Court Opinion

ID: 7982454
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:13:47.983368+00
Date Added: 2024-06-11T16:35:05.184454
License: Public Domain

Thomas Gallagher, Justice
(dissenting).
The testamentary trust here under consideration authorizes the trustees to carry on the nursery business conducted by the testator prior to the time of his death.
Testator died March 1, 1943. Trustees Gordon Bailey, Vincent K. Bailey, and Elizabeth Fritz took over as of December 27, 1943.
The first account of the trustees was filed for the period to December 31, 1946. It contained no itemization of salaries or bonuses for the trustees. While substantial distributable income had been accumulated by that time, it was not set forth as a separate item in this account but was lumped together with principal and designated “net worth.” This income thus accumulated has never been distributed to the beneficiaries but has been added to the corpus of the trust. There is nothing in this report to indicate that it was not to be distributed or that the life tenants had lost their respective rights thereto.
Subsequent to 1946 no annual accounts were filed by the trustees until April 22, 1950, when the accounts for the years 1947, 1948, and 1949 were filed. They likewise did not separate income from principal but again lumped the two items together under the heading “net worth,” and the income thus accumulated is still retained as part of the principal of the trust.
*159At the commencement of this period of accounting, the inventory disclosed supplies on hand in the sum of $2,236. During the year 1917 the account shows disbursements for merchandise in the sum of $20,517.11 and for supplies in the amount of $8,873.57. During 1918 the account shows purchases of merchandise in the amount of $30,501.37 and of supplies in the amount of $7,106.33; and in the year 1919, merchandise purchased in the amount of $31,988.28 and supplies in the amount of $10,032.59. Notwithstanding this total expenditure of $112,319.58 for merchandise and supplies, the inventory furnished with the report of April 22, 1950, still shows merchandise and supplies on hand at the original valuation of $2,236.
The trust authorizes the trustees to establish a special fund not in excess of $15,000 to be kept for emergency use in the business. The accounting of December 31, 1916, listed bonds and securities held in the trust in excess of $60,000. By December 31, 1919, this account had an accumulation of over $75,000, and during 1950 for several months it exceeded $100,000. In some of the accounts these investments were designated as “reserve accounts.” It is clear that the sums held therein far exceeded $15,000 authorized for this purpose by the trust.
During the year 1950, $25,000 of the amount so held was transferred from the reserve account to cash. Later it was reduced to $56,000, while the cash on hand was increased to over $12,000. These reductions were made after it appeared that a controversy might arise with reference to the management of the trust. The conclusion is inescapable that the sums thus held constituted distributable income to which the beneficiaries were entitled by virtue of the trust, no part of which was ever received by them.
Under the trust Gordon Bailey and Vincent E. Bailey were to act as managers of the business and were to be paid each month a salary of $200 or “such larger salary as my trustees deem commensurate with the business done, such salary to be * * * paid regularly as other salaries and wages in the usual course of business.” Under this provision, the two trustees took salaries for the *160years 1944 through 1950 of $8,400 each per year. In addition, they took bonuses of $1,000 each in the years 1944, 1945, and 1946. In 1947 they took a bonus of $3,500 each. In 1948 and 1949' they each took a bonus of $5,000, and in 1950 each took a bonus of $13,068. These bonuses were in addition to their salary, which remained unchanged at $8,400 per annum.
While it is true that the gross sales of the business increased substantially during this period, had the basic salary of $200 provided for by the trust been increased in proportion to the increased sales for the years 1947 to 1950, inclusive, it would have been as follows:
1947 .......................... $ 9,024 to each-
1948 .......................... 10,464 to each
1949 .......................... 11,088 to each
1950 .......................... 11,856 to each
This would have meant a salary of $42,432 for each of the trustees, as against the $60,168 which each of them withdrew during this four-year period.
While some increase in the business, no doubt, was due to the efforts of the manager-trustees, we cannot fail to note that perhaps the greatest increase thereof may be attributed to the general business increase experienced by all industry during this period due to conditions brought about as an aftermath of World War II.
Since the commencement of the trust, the trustees have accumulated income in excess of $91,000. If the bonuses over and above their salaries as above described had not been withdrawn, the distributable income would have reached a total of $180,372 by 1950.
The disbursements to the beneficiaries, other than the widow, since the inception of the trust have been extremely meager, notwithstanding the substantial amount of income accumulated as above set forth and notwithstanding the substantial increase in sales of nursery products shown as follows:
*161Eeceipts from sales, Disbursements to
etc. beneficiaries (each)
1944 ... $111,829.48 .... $ 800.00
1945 ... 129,386.10 .... 800.00
1946 ... 143,901.11 .... 800.00
1947 ... 189,181.74 .... .... 1,600.00
1948 ... 220,851.78 .... 800.00
1949 . .. 232,520.77 .... .... 1,200.00
1950 ... 243,520.42 .... .... 2,400.00
Since by the terms of the trust each of the manager-trustees is entitled to 16 percent of the income during the lifetime of testator’s widow, and subsequent to her death such percentage is to be increased to 33 1/3 percent each, it is obvious that it is to their advantage to withhold distribution of income until subsequent to the widow’s death. Likewise, if the transfer of accumulated income to the corpus of the trust be approved, the manager-trustees will each be entitled to one-third thereof when the principal of the trust is ultimately distributed as against the smaller percentage they would now receive were the income paid over to the beneficiaries as required by the terms of the trust.
These operations and surcharges, as well as many others involved in the trusteeship, do not merit judicial approval. The fact that some of the beneficiaries in ignorance of their rights consented to the allowance of the earlier accounts should not alter the obligation of the trustees to distribute to the beneficiaries earned income regardless of the date of its accumulation. The majority opinion gives approval to the acts of the trustees in creating an emergency fund far in excess of that authorized and investing it in securities having no direct relation to the nursery business; in using unrestrained discretion in fixing their salaries and withdrawing bonuses; in denying to other beneficiaries rights clearly and directly expressed by the terms of the trust particularly insofar as the distribution of income is concerned; and in keeping and filing inadequate accounts and reports. That the testator intended that this trust should be administered in this fashion is inconceivable.
*162For the reasons set forth, I am of the opinion that the trustees’ accounts as submitted should not be allowed; that the trustees should be required to submit full, complete, and detañed accounts of their transactions; that all improper charges for expenses, reserve account, depreciation, bonuses, and other like items should be disallowed ; and that the trustees thereafter should be directed to distribute to the beneficiaries the net income derived from the trust as then determined, whether previously accumulated or otherwise.