Citizens Commercial Trust & Savings Bank of Pasadena v. Varney

FORD, J. The question on this appeal is whether, as contended by the trustee and held by the court below, income received by the executor during the course of the administration of the estate and distributed to the testamentary trustee constituted income to be disbursed to the life beneficiaries by the trustee in accordance with the terms of the trust.

The will contains the following provision•. "Fifth-. All of the rest, residue and remainder of my estate of every kind or nature and including all failed and lapsed gifts, wheresoever situate, I give, devise and bequeath to [the designated trustee] ... in trust for the following uses and purposes: (a) After paying or reserving sufficient money to pay any expenses of management of the trust estate and administering this trust, all or any part of which may, in the sole and absolute discretion of the trustee, be chargeable to the principal of the trust estate, all income from the trust estate which accrues after the date that the trust estate, or a substantial portion thereof, shall have been distributed to the trustee, and is available for distribution, shall be distributed in monthly or other convenient installments to or for the benefit of the following named persons in the percentages hereinafter set forth: ...”

The question presented must be resolved in the light of section 162.5 which was added to the Probate Code in 1959, prior to the death of the testatrix. That section is in pertinent part as follows: "Unless otherwise provided by the will of the testator, (a) all net income received during the period of administration from real and personal property not specifically or demonstrably devised or bequeathed, including net income from property sold during said period, shall be distributed pro rata as income to any trust or trusts of all or any part of the residuary estate. ...”

The purpose of the legislation was to remove doubt as to the proper disposition of probate income. (34 State Bar J. 470 (1959).) As stated in 34 State Bar Journal at page 729: "Probate income is distributed pro rata to residuary legatees whether or not they take in trust (Prob. Code, § 162). Thus, where there is a residuary trust, its allocable share of probate income is given to the income beneficiary rather than to corpus (see Estate of Schiffman [n], 86 Cal.App.2d 638 [195 P.2d 484] (2d Dist., 1948)). This disposition, popularly called the Massachusetts rule, is codified by new § 162.5.,1

[195]It is thus clear that the core of the problem is whether, because of the quoted provision of the will, the probate income cannot be considered to be income insofar as the testamentary trust is concerned because it is “otherwise provided by the will of the testator.” In Estate of Schiffmann, 86 Cal.App.2d 638, at pages 643-644 [195 P.2d 484], this court stated: “ In applying the general rule, the court in Folsom v. Strain, 138 Neb. 497 [293 N.W. 357], gave an excellent interpretation to the expression, ‘unless it is otherwise provided in the will, ’ holding that it means ‘ some language or provision in the will that (1) expressly fixes a different date than that of the testator’s death when the right to the income shall accrue; or (2) makes other specific disposition of the income accumulating up to the time the property comes into the trustee’s hands; or (3) nullifies by definite expression or by clear implication the presumed intention to have the right to income accrue as of the date of the testator’s death. ’ ’ ’