Gaede v. Carroll

• Decision Date: 23 November 1933
• Docket Number: Nos. 18, 39, 44.,s. 18, 39, 44.
• Citation: 169 A. 172
• Parties: GAEDE et al. v. CARROLL et al.
• Court: New Jersey Supreme Court

169 A. 172

GAEDE et al.

v. CARROLL et al.

Nos. 18, 39, 44.

Court of Errors and Appeals of New Jersey.

Nov. 23, 1933.

Syllabus by the Court.

1. Where there is a general bequest of the residue of a testator's estate in trust to pay the income therefrom to a life tenant, with remainder over to remaindermen, the life tenant is entitled to interest on the value of the residue, estimated as of the time of testator's death, from the time of death until the time when the property is converted and the trust investments actually made.

2. Held, an allowance by an executor of $5,000 for the support, maintenance, and education of testator's minor child was a proper exercise of the discretion vested in him by the will.

3. Held, the estate of testator is entitled to reimbursement from the widow for federal inheritance taxes paid out of the estate on proceeds of life insurance policies paid directly to her and on property held by the widow and testator, in his lifetime, as tenants by the entireties, in the absence of a specific direction in the will that these taxes be paid out of the residue.

Appeal from Court of Chancery.

Suit by Henry J. Gaede, executor and trustee under the will of J. Mortimer Coward, deceased, against Audrey L Carroll, John Mortimer Coward, and another. From the decree, the executor and named defendants appeal.

Decree remanded, with directions.

Dougal Herr, of Hoboken, for appellant Gaede.

Lindabury, Depue & Faulks and James E. M. Tarns, all of Newark, for appellant Audrey L. Carroll.

Francis Lafferty, of Newark, for appellant John Mortimer Coward.

DONGES, Justice.

J. Mortimer Coward died March 4, 1928, having made his last will and testament dated September 3, 1925, which was admitted to probate by the surrogate of Essex county on March 22, 1928, and letters testamentary issued to complainant, Harry J. Gaede. Complainant qualified as executor and has since been acting as such executor.

Testator left him surviving his widow, Audrey L. Coward, and a son, John Mortimer Coward, about three years of age at the time of testator's death. Testator also left him surviving a sister, Miriam Coward Rice, who, by the terms of the will, has a contingent interest in his estate. On March 14, 1930, Mrs. Coward was married to one Lee W. Carroll.

Testator, at the time of his death, was engaged in the retail shoe business, conducting two stores in the city of New York and one store in the city of Boston. Complainant executor, pursuant to authority conferred upon him by the will, continued the operation of the shoe business until April, 1930, when he contracted to sell the same, which sale was consummated on May 7th, 1930.

Serious questions having arisen with respect to the settlement of the estate, the executor filed his bill for instructions and a construction of the will.

Appeals taken by the executor as to part of the decree, by the widow as to part of the decree, and on behalf of the infant son as to part of the decree, present six questions for our consideration, namely:

Is the widow entitled to have the profits from the operation of the shoe business, by the executor pending sale thereof distributed as income?

Is the widow entitled to share the income until settlement of the estate and until the trust fund provided by the will is actually established?

Is the widow entitled to income on a trust fund of $500,000 as of the date of her remarriage?

Is the executor clothed with discretion to use any part of the income for the support, maintenance, and education of testator's infant son? If so, did he exercise a sound discretion in allowing $5,000 per annum for such support, maintenance, and education?

Is the widow chargeable for federal estate taxes paid by the executor on the proceeds of insurance policies on the life of testator paid directly to said Audrey L. Carroll?

Is the widow chargeable for federal estate taxes paid by the executor on the value of certain real property, title to which testator and his wife held, in his lifetime, as tenants by the entireties?

Testator's will provided: "Should I own or conduct a shoe business in the City of New York or elsewhere at the time of my decease, then and in such case I direct my said executor to continue such business after my decease for such time as he shall deem it most advantageous to the benefit of my estate to sell and dispose of same, but not beyond the period, however, of two years from my decease, hereby absolving my said executor from all liability for any loss that may occur by reason of his continuing said business."

The will provided a gift of $100,000 outright to the widow, and all the rest, residue, and remainder of the estate was given as follows:

"(A) A one-third part thereof to my Executor hereinafter named, to have and to hold the same in trust for the benefit of my said wife upon and for the following uses and purposes, to wit:

"To invest and keep the same invested and to receive the income arising therefrom, and after first deducting all the necessary expenses incurred in the administration of said estate, to pay over unto my said wife such net income arising therefrom for and during the term of her natural life or for so long as she shall remain my widow.

"Upon the death of my said wife, Audrey Coward, without having married then the share so above given in trust for her benefit, I give, devise and bequeath unto my lawful issue, in equal shares.

"Upon the re-marriage of my said wife, I direct that the trust herein created for her benefit shall continue only insofar as the sum of Five Hundred Thousand ($500,000.00) dollars thereof, and that upon such re-marriage such trust shall cease and terminate as to the balance of said fund as shall exceed the sum of Five Hundred Thousand ($500,000.00) dollars, and in such case I give and bequeath such part of such fund so given in trust as shall exceed said sum of Five Hundred Thousand and ($500,000.00) dollars, to my lawful issue, to be divided equally between them, share and share alike.

"From and after the re-marriage of my said wife, I direct my said Trustee to keep said part of said trust fund invested, to wit, the sum of Five Hundred Thousand ($500,000.00) dollars, and after the payment of all necessary expenses in the administration thereof, to pay over to my said wife for and during the term of her natural life the income that shall arise therefrom in quarterly payments or such other payments as he deems best," The balance of two-thirds of the residue was given to his lawful issue, with direction that the executor should hold such share in trust for any minor child or children, and that the trustee shall "keep such share or monies invested, and to receive the income arising therefrom and apply so much thereof for the support, maintenance, and education of such child or children until he or she arrive at the age of twenty-one years," when distribution is to be made to him or her.

The profits of the shoe business for the two years following testator's death were in excess of $800,000. At the time of testator's death, unpaid debts of the shoe business aggregated almost that sum.

The court below found that the distributable income to the widow "includes the prof-Its derived by the executor from his conduct of the testator's established shoe business in the ordinary course of such business."

In the celebrated case of Howe v. Earl of Dartmouth, 7 Vesey 137, 32 Rep. 56, Lord Eldon established the rule that where there is a general bequest of a residue of personal estate for life, with remainder over after the death of the life tenant, the whole residuary fund is to be invested, and until such investment is made the tenant for life is not entitled to the actual income produced by the residuary estate, but to interest from the testator's death on the value thereof estimated as of that time. The reason given by Lord Eldon (32 Rep. at page 60) is: "As in the one case that, in which the tenant for life has too great an interest, is melted for the benefit of the rest, in the other that, of which if it remained in specie, he might never receive anything, is brought in; and he has immediately the interest of its present worth."

This rule has been uniformly applied in this state, when the testator has not clearly expressed an intention that the life tenant should enjoy the property in specie.

In Ackerman v. Vreeland, 14 N. J. Eq. 23, Chancellor Green interpretated the rule laid down in Howe v. Dartmouth, as follows:

"If chattels or personal property of any description be not given specifically, but generally as goods and chattels or as a residue of personal estate, they must be converted into money, the interest only enjoyed by the tenant for life, and the principal reserved for the remainderman. Howe v. Earl of Dartmouth, 7 Vesey 137; 2 Kent's Com. 353; Lewis on Perpetuities 100; Benn v. Dixon, 10 Simons 636; Chambers v. Chambers, 15 Simons 183; Randall v. Russell, 3 Mer. 193; Covenhoven v. Shuler, 2 Paige [N. Y.] 122 ; Clark v. Clark, 8 Paige [N. Y.] 152 ; Cairns v. Chaubert, 9 Paige [N. Y.] 163.

"The rule prevails, unless there be in the will an indication of a contrary intention."

In Helme v. Strater, 52 N. J. Eq. 591, 30 A. 333, 338, Chancellor McGill said:

"Where a testator bequeaths the residue of his property without specific description, or, in other words, indicating an intention that it. shall be enjoyed in specie, first to a tenant for life, and then to a remainderman, and thus manifests that the same fund shall be successively enjoyed by both, the necessary inference and established rule in equity are that it must be invested as a permanent fund, so that the successive takers shall enjoy it in an equally productive capacity. But where it consists in whole or in part of property which is in its nature perishable, which for some reason cannot be converted into money, or cannot be so converted without great sacrifice of both principal and interest, the tenant for...