Magruder v. Drury

Background

William A. Richardson, a federal court judge, died in 1896 leaving a will that named his brother and Samuel A. Drury as executors and trustees. Although the will was probated in Massachusetts, most of Richardson’s assets and his residence were in Washington, D.C. Massachusetts courts at one point taxed estate assets, prompting beneficiaries to seek an injunction in the District court. The District court appointed trustees in Washington and ordered the executors to transfer assets for accounting and distribution to those trustees.

Reasoning

The Court reviewed three main contested items from the auditor’s report: trustee commissions (five percent of principal and ten percent of income), an $18,800 credit allowed by the Massachusetts probate court for administration expenses, and alleged profits from purchases of trust notes connected to a trustee’s firm. The Supreme Court affirmed the allowance of customary trustee commissions and respected the Massachusetts probate court’s settled allowance of administration expenses. But the Court held that a trustee cannot profit from dealings that create a personal gain from trust transactions. Although no loss to the estate was shown, the Court found that a trustee’s firm had received commissions when making loans and then the same notes were later bought by the trustees, realizing those earlier commissions as profit—conduct incompatible with the trustee’s duty.

Real world impact

The decision requires careful accounting by trustees and prevents trustees from keeping profits tied to their private firms when those same assets enter the trust. Beneficiaries receive stronger protection against conflicted dealings. The case is sent back to the lower courts to enforce this rule and adjust the trustees’ accounting.