Lee v. Webster

• Citation: 92 S.E. 157
• Decision Date: 25 April 1917
• Docket Number: (No. 422.)
• Court: United States State Supreme Court of North Carolina
• Parties: FOWLER & LEE. v. WEBSTER et al.

(173 N.C. 442)

92 S.E. 157

FOWLER & LEE.

v.WEBSTER et al.

(No. 422.)

Supreme Court of North Carolina.

April 25, 1917.

Appeal from Superior Court, Union County; Cline, Judge.

Action by Fowler & Lee against W. M. Webster and others. Decree for defendants, and plaintiffs appeal. Affirmed.

J. C. M. Vann, of Monroe, for appellants.

Stewart & McRae, of Charlotte, for appellees.

CLARK, C. J. This is a proceeding to garnishee the trustee in a "spendthrift trust" in order to subject the income accruing from the fund in its hands to the payment of a debt of the cestui que trust, who is a nonresident.

Revisal, § 1588, provides:

"Spendthrift Trusts Authorized.—It shall be lawful for any person by deed or will to convey any property, which does not yield at the time of the conveyance a clear annual income exceeding five hundred dollars, to any person in trust to receive and pay the profits annually or oftener for the support and maintenance of any child, grandchild or other relation of the grantor, for the life of such child, grandchild or other person, with remainder as the grantor shall provide; and the property so conveyed shall not be liable for or subject to be seized or taken in any manner for the debts of such child, grandchild or other relations, whether the same be contracted or incurred before or after the grant."

This trust is created by a devise, and the parts pertinent to this controversy are a direction that the fund specified is given "in trust to receive and pay the profits, annually or oftener, for the support and maintenance of my son, McRae Webster (W. M. Webster), during his lifetime, " with provisions for the disposal of the fund at his death, and adding:

"This trust is created in accordance with the provisions of section 1588 of the Revisal of 1905, and the said company is hereby authorized and empowered to sell and convey, invest and reinvest the said trust property as often as in the judgment of the proper officer of the said corporation it may seem best."

This trust is created in exact compliance with the object and the language of the statute. The learned counsel for the plaintiff insists, however, that it is invalid because it confers the "personal property exemption" on a nonresident. We need not consider whether the Legislature is forbidden to create a personal property exemption in favor of a nonresident; for that is not the effect of this statute.

The learned counsel for the plaintiffs admits that the corpus of the fund is not the property of the cestui que trust, and therefore that cannot be touched, but he insists that the income therefrom is to be paid over to the defendant, and, becoming his property, it can be subjected to his debt. But this ignores the language of the statute and the terms of the trust created by this will. This is not a passive trust as to the income which would therefore be executed under the statute of uses, any more than it is as to the corpus of the fund. A trust in which the trustee pays over the income to the beneficiary could be created without the necessity of this statute, and in such trust the income is the property of the cestui que trust, and can, of course, be subjected to the payment of his debts. It was precisely for this reason that equity created spendthrift trusts, which in this state, and some others, are now statutory. This object is expressed in Beach on Trusts, § '554, which says that these trusts are created for the benefit of such persons as "are deemed incapable of holding or disposing of this income."

Spendthrift trusts are not created merely for the purpose of preserving the corpus of the fund intact for the remainderman or on other trusts, leaving the beneficiary to use the income as he may see fit, but they require the trustees to hold and disburse the income itself. The cestui que trust has no right to touch one cent thereof. It is thisthat differentiates a spendthrift trust from an ordinary trust, in which last the trustee hands over the income to be disposed of by the beneficiary.

A spendthrift trust is not a passive trust, even as to the income, for in that case the income would become the property of the beneficiary as fast as it accrues and could be subjected to his debts, unless exempted by statute as a part of his personal property exemption, but the income itself is to be used and disposed of by the trustee according to its judgment for the best results in the support and maintenance of the beneficiary.

The language of this trust is not "to receive and pay the profits annually to W. M. Webster, " which would make it a passive trust as to the income, but the language is "to receive and pay the...