Court Opinion

ID: 3510080
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:20:43.762597+00
Date Added: 2024-06-11T13:05:11.059955
License: Public Domain

I am unable to concur in the opinion of the majority. At present, the trust company acts as trustee for three remaining trusts originally created by Walter Butler and described in the title of these proceedings and for three small additional trusts established by the beneficiaries of one of such trusts. It conducts no public trust business, acts as trustee for no other trusts, and has no source of revenue other than the compensation it receives as trustee of these six trusts and from the investment of its original capital of $200,000.
Since 1929, the trustee has retained two employee — Einar Erickson and James R. Faricy — the former to keep the books of account of such trusts, and the latter to investigate and report on various securities proposed as investments for their trust funds. According to undisputed testimony, their work is purely ministerial, any work involving the exercise of judgment or discretion being performed by Robert Butler as president. Each year the trustee has paid the salaries of these employes and has also expended various sums for office rent, premiums on bonds, rental of safe-deposit boxes, attorneys' fees, and like items, all for the sole benefit of the remaining Walter Butler trusts and the three small additional trusts described. At no time has the trustee had its accounts approved or allowed by the district court, but it has submitted quarterly statements to each of the beneficiaries of the trusts. Therein no deduction has been taken for any of the aforesaid expenditures.
We are concerned with two clauses common to all the trust agreements, which read as follows:
"12. Expenses — Trustees' compensation.
"There shall be paid out of and deducted from the gross income all expenses incurred in the administration and protection of the trust estate, all taxes, and the compensation of the Trustees. The Trustee or Trustees shall have a right to receive compensation for their services, to be determined by the Trustee or Trustees, but the *Page 211 
aggregate of such compensation shall not exceed five per cent (5%) of the gross income of the trust estate, and the amount paid to the Trustee or Trustees as such compensation at the time of the distribution of the principal of the trust estate or any part thereof shall not exceed three per cent (3%) of the amount of the principal distributed."
"22. Offices, Clerks, Etc.
"The Trustees are hereby empowered to employ such clerks and other persons and to do and perform such acts and things as they may deem requisite for the proper and convenient execution of said trust, and all expenses, including the compensation of the Trustees, shall be paid or provided for prior to any distribution of income or principal to the beneficiaries in this instrument designated and prior to the accumulation and addition of income to the principal or body of the trust estate."
The trustee, for the most part, has deducted its compensation as specified in paragraph 12 above quoted, but, as previously indicated, has received no reimbursement for clerical expenses, office rent, and like items. It is its contention that said paragraphs should be construed to authorize it to receive reimbursement for such items in addition to its regular compensation from the income of said trusts. Objectors contend that such expenses should not be charged to income, but should be paid for by the trustee out of its compensation for fees, or from its other revenue, which, as above stated, is limited to money derived from the investment of its original $200,000 capital.
Both the trustee and objectors assert that the provisions of these paragraphs were given practical constructions in support of their present respective contentions by the trustor during his lifetime, as well as by other beneficiaries of said trusts. On one occasion it appears that Walter, the trustor, while president, approved and acquiesced in the reimbursement of a stockholder of Butler Bros. Mining Company, a separate corporation, for expenditures made by the latter for clerical work furnished the trustee, and thereafter prorated charges therefor to the various trusts; thereby indicating, *Page 212 
the trustee argues, that he intended that such expenditures should be charged against the individual trusts. On the other hand, objectors contend that because the trustor, during his lifetime and while in control of the trustee, made no charge for such expenses against the individual trusts except on the one occasion described, he thereby clearly manifested his intention that such items were not to be charged against the individual trusts.
By virtue of the terms of the trust agreements, a large part of the income of the three trusts described in the title of these proceedings has accumulated each year for the benefit of the residuary beneficiaries. At present, approximately $600,000 of such income has been thus retained in each of such three trusts. The principal of each now exceeds $1,000,000. The items of expense sought to be charged against all the accumulated income now total in all approximately $100,000 for the entire period. It is not disputed that in 1944 such expenses exceeded the trustee's authorized compensation; that this condition may continue in the future; and that, in consequence, the trustee may suffer a yearly loss if it is not authorized to receive reimbursement for such expenses.
At the hearing the trial court heard testimony of Einar Erickson, one of said employes, and considered the financial statements of the various trusts. Erickson's testimony, which was undisputed, was to the effect that the expenditures described were for the sole benefit of the trusts now operated by the trustee and for no other purpose.
1. Paragraphs 12 and 22 of the trust agreements hereinbefore set forth appear to be entirely free from ambiguity. They are not inconsistent with Minn. St. 1945, § 48.80, which authorizes trust companies to charge reasonable compensation in addition to all necessary expenses with legal interest thereon. They specifically authorize and direct the trustee to receive reimbursement for all expenses incurred in the administration of the trust in addition to its compensation. Clerical hire isspecifically authorized in paragraph 22. The term "offices" set forth in the title of this paragraph leads to the reasonable conclusion that if office space is *Page 213 
"requisite for the proper and convenient execution of said trust" reimbursement shall be made for reasonable sums expended therefor. The provision that "all expenses, including thecompensation of the Trustees, shall be paid or provided for prior to any distribution of income" (italics supplied), immediately following the clause detailing the trustee's right to employ clerks and perform other requisite acts, clearly manifests the trustor's intention that the trustee shall receive reimbursement for such items of expense in addition to its compensation. In paragraph 12, the trustee's compensation is fixed at five percent of the gross income of the trusts and three percent of the principal upon final distribution. Nowhere do the trust agreements require the trustee to pay such expenses from its fees for compensation. To so hold is to distort the plain meaning of the words used.
2. The trustee, so far as the record before us indicates, although qualified to engage in a general trust business, actually limits its activities to the handling of the six trusts above described. It does not act as trustee for other trusts; it does not receive money, stocks, or securities of private individuals or corporations for deposit; it does not act as agent for others in the investment of funds or the handling of property; it does not engage in the business of buying and selling securities, bonds, or insurance; it has no source of revenue other than the amounts it receives as fees from the individual trusts and from the investment of its capital. If it is denied the right to reimburse itself from the trusts for these necessary expenditures, presumably it must operate at a loss or withdraw completely as trustee.
No authorities have been submitted to indicate that in a situation such as here presented, where a trustee is engaged solely in the business of acting as trustee for certain specified trusts and making expenditures in connection therewith for clerical help, office rent, and like items, it must pay for the same from its fees or compensation, particularly where the terms of the trust agreement otherwise provide. In Leach v. Cowan, 125 Tenn. 182, 140 S.W. 1070, Ann. Cas. 1913C, 188, where a testamentary trust contained no language *Page 214 
whatsoever with reference either to fees or expenses and where it was contended that payment of expenses for necessary clerical hire and attorneys' fees eliminated the trustees' compensation, the court, in allowing the trustees compensation in addition to their expenses, stated (125 Tenn. 201,140 S.W. 1075, Ann. Cas. 1913C, 188):
"The assignment of error does not make the point that the compensation allowed was excessive, but does insist that the executors and trustees were not entitled to any compensation at all, because they performed no duties as executors and trustees, but that all of these duties were performed by the bookkeeper, whom they selected, * * * and * * * their attorney, * * *. They [bookkeeper, attorney, and trustees] show that the executors and trustees were diligent and careful in the discharge of their duties, and left nothing to the attorney, except what is usually left to attorneys under such circumstances, and that the bookkeeper did only clerical work. The responsibility and burden of the management of the estates rested upon the executors and trustees, upon whom it had been devolved by the will, and they have given careful, diligent, and intelligent attention to these interests ever since they were appointed."
A similar doctrine was expressed in Hagedorn v. Arens, 106 N.J. Eq. 377,383, 384, 150 A. 4, 8, as follows:
"What, however, is the fiduciary's work? Certainly work which is beyond the ordinary or reasonably to be expected skill and ability of such a fiduciary, cannot be deemed his work, and he will be entitled to obtain the skilled services of experts where necessary or advisable, and to have their compensation paid out of the estate; * * *
* * * * *
"There may be, therefore, I take it, matters involved in the computation and distribution of income and capital by trustees and in the statement and rendering of their accounts, in unusual and complicated cases, which are beyond the reasonable expectation of the skill and ability of the ordinary fiduciary, in which his employment of an expert — a combination of lawyer and accountant trained in such matters — will be not only justifiable but commendable and even *Page 215 
necessary, and for whose compensation allowance may, and should, be made from the estate.
* * * * *
"Each case obviously must depend on its own circumstances; and the test must be that of reasonableness. In the present instance the reasonableness of the expenditure and the propriety of allowing it as a charge against the estate, seem beyond question, * * *."
In the Hagedorn case, the trust agreements involved did not contain the specific instructions present in the instant case, nor were the statutory regulations so definite on the subject as is the Minnesota statute above referred to (§ 48.80). The plain language of the trust instruments here, as well as the definite authorization set forth in the above statute, clearly establishes the trustee's right to receive, in addition to its regular compensation, reimbursement for expenditures made solely and necessarily for the trusts involved, and to prorate the charges therefor against the trusts for which expenditures were made.
3. Since such language of the trust instruments is free from ambiguity, there is no need to resort to extrinsic evidence or to consider the practical construction placed upon it by the trustor in connection with the quarterly reports at a time when he was in control of the corporate trustee. See, Towle v. First Trust Co. 194 Minn. 520, 522, 261 N.W. 5, 7.
4. There is a sharp distinction, of course, between the situation here and one involving a public trust company conducting a general trust business, with sources of revenue not only from its many trusts, but from other undertakings as well, and maintaining office space and clerical help in connection with all its various enterprises. Expenditures for clerical help and office rent under such circumstances would appear to relate to the general business of such companies and hence to be chargeable to their general revenue. Such companies are in a position to furnish such services with greater facility and less expense than an ordinary individual trustee or a corporate trustee limiting its activities to a few specified trusts and conducting no *Page 216 
general business. This rule is expressed in Hagedorn v. Arens,106 N.J. Eq. 383, 150 A. 8, supra, as follows:
"It is true that under ordinary circumstances the commissions allowed to a trustee or other accountant are intended to cover the work and expense of keeping his books and preparing his account, and that payments made by the trustee to bookkeepers, accountants or lawyers for performing these services which the trustee is supposed to perform for himself, cannot be allowed as items of discharge in his account."
5. Here, at the proper time, of course, the trustee should have the burden of establishing that the expenditures in question were reasonable and necessary because of the heavy responsibility and numerous complications involved relative to these large trusts, and ordinarily this question should be determined at the time the trustee submits its accounts for approval by the court. Up to the present time this has not been done. Apparently, neither the trustee nor objectors intended to present evidence relative to such expenditures, the necessity and reasonableness thereof, or other details relative thereto. Some testimony was taken on this issue, but it was limited to rather general statements and conclusions, and no accounts were submitted for allowance.
The court, however, not only construed the paragraphs, but determined finally that expenditures for clerical help and office rent were not peculiar to the trusts and not properly chargeable to them. Its determination in this respect was directly contrary to such evidence as was submitted. When the trustee's annual or final accounts are presented for allowance, both parties here should have full opportunity to submit material evidence in support of their respective contentions. The trustee, on the one hand, should have the right to establish that the items charged are true and correct, that the services for which the charges were made were reasonable and necessary and were limited to the trusts involved, and other like issues customarily present when a trustee's account is presented for allowance. Objectors should have a like opportunity to submit evidence *Page 217 
establishing that the services were unreasonable and unnecessary, or that they were not limited to the trusts involved, but extended to other business undertakings of the trustee, or that the trustee had waived or lost its right to reimbursement therefor.
6. It has been urged that because the trustee did not deduct such expenditures from the income already distributed it thereby waived its right to the same insofar as past distributions are concerned. This issue was not presented by the pleadings, nor tried by consent, nor determined by the trial court's order. It appears for the first time here. As previously stated, a substantial portion of the income of the trusts has been accumulating for a number of years. The present beneficiaries will be entitled not only to future income, but, under the terms of the agreements, to substantial portions ofthe accumulated income as well. The rules of law applicable in such a situation are set forth in Restatement, Trusts, § 242,comment j, as follows:
"Thus, if the trustee pays income to the beneficiary entitled to income without deducting the compensation to which he is entitled with respect to such income, manifesting an intentionto make no claim to compensation, he cannot require the beneficiary to pay him such compensation nor is he entitled to such compensation out of income subsequently accruing. He is entitled, however, to compensation with respect to income thereafter accruing.
"If the trustee pays over income without deducting the compensation to which he is entitled with respect to such income, but without manifesting an intention to forego hisclaim to compensation with respect to such income, he can deduct such compensation out of any further income or any principal payable to the same beneficiary, unless the beneficiary has so changed his position as a result of receiving the full amount of income that it would be inequitable to allow the trustee to make such deduction." (Italics supplied.)
While the foregoing sections refer to compensation of trustees, a similar rule would appear to be applicable to claims for reimbursement for expenditures. Thereunder, if it appears that the trustee *Page 218 
has not manifested an intention to forego claims for necessary expenditures, it should be permitted to deduct the same out of accumulated income, future income, or principal, as the evidence justifies. There is no evidence in the record that the trustee has manifested any intention to forego claims for the expenditures above described.
Of course, such trusts as have been previously terminated and closed are now free of these charges, and the remaining trusts should not be required to bear the burden which should have been charged to them.
MR. JUSTICE FRANK T. GALLAGHER, not having been a member of the court at the time of the argument, took no part in the consideration or decision of this case.