Three individuals who are income beneficiaries during their respective lives and hold testamentary powers to appoint corpus under one or more of the five trusts for which interim accountings have been filed object to the payment of any corpus commissions. The specific grounds of exception are treated hereafter.
After gradually increasing the percentage of income taken as income commissions from 1% on September 30, 1955 to the full statutory rate of 6% on January 1, 1973, in 1972 the board of directors of Bessemer Trust Company (BTC), a New Jersey corporation, commenced to take corpus commissions at the rate of 1/10 of 1%, or $1,100, under N.J.S.A. 3A:10-2 as supplemented by L. 1972, c. 147, and in 1974 decided to collect the maximum allowable corpus commissions on the trusts which it was administering for the descendants of, and the spouses of the descendants of,
Henry Phipps who organized BTC in 1907 as a trust company to administer family trusts. Until the 1960s BTC did not accept trust accounts from persons who were not descendants of, or married to descendants of, Henry Phipps.
Pursuant to the decision in 1974 to charge corpus commissions BTC commenced to obtain approval by settlement agreement, or judicial action, of interim accounts which made allowance for payment of corpus commissions in approximately 550 trusts. The aggregate amount of corpus commissions sought is estimated to be between $10,000,000 and $12,000,000.
The main factor leading to this decision was increased cost related to changes in the roles to be played in the affairs of the Phipps family by BTC and Bessemer Securities Corporation (BSC), a Delaware corporation. The latter is a "personal holding company" within the meaning of Internal Revenue Code, 26 U.S.C.A. § 542, and is exempt from the Investment Company Act of 1940, 15 U.S.C.A. § 80a-1 et seq. , and the Investment Advisers Act, 15 U.S.C.A. § 80b-1 et seq. It has 500,000 shares of common stock. BTC separately or with certain cotrustees administers trusts holding over 480,000 of said shares.
Until approximately the 1960s BSC staff rendered, without charge, personal services to members of the Phipps family, such as planning family budgets, paying bills, purchasing both ordinary and exotic items, tax assistance, suggestions as to investments in tax shelters, etc. BSC staff, without charge, also rendered assistance to the board of directors of BTC in making recommendations for investments in trusts which had corpus assets other than BSC common stock to invest, in respect to which the said board then made decisions, and rendered tax advice in preparing returns. Without detailing the dates and the intervening steps by which a system of charges for these services was implemented, it is sufficient to state that BTC by 1972 was paying for computer services, tax assistance and investment
advice. Family members began paying for personal services in 1957.
BSC, and its corporate predecessors, is and has been one of the largest investment companies in the United States, with activities currently divided into three areas: (1) management of a diversified portfolio of bonds and common stocks; (2) venture capital with special emphasis on opportunities in technologically related industries, and (3) real estate, with total assets now aggregating between $400,000,000 and $500,000,000 depending on when and how they are valued. The basic capital was part of the proceeds of $75,000,000 received by Henry Phipps when he and his partners, Andrew Carnegie and Henry Fisk, sold their steel business to J. P. Morgan to form the United States Steel Corporation in about 1900. Henry Phipps organized BSC in 1911.
The fact that BSC was an investment company made it necessary that it have a competent staff to deal with investments. As the regulatory and tax laws were enacted and expanded in the 1930s and 1940s it was necessary that the staff of BSC grow to cope with them. Within certain parameters, once a core staff for an investment company is assembled it can manage more funds than it presently has charge of without substantial increase in personnel -- i.e. , the economy of size. See remarks of Merill Griswold, then chairman of the board of trustees of Massachusetts Investors Trust, at Senate hearings on the Investment Company Act, reproduced in Report of the Securities and Exchange Commission on Public Policy Implications of Investment Company Growth , H. Rep. No. 2337, 89th Cong. 2d Sess. (SEC Rep.) at 94-95. The court finds that BSC staff had the capability to handle BTC work without serious incremental cost.
For the period from 1911 to 1957, the three sons of Henry Phipps -- John S. Phipps, Howard Phipps, Henry C. Phipps -- as well as Henry Bradley Martin, husband of Helen Phipps Martin, daughter of Henry Phipps, were active in
managing the affairs of both BSC and BTC. The fifth child Amy Phipps Guest, served as a director of BTC. Each child had an equal one-fifth interest in BSC from 1911 and in BTC from 1907.
In the early 1930s the Congress enacted a gift tax effective in mid-1932. This as a result of testimony before the Senate to the effect that individuals of substantial wealth avoided paying estate taxes by giving their assets to their children and grandchildren while alive, by creating trusts, the income going to their children and the corpus to their grandchildren.
It is fair to assume that the tax consequences to future generations resulting from the retention of individual ownership of the BSC common stock until after the effective date of the gift tax was obvious to the five children by Henry Phipps. In June 1932, with the exception of Howard Phipps who did not then have minor children, each of the children of Henry Phipps executed indentures of trust with the Palm Beach Trust Company, which was and is another wholly-owned family trust company, and one or more of their brothers or sisters as trustees, and transferred to said trusts their respective holdings in BSC. Subsequently, Howard Phipps created similar trusts for the benefit of his children. As of December 31, 1933 Palm Beach Trust Company resigned as trustee and BTC replaced it as trustee, effective January 1, 1934. Subsequent to the commencement of this action BTC has abandoned claims for corpus commissions prior to January 1, 1934.
One of the June 1932 trusts was established by Amy Guest for the benefit of her daughter, now known as Diana Guest Manning. This trust is designated by BTC as D-6. Since there are five branches of the family, each branch is designated alphabetically by a letter from A to E; e.g. , John S. Phipps, A; Henry C. Phipps, B; Howard Phipps, C; Amy Guest, D; and Helen Martin, E, and each trust is designated by a number indicating the sequential order in which that trust was established within that branch of
the family. The individual trustees were given broad powers to withhold and accumulate income, and to pay out corpus as well as accumulated income to the named beneficiary or his or her brothers and sisters, except that no individual trustee could ever direct payment to himself or herself.
In respect to income, the indenture for D-6 provides:
2. During the lifetime of the said Diana Henrietta Cornelia Guest to pay out so much of the net income of said trust estate as the said Individual Trustees shall direct and appoint in monthly installments to the said * * * Any income not directed to be paid by the said Individual Trustees shall be held by the Trustees as part of the capital of the trust fund as hereby established.
5. Whenever the net income of the trust estate is referred to in this trust deed, it shall be construed to mean the income of the principal of the trust after the proper deduction of all expenses and charges chargeable to the trust estate, less any allowance for depreciation or reserve for any purpose which the Trustees, in their sole discretion, shall deem advisable, and after the provision has been made by amortization for the wearing of premium on bonds. Extraordinary dividends upon stock shall be distributed to the life tenant only after due provision has been made to protect the integrity of the capital of the trust fund as established.
BTC and the guardian ad litem urge that under said provisions any corpus commissions which are allowed should be charged to income. BTC has computed the corpus commissions chargeable to this trust to be about $505,000 and states that not more than 15% of income for any one year, or $60,000, whichever is less, should be paid in that year.
At the time D-6 was established it was funded with common stock of a wholly-owned Phipps' corporation entitled the Potomac Corporation, which through reorganization became part of BSC. All parties to this action have treated the situation as if the trust had been initially funded with BSC common stock. For practical reasons the court concludes that no other approach is possible based on the extensive record before the court. The significance lies in the fact that since 1911 BSC stock has been subject to a restriction against sale to any one but a member of the Phipps family, a trust for the benefit of one of them, or a trust
established by one of them for educational or charitable purposes.
The said restriction was placed on the BSC common stock purportedly to carry out the desire of Henry Phipps that his children regard the original gifts to them as being in trust for themselves and their children, and that no sale of said stock take place without first offering it to other members of the family. The restriction is evidently properly established in the appropriate corporate instruments and stock certificates so as to be enforceable.
Another trust that is before the court is A-23, established by John S. Phipps on December 24, 1931 by indenture with BTC to pay net income to his daughter Margaret Boegner for the purpose of expending it solely for the benefit of his grandchildren Dita Naylor-Leyland and J. Gordon Douglas, III, with the proviso that if they predecease their mother, Margaret Boegner, under certain conditions she is to receive the income. Margaret Boegner also has a testamentary power of appointment over corpus to allocate it among her descendants.
Articles 10 and 11 of said indenture provide:
10. Whenever the net income of the trust estate is payable under this trust deed, it shall mean the income from the principal of the trust after the proper deduction of all expenses and charges chargeable to the trust estate, less any allowance for depreciation or reserve for any purpose the Trustee in its sole discretion, shall deem advisable, and after provision has been made by amortization for the wearing of premium on bonds. Extraordinary dividends upon stock shall be distributed to the life tenants only after due provision has been made to protect the integrity of the capital of the trust fund as established.
11. None of the beneficiaries hereinbefore named shall have any power during the continuance of this trust to dispose of or to charge by way of anticipation any of the estate or interest of whatsoever nature, and whether in possession, reversion, remainder or expectancy hereby given or directed to be given to such beneficiary; and all sums, payable or to be paid or directed to be paid to such beneficiaries hereunder, shall be free and clear of the debts, contracts, alienations and anticipations of such beneficiaries respectively and free and clear of all liabilities for levies and attachments and proceedings of whatsoever kind at law or in equity.
This trust was initially funded by payment of $100,000 cash and presently has a portfolio of diversified securities, none of which is subject to any restriction as to sale.
BTC urges that by reason of the language in Article 10, corpus commissions are chargeable to income. It further states that it will accept the same limitation on payment as in the D-6 trust. The aggregate of corpus commissions is estimated at $33,197 for this trust. The guardian ad litem also urges that corpus commissions are payable out of income.
There are three other trusts presently before the court; i.e. , A-42, to pay the income to Margaret Boegner for life with remainder to her descendants, subject to her testamentary power of disposition; D-7 established by Diana Guest Manning in 1935, to pay income to herself and named others for life with remainder to her descendants, subject to her testamentary power of disposition; and E-16, to pay the income for life to Esmond Bradley Martin, Jr. with remainder to his descendants, subject to his testamentary power of disposition.
No one has urged that corpus commissions be paid from the income of these trusts. The trust indentures contain no provision comparable to those quoted above, and either contain no provision expressly dealing with commissions or a provision stating that the trustee may charge commissions but not at a rate higher than permitted under the law of the state applicable to the trustee.
These indentures created powers in individual trustees to shift corpus and/or income at various times among individuals, but the detail of those provisions is not necessary to consider in order to resolve the issues posed in this and related proceedings.
At this point it is appropriate to state how the interim accountings for the five trusts in this proceeding relate to the other proceedings, who the exceptants are, and the grounds of exception.
As noted above, BTC commenced filing a series of accountings in 1974 seeking approval of corpus commissions. The actions were brought ex parte under R. 4:88-2. In 1974 and 1975 BTC filed actions in connection with 52 trusts seeking approval of corpus commissions in accordance with rates set forth in N.J.A.C. § 18:26-7.10, which provides for commissions for executors and administrators in estates which the Inheritance Tax Bureau allows as deductions for purposes of the inheritance tax in uncontested probate matters, for the first 25 years, and the rates in N.J.S.A. 3A:10-2 for the years thereafter. Commissions on corpus taken in those proceedings aggregate $2,209,096.33 but are still subject to judicial approval under R. 4:88-2. In respect to 16 other trusts, settlement agreements were reached on a similar basis for corpus commissions aggregating $298,648. In the related proceedings BTC has shifted to a method of computing commissions on the basis of 5% of first $100,000 and 2-1/2% on the excess for the first 25 years, and the statutory rate of 1/10 of 1% a year thereafter.
In an effort to reach finality and recognizing that historically some members of one branch of the family have opposed the continuation of BSC, BTC during 1975 shifted to a full accounting in each of the remaining 500 trusts. Since exceptions were taken to the accountings in these five trusts, it was decided to treat them as lead cases for resolving similar problems that will arise in the later accountings that are subject to judicial approval. The parties engaged in extensive discovery.
Upon this judge assuming duties in the Chancery Division in September of this year, all parties requested expeditious disposition of these matters because of their potential impact upon the realignment of functions within the group of related corporations, including a trust company newly formed under the National Banking Act having its offices in New York. This is the Bessemer Trust Company, National Association, hereinafter called BTNA. BSC has leased certain space to BTNA, transferred its computer equipment and personnel
and its core of investment and tax personnel. In turn, BTNA has contracted with BSC, BTC and Palm Beach Trust Company to provide computer services, investment services and other services. By having its location in New York, by concentrating on trust business, and by accepting trust business from non-Phipps family members, it is hoped that the expenses of operation will be spread over a broader base, thereby minimizing cost under the concept of economy of size referred to earlier.
The three individuals who have filed exceptions are Diana Guest Manning (daughter of Amy Guest and granddaughter of Henry Phipps), Margaret Boegner (daughter of John S. Phipps and granddaughter of Henry Phipps) and Esmond Bradley Martin, Jr. (grandchild of Helen Martin and great grandchild of Henry Phipps). The first two clearly have standing because they are being asked to pay corpus commissions out of income which they otherwise would receive. See Ditmars v. Camden Trust Co. , 10 N.J. Super. 306, 335-336 (Ch. Div. 1950), mod. 10 N.J. 471 (1972); 7 N.J. Practice (Clapp, Wills and Administration), (3 ed. 1962) § 1465. In the event that the corpus commissions requested of $19,922 are allowed in the accounting for the E-16 trust, the principal on which income is generated will be reduced and hence adversely affect the income payable to Esmond Bradley Martin, Jr. The court therefore concludes that he also has standing. Compare Koons v. Atlantic City , 134 N.J.L. 329 (Sup. Ct. 1946), aff'd per curiam 135 N.J.L. 204 (E. & A. 1947), and Niles, "Annual Review of Law of New York, Trusts", 21 N.Y.U.L.J. 1477 (1956), wherein the author comments on the possible serious erosion of corpus by permitting annual commissions on actual value of items of corpus under the Surrogate's Court Procedure Act § 2309 (McKinney 1967).
BTC is acting as corporate trustee under inter vivos trusts in the five trusts before the court. It has the privilege of filing an accounting in the Superior Court, Chancery Division. 7 N.J. Practice (Clapp, op. cit.), § 1449 at 154 (3 ed.
1962); Donaldson v. Madison , 88 N.J. Super. 574 (Ch. Div. 1965). The court concludes it has jurisdiction.
Exceptants have filed nine separate exceptions. The exceptions were stated in general terms and filed in each of the five accountings. The exceptions can be grouped into the following categories:
(1) BTC is barred from claiming any corpus commissions by laches, waiver, statute of limitations and estoppel -- this contention is based on the conduct of family members who served as officers of BTC and who were settlors of some of the trusts in not taking corpus commissions, which conduct expressed an intent that no corpus commissions were to be charged; (2) in respect to the Manning D-6 trust (and all other trusts which hold BSC common stock) the fact that BSC paid its staff to manage the assets of BSC as well as render investment services to BTC means that the earnings from which the dividends of BSC were paid have already borne the costs for pain, trouble and risk normally incurred by a trustee; hence BTC should either not be compensated for handling corpus or its commissions should be adjusted to reflect this fact; (3) standards upon which BTC has computed its commissions are contrary to the statutes and decisions, the base is artificially inflated, and the rate is excessive, particularly in the Manning D-6 trust (and those others holding BSC common stock). Exceptions 8 and 9 are not directed to issues presented within the framework of the five accountings but are directed to the relationship between BTC and BTNA and the contracts between them.
Subsequent to the conclusion of testimony the court requested supplemental briefs on the question of whether BTC was barred from asserting a claim for corpus commissions chargeable to income where it had paid out income without establishing a reserve of income from which to pay the commissions, particularly in the case of trusts such as A-23, which is a spendthrift trust.
The court will decide the issues posed by the first three categories of exceptions, then the issues related to the payment
of corpus commissions out of income, and then the exceptions asserted as to the contracts.
1. BTC IS BARRED FROM TAKING INTERIM CORPUS FOR ANY PERIOD PRIOR TO THE PERIOD FOR WHICH BTC IS PRESENTLY ACCOUNTING.
In the Manning D-6 trust BTC is presenting its fifth interim accounting for the period September 1, 1960 to October 31, 1974. The first three interim accountings for the period June 3, 1932 to December 31, 1955 were filed simultaneously and judicially approved on December 20, 1957. Although neither the complaint nor order to show cause referred to corpus commissions, the final judgment recited the fact that no corpus commissions had been applied for and that BTC reserved the right to do so. The fourth interim accounting was settled by an approval agreement covering the period January 1, 1956 to September 1, 1960. It is dated March 21, 1962. It is signed by Diana Guest Manning, her two brothers Winston F. C. Guest and Raymond Guest, and their adult descendants. Paragraph 4 of that agreement states:
It is understood and agreed that the Trustees have not waived and do not waive with respect to income collected during the period of the accounting annexed hereto any right they may have to commissions or additional commissions on income (over and above the amounts of such commissions shown in the annexed account as having been deducted or retained). It is also understood and agreed that although said Bessemer Trust Company and Howard Phipps, as such Trustees, do not at this time ask for commissions on corpus, they have reserved and do reserve to themselves the right to apply for and receive such commissions on corpus both with respect to services rendered heretofore and hereafter to be rendered.
The subject of corpus commissions is of major significance to the Guest group. Each is the beneficiary of a trust similar to D-6. The aggregate of corpus commissions that would be chargeable to income for this group is over
$1,500,000. There is neither an allegation nor evidence that each was not fully aware that BTC in 1962 was asserting a right to charge corpus commissions.
In the other four trusts, interim accountings have been filed or approval agreements obtained, for prior periods. In the A-23 trust, a prior judicially approved accounting and an accounting approved by settlement agreement do not reflect any request for corpus commissions.
The schedules attached to each of the accountings as filed show the computation of corpus commissions for the period from the inception of the trusts to the close of the current period. In the case of the Manning D-6 trust, and each other trust containing BSC stock in the other proceedings not part of this action, there is attached as a supporting exhibit a special report prepared by Price Waterhouse & Co. setting forth on a consolidated basis the condition of the corporation at the end of each calendar year and the results of operations for each calendar year from 1931 through 1958 of BSC and affiliated corporations, with copies of annual reports of a similar nature for each year subsequent to 1958 to the close of the accounting period. The testimony during the seven days of hearings covered this period, as did the pretrial discovery.
The complaint requested partial allowance of corpus commissions in the amount of $65,228 less $5,228 taken since 1972 under N.J.S.A. 3A:10-2(c), which provides:
Fiduciaries may annually, without court allowance, take sums as follows on account of corpus commissions; if there is but one fiduciary, the amount so taken may equal 1/5 of 1% of the first $100,000 of corpus and 1/10 of 1% of the value of the corpus in excess of $100,000 or $1,100, whichever is less; * * *
In response to questions by counsel for exceptants and the court, counsel for BTC stated that BTC intended to take commissions on the basis of the computation in Schedule M in the accounting for the D-6 trust; i.e. , $505,430 less $3,658 attributable to the period when Palm Beach Trust
Company was trustee, or $496,547 ($501,775 less $5,228 previously taken), at the rate of $60,000 in 1974 or 1975 and another $60,000 for 1976 under R. 4:88-2. Counsel for BTC stated that BTC is not certain as to what applications it may make after 1976 for corpus commissions.
Since R. 4:87-1(d) states
The complaint in an action for the settlement of an account
(d) Shall ask for the allowance of the account, and also for the allowance of commissions and a fee for his attorney, if accountant intends to apply therefor.
Counsel for BTC moved to amend the complaint under R. 4:9-2 to set forth a request for allowance for partial corpus commissions of $496,547 for the period January 1, 1934 to October 31, 1974 to avoid the possibility that having asked for and received approval of partial corpus commissions in the amount of $65,228 BTC would be barred until final accounting from claiming any partial corpus commissions for the period prior to October 31, 1974. Since BTC and the guardian ad litem urge that corpus commissions are only payable out of income, BTC on a final accounting for this trust might find that there was not sufficient undisbursed income to make any further allowance for this period.
The court granted the motion. Exceptants were fully aware at all times that the issue was corpus commissions from at least 1934 to October 31, 1974. They filed exceptions on that basis, conducted discovery on that basis, filed briefs on that basis, and participated in the hearing on that basis. There was no pretrial order. See Cartan v. Cruz Construction Co. , 89 N.J. Super. 414 at 422 (App. Div. 1965); Van Corp. v. Ridgefield Mayor and Council , 41 N.J. Super. 74, 81 (App. Div. 1956) certif. den. 22 N.J. 227 (1956). In fairness, counsel for exceptants thought the true request should be stated.
There are two periods before the court, one for corpus commissions and one for income commissions.
Counsel for the exceptants points out that after the decision in In re Moore , 50 N.J. 131 (1967), § 1533 of 7 N.J. Practice (Clapp, Wills and Administration) was rewritten to reflect the Supreme Court's holding and direction to the bench and bar that in allowing interim corpus commissions,
Exceptants urge that under the direction of In re Moore , BTC may only be given corpus commissions for the period of the income accounting, i.e. , September 1, 1960 to October 31, 1974. They further contend such a result is consistent with the single controversy doctrine, Falcone v. Middlesex County Med. Soc. , 47 N.J. 92 (1966) (where doctor sued for and obtained judgment directing his admission to society he could not later sue for money damages for denial of membership, under single controversy doctrine requiring all related issues to be presented), and the policy of finality of accounts, once approved, reflected in N.J.S.A. 3A:9-8, with the result that under the direction of Moore all periods prior to "the particular limited accounting period" should be treated as res judicata in respect to corpus commissions until the final accounting.
This court understands the Moore decision to be a direction to the trial courts not to apply in simplistic fashion a statutory rate to a base of corpus and apportion on the basis of elapsed time of administration, either for the first 25 years or any period thereafter. The court further understands that the evidence before a trial court on an interim allowance will normally relate to the period of time for which the accounting is filed; hence, there are usually no other factors upon which a trial court can base its judgment. Under such conditions, the trial court must consider what has been previously allowed so as not to award all that is allowable under the statutory maximum and thereby leave nothing for the work yet to be done. This is consistent with the remarks of the Supreme Court in In re Moore , referring to the first period of 25 years and the period for the years thereafter set forth in N.J.S.A. 3A:10-2 where it said:
We do not understand it to set up two distinct periods for commission purposes, one covering the initial 25 years and the other the balance, with commissions for the first period "semi-finally" fixed, so to speak, at the end thereof and those for the second period separately determined at the final termination of the estate * * * [50 N.J. at 144]
This court does not construe In re Moore either to change the basic rule that corpus commissions are to be ultimately fixed at the final accounting or to require that a trustee must apply in each interim accounting for corpus commissions, particularly where they are chargeable to corpus, or be forever barred. The failure to take corpus commissions on an interim basis may redound to the benefit of both the income beneficiary and the remainderpersons. The Legislature has expressly stated in N.J.S.A. 3A:10-2(c):
But factually that is not the situation before this court. In respect to corpus commissions this proceeding is the first one in which the trustee has sought corpus commissions. No individual trustee has applied for corpus commissions.
Since the trustee has not previously sought corpus commissions and had the option to wait until final accounting to do so, the trustee is not subject to the rationale of the single controversy rule. The logical application of that rule to any trustee who filed an interim account would be to compel the trustee to seek corpus commissions, thereby destroying the option of waiting until final accounting. Such a rule would hurt both income and remainder beneficiaries by depleting corpus.
The principles underlying waiver, as set forth in West Jersey Title, etc., Co. v. Industrial Trust Co. , 27 N.J. 144 (1958), where the Supreme Court said:
"Waiver" is the intentional relinquishment of a known right. It is a voluntary act, "and implies an election by the party to dispense with something of value, or to forego some advantage which he might have demanded and insisted on." George F. Malcolm Inc. v. Burlington City Loan and Trust Co. , 115 N.J. Eq. 227 (Ch. 1934) * * * "A waiver, to be operative, must be supported by an agreement founded on a valuable consideration, or the act relied on as a waiver must be such as to estop a party from insisting on performance of the contract or forfeiture of the condition." Aron v. Rialto Realty Co. , 100 N.J. Eq. 513 (Ch. 1927) aff'd 102 N.J. Eq. 331 (E. & A. 1928) * * *. [at 152-153]
are not found in the evidence. BTC expressly reserved its rights to apply for corpus commissions in the 1957 judgment and the 1962 approval agreement. These acts are not consistent with intentional relinquishment. In respect to the A-23 trust, since BTC had the option to wait until a final
accounting and did not set up a request for corpus commissions, the court concludes it did not waive its right. Further, exceptants have not offered any evidence to show how they have changed position in reliance on BTC's conduct to warrant BTC being estopped.
Exceptants have also alleged that BTC is barred by laches from asserting any claim to corpus commissions because of the passage of time and the death of persons who were family members and officers of BTC. The payment of commissions, whether income or corpus, is a charge to the accounting for the trust for which the trustee must ultimately seek approval and discharge, 76 Am. Jur. 2d, Trusts , § 537; hence the trustee has the burden of proof as to the reasonableness of the charge. See McCulloch v. Tomkins , 62 N.J. Eq. 262, 269-270 (Ch. 1901). The records of their actions as directors of BTC remain. The records of each of the trusts remain. The results of the operations of BSC remain. All were introduced in evidence. The court concludes that the doctrine of laches is not applicable on the record before the court.
Exceptants also urge that BTC's claim for corpus commissions is barred by the six-year statute of limitations applicable to contracts or injury to property by analogy, citing Donaldson v. Madison , 88 N.J. Super. 574 (Ch. Div. 1965):
Insofar as this case raises the question of compensation for services prior to January 1, 1958, the trustees are instructed that no commissions may be paid. There is no request for such commissions and none has been taken. There has been and will be no formal accounting for this period. Since there was no suggestion concerning commissions during the period when Mrs. Dodge, the donor, was participating in the administration of the trust (and when she might have made a modification of the trust agreement if so inclined) and since several of the original trustees have died or resigned and been replaced during the period, it is considered under all the circumstances here present that no commissions should be paid for the period and that, by rough analogy to the six year statute of limitations, the trustees should be considered to have waived any claim to commissions on either income or corpus for this period. [at 590-591]
This court construes that language to mean that the court felt that the five-year period preceding the date of Mrs. Dodge's incompetency was an adequate period to inquire into the affairs of the perpetual trust for the support of the municipal building. As equity frequently looks to law, the judge looked to the six-year statute of limitations to see what would be an appropriate period of repose.
This court notes that (at 591) the court deciding Donaldson, supra , did not decide the question of whether there was any right to corpus commissions for perpetual charitable trusts but suggested that the Legislature consider the matter.
If an inter vivos trust indenture, such as exists in these trusts, is construed as a contract and thereby requires a trustee of such a trust to file an accounting every six years or be barred under N.J.S.A. 2A:14-1 from claiming corpus commissions for the elapsed period, such a construction would subject such trustees to a duty that even the court deciding Donaldson said they did not have, 88 N.J. Super. at 595, and would expose the beneficiaries to added expense for such accountings. Such a result would also be inconsistent with the express language of N.J.S.A. 3A:10-2(c) quoted supra. Such a result would also be contrary to the general concept that corpus commissions are fixed at the final accounting. The court concludes that BTC's claim for corpus commissions are not barred by the six-year statute of limitations.
In light of the extensive testimony and the numerous exhibits that have been introduced in evidence the court does not have to decide the matter solely on the basis of the affidavit filed with the account, which the exceptants claim was totally inadequate because of the affiants lack of personal knowledge as to all matters over the 1934-1974 period.
The New Jersey courts have allowed interim corpus commissions after a substantial lapse of time. Commercial Trust Co. v. Barnard , 27 N.J. 332 (1958) (35 years); In re Cox , 21 N.J. Super. 287 (Ch. Div. 1952) (30 years). They
have also allowed corpus commissions on a second interim accounting where none were claimed on the first. Gates v. Plainfield Trust Co. , 123 N.J. Eq. 519, 520 (Ch. 1938).
In the case of corporate trustees, particularly with the development of trust committees, investment committees, officers committees and account administrators, all of which involve individuals who service a trust, no single individual may have personal knowledge of every aspect of the administration. In respect to such corporate trustees there frequently is a change in personnel due to promotion, retirement, death and individuals leaving for better opportunities.
When an individual trustee dies his executor or administrator must file an accounting for the trust. The affidavit of services required under R. 4:88-1 frequently is based on records and not personal knowledge in such circumstances.
The court concludes that under R. 4:88-1 the affidavit does not have to be based on personal knowledge, but may also be based on records. Under the mandate of the Moore decision supra , that
the trial court should consider the full record before it and not just the affidavit of services. The court concludes that on the record before it there is a basis for making a determination. The court notes that where the matter is uncontested and the only evidence of "pain, trouble and risk" is an affidavit which does not set forth what was done, a fiduciary invites an allowance in direct proportion to the effort undertaken in drawing the affidavit.
An account properly prepared in accordance with the rules sets forth what changes in corpus assets have occurred, when, and whether there was gain or loss. The affidavit of services is intended to supplement the account and
show what pain and trouble was incurred in making those decisions, particularly where there are unusually large amounts of gains or losses and what the tax impacts may have been. To illustrate, one block of securities which had an inventory value of $40 was sold in one year to realize over $200,000 in gain. Except for inquiry by the court, the existence of a different basis for tax purposes and the reasons for the sale of a large block of stock at one time would still be unknown. Mathematically, in the absence of the sale the trust would show a net loss of corpus for the period. This court suggests such information should be in the affidavit of services.
In support of the contention that BTC is estopped from asserting a claim for corpus commissions the exceptants have marshalled several arguments.
First, the BTC records from 1910 to 1930 show that there was an intent to limit commissions to 1% of income. Examination of the records for that period show that most of the acceptances of trust contained such a limitation with the added proviso "until further notice." Although this rate was applied to the trusts in question during the period 1934-1955, the board of directors of BTC increased the rate on income as follows:
October 1, 1955 to June 31, 1963 1 1/2%
August 1, 1963 to December 31, 1970 2%
January 1, 1971 to December 31, 1971 4%
January 1, 1972 to December 31, 1972 5%
January 1, 1973 to present 6%
At the time of the initial increase several of the settlors of the trusts before this court, John S. Phipps, Amy Guest and Howard Phipps, were alive and on the board of directors of BTC and voted for the increase in 1955. Exceptants point out that Amy Guest, settlor of D-6, voted against the increase. They have offered no evidence that either she or Diana Guest Manning, income beneficiary of D-6 and settlor and income beneficiary of D-7, ever contended that
such an increase, or subsequent increases, violated the terms of the indentures.
Second, the settlors did not want BTC to receive any unnecessary income because it would have been subject to federal income taxes in BTC before it could be passed on as dividends to the family members or now their trusts. This ignores the fact that the family members did vote to increase commissions when necessary to meet rising costs and BTC did pay tax.
Third, certain of the trust indentures contain no express language authorizing the payment of commissions. Where a trust indenture contains no provision, the statutory law applies. In re Moore, supra at 138. The court concludes that a basis for estoppel has not been established.
2. BSC PAID THOSE WHO MANAGED ITS ASSETS -- REAL CORPUS OF D-6 TYPE TRUST AND THEREBY THE DIVIDENDS ON THE BSC COMMON STOCK WERE REDUCED WITH THE RESULT THAT THE INCOME BENEFICIARIES OF THE D-6 TYPE TRUSTS HAVE ALREADY PAID FOR THAT WORK; HENCE BTC SHOULD NOT BE PAID CORPUS COMMISSIONS.
The exception considered here was made as to all five trusts. In respect to the four trusts which have diversified portfolios other than BSC common stock (or in trusts that have diversified portfolios and some BSC common stock in the related proceedings), the exception in real terms is that for a period of time BTC received investment and tax advisory service without charge.
There is no charge that appropriate officers and directors of BTC did not make the investment decisions and did not file all proper tax returns for all its trusts at all times.
The conclusion that BTC did this is supported by the evidence and the court so finds.
Until some undetermined time in the 1960s the BSC staff was capable of handling the investment work and some of the tax work for the trusts administered by BTC under the principle of economy of size referred to earlier without significant burden to BSC. The court will not detail the dates when BTC established trust committees, investment committees, officers committee, account administrators and hired its own investment officer.
The acceptance of non-Phipps family trusts, the installation of a cost system of accounting, and the development of computer programs to analyze the problems led to the identification of the problems. BTC now pays for those services and has done so since 1971. The fact that BTC did not perform certain functions is a factor to be considered in setting a rate for "pain, trouble and risk."
The record is clear that in respect to the trusts other than the Manning D-6 type trust, BTC had to keep physical control of the securities, maintain the records, receive and transfer securities when bought, sold, redeemed or exchanged, prepare the tax returns, review the portfolio and make the investment decisions. BTC's performance of these functions is also a factor to be considered in setting the allowable rate. But such performance does not warrant a denial of corpus commissions.
In respect to the trusts, such as Manning D-6, which basically have nothing but one or more stock certificates for BSC common stock, the work of the trustee was different.
Exceptants contend that all BTC did was to keep the stock certificates in a vault and record the receipt of the dividend checks four times a year and make disbursement thereof in monthly payments, and that since the sale of BSC common stock was restricted there were no investment decisions to make. Further, the members of the board of directors of BTC and the members of the board of directors of BSC substantially overlapped, so that BTC's contention
that its board of directors monitored BSC is fantasy. Finally, the beneficiaries of the D-6 type trusts have already paid for the management of the real corpus -- the assets of BSC. Exceptants conclude that BTC incurred no risk because its capitalization in relation to the size of BSC or even to the size of the D-6 trust value is so small.
BTC concedes that the work in caring for the physical assets in the D-6 type trust was minimal. However, it urges that where a trustee is given all, or substantially all, the stock of a corporation in trust, then it has two functions. One is to see that the corporation is properly managed from a business point of view. The other is to see that it generates income and remains a suitable holding for the trust. The authorities it relies upon to show that compensation should be granted to a trustee in both capacities are considered hereafter. It also urges that a trustee in such a position also incurs risk above that of a trustee of a normal trust because it has a double exposure for liability -- one to the creditors and stockholders of the corporation and the other to the beneficiaries of a trust. See Cahn, "Estate Corporations," 86 U. Pa. L. Rev. 136, 139 (1937).
BTC urges that as a trustee of each of the Manning D-6 type trusts it should be compensated as a trustee under the normal guidelines as to rate, base and "pain, trouble and risk" for a trustee who handled a separate trust with diversified assets aggregating the same value at the time of accounting. BTC contends that use of guidelines for compensation by analogy to fees for investment companies, investment advisors, or costs for administrative services of such ...