Commissioner of Internal Revenue v. Goodan, and Six Other Cases

195 F.2d 498, 41 A.F.T.R. (P-H) 1085, 1952 U.S. App. LEXIS 4038

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 5, 1952
• Docket: 12550_1
• Status: Published

Opinions

PER CURIAM.

These are petitions to review decisions of the Tax Court of the United States entered in the above entitled matters. The opinion of the Tax Court, as originally promulgated, is reported at 12 T.C. 817. The decisions first entered pursuant to that opinion were vacated to enable the Court to consider a Motion to Reconsider. The order denying that motion was accompanied by a memorandum which appears in the margin.¹

The decisions were thereupon reentered and the petitions for review which are before us relate to the reentered decisions.

The questions presented upon such petitions for review, as stated in the petitioner’s brief, were as follows:

“1. Whether the taxpayers who are the grantors, trustees and principal beneficiaries of the family trust involved here are subject to tax under Section 22(a) of the Revenue Act of 1938 and of the Internal Revenue Code on taxable stock dividends which were received by the trust in the taxable years and were added by the trustees to the corpus of the trust.

“2. Whether such stock dividends were taxable to the taxpayers herein as grantors of the trust under Section 167 of the Revenue Act of 1938 and the Internal Revenue Code.”

Without considering whether in confining his argument before us to the two questions just quoted, the Commissioner would be deemed to have abandoned some of the points argued by him before the Tax Court, cf. Iob v. Los Angeles Brewing Co., 9 Cir., 183 F.2d 398; Western National Ins. Co. v. Le Clare, 9 Cir., 163 F.2d 337, 340; E. R. Squibb & Sons v. Mallinckrodt Chemical Works, 293 U.S. 190, 55 S.Ct. 135, 79 L.Ed. 279, the majority of the court are of the view that the opinion of the Tax Court, including the supplemental opinion which appears in the footnote hereto, was right, and that the decisions should be affirmed for all the reasons therein stated.

1 . “Memorandum Accompanying Order. The principal ground for respondent’s motion is that Bixby v. California Trust Company ([CalApp.] (1948), 190 P.2d 821, cited and relied upon in our report, was reversed by the Supreme Court of California in Bixby v. California Trust Company, (1949,) 33 Cal.2d 495, 202 P.2d 1018, which was subsequent to the time this case was submitted to us. Respondent contends that under the California law, as restated by its Supreme CoiAt in the 1949 Bixby decision, the present trust created no remainder interests in the heirs-at-law and the trust is revocable and terminable.

“In its 1949 Bixby decision the California Supreme Court clearly stated the general rule to be: ‘Where the trustor is the sole beneficiary * * *, he can compel termination in the absence of a showing of incapacity or other reason why he should not be permitted to exercise control over his property * *.’ [Emphasis supplied]. And with equal clarity the California Supreme Court stated the following limitation or exception to the general rule: ‘On the other hand, if remainder interests were created in plaintiff’s [Bixby] heirs, they were also beneficiaries, and the court could not terminate the trust without their consent.’ [Emphasis supplied].

“Whether remainder interests were created in the trustor’s heirs-at-law is a matter of intent according to the California Supreme Court. And where the trustor creates a life estate in himself with a gift over to his heirs he ordinarily intends the same thing as if he had given the property to his estate; he does not intend to make a gift to any particular person but indicates only that upon his death the residue of the trust property shall be distributed according to the general laws governing succession, and he does not intend to create in any persons an interest which would prevent him from exercising control over the beneficial interest. See 33 Cal.2d 498, 202 P.2d 1019.

“Under well recognized rules of construction of written instruments all provisions of a trust indenture must be given consideration in arriving at the intent of the parties thereto. No trustor here provided for the termination of the trust on his or her death with gift over to heirs generally as in the Bixby ease. On the contrary each trustor provided that upon his or her death trust income should go to a particular person, the spouse. In the event the spouse predeceased the trustor, the trust income was given to a particular class of persons, the issue. If no spouse and no issue survived the trustor then gave the trust income to the living heirs of the trustor until the termination of the trust. Similarly the trustor provided that upon termination of the trust the trust corpus was vested in and distributable to a particular class, namely, his or her then living issue, per stirpes; and if none survived, trust corpus was to go, upon termination of the trust, to the living heirs-at-law, the identity and respective shares to be determined by California law in force at the time of the trustor’s death. It was only after the natural objects of the trustor’s bounty ceased to exist that the California law of succession was to take its course.

“Nor could the trustors under the power of appointment reserved to them in Art. HI of the trust instrument vest at death such an interest in the corpus as heirs generally take under California law. This is so for the reason that Art. IV fixes the termination of the trust upon the death of the last survivor of 21 named individuals. Art. IV is irrevocable. Art. IX expressly prohibits the trustors from doing anything, directly or indirectly, that would terminate the trust prior to the expiration of the fixed term thereof, to vest the unrestricted ownership, use, possession and control of trust corpus in themselves or in their appointees, at or prior to the expiration of the fixed term of the trust. Should an attempt be made under the power of appointment to appoint corpus to heirs generally at death, the possession and control thereof would be held in abeyance until the death of the last survivor of the 21 named individuals. Corpus could not pass at death to the heirs-at-law generally as the Supreme Court of California in the Bixby case said would be necessary to give trustors such rights of control as would make them in effect owners of the corpus. As the trustors could not vest the unrestricted use, possession and control of the corpus in their heirs-at-law at death, their appointees, whether heirs-at-law or others, would be in no better position under California law. In other words, the appointees take their interests subject to the terms of the trust agreement.

“For the foregoing reasons the decisions vacated August 15, 1949 will be reentered.”