the benefit of the sons and has regard to the income which in a contingency may be payable to one or both of them. No facts are set out which make it a present obligation on the part of the trustees to put apart any income for this purpose. Hall v. Cogswell, 183 Mass. 521, 523. A broad discretion as to management of the trust is vested in the trustees and with that the court upon this record would not undertake to interfere. See Leverett v. Barnwell, 214 Mass. 105, 108, and Cummings v. Cummings, 146 Mass. 501.

11. The petitioners request instructions whether any amount is now payable to the World Peace Foundation from accumulated income in their possession, in order to bring the payments for each of the two years 1914 and 1915 up to $40,000. They already have paid to that institution “the income, as nearly as it could be reckoned” for those two years, “from that part of the total estate represented by the ratio of $800,000 to the whole estate, including all classes of property comprising the same, except the homestead.” As already has been pointed out, this is the extent of the gift under the will to the World Peace Foundation in this particular. There is no provision for making up a deficiency in one year out of the excess of another year.

12. The twelfth and thirteenth requests ask for instruction as to the disposition of the undistributed cash principal now in their hands, amounting to about $110,000. The answer depends upon the meaning of article fifteen, clause thirteen, as modified by the codicil. Its material terms are, “If and when (after the payment of the foregoing gifts and legacies and the reserve of sufficient trust funds to provide for outstanding annuities and other gifts of income, absolute and contingent), principal of my estate becomes available for distribution, I authorize and instruct my Trustees to make gifts and to dispose of such principal as follows:” Then ensue gifts of $10,000 each to Tufts College, Westbrook Seminary, and Ingleside Home, and one for $5,000 to Mrs. Plummer in “recognition of what she has for a long time been doing for the Ingleside Home, practically without compensation,” and the testator’s “belief that it is just and wise” that this sum originally intended for the Home itself “should go to her in recognition of and some sort of compensation for what she has done, is doing, and will probably continue to do for this institution.” A further contingent gift of $15,000 is made to the Home, payable within three years after the first. The aggregate of these gifts presently payable is $35,000 and the possible maximum of $50,000 is not a large sum when compared with the entire trust fund. Although nothing more appears respecting Mrs. Plummer than here stated, it is plain that the purpose of the testator was to give to her something to add to her enjoyment of life and not merely to constitute a fund for the benefit of her heirs or legatees. The testator was a graduate of Tufts College. .The crucial words of gift so far as concerns time are in effect that these legacies shall be payable only after there is an adequate reserve to support the payment of all annuities and gifts of income. The real question then is whether there is now such reserve. If these legacies all should be paid, the trust fund still would slightly exceed $2,000,000. Of this sum more than $200,000 consists of real estate which doubtless will be sold within a reasonable time and be added to the productive property of the fund. The annual income is more than $100,000 per year. A purchase of annuities out of the trust fund sufficient to meet the requirements of the will would leave in that fund more than the $800,000, whose income to the extent of $40,000 is demanded for the support of the World Peace Foundation. Under these and all the other circumstances appearing on the record, we are of opinion that the time has arrived for the payment of the legacies given by clause thirteen and that they should not longer be withheld.

It is the settled rule that “Interest is payable upon pecuniary legacies from the time when, by the terms of the will or by the rules of law, they become due and ought to be paid.” Kent v. Dunham, 106 Mass. 586, 590. These legacies are not payable at a fixed calendar date either by the will or by the law. They become due only upon the happening of the contingency that principal of the estate becomes available therefor after satisfying all prior legacies absolute and contingent. That event happened according to the present decision upon the facts here disclosed on April 11, 1916. It cannot be said to have occurred earlier than that date. The absolute legacies of $35,000, therefore, bear interest at the rate of four per cent per annum since that date. St. 1915, c. 151, §2.

13. The instruction to be given in reply to the fourteenth and fifteenth requests depends upon the point whether any part of the final residue of the estate is now payable under article fifteen, clause fourteen. That is a true residuary clause. While it well may be that, if there should be a considerable increase in the annual income of the fund as compared with the charges against it, a time may come for a single or several partial distributions of this residue, it cannot be said that such time has yet arrived. A large part-of the fund is bound up in the fortunes of a single business adventure, which apparently has been prosperous for many years. But it is plain, also, that the testator was solicitous that the support of his family and the World Peace Foundation should be as certain as human foresight could make it, and not subject to any vicissitudes. A good margin of safety should be preserved at all times in the principal of the fund, so that these beneficiaries may receive a constant income. Much must be left to the sound business judgment of the trustees in deciding upon a time when it will be safe to make a partial distribution of the residue and still retain enough to satisfy all the other requirements of the will with a fair margin of safety. It follows that the trustees should retain for the time being as a part of the capital of the fund the balance of the accumulated cash, whether of principal or income.

14. Instruction is requested whether the trustees have power to invest and reinvest the trust fund. It is plain that this power is conferred upon them by implication, although not in express terms. The testator knew and had in mind the fact that his investments could not always continue the same, as appears from several terms of the will. The active duty of securing income sufficient to meet the various obligations as to annuities and otherwise rests upon the trustees. By necessity they are clothed with the power and charged with the duty to invest and keep safely and productively invested the funds of this trust, in such property and securities as are recognized as appropriate for trust funds, or are authorized by the will. Jones v. Atchison, Topeka, & Santa Fe Railroad, 150 Mass. 304, 308. Smith v. Haynes, 202 Mass. 531, 535. Dickinson, appellant, 152 Mass. 184, 186.

15. The final request is for instruction as to the nature of the gifts to Marguerita Ginn and Edwin Ginn, children of the testator, under article fifteen, clause five. It is not necessary to recite this clause at length, because it is clear from its terms that the gift intended is for the life of each and for no less period. The power conferred upon the trustees to withhold payment ceases when each reaches the age of twenty-eight years. But the annuity continues during life so far as necessary, together with the income due each from the Beacon Trust, to make up an annuity of $4,000 for each.

Decree accordingly.

Case Details

Case Name: Parkhurst v. Ginn

Court Name: Massachusetts Supreme Judicial Court

Date Published: Sep 13, 1917

Citation: 228 Mass. 159

Court Abbreviation: Mass.