In the Matter of the Accounting of SECURITY TRUST COMPANY OF ROCHESTER, as Trustee of a Trust Executed by O. FRANK WOODWARD, Deceased, Respondent. JACOB ARK, as Guardian ad Litem of ORATOR E. WOODWARD, Appellant.
APPEAL from an order of the Supreme Court entered March 20, 1954, in Monroe County upon a decision of a Referee (PHILIP M. LIEBSCHUTZ, Ref.), which, in a proceeding under article 79 of the Civil Practice Act for the judicial settlement of the account of the trustee of an inter vivos trust, adjudged that the settlor of said trust had validly reserved a power to exclude a beneficiary and had validly exercised such power.
Selig J. Levitan, Robert Zuckerman, Thomas Field and Jacob Ark, in person, for Jacob Ark, appellant.
George J. Skivington for respondent.
This appeal brings before us for review an order made in a proceeding under article 79 of the Civil Practice Act for the judicial settlement of the account of Security Trust Company of Rochester, New York, as trustee under an inter vivos trust executed by the settlor, O. Frank Woodward, now deceased, on February 9, 1928.
The particular problem in this proceeding relates to the extent to which the settlor reserved to himself the right and power to change or modify the proportion or amount of the beneficial interests of remaindermen. The petitioner, as trustee, seeks an order directing equal distribution of the net balance of the trust fund to settlor's children, Ruth E. Woodward Finch and O. Frank Woodward, Jr., neither of whom has answered. The settlor's third child, O. Ernest Woodward, by his guardian ad litem, has filed an answer, praying that one third of the trust corpus be set aside for his benefit. The Referee to whom the matter was referred has determined that the settlor reserved the power to exclude any beneficiary from the trust fund, and that such power was validly exercised to extinguish the interest of the infant son, Ernest, who appeals from the order to that effect.
O. Frank Woodward was twice married. The two children, the daughter Ruth and the son Frank, Jr., were born of the first marriage, which was terminated in 1929 by a Mexican decree of divorce. The son Ernest, born in 1933, is the sole issue of the second marriage, which ended in a Nevada decree in 1942. Woodward was forty-four years of age at the time he executed the inter vivos trust involved in this proceeding. The infant son of the second marriage, Ernest, was not born until some five years later. The three above-mentioned children survived their father and are still living.
By the trust instrument of 1928, Mr. Woodward assigned to his trustee securities aggregating approximately $5,000,000. He reserved to himself the income during his lifetime and directed that upon his death the corpus should be divided 'into as many separate and distinct trust funds as there shall be lawful issue of mine surviving me and lawful issue who may theretofore have died leaving issue then surviving; it being my intention that one of such trust funds shall be held and administered for each of my surviving children and that the then living children of any deceased lawful issue shall take and have the benefit in equal shares of the fund to which their parent would have been entitled if then living, the share of each such grandchild to be held and administered as a separate trust fund for his or her benefit.' (Par. III of Trust Agreement.)
In paragraph VI of the trust instrument settlor reserved a broad power of amendment, as follows: 'VI. I hereby reserve the right and power to change and modify by written instrument duly executed and acknowledged and filed with my Trustee to be attached to this instrument and made a part thereof, any or all of the provisions of paragraph fourth or fifth hereof limiting or prescribing investments, also the amount or proportion of said trust estate which shall form the trust fund for any child or grandchild of mine after my death, also the time, manner or amount of payment of any part of the principal of any such trust fund, also to direct that the payment of any part of the income of any such trust fund may be made to or for the benefit of any such child or grandchild before he or she shall reach the age of twenty-one years.' (Emphasis supplied.)
The settlor amended the trust agreement, pursuant to the above-quoted reservation of power, or purported to do so, on six occasions, the following of which are pertinent to the problem before us:
The amendment of April 22, 1938, effected such changes as were necessary to eliminate Ernest and other after-born children from substantial enjoyment of the trust and to limit the substantial enjoyment thereof to Ruth and Frank, Jr., and their issue. It was provided that Ernest and every child, other than Ruth and Frank, Jr., should receive a one ten-thousandth share, to be paid to the recipient one year after the settlor's death. In the third amendment (August 1, 1942) he left the one ten-thousandth share for Ernest unchanged, and made changes only in the method and manner in which the equal remaining shares should be paid. The fourth amendment (August 27, 1947) continued the one ten-thousandth share and again made changes in the manner and method of payment for the other two children. In the fifth amendment (May 18, 1950) he entirely excluded the infant son, Ernest, directing that he receive 'no amount or proportion of the trust estate' because 'I have amply provided for him in my Will hereinafter referred to and otherwise.' Other changes in the manner and method of distribution of the remaining two shares were again made. The final amendment (August 9, 1950) continued ...