Opinion
No. 24964
Decided July 3, 1935.
Wills — Equitable compensation to disappointed beneficiary, and not acceleration of remainders, applied — Income to surviving spouse for life, then specific bequests to named legatees — Balance of trust to residuary legatee — Residue depleted by spouse electing to take under law.
Where in a last will and testament a trust is created, and the trustee is directed to pay the income thereof to the testator's surviving spouse during his life and at his death to distribute or hold specific amounts to or for certain named legatees, with balance of trust fund to residuary legatee, and the surviving spouse, electing not to take under the will, receives by law one-half of the estate, thus entirely depleting the residue, and it appears from the terms of the will that the residuary legatee is the preferred object of testator's bounty, the doctrine of the acceleration of remainders will not be applied but the life interest of the refractory donee will be sequestered to compensate the disappointed residuary legatee.
ERROR to the Court of Appeals of Lorain county.
The plaintiff, The Cleveland Trust Company, as executor and trustee, and the plaintiff, Joseph Rauh, as executor of the last will and testament of Florence E. Lewis Rauh, deceased, filed an action in the Court of Common Pleas of Lorain county, in which they asked the court to construe the last will and testament of the decedent. The petition sets out certain formal facts and the provisions of the will under interpretation and concludes by praying for the direction and judgment of the court in respect to the following questions:
"1. Should the bequests to and the provisions made for said Joseph Rauh by and under the terms of said Will be sequestered for the benefit of and to compensate the legatees and devisees prejudiced by his said election, particularly for the benefit of and to compensate Kenyon College, the residuary beneficiary of the trust estate created by Item IX of said Will?
"2. Are the bequests and provisions which, by the terms of said Will are payable upon the death of said Joseph Rauh accelerated by his election to take at law or should the life estates to said Joseph Rauh also be sequestered for the benefit of those legatees and devisees prejudiced by said election, particularly for the benefit of and to compensate Kenyon College, the residuary beneficiary of the trust estate created by Item IX of said Will?"
The will was executed October 16, 1925, and the testatrix died July 31, 1932, survived by her second husband, Joseph Rauh, who is still living. Testatrix's estate amounted to over $600,000 and nearly all of it came from the first husband's estate. After making certain specific bequests, and also money legacies, amounting to $26,000, the testatrix in Item IX devised and bequeathed what she had left amounting to about $600,000 worth of property, to The Cleveland Trust Company as trustee. Under the terms of the trust as provided for in Item IX, the trustee was to pay the net income to testatrix's husband, Joseph Rauh, for life, and upon his death the trustee was directed to set off certain sums for the use and benefit of certain named legatees, and the residue was to go to Kenyon College, $50,000 for scholarships and the balance for the erection of a building.
The husband elected to take under the law and not under the will, and under the new Probate Code he thereby received one-half of the estate, the decedent having left no children. By the husband's election to take under the law, the amount passing to the trust created by Item IX was reduced approximately from $600,000 to about $287,000. Item IX of the will reads as follows:
"IX. All the residue of my property, of every kind and wherever located, I give, devise and bequeath to The Cleveland Trust Company of Cleveland, Ohio, as Trustee with full power, without any order of court, to control, exchange, sell, dispose of, or lease all or any part thereof, for any term without regard to the duration of the trust, and to invest or reinvest in such property or securities as the Trustee, in its absolute discretion, shall deem best, without being confined to any class of investments prescribed by statute or otherwise, with the right to retain, as investments, any property coming to it from my estate, without liability for depreciation in value.
"I direct that the entire net income arising from the trust estate from the time of my decease shall be paid to my husband, Joseph Rauh, in as near monthly installments as practicable during his lifetime.
"Upon the death of my husband, or in case he shall not survive me, then upon my death, the Trustee shall make the following distribution and disposition of the trust estate:
"(a) The Trustee shall set aside and hold the sum of Twenty-five Thousand Dollars ($25,000.00) as a permanent endowment, and shall pay to Saint Andrews Parish of the Protestant Episcopal Church of the United States, located at Elyria, Ohio, the income arising from such trust fund, monthly, if possible; such income to be appropriated toward the support and maintenance of the Rector's Home of such parish. No part of the principal sum of such trust shall be used, and the income arising therefrom shall be used by the Vestry of such parish in the manner it thinks most advisable in the support of a home for the Rector.
"I direct that the Saint Andrews Parish constitute a committee consisting of one vestryman and two (2) ladies of the parish to serve under such rules and regulations as the Vestry may establish, and charged with the duty of seeing that the Home is maintained and kept in proper condition at all times.
"(b) The Trustee shall set aside and hold an additional sum of Twenty-five Thousand Dollars ($25,000.00) as a permanent endowment and shall pay the income arising therefrom (monthly, if possible) to the Vestry of Saint Andrews Parish of the Protestant Episcopal Church of the United States, located at Elyria, Ohio, to be applied by such Vestry toward the maintenance and repair and improvement of the church edifice. No part of the principal sum thereof shall be used, and the income derived therefrom shall be expended in the discretion of such Vestry for said purposes.
"(c) The Trustee shall set aside from the principal of the trust estate five (5) funds, consisting of cash or securities of the value of Fifteen Thousand Dollars ($15,000.00), each, to be held for the benefit of my nieces, Mabel Dyke, Rose Dyke, Clara Dyke, Florence Dyke and Marion Merthe, upon the following terms and conditions:
"The net income derived from the fund held for the benefit of each niece shall be paid to each such one, in quarterly installments or oftener, during her lifetime.
"Upon the death of any niece, the fund so held for her benefit shall vest in her nominees and appointees by last will and testament; and in default of such testamentary appointment, or in case she shall not be living at the time of the decease of the survivor of my husband and myself, shall vest in the then surviving issue of her body, but in default also of such issue, shall revert to and become part of the principal of the trust estate hereinafter disposed of.
"(d) The Trustee shall pay from the principal of the trust estate to each of the following named persons the sum of Five Thousand Dollars ($5,000.00):
" My nephews:
"John Dyke, Ralph Dyke, Clarence Dyke, Harry Dyke, Raymond Dyke, Louis Dyke, Edwin Dyke, Wilfred Dyke, Robert Dyke, and Theodore Laundon.
" Nephews of my former husband:
"David Evans, Harry Evans and David H. Lewis, all of Wales, England; E. Winton Evans, now of Canton, Ohio. John Lewis (brother of my former husband, David Lewis) of Wales, England.
" My brothers and sisters:
"John Dyke, William Dyke, George Dyke, Walter Dyke, Anna Merthe, Lottie Kuhlow and Nettie Laundon.
"In event any of the foregoing persons shall die before the death of the survivor of my husband Joseph Rauh, and myself, the gift intended for any such person shall not lapse, but shall become payable to the lawful issue of the body of such deceased beneficiary. In event, however, any such beneficiary shall not leave lawful issue of the body surviving, the gift intended for any such one shall lapse and become part of the residuary trust estate.
"I have made no provision for my sister, Ella Stoddard, because I have heretofore given to her the sum of Five Thousand Dollars ($5000.00) but should I hereafter make gifts to my sisters, Anna, Lottie or Nettie, the legacy intended for each such one shall be reduced to the extent of any such gift so made by me in my lifetime.
"(e) The Trustee shall similarly set aside and hold the sum of Fifteen Thousand Dollars ($15,000.00), and pay the net income arising therefrom to my niece, Mrs. Alice Brelsford, of Cleveland, Ohio, in quarterly installments or oftener, during her lifetime. Upon her decease, or in event she shall not be then surviving, the principal of said fund shall revert to and become part of the principal of the trust estate hereinafter disposed of.
"(f) The Trustee shall similarly set aside and hold the sum of Fifteen Thousand Dollars ($15,000.00), and pay the net income arising therefrom to Polly Evans (niece of my former husband, David Lewis) now residing in Wales, England, in quarterly installments or oftener during her lifetime. Upon her decease, or in event she shall not be then surviving, the principal of said fund shall vest in the then surviving issue of her body, and in default of such issue, shall revert to and become part of the principal of the trust estate hereinafter disposed of.
"(g) The Trustee shall similarly set aside and hold the sum of Fifteen Thousand Dollars ($15,000.00), and pay the net income arising therefrom to Mrs. Morgan Rees Morgan (niece of my former husband, David Lewis), now residing in Wales, England, in quarterly installments or oftener, during her lifetime. Upon her decease, or in event she shall not be then surviving, the principal of said fund shall vest in the then surviving issue of her body, and in default of such issue, shall revert to and become part of the principal of the trust estate hereinafter disposed of.
"(h) The Trustee shall similarly set aside and hold the sum of Five Thousand Dollars ($5,000.00), and pay the net income arising therefrom to Harold Stoddard, of Elyria, Ohio, in quarterly installments or oftener, during his lifetime. Upon his decease, or in event he shall not be then surviving, the principal of said fund shall vest in the then surviving issue of his body, and in default of such issue, shall revert to and become part of the principal of the trust estate hereinafter disposed of.
"(i) The entire rest, residue and remainder of the trust estate, including any of the foregoing gifts or legacies which may lapse or revert to the trust estate, shall be held or paid over to the Trustees of Kenyon College, of Gambier, Ohio, for the following purposes and on the following terms and conditions:
"The Trustee shall first set aside the sum of Fifty Thousand Dollars ($50,000.00), either in cash or securities, and pay the net income derived therefrom to the Trustees of said Kenyon College, to be by them devoted toward the education and support of worthy and deserving students of Kenyon College. It is my desire that this fund shall be forever known as 'The David Lewis Scholarship Fund.'
"The balance of the said residuary trust estate shall be devoted by said Trustees of Kenyon College to the erection of a suitable new building upon the college campus, for the purpose of increasing the facilities of said institution, such building to be forever known as 'The David Lewis Memorial Building.'
"It is my desire that as soon after the decease of the survivor of my husband and myself as may be found convenient, the Trustees of said Kenyon College determine the appropriate college building to be erected and give reasonable notice to the Trustee of the probable cost thereof, to the end that the Trustee may proceed in an orderly manner to liquidate the trust estate without sacrificing the same. Until such balance of the trust estate shall be so paid over to the Trustees of Kenyon College, the net income meanwhile derived from the securities, as well as the net income derived from the surplus, if any, of the balance of the trust estate over and above such as may be required for the erection of said building, shall be paid to the Trustees of Kenyon College."
Upon trial the Court of Common Pleas held that the remainders were accelerated by the election of Joseph Rauh to take under the law and ordered immediate distribution by the trustee. The cause was appealed to the Court of Appeals and that court likewise held that the remainders should be accelerated as the will did not show any intention of the testatrix to the contrary. A motion to certify was filed in this court and allowed, and the petition in error brings the case here for review.
Messrs. Tolles, Hogsett Ginn, Mr. William B. Cockley and Mr. Louis S. Peirce, for plaintiff in error.
Messrs. Stevens Stevens, for defendants in error, The Cleveland Trust Company and Joseph Rauh, executors, and the Cleveland Trust Company, trustee.
Messrs. Mooney, Hahn, Loesser Keough and Messrs. Baird Vandemark, for defendant in error, Joseph Rauh, individually.
Mr. Howard R. Butler, city solicitor, for defendant in error, the city of Elyria.
Messrs. Fauver Fauver, for defendants in error, St. Andrews Parish, Ella Stoddard and others.
Mr. Richard S. Horan, for guardian ad litem for defendant in error, Robert Dyke.
Mr. John G. Roberts, for defendant in error, E. Winton Evans.
The law which permits the carving of a lesser estate out of the greater, as for instance a life estate out of a fee, has application in general to real estate. By analogy the rules as to creation of estates are applied to personal property, but, due to its mobile and transient characteristics, the trust medium is often resorted to to protect and safeguard the interests of the various persons entitled thereto. Here we are concerned with a trust fund and the law as to the acceleration of remainders would apply as if realty were involved.
The doctrine of acceleration of remainders is recognized in Ohio and has been applied where a testator bequeaths or devises property to his surviving spouse for life, with a simple remainder over and the latter elects not to take under the will. In such case the remainder, being vested, is accelerated and the remainderman comes into enjoyment of it immediately on the theory that it is the presumed intention of the testator that enjoyment of the fee should be in the remainderman when the life estate ends and the election not to take under the will has the same effect in law as the death of the first taker. Davidson v. Miners Mechanics Savings Trust Co., 129 Ohio St. 418, 195 N.E. 845; Holdren v. Holdren, 78 Ohio St. 276, 85 N.E. 537, 18 L.R.A. (N.S.), 272; Stevens, Exr., v. Stevens, 121 Ohio St. 490, 169 N.E. 570.
According to the weight of authority a contingent remainder will not be accelerated. Many cases bearing on this principle are collected in the annotations found in 5 A. L. R., 473, and 17 A. L. R., 314 and 62 A. L. R., 206. The rule as to acceleration when alternative substitutional gifts are involved is discussed and various cases analyzed in the annotation in 5 A. L. R., 460.
It seems that in the instant case we are not much concerned with difficult problems arising out of contingent remainders and substitutional gifts. At least our first inquiry is whether the estate of the refractory donee will be sequestered in equity to compensate the disappointed residuary legatee. If that is answered in the affirmative it is determinative of the litigation for in such event there can be no acceleration.
The doctrine of equitable compensation as applied to disappointed legatees or devisees through renunciation of a life estate by election not to take under a will is recognized in Ohio. Dunlap v. McCloud, 84 Ohio St. 272, 95 N.E. 774, 35 L.R.A. (N.S.), 851. Holdren v. Holdren, supra; Stevens, Exr., v. Stevens, supra.
There are many cases which apply this doctrine to residuary legatees without qualification and sanction sequestration of the rejected life interest in equity and the collection and conservation of the income therefrom for the use and benefit of the disappointed legatee entitled to the residuum of the estate. Sellick v. Sellick, 207 Mich. 194, 173 N.W. 609, 5 A.L.R., 1621; Jones, Admr., v. Knappen, 63 Vt. 391, 22 A. 630, 14 L.R.A., 293; Hinckley v. House of Refuge, 40 Md. 461, 17 Am. Rep., 617; Firth v. Denny, 84 Mass. (2 Allen), 468; Kirchner et al., Exrs., v. Kirchner, 71 N.Y. Misc., 57, 127 N.Y. S., 399; Shreve v. Shreve, 176 Mass. 456, 57 N.E. 686; McReynolds v. Counts, 50 Va. (9 Gratt.), 242; Meek v. Trotter, 133 Tenn. 145, 180 S.W. 176; In re Portuondo's Estate, 185 Pa. 472, 39 A. 1105.
In other cases the court has refused to apply the doctrine as to a residuary legatee unless there is "a plain implication in the will that the residuary legatee is in fact a preferred object of the testator's bounty." Estate of Vance, 141 Pa. 201, 21 A. 643, 23 Am. St. Rep., 267, 12 L.R.A., 227; Trustees Church Home v. Morris, 99 Ky. 317, 36 S.W. 2; In re Ferguson's Estate, 138 Pa. 208, 20 A. 945; Adams v. Legroo, 111 Me. 302, 89 A. 63.
Under Item IX of the will the residuary legatee, Kenyon College, is to receive the income from $50,000 to be held by the testamentary trustee and devoted to the education and support of worthy and deserving students of Kenyon College, the fund to be known as "The David Lewis Scholarship Fund." The balance of said residuary trust estate is to be used by the Trustees of Kenyon College for the erection of a new building on the college campus to be known as "The David Lewis Memorial Building." Specific directions are also incorporated in this item of the will as to the erection of this building.
It is conceded in the record that had the husband, Joseph Rauh, elected to take under the will, the estate would have been sufficient to satisfy all provisions made by the testatrix and leave in the residuary estate bequeathed to Kenyon College more than $250,000, but, due to the fact that he elected not to take under the will, the trust estate created by Item IX of the will has been so diminished as to leave nothing for Kenyon College if the remainders are accelerated. Thus acceleration would defeat not only the presumed but also the expressed intention of the testatrix. The only way in which such intention can be put into effect is to grant equitable compensation to the disappointed beneficiary, the residuary legatee, and sequestrate the interest of the refractory donee for its benefit. In this way all the prior participating legatees who share in the trust fund after the death of testatrix's husband will receive under Item IX the specific legacies in full at the time and in the amount fixed in the will, and the residuary legatee, Kenyon College, will at the same time receive a substantial amount as residue.
The testamentary trustee, The Cleveland Trust Company, will continue to hold in trust under the terms of the will for accumulation the entire amount of the trust fund during the life of the husband, Joseph Rauh, and at his death make distribution thereof as provided in Item IX of the will.
The judgments of the Court of Common Pleas and Court of Appeals will be reversed and final judgment will be entered in favor of plaintiff in error construing the will as herein indicated.
Judgment reversed.
STEPHENSON, JONES, MATTHIAS, DAY and ZIMMERMAN, JJ., concur.
Since I wrote the opinion in the case of Davidson v. Miners Mechanics Savings Trust Co., 129 Ohio St. 418, 195 N.E. 845, wherein the doctrine of acceleration was applied, I desire to state my position in reference to the instant case, which to my notion presents a different situation and calls for different treatment.
It is true that the cases of Ferguson's Estate, 138 Pa. 208, 20 A. 945, and Estate of Vance, 141 Pa. 201, 21 A. 643, 12 L.R.A., 227, 23 Am. St. Rep., 267, hold very definitely that where by will a husband gives his entire estate to his widow for life, her rejection of the will in favor of the law's more liberal provisions is equivalent to her death, and specific legatees named in such will are entitled to the immediate enjoyment of their legacies, without regard to residuary legatees who have suffered through the widow's action. However, the Supreme Court of Pennsylvania declined to follow this inexorable rule in the comparatively recent case of Lonergan's Estate, 303 Pa. 142, 154 A. 387, and sharply criticizes the earlier decisions.
Where it is indicated, as in the present case, that the residuary legatee is a particular object of testator's solicitude, the life estate which the surviving spouse has rejected should be sequestered during the lifetime of such spouse, and the accretions thereon applied to compensate the disappointed residuary legatee, who otherwise might receive little or nothing. At least, this should be done when it appears that the estate is sufficient to satisfy specific legacies, and it is therefore reasonably certain that sequestration will inure to the benefit of the residuary legatee. The sequestration-compensation theory was adopted as to residuary legatees in Sellick v. Sellick, 207 Mich. 194, 173 N.W. 609, 5 A. L. R., 1621, and the other associated cases cited by Judge Williams in his opinion.
It is to be borne in mind that the beneficiaries named in Item IX of the will of Mrs. Rauh, other than the Trustees of Kenyon College, will partake of the bounty provided for them in the exact amounts and at the precise time stated in the will.
In every case where the testamentary plan has been disrupted by a refractory donee, the intent of the testator must still be sought, and when apparent those rules should be applied which will most nearly carry it into practical execution.