Summary
In Spooner v. Dunlap, 87 N.H. 384, 387, this court said: "Except under extraordinary circumstances, no duty would... devolve upon the present trustee to investigate the conduct of his predecessor."
Summary of this case from Indian Head Bank v. TheriaultOpinion
Decided June 27, 1935.
The decree of a probate court allowing the final account of a retiring trustee is a judgment, conclusive against all the world until vacated upon direct attack in that court. After such decree no duty devolves upon the succeeding trustee to investigate the account of his predecessor unless extraordinary circumstances so demand. Where such duty is questionable the beneficiary for life and the remainderman may release a trustee from making such investigation upon his full disclosure of all facts within his knowledge. A trust to invest and pay over the income may be terminated by the act of the beneficiary for life and the remainderman, where both are sui juris and the owners of the entire equitable title. Where the beneficiary and remainderman have the right to terminate a trust in toto they may terminate it in part. Where the beneficiary for life of a trust is entitled to have the principal used for her support and maintenance, a conveyance may be given by the trustee to the beneficiary for that purpose, but such a conveyance creates no debt to the trustee and a mortgage back cannot be required. To protect a trust which owns a second mortgage the trustee may use trust funds to discharge the first mortgage. A trustee's duty to use reasonable care to make the property productive includes the power to lease and make repairs but not to make permanent improvements.
PETITION, for instructions by James D. Spooner as trustee under the will of Prescott Putnam, late of Claremont. Transferred without ruling by Sawyer, C.J.
The essential allegations of the petition are as follows: Prescott Putnam, the testator, by the residuary clause of his will, created a trust for the benefit of the defendants in the following language:
"One fourth thereof to Frank G. Putnam aforesaid in trust, for the following uses and purposes viz. to keep the same carefully and safely invested and pay the annual income thereof, after deducting a reasonable sum for his services and expenses, to my daughter Annie L. Dunlap for and during her life and at her decease to pay the principal to her daughter Winnifred Arlene Spinney. I also hereby authorize said trustee and his successors, in their discretion, and with the written consent of said Winnifred Spinney to use any part of the principal of this fund for the comfortable support and maintenance of said Annie L. Dunlap."
On November 1, 1934, the above named Frank G. Putnam resigned said trust and the petitioner was appointed his successor by the probate court. Amongst the securities of the trust estate transferred to the petitioner by the said Frank G. Putnam were second and third mortgages upon certain real estate in Claremont known as the Howard property. In order to protect these mortgages, the petitioner used a portion of the principal of the trust fund to pay off the first mortgage and took a quitclaim deed from the first mortgagee, whereby he now claims to own the fee of said Howard property. Based on a fair rental return, it is alleged that this property is worth from four to six thousand dollars, but the property cannot, at present, be sold for more than twenty-five hundred or three thousand dollars.
By an amendment to the petition, it is also alleged that both the life tenant and the remainderman desire to terminate the trust.
The questions in regard to which the trustee prays for instructions and other facts relating thereto are stated in the opinion.
James D. Spooner, Trustee, pro se.
The questions propounded by the trustee are stated and answered as follows:
1. "May he deed the Howard Property to Annie L. Dunlap without taking back a mortgage, if Winnifred A. Towne consents to it?"
The answer to this question is implicit in our reply to the trustee's sixth question infra. The right of the beneficiary and remainderman to terminate the trust in toto necessarily includes the right to terminate it in part, and hence it is the duty of the trustee to transfer such portions of the trust property as they may designate in accordance with their directions.
The language of the will also requires an affirmative answer to this question.
The provision authorizing the trustee "with the consent of the said Winnifred Spinney [now Towne] to use any part of the principal for the comfortable support and maintenance of the said Annie L. Dunlap" confers upon the trustee sufficient authority to transfer to Annie L. Dunlap, for her support and maintenance, any portion of the trust estate which he considers reasonably necessary for that purpose, provided the remainderman consents.
2. "May he deed the Howard Property to Annie L. Dunlap, taking back a mortgage for $4500. or such sum as may be agreed upon between himself and Annie L. Dunlap and Winnifred A. Towne?"
Since Annie L. Dunlap is entitled under the will to the benefit of the principal of the trust estate for her support and maintenance, its use by the trustee for that purpose would not constitute her a debtor to him, and under these circumstances, we see no justification for the creation of fictitious evidences of indebtedness. The second question of the trustee is, therefore, answered in the negative.
3. "May he continue to operate the Howard property as a permanent investment, making such investments therein for repairs, alterations, improvements, taxes, water rent, and any and all expenses ordinarily incident to the operation of rental real estate for profit?"
By buying in the first mortgage, the trustee properly discharged his duty "to protect the trust estate." Glynn v. Maxfield, 75 N.H. 482. Inasmuch as the property cannot now be sold without undue loss, "the trustee is under a duty to the beneficiary to use reasonable care and skill to make the trust property productive." Am. Law Inst., Restatement of Trusts, s. 176. This duty involves the power to lease and to make such other use of the real estate as prudent business management would suggest for the purpose of obtaining from it rents and profits. See Hale v. Hale, 146 Ill. 227. The trustee, therefore, has authority to make such repairs and alterations as may be necessary to secure or retain tenants and to pay taxes and water rates. Since the prime object of the trust is to furnish an income to the life beneficiary, the use of the rentals for permanent improvements would not be justified. With the above qualification, the third question of the trustee is, therefore, answered in the affirmative.
4. "Is it the duty of your petitioner to investigate the conduct of his predecessor and, if loss has been incurred by the trust estate due to his mismanagement, sue his predecessor for such loss or losses?"
It is alleged in the bill that "the final account of said retiring trustee was allowed by the Court of Probate for this County and no objection was made by either the life tenant or the remainderman of this trust." The decree of the probate court allowing the account of the previous trustee was a judgment conclusive against all the world, from which relief can be had only in some direct proceeding in that court. Scammon v. Pearson, 79 N.H. 213; Hening's N.H. Digest, 1200. Except under extraordinary circumstances, no duty would, therefore, devolve upon the present trustee to investigate the conduct of his predecessor. The fourth question of the trustee is, therefore, answered in the negative.
5[.] "If the answer to the foregoing question is . . . in the affirmative, can the said Annie L. Dunlap and Winnifred A. Towne give a release of your petitioner from so doing . . . ?"
Inasmuch as Annie L. Dunlap and Winnifred A. Towne both appear to be of age and sui juris, no reason is perceived why they may not properly release the trustee from any supposed duty to proceed against his predecessor upon full disclosure to them by the trustee of all facts within his knowledge. The fifth question of the trustee is, therefore, answered in the affirmative.
6. "May the trustee at the wish and request of both the life tenant and the remainderman, terminate the trust in full or in part under the circumstances set forth in the statement of facts . . . ?"
Our recent decision in the case of Eastman v. Bank, ante, 189, is decisive upon this point. Inasmuch as Annie L. Dunlap and Winnifred A. Towne appear to be the owners of the entire equitable title to the trust estate, the sixth question of the trustee is answered in the affirmative.
Case discharged.
All concurred.