Title: In the Matter of the Trust Under the Will of Fuller

State: massachusetts

Issuer: Massachusetts Supreme Court

Document:

418 Mass. 466 (1994)
636 N.E.2d 1333
IN THE MATTER OF THE TRUST UNDER THE WILL OF CAROLINE WELD FULLER.

Supreme Judicial Court of Massachusetts, Suffolk.
January 6, 1994.
July 26, 1994.
Present: WILKINS, ABRAMS, LYNCH, & O'CONNOR, JJ.
Richard C. Allen, Assistant Attorney General (Johanna Soris, Assistant Attorney General, with him) for the Attorney General.
Steven J. Howe, guardian ad litem.
Richard W. Renehan for Jerome Preston, Jr.
Erik Lund for James C. Fullerton.
*467 O'CONNOR, J.
Caroline Weld Fuller's will was allowed in 1931. The residue of her estate was left to named trustees and their successors, who were directed to "hold, manage and invest the same" and, after the death of all persons to whom the testatrix had given life estates, "to expend the entire net income of said trust property... for the establishment and maintenance of ... a small home in or near Boston or its suburbs to be known as the `Haven' for ... women." In addition, the testatrix gave "to said trustees, or to their successors in office for the time being under [the] will, the fullest discretion in establishing and maintaining economically such home ... and the making of rules and regulations by which the same shall be governed, and by which the admission of women thereto shall be determined, and the power to change such rules and regulations in the discretion of said trustees." The will also provided that "[i]f, in the opinion of [the] trustees for the time being, it would be advantageous to incorporate the trust hereby created for the purposes above named, said trustees may form and maintain such a corporation, but they shall not at any time or under any circumstances merge or combine said home or corporation with any other institution." The will also provided that successor trustees would be nominated by the surviving trustee and appointed by the Probate Court and would give bond with corporate surety. Hereinafter, we shall refer to the testamentary trust as the Fuller testamentary trust.
In 1933, the trustees incorporated the Fuller testamentary trust as Fuller Trust, Inc. The by-laws of Fuller Trust, Inc., provide that the members of the corporation shall be the trustees of the Fuller testamentary trust and any other persons elected by the trustees. The board of directors is to be composed of the two trustees and one to three other persons. By 1948 approximately $2,000,000 in assets of the Fuller testamentary trust had been transferred to Fuller Trust, Inc., leaving $389.02 in the Fuller testamentary trust. Trustees' accounts were allowed for the period ending November 15, 1948. Further accounts were filed for the period from November 16, 1948, to May, 1961. Those accounts have not *468 been allowed. No accounts were thereafter filed until September 16, 1992, when, pursuant to court order, the trustees filed a final account for the Fuller testamentary trust from May 29, 1961, to August 17, 1979. That account showed a zero balance.
By April 5, 1979, Jerome Preston and James Fullerton had been appointed successor trustees of the Fuller testamentary trust. Each qualified by posting a surety company bond in the amount of $2,000. Fuller Trust, Inc., was managed by a board of directors controlled by Preston and Fullerton as trustees of the Fuller testamentary trust. Preston and Fullerton are also members, directors, and officers of Fuller Trust, Inc. Fuller Trust, Inc., established the Fuller Home, consisting of two residence houses with a capacity for twenty-two elderly residents located on approximately thirty acres of land in Milton. On February 8, 1988, a single justice of this court authorized Preston and Fullerton, as testamentary trustees, to deviate from the terms of the Fuller testamentary trust in order to build and operate a continuing care facility at the Fuller Home and to use both income and principal of the Fuller testamentary trust and Fuller Trust, Inc., for that purpose. Then, in 1989, Preston and Fullerton, trustees, established another not-for-profit corporation, Fuller Village, Inc., to implement the authorization granted by the single justice. Preston and Fullerton were the directors and officers of Fuller Village, Inc.
On August 6, 1992, Preston resigned as cotrustee of the Fuller testamentary trust, as a member, director and treasurer of Fuller Trust, Inc., and director and treasurer of Fuller Village, Inc. Preston's resignation as trustee was accepted by the court. Twelve days later, on August 18, the Attorney General filed a complaint in the Probate and Family Court seeking the appointment of a temporary receiver "to conserve the assets and otherwise manage the affairs of the charitable trust established by the will of Caroline Weld Fuller." The complaint made the following relevant allegations: "The purpose of the Fuller Trust is to provide housing for the elderly. The charitable purpose of the Fuller Trust is *469 carried out by two corporations, the Fuller Trust, Inc., and the Fuller Village, Inc. James C. Fullerton, the sole remaining trustee of the Fuller Trust, who is also the sole remaining board member of the Fuller Trust, Inc., and the Fuller Village, Inc., is tendering his resignations forthwith, and assents to the relief sought by the Attorney General in this Complaint. On August 6, 1992, this Court accepted the resignation of the other trustee of the Fuller Trust [Preston], who also resigned from all his positions with the Fuller Trust, Inc., and the Fuller Village, Inc. The Attorney General seeks the appointment of a Temporary Receiver to manage the charitable corporations pending the appointment of successor trustees."
On August 20, 1992, a judge of the Probate and Family Court conducted a hearing on the Attorney General's complaint seeking the appointment of a temporary receiver. At the hearing, the judge reports, "the Assistant Attorney General represented to the Court that the value of the charitable corporations had diminished from approximately 4.5 million dollars in 1989 to only $250,000.00 in 1992 and that the Attorney General wanted to have the remaining trustee's resignation accepted forthwith, as part of a settlement, pending nomination to the Court of suitable successors. Accordingly, the Attorney General requested the Court to appoint a temporary Receiver to conserve and manage assets of the charitable corporations. This reported diminution in value is not reflected in any pleadings. It was disclosed after the Court made inquiry of the value of assets in the charitable corporations in order to set the amount of the Receiver's bond."[1] On August 20, the judge accepted Fullerton's resignation as trustee of the Fuller testamentary trust subject, however, to an order that the trustees, Preston and Fullerton, file an account of the trust. Fullerton also resigned as president, member, *470 and director of Fuller Trust, Inc., and as president and director of Fuller Village, Inc. Presently, there are no trustees of the Fuller testamentary trust and no officers or directors of the two charitable corporations. Also, on August 20, the judge appointed the Attorney General's nominee as receiver, on his posting a surety company bond of $100,000, and directed him, among other things, to take charge of the assets of Fuller Trust, Inc., and Fuller Village, Inc., and file an inventory and report.
On September 16, 1992, pursuant to the judge's order, the trustees filed a final account for the Fuller testamentary trust covering May 29, 1961, to August 17, 1979, which, as we have noted above, showed a zero balance. The receiver also filed his report on September 16. He informed the court that, on September 11, 1992, the liquid assets of Fuller Trust, Inc., and Fuller Village, Inc., totalled $852,647, of which $500,000 represented payments by the resigned trustees "presumably," the judge's memorandum states, "pursuant to the undisclosed terms of the settlement" to which the assistant attorney general had referred on August 20. The receiver also reported that the two corporations owned personal property valued at $205,000 and thirty acres of land containing four structures of undetermined value. The receiver also reported that, in the three years preceding his report, the two corporations had incurred $3,700,000 in development expenditures in a failed attempt to establish the continuing care facility. In addition, $87,000 in accounts payable remained outstanding.
The judge denied the Attorney General's motion to discharge the receiver and she ordered the receiver to review the expenditures of Fuller Village, Inc., and report to the court. The judge also denied the Attorney General's request that she appoint successor trustees of the Fuller testamentary trust. In that connection, and for reasons carefully articulated in her accompanying memorandum to which we have referred in note 1, supra, the judge reserved and reported the case to the Appeals Court. In her reservation and report, the *471 judge asks the following six questions:
The Attorney General moved for reconsideration of the decision to reserve and report the case. After the receiver filed his third report, which was critical of the trustees' performance, the judge concluded that "there are issues as to: [w]hether [the] Trustees acted in accordance with [the] appropriate standard of care and fiduciary principles; [w]hether there should be continued development of [the] project as planned and what other options are available; [w]hether, considering the magnitude of [the] financial diminution in Trust assets, a settlement of $500,000.00 is adequate and reasonable; [and] [w]hether Receivership expenses should be charged against Trust assets or [the] former Trustees." The judge concluded that the Probate and Family Court "has an independent obligation to review these matters [and] to protect the funds in the [Fuller testamentary trust], which have been significantly diminished while under [the] management of [the] resigned Trustees." The judge ordered that the order for reservation and report be stayed, and that Attorney Stephen W. Howe be appointed guardian ad litem "to review and report to [the] Court on the adequacy of the settlement and with authority to represent the Estate at any hearing on the merits of the settlement and any hearing on the Receiver's report."
The guardian ad litem filed two reports as a result of which the judge filed a new memorandum and order stating *473 in relevant part the following:
The judge continued:
"Therefore, it is ordered:
Thus, the reservation and report, as amended, presents a total of seven questions. We then granted the trustees' application for direct appellate review.
As the judge said, "For the reasons set forth in [her] Reservation and Report, [she] believes [the Probate and Family Court] has jurisdiction and ... should consider the issues raised by the Guardian-ad-litem at a hearing." We return, *475 then, to the memorandum and order of reservation and report for a recitation of the very sound reasons given by the judge for her conclusion that the Probate and Family Court has jurisdiction to consider the issues raised by the guardian ad litem after a hearing. The judge reasoned as follows:
We turn now to brief summaries of the positions taken by the guardian ad litem, the Attorney General, and Preston and Fullerton, the former trustees. The guardian ad litem asserts that the trustees should be required to file with the Probate and Family Court the same reports that they have filed with the Attorney General since 1948 relative to Fuller Trust, Inc., and Fuller Village, Inc., that the court should not be bound by the Attorney General's acceptance of the reports filed with him nor by the Attorney General's settlement with the trustees, and that the Probate and Family Court "should have the authority to require the resigned trustees to furnish such additional accounting as it deems appropriate." Finally, the guardian ad litem concludes that the Probate and Family Court should appoint successor trustees and that the successor trustees should be required to "file surety company bonds in such amount as the Probate and Family Court deems sufficient."
In his brief filed with this court, the Attorney General concludes as follows:
The resigned trustees essentially assert a two-fold position; that the Probate and Family Court is bound by the Attorney General's settlement because the Attorney General's authority is exclusive in protecting the public interest in charitable funds, and that, in any event, there is no authority in the Probate and Family Court, derived from G.L.c. 206, § 1, or any other source, to compel the trustees to account for their activities as corporate directors of Fuller Trust, Inc., or Fuller Village, Inc. The trustees also contend that the Probate and Family Court should appoint successor trustees of the Fuller testamentary trust forthwith because, in the absence of successor trustees, Fuller Trust, Inc., and Fuller Village, Inc., cannot function.
For the reasons convincingly stated by the judge we agree with her view that, despite the settlement between the Attorney General and the Fuller testamentary trustees, the Probate and Family Court has jurisdiction to require the trustees, who were appointed by that court to carry out the testatrix's directives, to account to the court for their stewardship of the trust assets until their resignation, including the assets transferred to and held by Fuller Trust, Inc., and Fuller Village, Inc. General Laws c. 206, § 1, provides in relevant part that "a trustee required by law to give bond to a judge of probate [] shall render an account relative to the estate in his hands at least once a year and at such other times as shall be required by the court, until his trust is fulfilled." Caroline Weld Fuller's will directed that named trustees and their successors, such as Preston and Fullerton, should hold, manage, and invest the residue of her estate and, after the termination of certain life estates, to expend *483 the income for the establishment and the maintenance of a home for women. The will also provides that "[i]f, in the opinion of [the] trustees ... it would be advantageous to incorporate the trust ... for the purposes ... named," the trustees, including successor trustees, would be authorized to form and maintain such a corporation. Pursuant to that authorization, the trustees formed and maintained Fuller Trust, Inc., and Fuller Village, Inc., in order to realize a perceived advantage in having corporate entities facilitate and promote the trustees' ongoing administration of the Fuller testamentary trust. Respect for the testatrix's clear intent that there should be continued court supervision of her estate through the successive appointment and monitoring of properly bonded trustees leads us to conclude that, in this case, the transfer of funds to the trustees' corporate agents, controlled by the trustees, to advance the trustees' task, but without completing it, did not result in the trust assets being separated from the trust for purposes of G.L.c. 206, § 1.
Within the fair meaning of the language of that statute, the trust assets after transfer to the corporations continued to constitute "estate in [the trustees'] hands" and, therefore, accounting to the court concerning those assets is required, as the statute provides, until the "trust [managed by the trustees through the corporations] is fulfilled." If, as the trustees argue, the appointment of successor trustees is critical to the ability of the corporations to function, and the corporations' ability to function is critical to the fulfillment of the testatrix's design, the corporations must be considered in the context of this case as the alter ego of the trustees. Accounting for all the trust assets, including those held by Fuller Trust, Inc., and Fuller Village, Inc., is required, and the Probate and Family Court has jurisdiction to hold the trustees accountable despite their settlement with the Attorney General. Although the Probate and Family Court may conclude that the intended beneficiaries of the Fuller testamentary trust would be better served by a decision not to seek further payments from the trustees, as the Attorney General suggests may be the case, only the Attorney General *484  not the Probate and Family Court  is bound by the Attorney General's settlement.
We are confident that, in enacting G.L.c. 12, § 8 (1992 ed.), providing that "[t]he attorney general shall enforce the due application of funds given or appropriated to public charities within the commonwealth and prevent breaches of trust in the administration thereof," the Legislature did not intend effectively to deprive the Probate and Family Court of the traditional supervisory control, codified at G.L.c. 206, § 1, over trustees it has appointed, whenever, as here, the trustees have transferred the trust assets to a corporation for tax or other practical reasons beneficial to the trust and in furtherance of it. Thus, there is no constitutional impediment to the result we reach. Neither Brigham v. Peter Bent Brigham Hosp., 134 F. 513 (1st Cir.1904), Ames v. Attorney Gen., 332 Mass. 246 (1955), nor Lopez v. Medford Community Ctr., Inc., 384 Mass. 163 (1981), relied on by the trustees, is inconsistent with our holding. To the extent that this court's decision in Attorney Gen. v. Olson, 346 Mass. 190 (1963), would require a different result, we do not follow it.
We answer the questions contained in the reservation and report as follows:
1. "No."
2. "Yes."
3. "Not applicable."
4. "Yes, the Probate and Family Court is required to fill the vacancies. The trustees will have a duty to account to the court for the assets contained in the testamentary trust and the corporations."
5. "Yes."
6. "Not applicable."
7. "The Probate and Family Court is not bound by any settlement agreed to by the trustees and the Attorney General. The judge may independently determine the fairness and reasonableness of the settlement, may compel further accounting, and may consider further financial recovery from the trustees. However, the court should consider further financial recovery from the trustees only if, after consideration *485 of potential defenses and of the potential costs to the charity and risks to the viability of the intended charitable purpose, the judge concludes that further litigation, should it be necessary, will be likely to produce a recovery sufficiently above the $500,000 obtained by the Attorney General to render such further litigation appropriate to the furtherance of the charitable purpose."
[1]  The judge's quoted statement is contained in a full and detailed memorandum entitled "Reservation and Report on Attorney General's Motion to Discharge Receiver and Petition to Appoint Successor Trustees." Our recitation of the procedural history and facts of this case are taken almost entirely from that memorandum.