Gates v. Plainfield Trust Co.

• Decision Date: 01 April 1937
• Citation: 191 A. 304
• Parties: GATES v. PLAINFIELD TRUST CO. et al.
• Court: New Jersey Court of Chancery

191 A. 304

GATES

v. PLAINFIELD TRUST CO. et al.

Court of Chancery of New Jersey.

April 1, 1937.

Suit by Evelyn P. Gates against the Plainfield Trust Company, as executor and trustee under the last will and testament of Leroy H. Gates, deceased, and others, wherein defendant Roy W. Gates and others filed a counterclaim. On bill, etc., and on final hearing.

Decree in accordance with opinion.

Charles R. Rose, of New York City (Frederic M. P. Pearse, of Newark, and Charles S. Mackenzie, of New York City, of counsel), for complainant.

Merritt Lane, of Newark (Walter L. Hetfield, Jr., of Plainfield, of counsel), for defendant Plainfield Trust Co.

Max Mehler, of Newark, for defendant Charlotte Spencer Zelie.

George W. C. McCarter (of McCarter & English), of Newark, for defendants Roy W. Gates, Charles P. Gates, and Pauline Gates Heely.

Frederick P. Greiner, of Camden, and Frank H. Warner, of Philadelphia, Pa., amici curi?.

EGAN, Vice Chancellor.

On January 2, 1930, Leroy H. Gates died leaving a last will and testament dated December 20, 1922, to which was attached a codicil dated August 6, 1929. On January 13, 1930, both were admitted to probate in Union county. The testator devised and bequeathed to his wife, Evelyn P. Gates, the complainant herein, his home and garage at No. 810 Central avenue, Plainfield, N. J., including their contents. His homestead property, with its contents, at North Wilberham, Mass., he gave and devised to his three children, Roy William Gates, Charles Patterson Gates, and Pauline Mary Gates Heely. His jewelry, clothing, and personal effects, excepting household effects, he gave to his two sons, Roy and Charles Gates; to each of his children, Roy, Charles, and Pauline, and his stepdaughter, Charlotte Spencer Zeli, the daughter of the complainant, who all are defendants herein, he gave the sum of $5,000. His will, among other things, provided:

"Tenth: I give, devise and bequeath to the Plainfield Trust Company of Plainfield, New Jersey, the sum of two hundred thousand dollars ($200,000), to hold the same in trust for my wife, Evelyn P. Gates, during her life, the income meanwhile to be paid over to her quarterly or oftener in the discretion of the trustee. On her death the principal of said trust estate and all accumulations thereof and increase therein shall be divided into as many equal shares as there are children of mine (the designations 'my children', 'children of mine', 'child of mine' and the like to include a step-child, wherever such designations are used in this paragraph Tenth, but only in this paragraph Tenth) then living and children of mine who have died leaving children then living; and except as hereinafter provided I give, devise and bequeath one of such shares absolutely and forever to each of my said children then living, and in equal shares to the children then living of any child of mine who has died. * * *

"Eleventh: All the rest, residue and remainder of my estate, of whatever kind and wherever situated, including all lapsed legacies, devises and bequests, I give, devise and bequeath to my executor in trust however until my son Charles Patterson Gates shall attain the age of thirty years, or if he shall die before attaining said age, then until my daughter Pauline Mary Gates Heely shall attain the age of thirty years or until her death if she also shall die before attaining said age, whereupon this trust shall terminate and the principal shall be distributed or held as hereinafter provided. In the meantime the trustee shall quarterly or oftener in its discretion divide the income in equal shares among my children Roy William Gates, Pauline Gates Heely and Charles Patterson Gates; except that if any of them shall have died before me, leaving children, or prior to the termination of said trust shall die leaving children, then the income to which such child of mine would have been entitled, or shall have been receiving, shall be used by the trustee for the support and education of his or her said children. * * *

"Twelfth: With respect to and for the purposes of any trust herein created, the trustee is empowered to retain and hold any property or securities that I may own at the time of my death, or in its discretion to invest and reinvest the whole or any part of the principal of any trust fund in securities lawful for trustees' investments under the laws of the states of New Jersey and New York or either of them, and after paying the lawful expenses of administration shall apply and use or pay over the remainder of the income of any trust estate as hereinbefore provided.

"Thirteenth: I give to my executor and its successors, and to any trustee hereunder, full power to sell at private sale or public auction any or all of my real estate wherever situated and to convert the same into cash for the benefit of my estate or of any trust, as the case may be, and to make such sales either for cash or partly for cash with the remainder secured by purchase money bond and mortgage."

The defendant Plainfield Trust Company, a corporation, was named executor of the will.

The testator, in and by his codicil, increased the amount of the trust fund for his wife from $200,000 to $400,000; and by the same instrument he raised the legacy to his stepdaughter, Charlotte Spencer Zelie, from $5,000 to $25,000. The estate consisted of cash and investments in stocks and bonds, the net value of which was approximately $1,000,000.

The executor (hereinafter called the trust company), on February 27, 1934, filed in the Orphans' Court of Union county its first intermediate account as trustee. Complainant, then, filed her bill. In consequence, the account of the trust company, as trustee, and its account as executor, came into this court. The bill mentions five counts, or separate causes of action, which "boiled" down are as follows:

1. The first count seeks a construction of the will and a direction to the trust company to pay to complainant the income on the trust fund of $400,000 from the date of decedent's death.

2. The second count charges that the trust company as executor and trustee is chargeable with the amount of $158,700 as to the corpus of that fund because of its investment to that extent in securities is sued by Plainfield Title & Mortgage Guaranty Company (hereinafter called mort gage company), in which mortgage company the trust company had a pecuniary interest and some of whose officers and directors were officers and directors of the trust company, and because such securities were not the kind which a trustee could purchase as they were not issued in accordance with chapter 81 of the Laws of 1927 (Comp.St.Supp.1930, § 72—37a).

3. The third count charges that the payment to complainant as life beneficiary of 43/4 per cent. upon the portion of the trust fund not set up within the time limited by law is less than that to which she is en titled and that the trust company is ac cordingly chargeable with interest at the legal rate of 6 per cent. as to the portion not set up.

4. The fourth count alleges that even if complainant, as a matter of law, is not entitled to income on the trust fund until one year after the date of decedent's death, this court in its discretion should direct the payment of income from the date of testator's death.

5. The fifth count charges that complainant was obliged to pay from her own funds the sum of $8,887.54 for inheritance taxes on her life estate and that she is entitled to recover from the trust the sum so paid by her.

Considering the issues in the order in which they are here related, the first point for decision is: When does the life tenant of a trust become entitled to the income? This question appears never to have been directly decided by the Court of Errors and Appeals. In some of the lower courts, however, it arose where an estate was given in trust for the benefit of another for life, or for a term of years, with remainder over. Those courts failed to consider that the gift to the life tenant consisted of income only, not the corpus itself. They held that until the corpus had been paid over to the trustee (which was not required until after the expiration of one year), no income could accrue to the life tenant, and that such income which had previously accrued on it became part of the residuary estate. But the Supreme Court in Welsh v. Brown, 43 N.J.Law 37, 38, this court in Green v. Green, 30 N.J.Eq. 451, the Prerogative Court in Davison v. Rake, 44 N.J.Eq. 506, 16 A. 227, and the Court of Errors and Appeals in Van Blarcom v. Dager, 31 N.J.Eq. 783, in considering whether or not the life tenant of a trust composed of the rest, residue, and remainder of an estate, or of a part thereof, was entitled to income from the date of the testator's death, decided against the one year rule regarding the payment of legacies and declared the life tenant was entitled to income from the date of the testator's death. Many states hold that the life tenant of a trust, though not composed of the whole or a part of the rest, residue, and remainder, is entitled to the income from the death of the testator.

In Welsh v. Brown, supra, it was held that a legacy, whether it be general, or of income on the trust fund, is not payable until one year after testator's death where no time is named by the testator, and there is absent any intention derived from the will itself. But there are exceptions to this rule which allow income or interest from the date of testator's death; they are:

1. A legacy given in satisfaction of a debt.

2. A bequest of the residue or a portion thereof in trust to pay the interest or income to the legatee for life.

3. The bequest of an annuity.

4. Interest on a legacy to a minor child of the testator, or to one to whom the testator stands in loco parentis.

The fourth exception stated results from the age old rule of the natural obligation of a father to maintain his infant children, and his presumed intention not...