Boston Safe Deposit & Trust Co. v. Stone

• Decision Date: 07 January 1965
• Citation: 348 Mass. 345,203 N.E.2d 547
• Parties: BOSTON SAFE DEPOSIT AND TRUST COMPANY et al., Trustees, v. Edward H. STONE, 2nd, et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 547

203 N.E.2d 547

348 Mass. 345

BOSTON SAFE DEPOSIT AND TRUST COMPANY et al., Trustees, v. Edward H. STONE, 2nd, et al.

Supreme Judicial Court of Massachusetts, Middlesex.

Argued Dec. 8, 1964.

Decided Jan. 7, 1965.

Roger B. Coulter, Boston (William A. Cotter, Jr., Boston, with him), for Boston Safe Deposit & Trust Co. and another, trustees.

Paul V. Power, Boston, for Mildred Stone and another.

Robert D. Kilmarx, Boston, guardian ad litem, pro se.

Lloyd P. Smith, Malden, for Edward H. Stone, 2nd.

Before WILKINS, C. J., and CUTTER, KIRK, and REARDON, JJ.

CUTTER, Justice.

The trustees filed their first, second, and third and final accounts as trustees under section (4) of the will of Edward H. Stone (the testator). The testator's grandson, Edward H. Stone, 2nd (Edward), objected to certain items. The probate judge allowed the first account as filed and the second and third accounts with modifications. The trustees, a guardian ad litem, and the testator's two daughters appealed. The evidence is reported. There is a report of material facts.

The testator died in 1940. By section (4) of his will he left to his son Robert as trustee certain shares of the capital stock of Stone & Forsyth Company (the S. & F. shares). ¹ The testator's widow was to receive the income for her life, and at her death the income was to be paid 'in equal shares to * * * [the testator's] children; and if any child * * * be then deceased, said deceased child's share of income shall be paid to his or her heirs.' ²

In 1953, Robert was succeeded as trustee by Boston Safe Deposit and Trust Company (the bank) and Mr. Joseph W. Worthen, as contrustees. Shortly thereafter, Robert died. His son Edward survived him. When the testator's widow died in 1958, by the terms of the trust Edward became entitled ³ to a one-ninth share of the trust principal (i. e. 'such part of the principal * * * as in the opinion of my trustees shall be proportionate to * * * [his share] of current income').

The trustees, in 1958, sought instructions concerning the distribution to Edward. The decree on their petition stated that Edward was 'entitled to one-ninth of * * * [the] trust fund' and the trustees were ordered, 'in their discretion, [to] pay to * * * Edward * * * his distributive share * * * [subject to certain reserves to meet possible liabilities of Edward] in cash or in kind in accordance with the provisions of * * * [the testator's] will.' Doubtless, these instructions were given in the light of section (18) of the testator's will, which reads, 'Whenever my * * * trustees shall have occasion to * * * pay over any portion * * * of any estate held in trust under my will, they shall have full power to select and allot * * * for said purpose such portions of the property * * * in their possession * * * as they may deem to represent fairly in value the portion or portions so to be * * * paid over; and the judgment of my * * * trustees * * * as to the propriety of such allotment shall be conclusive on all persons interested in my estate. In making distribution and payments or other divisions of the assets of the * * * trust, the * * * trustees may make * * * payments or divisions without formal appraisal or sale, and they shall be made upon the basis of the then value of the assets as nearly as the same can be reasonably determined by my * * * trustees * * *' (emphasis supplied). ⁴

The subsequent actions of the trustees are reflected in their three accounts. These facts are stated below in discussing Edward's objections to these accounts. 1. In making the distribution to Edward, the trustees determined the market value of the whole trust fund on October 16, 1959, to be $590,911.93. Edward's one-ninth share was $65,656.88. In their computations, the trustees fixed the value of the trust's 1,782 S. & F. shares at $110 per share. Schedules A-2 and B-1 of the second account show that securities and cash having a market value of $65,656.88 were set aside in a special fund for distribution to Edward. No. S. & F. shares were included in this special fund.

Edward objected to the trustees' valuation of the S. & F. shares at $110 per share as of October 16, 1959. The probate judge determined that the S. & F. shares should have been valued at $236 per share, approximately eightly per cent of the then book value of each share. The judge apparently concluded that the testator desired Edward to take 'a percentage of the book value of the shares of stock' rather than to receive his share based upon the trustees' 'appraisal based upon the market value' of the shares. He ordered the accounts restated to substitute the figure of $236 a share for that of $110 a share.

The trustees' authority to distribute in cash or in kind (see section of the will) has been established by the decree giving instructions. It does not appear now to be argued that the trustees acted improperly ⁵ in paying Edward's one-ninth share in cash and property ⁶ other than S. & F. shares, if they did so on a fair basis.

A trustee in 'distributing the trust property in kind * * * must make the division in accordance with the fair market value of the property at the time of distribution.' Restatement 2d: Trusts, § 347, comment h. See Scott, Trusts (2d ed.) §§ 347-347.7. See also G.L. c. 203, § 25; Gleason v. Hastings, 278 Mass. 409, 414-415, 180 N.E. 129. Thus, when the trustees decided not to distribute one-ninth of the S. & F. shares in kind to Edward, ⁷ it became necessary for the trustees (1) to determine the current fair market value of the whole trust fund in dollars, (2) to compute the value of Edward's one-ninth share in dollars, and (3) to distribute to him cash and property having a fair market value at that time equal to the dollar value of that one-ninth share. These computations plainly would not have been difficult if there had been an active market in S. & F. shares so that their fair market value could have been determined on the basis of current sales. Although the record contains only meager findings and evidence concerning the S. & F. shares, it is apparent (1) that the shares were not readily marketable and were subject to a restriction on their transfer, and (2) that the only dealings in the shares were occasional purchases for the corporate treasury at $100 per share and sales at that price of treasury shares to employees. In the absence of a reasonable volume of open market sales of such stock in a 'close' corporation, other criteria, in addition to current prices, necessarily must be used in deciding what a ready, willing buyer under no compulsion to buy would pay a ready, willing seller under no compulsion. See, as to other types of property without an active market, Newton Girl Scout Council, Inc. v. Massachusetts Turnpike Authy., 335 Mass. 189, 195, 138 N.E.2d 769. This type of problem is frequently encountered in appraising closely held securities for inheritance or estate tax purposes. See G.L. (Ter.Ed.) c. 65, § 13; Rabkin & Johnson, Federal Income, Gift, and Estate Taxation, § 52.11, especially subpars. (1), (2), (5), (7), and (10); Federal Estate Tax Regulations (1958), § 20.2031-2; C.C.H. Fed. Estae and Gift Tax Reporter, par. 1202; annotation, 117 A.L.R. 143, 149-162. The valuation problem is in various respects analogous to that in a statutory appraisal of the type considered in Martignette v. Sagamore Mfg. Co., 340 Mass. 136, 141, 163 N.E.2d 9.

The authority given by section (18) did not confer upon the trustees any discretionary power to vary the trust's dispositive provisions or to benefit in any way one beneficiary at the expense of another. Administrative trust provisions comparable to section (18) are ordinarily designed merely to simplify distribution and to make unnecessary requests for court instructions. Such a provision gives to trustees no discretion to shift beneficial interests in the trust assets such as exists under a fiduciary power to expend principal, upon the standards apparent from the trust instrument, for a life beneficiary (see COPP V. WORCESTER COUNTY NATL. BANK, MASS. ), 199 N.E.2D 200.^A Instead, such a provision, in respect of valuation, merely places upon the trustees the quasi-judicial duty of determining a fact, i. e. the fair market value of particular property at the time of its distribution. In the exercise of such a power, trustees must act with complete objectivity in attempting to distribute the trust assets as directed by the trust instrument.

The language of section (18) shows an intention that the valuation be made by the trustees and that their honest, reasonable judgment, given after due consideration of all relevant factors, shall be determinative. This does not mean that the power given by provisions of the type found in section (18) is unrestricted or free from judicial scrutiny. Indeed, even with respect to very broad discretionary powers, 'a court of equity may control a trustee in the exercise of a fiduciary discretion if it acts beyond the bounds of a reasonable judgment or unreasonably disregards usual fiduciary principles, or the purposes of the trust, or if it fails to observe standards of judgment apparent from the applicable instrument.' Such fiduciary powers cannot be used arbitrarily, capriciously, or in bad faith, but must be 'exercised after serious and responsible consideration, prudently, and in accordance with fiduciary standards.' See COPP V. WORCESTER COUNTY NATL. BANK, MASS., 199 N.E.2D 200.^B See also Price v. Price, 341 Mass. 390, 392-393, 170 N.E.2d 346; Restatement 2d: Trusts, § 187; Scott, Trusts (2d ed.) §§ 187-187.2. ⁸

The evidence discloses that the trustees did carefully consider the value of the S. & F. shares. There is no basis in the evidence for finding dishonesty, lack of good faith, arbitrary or capricious action, or a decision beyond the bounds of a reasonable judgment. Mr. Worthen testified (a) that, in view of the litigation brought against him by Edward (fn. 4), he...