Opinion
No. 4521.
Argued November 7, 1956.
Decided January 31, 1957.
Where a testamentary trust directed the trustee "to pay said annual net income, and if [he] shall from time to time see fit any part or all of the principal thereof in [his] absolute discretion" to the defendant, the trustee was held to have been given discretion only as to the payment of principal and not as to payment of net income.
The trustee having thus directed in the residuary clause the payment of the annual net income without discretion a further provision in the will that all bequests and trusts and the income thereof shall be paid by the trustee in his absolute discretion free of claims of creditors and imposing a restraint on voluntary alienation by the beneficiaries did not manifest an intention from the instrument as a whole that the nondiscretionary duty as to payment of net income should be thereby overridden.
Since the payment of income was not conditional upon the trustee's exercise of discretion such income is subject to an alimony award order against the defendant beneficiary enforceable by equitable or legal process.
The provision in such instrument relating to the payment of principal in the trustee's "absolute discretion" created a valid discretionary trust.
A provision in a trust instrument against the attachment of income by creditors of the beneficiary is invalid where the trustee has no discretion but is under an absolute duty to pay the beneficiary.
While an action lies to compel a trustee of a discretionary trust or trust for support to make payments for the benefit of the beneficiary's wife and children in need of support, such trust may not be reached to satisfy an alimony order in favor of a divorced wife, no longer a member of the family.
Although the principal of such discretionary trust cannot be reached directly and the trustee cannot be compelled by court order to exercise his discretion to make payments therefrom to satisfy an alimony order, it may nevertheless be taken in account in determining the amount of alimony and an equitable division of property.
While a spendthrift trust may be reached by a creditor's bill in equity as well as by trustee process in law by virtue of the provisions of RSA 498:9, such statute has no application to discretionary trusts or trusts for support.
Where the libelee was subject to the jurisdiction of the court in the original divorce proceedings he remained subject thereto and could be served with supplemental process outside the state as a nonresident.
MOTION, to bring forward a divorce decree for the purpose of making an award for alimony and support. The motion was filed in 1955 and related to the decree of divorce granted in 1952 in favor of the plaintiff in which no provision was made for alimony "because of absence from the state of the [defendant] and the uncertainty as to his earning capacity and the extent of his property." At the same time the Court found that a previous divorce in Florida, in favor of the defendant, was obtained by fraud.
The plaintiff by her motion seeks to reach, for the purpose of enforcing any orders which may be made in her favor, the defendant's interest under the will of Grace L. Flint, deceased May 27, 1955, allowed in this state in the probate court for Rockingham County, under which the defendant Kinghorn qualified as executor and is named as trustee. The entire estate, as appears from the inventory, is approximately $248,000 and, except for specific bequests amounting to $17,900, is left in trust for the benefit of the defendant George O. Athorne. A trustee writ was also served on the defendant Kinghorn attaching all the rights and credits of the defendant Athorne in his hands as executor and trustee. The Court, pending a hearing on the merits of the motion, ordered that the divorce decree be brought forward and temporarily enjoined the defendant Kinghorn from making any payments to or for the defendant Athorne and also enjoined the latter from disposing of or encumbering any interest he had in the Flint estate. The defendant Athorne's motion to dismiss was denied and his exception was transferred. The defendant Kinghorn's motion to dismiss the trustee process and vacate the temporary injunction was reserved and transferred without ruling by Wheeler, C. J.
The residue of the Flint estate was bequeathed and devised by clause 8 to the defendant Kinghorn in trust "to pay said annual net income, and if [he] shall from time to time see fit any part or all of the principal thereof in [his] absolute discretion to . . . George O. Athorne, for and during the term of his natural life and at his decease to transfer and convey the same to such person or persons as he, the said George O. Athorne, may by his will direct or in default of such will to the heirs of him the said George O. Athorne." A concluding paragraph of the will, clause 9, contained the following provision: ". . . I further direct that all legacies, bequests, gifts, devises and trusts hereinbefore made and established in this instrument and the income thereof shall be held and paid by said [executor and trustee at and in his] absolute discretion free from any writ, process of law, attachment, judgment or execution obtained therefrom. And I further direct that no legatee, devisee or beneficiary of any trust hereinbefore made and established in this instrument shall have the right to sell, assign or transfer any interest therein." Further facts appear in the opinion.
Cooper, Hall Cooper and John M. Brant (Mr. Burt R. Cooper and Mr. Brant orally), for the plaintiff.
Upton, Sanders Upton (Mr. Richard F. Upton orally), for the defendant George O. Athorne, specially.
Thomas H. Simes and Upton, Sanders Upton (Mr. Richard F. Upton orally), for the defendant Charles W. Kinghorn, specially.
We agree with the plaintiff's contention that the residuary clause (clause 8), standing by itself, gave the trustee no discretion in the payment of the "annual net income" to the defendant Athorne. The trustee's "absolute discretion" under this clause is confined and restricted to the payment of a part or the whole of the principal if he "shall from time to time see fit." The concluding paragraph, clause 9, provides in effect that every bequest and trust "and the income thereof shall be held and paid" by the trustee at his "absolute discretion" free from the claims of creditors and further contains a restraint on voluntary alienation by the beneficiaries.
The meaning of the will is to be determined from the whole instrument and not from an isolated phrase or clause in it. Grant v. Nelson, 100 N.H. 220, 221. "Arbitrary canons of construction give way to a single broad rule of construction that always favors rather than opposes the testamentary disposition and, whenever consistent with the terms of the will as a whole, adopts that construction that gives the maximum validity to the testamentary disposition." In re Lathrop Estate, 100 N.H. 393, 395. See also, V American Law of Property, s. 21.3c.
The argument is advanced that the sweeping language of clause 9 if enforced literally would subject the payment of specific pecuniary bequests to the discretion of the trustee and such a construction is not a rational one. These bequests appear in clauses one to seven of the will. The first four clauses bequeath $100 to each of four cousins, the fifth is a bequest of $5,000, the sixth a bequest of $2,500 and the seventh a bequest of $10,000 to the plaintiff. Although the validity of these bequests is not in issue in this proceeding, the interpretation of clause 9 is affected by their inclusion in it. We confine our decision to the nature of the residuary trust as determined from an examination of the will as a whole.
Contrary to the Restatement, Trusts, s. 152(2), a true spendthrift trust has been considered invalid in this state since 1935. Brahmey v. Rollins, 87 N.H. 290. Although this is a minority view, it was adopted after full consideration in a careful opinion and continues to be settled law in this jurisdiction. Cadbury v. Parrish, 89 N.H. 464, 469. "The true spendthrift trust is not recognized in New Hampshire. 50 Harv. L. Rev. 60, 90. A provision in a trust instrument against the attachment of income by creditors of the beneficiary is invalid, where the trustee has no discretion but is under an absolute duty to pay the beneficiary." N.H. Anno. Restatement, Trusts, s. 152(2). Consequently in those cases where the trustee is unconditionally directed to pay the income of the estate to the beneficiary and has no discretionary power, a creditor may seize it. Watson v. Kennard, 77 N.H. 23. The specific intent clearly manifested in clause 8 that the payment of income shall not be subject to the trustee's discretion is not overcome by the blanket generalized provisions in clause 9. Consequently the annual net income is subject to the order of the Court under equitable or legal process.
Clause 8 of the will also clearly indicates that the payment of principal lies in the absolute discretion of the trustee. While Brahmey v. Rollins, supra, 299, condemned the true spendthrift trust, it recognized that cases of "discretionary trusts and of trusts for support stand on a different principle." Discretionary trusts and trusts for support have been sustained against the attack of creditors and are valid in this jurisdiction. Duncan v. Elkins, 94 N.H. 13; Epstein v. Corning, 91 N.H. 474. The only cases where a creditor could compel the trustee of a discretionary trust to pay over a part of the income were those involving a wife or child who was in need of support. Gardner v. O'Loughlin, 76 N.H. 481; Fowler v. Hancock, 89 N.H. 301. This result was reached as a matter of construction of the trust instrument on the theory that the needs of a married man also included "the needs of his family." Eaton v. Eaton, 81 N.H. 275, 276. The wife is entitled to support until the date of the divorce but not thereafter since she is no longer considered a member of the "family." Eaton v. Eaton, 82 N.H. 216, 217. In this latter case it was said of the discretionary trust for the benefit of the husband: "his creditors cannot reach it, and the plaintiff wife's award of alimony stands no better than any other judgment debt in an effort to have it paid from the fund." See also, Burrage v. Bucknam, 301 Mass. 235; Bucknam v. Bucknam, 294 Mass. 214. Under the foregoing decisions of this state a valid discretionary trust as to principal was established under the will the beneficiary's interest in which cannot be reached directly by the plaintiff to satisfy any decree of alimony that she may in the future obtain.
We recognize that there may be a sound public policy in favor of subjecting such trusts to claims of alimony. Restatement, Trusts, s. 157(a). However the rules in the Eaton cases, supra, have come to be relied on by testators and lawyers alike. It is at least debatable whether we should overrule them in a case like the present where the will was drawn with the evident purpose of avoiding the spendthrift trust condemned in Brahmey v. Rollins, 87 N.H. 290. The present will was executed two years after the Brahmey case and the codicil was executed in 1947 after all of the decisional law summarized in the previous paragraph had clearly sustained discretionary trusts and trusts for support. "Since the question is purely one of policy its solution is more appropriately a function of the Legislature than of the courts. It is obvious that there are competing factors. There are situations in which spendthrift trusts admittedly serve a useful function . . . Special classes of creditors should also be expressly allowed to reach at least part of the income exempt from the claims of ordinary creditors." Griswold, Spendthrift Trusts (2nd ed.) s. 556.
The only legislative action relating to spendthrift trusts since 1935 occurred in 1941 when the Legislature adopted the Commissioners' Report in excluding spendthrift trusts from the limitation on a creditor's bill to reach trust funds. Commissioners' Report (January 1941) c. 361, s. 8, p. 914. R. L., c. 371, s. 9. This was accomplished by inserting the phrase "except in case of spendthrift trusts" after the words "trust funds" in R. L., c. 371, s. 9. The law as thus amended has remained unchanged since 1941. RSA 498:9. This had the effect of changing the procedural ruling in Brahmey v. Rollins, 87 N.H. 290, 302, that although a true spendthrift trust could be reached by trustee process it could not be reached by a creditor's bill. Consequently since 1941 a spendthrift trust may be reached by a creditor's bill in equity as well as by trustee process in law. This legislative change was limited to the true spendthrift trust (Restatement, Trusts, s. 152, comment b) and did not affect discretionary trusts and trusts for support. Duncan v. Elkins, 94 N.H. 13, 17. The procedural ruling in Brahmey, supra, 302, that a creditor could attach a spendthrift trust at law but could not reach it in equity has been characterized as a "curious consequence." Griswold, Spendthrift Trusts (2nd ed.) s. 202, p. 230. This 1941 change remedied this procedural distinction between law and equity but did not in any way limit the immunity of discretionary trusts and trusts for support from the claims of creditors.
While the plaintiff cannot reach the principal of the discretionary trust directly and the trustee cannot be compelled by court order to exercise his discretion for her benefit. (Hartford v. Clancy, 87 N.H. 458; Woodward v. Jolbert, 94 N.H. 324) that does not preclude the Trial Court from taking it into account in fixing alimony. If the allegations of the plaintiff's motion can be sustained, she makes out a case for division of property on account of money loaned her former husband during their marriage as well as for alimony for which a sense of justice calls out loudly. Guggenheimer v. Guggenheimer, 99 N.H. 399, 402. "May a court properly in fixing the amount of alimony to be awarded to his wife take into consideration the fact that he is entitled to income which cannot be reached directly?" II Scott, Trusts, (2nd ed. 1956) s. 157.1, p. 1114. If justice requires an affirmative answer to this question the Superior Court may consider the exempt resources of the husband in determining the amount of alimony that he should pay. Heuchan v. Heuchan, 38 Wn.2d 207; Commonwealth v. Berfield, 160 Pa. Super. 438. There are many cases where a pension, bonus, compensation or other exempt fund has been taken into consideration by a court in determining the amount of alimony that should be paid or in determining a proper division of the property of the spouses in a divorce proceeding. Tully v. Tully, 159 Mass. 91; Bailey v. Bailey, 76 Vt. 264; anno. 22 A.L.R. (2d) 1421. Cf. Wissner v. Wissner, 338 U.S. 655. While this relief as to principal may be indirect and unsecured it is the most that the present law of the state allows. VI American Law of Property, s. 26.130. The Court cannot exercise the husband's power of appointment by will, nor can it order him to make a will in which the plaintiff is named as beneficiary. Fiske v. Warner, 99 N.H. 236; Restatement, Property, s. 331(1). In determining the question of alimony and the division of property, the Court may take into consideration the former husband's full interest under the will.
At the time the original divorce decree was granted the defendant Athorne was served with process within the state and was represented by counsel. At the time the present motion was filed he was a nonresident and was served with process without the state. It is argued that under these conditions the court lacks jurisdiction in the present proceeding. While there is authority for that view (83 A.L.R. 1248; 28 A.L.R. (2d) 1378), that is not the rule in this state. Vezina v. Vezina, 95 N.H. 297, 298. See Veino v. Veino, 96 N.H. 439; Mauzy v. Mauzy, 97 N.H. 514. The defendant Kinghorn was served with process within this state where the trust was established and he is subject to the jurisdiction of the court. The motion of the defendant Athorne to dismiss this proceeding was properly denied; the defendant Kinghorn's motion to dismiss the trustee process and the temporary injunction should likewise be denied and the order is
Remanded.
All concurred.