Court Opinion

ID: 7982455
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:13:47.985274+00
Date Added: 2024-06-11T16:35:05.186034
License: Public Domain

Christianson, Justice
(dissenting in part).
The will in question is devoid of any reference to a charge for depreciation. It refers only to payment of expenses and other disbursements prior to the distribution of the remaining net income. Depreciation, although an operating expense of a business, requires neither a payment nor disbursement of any kind; it is nothing more than a bookkeeping entry representing the gradual exhaustion of tangible assets during the usual course of business. Although this court has never had the occasion to pass upon the question, the often-repeated rule is that, unless the settlor has manifested a contrary intention, an income beneficiary is entitled to all the income of a trust without regard to the exhaustion or wear and tear of the trust assets.2 However, there is authority supporting an exception to the general rule when the trust assets consist of a business.3 Despite the inherent difficulties in defining business, I am of the opinion that this distinction is sound in principle. For this reason, I concur in the majority’s holding that an allowance for depreciation was proper in the instant case.
*163The majority rely on an accountant’s statement that writing off the entire book value of a worthless patent against 1950 income was proper. While this may be proper for some purposes, it is not proper in the case of a trust where the rule is well established that income beneficiaries are not responsible for losses to the corpus. In re Trust Under Will of Koffend, 218 Minn. 206, 15 N. W. (2d) 590. The patent in question, which was originally a part of the decedent’s estate, was written off because it was determined to be a total loss and, therefore, the total assets of the trust were overstated by the book value of the patent. This situation should be carefully distinguished from the amortization of a patent over the period of its useful life. I would disallow the loss on the patent as not a proper charge against income.
The majority have approved the trustees’ accounts for the period from January 1, 1947, to December 31, 1950, with the admonition that income be segregated from principal in all future accounts filed. M. S. A. 501.34 provides in part as follows:
“* * * such trustee shall render to such court at least annually a verified account containing a complete inventory of the trust assets and itemized principal and income accounts.”
Eegardless of the basis used for reporting income, this section makes the filing of a complete inventory of the trust assets and the filing of segregated principal and income accounts mandatory. The majority agree that these provisions are mandatory and not merely directory. They concede that the trustees have failed to comply with either requirement of the statute and that it is impossible to determine the true status of the principal and income accounts of the trust from the accounts as filed. Moreover, they recognize the necessity of having income segregated from principal because of the large accumulations of income that have been made in this trust. Yet, the majority in effect hold that the requirements of the statute will be satisfied if the principal and income of the trust are segregated in all future accounts filed. To me, this conclusion is not sound in principle particularly in view of the clear and mandatory language of the statute. Moreover, as a precedent it may have the effect of *164closing the barn door after the horse is gone, which certainly would be contrary to all principles of justice. I find no justification whatsoever for the failure of the trustees to comply with the requirements of the statute. Their failure to do so in the past has had the effect of concealing such flagrant violations of trust-accounting principles as charging the decedent’s personal income taxes against the income of the trust. In my opinion the accounts as filed are inadequate and improper and the trustees should be required to file corrected accounts for the period now in question.
For the foregoing reasons, I respectfully dissent in part from the majority opinion.
Mr. Justice Nelson, not having been a member of the court at the time of the argument and submission, took no part in the consideration or decision of this case.

Evans v. Ockershausen, 69 App. D. C. 285, 100 F. (2d) 695, 128 A. L. R. 177; Hubbell v. Burnet (8 Cir.) 46 F. (2d) 446; Laflin v. Commr. of Int. Rev. (7 Cir.) 69 F. (2d) 460; Whitcomb v. Blair, 58 App. D. C. 104, 25 F. (2d) 528; Matter of Horowitz, 192 Misc. 556, 80 N. Y. S. (2d) 286; Matter of Ottmann, 197 Misc. 645, 95 N. Y. S. (2d) 5; see, 2 Scott, Trusts, § 239.4.

Matter of Jones, 103 N. Y. 621, 9 N. E. 493, 57 Am. R. 775; Re Crabtree, 106 L. T. Rep. 49; Re Rose [1940] 1 D. L. R. 139; see, Matter of Kaplan, 195 Misc. 132, 88 N. Y. S. (2d) 851; 2 Scott, Trusts, § 239.4.