Corretti v. First Nat. Bank of Birmingham

• Decision Date: 05 April 1973
• Citation: 276 So.2d 141,290 Ala. 280
• Parties: Douglas P. CORRETTI, as Administrator Ad litem of Estate of Margaret Gage Bush, Deceased v. The FIRST NATIONAL BANK OF BIRMINGHAM, as Trustee under the Will of Morris W. Bush, Deceased, et al. SC 159.
• Court: Alabama Supreme Court

Page 141

276 So.2d 141

290 Ala. 280

Douglas P. CORRETTI, as Administrator Ad litem of Estate of Margaret Gage Bush, Deceased v. The FIRST NATIONAL BANK OF BIRMINGHAM, as Trustee under the Will of Morris W. Bush, Deceased, et al.

SC 159.

Supreme Court of Alabama.

April 5, 1973.

Corretti, Newsom, Rogers, May & Calton, Birmingham, for Douglas P. Corretti, Administrator Ad Litem of the Estate of Margaret Gage Bush, deceased, for appellant.

Abe Berkowitz, Jackson M. Payne, Birmingham, Sydney R. Prince, III, Mobile, for appellees Gage Bush Englund and Sydney R. Prince, III as Executors Under the Will of Margaret Gage Bush and Gage Bush Englund, Individually.

Lucien D. Gardner, Jr., and E. T. Brown, Jr., Birmingham, for appellee The First National Bank of Birmingham as Trustee under the Will of Morris W. Bush.

PER CURIAM.

This appeal challenges a decree of the Circuit Court of Jefferson County, in Equity, in regard to the sources from which compensation is to be paid to a testamentary trustee.

Morris W. Bush died on January 24, 1932. His will was duly admitted to probate by the Probate Court of Jefferson County on February 10, 1932.

The First National Bank of Birmingham was appointed both executor and trustee. For the purposes of this appeal, November 6, 1933, is treated as the day on which the order was rendered by the Probate Court authorizing The First National Bank of Birmingham as executor to deliver to itself as trustee the assets of the residuary estate of Morris W. Bush, deceased, and as the day on which the transfer was made. In other words, we will treat the trust as having been funded or established for implementation on November 6, 1933.

On the day that the trust was established, Mrs. Margaret Gage Bush, the widow of Morris W. Bush, was the sole beneficiary and was entitled to receive all of the net income from the trust estate.

Mrs. Margaret Gage Bush died on June 27, 1971. At the time of her death Mrs. Gage Bush Englund, the daughter of Morris W. and Margaret Gage Bush, became the sole income beneficiary of the said trust estate under the terms of the will of Morris W.Bush.

The will, the trust instrument, provided that the trustee be compensated for its services as follows:

'. . . a sum equivalent to five per cent (5%) of the gross income from the trust estate as and when such income is disbursed or distributed (current compensation) plus an additional sum at the end of each ten (10) year period figured from the date of the establishment of this trust equivalent to two percent of the reasonable value of the principal of the Trust Estate at the time such additional payment is payable, (hereinafter referred to as ten-year compensation), all of such compensation to be deducted from the income of the trust estate.'

We are concerned here only with the ten-year compensation.

November 6, 1943, was the first date that the ten-year compensation was payable to the trustee under the literal language of the provisions of the will above quoted. It was deducted by the trustee from the income of the then life beneficiary, Mrs. Margaret Gage Bush in several installments during the years 1943 and 1944.

On February 27, 1948, the head of the trust department of the trustee bank wrote Mrs. Bush, the then life beneficiary, pointing out the large amounts which had been deducted from her income over a limited number of years in order to pay the trustee its ten-year compensation due and payable on November 6, 1943. In that letter, the trust officer suggested that the trustee begin to set up a reserve for the purpose of reducing the burden on Mrs. Bush of paying the ten-year compensation in any one year. The trust officer further suggested to Mrs. Bush that the reserve be spread over a period of six or seven years and advised her that the reserve could be invested with the income therefrom paid to Mrs. Bush until the ten-year compensation was actually due and paid. Mrs. Bush gave her written approval to the suggestions made to her in the trust officer's letter of February 27, 1948.

The plan for spreading the ten-year compensation which was finally adopted by the trustee was not the plan suggested in the letter of February 27, 1948.

The plan which the trustee adopted for that purpose called for Mrs. Bush to pay the ten-year compensation that would be due on November 6, 1953, and each ten- year period thereafter in ten annual installments, by deductions out of income during each of the five years preceding the due date of the compensation and each of the five years following the due date. The five annual installments payable prior to the due date were based on the amount of the ten-year compensation on the last preceding due date, and were each one-tenth of that amount. When the due date of the ten-year compensation arrived, the actual amount of the compensation would be determined based on the fair market value of the corpus at that time. The sum of the five annual installments which had been paid would be deducted from the amount of the compensation as so computed, and the balance of the compensation would be divided into five annual installments and deducted from income in the succeeding five years.

The plan as adopted was set out in a memorandum of the trust department of the trustee bank dated March 31, 1948. It is apparent from the memorandum that its author was of the opinion that it was within the scope of the suggestions made by the trust officer in his letter to Mrs. Bush under date of February 27, 1948, which suggestions, as shown above, met with the approval of Mrs. Bush. But Mrs. Bush did not expressly give her approval to the plan set out in the interoffice memorandum of March 31, 1948.

The trustee began to implement that plan in May, 1948, and continued to follow it with respect to the ten-year compensation. From the time the plan was implemented in May, 1948, until Mrs. Bush's death, the trustee rendered regular reports to her showing the deductions of compensation. There is nothing to indicate that Mrs. Bush ever objected to that method of paying the trustee the ten-year compensation.

The reasonable value of the principal of the trust has increased in each ten-year period. The ten-year compensation, therefore, has been larger in each successive ten-year period. As a consequence, the amount of each installment deducted from Mrs. Bush's income during the five years preceding the due date was less than the amount of each of the five installments deducted after the payment date.

The amount of the ten-year compensation payable November 6, 1963, was $125,459.28. That compensation was deducted by the trustee out of income pursuant to the plan, the last deduction being made May 6, 1968.

The next date on which the ten-year compensation will be due is November 6, 1973. Pursuant to the plan, the trustee deducted out of income with respect to the ten-year compensation that will be due it in 1973, the sum of $12,545.95 in each of the years 1969, 1970 and 1971. As a result of such deductions and partial payments, Mrs. Margaret Gage Bush contributed during her lifetime out of income of the trust estate otherwise payable to her the sum of $37,637.85 toward the payment of the ten-year compensation which will be due the trustee on November 6, 1973.

After the death of the first life income beneficiary, Margaret Gage Bush, the succeeding life income beneficiary Gage Bush Englund in her individual capacity made known to the trustee bank that she took the position that the expense of the ten-year compensation which will be due under the provisions of the trust instrument on November 6, 1973, should be apportioned between the estate of Mrs. Margaret Gage Bush and herself on the basis of their respective life interests during the period from November 6, 1963, to November 6, 1973; that the estate of Margaret Gage Bush should bear its said portion of such expense; and, that no part of such portion should be deducted from the income of the trust estate earned or accrued after June 27, 1971, the day on which Margaret Gage Bush died, which is due to be paid to Gage Bush Englund as the succeeding life income beneficiary.

The trustee bank being in doubt as to whether the estate of Margaret Gage Bush should pay any portion of the ten-year compensation for the period beginning November 6, 1963, and ending November 6, 1973, and being in doubt as to the portion of such compensation to be borne by Gage Bush Englund from the income of the trust estate earned and accrued since June 27, 1971, instituted this proceeding against Gage Bush Englund and Sydney R. Prince, III, as executors of the will of Margaret Gage Bush, deceased, to secure instructions and declarations as to how to properly administer the trust in regard to the ten-year compensation for the period of time last above mentioned, and in another respect not involved on this appeal.

The respondents Gage Bush Englund and Sydney R. Prince, III, having advised the trustee bank, the complainant, that they felt disqualified to represent the estate of Margaret Gage Bush as co-executors in this litigation because the interest of Gage Bush Englund and her attorney Sydney R. Prince, III, were adverse to the interest of the estate of Margaret Gage Bush, the complainant requested the court to appoint an administrator ad litem to represent the estate of Margaret Gage Bush in this particular suit.

This request was granted and the trial court promptly appointed Douglas P. Corretti, Esquire, a distinguished member of the Jefferson County Bar to serve as administrator ad litem of the estate of Margaret Gage Bush in this litigation.

The administrator ad litem filed an answer wherein he denied all the allegations of the bill of complaint and demanded strict proof thereof.

The respondent Gage Bush Englund, in her answer, admitted all of the matters contained in the stating part of the bill and although her position in regard to sources from which the compensation payable...