Source: http://masscases.com/cases/sjc/348/348mass345.html
Timestamp: 2019-04-18 18:17:37+00:00

Document:
BOSTON SAFE DEPOSIT AND TRUST COMPANY & another, trustees, vs. EDWARD H. STONE, 2ND, & others.
Present: WILKINS, C.J., CUTTER, KIRK, & REARDON, JJ.
PETITION for allowance of accounts filed in the Probate Court for the county of Middlesex.
Roger B. Coulter (William A. Cotter, Jr., with him) for Boston Safe Deposit and Trust Company & another, trustees.
Paul V. Power for Mildred Stone & another.
Robert D. Kilmarx, guardian ad litem, pro se.
Lloyd P. Smith for Edward H. Stone, 2nd.
CUTTER, J. The trustees filed their first, second, and third and final accounts as trustees under section (4) of the will of Edward H. Stone (the testator). The testator's grandson, Edward H. Stone, 2nd (Edward), objected to certain items. The probate judge allowed the first account as filed and the second and third accounts with modifications. The trustees, a guardian ad litem, and the testator's two daughters appealed. The evidence is reported. There is a report of material facts.
In 1953, Robert was succeeded as trustee by Boston Safe Deposit and Trust Company (the bank) and Mr. Joseph W. Worthen, as cotrustees. Shortly thereafter, Robert died. His son Edward survived him. When the testator's widow died in 1958, by the terms of the trust Edward became entitled [Note 3] to a one-ninth share of the trust principal (i.e. "such part of the principal . . . as in the opinion of my trustees shall be proportionate to . . . [his share] of current income").
The subsequent actions of the trustees are reflected in their three accounts. These facts are stated below in discussing Edward's objections to these accounts.
1. In making the distribution to Edward, the trustees determined the market value of the whole trust fund on October 16, 1959, to be $590,911.93. Edward's one-ninth share was $65,656.88. In their computations, the trustees fixed the value of the trust's 1,782 S. & F. shares at $110 per share. Schedules A-2 and B-1 of the second account show that securities and cash having a market value of $65,656.88 were set aside in a special fund for distribution to Edward. No S. & F. shares were included in this special fund.
Edward objected to the trustees' valuation of the S. & F. shares at $110 per share as of October 16, 1959. The probate judge determined that the S. & F. shares should have been valued at $236 per share, approximately eighty per cent of the then book value of each share. The judge apparently concluded that the testator desired Edward to take "a percentage of the book value of the shares of stock" rather than to receive his share based upon the trustees' "appraisal based upon the market value" of the shares. He ordered the accounts restated to substitute the figure of $236 a share for that of $110 a share.
The trustees' authority to distribute in cash or in kind (see section  of the will) has been established by the decree giving instructions. It does not appear now to be argued that the trustees acted improperly [Note 5] in paying Edward's one-ninth share in cash and property [Note 6] other than S. & F. shares, if they did so on a fair basis.
sales at that price of treasury shares to employees. In the absence of a reasonable volume of open market sales of such stock in a "close" corporation, other criteria, in addition to current prices, necessarily must be used in deciding what a ready, willing buyer under no compulsion to buy would pay a ready, willing seller under no compulsion. See, as to other types of property without an active market, Newton Girl Scout Council, Inc. v. Massachusetts Turnpike Authy. 335 Mass. 189 , 195. This type of problem is frequently encountered in appraising closely held securities for inheritance or estate tax purposes. See G. L. (Ter. Ed.) c. 65, Section 13; Rabkin & Johnson, Federal Income, Gift, and Estate Taxation, Section 52.11, especially subpars. (1), (2), (5), (7), and (10); Federal Estate Tax Regulations (1958), Section 20.2031-2; C.C.H. Fed. Estate and Gift Tax Reporter, par. 1202; annotation, 117 A.L.R. 143, 149-162. The valuation problem is in various respects analogous to that in a statutory appraisal of the type considered in Martignette v. Sagamore Mfg. Co. 340 Mass. 136 , 141.
The authority given by section (18) did not confer upon the trustees any discretionary power to vary the trust's dispositive provisions or to benefit in any way one beneficiary at the expense of another. Administrative trust provisions comparable to section (18) are ordinarily designed merely to simplify distribution and to make unnecessary requests for court instructions. Such a provision gives to trustees no discretion to shift beneficial interests in the trust assets such as exists under a fiduciary power to expend principal, upon the standards apparent from the trust instrument, for a life beneficiary (see Copp v. Worcester County Natl. Bank, 347 Mass. 548 ). Instead, such a provision, in respect of valuation, merely places upon the trustees the quasi-judicial duty of determining a fact, i.e. the fair market value of particular property at the time of its distribution. In the exercise of such a power, trustees must act with complete objectivity in attempting to distribute the trust assets as directed by the trust instrument.
each S. & F. share at the date of distribution was worth $110) was submitted by that firm, which acted through the head of its "analytical department . . . together with . . . their man in charge of the analysis of securities in such conditions as these." The record contains no evidence offered in behalf of Edward sufficient to sustain the burden resting upon him of supporting by proof his contention that the trustees' decision was not proper.
the probate judge erroneously, and without supporting evidence, substituted his judgment for that of the trustees.
Nothing in the will suggests to us that the testator intended that Edward should take a distributive share determined on any basis other than that he was entitled to receive, as his distributive share, money and property having in the aggregate, at the time of distribution, a fair market value equal to the dollar value of that distributive share. The references to book value of the S. & F. shares in the legacy to the testator's son Robert (fn. 1), in the option given to Robert to purchase S. & F. shares, and in the power to sell shares to corporate employees (fn. 2) do not show any intention that book value should control the distribution. The provisions of sections (14) and (18), which govern the distribution to Edward, contain no references to book value.
The accounts are to be stated on the basis of a value of $110 for each S. & F. share.
2. The probate judge disallowed a charge of $1,322.80 in the second account against Edward's distributive share for services of special counsel for the bank as trustee. In view of Edward's litigation against Mr. Worthen (fn. 4), it was a proper trust expense to provide the bank, as trustee, with separate counsel to help it make impartially important decisions with respect to the distribution of Edward's share. The evidence and certain findings indicate that Edward's actions had necessitated this expenditure.
reversed. The item is to be allowed, in any event, as a proper trust expense. It is to be charged solely against Edward's share if the probate judge finds that he was the principal cause of incurring the expense. Otherwise, the item is to be charged against the trust fund as a whole.
3. The probate judge modified the third account in respect of two items of $1,828.73 and $1,275,80 for legal services and disbursements, by Mr. Worthen and his counsel, respectively, in connection with Edward's petition for contempt (fn. 4), a separate petition by Edward for declaratory relief concerning the S. & F. shares, and other matters. These fees were allowed by the judge as trust expenses but were ordered charged to the trust fund as a whole. As to this action the trial judge said, "having in mind that the obligation of the fiduciaries is to file accounts . . . a benefit to all concerned, it would be unfair to Edward . . . that he should be charged with any more than his one-ninth share." No evidence justifies the conclusion that these services related to the trust's accounting. Instead, the evidence indicates that they were in connection with proceedings initiated by Edward. If the probate judge determines that unnecessary litigation by Edward was the principal cause of these expenses, they are to be charged wholly to his share. Otherwise, they shall be charged to the trust fund as a whole.
fund. The reserve should be retained until all claims by and against Edward are adjusted. See Barker v. Monks, 315 Mass. 620 , 629-630.
5. The decree is reversed. The case is remanded to the Probate Court for further proceedings consistent with this opinion.
[Note 1] By section (3), as amended by a codicil, Robert individually also was given a legacy of "such a number of shares . . . that eighty per cent . . . of the aggregate book value thereof, as shown on the books of the corporation at the end of its fiscal year, last preceding the date of my decease, shall be Thirty Thousand Dollars . . . provided, however, that if eighty per cent . . . of the aggregate book value of any number of whole shares shall not be exactly Thirty Thousand Dollars . . . then . . . the largest number of whole shares . . . of which eighty per cent . . . of said aggregate book value shall be less than Thirty Thousand Dollars."
[Note 2] Robert individually was also given an option to purchase S. & F. shares from the trust at eighty per cent of book value on conditions which need not be stated in detail. As trustee, he was given (a) power to sell S. & F. shares to employees of the corporation at book value, and (b) power to sell S. & F. shares to any person at any price with the consent of the testator's widow (if then living), of any cotrustee, and of all beneficiaries of full age then currently receiving income.
[Note 3] Edward was to receive his share of the trust fund whenever he should become entitled to receive income of the trust, "if he shall then have reached the age of twenty-five years." He was over that age at his grandmother's death.
[Note 4] The decree giving instructions was entered on June 18, 1959. On September 14, 1959, Edward withdrew his appeal from that decree. On that day Edward filed a petition that the trustees be adjudged in contempt for non-compliance with the decree. The petition for instructions had alleged, among other things, (1) that in 1955 Edward had been adjudicated an insane person and committed; (2) that a conservator of his property had been appointed and later discharged; and (3) that he had conducted from 1956 to 1958 an unsuccessful action at law (alleging conspiracy) against his mother, a doctor, and Mr. Worthen. The petition for contempt was dismissed without prejudice on March 1, 1962.
[Note 5] We thus need not consider whether the trustees were justified in distributing no S. & F. shares to Edward by the circumstances alleged in the petition for instructions (fn. 4) or by any other considerations possibly making it desirable to retain the trust's S. & F. shares in one ownership.
[Note 6] This other property appears to consist of securities of well known companies, either listed upon a securities exchange or having some over-the-counter market.
[Note 7] The trustees, of course, could have transferred to Edward one-ninth of the trust's S. & F. shares in kind. See, as to cash adjustments reflecting the fair market value of fractional units, Restatement 2d: Trusts, Section 347, comment i.
[Note 8] As Chief Judge Magruder indicated (at p. 641) in his dissent in State St. Trust Co. v. United States, 263 F. 2d 635, 640-642 (1st Cir.), a Massachusetts court of equity will "supervise the administration of . . . trusts so as to control any attempt to shift the incidence of their enjoyment." Even broadly expressed administrative and management powers (see p. 642) "are limited by standards which the Massachusetts court of equity could and would apply to supervise effectively . . . [proper trust] administration." We disagree with any suggestion to the contrary (at p. 639) in the majority opinion in that case, which unduly relies upon somewhat general language in Dumaine v. Dumaine, 301 Mass. 214 . A fair reading of the whole of most trust instruments will reveal a "judicially enforceable, external, and ascertainable standard" for the exercise of even broadly expressed fiduciary powers. See United States v. Powell, 307 F. 2d 821, 826 (10th Cir.).
[Note 9] The trustees offered in evidence the appraisal report of the independent firm of consultants, not "as to the truth of what the appraisal says, but . . . as evidence of . . . good faith in arriving at this conclusion . . . [and that Mr. Worthen] didn't act . . . other than . . . reasonably." The report, subject to the trustees' exceptions, was marked only for identification. It was admissible, even in the absence of direct testimony by the experts who prepared it, for the limited purpose of showing a document to which the trustees had access and which they had arranged to obtain. See Runels v. Lowell Sun Co. 318 Mass. 466 , 470-471; Edelstein v. Old Colony Trust Co. 336 Mass. 659 , 664-665.

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