Court Opinion

ID: 6911808
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:25:20.100385+00
Date Added: 2024-06-11T16:06:31.917117
License: Public Domain

KALODNER, Circuit Judge
(dissenting).
These principles are well-settled:
Where, in a state where the assignment is revocable, the beneficiary of a spendthrift trust makes an assignment of income payable to him under its terms, the circumstance that the assigned income was paid directly by the trustees to the assignee does not relieve the beneficiary from liability to pay the income tax imposed by law on such income.1
Under Pennsylvania law an assignment by a beneficiary of income payable to him under the terms of a spendthrift trust is revocable at any time; in other words the beneficiary of a spendthrift trust cannot irrevocably assign or disclaim his trust interest.2
The will under which the plaintiff was named a beneficiary became effective on March 19, 1942, and the trust clearly had become operative since the taxpayer reported all the trust income as her own for the year 1942. Consequently, the testamentary trust here involved comes squarely within settled Pennsylvania law. It is clear therefore that the plaintiff’s disclaimer could not operate to divest her irrevocably of her full trust interest.
The propositions contained in the foregoing paragraphs are, for me, dispositive of the case and require an affirmance of the judgment of the District Court.
The majority does not find these propositions material to this appeal because *228it holds that regardless of the applicable Pennsylvania law on the assignability of spendthrift trust interests, the Orphans’ Court has in fact ruled that the plaintiff irrevocably divested herself of all but a one-thirteenth interest in the trust. If the Orphans’ Court had so held I would agree that the plaintiff would not be taxable on the “disclaimed” interest.3
I do not, however, agree that this is the interpretation to be placed upon the disposition of the Orphans’ Court.
In my view that Court merely confirmed the trustees’ account and did not adjudicate the plaintiff’s property rights in the trust.
With respect to the plaintiff’s interest created by the will the Orphans’ Court stated only that “the distribution of income shown by the account and the proposed future distributions are not inconsistent with the directions in decedent’s will * * (Emphasis supplied.) Since under the will the plaintiff was requested, in precatory language, to provide funds for the “maintenance and support” of his children, an outright gift of income to them by the plaintiff would not be “inconsistent” with the testator’s disposition. There is no intimation by the Orphans’ Court that by the will itself any interest was vested in the children.4 Nor did the Orphans’ Court rule that the plaintiff had irretrievably disclaimed all but a one-thirteenth interest in the trust. The Court’s statement that “there can be no question of the right of the widow to disclaim or to renounce any beneficial interest to which she may be entitled under the will of her husband” must be read to mean that the plaintiff could if she wished divert .her income to the children. Were the quoted statement to be read as meaning that the plaintiff had power to dispose irrevocably of her beneficial interest it would constitute a clear misreading of the Pennsylvania law. The Court merely held that the plaintiff could assign her income to her children and that this assignment would continue to be effective until withdrawn. The “right” of the plaintiff to disclaim, referred to by the Orphans’ Court, must be interpreted to mean that the' plaintiff could give the trustee revocable authorization to pay income to the assignee.
The Orphans’ Court disposition must be viewed against the background of well-settled practice therein, of which we can take judicial notice, that amicable intra-mural family arrangements relating to distribution of estate and trust income and property be confirmed as a matter of public policy.
As stated in Re Way’s Estate, 1954, 379 Pa. 421, 437, 109 A.2d 164, 172, “Family agreements or settlements are favorites of the law and when fairly made will not be disturbed. In re Edelman’s Estate, 336 Pa. 4, 6 A.2d 511, 8 A.2d 799.”
This settled practice strengthens my conviction that the Orphans’ Court did not purport, in the instant case, to adjudicate property rights but merely followed its practice of refusing to disturb distributions to which all parties in interest had assented.
Since the plaintiff has therefore always had complete control of the “disclaimed” interest, in that she could at all times *229have revoked her authorization to the trustees, she is in accordance with the authorities cited, taxable for all the income attributable to that interest.
For the reasons stated I would affirm the judgment of the District Court.

. “When the beneficiary makes an assignment of future income and directs the trustee to pay such income to the assignee, such an assignment, in the case of spendthrift trusts, is invalid in the sense that it can be revoked at any time by the beneficiary, but, unless and until so repudiated, it constitutes a valid authority to the trustee to make payments of the successively accruing installments on income to the assignee.” In re Keeler’s Estate, 1939, 334 Pa. 225, 231, 3A.2d 413, 416,121 A.L.R. 1301.
This principle was reaffirmed in Re Borsch’s Estate, 1949, 362 Pa. 581, 67 A. 2d 119. The Act of June 1, 1945, P.L. 3337, 68 P.S. § 581 et seq. provided for the release or disclaimer of property or income therefrom, irrespective of spendthrift provisions. The Act was held unconstitutional as applied to operating spendthrift trusts created prior to its enactment. In the course of its opinion the Court stated: “While the life tenant may presently decline spendthrift income (which in the interim may be distributed to others under the terms of the will or by law), it may subsequently develop that the creator of the trust was wiser than the beneficiary who may thereafter desire to repudiate her release and renunciation and receive future income.” 362 Pa. at page 589, 67 A.2d at page 123.

. Blair v. Commissioner, 1937, 300 U.S. 5, 57 S.Ct. 330, 81 L.Ed. 465; Milliken v. Meyer, 1940, 311 U.S. 457, 61 S.Ct. 339, 85 L.Ed. 278.

. It is difficult to perceive how such a construction could be made. In re Cunningham’s Estate, 1940, 340 Pa. 265, 272, 16 A.2d 712, 715, states the applicable Pennsylvania law: “The general rule is that expressions for the support or maintenance of a beneficiary and the support, instruction and education of the beneficiary’s children are considered explanatory of the object of the gift and not as vesting any interest in the children referred to; they are regarded as explanations of the motive for making the gift and not as limitations of it. See Schuldt v. Reading Trust Co., 292 Pa. 327, 330, 141 A. 152; Paisley’s Appeal, 70 Pa. 153, 158; Cox v. Rogers, 77 Pa. 160, 165; Jauretche v. Proctor, 48 Pa. 466, 471.”