Opinion
May 9, 1949.
1. Trusts — testamentary trusts — purpose of will creating, effect of.
When it is evident from the reading of will that it was the purpose of the testator that his wife should receive as large an income from the trust estate as possible consistent with safety, and it is shown that the present investments are safe, and that while a reinvestment in bonds would increase the value of the trust estate, that at the same time, it would reduce the wife's income therefrom, it was proper for the court to authorize a successor trustee to retain the existing investments.
2. Trusts — reinvestment of trust property — when ordered in equity.
A court of equity will not order the sale of trust property and the reinvestment of its proceeds merely to increase the value of the trust estate, but will do so when necessary to effectuate the purpose of the trust or to prevent the loss or destruction of the trust estate.
Headnotes as approved by Alexander, J.
APPEAL from the chancery court of Lauderdale County, ROY P. NOBLE, Chancellor.
Robert G. Gillespie, for appellant.
It will be noted from the third paragraph of the Last Will and Testament of Leonard Hart, deceased, that Cyril Hart, the brother of testator was vested with considerable discretion as to the conversion of the estate into money and the reinvestment thereof. Since we agree with the holding of the chancellor that the discretion vested in Cyril Hart is not enjoyed by the present substituted trustee, then we have no help whatsoever from the Will as to whether the estate should be retained in its present form, or, that is to say, the form in which the testator held before his death, or whether it should be converted into cash and invested as directed by the court.
Under the general subject of Trusts, we find the following objects of investment set forth in 54 Am. Jur. 292: "Investment of capital in income-producing property is a normal goal of men both with respect to their private estates and with respect to property that they have settled in trust, but in the former instance they may be willing to take risks in order to realize a greater income than otherwise possible, whereas in the latter instance safety is almost always a prime consideration. The objects of trust investments are safety and income for the trust estate, or income consistent with safety, safety being the first and income the second consideration to the ultimate and that the trust estate will pass to the beneficiaries without loss and with profit from the income produced."
We think that the principal inquiry of this appeal is the duty of the trustee as to existing investments. In this regard we find the following quotations from 54 Am. Jur. 295: "When not otherwise restricted or limited by the terms of the trust, the power and duty of the trustee with respect to the retention, disposal, or change of investments belonging to the trust estate when he becomes trustee are in general the same as his power and duty with respect to the making of trust investments. The prime considerations are the safety of the investments and the earning of income.
"Where the existing investments that come to him with the trust estate are proper investments, he should not change them unless directed or authorized to do so by the terms of the trust. In an emergency a trustee may, without judicial approval, make an exchange of investments that came to him with the trust estate where they endanger the security of the estate, but he does so at the hazard of being held liable for any loss that may result therefrom. It will be observed that power and duty of a trustee to make such an exchange of existing investments approaches and ultimately becomes a question of the power and duty of a trustee to dispose of improper or unsafe investments.
"A trustee may take nonlegal or unauthorized trust investments where they come to him as part of the trust estate, but while it has been held that when acting in good faith and in the exercise of a sound discretion he retains such nonlegal investments, he is not liable for a depreciation in their value, according to many authorities he is under duty to convert nonlegal investments that come to him into legal and authorized holdings within a reasonable time, unless the terms of the trust direct retention of such investments."
In connection with the rule laid down hereinabove, we think it significant that the testimony tends to show that the stocks held by the trustee are top flight stocks of a higher grade and it appears that they are about as good stocks as can be obtained.
The appellant herein, the present trustee of the Trust Estate created under the Last Will and Testament of Leonard Hart, deceased, respectfully submits to this court that his sole desire in this matter is to lawfully handle the Trust Estate in such manner as not to subject himself to liability and he further submits to the court that he has no personal interest one way or the other as to whether the estate is kept in its present condition, presently yielding approximately $3,000.00 a year to the life tenant or whether it is converted into cash and reinvested into assets that will probably bring less than half that amount to the life tenant. Appellant reiterates that under the circumstances of this case the leaving of the assets in their present condition involves certain risks in the event of a general economic decline as testified to by witness F.Y. Whitfield and that under the holding of the various courts of the country, particularly the New Jersey court, if some of the corporations whose stocks are now held should be paying dividends out of royalties or other assets of a wasting nature that no reasonable inquiry the trustee could make would necessarily reveal this fact and he could be possibly held liable for his failure to do so. The appellant therefore respectfully submits that the lower court erred in requiring him to hold the estate in its present condition, notwithstanding the fact that over a period of more than ten years the estate has increased in value in excess of 25%.
Bozeman Bozeman, for appellee.
It is manifest from the will of the testator, Dr. Hart, that his intent was that his widow should have an ample support from that part of his estate acquired by him from the estate of his parents, Ben and Ida Hart, being the trust estate;
And further, that such support should be furnished by the income from the trust estate; so that the corpus or remainder of the estate might go, upon the death or remarriage of his wife, to his heirs and relatives rather than to those of his wife.
To carry out the intent of the testator, the trust estate should be so maintained or invested as to produce, if possible, an income sufficient to provide the necessary support for his wife, so long as she remains his widow, in order that as much of the residue as possible should go to his relatives, the heirs of the bodies of Ben and Ida Hart.
Any reinvestment of the trust funds which would reduce the income to an amount less than needed for the comfortable support of the widow would necessarily bring about a sale or conversion into money of a part of the corpus of the trust estate, and the reduced income would have to be supplemented in this way each year, so long as the widow remains alive and unmarried, with the result that the corpus would be thus consumed to the detriment of the remainder men. It follows that so long as the trust investments, which bring in a good income, are safe, it is to the interest of all concerned that the investments should not be changed to others producing a less income although they might be regarded as somewhat safer.
The courts of Mississippi, since the case of Smyth v. Burns, 25 Miss. 422, cited in Lamar v. Micou, 112 U.S. 452, 28 L.Ed. 757, approved the investment of trust funds in the stock of private corporations where the corporations are established and reasonably safe and not merely speculative ventures.
The rule in Mississippi is to make such investment of trust funds as a prudent man would make of his own property, having primarily in view the preservation of the estate and the amount and regularity of the income derived therefrom. Restatement Law of Trusts, Section 227, Page 645.
It is said in Section 227, Page 651, of this text that: "Shares of Stock. The purchase of shares of preferred or common stock of a company with regular earnings and paying regular dividends which may reasonably be expected to continue is a proper trust investment, if prudent men in the community are accustomed to invest in such shares when making an investment of their savings with a view of their safety."
The record shows that these particular stocks were purchased or acquired by Ben and Ida Hart, the parents of Dr. Leonard Hart, during their lifetime as an investment for their own purposes; that most of these stocks were listed on the New York Stock Exchange with daily market quotations of value and are stocks of the higher type, paying regular dividends.
Unless it is otherwise provided by the terms of the trust, if property held in trust to pay the income to a beneficiary for a designated period and thereafter to pay the principal to another beneficiary, produces no income or an income substantially less than the current rate of return on trust investments, and is likely to continue unproductive or under production, the trustee is under a duty to the beneficiary entitled to the income to sell such property within a reasonable time. Restatement Law of Trusts, Sec. 240, Page 728. But not so when the investment is reasonably safe, and the income good and the effect of such sale would be to reduce the income.
In making or keeping investments of trust funds, the trustee and the court must have in mind not only the safety of the investment, but also the income to be derived from the investment, where the income is bequeathed to one beneficiary during her widowhood and the corpus remaining to other beneficiaries.
"A court of equity will not order the sale of trust property and the reinvestment of the proceeds merely for the purpose of increasing the value of the trust estate, but will order such a sale and reinvestment when so to do is necessary in order to effectuate the purpose for which the trust was created or to prevent the loss or destruction of the trust estate." Mayes v. Mayes, 133 Miss. 213, 227.
We submit that neither of these reasons for sale and reinvestment exist in this case.
Without a further detailed discussion of them, we submit that the citation of authorities made by the appellant confirm the propriety of maintaining these investments as they are, under the rule in force in the State of Mississippi.
We submit this further reason why the decree of the court below should be affirmed.
"The chancery court exercises discretion in the supervision of trusts, and an appellate court will not vacate the chancery court's rulings unless such discretion is abused." Reedy, et al. v. Johnson's Estate, 200 Miss. 205; Yeates v. Box, 198 Miss. 602.
Petition was filed by the trustee under the will for a construction thereof and for directions regarding the sale and reinvestment of certain securities. Under the third item of the will the following provision was made: "It is my will and desire that my beloved brother, Cyril Hart, of Jackson, Mississippi, be appointed trustee of any estate that I, or my estate may inherit from my beloved parents, Ben Hart and Ida Hart. The said Cyril Hart, as trustee, shall have the power in his discretion to convert into money such parts of the trust premises as shall not consist of money, and shall have the power, and I enjoin him, to invest all proceeds from such conversion, together with all other monies left me or my estate by my beloved parents, Ben Hart and Ida Hart, in improved real property, or to the best of his judgment. . . ." The said trustee having declined to act, another trustee was appointed by the court. The petition was filed by a successor to the last named trustee. There was filed as an exhibit to the petition a list of the investments held by the trustee, most of which are stocks listed upon the exchange and the income from which is approximately $3,000. There was testimony that these securities are of a high grade and are reasonably stable in value.
The chancellor found that the trust estate was satisfactory in the present situation, and that there was no circumstance indicating a necessity for the sale and reinvestment of such funds in municipal and other bonds. The beneficiary of the trust, who is the widow of Leonard Hart, testified that such reinvestment would result in a disadvantageous reduction in her income and that her needs required it to be maintained at its present level.
We find intimations in the record that the trustee, in filing his petition, was influenced by an anxiety lest he be held personally liable for any losses which might occur in maintaining the investments in corporate stocks. Such anxiety was dispelled by the chancellor whose decree adjudicated that regardless of the discretion which may have been vested by the will in the testamentary trustee named therein, who was his brother and an experienced banker, such discretion did not pass to a successor appointed by the court; and he further decreed that the investments shown in the inventory of the trustee were satisfactory both as to safety and income and were not such investments as were forbidden by any statute of this state. It was further decreed that the trustee cause to be valued each item of these securities by a reputable banking firm every six months "so that the court may make such order from time to time as the court may deem proper, in the light of the value of said securities as will be reported from time to time as herein directed." It was further decreed that any balance in the corpus account of the trust estate shall be invested in real property, if practicable, or in federal, state, or other municipal bonds, and that the trustee pay to the widow all funds on hand in the income account except such as is necessary for administrative costs.
(Hn 1) It is evident from the reading of the will that it was the purpose of the testator that his wife should receive as large an income as possible, consistent with safety. In this connection Mayes v. Mayes, 133 Miss. 213, 97 So. 548, 550, is in point. It was there stated: "Counsel for all of the parties agree that the power given to the testamentary trustee to sell the trust property and to reinvest the proceeds thereof was personal to him, and did not pass to his successor, which construction of the power will be accepted by us without expressing any opinion thereon. (Hn 2) A court of equity will not order the sale of trust property and the reinvestment of its proceeds merely for the purpose of increasing the value of the trust estate, but will order such a sale and reinvestment when so to do is necessary in order to effectuate the purpose for which the trust was created or to prevent the loss or destruction of the trust estate." In this connection Reedy v. Johnson's Estate, 200 Miss. 205, 26 So.2d 685, and Yeates v. Box, 198 Miss. 602, 22 So.2d 411, are pertinent.
Affirmed.