Kenin's Estate.

• Docket Number: No. 236 of 1935.
• Decision Date: 13 June 1941
• Citation: 41D.&C.572
• Parties: Kenin's Estate.
• Court: Pennsylvania District and County Court

41 D.&C. 572

Kenin's Estate.

No. 236 of 1935.

The Judicial Districts of Pennsylvania.

June 13, 1941.

Trusts — Deed of trust — Testamentary character — Elements in determination — Certainty as to beneficiaries — Power to revoke — Reference to will — Liability to claims of creditors — Insolvency when trust created — Uniform Fraudulent Conveyance Act of 1921 — Acts of April 15, 1868, and June 28, 1923.

1. A trust created by deed is testamentary if there is no immediate and absolute transfer of the res to a trustee for the use or benefit of named or presently ascertainable individuals or purposes, and ascertainment of the beneficiaries depends upon the terms of a will or other testamentary disposition effective only after death; but the mere reservation of a life estate in the settlor, with power to modify or revoke the trust, does not overcome the effect of an absolute transfer and render the trust testamentary.

2. A trust created by deed is testamentary where the sole duty of the trustee is to collect the proceeds of insurance policies which constitute the trust res and to pay over such proceeds to the trustees named in settlor's will, and the beneficiaries are not named or ascertained in the trust deed, settlor's manifest intention being to distribute the proceeds after his death in accordance with the scheme of distribution provided by the will.

3. The incorporation by reference, into a deed of trust, of the terms of settlor's will, so as to constitute a referential trust, does not affect the testamentary character of the trust so created.

4. The Acts of April 15, 1868, P.L. 103, and June 28, 1923, P.L. 884, permitting designation of the wife or children or dependent relatives of an insolvent insured as his beneficiaries and thus removing the proceeds of such insurance from his estate and from the reach of his creditors, have no application where policies are made payable to the trustee under a deed of trust, but neither the policies nor the deed of trust designate the beneficiaries, and a will incorporated by reference in the deed of trust enumerates as beneficiaries the settlor's descendants generally and, upon certain contingencies, named charities.

5. A deed of trust which is testamentary in character is, under the Uniform Fraudulent Conveyance Act of May 21, 1921, P.L. 1045, invalid as to creditors if settlor was insolvent at the time he created the trust.

Courts — Orphans' court — Jurisdiction — Trust inter vivos — Act of June 26, 1931 — Power to determine validity — Auditor's findings of fact — Conclusiveness.

6. Under the Act of June 26, 1931, P.L. 1384, amending section 9 of the Orphans' Court Act of June 7, 1917, P.L. 363, an orphans' court has concurrent jurisdiction over trusts inter vivos.

7. The orphans' court, being a court of equity within its limited jurisdiction, may, having acquired jurisdiction over a trust inter vivos by the filing of the trustee's account, pass upon the validity of the deed of trust.

8. Findings of fact made by an auditor upon sufficient evidence will not be disturbed in the absence of manifest error.

Trustees — Commission — Forfeiture — Detention of funds — Interest charge — Counsel fee — Amount — Time of determination.

9. A trustee whose sole duty under a deed of trust is to collect the proceeds of insurance policies on settlor's life, and to pay over such proceeds to the trustees under settlor's will, has no authority to invest the proceeds and to make distribution of income; all investments so made by him must be replaced with cash.

10. A trustee who has failed to pay over in accordance with the terms of the trust instrument the fund coming into his hands may be charged with interest at the legal rate, as damages for detention, after expiration of a reasonable time within which to prepare his account, file it, and have it audited.

11. A trustee who has violated the terms of the trust instrument, causing litigation and consequent expense and delay, is not entitled to any commission.

12. Counsel for a trustee who has violated the terms of the trust instrument by failing to pay over the fund coming into his hands is entitled to compensation out of the trust estate only for such services as would be required in a normal and usual accounting; for his services in defending the trustee he must look to the latter alone for compensation.

13. The right to commissions and counsel fee must be determined at the audit of the trustee's account under a deed of trust; such determination may not be relegated to audit of the account of the testamentary trustees receiving the fund from the trustee inter vivos.

Exceptions to auditor's report. O.C. of Philadelphia County.

Before Van Dusen, P.J., Stearne, Sinkler, Klein, and Ladner, JJ.

R.M. Remick, Maurice J. Klein and Aaron W. White, for accountant.

R.M. Remick, for The Pennsylvania Company for Insurances on Lives and Granting Annuities, exceptant.

Leslie M. Swope and Charles J. Biddle, of Drinker, Biddle & Reath, for Corn Exchange National Bank & Trust Co., exceptant.

STEARNE, J., June 13, 1941.

These are exceptions to an account of a corporate trustee of an insurance trust.

Two principal questions are raised:

(a) Whether the trust is testamentary in character, and therefore subject to settlor's creditors, and

(b) Whether settlor was insolvent when he erected the insurance trust, and if so, whether such trust was invalid.

The auditor found that the trust was testamentary in character and that settlor was insolvent when the trust was created. He awarded the fund to the executors of the estate of settlor.

Settlor executed a deed of trust on April 12, 1929, whereby he transferred five policies of life insurance upon the life of settlor, aggregating $100,000, to the trustee:

"In trust to collect the proceeds of the said policies upon maturity and pay over the same unto the Trustees named in the last Will and Testament of the Settlor to be thereafter held by them under the same uses and trusts and with like distribution as in said Will set forth with reference to the residuary estate of the Settlor."

On the same day he executed his will wherein he named three trustees, and disposed of his residuary estate as follows:

"Twelfth. All the rest, residue and remainder of my estate, of whatsoever nature and wheresoever situated I give, devise and bequeath unto my trustees hereinafter named In Trust to hold and invest the same and keep the same safely invested and pay over the income therefrom one-third thereof unto my wife, Sarah Kenin, for life, and as to the remaining two-thirds of such income and the whole thereof upon the death of my wife, to assign, transfor and pay over the same to and among my descendants living at each period of distribution, share and share alike, Per Stirpes upon the principal of representation, until the death of the last survivor of my children, at which time, subject, of course, to the interest of my wife, if still living, I direct that my estate be distributed to and among my descendants then living, share and share alike, Per Stirpes upon the principal of representation.

"In Trust should there be no descendants of mine living at the time of the death of the last survivor of my children, subject, of course, to the interest of my wife, to assign, transfer, pay over and divide my residuary estate to and among such charities or charitable institutions and in such shares and proportions as my trustees or the survivor or survivors of them may determine."

Decedent (settlor and testator) died June 1, 1929 (less than two months thereafter).

The executors of decedent's estate filed their account, which was adjudicated February 19, 1934. The estate was insolvent, and a dividend of approximately 10 percent was paid to creditors.

On January 30, 1935, the trustee of the inter vivos insurance trust filed its account, which, by agreement of the parties, was referred to an auditor, whose report was filed April 24, 1941, the exceptions to which are now before us for determination.

We agree with the learned auditor that this deed of trust is testamentary in character. It, therefore, follows that the fund passes into settlor's estate, and forms part thereof, and is payable to his executors.

In determining whether an instrument is testamentary, intention is important: Fidelity Trust Co., Admr., v. Union National Bank of Pittsburgh et al., 313 Pa. 467, 490. We are therefore required to ascertain exactly what this settlor intended to accomplish by his deed. It would seem to be well established that where there is an immediate and absolute transfer of the res to a trustee for the use or benefit of named or presently ascertainable individuals or purposes, the trust is not testamentary in character. Conversely, where there is no immediate transfer or if the beneficiaries are not named or presently ascertainable, but such ascertainment depends upon the terms of a will or other testamentary disposition, effective only after death, the trust is testamentary in character.

In Windolph v. Girard Trust Co., 245 Pa. 349, and Beirne v. Continental-Equitable Title & Trust Co., 307 Pa. 570, there was an immediate transfer for the benefit of named beneficiaries. Such trusts were held not to be testamentary. Reservation by settlor of a life estate, with power to modify or revoke the trust, does not overcome the effect of an absolute transfer, and render the scheme testamentary: Wilson et ux. v. Anderson et al., 186 Pa. 531; Reiff's Estate, 16 Pa. Superior Ct. 80; Reese's Estate, 317 Pa. 473.

Where, however, there is no absolute transfer the trust is testamentary: Tunnell's Estate, 325 Pa. 554. See Beaumont's Estate, 214 Pa. 445, 448, and Chestnut Street National Bank v. Fidelity Insurance Trust & Safe Deposit Co., etc., et al., 186 Pa. 333. See also A.L.I. Restatement of Trusts, §§ 56, 57, and the Pennsylvania annotations thereto.

In the instant case the trustee's sole duty was to collect the proceeds of the...