Opinion
October 9, 1933.
November 23, 1933.
Trusts — Trusts funds — Income payable to a class — Death of member of class without issue — Income payable to survivors of class — Life estate.
Where the income of a trust fund created by a testator is payable to a class, and one of the class dies without issue, the income formerly payable to him will be awarded to the survivors of the class rather than to his personal representative unless a contrary intent clearly appears from the will. In the absence of such a clearly expressed contrary intent, the gift of income to the class is construed to be a life estate, with remainder over to the surviving members of the class.
Trusts — Spendthrift trusts.
The fact that a testator exempts the income of a trust fund from liability for the cestui que trust's debts, does not affect the quantum of the estate created by the trust, but only protects the cestui que trust in its enjoyment.
Nixon's Estate, 306 Pa. 261 followed.
Appeal Nos. 270 and 271, October T., 1933, by Fidelity-Philadelphia Trust Company, executor of Paul S. Keller, deceased, from decree of O.C., "Enterprise Trust," January T., 1885, No. 478 and "25th Ward Trust," January T., 1885, No. 478, in the case of Estate of Jacob K. Smith, deceased.
Before KELLER, CUNNINGHAM, BALDRIGE, STADTFELD, PARKER and JAMES, JJ. Affirmed.
Exceptions to adjudications. Before SINKLER, J.
The facts are stated in the opinion of the Superior Court and the following excerpts from the will of Jacob K. Smith:
"Item: I order and direct that my said executors and the survivor of them shall collect and receive the rents, issues and profits of my real estate situate on the east side of Front Street and west side of Fillmore Street, and on the south side of Somerset Street, and north side of Sterner Street, and on both sides of Seltzer Street and Silvert Street; the same consisting of certain lots or pieces of ground and one hundred and thirty-seven messuages or tenements and other improvements now thereon erected situate as aforesaid in the Twenty-fifth Ward of the City of Philadelphia, and out of the said rents, issues and profits shall keep the said real estate in good order and repair and pay the taxes and all other charges thereupon and hold the said real estate and distribute and dispose of the net income thereof quarterly in the manner following, that is to say: one-fourth thereof to my son Mahlon K. Smith for and during his natural life, one other fourth part thereof to my son Jacob K. Smith, Jr., for and during his natural life. Sixteen hundred dollars per annum in quarterly payments of four hundred dollars each, part of one other fourth part of the said net income to my daughter Marianna Keller during her natural life, and the remainder of the said fourth part to her children in equal parts and shares; and the remaining one-fourth part thereof to my granddaughter Ida Amanda Kramer for her sole and separate use for and during the period of her natural life; and my will is that upon the decease of any of my said children or of my said granddaughter leaving issue, such issue shall take his, her or their parent's share of the said net income and in case any of my said children or my said granddaughter shall die without issue, the said net income shall be equally divided among the survivors of them and the issue of such of them as shall then be deceased leaving issue, such issue taking by representation his, her or their parent's share of the said net income until the death of the last survivor of them my said children and my said granddaughter when the said real estate shall go absolutely to the children of my said sons Mahlon K. Smith and Jacob K. Smith, Jr., and of my said daughter Marianna Keller and of my said granddaughter Ida Amanda Kramer in equal parts and shares by heads and not by stocks, so that each of them shall have an equal part and share thereof.
"Item: I give and bequeath to my said executors and the survivor of them all my stock in the Enterprise Manufacturing Company of Philadelphia, to hold the same, collect and receive the dividends and income thereof and distribute and dispose of the said dividends and income thereof as follows to wit: One-fourth part to my said son Mahlon K. Smith for his natural life; one other fourth part thereof to my said son Jacob K. Smith, Jr., for his natural life; one other fourth part to my said daughter Marianna Keller during her natural life and the remaining fourth part to my said granddaughter Ida Amanda Kramer for her sole and separate use during her life and it is my will that upon the decease of any of my said children or of my said granddaughter leaving issue, such issue shall take his, her or their parents' share of the said dividends and income, and in case any of my said children or my said granddaughter shall die without issue, the said dividends and income shall be divided among the survivors of them and the issue of such of them as shall then be deceased leaving issue, such issue taking by representation his, her or their parents' share of the said dividend and income until the death of the last survivor of them my said children and my said granddaughter, when the said stock shall go absolutely to the children of my said sons Mahlon K. Smith, and Jacob K. Smith, Jr., and of my said daughter Marianna Keller and of my said granddaughter Ida Amanda Kramer in equal parts and shares so that each of them shall have an equal part and share thereof.
"If before the arrival of the period for the distribution of the said stock as aforesaid, my said executors shall sell the same which I hereby authorize them to do upon the request in writing of all my children and my said granddaughter or the survivors of them or the said company shall wind up its affairs and go out of business, the principal moneys received from such sale or from the said company as the case may be shall be invested and held and the principal and interest thereof shall be distributed and disposed of as I have herein before directed with regard to the said stock and the dividends and income thereof."
The court dismissed the exceptions. Fidelity-Philadelphia Trust Company appealed.
Error assigned, among others, was the decree of the court.
Thomas Stokes, and with him Ernest Scott, for appellant, cited: Little's Appeal, 81 Pa. 190; Leech's Estate, 18 Dist. 527; Dillin's Estate, 18 Dist. 420.
Robert T. McCracken, and with him A. Evans Kephart, for appellees, cited: Nixon's Estate, 306 Pa. 261; Rowland's Estate, 141 Pa. 553; Maxwell's Estate, 261 Pa. 140.
Argued October 9, 1933.
We agree with the court below, that this case is ruled by Nixon's Estate, 101 Pa. Super. 152, affirmed by the Supreme Court in 306 Pa. 261, 159 A. 442, on the opinion of Judge LINN.
The clauses in Jacob K. Smith's will creating what is known as the Twenty-fifth Ward Trust and the Enterprise Trust, respectively, which are printed in the Reporter's note, are so similar to the pertinent provisions of the will of Martin Nixon, which are recited in Judge LINN'S opinion, supra, as to require, in our opinion, a like construction.
In Nixon's Estate a trust was created to continue during the lives of testator's four children and the survivor of them. Until the termination of the trust the income was to be divided equally among his children; in case of the death of any child without leaving issue him or her surviving, the portion of income of such child was payable to the survivors or survivor of his children for life; in case of the death of any child leaving issue him or her surviving, the portion of income payable to the parent of such issue prior to his decease was to be paid to such issue in equal proportions for and during the lives of the survivors and survivor of his children. On the termination of the trust the principal was distributable to and among the lawful issue of his children, per stirpes. A daughter, Martha B. Miller, died before the trust was ended, leaving two sons, Martin Nixon Miller and Charles Miller 2d. The grandson, Charles Miller 2d, died, during the continuance of the trust, without issue. The question for decision was who, since the death of Charles Miller 2d, was entitled to the share of income paid to him in his lifetime; his surviving brother or his personal representative? The question was decided in favor of the surviving brother.
In the present case, Marianna Keller, one of testator's children, died during the continuance of the trust, leaving three children, Paul S. Keller, Harry E. Keller, and Lillian K. Stulb, and no other issue. Paul S. Keller died subsequently, without issue. Both trusts created by the testator still continue. The question for decision is, who since the death of Paul S. Keller is entitled to the share of income paid to him in his lifetime; his surviving brother and sister or his personal representative? The ruling in Nixon's Estate requires a decision in favor of the surviving brother and sister. This is in accord with recent decisions of the Supreme Court which establish as a policy of interpretation that where under a trust created by a testator income is payable to a class, and one of the class dies without issue, the income formerly payable to him will be awarded to the survivors of the class rather than to his personal representative, unless a contrary intent clearly appears from the will: Maxwell's Est., 261 Pa. 140, 104 A. 501; Rowland's Est., 141 Pa. 553, 21 A. 735. In the absence of such a clearly expressed contrary intent, the gift of income to the class is construed to be a life estate, with remainder over to living issue, (Rowland's Est., 151 Pa. 25, 29), the purpose being to deal with the beneficiaries in classes and upon the death of any one without issue, the class as to him fails, and his life estate falls in: Maxwell's Est., supra, p. 146.
The only substantial difference between this will and Martin Nixon's rests in the fact that under the trust created by Nixon's will the income was payable to the recipients without liability for the payment of their debts, while under the trusts created by Jacob K. Smith's will there is no such provision.
A careful reading of Judge LINN'S opinion in Nixon's Estate convinces us that the decision in that case was not dependent on the spendthrift clause in the will; that it would have been the same had the spendthrift clause been absent. He based the decision on the rulings of the Supreme Court in Maxwell's Est., supra; and Rowland's Est., supra, and in none of the three wills construed in those cases was there a spendthrift trust involved.
One phrase in Judge LINN'S opinion is relied on by appellant, to distinguish Nixon's Estate from this case, viz., "All possible doubt about the intention to benefit only living children and living grandchildren is removed by the provision, quoted above, exempting the income from liability for debts." As we read the opinion, this expression was merely added to clinch the argument, as presenting additional evidence that the testator's intention coincided with the policy of interpretation adopted by the Supreme Court; but even without it, the ruling would have been the same. An analysis of the nature of a spendthrift trust shows that it does not affect the quantum of the estate created by the trust, but only protects the cestui que trust in its enjoyment.
Following the authority of Nixon's Estate, supra, which, in turn, followed Maxwell's Estate, supra, the appeal is dismissed and the decree of the court below is affirmed at the costs of the appellant.