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Surviving Trustees Bring an Action for Judicial Settlement of Account


This is a proceeding (Article 79, Civil Practice Act) for the judicial settlement of their account as surviving trustees of an express trust created by the decedent in a letter writing dated March 10, 1902, and for the construction of the trust instrument in conjunction with the will of the decedent for whose immediate benefit the trust was created.

In March, 1902 decedent had four sons. On March 10th of that year he established the instant trust in a letter addressed to a son and a few days later delivered the securities constituting the corpus of the trust to his other sons as trustees.

The settlor augmented the corpus of the trust pursuant to instruments executed in 1905, 1907, 1909, 1910 and 1911. On December 24, 1909 the sons, as trustees, properly designated their brother Samuel (now a co-petitioner) as a co-trustee.

The settlor died on July 4, 1915. His son Joel, the original life beneficiary, died on May 30, 1924, survived by one son, who had been born on October 16, 1914. Another son, the elder left a will, dated April 21, 1920, which did not refer to the power of appointment granted him by the trust instrument. Following various specific gifts of both realty and personalty.

After his death of Joel the elder in 1924, the trustees applied in income from the trust fund to the use of the younger. The latter died in an airplane accident on October 18, 1955, survived by his son, sole lineal descendant, born on February 5, 1943, who is represented herein by the special guardian. The will of the younger was admitted to probate in California, where letters of administration c. t. a. were issued.

The accounts of the trustees have been judicially settled on four prior occasions, resulting in judgments entered respectively on February 27, 1926, March 22, 1934, May 4, 1942 and November 24, 1944. In connection with the judicial settlement of the account of the trustees from June, 1933 to January, 1941, the son of decedent interposed an affirmative defense that he was the only person entitled to be the beneficiary of the trust estate and was immediately entitled to the entire remainder.

The court is asked to determine the following principal questions: (1) Was the power of appointment over the corpus of the trust given to Joel the elder in the 1902 trust instrument effectively exercised by the residuary clause in his will in favor of his son? (2) Did the trust end upon the death of Joel the younger in 1955 and become the property of his estate notwithstanding the fact that decedent, named as a measuring life, is still alive? The personal representative of the younger’s estate and his creditors urge that both questions be answered in the affirmative. The guardian of the younger’s son, on the other hand, contends that his ward is presently entitled to the income of the trust, is entitled to the corpus upon the death of the decedent, and that neither the younger ‘s estate nor his creditors have any claims against the trust estate.

‘Personal property embraced in a power to bequeath, passes by a will or testament purporting to pass all the personal property of the testator; unless the intent, that the will or testament shall not operate as an execution of the power, appears therein either expressly or by necessary implication.’

To the same substantial effect, except for the omission of the word ‘therein’, is section 176 of the Real Property Law.

The power of appointment given to Joel the elder, being limited to exercise by will to the classes of his ‘children and lineal descendants,’ was a special testamentary power of appointment in trust, applicable to personal as well as real property. Such a special power, as well as a general power, is embraced by sections 18 of the Personal Property Law and 176 of the Real Property Law, supra.

It is settled that a testamentary gift of the residue is sufficient to execute a power of appointment which has been conferred upon the testator unless it appears expressly or by necessary implication from the language of the will that the will should not operate as an execution of the power. Section 18 of the Personal Property Law and the companion Real Property Law section make the intention of the testator the controlling factor and create a rebuttable statutory presumption of an intention to exercise the power.

Clearly there was no express provision in the will of the elder, showing that he did not intend to exercise the power. In a case, it was stated that the term ‘necessary implication’ found in sections 18 and 176 ‘results only when the will permits of no other interpretation. ‘Necessary’ is defined to mean, ‘Such as must be;’ ‘Impossible to be otherwise;’ ‘Not to be avoided;’ ‘Inevitable.’. The intent not to execute the power, therefore, must not be implied unless it so clearly appears that it is not to be avoided.’

The emphatic command of the statutes is illustrated by the holdings that a power of appointment conferred in a subsequent trust agreement is validly exercised by a previously executed will containing no specific exercise of any power of appointment.

The testamentary power was limited to an appointment in favor of the donee’s husband; there was a gift of the residue to the donee’s children and in default thereof to her husband. In holding that no intent not to exercise the power in favor of the husband was to be implied from the facts that the children, if any, were ineligible appointees and the bequest to the husband was only substitutional, the court declared that if there were something in the will to show that the donee-testatrix both knew the terms of the power and had them in contemplation in making her will, ‘then it might be urged that the implication was necessary that she did not intend to execute the power of appointment’. There is nothing in the will of the elder to show that he had the power of appointment in mind when he executed his will; nor is there anything to show that he consciously and deliberately omitted to exercise the power so that the corpus would go, pursuant to the trust provisions, to his children and lineal descendants in equal stirpital shares. Under these circumstances, as stated in the case, ‘the statute steps in and sends the property, subject to the power, in the same direction as that in which the testatrix has sent her own property.’

Having held that the effective exercise of the power of appointment by the will of the elder entitles his son’s estate to the corpus of the trust, the court will now consider whether the trust ended upon the death of the younger in 1955 or whether it will continue during the lifetime of the petitioning trustee for the benefit of lineal descendants.

The guardian, on the other hand, contends that the settlor purposely used proper legal terms of varied meaning which should be strictly and literally construed, that as a ‘lineal descendant’ his ward need not have been in esse when his grandfather died in 1924, and that the settlor was not only interested in future estates, but intended to protect them fully during the stipulated term of decedent’s life.

As stated in a case, the natural term of a trust is ‘the lives of all the beneficiaries,’ while the stipulated term is ‘the close of the selected and designated lives’. The collation in another case of the decisions distinguishing between the natural and stipulated terms of a trust shows that most cases discussing the distinction are concerned with the question initially of validity of a trust, and not with the construction of a valid trust. In such cases, while the stipulated term, standing alone, might invalidate the trust through an unlawful suspension of the power of alienation, the natural term, showing the full accomplishment of the purposes of the trust, might save it. In the instant case, the stipulated term raises no question of unlawful suspension so that facet of the earlier cases in unimportant.

In another case, the will provided that the income from the residuary estate should be paid to three named children of the testator during the lives of two named granddaughters. Upon the death of the grandchildren the principal was to be paid to the three children equally or to their then living issue, per stirpes. The children survived the testator but predeceased the granddaughters. The court rejected the contention that the duration of the trust should be measured solely by the natural term of the children’s lives. The testator’s direction was to be followed and the remaindermen determined on the deaths of the two grandchildren.

In the opinion of the court, the position of the guardian on his branch of the case appears to be sound. The use by the settlor of the words ‘lineal descendants,’ obviously of broader import than the word ‘children’, used elsewhere, connotes a consideration for other than issue of the first degree. Obviously, the creation of a spendthrift trust for the elder was not the sole object of the settlor, since otherwise there would have been no need for or purpose to the second sentence of Article ‘First’ and the measurement of the trust on the additional life of decedent.

It is held that the trust has not terminated so that demands for immediate payment from the remainderman’s interest are premature. The United States Government as a creditor does not ask for payment but asks only that its lien by attachment be established. Such relief is authorized by section 916(6), Civil Practice Act, and it is granted.

No objections have been interposed to the account although the special guardian has reserved on that branch of the proceeding. He may have until September 6, 1957 to serve and file his supplemental report and objections, if any, to the account. If there be any such objections further decision will be rendered thereon. If there are no objections to the account, an order may then be settled accordingly.

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