Harvard Trust Co. v. Duke

• Decision Date: 04 December 1939
• Citation: 304 Mass. 414,24 N.E.2d 144
• Parties: HARVARD TRUST CO. v. DUKE et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

304 Mass. 414

24 N.E.2d 144

HARVARD TRUST CO.

v.DUKE et al.

Supreme Judicial Court of Massachusetts, Middlesex.

Dec. 4, 1939.

Proceeding by the Harvard Trust Company, trustee, against Elizabeth M. Duke and others, wherein certain items of the trustee's account were disputed and wherein the question for determination was whether certain taxes should be charged against the principal or against income of trust estate. From a decree ordering taxes to be charged against trust income, an appeal was taken on report.

Decree reversed and decree ordered to be entered in accordance with opinion.Appeal and Report from Probate Court, Middlesex County; Monahan, judge.

W. Noyes, of Boston, stated the case.

K. A. Campbell, Jr., of Worcester, for respondent Elizabeth M. Duke.

R. B. Coolidge and P. J. Woodward, both of Boston, and F. L. Wiegand, Jr., of Cambridge, for respondents Calderwood et al.

John B. Kehoe, of Portland, Me., for respondent Minnie A. Noyes.

QUA, Justice.

The disputed items of the trustee's account represent sums paid for taxes upon land on Broadway in Cambridge for the years 1934, 1935, and 1936. It is stated in the report of material facts that the ‘sole question before the [Probate] Court was whether said taxes * * * should be charged against principal or charged against income.’ The question arises between the respondent Duke, who is the granddaughter of the testator and now entitled to receive during her life ‘the whole or such part of the income * * * as in the judgment of my said Trustees * * * may seem reasonable and proper,’ and heirs of the testator's brother and sisters who are remaindermen. The will gives the trustee full authority to sell real estate ‘at such times and on such terms as to * * * [it] may seem expedient.’ The Probate Court ordered these taxes charged against income.

The testator owned this land at his death in 1891. It has continued in the trust ever since. The testator had erected industrial buildings upon it and at the time of his death the property was productive of income. Under the management of the present trustee it was highly productive until 1927, when the city took by eminent domain a substantial strip of land along the entire frontage, resulting in the condemnation and demolition of the two main buildings. Since that time the remainder of the property has produced a small income in some years and none at all in other years. For several years prior to the present accounting the taxes have been exceeding the income by about $1,500 a year. The entire corpus of the estate held in trust amounts at book value to approximately $100,000, of which $40,000 is represented by this real estate. It now requires more than half of the total gross income of the personal property of the trust to pay the taxes on this non-productive realty. If the net income of the $60,000 of personal property should fall to slightly below three per cent, as it might under conditions now prevailing, the life tenant would be left with no income at all. The trustee, although it has exercised due diligence and sound judgment, has not yet effected a sale of this land.

Whether expenses of a trust should be charged against principal or income is, of course, a matter to be determined by ascertaining the intent of the testator or settlor as expressed or implied in the will or settlement. If these documents fail to reveal an intent, resort has been had to the ‘presumed’ intent. This is but another way of saying that the instrument is to be interpreted reasonably so as to effectuate its main object. In this case the respective parties have convinced themselves that expressions in the will, taken in connection with the circumstances of the testator's life, indicate an intent favoring their respective contentions. We do not share in the belief of either side. In our opinion the will fails to disclose any actual intent on the part of the testator as to the manner in which the accounts of his estate should be made up under the present conditions, which in all probability he never contemplated, and which may well have been beyond the scope of his imagination. The only intent which we have been able to discern, beyond mere conjecture, is that his granddaughter should have the income during her life, subject to the trustee's discretion, and the testator's brothers and sisters or their heirs the principal after the granddaughter's death. We should strive for a reasonable result which will be consistent with this intent and which will promote and not hamper its accomplishment.

Where a will contains no indication to the contrary taxes upon the real estate of a trust, in accordance with general commercial theory and practice, are commonly chargeable to income. Jordan v. Jordan, 192 Mass. 337, 344, 78 N.E. 459, and cases cited. But this is not a universal rule. We think that the true principle, at least where an unproductive investment not known as such to the testator becomes a burden upon the estate, is indicated by Stone v. Littlefield, 151 Mass. 485, 487, 488, 24 N.E. 592, 593, where, in holding that the loss must fall upon principal, the court said: ‘Otherwise a loss upon some one investment, for which no one would be legally responsible, might absorb the widow's whole income for the year, or even more. It is more just that a loss of this description should be held to diminish the corpus of the trust-estate, so that the life-tenant will receive less income, and the remainder-man less principal.’ Again in Ogden v. Allen, 225 Mass. 595, at page 597, 114 N.E. 862, we said: ‘While the rule is settled that generally taxes, interest, and other expenses, are to be charged to and...