Campbell v. Jordan

162 S.E.2d 545 (1968) 274 N.C. 233

Bess Woodard CAMPBELL
v.
John R. JORDAN, Jr., Trustee of the Estate of Moses W. Woodard, Deceased; Moses W. Woodard, III; Nancy Elizabeth Woodard and Mary White Woodard McDonald.

No. 522.

Supreme Court of North Carolina.

August 23, 1968.

Boyce, Lake & Burns, Raleigh, for plaintiff appellee.

William R. Hoke, Raleigh, for John R. Jordan, Jr., trustee, defendant appellee.

Purrington, Joslin, Culbertson & Sedberry, Raleigh, for Moses Woodard, III, Nancy Elizabeth Woodard and Mary White Woodard, additional defendants appellants.

SHARP, Justice.

Appellants' assignments of error present these questions: (1) May plaintiff, over the objection of defendant appellants, require the trustee to convey to them their one-half undivided interest in the corpus of the trust created by the will of Moses W. Woodard, and to terminate the trust as to defendant appellants? (2) Does the trustee have absolute discretion under the will to terminate the trust during the lifetime of plaintiff by conveying to her a onehalf interest in the corpus of the estate irrespective of whether such conveyance is "necessary or best for the welfare of the cestui que trust (plaintiff), and consistent with the welfare of * * * (the) family and estate" of the testator? The answer to these questions requires an interpretation of the will.

In interpreting a will, the testator's intent is gathered from the entire instrument. Despite its circumlocution and apparently conflicting provisions—some of which seem to be the result of attempts at clarification—, when we consider the will of Moses W. Woodard from its four corners, his purpose emerges. The trustee was directed to provide for testator's wife during her widowhood and for his son and daughter during the lifetime of each. During the joint lives of the three, the trustees (or trustee) to whom his estate was committed, were directed to divide its income into three equal parts, and to distribute it semi-annually to each. Upon the death of either the son or daughter leaving lineal descendants, his or her share immediately vested in that child's lineal descendants. Upon the death of the other without lineal descendants, his share vested in the lineal descendants of the other, and the trust ended.

The first of the three beneficiaries to die was Woodard, Jr. Upon his death on 6 January 1959, a one-third interest in the corpus of the trust vested in his lineal descendants, appellants, and the testamentary trust terminated as to that share. They then had the absolute right— had they desired to exercise it—to hold that share in severalty and to require a conveyance in fee simple from the trustee. In effect, they became tenants in common with the trustee and had the right to partition. However, so long as the trust continued as to either of the other beneficiaries, and no prejudice to them resulted, there was no legal impediment to an agreement between appellants and the trustee that he continue to administer their vested interest as if it were still a part of the entire trust corpus. After the death of Woodard, Jr., as to appellants' one-third part, the trustee acted as their appointed agent and not under the will. "Even though a trust is to terminate, by the terms of the will, at a certain time, the beneficiaries may, by agreement, postpone its termination." 96 C.J.S. Wills § 1047, p. 673 (1957); Bogert, Trusts & Trustees § 1010 (1962).

Appellants' election to have the trustee continue to handle the property for them appears to have been the exercise of good business judgment and to have inured to the benefit of all the beneficiaries of the estate. Plaintiff, who cannot compel the trustee to exercise his discretionary powers under the will to terminate the trust and convey to her a share in the trust estate, has no legal right to require a division of the estate. Woodard v. Mordecai, 234 N.C. 463, 67 S.E.2d 639. Thus—absent a showing of injury (which does not appear)—she has no standing to object to the arrangement between appellants and the trustee by which he continues to administer the property as a unit. The answer to the first question is NO.

Upon the death of wife on 7 November 1960 all her rights in the trust estate terminated. She, therefore, had no interest in the estate which she could transfer by will. Thus, no part of testator's estate passed to plaintiff under the will of her mother. Thereafter, however, plaintiff was entitled to the income from one—half the estate, and appellants were entitled to a conveyance of their one-half interest in fee had they desired it.

Plaintiff is now 83 years old; she has no lineal descendants. Upon her death "without leaving any lineal descendants surviving her," the will provides that her interest in the trust estate will "cease and determine" and go as provided in the will "for the holding and disposing of the original shares" of testator's wife and son. The effect of that provision was that, after the death of Woodard, Jr., leaving lineal descendants, during the lifetime of testator's wife and daughter there remained three interests in the trust estate, two of which the trustee was required to administer. After the death of wife, the estate consisted of two shares. Upon the death of plaintiff, her share will also end and the entire trust estate will belong to appellants as the lineal descendants of Woodard, Jr. Testator decreed that the interest of each of the three original beneficiaries should terminate with his death and that the estate should ultimately vest in fee in the issue of son and/or daughter. It transpired that son had issue and daughter did not.

Plaintiff may not, as a matter of right, require the trustee to convey to her, free of the trust, any part of the trust estate. However, since the day on which she became 21 years of age, the trustee has had the authority, if he deemed it "necessary or best for the welfare of the cestui que trust (plaintiff), and consistent with the welfare of testator's family and estate" to convey to plaintiff in fee simple, free from the trust, any part or all of the share of the corpus of the trust estate provided for her benefit. In 1951, she and her mother, who was then alive and unmarried, demanded that the trustees (W. G. Mordecai and First Citizens Bank and Trust Company) convey to each of them one-third of the trust corpus free from the trust. The corporate trustee was willing to make the conveyance; the individual trustee refused. Plaintiffs then instituted an action against the trustees to require them "to exercise a discretionary power granted by the will." They alleged that the conveyances which they had requested were "best for their welfare," and that the individual trustee, in refusing to exercise his discretionary power in their favor, had acted arbitrarily and with improper motives, to-wit, prejudice. At that time, plaintiff and her mother lived together "in a substantial dwelling" owned by plaintiff in Pinehurst, and the annual income of each from the trust estate had been $6,718.30. As a result of a new lease, however, in the immediate future it was to be at least $14,000.00 annually.

Upon a waiver of jury trial, Judge Bone found that the individual trustee had not abused his discretion or acted arbitrarily but, on the contrary, he had acted with discretion, reasonableness, and good judgment; that it was not then necessary nor best for the welfare of either plaintiff or her mother, nor consistent with the welfare of the family and the estate of the trustor, Moses W. Woodard, that a one-third part of the corpus of the trust estate be distributed to each of the plaintiffs; that the conclusion of the individual trustee that the trustees ought not to convey one-third of the trust corpus to each of the plaintiffs at that time was the correct one and consistent with the intentions of the trustor, Moses W. Woodard.

On Appeal, this Court affirmed the judgment of Bone, J. It was noted, however, "that the judgment is not to be construed to preclude the trustees from exercising the discretionary power in the future if they jointly conclude that its exercise is `necessary or best for the welfare of the cestui que trust, and consistent with the welfare of * * * (the) family and estate' of the testator." Id. at 474, 64 S.E.2d at 646.

The final question presented is whether the trustee may, without any showing by plaintiff that "it is necessary or best" for her welfare and consistent with the welfare of the trust estate and testator's family, convey to her any part of the trust estate? In other words, may he make an arbitrary decision upon any ground which appeals to him, or must plaintiff show substantial economic need or circumstances indicating that her best interest require a conveyance before the trustee can invade the corpus in her behalf? We think it abundantly clear that testator did not intend to give his trustee the unbridled discretion to divide his estate in contravention of his testamentary plan or to invade the corpus in behalf of any beneficiary except in case of necessity or circumstances clearly denoting that such invasion was best for the beneficiary's personal welfare. The beneficiary's necessity or welfare does not include the personal satisfaction she might derive from owning the property in fee and being able to devise it to persons of her choice.

That testator did not contemplate an arbitrary division and termination of his trust estate in contravention of his plan for the ultimate distribution of his property is evidenced by the requirement of Item 6 of the will that any advancement "be counted in estimating the amount of the corpus of the estate for division and charged up to the share of the person so receiving the same and deducted from the payment on division to his or her lineal descendants; and in estimating the income for division, interest shall be counted on such advancement at the rate of 3% per annum and be charged up to the share of income of the person so advanced and be deducted from the payment of income to the party so advanced or to his or her lineal descendants." From this, it is apparent that testator contemplated only advancements and conveyances which were necessary to meet specific and reasonable requirements. The will does not authorize a conveyance for the mere purpose of terminating the trust or of making a division of the estate which—53 years after testator's death—the trustee might think more equitable than the one testator had made.

Plaintiff, who has been receiving approximately $18,000 a year from the trust estate, has made no contention that she is faced with any economic emergency which requires an invasion of the trust corpus. Should a genuine necessity arise, the trustee's discretionary power will be equal to the emergency. In the meantime, however, a termination of the trust by the conveyance to plaintiff of a one-half undivided interest in the trust estate—as presently contemplated by the trustee—would be an unreasonable departure from the terms of the trust.

In In re Murray, 142 Me. 24, 45 A.2d 636, the court construed a will which authorized trustees to pay from the principal of the estate "such sums as in their absolute discretion may be needed for the comfortable support and maintenance" of testator's widow. In surcharging the trustees, who had advanced sums of money to the widow upon her request when she had money on deposit in the bank, the court said: "The term `discretion' has been defined as deliberate judgment,—the discernment of what is right and proper. It implies soundness of judgment—judgment directed by circumspection.

"* * *

"`If a trust is created for beneficiaries in succession, the Trustee is under a duty to the successive beneficiaries to act with due regard to their respective interests.' Restatement of Law of Trusts, § 232, and note b thereunder; also section 183." Id. at 30-31, 45 A.2d at 638-639.

In Kemp v. Paterson, 4 A.D.2d 153, 163 N.Y.S.2d 245, affirmed, 6 N.Y.2d 40, 188 N.Y.S.2d 161, 159 N.E.2d 661, the trust agreement authorized the trustee to pay to B all of the net income annually during the rest of her life and so much of the principal sums of this trust from time to time as the trustees may deem for the best interest of said B. Pursuant to this provision the trustees decided to distribute all of the principal of the trust to B. The remaindermen objected, and the court declined to permit the termination of the trust. The court said, "While undoubtedly, in a sense (the termination of the trust), these purposes will serve the beneficiary's `best interest', the latter words must be interpreted not in the broadest meaning but in a manner which is consistent with the trust deed. Her `best interest' must be judged within the framework of the status bestowed upon her by the settlor, the status of a life beneficiary, not of a recipient of the entire trust res.

"In creating a trust, the settlor was not merely designating trustees as conduits through whom a gift could be made to the daughter whenever it would be to her advantage. The trust represented a plan of the settlor that included not only the beneficiary (B), but also remaindermen. In adding a flexible provision for the invasion of principal for the `best interest' of the beneficiary, the settlor was not injecting a facile means for destroying the trust." Id. at 156, 163 N.Y.S.2d at 248.

A settlor's intention is always paramount to the wishes of a beneficiary and, unless his purpose is contrary to law or public policy, the courts will give it effect. Wachovia Bank & Trust Co. v. Taliaferro, 246 N.C. 121, 97 S.E.2d 776; 4 Strong, N.C. Index, Wills § 27 (1961).

The judgment of the court below is vacated, and the case is remanded to the Superior Court for the entry of judgment in accordance with this opinion.

Error and Remanded.

LAKE, J., took no part in the decision or consideration of this case.