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ARROTT ESTATE. (11/14/55)

November 14, 1955

ARROTT ESTATE.


Appeals, No. 5, March T., 1956 and No. 195, March T., 1955, from decree of Orphans' Court of Allegheny County, 1942, No. 7111, in re Estate of Charles F. Arrott, Dec'd. Decree affirmed.

COUNSEL

Charles C. Arensberg, for appellants.

William H. Eckert, with him Smith, Buchanan, Ingersoll, Rodewald & Eckert, for appellee.

Grubb, guest & Littleton, filed a brief for persons interested, under Rule 46.

Before Stern, C.j., Stearne, Musmanno and Arnold, JJ.

Author: Stearne

[ 383 Pa. Page 229]

OPINION BY MR. JUSTICE ALLEN M. STEARNE

The single question presented is: where a testamentary trustee in the course of administration purchases stock with funds from the corpus of the estate, the income from which is payable to a life tenant with remainder over, and the corporations declare stock dividends on the stock, is the intact value, required to be preserved for the remaindermen, its purchase price or its book value at the date of purchase? A majority of the court below ruled that it was the purchase price, one judge dissenting.

[ 383 Pa. Page 230]

The facts in detail are recited in the adjudication of the learned auditing judge. The trustees purchased stock in several corporations. In each instance the purchase price exceeded the book value. Subsequently, the trustees received stock dividends from the respective corporations. The auditing judge ruled that the intact value of the corpus to be retained was the book value of the stock at the date of purchase and, consequently, decreed distribution to the life tenants. The trustees and the guardian and trustee ad litem filed exceptions, maintaining that it was the purchase price which constituted intact value. The exceptions were sustained by a majority of the court in banc, with a dissent as indicated.

The basic reason for the rule of equitable apportionment is that a life tenant is entitled to accumulated corporate profits and earnings on stock when it is sold, distributed, stock dividends declared, or the stock with accumulations is otherwise dealt with. The justness of the rule cannot be questioned. The difficulty is in its application.

In King Estate, 349 Pa. 27, 36 A.2d 504, it was stated by a unanimous court: "There is probably no more difficult and intricate branch of the law than the application of what is termed the Pennsylvania, or American, Rule of Apportionment. The principle of equitable apportionment was early established (see Earp's Appeal, 28 Pa. 368), and its development and refinements are ably discussed by former Chief Justice KEPHART in Nirdlinger's Estate, 290 Pa. 457, 139 A. 200, and in Waterhouse's Estate, 308 Pa. 422, 162 A. 295. There is a host of other cases, which need not be cited, dealing with various applications of the ...


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