205 F.2d 298 | 2d Cir. | 1953
Lead Opinion
The Tax Court, with four judges dissenting, held that there is an overpayment of the estate tax in the amount of $173,-353.28 since the Commissioner had erred in including in the decedent’s gross estate the value of two trusts established by him during his lifetime. 17 T.C. 1317. The findings of fact by the Tax Court may be summarized as follows:
The decedent, Arthur S. Dwight, who at the time of his death on April 1, 1946, was a resident of the State of New York, on March 15, 1930, married Anne Howard Chapin who had had six children by a previous marriage. All of the children were adults at that time with the exception of one who was seventeen years of age. Until decedent’s death he and his wife lived together as husband and wife at their principal residence in Great Neck, Long Island, except for winters which were spent at their Florida home.
On December 21, 1931, the decedent established a trust of $170,000, which he increased by $25,000 in 1934, for the benefit of his wife and her six children. The corporate trustee was to distribute 40% of the income to the decedent’s wife and 10% to each of her children “for their support and maintenance,” but the trustee was “not responsible for the use or application of such income.” The trust was to terminate at the death of the survivor of the decedent and his wife, when the principal was to be distributed to the children or their issue. Provision was made for the allocation of the income share of any beneficiary who died prior to the termination.
On August 15, 1935, the decedent made a transfer, on which a federal gift tax was assessed and paid, of $200,000 in trust. The trust indenture provided that the decedent’s wife would receive the income during her lifetime “for her support and maintenance, without power of anticipation.” Upon the death of the income-beneficiary the trust was to terminate and the principal was to be distributed in equal shares to eight named persons or their issue. A letter written before, but not delivered until after, the execution of the trust indenture-shows that the decedent’s motive for establishing this trust was to provide his wife with income to meet the living and hospital expenses of her two adult invalid daughters
The Commissioner contends that 40% of the value of the first trust, and the entire value of the second trust are includible in the decedent’s gross estate by reason of the applicable provisions of the Internal Revenue Code,
Although a husband is of course able to make a gift to his wife without affecting his duty to support her, Shanley v. Bowers, 2 Cir., 81 F.2d 13, 15, we think that this was clearly not the case here as to the first ttust. The decedent was under a legal duty to support his wife under the New York law, e. g., DeBrauwere v. DeBrauwere, 203 N.Y. 460, 96 N.E. 722, 38 L.R.A.,N.S., 508, and the trust instrument provided that the income was for her “support and maintenance.” We agree with the dissenting opinion in the Tax Court that this provision was not meaningless, and think that Helvering v. Mercantile-Commerce Bank & Trust Co., 8 Cir., 111 F.2d 224, certiorari denied 310 U.S. 654, 60 S.Ct. 1104, 84 L.Ed. 1418, is not distinguishable. on the ground that there the settlor reserved an “enforceable right” to have the income applied toward his wife’s support in the trust instrument. See also Helfrich’s Estate v. Commissioner, 7 Cir.,
The second trust presents a more difficult problem. Although the trust instrument also provided that the income was to be paid for the “support and maintenance” of the decedent’s wife, his explanatory letter indicates that his intent was to furnish her with sufficient income to care for her two invalid daughters and to pay for the maintenance of the Florida home. It is asserted that neither item was within the decedent’s legal duty to provide for his wife, and that therefore he did not retain the enjoyment of the income within the meaning of § 811(c) (1) (B). The taxpayer justifies the admission of this letter into evidence by the Tax Court over the objection of the Commissioner on the ground that the parol evidence rule is inapplicable in a controversy involving a stranger to the integrated trust indenture. Stern v. Commissioner, 2 Cir., 137 F.2d 43, 46; Brassert v. Clark, 2 Cir., 162 F.2d 967, 973-974; Folinsbee v. Sawyer, 157 N.Y. 196, 199, 51 N.E. 994. However, this is too broad a statement of the rule, for a stranger 1o an instrument may not in every case vary its terms by parole evidence. E. g., Pugh v. Commissioner, 5 Cir., 49 F.2d 76, 79, certiorari denied Pugh v. Burnett, 284 U.S. 642, 52 S.Ct. 22, 76 L.Ed. 546; Funk v. Commissioner, 3 Cir., 185 F.2d 127, 129 note 3; Allen v. Ruland, 79 Conn. 405, 65 A. 138. Facts recited in an integrated agreement may of course be shown to be untrue even by the parties themselves. Restatement, Contracts, § 244. Moreover, proof of fraud against the rights of third parties may be received, even though such evidence would perhaps be inadmissible in a suit between the parties themselves. 3 Williston, Contracts, § 647 (Rev. ed.); 9 Wigmore, Evidence § 2446 (3d ed.). But here there is no question of fraud on the rights of the tax collector. And where the issue in dispute is the legal obligation of the parties to the agreement, the writing must be taken as the full expression of that legal relationship (assuming that the parties intended the writing to be an integration of the complete contract). 3 Cor-bin, Contracts, § 596; 3 Williston, Contracts, § 647 (Rev’d ed.); 9 Wigmore, Evidence § 2446 (3d ed.).
The trust indenture here created a legal obligation on the part of the trustee to pay the income to the settlor’s wife for her “support and maintenance.” Although strictly speaking the wife was not a party to the agreement, it is to her that the obligation is owed and only she may enforce it. Restatement, Trusts, § 200; 2 Scott, Trusts, § 200. Her rights are entirely dependent on the legal effect of the trust indenture. Consequently, in a suit by the wife against her husband for support the parole evidence rule would have prevented her from showing that the income was not to be used for her “support and maintenance” and the existence of the second trust would have been a pro tanto defense for the husband. Therefore, since the income was to be used to discharge the decedent’s legal obligation, he retained its enjoyment and use, and under § 811(c) (1) (B) the principal of the trust is includible in his gross estate.
The respondent has presented no proof that the decedent’s obligation to support would not have at least equalled the
Accordingly, the judgment is reversed and the case remanded to the Tax Court for a recomputation of the decedent’s estate tax in accordance with the terms of this opinion.
. Ҥ 811. Gross estate
“Tile value of the gross estate of the decedent shall be . determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States—
* * * * *
“(c) Transfers in contemplation of, •or talcing effect at, death
“(1) Géneral rule. To the extent of any interest therein of which' the decedent has at any time made a transfer ■(except in case of a bona fide sale for an adequate and full consideration in money or money’s worth),, by trust or otherwise—
* St» * * *
“(B) under which he has retained for his life or for any period not ascertainable without reference to his death or ior any period which does not in fact end before his death (i) the possession ■or enjoyment of, or the right to the income from, the property, or (ii) the right, either alone or in conjunction with .any person, to designate the persons who cshall possess or enjoy the property or the income therefrom; or * * 26 U.S.C. § 811.
This section is applicable to the transfer made in 1935. Under the provisions of § 7 (b) of the Technical Changes Act of 1949, 63 Stat. 891, 26 U.S.C. § 811 note the Joint Resolution of March 3, 1931, 46 Stat. 1516, is applicable to the first transfer made on December 21, 1931. However, that resolution is identical in effect with the above quoted section in so far as here relevant.
The applicable regulation, Treas.Reg. 105, § 81.18, provides in part:
“The use, possession, right to the income, or other enjoyment of the property will be considered as having been retained by or reserved to the decedent to the extent that during any such period it is to be applied toward the discharge of a legal obligation of the decedent, or otherwise for his pecuniary benefit.
“If such retention or reservation is of a part only of the- use, possession, income, or other enjoyment of the property, then only a corresponding proportion of the value of the property should be included in determining the value of the gross estate.”
Dissenting Opinion
(dissenting in part).
I altogether agree as to the first trust, for it seems fair to me to hold the taxpayers to their burden of proof to show that forty per cent of its income would not have been more than a reasonable allowance to the wife for her “support and maintenance.” As to the second trust, if we were to affirm the order, I think I should also agree that the taxpayers should have shown that the income from it, when added to forty per cent of the income from the first trust, was no more than a New York court would have allowed to the decedent’s wife for “support and maintenance.” But we are reversing the order and are sending the cause back to the Tax Court to recompute the tax; and I do not see what warrant we have for denying to the taxpayers the privilege of carrying the burden of so proving, if they can, now that it has become vital. The only reason for such a denial must be that they failed to do so before, when it turned out to be unnecessary; and that appears to me unduly severe.
The liability of a husband for the “support and maintenance” of his wife depends, certainly in cases of divorce, .upon his resources and the spouses’ customary mode of life.
. Burr v. Burr, 7 Hill 207, 211; Forrest v. Forrest, 25 N.Y. 501, 515, 516.
