Holmes v. Hrobon (93 Ohio App. 1, 1951)

Wiseman, J.

This is an appeal on questions of law and fact from a judgment of the Probate Court of Franklin County. The matter is presented to this court on the motions of the trustee and legatees to confirm the report of the referee appointed by this court, and on the motion of the life tenant to vacate and set aside the report of the referee and grant a new trial. The principal ground of the motion of the life tenant is that the report is not sustained by sufficient evidence and is contrary to law.

Part I

This action for a declaratory judgment was instituted October 3, 1946, by Harry B. Holmes, trustee of the trust created in the will of Clay M. Thomas, deceased. The widow and life tenant, Mae Thomas, who has since remarried and is now Mae Thomas Hrobon, and the legatees, Clara J. Thomas Mann, Millie K. Thomas Watson, and Ray G. Thomas, the sisters and brother of the testator, ánd a legatee, Margaret Cassidy, are all named parties defendant. All parties are represented by counsel.

The trustee propounded 14 questions which require a construction of the will and a determination of certain issues which arose in the conduct of the trust, an accounting between the trustee and the life tenant, and a determination as to what constitutes corpus and what constitutes income.

The legatees filed an answer in which they joined in the prayer for relief sought in the amended petition filed by the trustee. The life tenant, Mae Thomas Hrobon, in her answer denies various allegations in the trustee’s amended petition, makes certain allegations, by way of affirmative relief asks the court .to instruct the trustee in respect to eight questions therein set forth and joins in the prayer of the trustee for the judgment and direction of the court in regard to construction of the will and the duties of the trustee in the premises.

The Probate Court appointed a special master commissioner to take the testimony. Seven volumes of testimony and hundreds of exhibits were submitted at the hearing, which extended over a period of many weeks. The special master commissioner submitted his report, which contains a finding of facts and conclusions of law. A judge of the Common Pleas Court of Franklin County was appointed acting probate judge to determine the matter. Judgment was rendered in the Probate Court in April 1949. Notice of appeal on questions of law and fact was filed by the life tenant, Mae Thomas Hrobon. Counsel for all parties stipulated that the matter on appeal should be heard and considered by this court on the record taken in the Probate Court. This court appointed a referee to consider the matter and his report was filed on January 2, 1951. To this report were filed the motions which are presently before this court.

A competent and reliable firm of accountants was selected by the trustee to make a complete audit of his administration as executor of the estate of Clay M. Thomas and as trustee of the trust created by the testator. The report of the accountants covers the period from May 1, 1938, to August 31, 1946. The opening date of the accounting, May 1, 1938, was 16 days after the date of the death of the testator, which occurred on April 14,1938, and one month prior to the date of the appointment of Harry B. Holmes as executor, which appointment occurred on June 1, 1938. The closing date of the accounting of the executor was December 31, 1938. The closing date of the accounting of the trustee, August 31, 1946, was approximately one month prior to the date on which the trustee instituted this action in the Probate Court. No accounting has been submitted to the court by the accountants for the period subsequent to August 31, 1946, although some testimony was taken relative to certain transactions occurring at a later date. The report of the accountants consists of 196 pages in the form of a bound volume which contains 21 separate exhibits and 45 separate schedules. This report is referred to as plaintiff’s exhibit X and gives a detailed statement of the receipts and disbursements of the executor and trustee, the various appraisals of estate assets, income received and disbursed, real estate transactions conducted by the executor and trustee, the corpus of the trust, income disbursed to the life tenant, purchases and expenditures made by the trustee in the operation of a laundry, adjustments of the trustee’s accounting to conform to what the accountant considered to be good accounting practice and other related matters.

Part II

On January 23, 1937, Clay M. Thomas, a resident of Columbus, executed his last will and testament, the pertinent parts being as follows:

“Item I. I direct that all my just debts and funeral expenses be paid out of my estate as soon as practicable after the time of my decease.

“Item II. I give and bequeath to my sister, Clara J. Thomas Mann, the sum of $15,000, the same to be paid to her by my said executor and trustee at the rate of $100 per month; but in the event that my said executor or trustee should deem it necessary and convenient to pay to her more than $100 per month, he shall so do.

“Item III. I give and bequeath to my sister, Millie K. Thomas Watson, the sum of $15,000, the same to be paid to her by my said executor and trustee at the rate of $100 per month; but in the event that my said executor or trustee should deem it necessary and convenient to pay to her more than $100 per month, he shall so do.

“Item IV. I give and bequeath to my brother, Ray G. Thomas, the sum of $15,000, the same to be paid to him by my said executor and trustee at the rate of $100 per month; but in the event that my said executor or trustee should deem it necessary and convenient to pay to him more than $100 per month, he shall so do.

“It is my wish that my said trustee, Harry B. Holmes, or his successor in the trust, shall hold, manage and control the bequests hereinbefore made in items 2, 3, and é, and that my said executor and trustee shall invest the said funds in government bonds or other securities of like nature as my trustee in his discretion may deem best, with the full power to pay to my sisters and brother the sum of $100 per month, to be applied on the amount of the bequests, and to pay such a sum over and above the $100 herein stipulated as in the discretion of my trustee may be necessary to provide a comfortable living for my said legatees hereinbefore referred to.

“In the event of the death of any of the legatees hereinbefore referred to, then his or her share shall be equally divided among my surviving sisters or brothers, or any of them, share and share alike.

“And in the event of the death of all of my sisters and brothers before my death, then it is my will that their shares shall revert to my wife.

“Item V. All the balance of my property, both real and personal, of every kind and description, wheresoever situated, which I may own or have the right to dispose of at the time of my decease, I give, bequeath and devise to my wife, Mae Thomas, in trust, for the benefit and the use of my wife, for and during her life; hereby directing my said trustee, Harry B. Holmes, to pay to her for her use and benefit all the income after the payment of operating expenses and taxes and other charges from my business at the Atlas Linen Laundry & Supply, or any other income that I may have after the payment of the other monthly legacies which I herebefore have set out, with full power granted to my said trustee to lease, transfer, or exchange any securities and property belonging to said trust fund for such prices and upon such terms and conditions as he may deem best, and for the best interests of my wife; to execute and deliver any proxies, powers of attorney, or agreements that the trustee may deem necessary or advisable in administering this trust; and also with full power to compound, compromise, settle and adjust, all claims and demands, in favor of or against the trust estate, upon such terms and conditions as he may deem best. Upon the death of my said wife, the said trust as herein created shall cease, and the trustee or his successor shall convey and transfer to my legal heirs the balance of the said property, share and share alike, at the time of the death of my said wife.

“Item VI. I make, nominate, and appoint my attorney, Harry B. Holmes, of Columbus, Ohio, to be the executor and trustee of this, my last will and testament, with full power and authority to conduct and carry on the laundry business now conducted by me, and to do all things necessary or proper in the usual course of said business until such a time as the same can be sold, as a going business, for a price, which, in the opinion of my said executor, and in the opinion of my said wife, Mae Thomas, is a reasonable value thereof, and with full power and authority to sell and dispose of any or all of my estate, hereby authorizing and empowering my said executor to compound, compromise, settle and adjust all claims and demands in favor of or against my estate, and to sell, at private or public sale, at such prices, and upon such terms of credit or otherwise, as he may deem best, the whole or any part of my real or personal property, and to execute, acknowledge, and deliver deeds and other proper ■ instruments of conveyance thereof to the purchaser or purchasers. No purchaser from my said executor need see to the application of the purchase money to or for the purposes of the trust, but the receipt of my executor or trustee shall be a complete discharge and acquittance therefor.”

On April 12, 1938, the testator executed a codicil to his will, the pertinent parts being as follows:

“I, Clay M. Thomas, of the City of Columbus, County of Franklin, and State of Ohio, do make, publish and declare this codicil to my last will and testament.

“I hereby add the following, to be deemed and taken as if originally inserted in said will, I give and bequeath to Margaret Cassady, of Columbus, Ohio, the sum of ten thousand ($10,000) dollars, payable in monthly installments of one hundred ($100) dollars each, and the payment of the same is hereby made a charge upon my business, which is known as the Atlas Linen, Laundry & Supply, and located on Grant avenue, Columbus, Ohio; and that the unpaid balance of the ten thousand ($10,000) dollars is to draw interest at five per cent, the same to be included in the one hundred ($100) dollar monthly payments until the full sum of ten thousand ($10,000) dollars together with interest is fully paid to the said Margaret Cassidy. This bequest is made in consideration of services and money advanced to me for the business by the said Margaret Cassidy, and I hereby instruct my said trustee, Harry B. Holmes, to pay to the said Margaret Cassidy the sum of one hundred ($100) dollars per month until the full settlement of ten thousand ($10,000) dollars and interest is fully paid.

“I further authorize and. empower my said trustee, Harry B. Holmes, in the exercise of his discretion, to carry on any and all business conducted by me at the time of my decease, or in which I may then be interested, whether alone or in partnership with others, and to continue the same for such time as, as in the judgment of the said trustee, shall be for the best interest of my estate, and to extend or renew any such relationships, or to terminate, as the trustee shall think fit, but it is my wish that the said trustee continue my linen and laundry business as long as the same may be profitable.

“I hereby ratify and confirm my said will in all other respects.”

The will and codicil were duly probated. The widow, Mae Thomas (now Mae Thomas Hrobon), elected to take under the will. Harry B. Holmes was duly appointed executor and later trustee, and he is still acting as trustee.

Part III.

The cardinal rule to follow in will construction is to ascertain the intention of the testator. This intention is to be determined from the words used in the will and codicil construed from the four corners. Extrinsic evidence is admissible for the purpose of assisting the court in determining the intention of the testator. We recognize the established rule that the court may admit extrinsic evidence in an effort to place the court, as nearly as possible, in the position of the testator when he executed his will. Evidence of his family situation, business and financial circumstances, the nature and extent of his investments, and the natural objects of his bounty is admissible, where there is some doubt as to the meaning of the will. 41 Ohio Jurisprudence, 624, 630, Sections 491, 499, and cases there cited. With this evidence the court is better able to see things as the testator saw them and to construe the words used in the will as he understood them and to give that construction which was intended. But from the evidence adduced the court cannot allow the natural import of the words used to be varied or contradicted, or permit omissions to be supplied or apparent ambiguities to be removed by parol evidence. 41 Ohio-Jurisprudence, 609, Section 447,- and- cases there cited. Direct evidence as to the intention of the testator or as to conversations, between the testator and the scrivener is not generally admissible. Under the circumstances in this- case, conversations between the testator and Harry B. Holmes, thé scrivener, were not admissible. 41 Ohio Jurisprudence, 635, Section 505, and cases there cited.

It is well settled that words used in a will are to be given their ordinary meaning unless it appears from the context that the testator intended to use them in a different sense. While grammatical accuracy need not be observed and more consideration is paid to substance than form, the construction of words used by the testator and the arrangement of sentences and the punctuation sometimes do become important. 41 Ohio Jurisprudence, 638, Sections 508, 509, and cases there cited. Technical words used in a will should be given their technical meaning unless it appears that the testator used them in some other and different sense. 41 Ohio Jurisprudence, 642, Section 512, and cases there cited. In construing the will, the court should make every effort to give effect to every provision and to reconcile any apparent inconsistency.

There is no fixed rule applicable to the construction of wills. All rules of construction are useful or applicable only so far as they aid in arriving at the correct interpretation as to the intention of the testator. 41 Ohio Jurisprudence, 575, 576, Section 456, and cases there cited. If the language of the will is plain and reasonably clear the court cannot qualify or control the language by conjecture or doubt arising from extraneous evidence. 41 Ohio Jurisprudence, 599, Section 468, and cases there cited.

Part IV.

The referee found from the evidence that Clay M. Thomas and Mae Thomas, upon his return from service in World War I, founded a'linen supply business in a building at the rear of the Thomas home property on Hunter avenue, Columbus, Ohio. The business grew, and in the year 1922 they moved to Maple street. Within a year or two Thomas purchased 1'and on Grant avenue just south of Spring street in Columbus, on the rear of which he constructed a two-story building and a boiler room. The following year a two-story addition was put on the front of the same lot. - Between 1929 and 1931 a four-story building with a boiler room was constructed in the rear. These buildings on Grant avenue, as erected through the years 1929 and 1931, comprise the present structures of the Atlas Linen, Laundry & Supply. In the beginning the principal business of the Atlas Linen, Laundry & Supply was linen and towel supply. Thomas bought napkins, towels, aprons, sheets, tablecloths, barber towels and other similar items for the purpose of renting them to barber shops, hotels, clubs, restaurants, doctors, dentists and other business institutions. These items were processed by washing and cleaning. To always have a fresh supply in the hands of the customer on a rental basis was the particular service of the linen supply business. In 1926 the business had progressed to a point where laundry processing was started. Thomas cleaned and .washed wearing and household apparel which belonged to the customer. In the meantime, industrial supply work was added. Thomas cleaned and washed uniforms, overalls and other work clothing used in such places as garages, factories and industrial workshops, these garments, in the main, being owned by Thomas. ■ In 1934 he liegan manufacturing garments used in his industrial supply business, and for that purpose organized the Atlas Garment Company. ■ In 1936 Thomas purchased lots in the city of Columbus and.wthe village of Upper Arlington and started to bnild houses thereon. He organized Clay M. Thomas, Inc., through which agency his construction work was conducted. On the date of his death, April 14, 1938, Thomas was operating the Atlas Linen, Laundry & Supply, which at that time included the Atlas Garment Company and Clay M. Thomas, Inc.

The May 1, 1938, opening entry in the records of the executor shows that on the date of the testator’s death his total assets were valued at $269,714.76. The assets are listed as follows:

Cash ..............................$ 11,479.83

Accounts receivable ................ 7,386.81

Inventories ........................ 20,847.16

Investments (including real estate) .. 156,209.69

Property and assets of laundry .... 73,191.27

Money advances ................... 600.00

His liabilities, amounting to $226,412.57, are listed as follows:

Accounts payable ..................$ 19,071.12

Check payable ..................... 5,000.00

Deposits on linen rentals ........... 422.99

Mortgages payable ................ 114,581.00

Accrued liabilities .................. 22,337.46

Allowance for widow’s support...... 10,000.00

Legacies payable ................... 55,000.00

Exclusive- of the legacies, the liabilities amount to $171,412.57. The difference between assets and liabilities of the testator at death was $98,302.19. The net estate as listed for the determination of inheritance tax was $89,764.90. The federal estate tax appraisal increased the value of real estate $61,410.

The total net income derived from rental property is as follows :

1938 (May 1 thru December 31)........$ 701.89

1939 ................................. 1,008.83

1940 ................................ 2,710.61

1941 ................................. 1,961.79

1942 ................................. 1,124.33

1943 ................................ 1,508.08

1944 ................................ 1,123.48

1945 ................................ 881.77

A short time prior to his death the testator entered the residental construction business. He purchased 50 lots in Upper Arlington for the purpose of constructing residences thereon for sale. On the date of his death he still owned 36 lots, on eight of which residences had been completed and were ready for sale. On a number of other lots houses had been started and were under construction. It was the value of this real estate which was increased by the federal estate tax appraisal.

This court finds from the record that no children were born to Clay M. Thomas and Mae Thomas. His next of kin at the time of his death, and at the present time, consists of two sisters and a brother who, if living at the death of the life tenant, will receive the balance of the trust estate as his “legal heirs.” The two sisters and brother are contingent remaindermen. The class of legal heirs cannot be ascertained until the death of the life tenant.

For the purpose of brevity and clarity the plaintiffappellee is herein referred to as trustee; the defendant-appellant, Mae Thomas Hrobon, the widow, is referred to as the life tenant; the sisters and brother are referred to as legatees; and the unknown legal heirs, as remaindermen.

We do not deem it necessary or practical to discuss or even state all the conflicting claims of the parties or to discuss or even cite all the numerous authorities cited in the briefs of counsel. To do so would unduly and unnecessarily extend this opinion.

Part Y.

Rather than construe the will generally and then answer the questions propounded specifically, which would involve repetition, we now take up the questions propounded by the parties, and in the interest of clarity we follow the same order as did the referee.

Trustee’s Question No. 1: “What is the meaning of the term ‘income’ as used by the testator in his will as the same appears in item Y of the will and codicil thereto?”

The referee held that income payable to the life tenant should be arrived at by computing the gross income from the operation of the Atlas laundry business and other income producing properties of the decedent and deducting therefrom all operating costs recognized by the internal revenue department of the United States for income tax purposes and all taxes of every kind and nature imposed by any public authority whatever. The referee held further that in the operating costs of the Atlas laundry business there should be included maintenance, expansion necessary to keep pace with the increase or progress and continued operation of the business of the plant, the cost of the management of the trust, including the trustee’s compensation, court costs, fees of counsel necessarily incurred in the administration of the trust and the interpretation of the will, expenses occasioned by litigation and other charges incurred under the supervision and control of the court, and the monthly legacy payments to Mann, Watson, Thomas and Cassidy, until those legacies had been fully discharged. We disagree with the referee with respect to those portions of the finding which are italicized.

In item V, the will gives all the income from “ail the balance of my property” to Mae Thomas for life, and with respect to the income from the laundry business defines income as “all the income after the payment of operating expenses and taxes and other charges from my business at the Atlas Linen, Laundry & Supply.” The testator then provided that his wife shall receive “any other income that I may have after the payment of the other monthly legacies which I herebefore have set out.”

With respect to income from property of the trust other than the laundry business, such income is the “net income” after the payment of costs and expenses incident to the administration of the trust, including taxes and other proper charges which are recognized by the federal income tax authorities, and which may reasonably be allocated to this part of the income of the trust. On the net income derived from property other than the laundry business, the legacies payable to Mann, Watson and Thomas are definitely made a charge. The life tenant cannot receive any income from this portion of the trust property until these three legacies are paid in full. For this purpose it will be necessary to make a segregation of income.

The term, “income,” as it relates to the income from the laundry business, is more difficult to define, and the ascertainment of what constitutes such income is the principal question for determination by this court. The parties in this proceeding have used the terms, “gross income,” “net income,” and “distributable income.” In item V of the will the testator provided that the life tenant shall receive the income from the business “after the payment of operating-expenses and taxes and other charges from my business at the Atlas Linen, Laundry & Supply.” The meaning of the term, “income,” is arrived at by determining what deductions may properly be taken from the gross income of the laundry business. The testator stated that operating expenses may be deducted. We accept and approve the finding of the referee that operating expenses embrace those expenses rcognized by the internal revenue department of the United States for income tax purposes, including maintenance of the plant.

The testator also provided that taxes should be deducted. We approve the finding of the referee that all taxes of every kind and nature imposed by any public authority should be deducted.

The question propounded cannot be answered fully without considering the words of the testator to the effect that from the income should be deducted not only operating expenses and taxes, but also “other charges.” This matter is treated by the referee in the answer to trustee’s question number two which is as follows:

“What is the meaning of the clause ‘operating expenses and taxes and other charges from my business at the Atlas Linen, Laundry & Supply’ as the same appears in item Y of the testator’s will; and what sums, if any, expended by the trustee in that business may not be charged to ‘income’?”

Questions numbered two, three and seven propounded by the life tenant raise the same issues as are raised by the trustee in his question number two.

The referee answered the trustee’s question numbered two by concluding that these words used in item V of testator’s will mean “operating costs, recognized by the internal revenue department of the United States for income tax purposes; all taxes of every kind and nature imposed by any public authority: all costs for Atlas plant maintenance and management, and business expansion necessary to keep pace with the increase or progress and continued operation of the business, including the costs of linens in use known as ‘float,’ the cost of businesses purchased, new maehinery, repairs to machinery, equipment and laundry property, and such other costs and charges as the trustee, in his discretion, as a prudent business man, might deem necessary for the continued profitable operation of the Atlas plant; and administrative costs including expenses incident to litigation.” We disagree with the referee with respect to those portions of the finding which are italicized.

The words in the will, the meaning of which is in dispute, are, “other charges.” The life tenant contends that the rule of ejusdem generis applies, restricting the meaning of the term to items of expense similar to operating expenses and taxes. We do not believe that the testator intended to give these words such a restricted meaning.

The trustee and remaindermen contend that the words, “other charges,” should be given a broad meaning because of the broad powers conferred on the trustee. Attention is called to the provision in item VI of the will wherein the testator gave to the trustee “full power and authority to conduct and carry on the laundry business now conducted by me, and to do all things necessary or proper in the usual course of said business until such a time as the same can be sold,” and, also, the provision in the codicil wherein the testator provides, “I further authorize and empower my said trustee, Harry B. Holmes, in the exercise of his discretion, to carry on any and all businesses conducted by me at the time of my decease * * * but it is my wish that the said trustee continue my linen and laundry business as long as the same may be profitable.” The trustee and the remainder-men contend, and the referee found, that the powers thus conferred authorized the trustee to conduct the laundry business in the same manner as if it were his own enterprise. It is asserted that the trustee, by the provisions of the will and codicil, was given sufficient power and authority to authorize the use of his discretion and best judgment in determining whether any of the income from the business should be used for expansion purposes, such as purchasing competing businesses and additional land and machinery for such expanded business, in order that the laundry business “may be profitable.” In other words, under the trustee’s interpretation of the will, with which the referee agreed, it was the intention of the testator that the trustee be empowered to do anything necessary to operate the business successfully. We do not agree. The testator had in mind that the trustee might not be able to operate the laundry business profitably and, therefore, provided for its sale.

We recognize that in operating a business such as a laundry it was advisable to confer wide discretionary powers on the trustee to determine whether a certain given expense, such as money expended for the purchase of competing businesses and for additional land and machinery for the operation of the expanded business, would be for the best interests of the trust. However, unless the provisions of the will expressly provide that the trustee shall have such wide discretionary power to take income which would otherwise be distributed to the life tenant and use it for such purpose, the trustee has no authority to make such expenditures. Authority to operate does not confer power on the trustee to allocate to the income the costs of replacements and additions to the detriment of the life tenant and benefit of the remaindermen.

After giving consideration to all the provisions of the will and codicil we find that a scheme was devised by the testator for the liquidation and settlement of his estate and the continuation of his business for the purpose of providing an income for his widow during her natural life. It appears that she was the primary-object of his bounty. We find no provision in the will which permits a construction that it was the intention of the testator that the trustee, in the operation of the laundry business, could deprive the life tenant of a portion of her income in order to expand the business and thereby increase the corpus at her expense. The testator is charged with the knowledge that the trustee must protect and defend the corpus as against the life tenant and, likewise, must protect and defend the income of the life tenant and make distribution to her of all income to which she is entitled, and that no part of the income of the life tenant may be taken to increase the corpus. 2 Scott on Trusts, 1257, Section 232.

In item VI of the will the testator did not confer power on the trustee to take the income of the life tenant for the purpose of buying competing businesses and additional assets which would become a part of the corpus, by conferring on the trustee “full power and authority to conduct and carry on the laundry business now conducted by me, and to do all things necessary or proper in the usual course of said business until such a time as the same can be sold.” These words confer full power and authority on the trustee to carry on the laundry business as he received it in the trust; and, in the operation of the business as he received it, he was given full power and authority “to do all things necessary or proper in the conduct of said business” having in mind that he must serve with equal devotion the rights of the remaindermen and the life tenant. In our opinion the expression, “other charges, ’ ’ must be limited to charges or • expenses chargeable to the business when operated within the limits of the powers conferred upon the trusteed

To the claim that the testator intended the term, “other charges,” to include only the expenses of administering the trust, such as trustee’s compensation, counsel fees, cost of bond and other costs such as court costs, etc., the trustee and remaindermen assert that these expenses are determined under the law and that, therefore, the testator must have attached some other significance to these words. It is claimed that in determining net income from a business, operating costs and taxes are always deducted and by the same process of reasoning that the testator must have intended, in the use of these words, to give this expression an additional significance. We do not believe that this reasoning is sound. In our opinion the testator intended to- give the words, “operating expenses,” “taxes,” and, “other charges,” the ordinary and primary meaning of the words. It appears that the term, “other charges,” is a catchall and intended to include expenses of administering the trust and, also, expenses of a nonrecurring nature incident to the ordinary operation of the business under the trust which expenses would not properly fall in the category of operating expenses and taxes. See Morris v. Harris, 19 Ohio St., 15, 19. The accountant listed separately nonrecurring expenses.

In the use of the words, ‘ ‘ other charges, ’ ’ the testator did not intend to include the payment of the three legacies mentioned in items II, III and IV of the will. To so interpret the will would require the court to rewrite it and make the payment of these three legacies a charge on the income from the laundry, whereas, the testator definitely made these legacies a charge on income from property in the trust other than the laundry business.

We conclude that the word, income, as used by the testator in item V of the will, means net income of the business and the trust as opérated under the will. We do not use the term, net income, in a technical sense. Rather, we use this term to designate income resulting from the operation of the business and the trust, which is “ascertained by subtracting expenditures allocable to income from receipts allocable to income.” 2 Scott on Trusts, 1258, Section 233; 1 Restatement of the Law of Trusts, 681, Section 233.

We do not use the term, net income, in the same technical sense as it is used by the internal revenue department, although it is the opinion of this court that had the trustee made only such expenditures as are permitted under the will, the net income to which the life tenant was entitled in any current year would have closely approximated the net income as determined by the internal revenue department.

From the net income must be deducted the payments on the Cassidy legacy. The referee used the term, ‘ ‘ distributable income, ’ ’ to designate the amount which is finally payable to the life tenant. We find no objection to the use of this term. The particular term used is not important. The important thing is the method employed to arrive at the amount finally payable to the life tenant.

We now apply the principle herein announced to several controversial matters in which the trustee expended from the income substantial sums of money in- the conduct of the laundry business.

a. Cost of Linens — Float.

The referee found that “float” is a term used to denote linens and garments in use, that is, in the hands of customers, in trucks, and being laundered at the plant. The life of such linens and garments, according to the evidence, is considerably less than one year. The referee properly found from the evidence that float is expensed as soon as it is put into use, and that it appears as an operating expense on the statement of income. The referee also found that the testator in the operation of the laundry business and in his income tax returns followed the policy of expensing float as of the date it went into use, and that the trustee upon assuming charge of the trust followed the same policy. To be more specific, the trustee charged cost of linen, linen equipment and industrial supplies to expense at the time such items were removed from stock and put into service. The evidence shows that float is 100 per cent depreciated within a couple of months after being put into use.

The referee found that the trustee, in removing float from the inventory account and expensing it as an operating cost, adopted the method of accounting recognized and approved by the Bureau of Internal Bevenue, the accounting profession, and the method recognized and approved by the testator.

The increase in the value of material in stock, and also the material in use, known as float, was largely due to the persistent effort on the part of the trustee to expand the business and particularly to the purchase of competing businesses. By purchasing competing businesses a corresponding expansion in the Atlas business resulted, and this is reflected in receipts and disbursements as well as in inventory values of material in stock. The total inventory value of the linen and industrial division of the laundry business on May 1, 1938, was $13,996.44. This amount was greatly increased during the years 1939, 1940, 1941,1942 and 1943. There was a substantial decrease in 1944. However, in 1945 there was a substantial increase so that the inventory value at the end of that year was $42,042.71. It was in 1945 that the trustee purchased two competing businesses and paid therefor $100,000 out of income. In August 1946 the inventory value of this material was $93,783.43. Therefore, it is obvious that the purchase of competing businesses, which will be treated later under an additional heading, resulted in the expansion of the business and necessitated the purchase of additional machinery, trucks, and supplies, and resulted in a tremendous increase in the amount and value of float.

The yearly cost of the material which was put into float was tremendously increased in each succeeding year. From May 1, 1938, to December 31, 1938, expenditures for such material totalled $39,897.53. For the entire year of 1939 such expenditures were $61,-955.43. During each succeeding year an increased amount was expended so that in 1944 the sum of $190,-041.84 was thus expended. From January 1, 1946, to August 31, 1946, there was thus expended $199,-289.70, or a total for the period from May 1, 1938, to August 31, 1946, of $1,142,494.40. All of the cost of float was paid from income.

It is the contention of the trustee and the legatees that the life tenant was the direct beneficiary of this expansion of business and this manner of operation, for the reason that her income increased correspondingly each succeeding year. The life tenant contends that since the material in stock and float have been tremendously increased in value a credit should be given her at this time for the increased inventory value of the material on hand and for float over and above the inventory value for such material and float at the beginning of the trust. If this were done the effect would be to permit the life tenant to réceive the income from the use of float in the business and, also, a credit for the estimated value of float at the end of the accounting period. We cannot accept this view of the matter, since it is a fact that the linens are totally consumed and depreciated within a few months after being taken out of stock and put into use, and that it is the accepted practice to expense linens as soon as such material is taken from stock and put into use.

The life tenant has received and now claims the income derived from the use of float in the business. In order to keep the business operating on a high level of income, the trustee must annually expend large sums for material which goes into stock. The purchase of such material is properly charged to income. The increased cost of material going into stock in turn produces an increase in net income distributable to the life tenant.

We are in accord with the contention of the life tenant to the extent that the trustee should not be permitted to gradually build up the inventory of such material during the conduct of the trust and charge it to income and at the termination of the trust regard such material in inventory and float as corpus. In respect to float, we fail to find any injustice resulting to the life tenant during the continuation of the trust. It is upon the termination of the trust that an adjustment must be made, otherwise the remaindermen would be unjustly enriched at the expense of the life tenant. Then, too, in the event of the sale of the business, material in inventory and in float would he substantial items in determining the value of the business. It is at that juncture in the relationship of the parties that an adjustment will be required.

The formula used by the Ohio Department of Taxation, Intangible Tax Division, seems to be fair and just. For the purpose of determining the value of material in stock and in float, i. e., in use, the Department of Taxation takes the value of the inventory at the beginning of the year and adds to it the cost of all purchases made during the year and subtracts from this total the value of the inventory at the end of the year. Seventy per cent of this figure would be the fair value of material in stock and in use at the end of the year. This formula was adopted by the Department of Taxation after much research and after the matter had been given intensive study. Since the date on which the trust will be terminated, or the business sold, is unknown and uncertain, the court instructs the trustee to set up the books and apply the formula above stated so that at the close of each accounting period the rights of the life tenant and remaindermen will be reflected in material in inventory and in use. Upon the termination of the trust or in event of sale of the business, by applying this formula, we arrive at a figure which will represent the value of material in stock and in float at that date, over and above the value of-material in stock and in float at the beginning of the trust, from which the life tenant will no longer derive any use or benefit by way of income. This figure at the end, whatever it may be, will be credited to income and not corpus.

b. Expansion — Businesses Purchased.

The referee found from the record that from January 18,1940, to and including May 19,1945, the trustee purchased five similar competing businesses. The total costs of purchase of the several businesses were paid out of the gross income of the trust. The trustee contends that, since the will placed no limitation upon the trustee respecting the purchase of new businesses, he may do so. This court holds to the proposition that the trustee has not the power to purchase new businesses unless the will expressly conferred such power on him. Full power and authority to conduct and carry on the laundry business and “to do all things necessary or proper in the usual course of said business,” which was the power conferred on the trustee by the will, does not authorize him to purchase new businesses. To do “all things necessary” means to do all things necessary as trustee and not as sole proprietor. The direction to the trustee in the codicil to continue the business “as long as the same may be profitable” does not authorize the trustee to do anything and everything to make the business profitable, as he could do if it were operated by him as sole proprietor. The trustee does not have authority conferred on him to conduct the business as a private individual might conduct it in order to make the business profitable. A private individual may use income to expánd at will; a trustee may not, unless authority is clearly given.

But it is claimed that the life tenant consented to the purchase of other businesses by the trustee. The record does not show that the trustee discussed with the life tenant the purchase of the first three businesses. The record does show that a conference took place between the trustee and the life tenant respecting the purchase of The 5e Towel & Supply Company and the Bowden Towel & Supply Company. The trustee testified that the life tenant said, “I think that will be all right.” The life tenant testified that in response she said, “I told him I didn’t know.” She further testified that he did not advise or consult with her or give her any information relative to these two businesses. However, it does appear that an application was filed in the Probate Court by the trustee to purchase The 5c Towel & Supply Company and the Bowden Towel & Supply Company. The court in an ex parte order granted the application. The life tenant had no notice and such order would not be binding on her.

The referee accepted the testimony of the trustee on this issue and disbelieved the testimony of the life tenant. On the basis of the testimony of the trustee there is no showing that the life tenant gave her approval of the purchase of such businesses and of the charging of the cost to income. The trustee does not claim that the matter of the allocation of the cost was discussed with the life tenant. The record is silent on this matter. Then, too, the matter of purchasing competing businesses concerns not only the life tenant but the remaindermen as well.

It is claimed that the life tenant should not be heard to object inasmuch as her income has been greatly increased by such purchases. Whether the trustee has exceeded his powers is not determined by the success or failure of the venture. Fortunately in this case the trustee has shown a genius in the operation and conduct of a laundry business and has been exceedingly successful. It might have been otherwise. A trustee is not permitted to test his managerial skill and business ingenuity by embarking on a venture of expansion which requires the use of income of the life tenant in the purchase of competing businesses which may or may not prove to be profitable. The trustee cannot thus speculate with the income of the life tenant. 3 Bogert on Trusts and Trustees (pt. 2), 131, Section 601.

This situation presents two questions: First, the power and authority of the trustee under the will to make the purchases. On this issue we conclude that the trustee exceeded his powers in the purchase of these businesses. Second, the trustee having made the purchases, against whom should the cost be charged? The life tenant has received and now claims the income derived from such assets. The question now is one of the proper allocation of the cost of the businesses as between the life tenant and remainder-men.

The physical assets received through these purchases fall in the category of additional equipment and machinery purchased by the trustee. The physical assets received by the trustee, such as trucks, machinery, etc., should be charged to corpus in the same manner as any other additional equipment and machinery and depreciated over a period of years in the same manner, the life tenant to be charged annually for depreciation during the life of such assets. The difference betwéen the value of the physical assets and the purchase price is the amount paid for goodwill and becomes a part of and chargeable to corpus. This method of accounting is discussed more fully under the next subheading.

c. Replacements — Additions to Laundry Building.

It is conceded that repairs to machinery, equipment and buildings are properly charged to income.

The referee found from the record that between May 1, 1938, and August 31, 1946, new property assets, such as machinery and equipment, were purchased at a total cost of $201,883.33, of which amount $140,-091.20 was for replacements and $61,792.13 for additions. The purchase price of these various property assets was deducted from the net income as other charges in the year purchased, so that the distributable income to the life tenant was reduced over this period by reason of their cost. The referee found further that in each year the amount of depreciation on the items so purchased was credited to net income in determining the distributable income to the life tenant, and that during this period such credits amounted to $39,823.18 for replacements and $18,163.25 for additions, or a total of $57,986.43. The difference between the latter figure and $201,883.33, the total cost of such assets purchased up to the year of 1946, will be credited back to net income of tbe life tenant in succeeding years so that by 1955 the total depreciation credits will equal the amount of the cost of the assets.

The trustee and the legatees contend that, although the corpus at the beginning was valued at $79,000, the corpus is still valued at $79,000, and that the increased value of the business represents an increase in assets but does not represent an increase in the value of the corpus of the trust. We cannot accept this view of the situation. It is contended further that the difference between the original value of the corpus, $79,000, and the present value of the entire business is to a great extent represented by depreciation credits due the life tenant by reason of the purchase of replacements of machinery and the purchase of additional assets. It is contended further that in the event of the death of the life tenant at a time prior to the receipt by her of all such depreciation credits there will be due her estate the balance of such credits. In other words, the life tenant during her life will have her income reduced during any current calendar year by deducting therefrom the total purchase price of replacements and additional assets during the year of purchase. She will then be credited each succeeding year with a depreciation credit during the life of such machinery or assets. This method of operation of the trust and this system of accounting for charges and credits force the life tenant to finance the operation of the business out of her income from year to year. Because of the increase of the business and the expansion thereof by the trustee from year to year, the life tenant is required to forego each succeeding year a larger share of her income, so that at no time during the operation of the trust would she receive the total amount of income due her for any current year. As a result there would be from year to year an increasing total amount of depreciation credits due her. It is contended by the remaindermen that at her death her estate could make claim against the trust for the total amount of such depreciation credits due her.

The life tenant is not interested in accumulating depreciation credits. The life tenant is entitled to receive each calendar year the net income from the Atlas business after deducting operating expenses, taxes, and other charges, as defined by this court. If some of the assets which are considered to be corpus are replaced, the cost is charged to the corpus and a depreciation charge should be made against the income of the life tenant for each year during the life of such replacement. The same is true with respect to additions which depreciate through use and produce income.

In 1 Restatement of the Law of Trusts, 688, Section 233, Note L, the author states this principle of law as follows:

“If the improvements are not permanent in character but the probable life of the improvements is limited in duration, although the cost of the improvements is payable out of principal, the trustee is under a duty to the beneficiary entitled in remainder to amortize the cost of such improvements out of income, in accordance with such reasonable plan as he may adopt (compare Section 239). The result is that if the trust does not terminate before the end of the probable life of the improvements, the whole cost of the improvements will be paid out of income. This is fair because the beneficiary entitled to the income gets the full benefit of the improvements and the remainderman gets no benefit. On the other hand, if the trust terminates prior to the end of the probable life of the improvements, the payments from income will cease on the termination of the trust. This is fair because the beneficiary entitled to the income has not received the full benefit from the improvements but the remainderman receives a part of the benefit.”

In 2 Scott on Trusts, 1265, 1266, Section 233.3, it is stated:

“Where, however, the improvements are not of a permanent nature, especially where the probability .is that they will not last longer than the probable duration of the trust, a further adjustment has to be made in order to treat both life beneficiary and remainder-man fairly. In such a case the investment will be treated as a wasting investment, and the trustee is under a duty to the beneficiary who is entitled to the principal to make provision for amortization. He must deduct from the income each year enough to amortize the cost of the improvement. Thus if the trustee makes improvements upon the trust property which will probably last for twenty years, he should pay for the improvements out of the principal and deduct each year approximately one-twentieth of the cost. This method of adjusting the cost between life beneficiary and remainderman is obviously the fairest method. It avoids the necessity of speculating upon the probable duration of the trust and deducting immediately a gross sum from the income for the whole period. It results in an equalization of the income from year to year instead of the deduction of a large amount all in one year. If the life beneficiary lives as long as the probable duration of the improvements, he will ultimately have paid for the improvements, which is just because in that ease the remainderman ordinarily will have no advantage from the improvements. On the other hand, if the life beneficiary dies within a short time after the improvements are made, he pays for no more than the actual enjoyment he has had and the remainderman who profits in that case pays the balance of the cost.

“In the absence of special circumstances therefore all permanent improvements are paid for out of principal. Improvements which are not permanent but are reasonably expected to last only for a limited time are paid for out of principal, but are gradually amortized out of income if the trust lasts for a sufficiently long time. Ordinary repairs, on the other hand, are to be treated as annual expenses and are paid for wholly out of income. In the case of unusual repairs, however, it is proper for the trustee to spread the payment over more than one year. Thus he can make the payment out of principal and amortize as in the case of improvements.”

We find this method to be the modern trend and it appeals to this court as the fairest method. See Mulcahy v. Johnson, 80 Colo., 499, 252 P., 816; In re Estate of Adler, 164 Misc., 544, 299 N. Y. Supp., 542; In re Del Drego’s Estate, 179 Misc., 383, 36 N. Y. Supp. (2d), 811; Estate of Roberts, 27 Cal. (2d), 70, 162 P. (2d), 461; In re Sellers’ Estate (Del. Ch.), 67 A. (2d), 860; In re Estate of Davies, 197 Misc., 827, 96 N. Y. Supp. (2d), 191, 199, 200. See, also, Lamb v. Lehmann, Trustee, 110 Ohio St., 59, 65, 143 N. E., 276, 42 A. L. R., 437.

The annual charge for depreciation should be computed by dividing the cost of the article by the number of years of its life’s expectancy in use.

In our opinion, the trustee had the power and authority under the will to replace old and worn out machinery and equipment with machinery and equipment of modern design which increased the efficiency of the plant — such as washers, ironers, extractors, heaters, tumblers, ’ presses, trucks, etc. However, he has no authority to purchase additions, such as competing businesses, additional real estate, etc. Such additions become a part of tbe corpus and increase the value thereof. We hold that the trustee has the power and authority to purchase additional machinery and equipment to take care of the normal increase in trade brought about through skillful management. Both the life tenant and remaindermen are entitled to the benefit of the normal increase of trust business. Beyond this the trustee may not go.

However, the life tenant has received and now claims the income derived from the use of certain additions which produce income and depreciate through use. It thus becomes a question between the life tenant and remaindermen of making the proper charge and giving the proper credit. The act is done, and the additions have become a part of the business from which income is derived, received and claimed. The question, therefore, is one of proper allocation of charges and credits. In our opinion the purchase of all additions operates to increase the value of the corpus and should be regarded as corpus. A proper depreciation _ charge should be made annually against the income during the life of such assets as will depreciate through use.

d. Taxes.

The referee found that the testator meant the word, “taxes,” to include every kind and nature imposed by any public authority whatever, and that such taxes are to be charged against gross income. We approve the finding of the referee.

e. Release of Claims and Demands — Louis A. Voisinet.

The referee found from the record that Louis A. Voisinet had a substantial interest in the garment division of the Atlas company, which arose by reason of an agreement between Clay Thomas and Voisinet in 1934 when Clay Thomas took Voisinet into the business and started manufacturing garments used in his industrial supply business. The will gave the trustee full power and authority to settle the Voisinet claim and inasmuch as the claim was upon the earnings of the trust operation the settlement was properly chargeable against the income. We approve the finding of the referee.

f. Boiler Loss.

A boiler at the Atlas plant was destroyed. The claim was made against a casualty insurance company for the loss, which the insurance company refused to pay. Litigation ensued, which resulted adversely for the trustee. The loss was charged as an operating expense. To this the life tenant objects. The referee found that the boiler loss was properly deductible from gross income. We approve the finding of the referee.

g. Federal Income Tax.

The life tenant claims she is “entitled” to be paid the sum of $8,930.72 for federal income tax paid by the trustee on income not distributed to her. The trustee and the bookkeeper, Mr. Landgrave, each year prepared the income tax return for the life tenant. The net income for income tax purposes greatly exceeded the amount of income actually distributed to the life tenant for the corresponding current year. The life tenant now makes the claim for this Over payment. The referee found that since taxes are charged against gross income he could make no finding in favor of the life tenant.

In our opinion the income of the life tenant, when proper adjustments are made by the accountant, will closely approximate the net income determined for federal income tax purposes. We make no finding in favor of the life tenant for this item.

h. Real Estate Purchased.

The record shows that the trustee purchased several lots across the street from the laundry upon which he proposed to build a garage to house the trucks and to use as a repair shop. Plans were drawn at considerable cost. The cost of the real estate and plans was paid out of income. The trustee had no authority to make the purchase in the first place, much less charge the cost to income. The real estate and plans for the building are corpus. The cost is charged to corpus and no depreciation can be charged to the life tenant.

Trustee’s Question No. 3: “If any of the expenditures set forth in the eighth paragraph of this amended petition were not properly chargeable against income under the provisions of said will and codicil, is the defendant, Mae Thomas Hrobon, estopped by her knowledge of, acquiescence in or consent to, such expenditures herein properly chargeable against the income of the trust?”

The referee found that the doctrine of estoppel applied.

In case No. 4302 (unreported), decided on February 23, 1950, this court affirmed the judgment of the Probate Court in refusing the application of the life tenant to remove the trustee. It is contended that this court, in the removal proceeding, found that the life tenant had full information as to all purchases made by the trustee. A reference to our opinion does not disclose that we made such finding. In that case we found that there was no neglect of duty or incompetency on the part of the trustee, that the operation of the trust showed skillful management, and that there was no fraudulent conduct shown. We affirm our judgment on these matters. Our judgment in that case does not constitute res judicata here since the issues in the two proceedings are entirely different.

The trustee in this proceeding is not charged with bad faith. It is contended that the trustee misinterpreted the will. What his powers are under the will and codicil are uncert