Nilon v. Rowe

KAUFMAN, P. J. This is an appeal by the life beneficiary of a testamentary trust from an order approving the ninth account of Croeker-Anglo National Bank, as trustee, directing the trustee to charge certain state and federal taxes against the income of the trust estate instead of against the principal. Appellant, Dorothy S. Nilón, is the daughter and sole surviving life beneficiary of certain testamentary trusts created under the will of her father, George William Starr, deceased. The respondents, the remaindermen, are the grandchild and minor great-grandchildren of the testator. The taxes in issue are: (1) capital gains taxes payable as the result of certain securities sold by the trustee; (2) state and federal fiduciary income taxes, As the parties stipulated that the gross income for the period in question, excluding income attributable to capital gains, exceeds the amount of all charges against either of the trusts, the only question before us is the proper allocation of the above mentioned taxes under the relevant language of the trusts, which is as follows: “From the gross income or from the principal of said trust estate, if said income be insufficient, said trustee shall first pay all taxes, assessments, expenses and charges against said trust estate.”

The trial court concluded that the above language indicated the testator’s intent to deviate from the general rule of levying the disputed taxes against the principal and directed the trustee to charge the taxes against income for the period in question, and to allocate future taxes accordingly.

Appellant contends that the trial court erred in its conclusion because: (1) the testator’s language is not sufficiently unequivocal to change the general rule that a fund which receives a benefit should also bear the burden; (2) the result is inequitable and unduly increases the burden on the life tenant as well as unduly restricting the investment program of the trustee. In support of her argument, appellant cites a long list of cases from other jurisdictions1 in which, despite somewhat similar language in the various instruments, the courts, for equitable or other reasons, concluded that the disputed charges should be allocated to principal rather than income. We cannot agree that any of these authorities are either persuasive or applicable to the facts of this ease, for a number of reasons.

[640]First, we must look to the entire instrument and scheme of the testator. The principal rule of construction is to ascertain and give effect to the intention of the testator (Estate of Parker, 98 Cal.App.2d 393 [220 P.2d 580]). The will provided that the residue of the estate was to be divided equally into two trusts: trust A for the benefit of the testator’s widow, Elizabeth Sophia Starr, now deceased2; trust B for the benefit of the appellant, the testator’s daughter. Both of these trusts provided that upon the death of the life beneficiary, her share was to augment the corpus of the trust of the surviving life beneficiary, and the entire trust estate was then to be held in trust C for certain remaindermen.