Court Opinion

ID: 9638583
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:48:04.93039+00
Date Added: 2024-06-11T18:10:08.075756
License: Public Domain

GARDNER, Circuit Judge
(dissenting).
I am unable to concur -in the opinion ■in this case. It will not, I think, be necessary to restate the facts, but 'it may be helpful to revert to the issues presented to the Board of Tax Appeals and the facts upon which they were decided because the case is here for review and we must limit our consideration to the record before the Board of Tax Appeals. Kendrick Coal & Dock Co. v. Commissioner (C.C.A.8) 29 F. (2d) 559; Helvering v. Montana Life Ins. Co. (C.C.A.9) 84 F.(2d) 623; Whitney v. Commissioner (C.C.A.3) 73 F.(2d) 589; Griffiths v. Commissioner (C.C.A.7) 50 F. (2d) 782; Heinz v. Commissioner (C.C.A. 5) 70 F.(2d) 461. Not only is this court required to consider only facts disclosed by the record made before the Board, but it should not discuss nor pass upon issues not there raised. Helvering v. Salvage, 297 U. S. 106, 56 S.Ct. 375, 80 L.Ed. 511; General Utilities & Operating Co. v. Helvering, 296 U.S. 200, 56 S.Ct. 185, 187, 80 L.Ed. 154; Sunset Scavenger Co. v. Commissioner (C.C.A.9) 84 F.(2d) 453; Kottemann v. Commissioner (C.C.A.9) 81 F.(2d) 621; Botchford v. Commissioner (C.C.A.9) 81 F.(2d) 914.
In General Utilities & Operating Co. v. Helvering, supra, tire Supreme Court reversed the Circuit Court of Appeals because that court had decided the case upon a ground not presented to nor ruled upon by the Board. In the course of the opinion it is said:
“Always a taxpayer is entitled to know with fair certainty the basis of the claim against him. Stipulations concerning facts and any other evidence properly are accommodated to issues adequately raised.”
This court has frequently held that it will review on appeal only such questions as have been presented to the trial court and preserved in the record; that it is without power to alter or amend a bill of exceptions ; that the printed transcript on appeal cannot be amended even on stipulation of the parties; and there is no power, either in this court nor in the trial court, to change the record as made in the lower court. Falvey v. Coats (C.C.A.8) 47 F.(2d) 856, 89 A.L.R. 1; Hayden v. Ogden Savings Bank (C.C.A.8) 158 F. 90; Johnson v. Titanium Pigment Co. (C.C.A.8) 81 F.(2d) 529; Case v. Hall (C.C.A.8) 94 F. 300; Board of Commissioners of Grand County v. King (C.C.A.8) 67 F. 945; Chickasaw Wood Products Co. v. Paysinger. (C.C.A.8) 84 F.(2d) 476.
The issues presented to the Board of Tax Appeals were very simple. The petitioner set out in his petition the trust agreement and asserted -that the Commissioner had erred in disregarding it and determining a deficiency. The petitioner alleged the execution of the trust instrument and the acts done by him pursuant thereto. The answer of the Commissioner admitted certain of the allegations of the petition, denied the other allegations, but pleaded no affirmative defense and made no claim of fraud or bad faith in the matter of the execution of the trust agreement or the acts done thereunder.
The majority opinion without finding or evidence brings into this record the alleged fact that the petitioner was a bachelor without issue, and the entire opinion is colored by these facts extraneous to the record-
*29The Board of Tax Appeals, in its opinion, states that it was the contention of respondent that “until the trust property was delivered and turned over to the United States Trust Co. as successor in trust under the provisions of paragraph 1 of the trust instrument, which occurred on May 3, 1929, the petitioner had complete control and power of revocation, and that the income from the said trust property is properly taxable to him.” This was the issue before the Board of Tax Appeals. In discussing it, the Board said inter alia :
“During the period from January 28, 1929 to May 3, 1929, the petitioner was in physical possession of the trust instrument. He was in physical possession of the property composing the trust. He was the only beneficiary to the trust. There were no other interested parties. Clearly, this gave him absolute control to reinvest in himself title to the corpus of the trust or to destroy the trust at will.”
Not only was this the issue before the Board of Tax Appeals, but it is the issue discussed by counsel for the respective parties in this court. On the various issues considered and discussed in the majority opinion, the petitioner has never had his day in court, and of the great wealth of authorities cited and discussed in the majority opinion but two cases were cited in the brief of either of the parties. The opinion will, I think, take both parties by surprise, and I think it violates the salutary rule that a taxpayer is entitled to know the basis of the claim against it because, among other things, “Stipulations’ concerning facts and any other evidence properly are accommodated to issues adequately raised.” General Utilities & Operating Co. v. Helvering, 296 U.S. 200, 56 S.Ct. 185, 187, 80 L.Ed. 154.
If the views expressed in the majority opinion be accepted as sound, then the cause should be remanded so as to give the parties an opportunity of producing evidence with reference to such issues and of being heard thereon.
I am of the view that under the law as announced by the Supreme Court in Becker v. St. Louis Union Trust Co., 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35, and other authorities, a completed trust was created when petitioner signed the instrument set out in the opinion. In the case of personal property, an unequivocal declaration o-f trust by the settlor impresses the property with a trust character and converts his relation to the property from that of the holder of the legal title to that of a trustee holding the legal title for such person or persons for whose benefit the trust is created. An owner of personal property may impress it with a present trust either by a declaration that he holds the property in trust, or by a transfer of the legal title to a third party under certain specified trusts. He may constitute either himself or some one else trustee, and if he makes himself trustee, no transfer of the subject-matter is necessary. Robb v. Washington & Jefferson College, 185 N.Y. 485, 78 N.E. 359; Dickerson’s Appeal, 115 Pa. 198, 8 A. 64, 2 Am.St.Rep. 547; In re Brown’s Will, 252 N.Y. 366, 169 N.E. 612; Stoehr v. Miller (C.C.A.2) 296 F. 414. Indeed, if the owner and possessor of property, intending to make disposition thereof for another, unequivocally declares himself trustee thereof for such other person, the latter becomes vested with the equitable estate even though he is not informed of the declaration and the trustor does not part with the possession of the property or deliver the writing, if there be one, declaring the trust. Becker v. St. Louis Union Trust Co., 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35; In re Smith’s Estate, 144 Pa. 428, 22 A. 916; 27 Am.St. Rep. 641; Falk v. Janes, 50 N.J.Eq. 468, 26 A. 138, 35 Am.St.Rep. 783; Connecticut River Savings Bank v. Albee’s Estate, 64 Vt. 571, 25 A. 487, 33 Am.St.Rep. 944; Gerrish v. New Bedford Institution, 128 Mass. 159, 35 Am.Rep. 365; Portland Cremation Ass’n v. Commissioner (C.C.A.9) 31 F.(2d) 843; Sieling v. Sieling, 151 Md. 536, 135 A. 376; Eschen v. Steers (C.C.A.8) 10 F.(2d) 739, 740; Restatement Law of Trusts, §§ 17, 36, 99, 100.
In Eschen v. Steers, supra, we held that where a person, orally or in writing, explicitly or impliedly declares that he holds personal property in praesenti for another, he thereby constitutes himself an express trustee. "The majority opinion seeks to avoid the effect of this rule on the theory, that the trust must fail because at the time of its creation there was no existing beneficiary, and hence it is said there was no severance of the equitable and legal title. It assumes that there were no living persons who were cestui que aside from the settlor, and hence that there could be no trust until a remainderman came into being. But the question before us is not what may happen to the title in the period between the creation of the trust and the *30coming into being of a cestui que unborn at the time. The question to be determined is whether there is a valid present declaration of trust. Authority is not wanting to the effect that a trust may be created , even though the cestui que trust at the time of its creation is not in existence. For instance, the case of Folk v. Hughes, 100 S.C. 220, 84 S.E. 713, 714, cited in the majority .opinion, specifically so holds. In that case, J. W. Hughes conveyed land to his son G. W. Hughes by deed which contained a trust provision in favor of the son named as grantee, “and for the maintenance and support of the children of the said G. W. Hughes during the term of his natural life.” Thereafter, G. W. Hughes, the trustee, conveyed the land back to his father by general warranty deed which included a warranty against “the claims of myself and my heirs and assigns and all and every person whomsoever,” etc. The original trustor then reconveyed the property to his son G. W. Hughes by warranty deed. G. W. Hughes then mortgaged the property. At the date of the first deed to him (1890), containing the trust provision, G. W. Hughes was married but had no children, and he was still childless in 1892, the date of his reconveyance to his father, two years subsequent to the creation of the trust, so that at the time of the creation of the trust, outside of G. W. Hughes, there was no cestui que trust in being or conceived. Later, children were born through a second marriage of G. W. Hughes. The mortgage was foreclosed. In the course of the opinion it is said:
“ * * * the deed of 1890 must be construed as conveying to G. W. Hughes the land' therein described for life, for his own uses and in trust for the maintenance and support of his after-born children, with remainder in fee to his after-born children, if any, as purchasers. [Citing cases.] Of course, if no children had been born to G. W. Hughes, the fee would have reverted, by operation of law to J. W. Hughes. The remainder to the children of G. W. Hughes was contingent. Thereupon the question arises whether his reconveyance to J. W. Hughes, in 1892, before the birth of a child destroyed the precedent life estate in him, which was necessary to support such a remainder, and reverted the entire estate in J. W. Hughes * * * so as to destroy the intervening contingent remainder.”
The court held that these after-conceived and after-born children Were entitled to assert their rights under the trust even though they were not in being at the time of the creation of the trust. The court said: ‘
“It is not necessary to the creation of a trust estate that the cestui que trust should be in existence at the time of its creation. 1 Perry on Trusts, § 66; Tiffany & Bullard on Trusts, 3; Carson v. Carson, 60 N.C. 575 (Winst. 24); Ashurst v. Given, 5 Watts & S.(Pa.) [323] 329. In the case last cited, a devise to a father in trust for his children at the time of his death was held to be good, although the father had no children at the time of the vesting of the estate in him as trustee.”
But if it be assumed that there must have been in existence at the time of the creation of the trust a cestui que capable of taking, yet a prospective or potential heir, who under the terms of the trust may, under certain contingencies, be a beneficiary, fulfills this 'requirement. Salem Capital Flour Mills Co. v. Stayton Water-Ditch & Canal Co. (C.C.) 33 F. 146, 153; Hunt v. Hunt, 124 Mich. 502, 83 N.W. 371, 373; Restatement Law of Trusts, p. 446; Roberts v. Michigan Trust Co., 273 Mich. 91, 262 N. W. 744, 748.
In Salem Capital Flour Mills Co. v. Stayton Water-Ditch & Canal Co., supra, the court said:
“But it is objected that the deed from Porter and wife is void for want of a cestui que trust at the date of its execution. * * * But if this were otherwise, and there was no cestui que trust or use in existence at the date of the deed, nor until the actual incorporation of the woolen company in the December following, the objection is not well taken. Mr. Washburn (2 Washb. Real Prop. 3d Ed. 173,) after a careful review of the authorities, says: 'It may be laid down as a general proposition that it is not necessary, in order to create a trust-estate, that a cestui que trust should be named who is in being.’ And again (Id. 198) he says: ‘A trust may be valid and effectual, where a trustee is named, although the cestui que trust may not then be in esse, provided such cestui que trust subsequently came into being.’ ' See, also, on this point, Ashurst v. Given, 5 Watts & S.[(Pa.) 323] 328; Urket v. Coryell, 5 Watts & S.(Pa.) 60.”
The trust agreement gives the corpus to heirs if the issue or the wife do not take. It is conceded that there is at least one prospective or potential heir, the settlor’s *31brother. It is, of course, true that no one can be heir of the living, yet there may be prospective heirs, and the word “heir” is used as designating a class. The trust for the heirs is contingent, and the interest of the beneficiary in the trust may be either vested or contingent. Restatement of Trusts, § 129. Where a trust is created, contingent remaindermen are entitled, before the event vesting the trust remainder in them, to compel the execution of the trust according to its terms. This principle is announced in Hunt v. Hunt, supra, where it is said:
“It is, of course, impossible to now determine who will be the heirs of Charles at his death. In the event of his dying without children, his brothers and sisters, and the children of any deceased brother or sister will be the beneficiaries under the will. They are therefore entitled to take proceedings to protect the trust fund, to compel the appointment of trustees, and to have them properly execute the trust. The fact that Charles has made a will is of no significance. If his will were irrevocable, he would have no interest in this suit other than the enforcement of the trust. The only interest he would then have would be the income from the estate. But he may revoke his will at any time, and die intestate. His will might also be held void. In these events, the other beneficiaries would be entitled to the property.”
In Roberts v. Michigan Trust Co., supra, decided in October, 1935, the Supreme Court of Michigan reaffirmed the doctrine of Hunt v. Hunt. In the course of the opinion it is said:
“Plaintiffs are not interested in the income from the trust during their father’s lifetime, but they may secure the preservation of the corpus in accordance with the terms of the trust. See Hunt v. Hunt, 124 Mich. 502, 507, 83 N.W. 371, 373, in which the interest of the plaintiffs was very similar to that in the instant case. The textatrix empowered the life beneficiaries to ‘devise the property * * * but, should either fail to make a will, then it was to go to the heirs of each one.’ In an attempt to terminate the trust, it was held that the prospective heirs of one of the life beneficiaries were entitled to take proceedings to protect the trust fund.”
The opinion is an exhaustive and well-considered one and cites many authorities on this question. This would seem to be a complete answer to the theory announced by the Board of Tax Appeals that the petitioner “was the only beneficiary to the trust. There were no other interested parties. Clearly, this gave him absolute control to reinvest in himself title to the corpus of the trust, or to destroy the trust at will.”
Here settlor’s brother is a prospective heir, and the trust instrument at the date of its execution vested in him a contingent interest, and as said in Lewin on Trusts, page 874: “And generally a cestui que trust, who can allege an existing interest, however minute or remote may, upon reasonable cause shown, apply to the court to have his interest properly secured.”
The majority opinion expresses the view that no present interest was created in the prospective heirs because, it is said, the beneficiaries are to be determined at the time of his death. As has already been observed, one has no heirs until death, yet he may have prospective heirs, and the word “heir,” as used, designates a class. The instrument does not postpone the vesting of.the interest until the happening of the contingency recited, but, on the othcr hand, it provides that at such time the property shall be “distributed,” or “divided.” These words imply a prior vesting of property, or otherwise there would be nothing either to distribute or divide. The trust instrument vested and preserved the property awaiting the happening of a contingency, and then ordered its distribution.
The case upon which great reliance is placed is Doctor v. Hughes, 225 N.Y. 305, 122 N.E. 221. In that case there was a conveyance to a trustee in trust to pay the rents and profits to the grantor for life, and upon his death the trustee was to “convey the said premises (if not sold) to the heirs at law of the [grantor].” In the instant case, I have pointed out that the instrument provides not for a conveyance, but simply for a division or a distribution of the property. That the case is not an authority sustaining the views expressed in the majority opinion is indicated by a much later opinion from the same court. Schoellkopf v. Marine Trust Company, 267 N.Y. 358, 196 N.E. 288, 290. In this later case, the trust instrument provided that the designated cestui que should have power to designate a person to whom the income and principal should go in the event of the death during the continuance of the trust. Then it was provided that if they should fail to make such designation, the income should be paid “to the heirs of the party of the *32first part (the settlor) per stirpes, and not per capita, until the termination of this trust. In this connection, the word ‘heirs’ shall be construed to include those persons only who would be entitled to share in the distribution of personal estate under the laws of the State of New York at the time of such distribution.” The settlor attempted to revoke the trust, though he reserved no such power in the trust instrument. The two sons consented to the revocation, but the trustees maintained that the infant grandchildren and the great grandchildren of the settlor, issue of those who had consented, were minors and could give no consent. The court so held, and in the course of the opinion it is said:
“Here those who are described as ‘heirs’ receive a contingent remainder created by the trust indenture. They take as purchasers through a beneficial right derived from the trust instrument, and all who have a share in that right and who may, by survival or other event, become members of the class entitled to the remainder, have a beneficial interest in the trust which cannot be destroyed without their consent. * * * Though here no grandchild of the settlor can in any contingency share in the income or corpus of the trust estate, unless before the termination of the trust his or her parent, who has already given written consent, dies, yet the grandchild, in case of the death of thei parent before the date at which the class is determined, which is to receive a contingent gift from the settlor, will take as purchaser and not as heir or next of kin either of the settlor or any other ancestor. * * * The beneficial interest of these grandchildren in the trust is as certain as that of the settlor’s children. None can enjoy any interest in the trust fund who does not survive both of the life tenants and both of the persons whose lives measure the duration of the trust. All who do survive till then will alike be members of the class then entitled to the remainder, unless such right has been defeated by execution of the power of appointment by one of the life tenants.”
See, also, Mercantile Trust Co. v. Bergdorf & Goodman Co., 167 Md. 158, 173 A. 31, 93 A.L.R. 1205.
The majority opinion, I think, unduly stresses the alleged fact that the settlor was unmarried and without issue. If this were true, it cannot be assumed that the settlor will remain unmarried nor that he will remain without issue. Quigley’s Trustee v. Quigley, 161 Ky. 85, 170 S.W. 523; People v. Row, 135 Mich. 505, 98 N.W. 13; Taylor v. Crosson, 11 Del.Ch. 145, 98 A. 375; Rand v. Smith, 153 Ky. 516, 155 S.W. 1134; Shuford v. Brady, 169 N.C. 224, 85 S.E. 303.
There being no issue or claim of fraud, the petitioner should not be prejudiced by the fact that he may have had in mind diminishing the amount of his tax liability. So long as the method resorted to is legal, it is not material whether the result be obtained by investing in tax-exempt securities, or by the creation of a trust. Iowa Bridge Co. v. Commissioner of Internal Revenue (C.C.A.8) 39 F.(2d) 777; Jones v. Helvering, 63 App.D.C. 204, 71 F.(2d) 214; Bullen v. Wisconsin, 240 U.S. 625, 36 S.Ct. 473, 60 L.Ed. 830.
I am of the view that the decision of the Board of Tax Appeals should be reversed.