Case Name: Sternberger's Estate
Court: Philadelphia County Court of Common Pleas
Jurisdiction: Pennsylvania
Decision Date: 1934-11-02
Citations: 21 Pa. D. & C. 677
Docket Number: 
Parties: Sternberger’s Estate
Judges: Before Lamorelle, P. J., and Gest, Henderson, Stearne, and Sinkler, JJ. Lamorelle, P. J., and Gest, J., dissent.
Reporter: Pennsylvania District and County Reports
Volume: 21
Pages: 677–680

Head Matter:
Sternberger’s Estate
November 2, 1934.
Before Lamorelle, P. J., and Gest, Henderson, Stearne, and Sinkler, JJ. Lamorelle, P. J., and Gest, J., dissent.
J. Wwrren Brock and Leon J. Obermayer, for exceptants.
Bevan A. Pennypacker and Clement B. Wood, contra.

Opinion:
Stearne, J.,
A majority of the court are of opinion that the exceptions should be dismissed. As we view this situation, no distribution of income should be permitted while the trust estate is presently and actually indebted for taxes and other real estate carrying charges, in excess of the items of income disbursement claimed. More especially is this true where, according to the record, the life tenants who demand the income distribution are nevertheless desirous of still retaining the real estate, the continued holding of which is the cause of the existing deficit. Furthermore, the quiesence of the life tenants from 1920 to 1932 contributed to the delay in ascertaining that the income items in question had been improperly allocated. It would appear to us that the broad equitable rule of Pennsylvania as to the apportionment of dividends and profits between life tenants and remaindermen, enunciated in Nirdlinger's Estate, 290 Pa. 457, and in numerous cases thereafter, has peculiar application to the present case. The Supreme Court has always been careful to see to it that life tenants shall receive their proper due, but it is equally mindful that at all times the corpus or intact value shall be preserved. The basic legal reasoning, although at times difficult of application, nevertheless is obviously sound and just. It prevents accumulations or accretions at the expense of life tenants to the advantage of the remainder-men, but at the same time insures against depletion or erosion of the capital which produces the income. By analogy, the same rule and reasoning should be applied to this case.
Decedent died, testate, in 1918. His will created certain annuities and life estates with remainders over. His estate was duly administered and the assets awarded, in 1920, to trustees for the purposes of the will. No account was filed by the trustees until 1932 — a period of over 12 years. One of the assets of the estate consists of a piece of central city real estate. By reason of present business conditions, it has proven quite expensive to carry this real estate, but because of its potential intrinsic value none of the parties in interest is desirous at this time of selling or abandoning the same. Upon the audit of the account of the trustees, it was developed that items of permanent improvements to real estate totaling $15,807.65, from 1920 to 1932, in various years and in sundry amounts, had been improperly charged against income, instead of principal. Had such items been properly and currently allocated to principal, in each and every year, the life tenants would have from time to time received such sums over the said period of 12 years. It is also to he observed that, while the life tenants did not so receive such income, neither did they take any legal steps during such period to require an accounting. When the balance of the income account was ascertained by the auditing judge, it appeared that there is on hand $21,783.53 (including the aforesaid sum of $15,807.65) but that there remain unpaid taxes for the year 1932 (already due and delinquent) in the amount of $23,060.25. In other words, if the sum of $15,807.65 is distributed, as the life tenants demand, there will be a deficit of several thousand dollars for current and overdue taxes. If this indebtedness is not paid, the real estate will probably be lost through a tax sale or mortgage foreclosure.
As we view the matter, the testator bequeathed "net income". This means gross income after deduction of expenses. It may be deplored that the life tenants did not receive all their income when and as entitled. However, they themselves contributed to this legal difficulty in not being vigilant and in neglecting to require a prompt accounting. The life tenants desire the income but are not willing either to pay the current expenses of carrying charges on the real estate or to agree that the real estate be sold or abandoned. Even if it were possible to mortgage this real estate — which at the present time is neither practicable nor possible — the principal should not be used where there is income on hand available to defray current taxes. It may well be that when, as, and if there is income to distribute, certain of the annuitants or life tenants, in equity, may be entitled to receive a preferential payment to the extent of the income in question, but this is not now before the court.
We do not regard the decision in Sinnott's Estate, 310 Pa. 463, as controlling the present facts. There and in kindred cases permission was granted to establish a reserve for contingencies out of "current surplus income". The vice in the exceptants' contention, in our opinion, would be to pay out income where there exists actual and subsisting indebtedness largely in excess of such amount, and which will create an actual income deficit. To so distribute would have the effect of probably destroying the very trust res upon which the life tenants are receiving their present income.
The exceptions to the schedule of distribution are dismissed, and the schedule is approved.