National State Bank of Newark v. Morrison

• Decision Date: 29 December 1949
• Docket Number: No. C--1303,C--1303
• Citation: 7 N.J.Super. 333,70 A.2d 888
• Parties: NATIONAL STATE BANK OF NEWARK v. MORRISON et al.
• Court: New Jersey Superior Court

Page 333

7 N.J.Super. 333

70 A.2d 888

NATIONAL STATE BANK OF NEWARK v. MORRISON et al.

No. C--1303.

Superior Court of New Jersey Chancery Division.

Dec. 29, 1949.

Stryker, Tams & Horner, Newark, Emory C. Risley, Newark, for the plaintiff.

Riker, Emery & Danzig, Newark, Irving Riker, Newark, for the defendant Lillian Pantall Conwell.

Robert K. Bell, Ocean City, for the defendants Margaret Conwell Morrison, Joseph Danby Conwell and Lewis Anthony Conwell.

Stetson & Gormley, Orange, Henry T. Stetson, Orange, for the defendant Henry T. Stetson, executor and trustee under the last will and testament and codicils of Walter L. Conwell, deceased.

FREUND, J.S.C.

The object of this proceeding is to construe a trust agreement entered into between the plaintiff and The Safety Car Heating and Lighting Company, Inc., hereinafter referred to as the Company, and the will and codicils of Walter L. Conwell, deceased.

Walter L. Conwell had been associated with the Company since January 1, 1916. He was president and director continuously from 1919 to the date of his death on May 27, 1948. On December 20, 1941, when he was over 64 years of age, a contract of employment was entered into whereby he was engaged as general manager at an annual salary of $30,000. Further, the Company in recognition of his services agreed to create a retirement fund for his benefit by paying over to a trustee the sum of $100,000 and on the 31st day of December in succeeding years an additional sum of $30,000. Pursuant to said employment agreement, on December 23, 1941, the Company entered into a trust agreement with the plaintiff, The National State Bank of Newark, as Trustee. The pertinent provisions of this trust agreement are as follows:

'4 (a) The primary purpose of this Agreement is to provide for the financial and economic security of C during the remainder of his life after he ceases to be actively identified with the Company.

'(b) On December 31, 1946, at which date the Employment Agreement will expire, or, if the Company shall have theretofore certified to the Trustee that said Employment Agreement has been extended to a subsequent date, as provided therein, then, on such subsequent date, the Trustee shall pay and distribute to C said Retirement Fund, either in one distribution or in instalments of varying amounts, over such period of time as the Company, from time to time, shall direct.

'(e) If all the property constituting the Retirement Fund shall not have been paid to C during his lifetime, the balance remaining in the hands of the Trustee shall, on the decease of C, be paid to his widow and/or nephews and nieces or their descendants, as C may provide by his Last Will and Testament; and if C shall fail to make such appointment in his said Will, the said property shall be paid and delivered to the person or persons who would have been entitled to his estate under the laws of the state of his residence, on his decease, if he had died intestate.'

Prior to the execution of the foregoing agreement, Mr. Conwell, on February 16, 1938, executed his will. Later he made four codicils to the will, but we need be concerned only with the last two. Under Article Fifth of the will, the testator left the entire residue of his estate in trust to pay the income to his wife, Lillian Pantall Conwell, for life. Upon her death the principal was to be divided into three equal parts, each in trust, to pay the income to his nephews, Joseph Danby Conwell and Lewis Anthony Conwell, and to his niece, Margaret Conwell Morrison, during their lives, with remainder over as they should appoint, or in default of appointment, to their next-of-kin. After the execution of the employment and trust agreements, Mr. Conwell, on November 24, 1944, made a third codicil, in which he specifically exercised the power of appointment under the trust agreement, directing that all property constituting the retirement fund held by the trustee 'shall be added to the residue of my estate and disposed of for the benefit of my wife, Lillian Pantall Conwell, my nephews, Joseph Danby Conwell and Lewis Anthony Conwell, and my niece, Margaret Conwell Morrison, all as provided in Article Fifth of my Will.' Subsequently, on March 16, 1948, he executed the fourth and last codicil to his will, whereby he revoked the Fifth Article of his will and in lieu thereof substituted a new Article Fifth. In this, he left the entire residue of his estate in trust to pay the net income to his wife for her life; at her death, he gave $5,000 to his nephew, Lewis Anthony Conwell, and directed that the balance be divided into three equal parts, each in trust, to pay the income to his nephew, Joseph Danby Conwell, and his nieces, Margaret Conwell Morrison and Luella E. Conwell, during their respective lives. Upon the death of Joseph and Margaret, the principal of their trusts is subject to general testamentary powers of appointment with gifts over in default of appointment to their respective next-of-kin. Thus, the effect of the last codicil was to reduce the bequest to Lewis Anthony Conwell from one-third of the residue to $5,000 and to add his niece, Luella E. Conwell, as beneficiary of a life interest in one-third of the residue. However, Luella E. Conwell died on June 2, 1949, after the institution of this suit, and her death has been suggested upon the record.

Mr. Conwell was survived by his widow and eight nephews and nieces. Four of them are children of a deceased brother, Sidney D. Conwell, and they are the beneficiaries under the will and codicils. The other four are children of a deceased sister, Luella E. Brown, and are not named as beneficiaries.

The first issue raised is the character of the power granted Conwell in the retirement trust agreement and whether the decedent effectively exercised it. The plaintiff and the defendant, Lillian Pantall Conwell, widow of the testator, argue that the power of appointment was non-exclusive and was not effectively exercised; that the trust fund is, therefore, to be distributed as though the decedent had died intestate; and, accordingly, the widow is entitled thereto. The defendants, Margaret Conwell Morrison, Joseph Danby Conwell and Lewis Anthony Conwell, contend that the power was exclusive and was effectively exercised.

The second issue relates to the liability of the trust estate for reimbursement to the executor of any federal estate or New Jersey inheritance taxes which may be assessed and paid by the executor with respect to the trust assets. On this issue, there is a division of opinion. The plaintiff and all the defendants, with the exception of the executor, contend that if the power of appointment was exercised effectively, all taxes are payable from the testamentary estate under the Sixth Article of the will. The executor urges otherwise.

I. The first question is whether the power of appointment was exclusive or non-exclusive. 'Powers of appointment are necessarily either exclusive or non-exclusive, according to the reasonable import of the language creating them.' 41 Am. Jur., Powers, Sec. 63. The plaintiff and the defendant, Mrs. Conwell, argue that the power of appointment granted the decedent under the trust agreement to appoint the trust assets to his 'widow and/or nephews and nieces' was a non-exclusive power; that thereby Conwell had no right of selection except to appoint to his widow and all of his nephews and nieces; and that the purported exercise of the power by the codicil to the will was rendered ineffective because he excluded certain nephews and nieces. The distriction between an exclusive and a non-exclusive power of appointment is thus stated in 49 C.J., Powers, Secs. 51, 52:

'A power is exclusive when there is granted to the donee the right to appoint to any of the designated objects to the exclusion of others; and so such a power may be exercised by the donee by appointing to such of the objects excluding others, and in such share, as he may see fit.

'A power of appointment is non-exclusive when no right of selection among the objects or of exclusion of any of them is given to the donee. So, under a power containing no words of exclusion, the property must be so distributed, if the power is exercised, that all the objects shall have some portion of it, and the exclusion of any member of the designated class in making the appointments invalidates the attempted exercise of the power. Unless an intention is shown in the instrument creating a non-exclusive power of appointment that the appointees shall take equally, however, the donee may appoint such shares as he thinks fit, subject to the rules relating to illusory appointments.' Hopkins v. Dimock, 138 N.J.Eq. 434, 48 A.2d 204 (Ch. 1946), affirmed 140 N.J.Eq. 182, 52 A.2d 853 (E. & A. 1947).

The familiar rule of construction is that 'the intention of the donor of the power is the great principle that governs in the construction of powers; and, in furtherance of the object in view, the courts will vary the form of executing the power, and, as the case may require, either enlarge a limited to a general power, or cut down a general power to a particular purpose.' Ryan v. Daly, 99 N.J.Eq. 585, 134 A. 546, 547 (Ch. 1926), affirmed 101 N.J.Eq. 305, 306, 137 A. 918 (E. & A. 1927). U.S. Trust Co. of Newark v. Montclair Trust Co., 133 N.J.Eq. 579, 33 A.2d 901 (Ch. 1943). Fidelity Union Trust Co. v. Warren, 135 N.J.Eq. 239, 38 A.2d 124 (Ch. 1944); Marx v. Rice, 1 N.J. 574, 65 A.2d 48 (Sup.1949). Restatement, Property, Sec. 360, declares:

'The donee of a special power may, by an otherwise effective appointment, exclude one or more objects of the power from distribution of the property covered thereby, unless the donor manifests a contrary intent. * * *

'Comment. A. Rationale. The nature and scope of the discretion given to the donee depends upon the intent of the donor. When the donor creates a power of appointment it is inferable that he intends the donee to be...