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Discretionary Powers in Trusts: Classes and Limitations, Study notes of Law

The concept of discretionary powers in trusts, focusing on three classes of discretionary powers and their limitations. The first class includes discretionary powers expressly qualified and subordinated to a purpose of the settlor. The second class involves uncontrolled discretion, which is impossible as an attempt to oust equity of its jurisdiction over trusts. The third class deals with the proper decrees by which equity can enforce its corrective supervision over abuse of discretion. The document also touches upon the conflict regarding the trustee's ability to favor one beneficiary over another and the proper decrees to enforce the trustee's duty to carry out the settlor's main purpose.

What you will learn

  • How can equity enforce its corrective supervision over abuse of discretion?
  • What are the three classes of discretionary powers in trusts?
  • What is the conflict regarding the trustee's ability to favor one beneficiary over another?
  • What decrees can the court use to enforce the trustee's duty to carry out the settlor's main purpose?

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ST.
LOUIS LAW
REVIEW
THE
SCHOOL
OF
LAW
The Samuel
Breckenridge
Prize
Awards
for
notes
appearing
in
Volume
XIX
of
the
Law
Review
have
been
announced by
the
prize
committee
consisting of
George
W.
Simpkins,
Earl
Susman
and
Fred
A.
Eppenberger.
The
prizes
for
the
best
note
appear-
ing
in
each
of
the four
issues were
awarded
to:
Herman
Goralnik
for
his
note
in
the
December,
1933
issue,
Securities
as
Subjects
of
Interstate
Commerce;
Harry
Willmer Jones
for
his
note
in
the
February,
1934
issue,
The
Interest
Required
of
a
Petitioner
for
Receivership
in
Missouri;
Sidney
J.
Murphy
for
his
note
in
the
April,
1934
issue,
The
Extent
of
the
Right
of
a
Public
Utility
to
Refuse
Service;
Louis
Clayton
Larrabee
for
her
note
in
the June
1934
issue,
Publication
as
a
Relinquishment
of
the
Common
Law
Right
in
Literary
Property.
Mr.
Murphy
won
the
additional
prize
for
the
best
note
of
the
entire
group.
Notes
SOME
ASPECTS
OF
DISCRETIONARY TRUSTS
Under
this
title
it
is
proposed
to
confine
the
discussion
to
situa-
tions in
which
the
trustee
has
been
given
a
discretion
as to
the
quantum
of
income
or
principal
he may
pay
over
to
the
benefici-
ary.
Such
discretions
vary
in degree;
in
general
three
classes
may
be
distinguished.
(1)
The
most
common
category
comprises
discretionary
powers
expressly
qualified
and subordinated
to
some
purpose
of
the
settlor;
such
would include
a
discretion
to pay
such
sums
as
the
trustee
deems
fit
"for
the
comfortable
support"
of
the
cestui;1
for
"support
and
maintenance"
;2
for
suitable
edu-
cation;3
for
necessary
medical
expenses
;4
or to
convey
the prin-
cipal "when
he
deems
cestui
able
to
manage
it."
At
times
the
IIn
re
Walters
(1924)
278
Pa.
421, 123
Atl.
408;
Cecil's
Trustee
v.
Robertson
&
Bro. (Ky.
1907)
105
S.
W.
926;
Ratliff's
Ex'ers
v.
Common-
wealth
(1907)
139
Ky.
533,
101
S.
W.
978.
'Morris
v.
Daiker
(1929) 35
Ohio
App.
394,
172
N.
E.
540;
Coker
v.
Coker
(1922)
208
Ala.
354,
94
So.
566;
Taylor
v.
Harwell
(1880)
65
Ala.
1;
Gardner
v.
O'Loughlin
(1912) 76
N. H.
481,
84
Atl.
935;
Bronson
v.
Strause
(1889) 57
Conn.
147, 17
Atl.
699;
Smith
v.
Wildman
(1870)
37 Conn.
384;
Louisville
Tobacco
Warehouse
Co.
v.
Thompson
(1916)
172
Ky.
350,
189
S.
W.
245;
Manning
v.
Sheehan
(1911)
133
N.
Y.
Supp.
1006;
Brooks
v.
Reynolds
(C.
C.
A.
6,
1893)
59
F.
923;
Osborne
v.
Gordon
(1893)
86
Wis.
92, 56
N.
W.
334.
'Morris v. Daiker,
supra
note
2;
In
re
Reith's
Estate
(1904)
144
Cal.
314, 77
Pac.
942;
Mackenzie
v.
Los
Angeles
Trust
Co.
(1918)
39
Cal. App.
247,
178
Pac.
557.
'French
v.
Calkins
(1911)
252
Ill.
243,
96
N.
].
877.
'Meek
v.
Briggs
(1893)
87
Iowa
610,
54
N.
W. 456;
Morris
v.
Daiker
supra
note
2;
Bacon
v.
Bacon
(1882)
55
Vt.
243.
pf3
pf4
pf5
pf8
pf9
pfa

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ST. LOUIS LAW REVIEW

THE SCHOOL OF LAW

The Samuel Breckenridge Prize Awards for^ notes^ appearing in Volume XIX of the Law Review have been announced by the prize committee consisting of George W. Simpkins, Earl Susman and Fred A. Eppenberger. The prizes for the best note appear- ing in each of the four issues were awarded to: Herman (^) Goralnik for his note in the December, 1933 issue, Securities as Subjects of Interstate Commerce; Harry Willmer Jones for his note in the February, 1934 issue, The Interest Required of a Petitioner for Receivership in Missouri; Sidney J. Murphy for his note in the April, 1934 issue, The Extent of the Right of a Public Utility to Refuse Service; Louis Clayton Larrabee for her note in the June 1934 issue, Publicationas a Relinquishment of the Common Law Right in Literary Property. Mr. Murphy won the additional prize for the best note of the entire group.

Notes

SOME ASPECTS OF DISCRETIONARY TRUSTS

Under this title it is proposed to confine the discussion to situa- tions in which the trustee has been given a discretion as to (^) the quantum of income or principal he may pay over to the benefici- ary. Such discretions vary in degree; in general three classes may be distinguished. (1) The most common category comprises discretionary powers expressly qualified and subordinated to some purpose of the settlor; such would include a discretion to pay such sums as the trustee deems fit "for the comfortable support" of the cestui;1 for "support and maintenance" ;2 for suitable edu- cation;3 for necessary medical expenses ;4 or to convey the prin- cipal "when he deems cestui able to manage it." At times the

IIn re Walters (1924) 278 Pa. 421, 123 Atl. 408; Cecil's Trustee v. Robertson & Bro. (Ky. 1907) 105 S. W. 926; Ratliff's Ex'ers v. Common- wealth (1907) 139 Ky. 533, 101 S. W. 978. 'Morris v. Daiker (1929) 35 Ohio App. 394, 172 N. E. 540; Coker v. Coker (1922) 208 Ala. 354, 94 So. 566; Taylor v. Harwell (1880) 65 Ala. 1; Gardner v. O'Loughlin (1912) 76 N. H. 481, 84 Atl. 935; Bronson v. Strause (1889) 57 Conn. 147, 17 Atl. 699; Smith v. Wildman (1870) 37 Conn. 384; Louisville Tobacco Warehouse Co. v. Thompson (1916) 172 Ky. 350, 189 S. W. 245; Manning v. Sheehan (1911) 133 N. Y. Supp. 1006; Brooks v. Reynolds (C. C. A. 6, 1893) 59 F. 923; Osborne v. Gordon (1893) 86 Wis. 92, 56 N. W. 334. 'Morris v. Daiker, supra note 2; In re Reith's Estate (1904) 144 Cal. 314, 77 Pac. 942; Mackenzie v. Los Angeles Trust Co. (1918) 39 Cal. App. 247, 178 Pac. 557. 'French v. Calkins (1911) 252 Ill. 243, 96 N. ]. 877. 'Meek v. Briggs (1893) 87 Iowa 610, 54 N. W. 456; Morris v. Daiker supra note 2; Bacon v. Bacon (1882) 55 Vt. 243.

NOTES

trustee is not only given a discretion as to the quantum to be paid over, but may also choose among^ several^ persons^ or^ purposes designated by the trust instrument.^6 The expressed guide^ often becomes tenuously vague;^ as^ in^ the^ case^ of^ a^ discretion^ to^ pay over principal if the trustee should "deem it^ to the interest"^ of the cestui ;7 or to pay so much as considered "needful"^ ;8^ or^ to^ use a fund^ "entirely^ as^ they^ deem^ best^ for^ her."^ (^9) (2) Such border- line situations adumbrate and^ are^ not^ easily^ distinguishable^ from the second group in which no express boundaries^ are^ set^ up^ for the trustee's guidance. This class stands midway between the qualified and the so-called absolute discretions. In a leading case the trustee was directed to pay income to the cestui "in^ such^ pro- portions and in such manner as she (the trustee) herself^ may decide."'1^ , The distinction between^ this^ and the^ preceding group is rendered perilously slight^ by^ the^ fact^ that^ in^ most^ cases^ the guiding purpose of the settler can be gleaned from the "four corners" if^ not^ from the^ letter^ of^ the instrument.^ (3)^ The^ third classification embraces the discretions variously^ known^ as^ pure, unqualified, absolute or uncontrollable. In such cases the terms of the trust instrument appear^ to^ free^ the^ trustee^ from^ any^ inter- ference with the exercise of his discretion :-to use for^ the^ well- being of the cestui "without any restrictions whatever";" "dis- cretion shall not in any manner^ be^ interfered^ with^ by^ any court" ;12 "sole and uncontrolled discretion without being liable for the exercise of such discretion" ;13 "such payments to be at all times at the sole^ and^ absolute^ discretion^ of^ the^ said^ trustee"^ ; are typical phrases. 5 It should be^ noted^ that^ these^ dispensing

'Hall v. Williams (1876) 120 Mass. 344 (to use income "in such way and ways as shall be most likely^ to^ make^ the^ same^ enure^ and^ be beneficial^ to such recipient's husband, wife or ---- children, or otherwise beneficial to such recipient in the way of his or her education, or advancement, or sup- port, exercising in all such cases ---- the judgment that would be expected from a good father."); Hamilton v. Drago (1926) 241 N. Y. 401, 150 N. E. 496; Andrews v. Tuttle (1914) 45 Utah 98,^^143 Pac.^ 124. 'Huntington v. Jones (1899) 72 Conn. 45, 43 Atl. 564; In re Clark (1915) 174 Iowa 449, 154 N. W. 759; Roosevelt v. Roosevelt (1875) 6 Hun 31; In re Naglee's Estate (1866) 52 Pa. 154; and see Watling v. Watling (C. C. A. 6, 1928) 27 F.^ 2nd.^ 193. •Rackeman v. Wood (1909) 203 Mass. 501, 89 N. E. 1037. 'Rinker's Adm'r. v. Simpson (1932)^159 Va.^ 612,^^166 S.^ E.^ 546;^ see^ also Jones v. Jones (1894) 30 N. Y. Supp. 177. Carter v. Young (1927) 193 N. C. 678, 137 S. E. 875. "Kiffner v. Kiffner (1919) 185 Iowa 1064, 171 N. W. 590. 'Raymond v. Tiffany (1908) 112 N. Y. Supp. 252. "Hamilton v. Drago (1926) 241 N. Y. 401,^150 N.^ E.^ 496. "Keyser v.^ Mitchell^ (1871)^^67 Pa.^ 473. "For others see In re Neil (1890) 62 L. T. (N. S.) 649; Angell v. Angell (1908) 28 R. I. 592,^68 Atl.^ 583;^ Cromwell^ v.^ Converse^ (Conn.^ 1928) 143 Atl. 416; Keating v. Keating (1917) 182 Iowa 1056, 165 N. W. 74; Mitchell v. Choctaw Bank (1914) 107 Miss. 314, 65 So. 278 (to control "as if it were his own, absolutely, in fee simple, without any order of any

NOTES

ity. Two reasons are given. Most courts avow a rule of inter- pretation and declare a reluctance ever^ to^ read an^ intent^ on^ the part of the settlor to give his trustee so sovereign a carte blanche.^18 Such an interpretation, however, becomes obviously factitious in the face of^ express^ terms^ to^ the^ contrary.^ A^ broader and more fundamental basis for the rule^ is^ found^ by^ courts^ which declare an uncontrolled discretion impossible as an attempt to oust equity of its jurisdiction over trusts. 9 Both policy and logic would seem to accord with this reasoning. Upon what ground will a discretion be controlled? It may be broadly stated that in all cases the burden of proof rests upon the cestui to show an "abuse" of discretion. 20 Obviously it is im- possible to subject to rigid categories the multifarious situations in which "abuse" is found. 21 Each case depends upon its own peculiar facts. Certain general classifications (^) can be indicated. (1) Clearest proof of abuse results from a showing of "bad faith," or an improper or dishonest motive. Absolute dishonesty need not be shown. (^) A gross failure to provide sufficient "sup- port" has been characterized as dishonest, 22 especially if the trustee has profited thereby. 2 ' To favor one beneficiary over an- other for personal reasons has been held "bad faith."2 4^ On the other hand, where the trustee is empowered to convey the corpus should he deem the cestui capable of managing (^) it, his failure to convey is not necessarily regarded as in "bad faith" merely be- cause his children will profit as remaindermen should the cestui die without issue.2 5^ (2) Judicial interference to redress an "un-

"Coker v. Coker (1922) 208 Ala. 354, 94 So. 566; Angell v. Angell (1908) 28 R. I. 592, 68 Atl. 583; McDonald v. McDonald (1890) 92 Ala. 537, 9 So. 195. "In re Clark (1915) 174 Iowa 449, 154 N. W. 759; Keating v. Keating (1917) 182 Iowa 1056, 165 N. W. 74; Butler v. Badger (1914) 128 Minn. 99, 150 N. W. 233; 2 Perry on Trusts (7th ed. 1929) secs. 510 and 511a. In re Cowen's Estate (1933) 265 N. Y. Supp. 40 ("Trustees have no affirmative burden"); Leverett v. Barnwell (1913) 214 Mass. 105, 101 N. E. 75 ("clear proof"). " See Restatement of Trusts (Am. L. Inst. 1932) Sec. 181 (d) for sug- gested criteria: "(1) the extent of the discretion intended to (^) be conferred upon the trustee by the terms of the trust; (2) the purpose of the trust; (3) the nature of the power; (4) the existence or non-existence, the definiteness or indefiniteness, of an external standard by which the reasonableness of the trustee's conduct can be judged; (5) the motives of the trustee in exercising or refraining from exercising the power; (6) the existence or non-existence of an interest in the trustee conflicting with that of the beneficiaries." ' Callister v. Fassitt (1900) 163 N. Y. 281, 57 N. E. 490. "McDonald v. McDonald (1891) 92 Ala. 537, 9 So. 195. ' Jones v. Jones (1894) 30 N. Y. Supp. 177 (Trustee (^) disapproved of mar- riage of disfavored cestui.). " Turnure v. Turnure (1918) 89 N. J. Eq. 197, at 200, 104 Atl. 293, at 295; In re Cowen's Estate (1933) 265 N. Y. Supp. 40. Where, however, (^) the trustee is instructed to divide among a class to which he himself belongs, hp cannot distribute any portion to himself unless the settlor has expressly permitted this. Andrews v. Tuttle (1914) 45 Utah 98, 143 Pac. 124.

ST. LOUIS LAW REVIEW

reasonable or arbitrary" abuse of discretion includes a hetero- geneous assortment of cases which defies any reduction to rules. It is under the aegis of this phrase that the courts assert their most frequent (^) control over the trustee. "Reasonable" is to be understood "in view of the nature (^) and amount of the income, the time when it becomes available to the trustee for the purposes of distribution,^ and^ the^ circumstances^ of^ the^ beneficiaries."^

20

Such definitions, however, add little; each case merits an in- dividual consideration. 27 By a reasonable implication the needs of the beneficiary^ have^ been^ held^ to^ include^ those^ of^ his^ family. (3) The intervention of equity will also be justified by a total failure to exercise the given discretion. 28 The trustee need not, however, make a separate exercise of his discretion every time he pays over; the fact that a trustee in all subsequent payments through a period of years had never varied the amount decided upon for the first payment has been held not to constitute evi- dence of a failure to exercise his discretion. 20 (4) It has been stated as a separate rule that a discretion will not be permitted to be exercised in such a manner as to controvert the purpose of

'Angell v. (^) Angell (1908) 28 R. I. 592, at p. 598, 68 Ati. 583, at p. 586; and consult note 21. ' Eaton v. Loveren (1924) 81 N. H. 275, 125 AtI. 433, 35 A. L. R. 1034 (The trustee must consider "the amount (^) of money at his disposal, their (cestuis') present as well as their probable future needs, their health and capacity to help themselves, and then do what (^) the ordinary Man would do under similiar circumstances."); Gardner v. O'Loughlin (1912) 76 N. H. 481, (^84) Atl. 935; Colton v. Colton (1888) 127 U. S. 300 at p. 321; Leverett v. Barnwell (1913) 214 Mass. 105, 101 N. E. 75; Manning v. Sheehan (1911) 133 N. Y. Supp. 1006; In re Hilton (1916) 160 N. Y. Supp. 55; In re Van Zandt's Will (1931) 247 N. Y. Supp. 441; In re Reith's Estate (1904) 144 Cal. 314, 77 Pac. 942; Russell v. Hartley (1910) 83 Conn. 654, 78 Atl. 320; Keating v. Keating (1917) (^182) Iowa 1056, 165 N. W. 74; Cecil's Trustee v. Robertson & Bro. (Ky. 1907) 105 S. W. 926; Marshall's Trustee v. Rash (1888) 87 Ky. 116, 7 S. W. 879; (^) Read v. Patterson (1888) 44 N. J. Eq. 211, 14 Atl. 490. There is a conflict as to whether the trustee can favor one beneficiary over another; holding this an arbitrary violation of the testator's implied intent that members of a class should be favored equally, Jones v. Jones (1894) 30 N. Y. Supp. 177; contra, sustaining such distinction if reas- onably supported by a substantial difference in the circumstances (^) of the cestuis, Stephenson v. Norris (1906) 128 Wis. 242, 107 N. W. 343; and see Trout v. Pratt (1907) 106 Va. 431, 56 S. E. (^) 165. " There is conflict as to whether the divorced wife of the cestui can com- pel payment of her alimony out of the trust fund. If she is regarded as no longer belonging to the family she is held a mere creditor and denied remedy. Eaton (^) v. Loveren, supra note 27; Kiffner v. Kiffner (1919) 185 Iowa 1064, 171 N. W. 590. Contra, treated as still a member of the family, England v. England (1922) 223 Ill. App. 549; and see dictum in Wetmore v. Wetmore (1896) 149 N. Y. 520, 44 N. E. 169. But the cestui's child, although in the custody of its divorced mother, remains "in the family." Eaton v. Eaton (1926) 82 N. H. 216, 132 At]. (^) 10. Consult local statutes. " Coker v. Coker (1922) 208 Ala. 354, 94 So. 566; Andrews v. Tuttle (1914) 45 Utah 98, 143 Pac. 124; Wilson v. Turner (1883) 22 Ch. D. 521. Cromwell v. Converse (Conn. 1928) 143 Atl. 416.

ST. LOUIS LAW REVIEW

flagrant cases may content itself with ordering the trustee to exercise his discretion in a proper manner, with the caveat that in the event^ of^ his^ failure^ to^ do^ so^ the^ court^ will^ exercise^ the power itself;36 for it is preferred not to usurp the trustee's dis- cretion any farther than absolutely necessary. In their solici- tude over the inviolability of discretion, however, the courts have sometimes gone far toward creating a doctrine of "untouchabil- ity"; and it has been said that the court may discharge a trustee for unreasonable refusal to^ act,^ but^ cannot^ itself^ order^ him^ to pay a definitely ascertained sum, or act in his place2 (2) The majority view does not wait upon this technicality, but permits the court, when its attention is called to an abuse, to determine the precise sum which is reasonable, to order the trustee to pay over this amount, and, if necessary, to execute the power itself. 8

A court of chancery will not permit the plain ends and purposes of a discretionary trust to be defeated by the arbi- trary exercise of their discretion by trustees, even though to prevent it the court must substitute its discretion for that of the trustee's. 8

(3) Where the abuse is of suitable gravity the trustee is removed. This measure usually, though not necessarily, is reserved to cases involving "bad faith," refusal to act, or total perversion of the trust.^3

'Manning v. Sheehan (1911) 133 N. Y. Supp. 1006 (here "no culpable failure to exercise discretion in a reasonable manner." The trustee merely doubted his powers.) Such a mild remedy, of course, may be extended to more serious abuses if the court desires. See Carter v. Young (1927) 193 N. C. 678, 137 S. E. 875. "Eaton v. Eaton (1926) 82 N. Hl. 216, 132 At]. 10. IEdward v. Edward (1925) 117 Kan. 458, 232 Pac. 240 (ordered trustee to pay $150 per month) ; Watling v. Watling (C. C. A. 6, 1928) 27 F. (2d) 193; Callister v. Fassitt (1900) 163 N. Y. 281, 57 N. E. 490 (Court set precise sum for trustee to pay); Gardner v.^ O'Loughlin^ (1912)^76 N.^ H. 481, 84 Atl. 935 (same); McDonald v. McDonald (1891) 92 Ala. 537, 9 So. 195 (same); In re Harrar's Estate (1914)^244 Pa.^ 542,^^91 At].^ 503;^ Coker v. Coker (1922) 208 Ala. 354, 94 So. 566 (case of "perversion and abandon- ment of trust"; court administered trust itself); Andrews v. Tuttle (1914) 45 Utah 98, 143 Pac. 124 (Court itself divided among the cestuis); Jones v. Jones (1894) 30 N. Y. Supp. 177 (Court can remove trustee or compel him to pay definitely ascertained sums). ',Rinker's Adm'r. v. Simpson (1932) 159 Va. 612 at 622, 166 S. E. 546, at 550. MartinM v. McCune (1925) 318 Ill. 585, 149 N. E. 489; Keating v. Keat- ing (1917) 182 Iowa 1056, 165 N. W. 74 (The trustee had continually main- tained and acted on the assumption that his discretion was "absolute." The trust instrument, indeed, had expressly exempted him from "any order of court." The court not only declared him subject to its jurisdiction but removed him because (for one reason) his claim of absolute discretion was a "denial of^ the^ trust"--a far^ journey^ from^ the^ theory^ of^ "uncontrollable discretion"!).

NOTES

No rigid rules constrain the use of these decrees; the courts in applying remedies maintain a fluidity of treatment suited (^) to the variety of the individual problems presented.

THE RIGHTS OF THE CREDITOR OF THE BENEFICIARY It is premised (^) that the creditor of the beneficiary can have no greater right against the trust funds than has the beneficiary himself.^4 In light (^) of the general principle that "Equity allows the creditor to^ avail himself^ of^ the^ interest^ of^ the^ cestui"^

(^4) ' 1 it

might be expected that the remedies available to the cestui would be available (^) likewise to his creditor. Since the cestui ordinarily has no title to the trust funds until the trustee has exercised his discretion to pay over, obviously his creditor's lien can attach no earlier; but (^) since the cestui can compel his trustee to exer- cise a reasonable discretion in making payments, it would seem on principle that, where the trustee has arbitrarily refused to make payments and the cestui (^) as a result has contracted neces- sary debts, the creditor should be able to secure a court order compelling the trustee to discharge such debts. Where dealing with the creditor, however, the majority (^) of the cases evince a complete reversal of policy. It is here that dicta supporting the uncontrollability of discretion (^) abound. In few of the cases is the question of abuse of discretion raised. In most the courts con- tent themselves with repeating that since the cestui cannot force the discretion of the trustee a fortiore his creditor cannot. 2 It is expressly said, "The trustee's control, discretion and power of disposition cannot be regulated or directed at the suit of credi- tors."'^43 The clue to this attitude may be found in an early lead- ing case on the subject of discretionary trusts:

To (^) subject the income to execution at the suit of a creditor would - - - - utterly defeat the intent of the testator in creating it. We cannot but regard this form of trust to be as effectual in guarding (^) a trust and its income against the prodigality of its beneficiary as would be a positive exclu- sion of creditors in the^ will of^ the^ testator.

44

"Hall v. Williams (1876) 120 Mass. 344; and consult cases cited infra, note 42. " Huntington v. Jones (1899) 72 Conn. 45 at p. 50, 43 Atl. 564 at (^) p. 566 (Under the facts in this case the court found the trustees had been given no discretion as to income, but had a duty to pay over all; the case thus is not directly in point as a discretionary (^) trust.) ' Keyser v. Mitchell (1871) 67 Pa. 473; Brooks v. Reynolds (C. C. A. 6,

  1. 59 F. 923; Parker v. Carpenter (1915) 77 N. H. 453, 92 Atl. 955; Raymond v. Tiffany (^) (1908) 112 N. Y. Supp. 252; Meyers v. Russell (1908) 112 N. Y. Supp. 520; Louisville Tobacco Warehouse Co. v. Thompson (1916) 172 Ky. 350, 189 S. W. 245. Everitt v. Haskins (1918) 102 Kan. 546; 171 Pac. 632 at 633. " Keyser v. Mitchell (1871) 67 Pa. 473, at p. 477.

NOTES

suit of the cestui,4 7^ there should be no objection on principle to the creditor's being able to tap the resources of the trust with- out needless circuity of action. This view obtains some adher- ents; it^ is^ deserving^ of^ more.

48

Another line of decisions, arising in jurisdictions in which re- straints on alienation of trust funds are disfavored, seeks to pierce the barrier of the discretionary trust through a scrutiny of the time at which the cestui obtains a property interest in the payments. In the leading English case of In re Nei 49 the income was to be paid as the trustee "in uncontrolled discretion think fit"; the cestui mortgaged his future income; the debt became due, and the^ creditor^ notified^ the^ trustee,^ who, however,^ con- tinued to pay to the cestui. It was held that, although the pay- ments were discretionary, there came an infinitesimal moment immediately before actual payment when in the "irrevocable determination" of the trustee the money belonged (^) to the bene- ficiary and the creditor's rights attached. At this moment the trustee had notice of the assignment to the^ plaintiff,^ and,^ since in spite of this he paid over to the cestui, he was held personally liable to the plaintiff for this misapplication of the funds. The more recent case of Hamilton v. Drago^50 commits the New York courts to a similar view. (^) Under a statute permitting a creditor to secure an execution against ten percent of any trust income "due and owing" the cestui, the plaintiff sought to attach future income to be paid over by a trustee possessed of "sole and uncontrollable discretion." Recognizing the power of the trustee to vary or withhold his awards the court, in holding for the plaintiff, said:

if it (the discretion) is exercised in favor of the (cestui), then there is due him the whole or such part of the income as the trustee may allot to him. After such allotment (^) he

" Rinker's Adm'r. v. Simpson (1932) 159 Va. 612, 166 S.E. 546; Manning v. Sheehan (1911) 133 N. Y. Supp. 1006; Gardner v. O'Loughlin (1912) 76 N. H. 481, 84 Atl. 935. " Cecil's Trustee v. Robertson & Bro. (Ky. 1907) 105 S. W. 926 (The Kentucky courts do not enforce restraints on alienation of trust incomes. The creditor here, therefore, had only to deal with the discretionary aspects of the trust, without the added problem of spendthrift implications.). See also Marshall's Trustee v. Rash (1888) 87 Ky. 116, 7 S. W. 879; (^) In re Walters (1924) 278 Pa. 421, 123 AtI. 408 (Here the State, which was sup- porting a lunatic cestui, recovered expenses from the trustee who had un- reasonably refused to exercise his discretion to support the cestui.) ; Morris v. Daiker (1929) 35 Ohio App. 394, 172 N. E. 540 (dictum). (1890) 62 L. T. (N. S.) 649; see also In re Coleman (1888) 39 Ch. 443; Lord v. Bunn (1843) 2 Y. & C. C. C. 98, 63 Eng. Rep. 43. (1926) 241 N. Y. 401, 150 N. E. 496. The case does not cite any authorities; its genesis apparently is similar to that of Pallas Athene. See also the dissenting openion in Kiffner v. Kiffner (1919) 185 Iowa (^) 1064, at 1067, 171 N. W. 590, at 591.

ST. LOUIS LAW REVIEW

may compel its payment. At least for some appreciable time, however brief, the award must precede the delivery of the income he is to receive, and during that time the exe- cution attaches.

The solution attempted by these courts has at least the virtue of enabling the creditor to attach the fund before it reaches the hands of the cestui; where proper notice is served the trustee cannot pay it over to the beneficiary without rendering himself liable to the creditor for such a misapplication. Considered as a complete remedy, however, the rule is not without defects. Un- der the New York statute permitting only ten percent of the al- lotment to be attached the presence of an execution is not likely to deter the trustee from making payments; but in a jurisdiction which completely abolishes spendthrift restraints on alienation, the trustee will be likely to be deterred from making payments which automatically may belong in their entirety to the credi- tor;"' nor will the cestui care to force the discretion of the trustee in such a case. The creditor thus is left without any active or satisfactory remedy and must wait upon the action of the trustee or the beneficiary. An additional flaw has been found in the reasoning that there may be a time before the handing over of the funds when the title has vested in the cestui; it has been pointed out that this would involve permitting the cestui to recover from the trustee money alloted to him but not paid over, whereas the established law permits the trustee to change his mind at any time before actual payment.5^2 This difficulty, however, may be solved by the consideration that the only con- clusive proof that the trustee has made an "irrevocable deter- mination" consists in the fact (^) that he actually did pay over; hence the "split second" doctrine probably will of necessity be confined to situations like the present. The chief difficulty is, as mentioned above, one of practicality. It thus would appear that from one aspect the rule of Pole v. Pietsch presents the more fundamental solution to the problem; for, under it, the creditor need not wait for the cestui to act, but is given an active remedy against a trustee who has unreason- ably refused to advance funds to the cestui. This rule, of course, does not cover the situation where the trustee has always made reasonable payments, and whose discretion, therefore, cannot be forced by either cestui or creditor. This is not a defect in jurisdictions which enforce the settlor's intent to keep the trust fund free from prodigality; for so long as the cestui himself has received proper disbursements the purpose of the trust instru- ment is fulfilled, (^) and no further solicitude need be paid to the

1 Comment, 26 Col. L. Rev. 776. = Supra note 51.