Case Name: DONOVAN v. NATIONAL BANK OF DETROIT
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1971-04-06
Citations: 384 Mich. 595
Docket Number: Docket No. 52,741
Parties: DONOVAN v. NATIONAL BANK OF DETROIT
Judges: Adams and T. G. Kavanagh, JJ., concurred with T. E. Brennan, J.
Reporter: Michigan Reports
Volume: 384
Pages: 595–607

Head Matter:
DONOVAN v. NATIONAL BANK OF DETROIT
Opinion of the Court
1. Trusts — Wills—Taxes—Expenses—Principal and Income.
Conclusion that a testatrix intended some taxes and some expenses to be deducted from income does not negative the possibility that other taxes and other expenses were intended to be charged to principal.
2. Trusts — Principal and Income Act.
Trust instrument did not contain a clear expression of contrary intent such as to remove the trust from the operation of the Revised Uniform Principal and Income Act (MOLA § 555.51 et seq.).
3. Trusts — Administration—Expenses—Principal and Income.
Generally, courts have directed that the ordinary expenses of the administration of a trust be charged against income, and extraordinary expenses which benefit the remainderman be charged against the principal.
4. Trusts — Principal and Income Act — Equity—Vested Rights.
The Revised Uniform Principal and Income Act did not abrogate Michigan equity jurisprudence, nor did it oust any Michigan beneficiary from vested rights.
References for Points in Headnotes
[1-3, 5, 6, 9] 54 Am Jur, Trusts §§ 98, 346, 355 et seq.
[1-6, 9] Constitutionality of retrospective application of Uniform Principal and Income Act or other statutes relating to ascertainment of principal and income and apportionment of receipts and expenses among life tenants and remaindermen, 69 ALR2d 1137.
54 Am Jur, Trusts § 102.
54 Am Jur, Trusts § 356. Allocation between income and principal of “capital gains” dividend of mutual fund or investment trust or corporation, 98 ALR2d 511.
57 Am Jur, Wills § 9.
Admissibility of extrinsic evidence upon issue of testamentary intent, 21 ALR2d 319.
5. Trusts — Taxes and Expenses — Administration—Principal
and Income Act.
Taxes and expenses of administration of a trust should be apportioned between income and principal in accordance with the specific provisions of the Bevised Uniform Principal and Income Act as most nearly effectuating the presumed intent of the settlor and at the same time making convenient and reasonably certain the administration of trusts in Michigan (MCLA § 555.51 et seq.).
Dissenting Opinion Black, J.
6. Trusts — Taxes and Expenses — Income—Principal—Principal and Income Act.
Codicil to a will directing the trustee named therein to (1) “collect the income from, the property comprising the trust estate”, (2) pay all taxes and incidental expenses of the trust, and (S) remit the net income derived therefrom to a beneficiary clearly directed the trustee to pay all taxes and mentioned expenses from the income and it follows that the terms of The Mevised Uniform Principal and Income Act do not apply as the provisions in the codicil are contrary to the provisions of that act (MCLA §§555.52, 555.6S).
7. Trusts — Capital Gains — Taxation—Corpus—Income.
The assessment against a capital gain on a sale at a profit of trust assets, even though it be called a tax, amounts, in reality, to a deduction from that gain in the amount of the governmental exaction and would come out of corpus of the trust assets and not out of income'.
8. Wills — Construction—Intent—Time—Statutes.
A testator’s intent is what the words employed in his will meant at the time of his death and it is not competent for the legislature to change his will in that respect by statutory amendment adopted after his death.
9. Wills — Trusts—Vested Bights — Principal and Income— Statutes.
A statute enacted after the death of a testatrix could not in any way change or affect a substantive right of remainder-men under her will and codicil which vested at the time of her death, namely, to have charges for taxes and incidental expenses of a trust created in the will and codicil made against income, not the principal.
Appeal from Court of Appeals, Division 1, Lesinski, C.- J., and J. H. Grillis and Danhof, JJ., affirming Wayne, John M. Wise, J.
Submitted November 10, 1970.
(No. 23 October Term 1970,
Docket No. 52,741.)
Decided April 6,1971.
20 Mich App 485 affirmed.
Complaint by Russell H. Donovan against National Bank of Detroit, trustee, and Margaret Morang, and others, remaindermen, for a declaratory judgment that the taxes and incidental expenses of a trust must be apportioned between the trust income and principal. Declaratory judgment for plaintiff. Defendants Margaret Morang and others appealed to the Court of Appeals. Affirmed. Defendants Margaret Morang and others appeal.
Affirmed.
McClintock, Fulton, Donovan & Waterman (by Frederic W. Heller), for plaintiff.
Dickinson, Wright, McKean <& Gudlip (by Douglas D. Roche), for defendant National Bank of Detroit.
Riseman, Lemke $ Piotrowski, for defendants Margaret Morang, Judith H. Morang, and Margaret M. Wonser.

Opinion:
T. E. Brennan, J.
I cannot agree with our distinguished brother and former colleague.
He holds that the language of the codicil was clear and unambiguous. Then he cites Industrial Trust Company v. Winslow (1938), 60 RI 61 (197 A 185), and United States Trust Company of New York v. Jones (1953), 414 Ill 265 (111 NE2d 144), for the proposition that the words "all taxes", though clear. and unambiguous, do not include capital gains taxes because the result of such an interpretation would be "incongruous."
The language used by the settlors in both the Winslow and Jones cases was stronger than the phrase "all taxes" used by the testatrix in this litigation, yet in both of those cases, the courts held the language to be ambiguous, and looked for other indicia in the trust instruments to determine the settlor's intent.
It cannot be of much guidance to trustees for this Court to hold that the phrase "all taxes" clearly and unambiguously includes some taxes and clearly and unambiguously excludes others.
Nor is my brother's characterization of a capital gains tax as a "governmental exaction" a useful device for distinguishing between includable and excludable taxes. In the Jones case, the settlor used the term "other governmental charges." Still, the court there held the capital gains tax excluded.
Appellees argue that the will is silent on the fund out of which the trustee is directed to pay taxes and expenses. Appellant points out that the direction to pay taxes and expenses is inserted between the direction to collect income and the command to pay net income; and claims that this positioning of the tax and expense directive evidences an intent that these things be paid ont of gross income, and that their payment will leave net income to be distributed.
Appellant's position has some merit. Certainly plaintiff would not claim that he is entitled to a distribution of gross income, with no expenses deducted therefrom.
But the conclusion that the testatrix intended some taxes and some expenses to be deducted from income does not negative the possibility that other taxes and other expenses were intended to be charged to principal.
The real difficulty is that we are not so much trying to find the testatrix's actual intent, as we are trying to opine as to what the testatrix's intent would have been had she ever thought about the problem.
The commissioners on Uniform State Laws have stated the problem in their prefatory note to the 1962 act, adopted by Michigan in 1965:
"Request for revision of the old Act came from several sources, particularly from trustees who found it difficult to administer trusts under the older Act due to the development of new forms of investment property for trustees. This new development was especially true in the field of corporate distributions and also in the holding of mineral resources as a trust investment. The revised Act provides as did the original Act that the settlor's intent is the guiding principle which should control the disposition of all receipts. But settlors have not always foreseen the multitude of problems which may have to be faced and even draftsmen have found it difficult to foresee all the possible hinds of receipts and disbursements. It is important, therefore, to set forth some clear and uniform standards to as sist those to whom the power of decision has been committed, that is, the trustees, and this Act attempts to provide these standards." (Emphasis added.)
The commissioners concluded:
"The Act, therefore, sets forth simple and workable rules of administration which are believed to be consistent with the wishes of settlors upon the subject treated unless the settlor specifically provides for a different treatment in his own trust instrument." (Emphasis added.) Vol 9B TILA 569-571.
I conclude that the language in the trust instrument here involved does not contain a clear expression of contrary intent, such as to remove this trust from the operation of the Uniform Act.
RETROACTIVITY
My brother has concluded his opinion with language suggesting that the appellants here were possessed of some vested right as of the date of the testatrix's death, which right cannot be taken away by the subsequently adopted Uniform Act.
Such reasoning begs the question. If it be true that the trust is ambiguous upon the question of apportionment, then it was ambiguous on the date of the testatrix's death.
Prior to the adoption of the Revised Uniform Principal and Income Act, there was no appellate decision in Michigan establishing any general rule with respect to the apportionment of taxes and expenses as between principal and income accounts.
ALR Annotations dealing with compensation of trustees, 117 ALR 1154; attorney fees and court costs, 124 ALR 1183; taxes, 17 ALR 1384, 94 ALR 311; repairs, 101 ALR 681; insurance, 47 ALR 519, are helpful, but demonstrate two major propositions :
(1) That the intention of the settlor, while theoretically controlling is rarely so clearly expressed as to be dispositive,
(2) Courts of equity have jurisdiction to determine the apportionment of expenses as the equities may appear.
Generally, courts which have considered particular expenses and expenditures have directed that the ordinary expenses of the administration of a trust be charged against income, and extraordinary expenses which benefit the remainderman be charged against the principal.
Since Michigan had no ease law on the subject, prior to the adoption of the Uniform Act, it cannot be said that the Uniform Act abrogated our equity jurisprudence; nor ousted any Michigan beneficiary from vested rights.
Being free as chancellors to adopt for Michigan that view which most nearly effectuates the 'presumed intent of the settlor, and which at the same time, makes convenient and reasonably certain the administration of trusts in our state, we should hold in this case that taxes and expenses of the administration of the instant trust be apportioned between income and principal in accordance with the specific provisions of Act 340, PA 1965.
Adams and T. G. Kavanagh, JJ., concurred with T. E. Brennan, J.
T. M. Kavanagh, C. J., concurred in the result.
" 'Article Sixth. Out of the income of the principal of the trust estate the Trustee shall pay all taxes, assessments or other governmental charges which it may be required to pay or to retain because or in respect of any part of the principal of the trust estate or the income therefrom or the interest of the Trustee therein or the interest of any beneficiary or other person therein, under any present or future law of the United States, or of any state, county, municipality, or other taxing authority therein, any and all such taxes, assessments or other governmental charges lawfully imposed being charged as a lien upon the said income, and in the case of deficiency of said income upon the principal of the trust estate.' " United States Trust New York v. 267.
" ' and to pay from said income all taxes, assessments, ordinary and extraordinary, and other expenses and charges incident to the care, management and protection of said trust estate, including a reasonable compensation to said trustees.' " Industrial Trust Company v. Winslow, supra, p 65.