Summary
In McCullough v. McCullough, 44 N. J. Eq. 313, 14 Atl. 123 (Runyon, Ch., 1888), an application was made by trustees for instructions as to investing on lands in Minnesota.
Summary of this case from Macy v. Mercantile Trust Co.Opinion
05-29-1888
MCCULLOUGH'S EX'RS v. MCCULLOUGH et al.
Edward M. Colie, for complainants.
(Syllabus by the Court.)
On bill for instruction to trustees.
Edward M. Colie, for complainants.
MCGILL, Ch. By their bill the complainants represent that William McCullough died at Orange, in this state, the place of his domicile, on July 17, 1878, leaving a will which bears date on December 10, 1877, and a codicil to it which is dated January 26, 1878. By these instruments he placed in trust, in the hands of the complainants, who are the executors of the will and codicil, several large sums of money as follows: The sum of $3,000, the interest of which is to be paid to the testator's widow for her life, and the principal, at her death, to a grandson of the testator, or, if he shall then have died without issue, to others, who are named; three sums of $5,000 each, upon which interest is to be accumulated, for the ultimate benefit of three grandchildren of the testator; the sum of $10,000, the interest, and if necessary the principal, of which, is to be paid to the testator's son William, as his and his family's needs may require; the sum of $20,000, the interest of which is to be accumulated, and paid, with the principal, to a grandson of the testator when he shall become 30 years of age, unless before then his necessities may require that he shall be paid some part of the interest. When the will and codicil were made, and at the time of the testator's death, the funds from which these moneys were directed to be taken were invested upon mortgages on lands in the state of Minnesota. After the testator's death, the Minnesota investments were continued by the executors until from time to time they were paid in. As mortgages were thus paid off, the trustees reinvested the moneys received in other mortgages on lands in Minnesota, and hitherto have kept them thus invested. The mortgages they have taken are very numerous, and, in the main, are taken to secure small sums. No attempt has been made to separate the trust funds from each other, or from the body of the estate, and to keep the investments of the several funds distinct. The mortgages referred to bear various rates of interest, ranging from 7 to 12 per centum per annum; and the executors, to determine what interest each fund is entitled to, have apportioned the aggregate interest received among the various funds in the proportions that those funds severally bear to the whole principal invested. The trustees are both residents of Minnesota, and enjoy facilities for making and managing investments in that state. They now ask to be instructed—First, whether the several trust funds must be kept separately invested; and, second, whether the investments may be upon mortgages on lands in Minnesota.
The first inquiry must, without hesitation, be answered in the affirmative. Each fund is a distinct trust for the benefit of distinct cestuis que trustent. It must be kept separate from all other funds, so that every step in its management may be distinctly traceable in the accounts of the trustees, and in the investments they make. The trust must not, through investment, be complicated with the rights of strangers, or required to share in the losses of other funds. 1 Perry, Trusts, § 463; Fowler v. Colt, 25 N. J. Eq. 202, 27 N. J. Eq. 492.
I am satisfied that the second question should be answered in the negative. The courts of a state within which a trustee must account, should hesitate to sanction an investment upon the security of lands which are not within their jurisdiction, not merely because, in such case, they will be left without the proper facilities to obtain accurate and satisfactory information concerning the investment, but also because they will lose direct control of the fund itself.125In cases where the trustee is without the jurisdiction, it becomes more important that the fund should be within it; for otherwise the courts may find themselves stripped, not only of power to properly investigate the condition of the trust, but also of power to enforce their decrees. Again, both the trustee and the cestui que trust are interested in the proper investment of the trust fund; the one because of the duty and responsibility which rest upon him, and the confidence that is reposed in him, and the other because of the beneficial value that proper security is to him. In subserving these respective interests, it is incumbent upon both the trustee and the cestui que trust to constantly watch the investment of the trust fund, and be on the alert to protect it from harm. To afford opportunity for this watchful care, the funds should be invested within the convenient reach of both parties. Judge FINCH, of the New York court of appeals, in the case of Ormiston v. Olcott, 84 N. Y. 339, in commenting upon the mischief of permitting a trustee to invest trust funds in another state, says: "It would be unjust to the beneficiaries to compel them to accept such investments, and tend to increase the risk of ultimate loss. The proper and prudent knowledge of values would become more difficult and uncertain. Watchfulness and personal care would, in the main, be replaced by confidence in distant agents; and legal remedies would have to be sought under the disadvantage of distance, and before different and unfamiliar tribunals." In the case under consideration the trustees have the trust funds without this state, and they are themselves non-residents, while a majority of the cestuis que trustent reside within the state's limit. The continuance of such a condition of affairs must be condemned. If it remains, the happening of circumstances may readily be imagined that may not only put the beneficiaries of the trust to great annoyance, disadvantage, and expense, but also render our courts powerless to do them material service. I should not overlook the fact that among the numerous and small mortgages that are held by these trustees some may fail, and thereupon question may then arise whether the investments in them were made with requisite care and prudence, and necessitate inquiry into values and other particulars in the locality of the lands mortgaged, in which inquiry the trustees would have the manifest advantage, in a contest with their distant cestuis que trustent, of being able to produce evidence from familiar surroundings, at little expense, while their opponents would be obliged to seek for evidence among strangers, in a strange community, and possibly at an expense not at all commensurate with the injury for which they may desire redress. I do not think that the high rates of interest that are had in Minnesota, or the convenience of the trustees, should influence me to overlook the dangers to which the beneficiaries may be subjected. The fact that the testator made such investments will not justify the trustees in continuing them. His position, as owner of the funds in his own right, was vastly different from the position of confidence and responsibility which the trustees occupy. The will gives no express authority for the investments as they are made, and I fail to find such authority in it by necessary or reasonable implication. The trust funds should be brought within the state, and invested here in securities approved by this court.