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App. Div.] First Department, April, 1910.

The judgment undertakes to provide a basis of apportioning between principal and income the proceeds realized in case of a future sale of the houses, belonging to the personal property fund'.

The testator owned an unimproved tract of land on Columbus avenue in the city of New York, worth $22,500 at the time of his death, which was retained by his executors until 1902, and then sold for $200,000. Meanwhile, taxes thereon amounting to $24,344.07 had been paid from the general income.

All but one of the questions presented on this appeal may easily be disposed of.

The Columbus avenue lots formed a part of the general estate of the testator, left to his executors in trust with the power of sale to be exercised in their discretion, and until sdld remained a part of the capital of the estate. Appreciation in value is not income. The cestuis que trustent have not contributed the taxes, as is contended, because they were entitled only to what was left after the payment of such taxes. There is no question but that the discretion of the executors has been wisely exercised and, as a result, such cestuis que trustent will now receive an income of $200,000. Cases arising upon investments made by trustees have no application. The appellants Van Wart and Roberts cite Matter of Rogers (22 App. Div. 428), and rely upon certain expressions in the opinion of Cr/LLEN, J., wholly apart from their context. That case dealt with the distribution among stockholders of certain assets of a dissolved corporation and of the stock of a new corporation organized to take over the plant and the business of the old one. The nature of the transaction itself, rather than the will of the testator, determined whether the distribution was of capital or income.

There was no basis for apportioning between principal and income a paper loss, sustained upon the foreclosure of the $55,000 mortgage or for dividing the proceeds of a sale which has not yet occurred. The foreclosure of the mortgage resulted merelv in a

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change of the form of the investment. In place of the mortgage, the trustees have real estate and a deficiency judgment. Whether there will be a loss or a gain can be determined only when the property is sold, and it will be time enough then to make an appointment. It was stipulated that the referee should determine all questions raised by the answer of the appellant Vivian; but First Department, April, 1910. [Vol. 137.

before making an apportionment, he bad to decide the preliminary question whether one should be attempted at all.

Doubtless, the trustees could have been required to pay only onehalf of the personal taxes assessed against them, as one was a nonresident. Refusal to pay, however, might have invited a closer scrutiny by the taxing officers and have resulted in an increase of the assessment. The trustees, believing it to be for the interests of their estate, paid the taxes as assessed without question. Common experience indicates that they were prudent, and they should not be penalized for it. The fact that they might successfully have resisted the payment of one-half of the taxes assessed in any given year does not establish that, as between them and the estate, the payment without objection was wrongful, or that the estate thereby ultimately suffered a loss.

The testator did not direct his executors to make repairs to tbe household furniture. Upon no theory, therefore, could they be justified in using either principal or income of the general estate to make repairs to the West End avenue houses, belonging to the special personal property trust, and it is immaterial now whether such repairs were betterments or ordinary repairs, because neither principal nor income of the general trust estate created by the testator can be used for ordinary repairs or betterments to real property belonging to a special trust, created apart from and independent of the will. When the property is sold or when the trust terminates it will be time enough to determine the equities between the principal and income.

The accounts of the executors were adjusted as of the 1st day of January, 1907. The real property belonging to the personal property fund produces a gross income of $3,700 a year. The question of the repayment to the general fund of $2,632.06, directed to be paid out of the income of the personal property fund, is apparently of no importance now; and it is unnecessary to consider whether the appellant Vivian should have been required personally to make the general estate good.

We come now to the only difficult question in the case. Must the two special trusts bear their own burdens, or are the taxes and insurance premiums to be paid out of the general estate? A preliminary question is presented whether the personal assessment App. Div.] First Department, April, 1910.

against the executors and trustees under the will of Marshall O. Roberts, deceased, covers or includes the $500,000 special trust fund. No doubt, as the appellant Vivian contends, that trust was created apart from the will, and other trustees might have been selected. But in fact the executors and trustees under the last will and testament of Marshall O. Roberts, deceased, were nominally as such designated as trustees of the special trusts. It is immaterial that that may have been merely descriptio jpersonarum. By that name they held the legal title to the mortgage given to secure the $500,000 fund, as well as the $300,000 belonging to the general estate. They were, therefore, assessable as such, both for the special trust fund and the personal property belonging to the general estate, and while we cannot know precisely what items of property the assessors considered, in legal contemplation the assessment must be deemed to have been made on account of all the property for which the trustees as such were liable to assessment.

Another contention of the appellant Vivian may also be dismissed, viz., that the payment of the taxes, etc., on the special trust funds was required by the 8th clause of the will. Plainly, that clause was intended only to provide for a possible deficiency or surplus of income, required by the 7th clause. Standing alone, it could refer only to the general estate, and by no permissible construction could it require the payment from the general income of taxes otherwise chargeable on the life tenant. (See De Witt v. Cooper, 18 Hun, 67; Matter of Shipman, 82 id. 108,116; Matter of Albertson, 113 N. Y. 434; Amory v. Lowell, 104 Mass. 265.)

No doubt the defendant Vivian was given a life estate in the real and personal property in question, and the general estate was charged with the payment of taxes and insurance thereon, and with the maintenance in repair of the real property. She could have occupied or leased the property, and she could have sold her interest therein, the purchaser taking it freed from the burden of taxes, etc. So much, in legal contemplation, the testator must have known, although it is reasonably plain that he charged his general estate with the payment of taxes, etc., for the purpose of enabling her to occupy the family residence without intrenching upon her income of $40,000. That he expected her to occupy the residence and use the furniture may be inferred, and he said that he did not wish her First Department, April, 1910. [Vol. 137.

to be at any expense on account thereof; in other words, he wished to free her from the necessity of using any part of her $40,000 income to maintain the property in which he gave her a life estate. His direction was that the executors pay the taxes assessed on specific property, i. e., "said real estate and upon the pictures and other personal property in the said houses and stables," and he expected that specific property to remain a part of his estate until the termination of the life estate.

He disposed of the property in question as follows: A life estate to the wife, remainder in trust to the executors, the ultimate remainder in fee to persons named. The general power of sale to the executors was of all property over which they were given control and management; plainly, they had no control or management of this property during the life term, and there was a specific direction with reference to a sale of the personal property given to the trustees or trustee "who may then survive," obviously referring to the termination of the life estate. In case of any sale by the life tenant or by the ultimate remaindermen, or by both together, which the testator could have contemplated, the specific property upon which the testator directed taxes to be paid would, because of the intermediate trust estate, have remained subject to the direction for the payment of taxes, etc., until the termination of the life estate. He did not provide for the making of repairs to, or the payment of taxes on, substituted property. He did not authorize, but may well have supposed that he had effectually prevented, a substitution. However, if the adjudication, assented to by the parties for the purpose of a sale, that the executors had the power to sell during the life term, be regarded as a binding adjudication, in the light of which every provision of the will must be construed, still the appellant is no better off, for then, though a substitution of property was contemplated by the testator, he confined his direction to specified property. A direction to pay taxes on household furniture cannot be construed as a direction to pay taxes on improved real property; and a direction to make repairs to, and to pay taxes on, the family residence, cannot be construed as a direction to pay taxes on a real estate mortgage or to make repairs to any sort of property which might belong to a trust created on a sale of such residence. Upon the sale of the residence in this case the trustees App. Div.] First Department, April, 1910.

took an $S00,000 building loan mortgage on the property, the grantee erecting in place of the house a fourteen-story building. Five hundred thousand dollars of that mortgage belongs to the special trust and $300,000 to the general estate. Suppose, that mortgage should have to be foreclosed and the property bid in, is it conceivable that the special trust would be entitled to its proportionate share of rents, freed from any burden of maintenance, simply because the testator directed that the family residence be kept in repair, insured, and the taxes on it paid, so that the wife should not be put to any expense on account thereof? In place of occupying the residence and using the furniture, the widow now has a handsome income from two special trusts in addition to the $40,000 income secured to her by the testator. The fact that the internal evidence of the will plainly shows that the testator's purpose in making the direction in question was to enable the widow to have the personal use of the residence, furniture, etc., without intrenching upon her $40,000 income, is a cogent, if not a controlling reason for not extending that direction to a case which the testator did not contemplate or contemplating did not provide for.

The parties having seen fit to create a situation apart from the will, their rights must be determined by the acts creating that situation, to be construed no doubt in the light of the will. As shown by the pleadings and the findings, referred to in the statement of facts, one of the reasons for a sale was that thereby the general estate would be relieved of the burden of care and maintenance; and the only burden of care and maintenance on the general estate was that imposed by the direction in question. Care and maintenance as interpreted by the defendant Vivian in her answer, filed in the last suit, included the payment of taxes and insurance premiums. The final judgment directed the payment of "net income." It cannot be assumed that the word "net" was used by mistake or inadvertence. Moreover, the income of a trust, payable to the cestui que trust, means what is left of receipts after meeting the expenses of the trust; and if the word "net" had not been used, the word "income," construed with reference to the declared purpose of freeing the general estate from the burden of care and maintenance, could only mean such income as is ordinarily paid to a cestui que App Div.—Vol. CXXXVII. 39

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