Appeal, No. 205, Jan. T., 1956, from judgment of Orphans' Court of Philadelphia County, 1952, No. 3514, in re trust estate of Parker M. Smith, Settlor. Judgment affirmed.
Thomas Raeburn White, with him White, Williams & Scott, for appellant.
Harry Polish, for appellee.
Before Stern, C.j., Jones, Bell, Chidsey, Musmanno and Arnold, JJ.
OPINION BY MR. JUSTICE CHIDSEY
The basic question presented by this appeal is whether an annual gift to his widow by the settlor in a trust instrument was cumulative.
The important facts are not in dispute and may be summarized from the opinion of the court below as follows: The settlor, Parker M. Smith, by an inter vivos revocable deed of trust, transferred to his trustees preferred and common stock of Smith, Drum & Co., a Pennsylvania corporation engaged in the business of manufacturing textile dyeing and finishing machinery. In its final form this trust provided that the income should be paid to settlor during his lifetime and after his death his widow, Estelle M. Smith, should receive the sum of $10,000 per annum out of income, and the
excess income, if any, and the principal of the trust upon its termination, should be paid to Robert Nelson Smith, a nephew of the settlor and the appellant herein. The dispositive provision of the deed of trust, section 2, provides: "Upon the death of the Settlor, if and only if the Settlor's wife, Estelle M. Smith, shall not elect to take against the Settlor's will, the said Trustees shall pay, only out of the said net income, the sum of Ten thousand Dollars ($10,000.) per annum to said Estelle M. Smith, wife of the Settlor, during her widowhood, and pay the balance of said net income, if any, and upon the death or remarriage of Settlor's said wife, the whole thereof to Robert Nelson Smith, nephew of the Settlor.". The stock held in this trust represents approximately a 25% interest in the company, which is a close corporation whose officers and directors are members of the Smith and Drum families, including the appellant who is vice president. The deed of trust contains rigid restrictions upon the power of the trustees to sell the stock. There is no express provision for the payment of deficiencies in income out of principal.
The settlor died in 1951. Subsequently the question arose among the parties in interest as to whether the income in the hands of the trustees in excess of the $10,000 per annum payable to the widow should be immediately distributed to the remainderman, or whether a reasonable amount thereof should be retained by the trustees as a contingent fund to insure that the widow would regularly receive the annual amount provided for her. The parties could not resolve their conflicting views which resulted in the widow filing a petition in the Orphans' Court of Philadelphia County to decide this question. She requested that $30,000 be set aside out of all the excess income as a contingent fund to provide for possible deficiencies in any one or more years. After a hearing on the merits, the auditing judge
granted the widow's petition in part, and directed the trustees to set up a total reserve of $15,000 by accumulations of one-half of the annual income in excess of $10,000 thereafter distributable, so as to provide for possible deficiencies in future years. The exceptions of the appellant, Robert Nelson Smith, were dismissed by the ...