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Matter of Estate of Richard Schlemm

Decided: January 2, 1951.

IN THE MATTER OF THE ESTATE OF RICHARD SCHLEMM


Ziegener, J.c.c.

Ziegener

[11 NJSuper Page 288] This matter comes before the court on exceptions by the beneficiaries to the fourth intermediate account

filed by the trustee, The Trust Company of New Jersey, on June 6, 1939, and on exceptions to the master's report by the beneficiaries and the trustee, filed herein on November 1, 1949. It is apparent that the great delay in bringing the matter to a conclusion was due to the extensive hearings and voluminous testimony taken before the master, but the present rules of court will preclude such a lapse of years before a matter is determined. Upon the filing of the exceptions to the account the matter was referred to the master, who commenced hearings on September 17, 1941, and concluded same on August 28, 1948. Subsequent to the filing of the master's report that trust beneficiaries and the trustee filed exceptions thereto, and final argument was had before me on October 16, 1950.

The trust here involved was created by Dr. Richard Schlemm, who died on October 3, 1920, leaving a last will and testament which was admitted to probate on October 15, 1920. The residuary clause of said will provided that "All the rest, residue and remainder of my estate, real and personal, and wheresoever situate, I give, devise and bequeath to my executor hereinafter named in trust, for the following uses and purposes:" -- then the purposes were stated. The Trust Company of New Jersey was named executor, and consequently acted as trustee. Said company conducted a general banking business in Jersey City, N.J., and as a component part thereof had a trust department equipped to handle trust estates such as this. The decedent had been affiliated with many banking institutions during his lifetime, and some of these institutions subsequently merged into the Trust Company of New Jersey, the trustee herein, and of which institution decedent was a vice-president and director. The major portion of the trust estate consists of stock in that company. The trust provisions of the will allocated four-fifths of the balance of income to decedent's wife, and one-fifth to his son, Ridgley, and provided that upon the death of the wife and son, the balance of the assets and income remaining should be paid over to the issue of Ridgley, and Ridgley's wife was to receive $15,000. Ridgley, the son, died on August 22,

1928, and Dr. Schlemm's wife died on November 7, 1940. Ridgley left him surviving his wife, Lillian M. Schlemm, a daughter, Anne Schlemm (now McEllen), and a son, Richard Schlemm, all of whom are the beneficiaries herein.

The decedent left two certificates of the Trust Company of New Jersey stock totaling 233 shares, par value $100 each, carried at a value of $340 per share, or a total value of $79,220. The accounts filed by the trustee, prior to the one herein, showed various stock dividends, subscription warrants, and a reduction in par value of the shares and reissue thereof, so that when the third account was filed there were a total of 2,304 shares, par value $25 per share, and carried at $53.15 per share, or a total value of $122,461.

The three accountings filed in 1922, 1926, and 1930, respectively, were approved by the Orphans' Court, and the trust beneficiaries subsequently sought to have them reopened by rule to show cause, alleging irregularity, neglect, default, mistake and fraud. This action was taken merely to reopen said accounts and not to surcharge the trustee. The court, on September 30, 1938, dismissed the rule to show cause on the ground that no fraud or mistake was shown to justify setting aside the decrees approving said accounts. On appeal to the Prerogative Court this action was sustained. In re Schlemm , 130 N.J. Eq. 295 (1941). Therefore, I will start with the premise that the value of the 2,304 shares of The Trust Company of New Jersey stock, at the outset, was $122,461, and the total value of 45 shares of Colonial Life Insurance Company stock, also left in the trust estate by decedent, was $13,850, as shown by the third account. On this fourth account the 2,304 shares of The Trust Company of New Jersey stock were listed at a total value of $2,304, at a value of $1 per share, and the stock of the Colonial Life Insurance Company at a total value of $6,750. So, in the ten-year period between the filing of the third and fourth accounts, 1929 to 1939, the Trust Company stock decreased in value by $120,157, and the insurance stock decreased in value by $7,100.

Decedent's will authorized the trustee "to receive, hold and manage said residuary estate, to invest and re-invest the same,

and collect and receive the income therefrom during the life of my wife, Josephine Schlemm," and to pay out income as hereinabove stated. In addition, he authorized the "executor and trustee, in its discretion, to retain any investments and securities which I may own at my death, notwithstanding they may not be of the class in which by law trust funds may be invested." The trustee alleges that the provisions of R.S. 3:16-12 are applicable in this case. Said statute provides that "when a testator has invested in municipal bonds, or in bonds secured by mortgages, or in bonds or shares of stock of a corporation, and the same comes into the hands of his executor, administrator with the will annexed, or trustee, to be by him administered, such fiduciary may, in the exercise of good faith and reasonable discretion, continue such investments and in such case he shall not be accountable for any loss by reason of such continuance." (P.L. 1899, p. 236; C.S., p. 2271, ยง 34.) The trustee contends it complied with said statute and in support thereof argues that its trust department was well managed; that the testator chose the stock himself; that the opinion of the directors and officers was made in good faith; the financial conditions prevalent in the world after 1929; the stock market crash; the national banking holiday and the worldwide economic depression.

The master's report, filed November 1, 1949, advised and reported that the trustee should be held responsible for the depreciation of the stock and fixed the liability as to the Trust Company of New Jersey stock as the difference between $32 per share, the high value for the year 1933, and $1 per share, as shown by the fourth account; that the trustee be surcharged with the loss of income on said stock from October 1, 1933, which was the last date any dividend was paid on the stock; that the trustee be charged with simple interest on said stock from October 1, 1933, at the rate of 3% per annum; that the trustee be held for the difference between $13,850 and $7,100, a loss of $6,750, on the Colonial Life Insurance Company stock. (This is evidently a transposition of figures, as the account shows the present value as $6,750, and the third account a value of $13,850, which would be a loss of $7,100.) [11 NJSuper Page 292] The lengthy exceptions by both the trustee and the beneficiaries to the master's report can be concisely stated as follows: The beneficiaries contend that the trustee should be liable for the difference between $150 per share and $1 per share on the bank stock; that the interest thereon should be 6% per annum from December 31, 1930; that the trustee should be surcharged the difference between $58,500, the alleged value of the insurance stock, and $6,750; that the trustee could and should have applied to the court for advice; that the trustee continued to hold shares of its own stock in the trust with the full knowledge that they were dropping in value and were bound to become valueless, or at most worth $1 per share; that the trustee, without legal right, or notice to the beneficiaries, by illegally voting the estate's stock of said trustee, reduced the par value of the 2,304 shares, of a par value of $25 each, to a subsequent par value of $2.50 per share, in three steps; that the fact the directors and officers of trustee have continued to hold their own shares of this stock is immaterial in this proceeding; that the trustee ignored the steady depreciation of its stock, attempting to save itself at the expense and loss of the beneficiaries; that the trustee caused great financial loss to the estate; that the trustee fraudulently mismanaged the trust for its own personal aid and gain, and subordinated the cestui's interest to its own; that trustee permitted ten years to elapse between filing the third account and the one here questioned, and took no steps to protect said stock held by the estate, but did actively, fraudulently, and for ...


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