137 F. Supp. 71 | N.D. Tex. | 1956
This action was brought under Section 1346(a) (1) of Title 28 United States Code, to recover certain income taxes paid by the plaintiff as trustee. The parties submitted the case on an agreed statement of facts, briefs, and oral argument.
The plaintiff is a national banking association of Fort Worth, Texas, with full trust powers. At all pertinent times the plaintiff was the sole trustee under a trust deed executed on November 21, 1949 by Marvin C. Rail and his wife, Hilda Staude Rail. The trust deed was originally executed for the equal benefit of seven named grandchildren. Before any federal income taxes were due, an eighth grandchild was born, whereupon the trustors caused the existing trust funds to be valued and paid over to the plaintiff an additional sum equal to one-seventh of this ascertained value since which time there have been eight beneficiaries.
The trust funds have at all times been invested in The Common Trust Fund of The Fort Worth National Bank, as permitted by the laws of The State of Texas. The trust funds are carried on the plaintiff’s books in the plaintiff’s name as trustee for the named beneficiaries, the name of the eighth beneficiary having been added when provided for as above stated. No funds have been expended for any beneficiary.
The plaintiff filed a timely single income tax return covering income on the trust funds for the years 1950, 1951 and 1952, taking a single $100 exemption for each year, and paid therewith the tax shown to be due under each return.
On April 6, 1954, the plaintiff filed separate claims for refunds for the three years in question on Treasury Forms 843. Each such claim was timely filed and was based on the same grounds as now claimed in this action. The plaintiff claimed and claims a total refund of $420 with legal interest as follows:
For 1950, $121.80, with interest from April 15, 1951.
For 1951, $142.80, with interest from March 15,1952.
For 1952, $155.40, with interest from March 15, 1953.
The Commissioner of Internal Revenue disallowed each such claim by registered letter under date of June 14, 1955. This action was filed within the time required by law.
The sole controverted issue pertains to a construction of the trust deed set forth in the footnote
Whether a trust deed creates one or more than one trust depends upon the intention of the trustor as it is expressed in the trust deed. As pointed out by the Court of Appeals for the Fifth Circuit: “On the question whether the settlors created one or more trusts, their intention, disclosed in the instrument creating the trust, is controlling.”
“The conclusion that the settlors contemplated the creation of more than one trust is clearly negatived by the repeated use in the trust instrument of such language as ‘this trust,’ ‘the trust estate hereby created,’ and by the provision: ‘This trust estate shall cease and determine, as to each beneficiary interested therein, when, said beneficiary and each of them, arrive at the age of twenty-five (25) years, and the Trustee, thereupon shall deliver to such beneficiary, who arrives at such age of twenty-five years, such beneficiary’s interest or proportion of the Trust Estate hereby created, and from such time said beneficiary shall have full power and authority to dispose of said estate as they see fit.’ ” (Italics supplied.)
The language used in the present trust agreement is almost identical to the language in the Langford case which the Court of Appeals for the Fifth Circuit held “clearly negatived” any conclusion that the settlors contemplated the creation of more than one trust. For example, the present trust agreement refers to: “This trust”, “the trust herein created”, and further provides, as did the trust in the Langford case:'
As each grandchild reaches the age of 21 years the Trustee shall pay over and deliver to him (meaning or her), in cash or in property or partly each, his then interest in the trust assets, * * * whereupon the trust as to such grandchild shall terminate, and he shall have no further interest therein.
In the present trust deed the trust is referred to in the singular in approximately twenty-two instances; never once does there appear a reference to more than one trust. This indicates that the trustors intended to create only one trust for the benefit of several beneficiaries, and while this is not conclusive, it is certainly to be considered in determining what was in fact created by the trust deed.
An important factor in ascertaining whether separate trusts have been created is the independence of each beneficiary’s interest'. This test is stated by Judge Learned Hand, in referring to each beneficiary’s interest or “share” in a trust:
“-X- * * no ‘share’ had any other feature in common with any other ‘share.’ Each had only one beneficiary, and he or she had no possible interest in any other ‘share’ while the res of that ‘share’ was held in trust at all. The death of any beneficiary put on unconditional end to any equitable ownership of that ‘share.’ ”2
The plaintiff contends that under the terms of the present trust deed each beneficiary has no possible interest in any other beneficiary’s “share” while the res of that “share” was held in trust at all. But this trust deed, and particularly paragraph 7 thereof, repels such a construction. It is apparent from the use in paragraph 7 of the terms “interest in the trust” and “shall go to and be ultimately owned” that the interest which was to go to the surviving grandchildren was the equitable ownership of the beneficiary, and not the legal title. Had the trustors meant for the interest of 'the deceased beneficiary to terminate and the legal title to pass, they could have accomplished their purpose easily by providing that the equitable interest should terminate as they did do elsewhere in the trust deed in other circumstances. Plaintiff argues that the use of <the term “surviving grandchildren”, rather than “surviving beneficiaries”, and the provision which prohibits a ben
Plaintiff further argues that under the doctrine of “expressio unius est exelusio alterius”
Plaintiff relies upon McHarg v. Fitzpatrick
The McHarg case also involved a clear expression in the trust deed that the corpus was to be divided into independent “shares”. As shown by the excerpt from Judge Hand’s opinion quoted earlier, the Court found that independent shares were in fact created. In the present case, there are not absolutely independent interests in the trust. In the Lang-ford case the Court held that “On the question whether the settlors created one or more trusts, their intention, disclosed in the instrument creating the trust, is
In any event, under the principles set forth in the Langford case the present trust deed must be held to have created only one trust because: (1) the intent is expressed to create only one trust, and (2) the other provisions of the trust deed fail to rebut this expressed intention.
Let the defendant prepare a judgment in accordance with this opinion.
“1. We, Marvin C. Rail and wife, Hilda Staude Rail, of Fort Worth, Texas, hereinafter referred to as Trustors, in consideration of the trust herein created and of the other covenants and stipulations hereof, hereby Transfer and Deliver the sum of Thirty-Five Thousand ($35,000.-00) Dollars in cash to The Fort Worth National Bank, of Fort Worth, Texas, in trust, for the uses and purposes hereinafter stated, to be held, managed, invested and re-invested by the Bank as Trustee, and the income and principal thereof to he disposed of as hereinafter directed; and with respect to the trust and its assets, present and future, the Trustee shall have all of the powers, duties and obligations devolving on Trustees by the Texas Trust Act, as amended, and as it may be hereafter amended. The Trustee shall not be required to give bond as such, and having acted in good faith and with reasonable diligence it shall not be held liable for mistakes of judgment.
“2. This trust is created for the equal benefit of Trustor Marvin O. Rail’s seven grandchildren, whose names and respective dates of birth are as follows:
(Here follow names and ages of seven grandchildren.)
“3. As each grandchild reaches the age of 21 years the Trustee shall pay over and deliver to him (meaning or her), in cash or in property or partly each, his then interest in the trust assets, taking into consideration any previous withdrawals for his benefit, whereupon the trust as to such grandchild shall terminate, and he shall have no further interest therein.
“5. This trust is expressly made irrevocable, and neither Trustor shall ever hereafter have any right, title or interest in the trust or in its assets; and if by reason of the death of one or more of the beneficiaries the Trustors or either of them would otherwise inherit from him or them any interest in the trust or in its assets, Trustors and each of them hereby renounce such inheritance, and any interest in the trust or its assets that either or both of them might otherwise so inherit shall go to the deceased’s other heirs at law, excluding Trustors therefrom, and they hereby assign and transfer to such others any interest that (they) might otherwise ever have in the trust or in its assets.
“6. However, Trustors and each of them reserve the right from time to time to transfer and deliver to the Trustee additional money or property for the benefit of the above named grandchildren and/or for the benefit of any grandchildren of theirs or of either of them that may be hereafter born; and if that is done such additional money or property shall automatically become a part of the assets of the trust. If and as another grandchild or other grandchildren are born, and if Trustors or either of them elect to make further contributions to the trust and include him or them as beneficiaries thereof, in any and every such case Trustors or one of them shall cause the Trustee to value the assets of the trust at the time, and Trustors or either of them will then so transfer and deliver to the Trustee cash or property or both in such an amount that such additional grandchild will then have an equal interest therein with every other grandchild; and all other provisions hereof shall apply to the rights and interests of any such added grandchild or grandchildren the same as to those herein named.
“7. If any grandchild beneficiary hereof should die before reaching the age of 21 years his or her interest in the trust and in its assets shall go to and be ultimately owned equally by the surviving grandchildren, unless any such deceased grandchild should leave a child or children surviving him or her, in which event the trust shall continue in existence as to what would otherwise have been the interest of the deceased until such child or the youngest if more than one has reached the age of 21 years, at which time the trust as to them shall terminate and title to what would otherwise have been the interest of the deceased shall then vest in his or her child or children; provided, that in no event shall the trust remain in existence longer than 21 years after the death of the survivor of the seven grandchildren hereinabove named, at the expiration of which 21 years the trust shall terminate completely and title to the assets thereof shall vest in the respective beneficiaries in accordance with the stipulations hereof, regardless of the then ages of the child or children of a deceased grandchild.”
. Langford Inv. Co. v. Commissioner of Internal Revenue, 5 Cir., 1935, 77 F.2d
. McHarg v. Fitzpatrick, 2 Cir., 1954, 210 F.2d 792, 795.
. Southern Coast Corp. v. Sinclair Refining Co., 5 Cir., 1950, 181 F.2d 960; Morrow v. Morgan, 1877, 48 Tex. 304.
. Supra, note 2.
. 1935, 296 U.S. 481, 56 S.Ct. 329, 331, 80 L.Ed. 340.
. Langford Inv. Co. v. Commissioner of Internal Revenue, 5 Cir., 1935, 77 F.2d 468, 470.