Opinion
Page __
__ Cal.App.2d __ 248 P.2d 108 In re FERRALL'S ESTATE. HAMILTON v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N et al. Civ. 18893. California Court of Appeals, Second District, First Division Oct. 2, 1952.Hearing Granted Nov. 25, 1952.
[248 P.2d 109] Earle M. Daniels, Burdette J. Daniels, and Hallam Mathews, Los Angeles, for appellant trustees.
Eugene M. Elson, Los Angeles, for appellant remaindermen.
Potter, Potter & Rouse, Bernard J. Potter, Jr., Los Angeles, for respondent.
DRAPEAU, Justice.
John C. Ferrall died testate on October 5, 1940. He was survived by a daughter, Faye F. Hamilton; a son, George D. Ferrall, and three grandchildren, John Charters Ferrall, George D. Ferrall, Jr., and Frank M. Ferrall, the sons of George.
By his will testator made specific bequests to his grandsons; devised one-half of the remainder of his estate to his son; and the remaining one-half he devised to his son and the Bank of America National Trust and Savings Association, in trust for the use and benefit of his daughter.
With respect to the uses and purposes of the trust, both the will and the decree of distribution in the estate provide as follows:
'(d) After payment of any expenses of management of the trust estate and administering this trust, including the compensation for the services of the trustees, all income from the trust which is available for distribution shall be distributed monthly to and for the use and benefit of my daughter, Faye F. Hamilton, during her lifetime, or unless sooner terminated in accordance herewith. That if at any time the income from the corpus of the trust herein created is insufficient to meet the needs of my daughter, Faye F. Hamilton, then and in that event, in the sole discretion of the trustees herein, the trustees may pay to my said daughter, Faye F. Hamilton, such amounts from the principal or corpus of the trust sufficient to meet her needs, care and comforts. (Emphasis added.) * * *
'(f) Anything herein contained to the contrary notwithstanding, this trust shall cease and terminate upon the following conditions:
'(1-a) Provided my daughter, Faye F. Hamilton, be living, this trust shall terminate upon the death of Alex C. Hamilton, or his divorce from my said daughter, Faye F. Hamilton, in which event all the property he held by the trustees herein shall be distributed to my daughter, Faye F. Hamilton, or
'(1-b) Upon the death of my daughter, Faye F. Hamilton, this trust shall cease and terminate and all the property held by the trustees under the terms hereof shall be distributed one-half to my son, George D. Ferrall, and one-half to my three grandchildren, George D. Ferrall, Jr., John Charters Ferrall and Frank M. Ferrall, share and share alike.'
On August 15, 1950, Alex C. Hamilton, the guardian of beneficiary under the trust, petitioned the court for an order instructing the trustees to invade the corpus of the estate to pay for her care and maintenance [248 P.2d 110] which then amounted to $475 per month. It will alleged that said beneficiary was afflicted with multiple sclerosis at the time the will was executed and that the disease had progressed to the point on January 1, 1942, that it was necessary to place her in a sanitarium; that for seven years she had been bedridden requiring the constant care and attention of nurses and physicians; that her condition had resulted in total and permanent disability and incompetency to handle her affairs. That prior to January 31, 1949, beneficiary had used all of her personal assets for care and maintenance, and since December 1, 1942, the only income she had received from the trust averaged $50 per month.
It was also alleged in the petition that on January 31, 1949, said guardian had demanded of trustees that they exercise their discretion and pay $475 per month from October, 1948, to January 31, 1949, and thereafter as required 'for her care, needs and comfort' invading the corpus if necessary; that pursuant thereto, trustees made a full investigation and on June 15, 1950 (a year and a half later) refused to resort to the corpus of the estate 'for the care, maintenance and comfort of' the beneficiary. That by such refusal, trustees 'acted in bad faith and abused their discretion.'
Trial of the issues joined by the answer of the trustees and the objections of the remaindermen resulted in a judgment whereby the trustees were instructed 'that upon determining in the exercise of their sole discretion the amounts necessary and sufficient, commencing January 31, 1949, to meet, provide and pay for the necessary care, needs and comfort of the beneficiary * * * and the amount of net income derived from the corpus of the trust estate * * * and without regard to or consideration of her separate property or income or her interest in the community property, if any, of herself and her husband, Alex C. Hamilton, or other sources of income, to invade the corpus of the trust estate and pay therefrom amounts representing the difference between the net income from the trust estate * * * and the amounts necessary and sufficient to meet, provide and pay for the proper care, needs and comforts of Faye F. Hamilton.'
From this judgment the trustees and the remaindermen filed separate appeals.
While these appeals were pending to-wit: on May 22, 1952, Faye F. Hamilton, the beneficiary of the trust, died testate. Pursuant to motions made in this court and in the Superior Court of Los Angeles County, Alexander C. Hamilton, as executor of the last will and testament of Faye F. Hamilton, deceased, has been substituted as respondent herein, in the place of Alex C. Hamilton, as guardian of the person and estate of Faye F. Hamilton, an incompetent person.
Appellants here urge that (1) the provisions of the will having been construed in Estate of Ferrall, 92 Cal.App.2d 712, 207 P.2d 1077 the court cannot limit or enlarge the discretionary powers of the trustees; and (2) the evidence does not support the finding that the trustees abused their discretion in refusing to invade the corpus of the trust estate.
The first appeal, Estate of Ferrall, 92 Cal.App.2d 712, 715, 207 P.2d 1077, 1079, was from a judgment to the effect that 'it was the intent of the testator to provide for the care, needs, comfort and maintenance of Mrs. Hamilton from the trust estate and corpus thereof in the event the income should be insufficient for said purposes; that the income is insufficient for said purposes; that $400 per month is a reasonable sum 'to be paid out of income and corpus' for the care, needs, comfort and maintenance of Mrs. Hamilton; that $400 be paid to her 'from income and corpus' on the 10th day of each month, beginning June 10, 1947, until the further order of court.'
This court there said: 'Under that provision (of the decree creating the trust) a court is not deprived of power to determine the fact as to whether the income from the corpus is insufficient to meet the needs of Mrs. Hamilton. By that provision, however, the matter of determining the amounts to be paid from the corpus, in the event that the income is insufficient to [248 P.2d 111] meet her needs, is left to the sole discretion of the trustees. Section 2269 of the Civil Code provides: 'A discretionary power conferred upon a trustee is presumed not to be left to his arbitrary discretion, but may be controlled by the proper court if not reasonably exercised, unless an absolute discretion is clearly conferred by the declaration of trust.' An absolute discretion, as to the amounts to be paid from the corpus, was conferred by the trust provisions herein. An absolute discretion, exercised in good faith by a trustee, cannot be controlled by a court on considerations going to the soundness of the discretion so exercised. Neel v. Barnard, 24 Cal.2d 406, 417, 150 P.2d 177. If a trustee in the exercise of a sole or absolute discretion acts in bad faith or fraudulently, his exercise of such discretion is subject to review and control by a court. (Ibid.)' (Emphasis added.)
However, the court there reversed the judgment because 'There was no allegation or finding that the trustees, or either of them acted in bad faith or fraudulently, or that they abused their discretion. * * * Findings on those issues were necessary, as above indicated in order that it might be determined therefrom whether the acts of the trustees were subject to review and control by the court. As above stated, there were two trustees herein--George D. Ferrall and the Bank of America. The burden of proof as to bad faith, fraud and abuse of discretion, was on petitioner, and the trustees were entitled to the benefit of the presumption that they acted in good faith. Estate of Canfield, 80 Cal.App.2d 443, 451, 181 P.2d 732. The court erred in not making findings regarding those matters.'
In the instant cause, the court found that by their refusal to invade the corpus after determining that the income was insufficient to pay for the needs, care and comforts of the beneficiary, 'the joint trustees and each of them exceeded their power and abused their discretion.'
Appellants do not contend that the income from the trust was sufficient to pay for beneficiary's care and maintenance in the sanitarium where she had lived for many years, but they take the position that she had never been in need because her husband had adequately provided for her. Also, that testator clearly indicated that so long as his daughter was being adequately cared for, she was to receive only the income from the trust.
An examination of the terms of the will reveals that testator's first concern was to divide his estate between his son and his daughter, because he was concerned with the proper care of his daughter during her lifetime, he then provided that her share be held in trust upon the terms hereinbefore recited.
In the discharge of their obligation it became incumbent upon the trustees to first determine whether 'at any time the income from the corpus is insufficient to meet the needs of my daughter.' It was stipulated at the trial that the income was not sufficient for that purpose. It then became necessary for the trustees to determine in their 'sole discretion' the amounts to be paid from the corpus to meet her needs. Estate of Ferrall, supra, 92 Cal.App.2d 712, 715, 207 P.2d 1077.
The evidence shows that the trustees, having determined that the income from the corpus was not sufficient for the maintenance of the beneficiary, proceeded to consider whether she had other sources of income sufficient to meet her needs. In so doing, they considered the vested interest of the beneficiary in the community property and a small income from her separate estate. Then, having ascertained that her bills at the sanitarium were being paid, they refused to pay any amount from the corpus to meet her needs, care and comforts.
There is nothing in the terms of the will which indicates that testator intended that his daughter be in actual need before recourse to the corpus of the trust estate should be made. As a result, by their refusal to invade the corpus, trustees exceeded their powers and abused their discretion.
'The extent of the discretion conferred upon the trustee depends primarily [248 P.2d 112] upon the manifestation of intention of the settlor. The language of the settlor is construed strictly so as to effectuate the purposes of the trust. The mere fact that the trustee is given discretion does not authorize him to act beyond the bounds of a reasonable judgment. The settlor may, however, manifest an intention that the trustee's judgment need not be exercised reasonably, even where there is a standard by which the reasonableness of the trustee's conduct can be judged. This may be indicated by a provision in the trust instrument that the trustee shall have 'absolute' or 'unlimited' or 'uncontrolled' discretion. * * * In such a case the mere fact that the trustee has acted beyond the bounds of a reasonable judgment is not sufficient ground for interposition by the court, so long as the trustee acts in a state of mind in which it was contemplated by the settlor that he would act. But the court will interfere if the trustee acts in a state of mind not contemplated by the settlor.' Section 187, Comment j, Restatement, Trusts.
'Both counsel agree that the governing principle must be the intention of the settlor, which intention must be gathered from the general purpose and scope of the agreement, as indicated in Title Insurance & Trust Co. v. Duffill, 191 Cal. 629, 642, 218 P. 14. In that case it is stated that if there be any doubt or uncertainty in the trust it will be construed, if possible, in favor of the beneficiary and against the trustee. See, also, Williams v. MacDougall, 39 Cal. 80; and Estate of Canfield, 80 Cal.App.2d 443, 181 P.2d 732, where it is stated that the basic inquiry, whenever the exercise of a trustee's discretion, absolute or otherwise, is challenged, is always whether the trustee acted in the state of mind contemplated by the trustor.' Estate of Greenleaf, 101 Cal.App.2d 658, 661, 225 P.2d 945, 948.
In support of this proposition, respondent cites In re Hart's Will, Sur., 97 N.Y.S.2d 857, 859, where it is said:
'An examination of the will as a whole shows that the primary purpose of the testator was to provide for his wife. * * * In his evident endeavor to assure the effectuation of such stated primary purpose the testator directed his trustees to use not exceeding five per cent of the principal of the trust in any one year to make up any deficiencies of income to provide for the maintenance of his wife. He did not make a condition to the exercise of such power that his widow be shown to be in financial need. * * * Also, it is significant that in providing for invasion of principal in the clause under consideration the testator expressly referred to the 'income from the principal of the trust established for my wife * * *'. The language employed by the testator indicates that he desired to provide for the maintenance of his wife, without limitation, out of the income of the trust and if that proved to be insufficient, out of principal of the trust not exceeding, however, five per cent thereof in any one year. The Court concludes that there is no express or implied requirement that the trustees consider either the individual income of the beneficiary or her other resources.' (Emphasis included.)
Likewise here, it is clear from the expressed contingencies upon which the trust should terminate that the testator intended the beneficiary to have the full benefit of his gift to the exclusion of her husband. And that such benefits should be equal in all respects to those conferred upon her brother by the outright gift of an equal share to him.
The finding of the trial court that the trustees abused their discretion in refusing to invade the corpus of the trust estate has sufficient evidentiary support.
For the reasons stated, the judgment is affirmed.
WHITE, P. J., and DORAN, J., concur.