Opinion
No. 31082
Decided January 21, 1948.
Trusts — Real estate title placed in trustee to pay beneficiaries net income — Trustee empowered to sell realty and purchase annuities for beneficiaries — Trust live and not one which has failed, when — Will provided trust could continue for 15 years — Discretion in trustee to sell realty and purchase annuities — Beneficiaries not entitled to realty or proceeds in lieu of annuities, when.
1. Where by the terms of a testamentary trust the legal title to real estate is in a trustee having the power of full management of the same and to pay the net income to certain beneficiaries, or to lease or sell the real estate in any manner and upon such terms as the trustee may deem sufficient, and, upon sale, to invest the proceeds in life annuities for the beneficiaries, and where the trustee has not sold the real estate and is exercising his power of management and payment of net income, such trust is live and active and not dry or one that has failed.
2. Where the existence of such a testamentary trust, by its terms, must not continue longer than 15 years, the beneficiaries, in the absence of fraud or abuse of discretion by the trustee, cannot successfully claim either the property or the proceeds of its salt, in lieu of the annuities provided, at least until either the 15 years have elapsed or the trustee has, in the exercise of his discretion, sold the property.
APPEAL from the Court of Appeals for Cuyahoga county.
The appellants herein, Leona F. Feiler and Clifford L. Feiler, brought an action in the Common Pleas Court of Cuyahoga county against appellees herein, Alwin J. Feiler, Delphia C. Albaugh, Adolph M. Klein, administrator and trustee under the will of Ernestine M. Feiler, deceased (hereinafter called testatrix), and Gizella May.
The purpose of the action was to construe the will of testatrix, who died June 6, 1939, and whose will, bearing date of October 5, 1933, was probated June 26, 1939. Testatrix left surviving her four children of full age, her only heirs at law, who are the two plaintiffs in the action and the defendants Alwin J. Feiler and Delpbia C. Albaugh.
At the time of her death testatrix owned five parcels of real estate, all situated in the city of Cleveland, Ohio. Parcel number one, located at 671 East 152nd street, had an appraised value of $6,000. Parcel number two, located at 698 and 700 East 118th street, had an appraised value of $7,500. Parcel number three, located at 433 and 435 East 118th street, had an appraised value of $5,800. Parcel number four, located at 2607 and 2609 East 45th place, had an appraised value of $2,400. Parcel number five, located at 176th street and St. Clair avenue, had an appraised value of $850.
These parcels were owned by testatrix not only at the date of her death but at the date of her will.
After disposing of her personal property, testatrix devised her parcels of real estate to a named trustee, in trust, to take, manage, let and rent the real estate; to collect and receive the rents, income and profits thereof; to apply the income of each individual parcel toward the expenses of such parcel; and, after all the necessary expenses appurtenant to each specific parcel are paid, to apply the net income as follows: From parcel number four, to be distributed quarterly and equally between Alwin J. Feiler and Delphia C. Feiler (now Delphia C. Albaugh); from parcels number one and number five, to be distributed quarterly to Clifford L. Feiler; and from parcels number two and number three, to be distributed quarterly to Leona F. Feiler.
In her will testatrix fully authorized and empowered her named trustee, and his successor or successors, to let and rent all or any part of the real estate, upon any terms the trustee should deem proper, and to have the full care and management of the property. The trustee was further authorized to sell and dispose of any or all of the real estate at any time and in any manner and for such prices and upon such terms and conditions as he should deem proper.
The will further provides that the trustee can execute and deliver warranty deeds, and that no purchaser from the trustee need see to the application of the purchase money to or for the purposes of the trust.
Testatrix further provided in her will that in the event any of the parcels of real estate should be sold in accordance with the powers conferred upon her trustee, the proceeds derived from such sale or sales should be used by the trustee to purchase annuities from a named life insurance company in the following manner:
The proceeds from the sale of parcel number four to be used in purchasing life annuities for Alwin J. Feiler and Delphia C. Albaugh, payable monthly and operative one year after purchase; the proceeds from the sale of parcels number one and number five to be used in purchasing a life annuity for Clifford L. Feiler, payable monthly and operative within one year after purchase; and the proceeds from the sale of parcels number two and number three to be used in purchasing a life annuity for Leona F. Feiler, payable monthly and operative within one year after purchase.
Testatrix provided in item six of her will that her sister, Gizella May, should have the free use and occupancy of the downstairs suite of the house on pareel number four, subject to the exercise of all the powers of leasing and selling conferred in the will.
Testatrix named Harry Auslander as executor and trustee of her will and provided that, if he should cease to act as such, The Cleveland Trust Company should be the executor and trustee. She further provided that the trusteeship should not extend beyond 15 years after her decease.
The petition in the instant case alleges that Auslander qualified as trustee but later resigned from the trusteeship; that The Cleveland Trust Company declined and disclaimed the trust; and that Klein was appointed and qualified and is now acting as trustee.
The petition alleges further that doubt has arisen as to the purposes of the testatrix in attempting to create the purported trust; that doubt has arisen whether the trust is uniquely personal to the trustees named in the will; that the annuities directed to be purchased are capricious and whimsical and, accordingly, the beneficiaries have elected to take the respective parcels of real estate in lieu of the proceeds of the sale thereof and in lieu of the annuities directed to be purchased; that such election has terminated the trust; and that each of the children of the testatrix ought to be and now is seized in fee simple, free from the trust, of the parcels of real estate, as follows:
Alwin J. Feiler and Delphia C. Albaugh each the undivided one-half interest in parcel number four; Clifford L. Feiler parcels number one and number five; and Leona F. Feiler parcels number two and number three.
The petition alleges also that doubt has arisen as to the rights and interests of Gizella May in and to parcel number four, and that directions and instructions of the court with reference thereto are necessary.
The prayer of the petition is that the court construe the will of the testatrix, declare the rights of all parties, find that the trust has failed, quiet the fee-simple title, free from the trust, of the four children of testatrix in the several parcels of real estate above outlined, and direct and instruct the trustee and require him to act and finally conclude his duties as trustee.
Klein in his answer, inter alia, denies that any doubt has arisen as to the purposes of the testatrix in creating the trust; that any doubt has arisen as to whether the trust is uniquely personal to the trustees named in the will; that the direction to purchase annuities is capricious and whimsical; that the beneficiaries are seized in fee simple of the property; that they have elected to take the parcels of real estate or have any legal right to do so; and that any doubt exists as to the rights of Gizella May with reference to parcel number four. Klein alleges that during his administration as trustee the income of the properties was far above the expenditures, and that, except for the constant litigation of the beneficiaries, the income would be large, ample and according to the wishes of the testatrix.
An attorney filed an entry of appearance for Alwin J. Feiler and Delphia C. Albaugh, and in the entry consented to the prayer of the petition.
The Court of Common Pleas dismissed the petition and entered judgment that defendants go hence without day.
The judgment of the Common Pleas Court was affirmed by the Court of Appeals.
The judgment of the Court of Appeals is before this court on appeal, a motion to certify the record having been allowed.
Messrs. Deibel, Elbrecht Roberts, for appellants.
Mr. John S. Berko, for appellees Alwin J. Feiler and Delphia C. Albaugh.
Mr. Adolph M. Klein, for appellee administrator and trustee.
The questions presented by the record in this case are:
1. Is the trust created under the will of testatrix personal to the named trustees?
2. Do the children of the testatrix, by reason of the claimed failure of the trust and the fact that the proceeds from the sale of the real estate are directed to be used eventually in the purchase of annuities for the children beneficiaries, have the right to be presently vested with the fee-simple title in the real estate in lieu of the annuities, after such beneficiaries made a demand and election therefor?
The answer to the first question is simple.
Klein is serving as trustee by appointment by the Probate Court, the first trustee named in the will having resigned and the second trustee having declined to serve.
In item eight of the will the first few words read, "I hereby fully authorize and empower my trustee, hereinafter named, and his successor or successors, to let and rent my said real estate," etc. The use of the words "successor or successors," when only one successor was named in the will, clearly shows that testatrix intended that the trust she created should not be uniquely personal to the trustees she named.
The second question is more important and is the one which plaintiffs earnestly urge.
The courts of England, Massachusetts and New York have held, without reservation, that, when a testator directs either his executor or trustee to use a capital sum from testator's state to purchase an unrestricted life annuity for a beneficiary, the beneficiary may elect and be entitled to receive the capital sum instead of the annuity. This has been the settled rule in England since it was laid down in 1797 in the case of Barnes v. Rowley, 3 Vesey, Jr., 305, 30 Eng. Rep. R., 1024.
In the case of In re Brunning (1909), L. R., 1 Ch., 276, 279, 78 L. J. Ch., 75, 99 L. T., 918, the court said:
"Now it seems to me that the origin of the rule, that where money is bequeathed to be invested in the purchase of an annuity it must be regarded as a vested legacy from the death of the testator of the sum that will purchase the annuity, was the idea that it was matter of indifference whether the annuitant had his annuity purchased for him or received in cash the sum that would purchase it, because, if the annuity was purchased for him, he could sell it the next day."
The English rule was followed by the Supreme Judicial Court of Massachusetts in the case of Parker et al., Exrs., v. Cobe, 208 Mass. 260, 94 N.E. 476, 33 L.R.A. (N.S.), 978. In that case there was a bequest to trustees of $75,000 "to be used to purchase an annuity or annuities for Ruth H. Cobe, my niece, the payments thereof to be paid to her quarterly, if that can be done."
The Massachusetts court followed the English decisions and stated:
"The reasoning on which the rule is established is that the legatee can, sell the particular object as soon as it is bought and the law will not require the performance of a nugatory act. Consequently it is of no consequence that the particular object is to be bought by the executor and not by the legatee."
The Court of Appeals of New York likewise followed English precedent, in the case of In re Estate of Cole, 219 N.Y. 435, 114 N.E. 785, Ann. Cas. 1918E, 807, the headnote of Which case is:
"The testamentary gift of an annuity must be regarded as a legacy of the definite sum required to purchase it, and, where an absolute and unqualified annuity is given by a testator, with instructions to invest a sum sufficient to purchase, the same, the annuitant may elect to take the capital sum thereof, instead of having it invested for the purpose of producing the annuity."
Aside from the present case, the question has never been passed upon by the courts of Ohio. However, this court in construing wills has never deviated from the proposition that, as said in paragraph two of the syllabus in Union Savings Bank Trust Co. v. Alter, 103 Ohio St. 188, 132 N.E. 834, "the controlling object in the construction of a will is the ascertainment and declaration of the intention of the testator."
It has always been our theory that, since the testator is the owner of the property at the time he makes disposition of it and at the time of his death, he has the sole right, if of sound mind and under no undue restraint, to dispose of it in any way he sees fit, provided such disposition is not repugnant to law; and that neither the court nor the beneficiaries in a will can amend or change the will simply because they might think another disposition more desirable, equitable or just.
It is true that the annuities provided for in the instant case probably could be alienated by the annuitants and would be subject to claims against the annuitants, but, nevertheless, the testatrix in no uncertain terms provided for the annuities and it could be argued that she must have had in mind that, even though the beneficiaries thereof might alienate them, nevertheless, they were a safer gift than would be an outright bequest of the capital sum to be used for the purpose of the annuities.
In the view we take of this case, it is not necessary for us to decide whether the rule as announced by the courts of England, Massachusetts and New York is the law in Ohio. It might be said in passing that the Legislature of New York has changed the rule announced by the Court of Appeals there, by statute, and now when money is bequeathed by will to purchase an annuity for a beneficiary, that beneficiary can no longer elect to receive the capital sum in place of the annuity.
In all the cases, both English and American, which bear upon this question, sums were directed to be either immediately or at certain times invested in annuities for the benefit of the proposed annuitants, and there were no questions of discretion of trustees involved.
The court said in Parker v. Cobe, supra:
"The case at bar is not a case where $75,000 was left upon the trust that the income of it should be paid to Ruth H. Cobe during her life, but it is a case where the $75,000 was to be laid out by trustees in the purchase of an annuity for Ruth H. Cobe during her life. For that reason it is not a case within the rule of Claflin v. Claflin, 149 Mass. 19 [20 N.E. 454, 14 Am. St. Rep., 393 3 L.R.A., 370]."
The Claflin case was concerned with a will whereby a testator gave a part of his personal estate to trustees in trust to sell and dispose of same and to pay the proceeds to his son, $10,000 when the son reached the age of 21 years, $10,000 when he reached the age of 25 years, and the balance when he reached the age of 30 years. After the son became 21 and received the first $10,000, he filed a bill in equity to obtain the rest of the fund. His claims were that the entire beneficial interest in the fund was his, and there was no reason why the fund should be held longer by the trustees; and that the provisions postponing payment to him were void. The court there held that the restriction upon the plaintiff's possession and control was one that the testator had a right to make and there was no good reason why his intention should not be carried out.
However, even if we were inclined to follow the rule as to the right of a beneficiary, for whom a capital sum had been directed in a will to be invested in an annuity, to take the capital sum itself, the rule would not be applicable in the present case. Here a trust was set up; the trustee was given full discretion in the management of five parcels of real estate; he was given an absolute discretion as to when, within 15 years, he would sell the property; no annuity could be purchased until the property was sold; in the meantime, the net income of the property was to be distributed to the beneficiaries; and a sister of the testatrix was given the right to occupy a part of one of the parcels of real estate during all the time the trustee did not exercise his discretion in leasing or selling that part and, until such leasing or selling, her rights are a charge upon the property.
Since the testatrix died in June 1939, the trustee has more than six years remaining within which to exercise his discretion to sell. This is not a dry trust or one that has failed, but it is an active one devolving upon the trustee the duties of management in every detail, of paying over net income to the beneficiaries, of protecting the rights of the sister, and of eventually, when the trustee sees fit, selling the various parcels and investing the proceeds in annuities.
When the sales of the real property have been made, and the money is in the trustee's hands for the purpose of investment in annuities, then, and not until then, will there be a possible right of the children beneficiaries having the option of claiming the capital sum in place of the annuities themselves.
The trustee has made contentions, raising other questions, namely, that there is no evidence that Alwin J. Feiler and Delphia C. Albaugh have consented to the desires and demands of the plaintiffs; that the interests of the various children beneficiaries are in greatly different amounts; and that, therefore, the doctrines of equitable conversion and reconversion, which plaintiffs have attempted to apply in support of their claims, are not applicable.
The doctrine of equitable conversion has been recognized in Ohio. In Holt v. Lamb, 17 Ohio St. 374, paragraphs one and two of the syllabus read:
"1. Where land is devised to a tenant for life, with direction that at his death it be sold, and the proceeds divided among his children, the children may elect at his death to take the land itself, or to have it sold for their benefit.
"2. The right or estate of such children does not accrue until the death of the tenant for life, although his estate may be determined during his lifetime."
It is obvious that the doctrine of equitable conversion, as interpreted by this court, is to the effect that such doctrine cannot be applied until preceding estates have been ended.
In the present case, since the trustee has a legal title to the five parcels of real estate and his estate therein may run until 1954, the plaintiffs cannot now take advantage of the doctrine, even assuming that it applies to this case.
There is no charge here of fraud, misfeasance or malfeasance on the part of the trustee in the exercise of any discretionary power which the will gives him, and, in the absence of an abuse of his discretion, the court cannot terminate the trust which has been created by the plain and unambiguous words of the will of testatrix, nor can the beneficiaries of the will do so even if they were in complete agreement as to such a course. Neither a court nor beneficiaries can make a new and different will for the testatrix.
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
WEYGANDT, C.J., TURNER, MATTHIAS, HART, ZIMMERMAN and SOHNGEN, JJ., concur.