Case Name: Levy's Estate
Court: Philadelphia County Orphans' Court
Jurisdiction: Pennsylvania
Decision Date: 1938-10-07
Citations: 34 Pa. D. & C. 312
Docket Number: no. 290 of 1931
Parties: Levy’s Estate
Judges: Ladner, J., did not sit.
Reporter: Pennsylvania District and County Reports
Volume: 34
Pages: 312–326

Head Matter:
Levy’s Estate
H. Crowell Pepper and Maurice Heckscher, for excepants.
Roy Martin Boyd, contra.
October 7, 1938.

Opinion:
Bolger, J.,
The trustee received inter alia certain lands in Miami and Miami Beach, Fla. At the time of testator's death an appraisal thereof .was made and a value of $106,500 placed thereon. The trustee sold the large portion, namely, tracts originally appraised at $86,500, in the winter of 1935-36, at a gross profit of $17,000.
The trustee charged income with the taxes, not only on the sold but also on the unsold portion of the real estate, in the amount of $14,057.93, less $500 income on the real estate, making a net charge on income of $13,-557.93.
The schedule submitted by the trustee presents a breakdown of these items as follows: Taxes on the sold portion $10,476.50, and on the unsold portion $3,581.43.
The exceptions refer solely to the transfer by the auditing judge of the sum of $13,557.93 from principal to income account to reimburse said account for the item of taxes on this unproductive real estate, and the consequent award thereof to the life tenant, Violet I. Levy, daughter of testator.
The evidence further reveals that Violet I. Levy, the life tenant, was familiar with the locality of the real estate, and with the real estate market in Miami, as a re- suit of which she continually urged the trustee to defer selling, until the sale now accounted for and to which she makes no objection.
Her advice no doubt was wise, as the testimony shows that sale at any time prior to the actual sale would have yielded much less than the appraised value.
Exceptants' contention that the action of the life tenant in urging the trustee not to sell constitutes an estoppel to her claim, we do not regard as sound. The life tenant is not claiming lost income. Certainly the operation of an estoppel would extend no further than to such income. The evidence reveals that she was solicitous, not merely for her own position as life tenant, but also for the interests succeeding her. Furthermore, the record does not show that her action definitely influenced the action of the trustee in retaining the property. The responsibility of retention obviously rested upon the executor-trustee. No lack of prudence or care is imputed to the trustee because of the retention or of the sale.
The action of the auditing judge was based upon the authority of the A. L. I. Restatement of Trusts, comment m, section 233, the decision in Develon's Estate, 26 D. & C. 19, 52 Montg. 41, and the adjudication of Judge Ladner of this court in Earley's Estate, no. 1232 of 1926. Comment m of section 233 of the Restatement of Trusts reads as follows:
"m. Unproductive property. Ordinary current expenses as well as extraordinary expenses incurred in connection with unproductive property are payable out of principal, unless itds otherwise provided by the terms of the trust. Thus, taxes and other carrying charges on unproductive land are payable out of principal, even though the trust estate includes other property from which an income is derived, unless it is otherwise provided by the term of the trust."
Since Judge Klein's adjudication in this case, the final seal of approval of the principles involved in the foregoing decisions has been put upon them by our Supreme Court in Nirdlinger's Estate, 331 Pa. 135. There it was decided that net rents of properties, involved in salvage operations are payable currently to life tenants and that such net rents are to be determined by the return from each individual property, not from the group.
The only possible distinction between that case and ours is that here a sale has yielded a profit. This circumstance is governed by comment c, section 241, of the Restatement of Trusts which reads as follows:
"e. Sale at profit or loss. The rule stated in this Section is applicable whether the amount received on the sale is greater or less than the value of the property at the time when the trust was created or when the property was acquired by the trustee."
The proposition is also posed that since the will contains a direction to sell, a conversion of the real estate is effected which places the proceeds, as personalty, beyond the pale of the principles involving taxes on unproductive real estate; that taxes on personalty must be borne by the life tenant, even though they be unproductive of income.
The pertinent language of the will is as follows:
"7. All the rest and residue of my estate of whatsoever nature and wheresoever situated I direct my Executor to hold in trust for the following purposes, first disposing of all properties and investments that are not returning suitable interest on their value and reinvest the money obtained in Legal Investments."
Whether this language effected an equitable conversion of the real estate or imposed a duty on the executor-trustee to sell, or whether the language should be construed not to effect an equitable conversion but in spite thereof a duty was nevertheless imposed upon the executor-trustee to sell and to sell immediately, we regard as unimportant.
Judge Holland, in his analysis of the New York cases, points out that the courts of New York regard equitable conversion as an element distinctly indicative of testator's intention that such taxes should be borne by principal, but he regards such test as unsatisfactory.
The language of the Restatement in dealing with this problem does not restrict the application of the principle to unproductive real estate but to "unproductive property". The failure to distinguish personalty from realty therein is so obvious as to require no further discussion.
Further, the decision of the Supreme Court relating to foreclosed real estate in Nirdlinger's Estate (No. 2), 327 Pa. 171, and the decision above referred to, Nirdlinger's Estate, supra, deal with property which was originally personalty and remained such in the hands of the trustees though converted for a time into real estate.
We regard the facts in the instant case as being entirely within the purview of the authorities and principles cited.
The property was definitely unproductive and the life tenant is the primary object of the testator's bounty, namely, his daughter.
We therefore find that the auditing judge correctly allocated the taxes to principal account.
The exceptions are dismissed and the adjudication is confirmed absolutely.
Ladner, J., did not sit.