Indus. Trust Co. v. Budlong, 1690.

• Decision Date: 01 December 1944
• Docket Number: No. 1690.,1690.
• Citation: 40 A.2d 585
• Parties: INDUSTRIAL TRUST CO. v. BUDLONG et al.
• Court: Rhode Island Supreme Court

40 A.2d 585

INDUSTRIAL TRUST CO.

v.BUDLONG et al.

No. 1690.

Supreme Court of Rhode Island.

Dec. 1, 1944.

Bill in equity by Industrial Trust Company, trustee, against Frances Wilson Budlong and others for construction of an inter vivos trust instrument and for instructions relative thereto. On certification under Gen.Laws 1938, c. 545, § 7.

Decree in accordance with opinion.

Ira Lloyd Letts, Andrew P. Quinn, and F. Stewart Stranahan, all of Providence, for complainant.

Tillinghast, Collins & Tanner, James C. Collins, and Sidney Clifford, all of Providence, for respondents Frances Wilson Budlong and Raymond E. Jordan, guardian ad litem of Milton Joseph Budlong.

Greenough, Lyman & Cross, Thomas F. Black, Jr., and Bayard Ewing, all of Providence, for respondent Earle E. Swem, Adm'r of estate of John Budlong.

Fred B. Perkins, of Providence, for unknown and unascertained persons and persons not in being-pro se ipso.

Roger L. McCarthy, of Providence, guardian ad litem-pro se ipso.

FLYNN, Chief Justice.

This is a bill in equity for the construction of an inter vivos trust instrument and for instructions relative thereto. All persons having an interest therein were made parties respondent. Guardians ad litem for certain necessary parties and a representative for possible but unascertained interests were appointed and they have filed answers submitting to the protection of the court the interests of those whom they represent. Decrees pro confesso were entered against Mabel Woolsey (Mrs. George A. Woolsey), surviving sister of the settlor, and Janice Herrington Brandt, heir of Fannie Herrington, deceased sister of the settlor, whose interests are not involved under the trusts in question, and against Trinity Church, of Newport, Rhode Island, a contingent beneficiary under certain gifts over after the termination of all the trusts involved. All other respondents, being competent parties, have filed answers joining in the prayers of the bill for construction of the trust instrument and for instructions to the complainant as successor trustee thereunder.

Testimony was introduced bearing particularly on the methods of administration and accounting employed by the settlor trustee before his death. The cause being ready for hearing for final decree was then certified to this court for determination under General Laws 1938, chapter 545, § 7.

Milton J. Budlong, an experienced and successful businessman residing in this state, by instrument executed July 1, 1929 established himself as trustee of five separate trust estates for the benefit respectively of Frances Budlong, John Budlong and Milton Joseph Budlong, his children, and of Mrs. Fannie Herrington and Mrs. George A. Woolsey, his two sisters.

Although the questions here involve particularly the construction of the words ‘income accumulated’ appearing in clause Second, the following quotations from, and summary of, the second, third and fourth clauses of the trust instrument will help toward the understanding of the contentions here presented. For convenience we have italicized the words ‘income accumulated’ or ‘accumulated income’ wherever they appear in these clauses.

The first paragraph of clause Second provides: ‘Said trustee shall pay over to and/or expend for the benefit of the several principal beneficiaries so long as they shall respectively live, such part (or all) of the net income of said trusts for their respective benefits as in each case said trustee in his discretion shall from time to time deem advisable * * *.’

Then follow certain provisions referring to the trusts for the benefit of the settlor's sisters and for children of any deceased child of the settlor and the first paragraph concludes as follows: ‘Said trustee may in his discretion add from time to time any undistributed income to the principal of its respective trust.’

The second paragraph of clause Second then continues as follows: ‘After said Milton J. Budlong shall cease to act as trustee or a trustee hereunder by reason of his death or otherwise, the trustee or trustees hereunder shall, notwithstanding the foregoing * * * pay over to the said Frances Budlong all of the net income of the trust established for her benefit (not including, however, any income accumulated from prior years) and shall pay over to each of said principal beneficiaries who is a son of the settlor who shall have graduated from college or shall have reached the age of twenty-five (25) (whether or not he shall have attended college) * * * all of the net income of the trust established for his benefit (not including, however, any income accumulated from prior years) * * *.’ The portion omitted from the latter part of this quotation merely refers to certain discretionary powers of the settlor trustee over the net income in the case of any attempted assignment, encumbrance or attachment of any beneficial interest or of bankruptcy of any of the beneficiaries.

Clause Third provides that in case of the death of any child of the settlor leaving issue ‘said trustee shall pay over and transfer all of the principal of the trust established for such principal beneficiary, together with all accumulated income thereof, in equal shares, per stirpes and not per capita, among the lawful issue of such principal beneficiary who shall be surviving. * * *. Upon the death of any of said principal beneficiaries who are children of the settlor without leaving lawful issue him or her surviving, or in case of the failure of such issue of any such principal beneficiary who is a child of the settlor before becoming entitled to distribution in accordance with the foregoing of the trust for such principal beneficiary, the remaining principal of such trust in each such case, together with all accumulated income thereof and additions thereto, shall be divided equally among and follow the disposition of the trusts hereby established for the other principal beneficiaries * * *. Upon the respective deaths of the said Mrs. Fannie Herrington and Mrs. George A. Woolsey the remaining principal of the trust established for her benefit in each case, together with all accumulated income thereof, shall be divided equally among and follow the disposition of the trusts hereby established for the principal beneficiaries who are children of the settlor * * *.’

Clause Fourth provides: ‘Upon the death of all of said principal beneficiaries and the failure of lawful issue of all of them who are children of the settlor before all of said trust estates shall have become finally distributable in accordance with the foregoing, said trustee shall transfer and pay over all of said trust estates then remaining undistributed, together with any accumulated income thereof, in equal shares, to Trinity Church located in Newport, Rhode Island, and to Newport Hospital located in said Newport, or to the organization in said Newport commonly known by those names, in each case for its general purposes.’ The subsequent clauses of the instrument are not presently material.

The instrument, as stated, was executed July 1, 1929. Milton J. Budlong, the settlor, died testate at Newport July 5, 1941 without having named any other trustee by will or otherwise. He had acted during that period as the sole trustee of each of the five trusts. As trustee he had exercised his discretion to pay only part of the net income to his children and that at irregular intervals, in varying amounts, sometimes in cash and sometimes by payment of bills or otherwise for their respective benefits. He had kept or supervised ledger books of account showing the details of each transaction affecting the various trusts. Almost from the beginning the books were set up so as to contain under each trust a special column for undistributed income and another column immediately adjoining for distributed income.

A stipulation has been entered in which all counsel apparently agree that the entries in the books of account as kept by the settlor do not show any affirmative action by him whereby he ever added net income to the principal of any trust. The settlor, however, made additions from time to time to the principal of each trust by way of subsequent gifts. As a result of such gifts and of dividends and other gains the trust in the case of each child had grown from approximately $3500 to well over $100,000. The books were always balanced as of December 31 of each year. At the time of the settlor trustee's death his three children were then living and over twenty-five years of age; and certain credits appeared on the books under undistributed income in each of their trusts as follows: Frances Budlong, $6585.44; John Budlong, $28,778.95; Milton Joseph Budlong, $20,027.60.

The Industrial Trust Company, complainant here and the successor trustee named in the instrument, has come into possession of all the trust estates, securities and cash, including the above-mentioned undistributed income. It is in doubt whether its powers and duties under the trust instrument require it to pay over any of the funds credited on the books in each trust as undistributed income and, if so, how much thereof should be paid over to each life beneficiary. This doubt is brought about by the express wording of the second paragraph of clause Second, previously quoted, in which the successor trustee was directed to pay over to the settlor's children all of the net income of the trusts established for their benefit ‘(not including, however, any income accumulated from prior years).’ (Italics ours.)

The specific questions proposed are whether Frances Wilson and Milton Joseph Budlong, children of the settlor, and John Budlong, the minor child of John Budlong, deceased son of the settlor, are entitled to receive all or any of the funds credited on the books of account to their respective trusts under the heading of undistributed income; and, if any, what part thereof the successor trustee should pay over to them respectively. They also...