116 F.2d 312 (1st Cir. 1940), 3613, White v. Higgins

Docket Nº:3613.
Citation:116 F.2d 312
Party Name:WHITE v. HIGGINS et al.
Case Date:December 12, 1940
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
FREE EXCERPT

Page 312

116 F.2d 312 (1st Cir. 1940)

WHITE

v.

HIGGINS et al.

No. 3613.

United States Court of Appeals, First Circuit.

December 12, 1940

Page 313

[Copyrighted Material Omitted]

Page 314

Edward First, Sp. Asst. to Atty. Gen. (J. Louis Monarch, Sp. Asst. to Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and Edmund J. Brandon and C. Keefe Hurley, both of Boston, Mass., on the brief), for appellant.

Charles M. Rogerson, of Boston, Mass. (Roger W. Hardy, of Boston, Mass., on the brief), for appellees.

Before MAGRUDER and MAHONEY, Circuit Judges, and PETERS, District Judge.

MAGRUDER, Circuit Judge.

These two actions, consolidated on appeal, were brought to recover back certain income taxes paid for the years 1924 to 1927. They involve identical issues-- whether the income of certain trusts is taxable to the grantors under the applicable provisions of the Revenue Acts of 1924, 43 Stat. 253, and of 1926, 44 Stat. 9, 26 U.S.C.A.Int.Rev.Acts, pages 1 et seq., and 145 et seq. The litigation was here before. Higgins v. White, 1 Cir., 93 F.2d 357.

At various times during 1924-1926, inclusive, the appellee Clara C. Higgins created ten funded life insurance trusts to which she transferred securities. Each of the trusts so created also received a life insurance policy upon the life of Clara's husband, John W. Higgins, which had theretofore been applied for by him. Two of the policies were assigned by Mr. Higgins directly to the respective trusts, and the others were assigned by him to his wife who in turn assigned them to the respective trusts.

During the same period, 1924-1926, the appellee John W. Higgins created sixteen funded life insurance trusts to which he transferred securities. Each of the trusts so created also received a life insurance policy upon the life of Clara, which had been applied for by her. Three of these policies in which Mr. Higgins was originally named as absolute beneficiary were assigned by him directly to the respective trusts, and the other thirteen policies in which the estate of Clara C. Higgins was original beneficiary were assigned to their respective trusts by Mrs. Higgins alone, or jointly with her husband.

All twenty-six trusts are identical except for variations in the policies and securities delivered to the trustees and the dates of execution of the trust instruments.

The trustees named in the wife's trusts were Mrs. Higgins and the Boston Safe Deposit & Trust Company. The trustees named in the husband's trusts were Mr. Higgins and the same trust company. However, it was provided in Article Sixth of each of the trusts that the individual trustee by formal instrument 'shall have full power and authority to remove any person who may from time to time be a Trustee hereunder, whether the Corporate

Page 315

or the Individual Trustee, and to appoint another person in his, her or its place, to increase the number of the Trustees hereunder and to appoint additional Trustee or Trustees to fill the place or places so created and to reduce the number of Trustees. ' In Article Fifth it was provided that 'Nothing hereinabove set forth shall be construed to require that there must be two Trustees. ' No trustee is liable for losses 'unless such loss shall happen through his own wilful default.'

Other provisions of the trust instruments may be summarized from a typical trust set up by Mrs. Higgins, as follows:

First: The trustees are directed, out of both principal and income of the property transferred to them, to pay the premiums upon the policy on the life of John W. Higgins.

Second: The trustees are empowered 'in their sole uncontrolled discretion' to surrender the policy and receive the cash surrender value thereof or to convert the policy into a paid-up policy of life insurance.

Third: 'Any funds in the hands of the Trustees which the Trustees shall deem not to be needed to pay premiums, together with any other property which may from time to time be received by them, shall, except as hereinafter provided, be held during the lifetime of John W. Higgins, in trust, to add the net income thereof to the principal and accumulate said net income, provided that if at any time during the continuance of this trust and during the lifetime of said John W. Higgins the Trustees shall deem it wise so to do they may use any of the funds in their hands specifically including the cash surrender value of said policy for the benefit of Clara C. Higgins and the issue of said John W. Higgins and Clara C. Higgins by paying out to her and them, or any one or more of them, such sums or sum out of the principal as they shall deem necessary or advisable for the comfort, maintenance, support, advancement, education or welfare of said Clara C. Higgins and said issue or any or more of them, or they may surrender and assign said policy and the trust property held hereunder to said Clara C. Higgins, in which case this trust shall cease and determine.'

Fourth: Upon the death of John W. Higgins the proceeds of the insurance policy received by the trustees, together with the other trust property, shall be held in trust for the following uses, namely:

'(a) For a period of three (3) years from the date of the death of John W. Higgins the trustees shall add the net income of the trust property to the principal and accumulate it, except as hereinafter provided. Upon the expiration of said period of three (3) years, the Trustees shall pay the entire trust property at that time in their hands to Clara C. Higgins, if she be living * * * ', otherwise, the property is to be distributed to such of her issue, or the husband, wife, widow or widower of such issue, as she should by her last will appoint, and in default of appointment, to the issue of John and Clara living at that time by right of representation.

'(b) Notwithstanding the foregoing paragraph, the Trustees shall within said period of three (3) years, next following the death of said John W. Higgins, have full and absolute power in their own uncontrolled discretion to use the principal and income of the trust property, in whole or in part, in such a way and for such purposes as they shall think will most promote the best interests and welfare of said Clara C. Higgins or her appointees or the issue of said John W. Higgins and Clara C. Higgins or their appointees. Such sums may be paid directly to said Clara C. Higgins or to her appointees or to such issue or to their appointees or any or more of them, or may be directly paid by the Trustees in their own uncontrolled discretion.'

Articles Fifth and Sixth have been referred to previously.

Seventh: The trustees are given broad powers of management, investment and reinvestment of the trust property. Any of the property may be sold, 'at public or private sale without the decree of any court.'

The trusts created by Mr. Higgins contain the same provisions, except for interchange of the names of the spouses.

The Commissioner ruled that the income of each of the trusts for the years in question was taxable to the respective grantors, appellees herein, and assessed additional income taxes upon them. The amounts so assessed were paid. Timely claims for refund were made and disallowed, and the present suits were brought within the time limited by the statute.

In each case the Collector filed a demurrer to the plaintiff's declaration in the following terms:

Page 316

'Now comes the defendant in the above-entitled action and demurs to the plaintiff's declaration upon the ground that such declaration and the matter contained therein in the manner and form as therein set forth are not sufficient to constitute a cause of action for that it does not appear from the plaintiff's declaration that the income received by the trustees during the years 1924, 1925, 1926 and 1927 under the insurance trusts referred to in said declaration was not properly included in the plaintiff's gross income for said years under the provisions of Section 219(g) (h) of the Revenue Acts of 1924 and 1926.'

The demurrers were sustained by the District Court and judgments rendered for the defendants. On appeal, we reversed the judgments of the District Court, 18 F.Supp. 986, and our mandates remanded the cases to that court 'for...

To continue reading

FREE SIGN UP