Court Opinion

ID: 9460262
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:46:01.088511+00
Date Added: 2024-06-11T17:36:33.017420
License: Public Domain

VAN DUSEN, Circuit Judge,
with whom ALDISERT and WEIS, Circuit Judges, join, dissenting:
I respectfully dissent. In construing the trust instrument, admittedly governed by New York law, “ . . . it is the duty of the court to give effect to the intent with which the declaration of trust was made, so far as such intent can be collected from the whole instrument. (1 R.S. 748, § 2). And for this purpose reference may be had to the general scheme of the trust, its object and purpose as so represented. Knowlton v. Atkins, 134 N.Y. 313, 319, 31 N.E. 914, 916 (1892). See also Farmers’ Loan & Trust Co. v. Callan, 246 N.Y. 481, 487, 159 N.E. 405 (1927); Matter of Fields, 302 N.Y. 262, 97 N.E.2d 896 (1951). Also, evidence of circumstances surrounding the creation of the trust is admissible where, as here, the meaning of the trust as to the trustee’s power to name herself as trustee is uncertain and ambiguous. See Restatement of Trusts 2d, §. 24, comment (b), p. 67,1 and § 38, comment (a), p. 103;2 Spencer v. Childs, 1 N.Y.2d 103, 150 N.Y.S.2d 788, 789, 134 N.E.2d 60 (1956).
The following are among the items to be considered in construing the above intent. As noted by the majority, the decedent set up in 1955 the identical trusts for her grandchildren, the corpus of which were included in her estate for purposes of federal estate tax.3
“The creation of the trusts was motivated, at least in part, by the 1954 legislation making the annual $3,000 gift tax exclusion available in connection with certain forms of gifts in trust for minors. In 1954 the Code, for the first time, provided that, under certain conditions, gifts in trust for minors would not be considered gifts of future interests and thus would fall within the $3,000 annual gift tax exclusion. See 26 U.S.C. § 1622.” (Note 3, majority opinion.)
“When [the decedent] died in September, 1965, . . . [the trusts] were valued at $808,018.52.” (Page 482, majority opinion.)
“ . . . [the decedent’s] personal portfolio was managed by The Empire Trust Company [the corporate trus*488tee], and she had no evident interest in corporate reports, proxy statements, financial journals, or the like. Her energies were devoted primarily to her family and to certain charities.” (Page 485, majority opinion.)
Also, the district court found the following background facts:
“Mrs. Mathey originally had the trusts created upon the suggestion of her second husband, Mr. Dean Mathey who, at the time was chairman of the Board of Empire Trust Company. It was Mr. Mathey who actually supervised the creation of the trusts since Mrs. Mathey devoted her life to the care of her family and to certain charities and had little, if any, knowledge of investment or financial matters. [4a]
“ . . . Mrs. Mathey’s personal characteristics indicate it was unlikely she would appoint herself trustee, . . . .” [8a]
In addition to the foregoing, the uncontradicted evidence showed that the decedent-grantor had no interest in, or experience with, investments and that the reservation of the right to change the trustee had been included in the trusts at the suggestion of her husband. Pages 34-37 of the transcript of May 26, 1971, make clear that Mr. Mathey had included in the trust the provision for change of the trustee so that the corporate trustee could be removed if it became too restrictive in its investment policy.4 By having such a provision, Mr. Mathey would have been able to tell the officers of the trustee that if they persisted in refusing to make what he considered prudent and desirable investments because of undue fear of possible surcharge, he would have to go to his wife and suggest a removal of the trustee. In his experience, when this possibility was suggested to the corporate trustee’s officers, they would approve the investment (see, particularly, N.T. 34-35, 38-39).5
Experts for both plaintiff and defendant (Parsons and Bush, respectively) agreed that in the situation presented by this record, the object and purpose of these trusts were to make tax-free gifts to the donee-grandchildren and to remove the property from the taxable estate of the donor for estate tax purposes (N.T. 64 and 157; see also N.T. 29-30). New York courts, as well as this court, have recognized that the presumed intent of a decedent in transferring property by gift inter-vivos is to save estate taxes. See Dodd v. United States, 3 Cir., 345 F.2d 715, 718 & 719 (1965); In re Ossman’s Will, 27 Misc.2d 632, 209 N.Y.S.2d 251 (Surr.Ct.1960); Matter of Wolf, 204 Misc. 356, 121 N.Y.S.2d 412 (Surr.Ct.), aff’d, 282 App.Div. 1018, 126 N.Y.S.2d 302 (1953), aff’d, 307 N.Y. 280, 121 N.E.2d 224 (1954); Matter of Peters, 204 Misc. 333, 88 N.Y.S.2d 142 (Surr.Ct.), aff’d, 275 App.Div. 950, 89 N.Y.S.2d 651 (1949).
The language of the trust instrument in the following respects indicates that the decedent-grantor did not intend to *489reserve the right to appoint herself as trustee:
A. The language consistently referring to the trustee as “it.”
B. The failure to include any provisions authorizing an individual trustee to employ investment advisors, accountants, etc., which a trustee with the lack of investment experience and knowledge of the decedent-grantor would clearly require.
C. The provision for fees in Article Sixth only for removed corporate trustees, as opposed to individual trustees.
In light of the foregoing principles of trust construction recognized by New York law, it is my view that the New York courts would not have permitted the grantor to serve as trustee of these trusts.6 See City Bank Farmers Trust Co. v. McFadden, 65 N.Y.S.2d 395 (Sup. Ct.1946); Guaranty Trust Co. of New York v. Mackey, 178 Misc. 862, 36 N.Y. S.2d 535, 537 (Sup.Ct.1942); Application of Wehrli, N.Y.L.J., 11/5/70, p. 2, aff’d, 36 A.D.2d 488, 321 N.Y.S.2d 438 (1st Dept. 1971), aff’d without opinion, 30 N.Y.S.2d 510, 330 N.Y.S.2d 60, 280 N.E.2d 887 (1972).7
The Supreme Court of the United States has recently held in United States v. Byrum, 408 U.S. 125, 136, 92 S.Ct. 2382, 2390, 33 L.Ed.2d 238 (1972), that the word “right,” as used in the estate tax statutes discussing the retention and reservation of “rights,” “connotes an ascertainable and legally enforceable power” which the decedent-grantor in this case did not have under the above-cited New York cases. The Court also stated in the Byrum, ease supra at 147, 92 S.Ct. at 2396, in holding that no estate tax was due on the corpus of an inter-vivos trust:
“In none of the cases cited by the Government has a court held that a person has retained possession or enjoyment of the property if he has transferred title irrevocably, made complete delivery of the property and relinquished the right to income where the property is income producing.”
The non-technical approach of Byrum, supra, has been used in other recent federal estate tax decisions. See Peoples Trust Co. of Bergen County v. United States, 444 F.2d 193, 199 (3d Cir. 1971);8 Estate of James S. Todd, Jr., 57 T.C. 288 (1971), Acg. I.R.B.1973—-28.5.
I would vacate the district court order, remand, and direct entry of judgment for the plaintiffs.

. The first sentence of this comment provides :
“In the interpretation of the words and other conduct of the settlor, circumstances throwing light upon the settlor’s intention are relevant, and evidence of such circumstances is admissible except when excluded by the parol evidence rule, . . . . ”

. The second sentence of the comment states:
“If the meaning of the writing is uncertain or ambiguous, evidence of the circumstances is admissible to determine its interpretation.”

. Two of such eleven identical trusts were created in 1961 and 1962.

. Mr. Mathey testified that he had not even discussed this provision with the decedent, “Mrs. Mathey wasn’t interested anyhow” (N.T. 35), and he went on to testify (N.T. 36) :
“Q. Do you recall whether Mrs. Mathey ever read Exhibit P-1 or any of these other trusts?
“A. I am sure she didn’t read it. ‘You have to sign this, Helen. ‘Okay, it is all done.’ ”

. I cannot find in the record as a whole any “evidentiary support displaying some hue of credibility,” Krasnov v. Dinan, 465 F.2d 1298, 1302 (3d Cir. 1972), for this statement of the district court at page 6 of its opinion (8a) and believe that it is clearly erroneous :
“Indeed, he [Mr. Mathey] implied that when the original trusts were drawn up, he intended for the decedent to be able to appoint herself trustee (Tr. 42).”
In my view, the testimony of Mr. Mathey (over 80 years old) that she was to be trustee along with the bank, at N.T. 42-47, was clearly the result of confusion of this, witness and is not credible.

. The witnesses pointed out that if the grantor had been named as trustee, she would have been serving in that capacity at the age of 90, assuming that she had lived until all the trusts terminated, using language such as:
“Here is a woman with no business experience, no knowledge, no interest, according to the testimony given by Mr. Behr and Mr. Mathey, in financial affairs or investments, having none of the ordinary qualifications to be a trustee, and with death on her part almost certain to ensue before the falling in of these trusts.”

. The above cases and the testimony make clear the New York procedure for securing court approval at the time of appointing a successor trustee. Also, it is noted that considering the legal situation as of the moment before the grantor’s death, she was then 74 and a New York court would not have approved an attempt that such a grant- or be substituted in place of . a corporate trustee, in view of the factual background of this trust.

. “. . . [I]t is inconceivable that the courts of that state would permit a New Jersey trustee to pursue an investment policy designed to divert corpus from the remainderman to a life beneficiary.”