Ray v. Johnson

FOX, P. J. This litigation arose by way of a petition for distribution to the remaindermen of the assets of a testamentary trust upon the death of the income beneficiary. The pleadings constitute an accounting, report and petition filed by the trustees (who are also the remaindermen) and objections thereto filed by the widow and executrix of the estate of the income beneficiary.

[551]Lottie Page died testate in 1938, leaving four children as her sole heirs. In August of 1940 the estate was distributed pursuant to a Decree of Distribution which was based on Lpttie’s holographic will. Pursuant to the Decree each of three children, Lottie Ray, Mary Simonsen and Albert Johnson, were given an undivided one-fourth interest in the entire estate. The remaining undivided one-fourth interest was distributed to the same three children as trustees, with the income attributable to that interest to be paid to John Johnson for his life. On John’s death the trust estate was to be distributed to the trustees as remaindermen.

The estate, insofar as is here pertinent, consisted in part of completely unproductive desert land, together with some income properties. The income properties and some of the desert properties were never sold. A number of the desert properties were sold in 1957 and 1958. None of the desert properties ever became productive of income. All of the properties appreciated substantially in value. By her objections to the accounting, John Johnson’s executrix, whom we shall call ‘‘contestant, ’ ’ seeks two things: A portion of the appreciated value of the properties in the estate as “delayed income”; and a surcharge upon the trustees for an alleged breach of trust in not making productive the portion of the estate which produced no income and in not making more productive the remaining portion.

By its judgment the trial court awarded contestant a portion of the appreciated value of the desert properties (both those which were sold and those retained), held that she was not entitled to any of the appreciated value of the income properties, and refused to surcharge the trustees. Both sides, being unsatisfied with the judgment, have appealed.

At this point it would seem appropriate to set forth in its entirety Civil Code section 730.13 of the Principal and Income Law, originally enacted in 1941, on which the judgment is based.

“ (1) Where any part of a principal in the possession of a trustee consists of realty or personalty which for more than a year and until disposed of as hereinafter stated has not produced an average net income of at least 1 per centum per annum of its inventory value as fixed by the appraiser or appraisers regularly appointed by the court, or in default thereof its market value at the time the principal was established or of its cost where purchased or otherwise acquired later, and the trustee is under a duty to change the form of