Fowler v. . Webster

Clark, C. J. This is a proceeding to garnishee the trustee in a “spendthrift trust” in order to subject the income maturing from the fund in its hands to the payment of a debt of the cestui que trust, who is a nonresident. Revisal, 1588, provides: “Spendthrift Trusts authorized. — It shall be lawful for any person by deed or will to convey any property, which does not yield at the time of the conveyance a clear annual income exceeding $500, to any person in trust to receive and pay the profits annually or oftener for the support and maintenance of any child, grandchild, or other relation of the grantor, for the life of such child, grandchild, or other person, with remainder as the grantor shall provide; and the property so conveyed shall not be liable for or subject to be seized or taken in any manner for the debts of such child, grandchild, or other relations, whether the same be contracted or incurred before or after the grant.” This trust is created by a devise, and the parts pertinent to this controversy are a direction that the fund specified is given “in trust to receive and pay the profits, annually or oftener, for the support and maintenance of my son, McRae Webster (W. M. Webster), during his lifetime,” with provision for the disposal of the fund at his death, and adding: “This trust is created in accordance with the *443 provisions of section 1588 of tbe Revisal of 1905, and tbe said company is hereby authorized and empowered to sell and convey, invest and reinvest tbe said trust property as often as in tbe judgment of tbe proper officer of tbe said corporation it may seem best.” This trust is created in exact compliance with tbe object and tbe language of tbe statute. Tbe learned counsel for tbe plaintiff insists, however, that it is invalid because it confers tbe “personal property exemption” on a nonresident. We need not consider whether tbe Legislature is forbidden to create a personal property exemption in favor of a nonresident, for that is not tbe effect of this statute. Tbe learned counsel for tbe plaintiff admits that tbe corpus of tbe fund is not tbe property of tbe cestui que trust, and, therefore, that cannot be touched; but be insists that tbe income therefrom is to be paid over to tbe defendant, and, becoming bis property, it can be subjected to bis debt. But this ignores tbe language of tbe statute and tbe terms of tbe trust created by this will. This is not a' passive trust as to tbe income, which would, therefore, be executed under tbe statute of uses, any more than it is as to tbe corpus of tbe fund. A trust in which tbe trustee pays over tbe income to tbe beneficiary could be created without tbe necessity of this statute, and in such trust tbe income is tbe property of tbe cestui que trmt and can, of course, be subjected to tbe payment of bis debts. It was precisely for this reason that equity created spendthrift trusts, which in this State, and some others, are now statutory.. This object is expressed in Beach on Trusts, sec. 554, which says that these trusts are created for the benefit of such persons as “are deemed incapable of bolding or disposing of this income.” Spendthrift trusts are not created merely for tbe purpose of preserving tbe corpus of tbe fund intact for tbe remainderman or on other trusts, leaving tbe beneficiary to use tbe income as be may see fit, but they require tbe trustees to hold and disburse tbe income itself. The cestiá que trust has no right to touch one cent thereof. It is this that differentiates a spendthrift trust from an ordinary trust, in which last tbe trustee bands over tbe income to be disposed of by tbe beneficiary. A spendthrift trust is not a passive trust, even as to tbe income, for in that case tbe income would become tbe property of tbe beneficiary as fast as it accrues and could be subjected to bis debts, unless exempted by statute as a part of bis personal property exemption; but tbe income itself is to be used and disposed of by tbe trustee according to its judgment for tbe best results in tbe support and mainte *444 nance of tbe beneficiary. Tbe language of tbis trust is not “to receive and pay tbe profits annually to W. M. Webster,” wbicb would make it a passive trust as to tbe income, but tbe language is “to receive and pay tbe profits annually or oftener for tbe support and maintenance of my son, W. M. Webster, during bis lifetime.” Tbis is, therefore, an active trust in regard to tbe income as well as to tbe corpus of tbe fund, and tbe trustee is not to pay tbe income to tbe son, but is to disburse it “in tbe support and maintenance” of tbe son. Sueb trusts as these have been often before tbe courts and have been upheld. Among other cases, Spindle v. Shrever, 111 U. S., 546; Graff v. Bonnett (N. Y), 88 Am. Dec., 236; Trust Co. v. Chambers, 86 Am. Dec., 513; Garland v. Garland, 24 Am. St., 682; Talley v. Ferguson, 17 L. R. A. (N. S.), 1215; Kutz v. Nolan, 24 L. R. A. (N. S.), 1124; In re Morgan, 25 L. R. A. (N. S.), 236; School v. Warden, 40 L. R. A. (N. S.), 1215; 26 A. & E. (2 Ed.), 439; 39 Cyc., 33, 40, citing numerous cases in tbe notes thereto. In Trust Co. v. Chambers, supra, it was held that an attachment would not lie to subject tbe fund in tbe bands of tbe trustee. In our own State tbe Court has protected tbe corpus of tbe fund in Lummus v. Davidson, 160 N. C., 484, wbicb tbe plaintiff does not contest. Mebane v. Mebane, 39 N. C., 101, strenuously relied on by tbe plaintiff as authority to subject tbe income in tbis case, has no application, for Chief Justice Ruffin was there speaking of an ordinary trust in wbicb tbe income was to be paid over to tbe ceslui que trust, and, with bis usual clearness and bis scorn of any subterfuge by wbicb a party sought to exempt from liability for bis debts a fund which be could use at bis own will and for bis own purposes, be said: “It would be a shame upon any system of law if, through tbe medium of a trust or any kind of contrivance, property from wbicb a. person is absolutely entitled to a comfortable, perhaps an affluent, support, arid over which be can exercise tbe highest right of property, namely, alienation, and wbicb upon bis death would undoubtedly be assets, should be .shielded from tbe creditors of' that person during bis life. There is no sueb reproach.” To tbe same purport, Vaughan v. Wise, 152 N. C., 32, and cases therein, cited, in all of wbicb tbe income was.to be paid to tbe cestui que trust, and, of course, could be subjected for bis debts. In a spendthrift trust tbe beneficiary cannot “exercise tbe highest right of property, namely, alienation”' as to tbe income, nor will it “upon bis death undoubtedly be assets.” In spendthrift trusts authorized by tbe statute tbe beneficiary acquires no interest or property in tbe income any more than be does in tbe principal of tbe fund. He cannot alienate tbe income, be cannot direct its application in *445 the purchase of any article whatever, or its disposal for any purpose. The trustee holds the income just as he holds the principal, to be applied for the designated purposes. It is the duty of the trustee to make the disbursement, whether for board or clothing or in any other method in his judgment required for the support of the beneficiary. But he is not authorized to pay over any part of the income to the beneficiary that he may spend it or'use it or disburse it. The cardinal idea is that the cestui que trust is “incompetent and cannot be trusted with the handling of the income,” (Beach on Trusts, swpra), which duty is to be discharged by the trustee. Such being the case, the courts cannot, without violating the right of property possessed by the trustor, and the proper discharge of the trust by the trustee, condemn any part of the income for the foreign purpose of paying the debts of the cestui que trust, since the whole idea and purpose of this trust is that the beneficiary is unfit to handle the income of the fund. The statute (Rev., 1588) serves a wise and humane public policy, and it is protected against abuse by limiting the income in amount to $500. The judgment of the court below in refusing the application to subject the income of this fund to the payment of debts incurred by the cestui que trust is Affirmed.