Wilson v. Anderson

• Decision Date: 19 March 1931
• Citation: 51 F.2d 268
• Parties: WILSON et al. v. ANDERSON, Collector of Internal Revenue.
• Court: U.S. District Court — Southern District of New York

51 F.2d 268 (1931)

WILSON et al. v. ANDERSON, Collector of Internal Revenue.

District Court, S. D. New York.

March 19, 1931.

Root, Clark, Buckner & Ballantine, of New York City (George E. Cleary, of New York City, and Clark T. Brown, of Washington, D. C., of counsel), for plaintiffs.

Robert E. Manley, Acting U. S. Atty., of New York City (W. H. Schulman, of New York City, of counsel), for defendant.

F. J. COLEMAN, District Judge.

Richard T. Wilson, Sr., died on November 26, 1910, leaving as part of his residuary estate the Commercial Building in New York City having a value at that time of $290,000. His son, Richard T. Wilson, Jr., who is the plaintiffs' testator, was one of the residuary legatees, and when the Commercial Building was sold in 1922 by the executors of the father's estate at a loss of $113,305.84, Richard T. Wilson, Jr., deducted his proportionate part of the loss, which is now conceded to be $22,660, from his total income reported for that year. The Commissioner of Internal Revenue disallowed the deduction and assessed an additional tax on account of it, which was paid under protest and is now sought to be recovered. If the deduction was proper, it is conceded plaintiff is entitled to recover $11,909.59 and $2,499.03 interest paid, together with interest on both amounts as provided by law.

The question presented is whether the residuary legatees under the father's will had the right to deduct from their individual incomes the loss sustained in the sale of the Commercial Building, or whether the deduction could only be made from the total income reported by the father's executors. Concededly the residuary legatees had the right to do so if the property was left to them directly and they became the holders of the legal title, subject to a mere power of sale in the executors; but the government contends that the property was given to the persons named as executors in trust for the residuary legatees. The plaintiffs deny that there was any trust and contend that even if there were one, its terms were such that the legatees became immediately entitled to the income and proceeds from the property and so had the right to deduct the loss in their individual returns.

The first problem is the construction of the father's will to determine whether the residuary estate was left in trust, and if so upon what terms. He left a net estate of approximately $16,000,000 consisting of various parcels of real estate valued at about $2,300,000 and personalty worth about $14,000,000. His general plan was to set up spendthrift trusts for each of his five children in the amount of $500,000 in some instances and of $1,000,000 in others, and to divide the residuum of the estate among them. He made a direct and express bequest of the trust funds to a named trustee, which was not one of the executors, and specified the terms of the trust, but as to the residuum he used the following words:

"All the rest, residue and remainder of my property, real, personal and of every kind and description, which I shall own at the time of my death, I direct my executors hereinafter named to sell and convert into personalty, and to divide the proceeds thereof into five equal parts which I give and bequeath as follows:

"(1) To my son Marshall Orme Wilson one of such parts to be his absolutely;

"(2) To my daughter, Mary R. Goelet one of such parts to be hers absolutely.

"(3) One of such parts to the amount of $500,000 I direct to be added to the trust fund of $500,000 created in and by the foregoing third Article of this will for the benefit of my son, Richard T. Wilson, Jr. and to be subject to the provisions of said Third Article, both as to the income therefrom and the disposition of the principal thereof, as if a part of said original trust fund; and the balance of such part I give and bequeath to my said son, Richard T. Wilson, Jr. to be his absolutely."

Provisions similar to that for Richard T. Wilson, Jr., were made for the remaining two children.

The testator was concerned about the nature of his property which consisted of real estate and of the stock of manufacturing and business corporations. He desired to provide not only for its division among his children, but also for protection against its loss of value after his death. He, accordingly, directed that the spendthrift trusts be constituted out of securities which were not the stock of business or manufacturing corporations, and provided:

"As the balance of my residuary estate will largely consist of real estate in this and other States and shares of manufacturing and business corporations which should not be sold excepting under favorable conditions, I direct my said executors to hold and manage such remaining portion of my residuary estate until in their judgment it can from time to time be advantageously sold and disposed of, not exceeding however a period longer than the lives of my sons, Marshall Orme Wilson and Richard T. Wilson, Jr., and the survivor of them, and I hereby authorize and empower my said executors within said period, to sell, convey, assign and transfer the same, or any part thereof, at such time or times as they may deem for the best interests of my estate, and upon such terms and conditions as they may deem proper, including the terms and mode of...