Citations
- 137 F. Supp. 71
Full opinion text
ESTES, District Judge.
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 to this opinion. The plaintiff contends that the trust deed created eight separate trusts, and that therefore the plaintiff is entitled to eight one hundred dollar exemptions under Section 163(a)(1) of the 1939 Internal Revenue Code, 26 U.S.C. § 163(a) (1), rather than the one exemption which it reported on its returns. The Government contends that this trust deed created a single trust for the equal benefit of the several beneficiaries, and that therefore the plaintiff is entitled only to the one exemption which it reported on its fiduciary income tax returns each year,
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.” Judge Walker then continues m this Langford opinion:
“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.’ ”
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