Case Name: In the Matter of the Accounting of Oswald W. Knauth et al., as Trustees of the Trusts for the Benefit of Oliver D. Knauth, Established by Anna D. Knauth and Oswald W. Knauth. Agnes W. Martin, as Executrix of George W. Martin, Deceased, et al., Respondents; Oliver D. Knauth, Appellant
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1963-02-28
Citations: 12 N.Y.2d 259
Docket Number: 
Parties: In the Matter of the Accounting of Oswald W. Knauth et al., as Trustees of the Trusts for the Benefit of Oliver D. Knauth, Established by Anna D. Knauth and Oswald W. Knauth. Agnes W. Martin, as Executrix of George W. Martin, Deceased, et al., Respondents; Oliver D. Knauth, Appellant.
Judges: 
Reporter: New York Reports
Volume: 12
Pages: 259–268

Head Matter:
In the Matter of the Accounting of Oswald W. Knauth et al., as Trustees of the Trusts for the Benefit of Oliver D. Knauth, Established by Anna D. Knauth and Oswald W. Knauth. Agnes W. Martin, as Executrix of George W. Martin, Deceased, et al., Respondents; Oliver D. Knauth, Appellant.
Argued January 14, 1963;
decided February 28, 1963.
Arnold Davis for appellant.
I. It was contrary to the expressed intent of the 1931 trust agreement to permit the beneficiary thereof to make a valid assignment of the future income of the trust. The Referee erred in having held that an assignment of the future income of the 1931 trust from appellant to his then wife was irrevocable. (Matter of Cramer, 166 Misc. 713; Matter of Renn, 177 Misc. 195; Matter of Wentworth, 230 N. Y. 176; Metcalfe v. Union Trust Co., 181 N. Y. 39; Matter of Morgan, 223 Pa. 228. ) II. The clear intention of the settlor was to place the income and principal of the trust beyond the reach of any wife which appellant might have. (Matter of Waring, 275 N. Y. 6; Trowbridge v. First-Stamford Nat. Bank & Trust Co., 182 Misc. 180, 286 App. Div. 768, 294 N. Y. 785; Matter of Lake, 170 Misc. 840; Rogers v. Rogers, 174 Misc. 841, 262 App. Div. 798.) III. Appellant could not irrevocably assign the future income of the trust to anyone, including his wife. (Matter of Dieudonne, 186 Misc. 642; Matter of Oakley, 116 Misc. 494, 207 App. Div. 811; Matter of Goldman, 142 Misc. 790; Matter of Barnett, 21 Misc 2d 196.) IV. The assignment at bar does not fall into any recognized exception to the rule against the assign-ability of future income by the beneficiary of a spendthrift trust. (Thompson v. Thompson, 52 Hun 456; Wetmore v. Wetmore, 79 Hun 268, 149 N. Y. 520; Moore v. Moore, 143 App. Div. 428, 208 N. Y. 97; Hoagland v. Leask, 154 App. Div. 101, 214 N. Y. 645; Matter of Yard, 116 Misc. 19; Matter of Littauer, 285 App. Div. 95; Matter of Newman, 17 Misc 2d 578; Wetmore v. Wetmore, 162 N. Y. 503; Bertles v. Nunan, 92 N. Y. 152; Phillips v. Phillips, 1 A D 2d 393; People v. Morton, 284 App. Div. 413, 308 N. Y. 96.) V. The Referee violated the settlor’s intention in holding that the assignment was valid and sufficient to restrict appellant’s interest in the trust to no more than the right to receive $100 monthly from the income thereof. (Matter of Tompkins, 28 Misc. 351; Metcalfe v. Union Trust Co., 181 N. Y. 39.) VI. The Referee permitted an assignment of future income of a spendthrift trust in violation of the provisions of section 15 of the Personal Property Law.
Frederick M. Schlater for Mary P. Knauth, respondent.
The assignment of income to Mary P. Knauth was irrevocable, conclusive and binding upon Oliver D. Knauth. (Wetmore v. Wetmore, 79 Hun 268, 149 N. Y. 520; Thompson v. Thompson, 52 Hun 456; Matter of Yard, 116 Misc. 19; Borax v. Borax, 4 N Y 2d 113; Nichols v. Nichols, 306 N. Y. 490; Matter of Newman, 17 Misc 2d 578; Matter of Bellamore, 27 Misc 2d 118; Matter of Littauer, 285 App. Div. 95; Tolles v. Wood, 99 N. Y. 616; Williams v. Thorn, 70 N. Y. 270; Fox v. Fox, 276 App. Div. 859; Matter of Sand v. Beach, 270 N. Y. 281; Matter of Jackson v. Jackson, 194 Misc. 134; Weigold v. Weigold, 236 App. Div. 126.)
Ralph F. Kane, guardian ad litem for Anne W. Knauth and another, infants, respondents.
I. The prohibition against assignments of trust income, contained in section 15 of the Personal Property Law, and in section 103 of the Real Property Law, does not apply to assignments made by the income beneficiary to his own wife, for the support of the wife or for the support of the wife and the children of the marriage. (Wetmore v. Wetmore, 149 N. Y. 520; Wetmore v. Wetmore, 162 N. Y. 503; Matter of Yard, 116 Misc. 19; Matter of Littauer, 285 App. Div. 95; Matter of Bellamore, 27 Misc 2d 118; Matter of Randolph, 159 Misc. 688; Thompson v. Thompson, 52 Hun 456; Hoagland v. Leask, 154 App. Div. 101, 214 N. Y. 645; Moore v. Moore, 143 App. Div. 428, 208 N. Y. 97.) II. Appellant’s contention — that the cases upholding assignments of trust income to the beneficiary’s wife are based upon the unity of husband and wife and are therefore no longer law because such unity no longer exists — is without merit. Also without merit is appellant’s attempt to limit the validity of assignments to a wife to eases involving alimony decrees or separation agreements. (Matter of Littauer, 285 App. Div. 95; Matter of Randolph, 159 Misc. 688.) III. The claim, that the assignment was contrary to the expressed intent of the 1931 trust agreement and that any assignment made by Oliver D. Knauth was revocable at will, is without merit. IV. The bills unsuccessfully introduced in the Legislature impliedly recognized that assignments to the wife or children of the trust beneficiary were valid. V. Even if it be assumed that an assignment of trust income to the wife of the beneficiary is valid only as long as it continues to be fair to the beneficiary, the assignment here involved is valid for the Referee has found that it was fair when made and that it has continued to be fair —indeed that Oliver D. Knauth is now better off than Mary P. Knauth. VI. Regardless of whether the assignment is valid, either irrevocably or only as long as it continues to be fair to the assignor, the Referee properly denied Oliver D. Knauth’s application for a reapportionment of the trust income, on the basis of his finding that the amount which is being paid to Mary P. Knauth under the assignment is fair and reasonable to Oliver, whose financial circumstances are better than Mary’s. VII. Having been unsuccessful upon all the factual issues which brought about the reference, appellant is in no position to contend that the award of the costs thereof to respondents was improper.

Opinion:
Fuld, J.
In 1931 Anna Knauth created an inter vivos trust for the benefit of her son Oliver. It was provided that he was to receive the entire net income from the trust for his life and that both principal and income were to be " free and clear from the control of [his] debts, liabilities and engagements ' '. In 1938, when he was 26 years old, Oliver married Mary Pickett, and they had two daughters. In 1946 Mary left her husband, taking the children with her, and in February, 1947 she instituted a suit for divorce in Connecticut.
About six months later, while the divorce action was pending, husband and wife entered into a written contract. After reciting that they had separated and desired '1 to have their financial relationship so adjusted that the wife shall have an income of her own without being under the necessity of depending upon the husband for her support and the support of the children, who live with her ", the agreement went on to state that the husband was making an " irrevocable assignment " to the wife of all of the income from the trust in excess of $100 a month, to be "in full of the husband's duty to support her and the children so long as the said trust income is the whole of the income of the husband." A copy of the agreement was delivered to the trustees and they have been paying the income of the trust in accordance with its provisions.
The Connecticut divorce action, in which Oliver had appeared, terminated in the Fall of 1948 with a decree in Mary's favor. She was given custody of both daughters and was awarded alimony of $1 a month. Obviously, as found below, the amount was fixed at this nominal figure because the husband had already provided for the support of his wife and children by the assignment he had made of trust income.
The present proceeding was brought by the trustees for a settlement of their accounts and for other relief, including a determination as to the legal effect of the assignment of trust income to Mary. In his answer, the husband, contending that the assignment violated both the expressed intent of the creator of the trust and the laws of New York, requested a declaration that the agreement is void insofar as it seeks to assign trust income. The Referee, appointed by the court at Special Term to hear and determine the issues, rejected this contention and held the agreement valid. The Appellate Division, agreeing, affirmed the resulting order, with a modification not here pertinent, and the husband appeals to this court as of right.
In this State, the restrictions on the income beneficiary's right to alienate his interest in the trust are purely statutory. (See Bramhall v. Ferris, 14 N. Y. 41, 44; Dyett v. Central Trust Co., 140 N. Y. 54, 65—66; see, also, Griswold, Spendthrift Trusts [2d ed.], § 67.) The applicable statute in the case before us, section 15 of the Personal Property Law, provides that " The right of the beneficiary to enforce the performance of a trust to receive the income of personal property, and to apply it to the use of any person, can not be transferred by assignment or otherwise." (See, also, Real Property Law, § 103.) Absolute though the prohibition is on its face, there is no doubt that it is subject to qualification. When read in connection with related statutory provisions (Real Property Law, § 98; Civ. Prae. Act, § 793), it is clear that the rule prohibiting the transfer of income from a spendthrift trust is designed to protect the beneficiary against his own improvidence so that such income may be preserved not only for his support but for that of his family as well. (See, e.g., Wetmore v. Wetmore, 149 N. Y. 520; Matter of Sand v. Beach, 270 N. Y. 281, 285-286.) And, it follows from this, an assignment of trust income for the support of wife and children, far from violating the policy or the spirit of the rule, actually tends to effect its purpose. (See Matter of Littauer, 285 App. Div. 95, 98, motion for leave to appeal den. 308 N. Y. 1052; Matter of Yard, 116 Misc. 19; Matter of Bellamore, 27 Misc 2d 118; see, also, Griswold, Spendthrift Trusts [2d ed.], § 338; Restatement, Trusts, 2d, § 157, comment g.)
In point of fact, the courts have gone so far as to uphold the wife's right to an involuntary transfer of future income for her support from the husband's spendthrift trust. Thus, where she has obtained a judgment of divorce directing the payment of alimony, it has been consistently held that the trustees of the trust may be ordered to pay such alimony in order to satisfy the judgment. (See, e.g., Wetmore v. Wetmore, 149 N. Y. 520, 529, supra; Wetmore v. Wetmore, 162 N. Y. 503, 510; Moore v. Moore, 143 App. Div. 428, 434, affd. 208 N. Y. 97; Thompson v. Thompson, 52 Hun 456, 458; see, also, Griswold, Spendthrift Trusts [2d ed.], § 338.) The settlor " in constituting a trust for the benefit of his son ", this court declared in Wetmore v. Wetmore (162 N. Y. 503, 510, supra), "must have contemplated that it should also be for the benefit of his wife, should he marry, and his children, should any result from the marriage. This, we thought, was a reasonable and just view of the question presented." If, therefore, a direction in a divorce decree requires the payment of alimony out of the husband's interest in trust income, it stands to reason that payment of the amount voluntarily allotted to the wife for her support should likewise be required. The only difference between the two cases, as Surrogate Foley observed some 40 years ago, is that in the latter ' ' the husband consents to the allowance, thereby recognizing the duty to provide and the reasonableness of the amount fixed". (Matter of Yard, 116 Misc. 19, 22, supra.)
Cases may arise in which an assignment of trust income may have left the husband without sufficient means for his own support but the present is not one of them, and we need not now concern ourselves with the problems they may present. Here, on the facts adduced, the courts below were privileged to conclude, as they did, not only that the assignment agreement was fair and reasonable when made in 1947, not only that it continued so down through the years since its execution, but that Oliver, " better off financially" than Mary, has continued to have sufficient means for his maintenance. If, however, Oliver's circumstances do change in the future and he requires for his support or that of his then dependents more of the income from the trust than he retained, he is free to apply to the court for such reallocation of the income as is deemed necessary.
The order should be modified in accordance with this opinion and, as so modified, affirmed, with costs to the guardian ad litem for infant respondents.
. A short time after the execution of this agreement, Oliver's father, apparently to make up to him that portion of the income from his mother's trust which he had assigned to Mary, created a second trust for his benefit.