5. Is a testamentary trustee required to give bond? What facts would cause a court to require a bond? What oath should be taken by a testamentary trustee?

6. In your state, may a trustee resign? For what cause may a trustee be removed? When may a trustee be removed without a hearing?

7. In case of a vacancy or of the refusal of a trustee to act, what may be done? If in any state the probate court cannot act in any matter relating to trustees, what recourse have those in trouble?

8. May a trustee resign? How is a trust ended? If a trustee merely paid over all he held in trust to the proper party or parties and took a receipt, would he have any trouble?

CHAPTER XXII

DUTIES OF TESTAMENTARY TRUSTEES

§ 177. Care of Funds

The general rules as to the care of trust funds are the same for all classes of trustees (see Chapter XII, "Caring for Estate Funds"). Any money not invested or money awaiting investment should be deposited by the trustee in a reputable bank, under his name as trustee. If the amount is too small for investment, it may be deposited in a savings bank. If the creator of the trust has directed the disposition of funds, it is the duty of the trustee to follow these instructions. Generally, money is not to be left idle or at a low rate of interest when a higher rate could be obtained from safe investments.

§ 178. Rules as to Investments

The general rules given in § 100 of Chapter XII apply to testamentary trustees, except as they may be modified by any instructions in the will or other instrument creating the trust. In a New York case the court said:

We concede that under the terms of the will, the trustees were given a discretion as to the character of the investments they might make, and that they were not limited to the investments required by a court of equity in the absence of any directions from a testator. The trusts of this will are to provide the testators' children with incomes during their lives, and on their deaths the principal is to go to their issue. The very object of the creation of the trust was, therefore, the security of the principal, otherwise the testator might better have given the property outright to his children who were the primary objects of his bounty. The range of so-called "legal securities" for the investment of trust funds is so narrow in

this state that a testator may well be disposed to grant to
his executors as trustees greater liberty in placing the funds
of the estate. But such discretion in the absence of words in
the will giving greater authority would not be held to author-
ize investment of the fund in new, speculative or hazardous
ventures. If the trustees had invested in the stock of a
railroad, manufacturing, banking, or even business corpora-
tion, which, by its successful conduct for a long period of
time, had achieved a standing in commercial circles and
acquired the confidence of investors, their conduct would
have been justified, although the investment proved unfor-
tunate. But the distinction between such an investment and
the one before us is very marked. Surely there is a mean
between a government bond and the stock of an Alaska gold
mine, and the fact that a trustee is not limited to the one
does not authorize him to invest in the other.1

Where no specific instructions are given, a trustee would be limited to the safe investments prescribed by the law for fiduciaries.

In Massachusetts, the rules as to investments are not so strict, but trustees are nevertheless held to sound discretion and good faith. In a Massachusetts case the court said:

A prudent man possessed of considerable wealth, in investing a small part of his property, may wisely enough take risks which a trustee would not be justified in taking. A trustee, whose duty it is to keep the trust fund safely invested in productive property, ought not to hazard the safety of the property under any temptation to make extraordinary profits. Our cases, however, show that trustees in this Commonwealth are permitted to invest portions of trust funds in dividend paying stocks and interest bearing bonds of private business corporations, when the corporations have acquired by reason of the amount of their property, and the prudent management of their affairs, such a reputation that cautious and intelligent persons commonly invest their own money in such stocks and bonds as permanent investments.

1 Matter of Hall, 164 N. Y. 196, 199.

Goodwin v. Mass. Loan, etc., Co., 152 Mass. 184, 187.

Even where testators relieve trustees from these limitations, they are held to exercise reasonable prudence.

§ 179. The Management of Property

Where a trustee holds property other than funds and securities, his responsibilities are extended. It happens many times that real property is held by trustees, to apply the income to the support of a widow or minor children, and when her death or the coming of age of the minors terminates the trust, the property is to be sold and the proceeds divided or otherwise turned over intact to some devisee.

In such cases the trustees are to obtain the best returns that can properly be had from the property, to deduct from the proceeds the amounts needed for taxes, insurance, and repairs, together with such commission as would come to them as trustees, and then to pay over to the beneficiaries the net proceeds.

There is no special difficulty in the ordinary care and management of real property, but at times unusual taxes may be levied for street improvements or the like, which tend to permanent increase in the value of the property. In such a case the cost should be paid out of the trust property, if both the present beneficiary and the remainderman benefit. If the effect of the improvement is not likely to continue beyond the time of the beneficiary, the costs should all be borne by him. and none by the remainderman.

In case of a fire the insurance paid should go into the estate and would be held by the trustee in the same trust as the property that was destroyed.

In case stock dividends are received, the rule in Massachusetts is that they are principal and go to the remainderman. The United States courts have decided likewise.

To hold the plaintiff to be entitled to the whole of the new shares issued to the defendant would be to allow the

plaintiff the exclusive benefit of earnings, the greater part of
which had accrued and had been invested by the company
as capital before her interest began, and would be contrary
to all the authorities. To award her a proportion of those
shares based upon an account of how much of those earn-
ings actually accrued after the death of the testatrix, would
be to substitute the estimate of the court for the discretion
of the corporation lawfully exercised through its directors,
and would be open to the practical inconveniences already
stated.

The resolution is clearly an apportionment of the new
shares as representing capital, and not a distribution or
division of income. As well observed by Mr. Justice James,
delivering the opinion of the court below: "Certificates of
stock are simply the representative of interest which the
stockholder has in the capital of the corporation. Before
the issue of these two hundred and eighty new shares, this
trustee held precisely the same interest in this increased plant
in the capital of the corporation, that she held afterwards.
She merely had a new representative of an interest that she
already owned, and which was not increased by the issue of
the new shares. A dividend is something with which the
corporation parts, but it parted with nothing in issuing this
new stock. It simply gave a new evidence of ownership
which already existed. They were not in any sense, there-
fore, dividends for which this trustee had to account to the
cestui
que trust.
She stood after the issue of the new shares
just as she had stood before; and the trustee was obliged to
treat them just as she did, namely, as a part of the original,
and to pay the dividends to the cestui que trust.” 3

In Pennsylvania the rule is the same unless the earnings capitalized were earned after the testator's death. In New York and New Jersey, it is sought to find out what part of the stock dividend was really capital and how much came from earnings. In all of the states, if the intent of the trust instrument is clear, it will prevail.

Gibbons v. Mahon, 136 U. S. 549, 569.
Smith's Estate, 140 Pa. St. 344.