Court Opinion

ID: 9845225
Source: CourtListenerOpinion
Date Created: 2023-09-24 03:16:57.275672+00
Date Added: 2024-06-11T09:15:55.001160
License: Public Domain

MooRE, J.,
dissenting:
The conclusion reached by the majority opinion compels me to disagree. I take the liberty of reviewing the facts and procedures and discussing features of the case which to me are significant and controlling.
In 1955 Sarah Graham Kenan was 79 years old, a widow with no descendants or dependants. The value of her property was then approximately $52,000,000. That year she executed testamentary writings providing for the disposition of her property at her death. She *639made bequests totaling approximately $800,000 to the following religious, charitable and educational institutions: Memorial Presbyterian Church of St. Augustine, Fla., St. James Episcopal Church of Wilmington, Thompson Orphanage of Charlotte, First Presbyterian Church of Wilmington, St. Mary’s Junior College of Raleigh, University of North Carolina for the University Library and the Graham Kenan Fellowship in Philosophy, University of Georgia Library, and the Children’s Home Society of Jacksonville, Fla. After providing relatively small legacies for certain of her relatives and for her employees and servants, she left the residue of her estate to her nephews by marriage, Frank H. Kenan and James G. Kenan. These wills, interrelated and for probate in North Carolina and New York, are extant and unchanged except for a relatively insignificant codicil.
In 1956 Mrs. Kenan created an inter vivos trust, naming William R. Kenan, Jr., A. R. MacMannis, Frank H. Kenan and James G. Kenan, trustees, and placing therein 120,000 shares of capital stock of the Standard Oil Company of New Jersey. She reserved to herself the income for life, retained the power to revoke the trust at will, and provided that if it were not revoked the trust property should belong to Frank H. Kenan and James G. Kenan at her death. The trust remains unmodified and unrevoked.
In May 1962 Mrs. Kenan was declared by a jury to be incompetent to manage her affairs and Frank H. Kenan was duly appointed trustee. He “knew nothing of the nature of her estate or its holdings until after . . . appointment as Trustee.” He made a study of the estate, conferred with experts, and developed a plan under which -it is now proposed to do the following things:
(1) Out of the estate’s 1964 income, which is estimated to be $4,-000,000 before taxes, to donate $606,600 to the following religious, charitable, cultural, medical and educational institutions: The Law Foundation of the Law Alumni Association of the University of North Carolina, the Graham Kenan Fund, the Medical Foundation of North Carolina, Wilmington College, the Catherine Kennedy Home of Wilmington, Wilmington Y. M. C. A. Building Fund, St. Stephen’s Episcopal Church of Durham, Episcopal Diocese of Eastern Carolina, Boys Home of Lake Waccamaw, Episcopal High School of Alexandria, Va., Lees-MacRae College, Henry Morrison Flagler Museum of Palm Beach, Fla., United Fund of New Hanover County, N. C., Home Economics Foundation of the University of North Carolina at Greensboro, Episcopal Diocese of North Carolina for Vade Mecum, Home for the Aging of the Episcopal Diocese of North Carolina, Episcopal Diocese *640of Western North Carolina for the Patterson School, Colonial Dames of America of Wilmington, Watts Hospital of Durham, Woodberry Forest School of Woodberry Forest, Va.
From 1955 to 1962 Mrs. Kenan had made charitable gifts each year in the amount of |8,160. The principal donees were St. James Episcopal Church of Wilmington, the Board of Education of Duplin County, the Memorial Presbyterian Church of St. Augustine, Fla., and the United Fund of New Hanover County. With court approval these annual gifts have been continued each year since 1962.
(2) It is proposed to give most of Mrs. Kenan’s stocks in four corporations, generally referred to as the Flagler System Companies, to the Sarah Graham Kenan Foundation (formed or to be formed) for charitable, religious, scientific, medical, educational, cultural and governmental purposes. All of the stock in those corporations is owned equally by Mrs. Kenan, her sister Jessie Kenan Wise, and her brother William R. Kenan, Jr. There is a quantity of preferred stock. Of the common stock 10% is voting and 90% is non-voting stock. To facilitate the gift of stock to the Foundation it is proposed to merge the four corporations and to issue stock in the merger in the same classes and proportions as before. The preferred stock and the non-voting common stock is to be given to the Foundation, the voting common stock is to be retained. The value of the gift is $13,000,000. The stock to be donated earns about $83,500 annually. The first $100,000 of income is to be given by the Foundation to the North Carolina Museum of Art Building Fund. Thereafter the donees will be chosen by the Foundation.
Mrs. Kenan’s assets, other than the Flagler System stocks, are liquid and consist of listed stocks readily saleable at determined market value. The Flagler System stocks are not liquid; Mrs. Kenan owns only one-third and cannot sell a controlling interest in the businesses; if it becomes necessary or advisable to sell these stocks for the payment of estate taxes or for other purposes, they would have to be sold at a sacrifice. The purpose of this gift of stocks is to remove from the estate non-liquid assets which would require heavy estate taxes, and at the same time to retain the voting common stock and thereby prevent control of the Flagler businesses from passing outside the family. As explained by several witnesses, the control of the Flagler businesses has been a way of life for the Kenan family. However, if the bulk of the stock is given to the Foundation, it will not be necessary to dispose of the more liquid and more producive assets of ■ the estate to pay estate taxes on the Flagler stocks.
*641(3) It is proposed to make the 1956 inter vivos trust irrevocable, and during the life of Mrs. Kenan donate the trust income in fixed amounts or percentages to the following institutions: National Cultural Center, Memorial Presbyterian Church of St. Augustine, St. James Episcopal Church of Wilmington, St. Mary’s Junior College, Graham Kenan Fellowship in Philosophy, University of North Carolina Library, Children’s Home Society of Florida, Board of Education of Duplin County, and Sarah Graham Kenan Foundation. The value of the corpus of the trust is $10,000,000. The annual income is $365,000. The interests of Frank H. Kenan and James G. Kenan will become fixed and for tax purposes will be classed as gifts. Gift taxes are at a lower rate than estate taxes.
It is estimated that this three-fold plan will result in an increase, after payment of estate taxes, in excess of $4,000,000 in the amount the residuary legatees, Frank H. Kenan and James G. Kenan, will receive upon the death of Mrs. Kenan, if she lives three years or more after inception of the plan. If she dies earlier and the gift of the trust corpus to the beneficiaries is held to be in contemplation of death, there will still be an increment to the residuary legatees by reason of the plan of $1,600,000. The plan will, of course, greatly benefit the charitable and educational donees. Mrs. Kenan’s gross and net annual incomes will be reduced. The gross income will be $449,000 less, the net income $96,000 less. However, her income will still be far in excess of her needs. She has had personal expenses of $33,000 per year for several years. It is estimated that she will not need in any year more than $45,000. She will still have a substantial surplus of income.
The General Assembly undertook to give an “assist” to the plan by the passage of certain enabling acts. S.L. 1963, chs. Ill, 112 and 113 (codified as G.S. 35-29.1 to G.S. 35-29.16). Proceedings were instituted in 1963 by Frank H. Kenan, trustee, pursuant to these acts, to obtain approval of the plan. In that proceeding the plan was in some respects different from that outlined above. The superior court approved the plan presented. We heard an appeal at the Fall Term 1963, and reversed the superior court judgment. In re Trusteeship of Kenan, 261 N.C. 1, 134 S.E. 2d 85.
I agree that the principles stated in the majority opinion on the former appeal are correct. My chief concern has been and still is the constitutional questions involved, relating to the incidents of private ownership of property. These are discussed in the former opinion, and I agree that the principles are correctly stated. I refrain from a further general discussion here. The former opinion concluded that “a court may authorize a fiduciary to make a gift of a part of the estate *642of 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.” (Emphasis added). This is the law in North Carolina and any features of S.L. 1963, Chs. 111, 112 and 113, which are in conflict therewith are violative of due process and void.
The plan is well conceived, will serve the intended purposes, and while it will not benefit the incompetent, it will not be detrimental to her personally nor deny her adequate funds for her maintenance. The gifts to the many excellent charitable, medical, and educational institutions appeal to the sympathies of all. If the question were whether the plan is good, there would be no problem in reaching a decision. But the question is: Does it appear from a preponderance of the evidence that this is what Mrs. Kenan would do if she were competent?
The court below found as a fact and concluded as a matter of law “that Sarah Graham Kenan, if of sound mind, would make the gifts and property dispositions and take the action” now proposed by petitioner. Appellants except to this finding and conclusion on the ground that it is not supported by or in accord with the evidence, and is contrary to law. In my opinion the exception is well taken.
In determining what Mrs. Kenan would do if competent, we must look to the evidence and determine what she did do with respect to such matters when she was competent and what change of circumstances since she has become incompetent might have influenced her wishes with respect to the plan.
Mrs. Kenan usually donated each year $8,000 to religious and charitable causes. The largest extra donation she ever made was $24,000 or $25,000 to the St. James Church Building Improvement program. On other occasions she gave $20,000 to Thompson Orphanage and $5,000 to St. John’s Episcopal Church. A person of her wealth undoubtedly was often solicited for charitable donations. While she gave sympathetic consideration to such solicitations, she was not an easy mark and was not inclined to make lavish gifts. It was suggested to her that her donation to the St. James Church building and improvement fund should be $50,000. She considered the matter and sent a check for $24,000 or $25,000. She later explained: “I thought that ($50,000) was too much for one person to give to the fund they were trying to raise, so I didn’t give them that much.” There is no evidence that she wished to donate or ever considered donating any sums to any of the following institutions to which petitioner would now have her contribute in large sums: The Law Foundation of the Law Alumni Association of the University of North Carolina, Medical Foundation of North Carolina, Wil*643mington College, St. Stephen’s Episcopal Church of Durham,- Boys Home of Lake Waccamaw, Watts Hospital of Durham, Woodberry Forest School, Lees-McRae College, Colonial Dames of America, National Cultural Center, and others. The evidence is that she did not wish to contribute to these — see her will which we will discuss later. It is proposed to give large sums to certain Episcopal schools and causes. In 1955, the year she made her will, Bishop Wright and another suggested to Mrs. Kenan that she donate $1,000,000 to the Episcopal Diocese of Eastern Carolina. She agreed to consider it. The request was repeated and William R. Kenan, Jr. was contacted. No gift was made, and nothing was included in her will for this purpose. During the depression the President of the University of North Carolina visited her and solicited a large sum to be used for a student loan fund. She made a nominal contribution, but established no loan fund. It is in evidence that she was charitably disposed but was “not one to initiate contributions.” It is perfectly clear that when contributions were suggested or solicited, she reacted kindly but conservatively.
It is perfectly clear that she had in mind the causes to which she wished to contribute and the amounts to be contributed. She executed her will in 1955. It was prepared by Mr. Gray, a New York attorney who was an expert in estate planning. He had represented her and other members of the Kenan family for many years. She set out the charitable gifts she wished to make from her estate, the legatees are named above. Several were given as much as $100,000 each. The conclusion is inescapable that she considered this settled the matter of gifts as far as she was concerned. In this connection, we find a note of finality in the following provision in the will: “. . . -it is my will that if any person named in this instrument as a beneficiary or legatee or devisee, or anyone interested therein shall at any time or in any manner institute or cause to be instituted, or shall aid, abet, connive or directly or indirectly promote the institution of any contest or proceeding or litigation, contesting or intending to contest, defeat or obstruct this instrument or any provision thereof, or the enforcement of such provision, then any and every such offending person or persons . . . shall, whether such contest, proceeding or litigation be successful or not, thereby forfeit all interest under this instrument.” Mr. Gray, though an expert in the field of estate planning and Mrs. Kenan’s long-time attorney, stated that he was not consulted by Mrs. Kenan with reference to an estate plan and he “did not offer or purport to offer her estate planning advice.” The impression is left that Mrs. Kenan knew what she' wanted and did not appreciate gratuitous suggestions and advice.
*644In 1954 James G. Kenan suggested to Mrs. Kenan the idea of creating a trust in certain of her stocks for his and Frank H. Kenan’s benefit. Mrs. Wise had created an inter vivos trust. Mrs. Kenan said she would consider it. From time to time he pressed the matter. On one occasion he discussed it with William R. Kenan, Jr. Time passed. He decided not to press the matter further. Finally in 1956 Mrs. Kenan created the trust described above. James G. Kenan was not pleased with the terms, and, though he was closer to her than any other member of the family, he thought it better to leave the matter as it was. It can hardly be said that Mrs. Kenan, after deliberating two years, did not wish and intend to retain the income and the right to revoke.
As stated in the former opinion, Mrs. Kenan was fully aware of the impact of taxes, and that gifts to charity from income would mean an outlay on her part of only about 12% of the gifts. Mr. MacMannis, financial expert and long-time friend and business associate, prepared her tax returns and handled tax matters for her. He did not advise her to make gifts. She was unimpressed by manipulations for tax purposes. With respect to any change of circumstances, Mr. Gray stated: . .' you could truthfully say that the same reasons existed five years ago for this reorganization as exists today . . . there was no change in the tax law that would make the reorganizations more compelling or more desirable at the present time than some years ago.” The only perceptible change in circumstances is the increase in the value of her holdings. Her estate is now valued at $128,000,000. But the petitioner instituted this proceeding within a year after she was declared incompetent. There was very little time for circumstances to change. The naked truth is that her legatees expectant do not like the manner in which she organized and proposed to handle and dispose of her property. The changes in the Flagler Companies are merely a part of the plan, not something which has arisen because of emergency. It is true that the present voting trust will terminate soon, but there is no reason in law or otherwise why the trustee may not vote her stock, and in fact it is his duty to do so.
It is unthinkable that under the facts and circumstances disclosed by the record a person, who had never given for charity from income in any one year in excess of $50,000, would wish to give in one year for such purposes $1,000,000 from income and $13,000,000 from principal. Nor is there any evidence to support the proposition that she would desire to make a gift of $10,000,000 to relatives when she had already provided for them by will.
We now consider the evidence upon which petitioner relies for approval of the plan. First, there is the testimony of a psychiatrist who *645never knew and never saw or examined Mrs. Kenan. This was purely a bootstrap operation. Frank H. Kenan testified that if Mrs. Kenan was competent he would go to her and explain all of the facts, would recommend that she take all of the actions proposed, would ask her brother William R. Kenan, Jr., and other relatives and all of the expert witnesses to give her the same advice, and that they would do so. He testified further: “Mrs. Kenan left all of her business matters, other than the running of her household, to her brother William Kenan.” When her house was burned many years ago just before she was to depart for a European tour, she left to him the matter of reconstructing the house, and he attended to it. There was testimony that Mrs. Kenan and Mrs. Wise “relied 100% on William R. Kenan’s judgment.” Mr. William R. Kenan, Jr., filed an answer in the proceedings. The answer was prepared and taken to him for signature. It states that Mrs. Kenan always took his advice, and if she was competent he would advise her to take the proposed actions. The answer states: “I believe she would follow my advice and make such gifts.” Mr. William R. Kenan, Jr., did not testify.
The good faith of these statements and allegations is not questioned. One wonders, however, whether William R. Kenan, Jr., advised her with respect to the will and the trust. She has had no more important business. If he did so advise her, things came out much differently than the actions now proposed. The best that can be said for the testimony upon which petitioner relies is that it consists of conclusions supported by very little or no factual evidence. It comes to this: If Mrs. Kenan were now competent everyone to whom she might listen would go to her and try to prevail upon her to take the actions proposed, and they believe she would yield and take such actions. I am unwilling to place the property rights of incompetents on such tenuous basis. Furthermore, it does not meet the test of proof by preponderance of the evidence of what the incompetent would do if competent. There is no case in the books which countenances such a wide departure. The majority opinion ignores the court’s duty with regard to the property of incompetents. However good and appealing the plan may be in this case, the decision of today will be the law tomorrow. It is an invitation to replan and give away portions of every incompetent’s estate in this jurisdiction in accordance with the wishes of expectant heirs, devisees, legatees, settlees, and organized charities. For equity to decree such gifts from an incompetent’s estate, there should be a showing that the gifts are consistent with donor’s wishes as evidenced by donor’s words and conduct when competent. It is not what others desire and would urge; it is what donor would normally do if competent.
*646With respect to the trust, the majority opinion overrules what has heretofore been established law in this jurisdiction. The trust instrument is a contract and we are varying its terms without legal justification. In Cocke v. Duke University, 260 N.C. 1, 131 S.E. 2d 909, Rodman, J., speaking for the Court said:
“ ‘. . . the power of the court should not be used to direct the trustee to depart from the express terms of the trust, except in cases of emergency or to preserve the trust estate.’ Penick v. Bank, 218 N.C. 686, 12 S.E. 2d 253. ‘It must be made to appear that some exigency, contingency or emergency has arisen which makes the action of the court indispensible to the preservation of the trust and protection of the infants.’ Redwine v. Clodfelter, 226 N.C. 366, 38 S.E. 2d 203. ‘To invoke the jurisdiction of a court of equity the condition or emergency asserted must be one not contemplated by the testator, and which, had it been anticipated, would undoubtedly have been provided for; and in affording relief against such exigency or emergency, the court must, as far as possible, place itself in the position of the testator and do with the trust estate what the testator would have done had he anticipated the emergency.’ Cutter v. Trust Co., 213 N.C. 686, 197 S.E. 542. ‘It is not the province of the courts to substitute their judgment or the wishes of the beneficiaries for the judgment and wishes of the testator.’ Carter v. Kempton, 233 N.C. 1, 62 S.E. 2d 713.”
See also Reynolds v. Reynolds, 208 N.C. 578, 623, 182 S.E. 341. There is no emergency in the instant case which threatens the trust, nor does anyone contend that there is.
The appellants raise the question of denial of trial by jury. It does not arise here for jury trial was waived except on the issue of the permanent incompetency of Mrs. Kenan.
With reference to the jurisdiction of the court with respect to some of the parties not properly served with summons, suffice it to say that if there are parties who are not properly before the court by reason of failure of service, and if such parties have a vested or contingent interest which has been impaired, they may hereafter assert their rights and have their day in court.
I vote to reverse.
Bobbitt, J., joins in dissenting opinion.