In re the Estate of Lasak

In regard to interest on legacies, these rules seem to have been settled: If a general legacy be given with no time of payment fixed, it begins to draw interest one year from the date of the letters when it becomes due. Thorn v. Garner, 113 N. Y. 197. If a legacy is given for life with remainder over, no interest is due until the end of two years. Per Lord Eldon in Gibson v. Bott, 7 Vesey, 96; Sullivan v. Winthrop, 1 Sumn. 13. But where it is given for support, it will draw interest from testator’s death, Cooke v. Meaker, 36 N. Y. 15; 5 Allen 270; and so in respect to the bequest of a residue of personal estate for life with remainder over, the general rule (called the rule in Howe v. Lord Dartmouth, 7 Ves. 138 a) is that where a residue of personal property is bequeathed for life, with remainder over, and not specifically, it is to be converted into the three per cents—(having no such three per cents, the only rule recognized in Massachusetts as obligatory upon a trustee in making investments is that he shall act with good faith in the exercise of sound discretion. Harvard v. Amory, 9 Pick. 446.) The tenant for life of a bequest of the residuum is to be allowed as from the death of the testator the income of such parts of the personal estate as were at his death, and have remained, in a state of investment which ought to be recognized and allowed to be continued by a court of equity. But that with regard to those parts which were not at his death, nor have been since in such a *383state of investment as can be so recognized, they must be so valued as at a period of one year after his death, and interest from his death on the value so taken, not exceeding four per cent, must be paid to the tenant for life. 2 Williams on Executors, 6 Amer. ed., 1498-9. If there is a positive direction in a will that the trustee shall convert the personal estate into government or real securities, and hold them in trust for one for life and remainder over, the cestui que trust for life is entitled to receive only so much income as would have arisen from the personal estate, if converted and invested within a year after the testator’s death. Trustees are ordinarily allowed one year to convert the estate into the securities directed by the will. Perry on Trusts, (2d ed.,) § 548, and cases cited. And if there be an unconverted security bearing a much higher rate of interest, they cannot pay the whole interest so arising to the tenant for life; if they do they will be liable to make good to the remainder, and the difference between what should have been paid under the above rule and the sum actually paid. Id., citing Dimes v. Scott, 4 Russ. 195; 2 Jarm. on Wills, 202 (5th Am. ed.)

Applying these rules so far as pertinent to the facts as presented, it having been determined in this case by the Supreme Court, apparently in conflict with the dictum in Thorn v. Garner, supra, that the legacy although not given out of the residue, is given for the support of Mrs. Schermerhorn, who was an adult married woman, she is entitled to such interest from the death of the testator as the fund if invested as he directed would have produced. No question, however, *384as to past payments is here involved, the only one to be considered being the amount which should be paid to her for the quarter ending August 13th last. Of the whole amount in the hands of the administrator, $50,298 he left in cash has been invested in the U. S. four per cent consols of the face value of $40,400, which therefore costs 124 per cent, yielding an annual interest of $1,616 or about 3-iVo per cent on the amount so invested. The balance of the fund on hand still remains in the securities in which it was invested by the testator which are of a character not recognized by the courts, amounting at par to $219,000, (estimated present value $223,124.) This sum at four per cent would produce an income of $8,760, but it actually yielded $10,410, but a portion of it ($140,000) was subj ect to taxation, and the administrator paid on account thereof the sum of $2,800 ; thus making the net income $7,610 or $1,150 less than the four per cent rate would have made. Let us now see what interest would have been earned for the beneficiary if the securities had been converted into bonds and mortgages. The affidavits are somewhat conflicting as to current rates of interest on investments of that description. It seems doubtful if they would exceed five per cent, but giving to the beneficiary the benefit of the doubt and fixing the average rate at about five and one half, the principal would be subject to a tax of about two per cent and thus it would net only three and a half per cent, or $7,665, on the $219,000. Thus if the fund for the benefit of this legatee had been invested in either of the modes mentioned and as directed by the testator, the net interest to which she *385would be entitled, to wit 321/100 on the cost of the government bonds and 31 on mortgages, could not exceed three and one half per cent, about the rate actually earned on the whole. As to the producing character of the alternative investments of city bonds and state stocks, no evidence is furnished, but it is fair to assume that they would have yielded no greater rate of interest.

It does not seem to be necessary here to go into the question determined by Farwell v. Tweddle, 10 Abb. N. C. 94, where it was held that a trustee investing in government bonds at a premium, should retain a certain portion of the interest to make up the difference between the cost and the amount received at maturity. Here no portion of the fund or securities held has been set apart for any of the beneficiaries, and no conversion of the securities held by the testator in his lifetime has been made, doubtless because of the contest pending in relation to the validity of the will. Had they been converted and invested and the fund for the benefit of Mrs. Schermerhorn been set apart in government bonds, the question above disposed of might have been properly raised; .but as it stands she has no more interest in that investment than any other beneficiary. And still it is, to a certain extent, a proper subject for consideration.

The conclusion is that the administrator was justified in declining to comply with the order directing the payment of $450, and that such order should have directed the payment of $262.50, only for the quarter covered by that order, which is in effect, allowing her *386interest on the fund at the rate of three and one half per cent.

The order should be modified accordingly.