Court Opinion

ID: 9573036
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:46:56.34191+00
Date Added: 2024-06-11T12:36:10.091784
License: Public Domain

Rodman, J.
The appeals of Murchison ¡and Burney ¡ais guardians ad litem are directed to the orders entered in each proceeding. The appeal of MacManniis ¡and Kenan as trustees is directed to¡ the validity of the order entered in -the proceeding seeking permission to give away Mrs. Kenan’s right to receive for her life the income from the trust ¡created by her.
Defendant Murchison, appointed by the court to protect Mrs. Kenan’s rights, challenges both the right of the trustee to -make and the power of the Legislature or the court to authorize 'the proposed gifts.
The question for decision then is: Do-the facts found, standing alone, suffice to sustain the order? The ¡answer must, we think, be in the negative.
Ours .is ¡a constitutional form oif government. “It is .axiomatic under our system ¡of government that the Constitution within its compass is ¡supreme as the established' expression of the will and purpose of the people. Its provisions must be observed ¡by all.” In re Advisory Opinion House Bill 65, 227 N.C. 708, 43 S.E. 2d 73.
Any governmental act which ¡overrides the restrictions declared in ¡our Constitution or which ¡thwarts the powers granted to the United States is void. S. v. Felton, 239 N.C. 575, 80 S.E. 2d 625; Freeman v. Comrs. of Madison, 217 N.C. 209, 7 S.E. 2d 354; Bayard v. Singleton, 1 N.C. 5.
*8Seic. 17, Art. I, of p-m^Oonrtitikion, imposes this limitation -on govern-, mental .auttlToriby:: “No person ¡ought .to. be . . . disseized of bis freehold ... or in any manner deprived of . . . ills property, but by the law of the land.” This limitation on governmental authority hais been in force moe the adoption of our first Constitution in 1776. See sec. 12 of .that Constitution.
It is a matter of common knowledge .that North Carolina delayed ratification of the Constitution of the United States until Congress bad submitted to the States -amendments guaranteeing fundamental right®. Among the amendments -so submitted was .the Fifth, declaring: “No person áiali . . . be deprived of . . . property, without due process of law; nor .sinail padvate property be taken for public use without just compensation.” The Fourteenth Amendment to- the Constitution of the United States isays: “No state . . . shall . . . deprive any person of life, liberty, or property, without due process of law; nor deny to any person ¡within its jurisdiction the equal protection of the laws.” These constitutional limitations .are not .confined to- the Legislature. They are applicable to courts and to- the -executive 'branch of ¡the government. It is immaterial, therefore, whether a ¡court of equity has the authority, without legislative sanction, to authorize the use of 'an incompetent’s income or the principal of -his estate for a purpose other ¡than -his own support ¡and the discharge of his legal -obligations. Blake v. Respass, 77 N.C. 193, or whether the right to so direct is dependent upon legislative authority. Brooks v. Brooks, 25 N.C. 389; In the Matter of Latham, 39 N.C. 231; In re Hybart, 119 N.C. 359; Binney v. R. I. Hospital Trust Co., 110 A. 615.
It scarcely need be said that the constitutional limitation against taking of property of a citizen affords -the same protection to -a lunatic that it .affords ¡to- a person of ¡sound mind.
Tire Legislature cannot sanction the taking of one’s property unleisis (-a) in satisfaction of -a legal obligation, or (<b) for a public purpose, Utilities Comm. v. Story, 241 N.C. 103, 84 S.E. 2d 386; Charlotte v. Heath, 226 N.C. 750, 40 S.E. 2d 600; Cozard v. Hardwood Co., 139 N.C. 283; and when taken for a public purpose, just compensation must be paid. Davidson v. Stough, 258 N.C. 23, 127 S.E. 2d 762; Eller v. Board of Education, 242 N.C. 584, 89 S.E. 2d 144.
An interesting illustration of the scope of the -constitutional limitation against -taking of property of -a citizen is to be found in Allen v. Peeden, 4 N.C. 442. There the Legislature enacted a statute emancipating slaves of .a deceased owner. Although the deceased bad expressed ¡a wish that the slaves be emancipated, ¡the ¡statute was ¡held void -because title to the slaves had passed to- others upon ¡the death of the former owner.
*9Tibe motives 'prompting the filing of the several petitions are in mo way challenged. The gifts, which the trustee proposes making for 'his wand, are to deserving beneficiaries and would undoubtedly be .of material assistance in promoting the laudable purposes for which each was created and is mow functioning.
The amounts proposed to be given from the current income would ■largely be offset .by a reduction in income taxes. The net cost would still leave Mrs. Kenan ’with ample income for her own needs. She has no financial' (legal) obligation which would be adversely affected. The gift from the principal and the taxes to foe paid from the principal for ■the privilege of .surrendering the life -income from the trust estate, while large when- considered as individual items, are relatively small in relation to the total of Mrs. Kenan’s estate. If the gifts are authorized, ■there will be a substantial saving in estate taxes.
While am incompetent’s .property may not, either with legislative sanction or court order, foe taken for .charitable purposes notwithstanding the part not taken is ample for incompetent’s needs, Monds v. Dugger, 144 S.W. 2d 761, Binney v. R. I. Hospital Trust Co., supra; it is nonetheless .true that courts of equity have authorized the gift of a part of incompetent’s income or principal.
A .court may authorize a fiduciary to make a -gift of <a part of the estate of an incompetent only on a finding, .on a preponderance of the evidence, .at a hearing of which interested parties have notice, .that the lunatic, if then of .sound mind, would make the gift. Appellees’ argument -that the gift may be authorized “if the court under all of the circumstances believes that such gift should foe made,” if accepted ais a correct statement of the law, would permit the court to. .do that which the lunatic had not done and would not do if sane. Such an -order, would amount to a taking of property in derogation of 'lunatic's constitutional rights.
Perhaps the most frequently cited ease on the power-of a court of equity to authorize the use of an incompetent’is property for purposes other than his own support and the support of those to whom he owes a legal obligation is Ex parte Whitbread, 35 Eng. Rep. 879, decided in 1816. There a niece of the incompetent sought an allowance' from his estate. Lord Chancellor Eldon said: “The difficulty I have, had was as to the extent of relationship to. which -an allowance ought tofoe-'gr.añted. I have found instances in which the Court has, in its- allowances- to the relations of the Lunatic, gone to a further distance than grandchildren —to brothers and other collateral kindred; and- if we' get to. the .principle, we find that it is not ¡because the parties-jare next ¡of kin. of .the Lunatic,lor as such, have any right to an-allow anbe;, ,bu,t-'becay,$e?,the *10Court will not refuse to do, for the benefit of the Lunatic, that which it is probable the Lunatic himself would have done.” (Emphasis supplied) .
In the Matter of The Earl of Carysfort, 41 Eng. Rep. 418, the committee oif tiie person of a luna,tic proposed that an annuity be granted to a personal servant who had served the lunatic for many years. The allowance was1 made upon the statement that if the lunatic was sane he would approve.
In the Matter of Willoughby, decided in 1844, 11 Paige (N.Y.) 257, a stepdaughter of the incompetent sought an allowance. The chancellor isaid: “The court, in isucih cases, acts for the lunatic, 'and in reference to hiis estate, las it supposes the lunatic himself would have acted if he had been1 of sound mind.”
In In re Strickland, 6 Ch. Ap., 225, a donation was requested by the officials of a church and school. The lunatic had an income after the payment of annuities and other charges of about 2,656 pounds. The sum of 900 pounds was set aside 'annually for liáis maintenance “and it appeared! that his comfort could not be increased by any addition to it.” The committee of the lunatic’s 'estate -and person requested authority to make a donation of 250 pounds to' the 'building of a .church and a like sum to- the building of a school. The court authorized the donations, citing as authority therefor Ex parte Whitbread, supra, and Oxendin v. Lord Crompton, 2 Ves. 69.
In In the Matter of Heeney, 2 Barb. (N.Y.) 326, the chancellor said: “In tire case .under' consideration, the lunatic, when in full possession of all his faculties, placed himself in the situation of a father to> the two young ladies mentioned in- the petition, and supported them as members oif his family and sent them to a boarding school; where one of them completed her* education 'and has again returned and become a member of Iris family, leaving the other still at school. I have no doubt, therefore, that if Mr. Heeney had retained the full possession of his faculties he would have continued to 'support them in the same way while .they remained unmarried. I shall therefore but carry out bis undoubted intentions, by directing the committee ho let these two young ladies remain in the family and be supported as they have heretofore been, until their marriage, or the death of the lunatic, or the further order of the court.”
In a later New York case, In re Flagler, 224 N.Y.S. 30, a second cousin of Mrs. Flagler (the incompetent) sougjbt an. allowance from the surplus income. The court said: “In granting application® of this character 'the .court is not actuated by any supposed interest which the applicant may have in the property of the incompetent. Relief may be *11tad upon the principle -that tihe court will acst iwitlb reference to ¡the lunatic amid for ibis 'benefit ais it ils probable that he would have acted for himself, i-f he were of sound mind.” The 'order there approved was reviewed by the New York Count of Appeals, Re Flagler, 162 N.E. 471. That 'Court said: “If Mrs. Flagler today could decide upon, the disposition o,f itLhe irnoome of her great estate, moral or charitable considerations would dictate her decision only to the extent that islhe felt their force. Her -great 'affluence might impel -her to .relieve the distress of her cousin; -the -law would not compelí her -to- do so- if she decided otherwise. The power of the court ,to dispose of her income is mot plenary. The court may mot be moved by its own' generous impulses in the disposition- of the income of ithe incompetent. In reaching 'decision it may give moral or charitable consider,1 ations -only such weight a© it finds that the incompetent herself would have -given to them. Allowances for the support -of collateral relatives of the incompetent have been made ‘upon the theory that the lunatic would, in all probability, have made such payments if he had been of sound mind.’ Re Lord, 227 N.Y. 145, 124 N.E. 727. The appellate'division correctly held that-the allowance made at special term may .be justified upon no other theory.” See also In re Hudleson’s Estate, 115 P. 2d 805; In re Brice Guardianship, 8 N.W. 2d 576; Re Beilstein, 62 N.E. 2d 205; Potter v. Berry, 53 N.J. Eq. 151; and the annotations in 34 L.R.A. 297, 59 A.L.R. 653, and 160 A.L.R. 1435.
A summary of the English .and Irish oases dealing with the right of ■a 'court of equity to use an incompetent’s estate other than for his own maintenance .and the maintenance and support of his dependants may be found in an article entitled “The ¡Surplus Income -of a Lunatic,” 8 Harv. L. Rev. 472 (1894-95).
The power -and limitation on the power of a court of -equity to authorize a fiduciary with respect to the use or other handling -of the estate entrusted to him is illustrated in- two recent decisions of this Court.
In Ford v. Bank, 249 N.C. 141, 105 S.E. 2d 421, .adult children of an 'incompetent sought permission to use a part of his estate to purchase a home. We said: “No one can doubt that financial .assistance would ibe of benefit to the children of the incompetent occupying ¡the economic status in life depicted by the -evidence and the findings ¡of fact. If their father were mentally competent, would he not .aid them? If so, the court has the authority to use his money for that purpose.”
In Cocke v. Duke University, 260 N.C. 1, we denied authority to invest -trust funds in securities not sanctioned by the trust agreement. As the basis for the denial, we quoted with approval the. language of *12Carter v. Kempton, 233 N.C. 1, 62. S.E. 2d 713: “It is not tibe province ■of the courts to substitute their judgment or 'the wishes of the beneficiaries for rtlhe judgment and wishes of -the testator.”
After oral argument 'appellees, with our permission, filed a supplemental brief .which contained a copy of the opinion of the chancery court of the state of Delaware in the case of In re Dupont, 194 A. 2d 309. There the 'chancellor as the basis of his oirder 'authorizing large gifts from the incompetent’s estate, said: “The guardians have offered substantial and convincing proof that the ward in fact intended to make such distributions prior to his incompetency.”
Relating to the question of what Mrs. Kenan would do if competent, the court -found in the proceedings relating to gifts from 'income and principal:
“In the absence of tax deductible gifts, income retained by Sarah Graham Kenan would be depleted in excess of 85% by State iand Federal income taxes and any balance thereof remaining in her estate at her death would be depleted in excess of 75% by death taxes; so that, even in the absence of current expenditure by the general trustee, less than 4% of the income received by Sarah Graham Kenan would remain to' be transmitted to her legatees, heirs or next of kin upon her death . . . .”
“Petitioner herein, 'trustee of the estate and person of Sarah Graham Kenan, has concluded that it is wise 'and provident, and consistent with the desires of Sarah Graham Kenan (if she were competent) to- make the .gifts herein authorized 'and directed.”
“It is proper in the exercise of sound judicial discretion, if not mandatory under the provisions of Chapter 111 of the 1963 Session Laws of North Carolina, to> approve such declaration and gifts . . .”
Based on his findings of fact the court concluded as a matter of law:
“Considering the situation of Sarah Graham Kenan and her estate, it is in no way detrimental to Sarah Graham Kenan, as a practical matter, but rather it is wise and provident for the petitioner to' malee the gifts herein authorized and directed.
“It is reasonable to assume that if Sarah Graham Kenan were competent and heeding sound- advice, she would make these or similar gifts.
“It is proper in the exercise of sound judicial discretion, if not mandatory under the provisions- of Chapter 111 of the 1963 Session Lews of North Carolina, to-.approve these gifts'.” . .
*13In the proceeding relating to the surrender oí life income reserved in the trust, the 'Court found:
“The Petitioner herein, trustee of the estate ¡and person of Sarah Graham Kenan, has 'concluded that, for the total net benefit of Sarah Graham Kenan land the natural objects of her bounty, it is wise and provident to declare the trust irrevocable and to make gifts of the life income to the donees named in paragraphs 30 and 31 above.”
Based on its factual findings the court concluded as a matter of law:
“Considering the situation of 'Sarah Graham Keoan 'and her estate, it is m no way detrimental to Sarah Graham Kenan, and from the standpoint of total net benefit to her and the natural obj ects of her bounty, it is wise and provident for .the Petitioner to declare the 1956 trust agreement irrevocable and to make gifts of the life income to the donees specified in the Order herein. Indeed, it would be improvident not to' dp so.
“It is reasonable to assume that if Sarah Graham Kenan were competent and heeding sound advice, she would declare the 1956 trust agreement irrevocable and make these or similar gifts, in view of the amount of 'the estate involved.
“It is proper in the exercise of ¡sound judicial discretion, if not mandatory under the provisions of Chapter 113 oif the 1963 Session Laws of North Carolina, to approve ¡such declaration and gifts . .
The language in which the court phrases its findings of facts 'and its legal conclusions is, we think, significant. They 'amount only to' this: The coat to Mrs. Kenan of making -the gifts is, when considered- with the size ¡of her income and the principal of her estate, insignificant; and the ¡trustee, not Mrs. Kenan or the court, hais 'concluded that it is wise and consistent with the desires of Sarah Graham Kenan, if she were competent. The legal conclusion that it is reasonable to assume that Mrs. Kenan, if competent, “and heeding sound ¡advice,” would make the gifts is not supported by the findings of fact. If it be said that although (stated as a conclusion of law this is -in reality ¡a finding of fact, we find no evidence to support such a finding.
Mr. MacMaimis, selected by Mrs. Kenan as one of .the trustees of the trust created by her in December 1956, has acted as financial ad-visor and accountant for Mrs. Kenan, her brother, Mr. William R. Kenan, another 'trustee appointed by Mrs. Kenan, and her sister, Mrs. Wise, for many years. He testified: •
*14“I did state that I met Mrs. Kenan at least ornee a year, to go over (her ¿meóme tax returns and have her sign them, land that she and I discussed these returns, .and that she was fully aware of the impact of the taxes .... She was .aware that her income was being taxed 87% -or 89% for the last ten or fifteen years. That is the fiat percentage .applied to her entire taxable income .... I have discussed with Mrs. Kenan .and she was -aware -of -tlhe fact that her ikucome was -being taxed .at clo-se to or perhaps slightly over 90% each year, and that if gifts were -made to 'Charity, which were deductible on the return, -the out-oif-pocket expense to. Mrs. Kenan f-or making those gifts would ibe about 10% of the amount of the •gift, within the applicable limits of deductibility.”
John L. Gray, Jr., -a member of the firm of Dewey, Bailantime, Bush-by, Palmer & Wood, ia -prominent law firm in New York City, for many yeans -represented land advised Mrs. Kenan with respect to> legal matters. Mr. Gray specialized “in tire field of estate -and -trust work ‘and taxation 'as it relates to those fields-.” He drafted Mrs. Kenan’s wills. He ’drafted for her the trust 'created in 1956. He did this after consultation with Mrs. Kenan’s 'brother, Mr. William R. Kenan, well informed with respect to financial problems -and a generous benefactor of educational and 'Charitable institutions in North Carolina.
There is nothing in the record to- -contradict the testimony of Mr. MacMannis that Mrs. Kenan was well aware of the impact of federal taxes on her income -and her estate. Fully informed ats ©he was, her gifts to charity were $8,160 in each of -the yeans 1958, 1959, 1960, and 1961, and in 1962, the year in which ¿he was adjudged incompetent, $8,360. These charitable .gifts she had been accustomed to' make for many years. After Mrs. Kenan was adjudged incompetent, the -trustee filed his petition with and was authorized by the count by order dated 26 November 1962 to continue to make these charitable -gifts. The largest single .gift which Mr. MacMannis could recollect Mrs. Kenan making in -the past 'twenty-(five or thirty years was’a gift of $25,000.
The orders, hased as they -are, either on a misapprehension of the power of the Legislature -or upon findings not supported by -any evidence, are erroneous and must be vacated.
In view of the conclusion we reach on the fundamental question raised by 'appellants, we deem it unnecessary to lengthen- -this opinion by -discussing the other -assignments of error.
Petitioner may, if he elects, obtain permission to amend his petitions to allege that the authority which he seeks is something which Mrs. Kenan would do, if competent..If permission to- amend is allowed, *15petitioner may then offer evidence to establish 'the truth of his 'allegations.
The -order -in each proceeding is
Reversed.