Copley v. Copley

Opinion

COLOGNE, J.—

THE SYLLABUS

Here is the perplexing dilemma facing the trustees of an

inter vivos

trust when they are given broad powers but must exercise them in an

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atmosphere heavily laden with conflicting interests. The trustees are given voting control of substantially all the stock of Copley Press, Inc., a large newspaper which had been operated by the trustor as a one-man business. Helen Copley, widow of the trustor and co-trustee, is given broad powers of discretion and by the lead of her husband and counsel elected to continue the business as a family enterprise. The

inter vivos

trust, with the usual marital and nonmarital trust features, burdened the nonmarital trust with the obligation to pay all death taxes and administration expenses. It was required to sell certain of the stock to raise these funds. Opting for a stock redemption plan under the provisions of Internal Revenue Code section 303, 19 months after the trustor’s death, the trustees were able to achieve a tax-free sale to the Copley Press of enough stock to pay the death taxes on an installment plan. About a year and a half later, the redemption price was set at $35, which was the same value the Internal Revenue Service determined after extensive negotiations was the value at the date of death. Since that sales price would be the basis of the stock for'income taxes, there would be no income tax assessed on the sale. After the stock sale but before the valuation was set, the trustees petitioned the court for approval of their acts. The children of the trustor by his first wife, two of the four beneficiaries under the nonmarital trust, complain the trustees should have sold the stock at a higher price per share and, if they had tried to sell to third persons, they would have known that the basis used for the redemption agreement was grossly below fair market value.

Underlying all these transactions is the trustees’ effort to keep death taxes low and avoid heavy income tax burdens on the trust. The trial court found the trustees committed no fraud; under Helen Copley’s management, Copley Press prospered and the value of the stock improved markedly; the accounting of the trustees was correct in every detail except the stock value and litigation fees. It found the stock redemption price was in fact low and should have been effected at $58 per share rather than the $35 figure. The trial court adjusted the stock holdings and dividends to reflect what the respective holdings of the marital and nonmarital trust would have been had the sale been effected at the proper figure. We approve this part of the superior court’s order.