Court Opinion

ID: 4009777
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:10:31.96924+00
Date Added: 2024-06-11T12:06:07.402395
License: Public Domain

This proceeding was begun on December 20, 1940, by a petition of the First Wisconsin Trust Company, trustee of the trust created by the last will and testament of Lewis Wehner, deceased.  It arose upon the following facts as found by the court:
"1.  The last will and testament of Lewis Wehner, deceased, which was duly admitted to probate in this court, contains the following provisions, to wit:
"Second: All the rest, residue and remainder of my property or estate, real or personal, of whatsoever kind and wheresoever situated, I give, devise and bequeath unto the trustee of this will hereinafter named.
"Said trustee shall hold and invest said estate and pay the income thereof to my wife Ottilie L. Wehner so long as she shall live."
Third: (Upon the death of the wife the residuary trust was to be divided into as many parts as testator had children then living.  It is not necessary to set out the details of the trust.) *Page 559 
"2.  On February 12, 1926, this court issued letters of trust to First Wisconsin Trust Company, as trustee of the trust created in the above-quoted portions of said will, and the said letters of trust are still in force.
"3.  For several years last past the United States government has been issuing ten-year bonds known as United States savings bonds, which are lawful investment for trust funds in the state of Wisconsin and are an attractive form of fiduciary investment because of their safety, liquidity, and higher yield than is currently available on other United States government securities.  Said bonds do not bear interest payable at stated intervals, but are sold by the United States at a price sufficiently below their maturity value to yield to the holder an increment or return equal to 2.9 per cent per annum, compounded semiannually, if the bonds are held for the full ten years of their life.  The holders of such bonds may also present them for redemption in cash by the United States at any time after they have been outstanding for sixty days, and the United States is under obligation to redeem them in accordance with a schedule which, after the first year, provides an increased redemption price every six months, sufficiently in excess of the original purchase price to yield the holder an increment or return of 1.33 per cent to 2.84 per cent per annum, depending on how early in their life the bonds are redeemed.
"4.  On July 12, 1939, said trustee purchased from the United States for the sum of $1,050, for the trust estate under the will of Lewis Wehner, deceased, certain United States savings bonds dated July 1, 1939, due July 1, 1949, and having a maturity value of $1,400 at such latter date.  Said Lewis Wehner was survived by his widow, Ottilie L. Wehner, who is still living, and by two daughters, Ann Dorothy Wehner and Ruth Elizabeth Wehner, who are minors; and the present proceeding involves the question of the proper accounting of the semiannual increments in redemption price of the aforesaid United States savings bonds among the said beneficiaries.  The following table shows the amount at which said bonds have been and will be redeemable at all times up to their maturity; the amount of increase in redemption price during each period of six months up to maturity; and the *Page 560 
approximate investment yield which will result, over the whole period that such bonds are held, if they are redeemed during any such six-month periods:

                                     Increase Over      Approximate
   Assumed Date         Redemption   Last Previous    Investment Yield
   of Redemption          Price       Redemption       in Per Cent Per
                                       Price              Annum if
                                                          Redeemed
------------------------------------------------------------------------
Prior to July 1, 1940     $1,050        ---                  ---
July 1 to Dec. 31, 1940    1,064      $14.00                1.33%
Jan. 1 to June 30, 1941    1,078       14.00                1.76%
July 1 to Dec. 31, 1941    1,092       14.00                1.97%
Jan. 1 to June 30, 1942    1,106       14.00                2.09%
July 1 to Dec. 31, 1942    1,120       14.00                2.16%
Jan. 1 to June 30, 1943    1,134       14.00                2.21%
July 1 to Dec. 31, 1943    1,148       14.00                2.24%
Jan. 1 to June 30, 1944    1,162       14.00                2.26%
July 1 to Dec. 31, 1944    1,176       14.00                2.28%
Jan. 1 to June 30, 1945    1,190       14.00                2.29%
July 1 to Dec. 31, 1945    1,204       14.00                2.29%
Jan. 1 to June 30, 1946    1,218       14.00                2.30%
July 1 to Dec. 31, 1946    1,232       14.00                2.30%
Jan. 1 to June 30, 1947    1,260       28.00                2.45%
July 1 to Dec. 31, 1947    1,288       28.00                2.57%
Jan. 1 to June 30, 1948    1,316       28.00                2.67%
July 1 to Dec. 31, 1948    1,344       28.00                2.76%
Jan. 1 to June 30, 1949    1,372       28.00                2.84%
July 1, 1949               1,400       28.00                2.90%

Upon these findings the trial court concluded that the increase over the original purchase price established by the table of redemptive values was income and did not constitute principal or corpus of the trust estate.  The court further held that such income belonged to the person who was entitled under the law to the income of the trust estate, at the date such increase in redemption price occurs.  The court further authorized the trustee, if it had cash belonging to the corpus available, to purchase on behalf of the corpus the amount of the increment in redemption value of said bonds, and to pay out of the proceeds of each such purchase, in cash, to the person who is the income beneficiary of the trust at the time each such increment in value comes into existence. *Page 561
From the order and judgment entered accordingly on February 4, 1941, Patrick W. Dean, guardian ad litem for the two minors, appeals.
The guardian ad litem contends:
(1) That the bonds were purchased on a discount basis and any increment in value belongs to corpus;
(2) That the increment on the bonds is not income for trust purposes;
(3) That if increment on the bonds is income it is not distributable income until it comes into the possession of the trustee, either when the bonds are redeemed or mature;
(4) That distributable income belongs to the person who is the income beneficiary when such income is received by the trustee;
(5) That the county court has no power by order to authorize the trustee to distribute that which has not come into its possession.
The principal contention of the guardian ad litem is that the bond in question was purchased on a discount basis; that under the law any appreciation of the bond is principal and becomes a part of the corpus of the estate, citing Restatement, Trusts, § 240, comment h; 2 Scott, Trusts, § 240.2.
It is considered that the increase in the redemption price is not an appreciation in the value of the bond in the sense that an ordinary bond bought at a discount appreciates as the sale price thereof approaches par, and for the following reason:  While the bond has at its maturity a value of $1,400, and that is spoken of as the face of the bond, a consideration of the facts leads us to the conclusion that that is not an *Page 562 
exact statement of what occurs.  No matter what the instrument may be called, there is an investment by the purchaser the sum of $1,050.  The United States government agrees to pay at the end of a ten-year period, the sum of $1,400. It further agrees that it will redeem the said bond at the end of any six-month period up to maturity at the price stated in the table.  This increase in the redemption price is what the investor receives for the use of $1,050, and for the deferment of the payment until such time as the bond matures or is presented for redemption.
Computed upon the principal and so compounded semiannually, this returns to the investor, if he holds the bond for the whole period, an income amounting to 2.9 per cent. That this is income seems too plain to us for argument.  The sum paid on any redemption date is the principal sum of $1,050, plus the deferred interest.  It is considered that the trial court correctly held that the increase over the purchase price represents income which accrues at the end of every six-month period, and the same belongs to the person who is entitled to receive the income.
The question then arises, how may this income be made available to the life tenant?  In this case the trustee had funds belonging to the corpus on hand.  The trustee proposed to invest these funds and to purchase from the life tenant the interest due the life tenant.  The fund thus expended would be restored to the corpus whenever the bonds were matured or were redeemed.  This is the procedure which the trial court authorized by its order and judgment.  We see no possible objection to this procedure.
Here is a security admittedly as good as any which would be purchased in the market and bearing a higher rate of interest than any other security equally as good.  If the contention of the guardian ad litem should be sustained, and the income could not be anticipated in this matter, then in order to make the income available the trustee would be *Page 563 
obliged to surrender the bond in order to procure the income and could thus never derive the full benefit of the increasing redemption price.  On the other hand, by investing the corpus in the interest earned but not payable, which belongs to the life tenant, the funds belonging to the corpus are placed in an absolutely safe investment and the income is made available to the life tenant.
While it is true that we have never been faced with a situation similar to this, we see no reason why the county court should not adapt its procedure to a change in the form of security instituted by the federal government, and thus make available the safest possible investment of trust funds.  These bonds are not such as rise and fall in the market.  The speculative element is entirely removed.  They are redeemed by the payment of United States legal tender.  The trustee is under no duty to distribute funds in any higher form of exchange.
This plan makes the United States savings bonds a practical and workable form of investment for trust funds in a manner which assures the life tenant a steady flow of income while at the same time keeping the funds of the remainderman safely invested in a security of the highest type available in any market.
By the Court. — Order and judgment affirmed. *Page 564