Attorney General's Opinion
Attorney General Richard Blumenthal
January 10, 1997
John F. Anderson
The Connecticut Agricultural Experiment Station
123 Huntington Street
New Haven, Connecticut 06504
Dear Dr. Anderson:
This letter is written in response to your request, on behalf of the Connecticut Agricultural Experiment Station1 ("the Station"), for an opinion concerning several legal questions arising out of a recent report by the Auditors of Public Accounts. The report questioned the propriety of how the Board of the Station ("the Board") had managed four private charitable trusts. The Board is the trustee for three of the funds, and is the beneficiary of the fourth fund. Specifically, you have set out the following questions:
1. Does Conn. Gen. Stat. 4-33 require that the fiduciary funds be treated in accordance with the requirements of that section? Is the Board required to report information pertaining to the fiduciary funds to the State Comptroller?
2. Does the Board, in its capacity as trustee, have authority (a) to retain private legal counsel to it as trustee, and to the trust, without the approval of the Attorney General and (b) to purchase insurance for the trusts without the approval of the State Insurance Purchasing Board?
3. Did the Board, acting as trustee of the Jones Fund, have the authority to form Linconn, Inc.? If not, what should the Board now do?
For the reasons set out below, it is our opinion that the Board, in its capacity as trustee, had authority to retain private legal counsel, purchase insurance, and form Linconn, Inc. With respect to the first question, the answer depends on whether the funds in question are held by the Board as trustee, or received by the Station as a beneficiary.
FACTUAL BACKGROUND: THE TRUST INSTRUMENTS
Your questions relate to four different trust funds: The Lockwood Trust, the Samuel William Johnson Fund, the Jones Fund and the Johnson-Osborne Fund. The Board is the appointed trustee of the first three trusts, and is the named beneficiary of the fourth, the trustee of which is the Bank of Boston, Connecticut.
The Lockwood Trust was created under the terms of the will of William R. Lockwood, which provides, in relevant part, that one half-part of the residue of his estate be given to the Station under the following terms:
"as trustee, in trust, to have, hold, manage and take care of the same, and to maintain the principal or capital thereof as a perpetual fund, for the following uses and purposes, to wit: I authorize and empower said trustee, at its discretion, to sell and dispose of all and any part of the estate so held in trust, both real and personal, wherever the same may be, and I direct said trustee to invest the proceeds of such sale or sales and all other moneys that shall at any time come to or be in its hands as such trustee, with full power, at its discretion, at any time and from time to time, to take up and re-invest the same and any part thereof; to collect and receive the rents, issues and profits of all the estate so held in trust, and after paying out of the annual income all lawful taxes and assessments, and the necessary and reasonable charges and expenses incident to said trust, to use and apply all the balance or net income in the promotion of agriculture by scientific investigation and experiment and by diffusing a knowledge of the practical results thereof among the people of the State of Connecticut in such manner as shall be deemed by the board of control or governing body of said institution for the time being most practicable and generally useful."
The Samuel William Johnson Fund was created pursuant to the terms of an agreement between Elizabeth Osborne and the Second National Bank of New Haven. That agreement provided that, upon the happening of a certain event, two trusts would terminate, and that the income from them would be given to the Station under the following terms:
"to be permanently held by it in trust and to be known as the Samuel William Johnson Fund, the income thereof to be used and applied by it for the purposes of scientific research, or in aid thereof, in such manner as the board of control or governing body of said corporation shall deem best."
The Jones fund was created pursuant to an agreement between Research Corporation and Messrs. Donald Jones and Paul Mangelsdorf. Under the terms of that agreement, certain funds were to be provided to the Board of the Station "in trust" with the following conditions:
"The Trustee, the said Board of Control, shall have full power and sole power to manage, invest, reinvest and expend the funds of the Trust. The funds coming into the Trustee's hands may be used either as income or principal in its discretion in the promotion of agriculture by scientific investigation and experiment and in diffusing a knowledge of the results thereof in such a manner as shall be deemed by the Board of Control for the time being most practicable and generally useful."
Finally, the Johnson-Osborne trust, which was created by the will of Elizabeth A. Osborne, provided that certain funds would be given and bequeathed to "The Second National Bank of New Haven and its successors and assigns, to be permanently held in trust" for the following purposes:
". . . to pay annually the entire net income thereof . . . to the Connecticut Agricultural Experiment Station . . . said income to be used and applied by it in the promotion of a knowledge of Biochemistry by scientific investigation and experiment, and by diffusing a knowledge of the results thereof in such manner as shall be deemed by the board of control or governing body of said institution for the time being most practicable and generally useful."
Applicability of Conn. Gen. Stat. 4-33
The first question which you asked is whether fiduciary funds must be treated in accordance with the provisions of Conn. Gen. Stat. 4-33. Section 4-33 empowers public officials of the State, holding funds "belonging to the State" or as a trustee, to deposit them into any "qualified public depository," with certain limitations. First, the public officials may deposit such funds only "with the approval of the treasurer and the comptroller." Second, the deposit "shall only be made in such official's name as . . . trustee." Third, the aggregate amount deposited with any qualified public depository cannot exceed seventy-five percent of the depository's total capital. The depository is required to disclose certain information to the Commissioner of Banking, and interest paid by the depository "shall belong to and accrue to the benefit of the state." The public official is required to "submit to the treasurer and the comptroller, on a form provided by the treasurer, a list of all such accounts . . . ."2
Section 4-33 Does Not Apply to the Administration of Private Charitable Trusts Held By Public Officials
Section 4-33, as written, appears to apply to any fiduciary funds held by public officials of the state. Even if the Board of the Station, acting trustee of the Lockwood, Samuel William Johnson, and Jones Funds, is composed of "public officials of the state, however, it appears from the structure of the requirements in Section 4-33 that it is intended to apply to the administration of public trust funds held by public officials, rather than the private charitable trust funds at issue here.
Section 4-33(a)(2) states that interest income paid by any depository authorized by that section "shall belong to and accrue to the benefit of the state." Such a provision is consistent with the administration of public trust funds. However, when applied to the administration of a private charitable trust, such as those at issue here, this would amount to an expropriation of funds. It is noteworthy that the Lockwood, Samuel William Johnson, and Jones Funds do not require that the Board, as trustee, distribute the income to the Station itself. The money need not be distributed to any subdivision or part of the State. Thus, this provision of the statute, as applied, would effectively expropriate private trust funds to the State. The legislature could not have intended such a result.
This view is reinforced when Section 4-33(a)(2) is read together with Section 4-31a, which states that "[a]ny gift, contribution, income from trust funds, or other aid from any private source or from the federal government . . . shall be entered upon the records of the general fund [and] . . . shall be deemed to be appropriated to the purposes of such gift contribution or other aid and shall be allotted in accordance with law." The statute specifically exempts any "gift, grant or trust fund" in the possession of, inter alia, the Board of Control for the Connecticut Agricultural Experiment Station. It is clear from this statute that income from "trust funds" administered by the Board was not to be included in the General Fund. Similarly, such trust funds should not be subject to the requirements of Section 4-33, since that would require that interest from the funds accrue to the benefit of the State, rather than the benefit of the trust fund in question.
The Provisions of Section 4-33 Cannot Constrain the Activities of the Board Acting as Trustee
Even if Section 4-33 were intended by the legislature to apply to the actions of the Board as trustee of the Lockwood, Jones, and Samuel William Johnson Funds, the provisions of the statute would restrict the actions of the Board in ways which are inappropriate under Connecticut Law.
Section 4-33 restricts the discretion of public officials holding money belonging to the State, or acting as trustees, in several ways. They must obtain the approval of the treasurer and comptroller prior to depositing funds in the institutions described in the section, and their choice of institutions with which they can deposit the funds is circumscribed. Moreover, interest on the funds must "accrue to the benefit of the state," rather than to the benefit of the private trust in question. With respect to public officials acting as trustees of charitable trusts, these restrictions are not permissible. Since the ground-breaking decision in Bridgeport Public Library and Reading Room v. Burroughs Home, 85 Conn. 309 (1912), the Connecticut Supreme Court has maintained that the administration of charitable trusts is wholly a judicial function, and that the legislature may not alter the terms of a charitable trust instrument. Thus, in Burroughs Home, the court held that the legislature could not empower the trustees of a trust to sell trust property, stating:
"We have no occasion to attempt to define the exact limits of either the judicial or the legislative power, or to draw the dividing line between the two. It is certain, wherever that dividing line may be or however indefinite it may be at points, that jurisdiction over this charitable trust, to see that it is properly and beneficially administered, that the purpose of the donor does not fail, and that the interests of the beneficiaries be subserved, under changing conditions and with the lapse of time, belongs to the judicial department of the government, and is in no respect an incident of the legislative."
Id. at 320-21.
The doctrine that the legislature could not interfere in the administration of charitable trusts was reaffirmed and expanded in Macy v. Cunningham, 240 Conn. 124 (1993). In Macy, the court held that the legislature could not designate a successor trustee to one named in the trust document. The legislature had disbanded a commission, which served as trustee for the trust in question, and transferred its functions to the Commissioner of Public Works. The Supreme Court upheld the lower court's finding that it need not accept the Commissioner of Public Works as the successor trustee. "The supervision of trusts, including the appointment of successor trustees, is a purely judicial function. From time immemorial it has been a jurisdiction exercised by courts of equity. It is not a legislative power. Consequently, any statute which purported to direct the courts as to whom to appoint as a successor trustee would be unconstitutional." Id. at 132 (citations omitted).
Finally, in Hartford v. Larrabee Fund Association, 161 Conn. 312 (1971), the Court held that the legislature could not even incorporate an association formed to designate beneficiaries under a trust. The Court stated:
"It is apparent that the legislature had no power to vary the structure of the association as described in Major Larrabee's will. This is so no matter how beneficial the corporate form might be, and no matter how well-meaning the parties to the change might have been. Only the court had the power to determine if the will permitted the corporate structure, or if changed circumstances required a more efficient structure. This would be so even if the sole change were the act of incorporation. It is thus clear that in incorporating The Larrabee Fund Association the legislature trespassed on judicial domain. Further, the special act purported to direct that the corporation be the successor to the association. This, too, is a judicial function, and thus beyond the scope of the legislature's power."
Id. at 318-19
Based on these precedents, then-Attorney General Lieberman found, in a 1987 Opinion, that the legislature could not compel the Board of the Station, acting as trustee of the Lockwood Trust, to comply with provisions of state law which required the Treasurer to notify the chief executive officer of a municipality prior to the sale of any state land, providing that municipality with a right of first refusal. The Attorney General found that the statutory provision in question, as applied to the actions of the Board as trustee, "would be an impermissible legislative interference on the operation of an existing charitable trust." Letter to Senator Philip S. Robertson, 1987 Op. Att'y Gen. 42, 46 (1987)(copy attached).
Here as well, the provisions of Conn. Gen. Stat. 4-33 would operate to limit the discretion which trustees are called upon to exercise. It is the trustees, rather than the legislature, the Treasurer, or the Comptroller, who must decide where the trust funds should be deposited, and how they should be invested. Specific language in two of the trust instruments reinforces this point: the Lockwood Trust gives the trustee "full power" to invest the proceeds "at its discretion;" the Jones Fund states that the trustee "shall have full power and sole power to manage, invest, reinvest and expend the funds of the Trust." While the Samuel William Johnson Fund does not address the issue of administration, the powers of a trustee to manage trust funds are implicit in the concept of a trust. See, e.g., William Fratchner, Scott on Trusts, 389 (1989) ("trustees are under a duty to make such investments as a prudent man would make of his own property").3 Indeed, if the interest accruing on accounts established pursuant to Section 4-33 did not accrue to the benefit of the trust, but rather, accrued to the benefit of the State, it is difficult to imagine how a prudent trustee could justify such an investment. Thus, Conn. Gen. Stat. 4-33 cannot govern the actions of the Board as a trustee for the Lockwood, Jones, and Samuel William Johnson funds.
The Provisions of Section 4-33 Do Apply to Funds Which the Station Receives as a Beneficiary of Private Trusts
In addition to its provisions relating to trustees, Section 4-33 also applies to the deposit of "any funds or moneys in [the hands of a public official of the State] belonging to the state or held by such official . . . in an official capacity." These provisions appear to apply to funds which the Station receives as the beneficiary of trust funds. While the trust which generated the funds is private, once the funds have been distributed to the Station as the beneficiary of the trust, they "belong to" the Station, and are held by the board "in an official capacity." This would include funds received by the Station pursuant to the Johnson-Osborne Trust, as well as to any funds which the Board, as trustee of the other three funds, distributed to the Station as a beneficiary under those trusts.
The stringent separation of powers doctrine described above with respect to trustees has not, to our knowledge, been extended to the actions of beneficiaries of trust funds. While a court would be the sole arbiter of whether a beneficiary used funds for the purposes described in the trust instrument, there does not appear to be any reason why a legislative enactment, such as Conn. Gen. Stat. 4-33, which does not limit the ways in which funds can be spent, would not be enforceable against the Board in its capacity as beneficiary. The legislature could mandate that "funds or moneys in such official's hands" be deposited in certain financial institutions, with the approval of the Treasurer and Comptroller, without impermissibly interfering with the administration of the trust.
The Board May Not Be Required to Report Information to the Comptroller Concerning Its Administration of Trusts
As a subset of the first question, you also asked whether the Board is required to report information pertaining to the fiduciary funds to the State Comptroller. Since the courts alone may supervise the administration of trusts by the trustees, any oversight function by the Comptroller would impermissibly interfere with the function of the Board as trustee. Again, that rationale would not apply to funds which the Board receives as beneficiary. Of course, the Board could report information pertaining to the trust funds to the Comptroller, as a purely voluntary matter, and in light of the fact that the members of the Board administer the trusts solely by virtue of their position as officials of a public entity, it would seem to be a good policy to do so. However, the legislature cannot mandate a supervisorial role for the Comptroller in the management of private trusts.
Section 4-33(b) also requires that each public official who deposits funds as required in the preceding section "shall submit to the treasurer and the comptroller . . . a list of all such accounts, as of the preceding June thirtieth." The provision of this information does not appear to impair in any way the functioning of the trusts, nor is it unacceptable oversight. It merely requires public officials to inform the treasurer and comptroller of the existence of accounts which correspond to those described in Section 4-33(a). For the reasons outlined above, the Board, as trustee, may not be required to set up accounts under the procedures set out in Section 4-33(a); therefore, it is possible that no accounts would correspond to the description in Section 4-33(b), unless the accounts contained funds which the Board received in its capacity as beneficiary.
Authority of the Board, as Trustee, to Retain Private Counsel and Purchase Insurance
Your second question relates to the authority of the Board, in its capacity as trustee, to retain private legal counsel without the approval of the Attorney General, and to purchase insurance for the trusts without the approval of the State Insurance Purchasing Board. Based on the analysis in the preceding section, the answer to both parts of this question must be affirmative.
Retaining legal counsel and purchasing insurance for funds are tasks which directly relate to the administration of charitable trusts. In such matters, the trustee has sole discretion, subject always to the supervisory authority of the courts sitting in equity. The legislature may not curtail that authority, by general or special act. The Attorney General might select different counsel, and the Insurance Purchasing Board might select different insurance, from what the Board, as trustee, deems most appropriate.4 Thus, the Board's attempts to exercise its discretion as trustee would be thwarted. These requirements, therefore, cannot apply to the actions of the Board as trustee.
Incorporation of Linconn, Inc.
Your final question relates to the authority of the Board, as trustee of the Jones Fund, to form Linconn, Inc. The inquiry must be guided by the principle that "trustees of a charitable trust . . . have such powers as are conferred on them in specific words by the terms of the trust or are necessary or appropriate to carry out the purposes of the trust and are not forbidden by the terms of the trust." William Fratchner, Scott on Trusts, 380 (1989).
The instrument which establishes the Jones Fund neither specifically authorizes nor specifically prohibits the formation of a corporation such as Linconn, Inc. However, it does provide that Board, as trustee, may use the funds "in its discretion in the promotion of agriculture . . . in such a manner as shall be deemed by the Board of Control for the time being most practicable and generally useful." It seems clear that this general authorization provided the Board sufficient authority to establish Linconn, Inc., as the "most practicable and generally useful" manner to fulfill the goals of the trust. In any event, the propriety of the Board's action in forming the corporation may only be reviewed by a court in equity, based on the principles set out above.
Since we conclude that the Board had authority to form Linconn, Inc., there is no need to address your subsidiary question concerning the steps that you should take in the event that the Board lacked authority to form the corporation.
Very truly yours,
Mark P. Kindall
Assistant Attorney General
1 The Connecticut Agricultural Experiment Station is within the Department of Agriculture for administrative purposes only. It is governed by a board of control appointed in accordance with the provisions of Conn. Gen. Stat. 22-79, and is charged with the performance of various scientific inquiries related to "plants, insects, and the pests of plants, soil and water," and other duties as set out in Conn. Gen. Stat. 22-81 to 22-88.
2 Section 4-33(a) provides as follows:
"Any public official of the state, with the approval of the treasurer and the comptroller, is authorized to deposit any funds or moneys in such official's hands belonging to the state or held by such official as a trustee or in an official capacity, in any qualified public depository, as defined in section 36a-330 or any bank authorized pursuant to section 3-24, provided such deposit shall only be made in such official's name as such official or trustee or in the name of the state. In no case shall the deposit by such official in any one such qualified public depository or bank exceed in the aggregate at any one time seventy-five per cent of the total capital of such depository or bank, as determined in accordance with applicable federal regulations and regulations adopted by the commissioner of banking under section 36a-332, provided: (1) Any such qualified public depository or bank is required to disclose such information relating to public deposits as the commissioner of banking may require by regulations which he shall adopt in accordance with the provisions of chapter 54. The regulations shall include, but not be limited to, disclosure of the most current quarterly statement of condition and statement of income; and (2) whatever interest or other pecuniary consideration such depository or bank allows for or upon such deposit or payment shall belong to and accrue to the benefit of the state."
3 Fratchner and Scott state that this discretion may be limited by statute; however, that caveat is not applicable under the controlling decisions in Connecticut cited above.
4 It should be noted that the Attorney General does have a potential remedy if he believes that a charitable trust is being improperly administered. He may bring an action to enforce the duties of trustees in the Superior Court. See Conn. Gen. Stat. 3-125; see also Lockwood v. Killian, 172 Conn. 496, 505 (1977).