Fidelity & Columbia Trust Co. v. Lucas

• Decision Date: 09 July 1925
• Citation: 7 F.2d 146
• Parties: FIDELITY & COLUMBIA TRUST CO. v. LUCAS, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Kentucky

7 F.2d 146 (1925)

FIDELITY & COLUMBIA TRUST CO. v.LUCAS, Collector of Internal Revenue.

District Court, W. D. Kentucky.

July 9, 1925.

Bruce, Bullitt, Gordon & Laurent, of Louisville, Ky., for plaintiff.

W. S. Ball, Dist. Atty., of Louisville, Ky., and A. W. Gregg, Solicitor of Internal Revenue, and T. H. Lewis, Jr., Sp. Atty., Internal Revenue, both of Washington, D. C., for defendant.

DAWSON, District Judge.

Milton H. Smith, a resident of Kentucky, died on February 22, 1921, leaving surviving him a daughter, Mrs. Eva Lee Cooper, and two sons, Sidney Smith and Milton H. Smith, Jr.Plaintiff is executor of his estate.At the time of his death Mr. Smith was president of the Louisville & Nashville Railroad Company, and had held that position for many years, and had long been a man of extensive business affairs.On December 1, 1910, he and his wife executed a deed of trust to the Columbia Trust Company, by which he conveyed to that company, in trust for his children, certain real estate in the city of Louisville owned by him, and valued by the Commissioner of Internal Revenue at $100,000 as of the date of Mr. Smith's death.This deed contained the following provisions pertinent to the issues in this case:

"The property herein conveyed * * * shall be held by the second party as trustee for the period and upon the terms and limitations hereinafter set forth, and the rents, income and revenue derived therefrom shall be collected and paid over by the second party, and the corpus of the trust estate conveyed by it as follows, to wit:

"I.The net income or revenue accruing from the property herein conveyed shall be paid by the second party to M. H. Smith, first party, during his lifetime, or until he shall in writing otherwise direct, the same to be disposed of by him at his discretion in the interest of the beneficiaries hereinafter named, with such powers in him, of selection and exclusion as may be necessary to give him absolute control of the disposition of such income or revenue during the period herein fixed.

"II.Upon the death of said M. H. Smith, or upon being by him so authorized in writing, and to the extent of such authorization, the second party as trustee hereunder shall pay the net income or revenue derived from the property herein conveyed in equal proportions (one-third to each) to Milton Smith, Sidney Smith, and Eva Lee Smith, children of the first party herein; the interest of said Eva Lee Smith in the property herein conveyed or the income therefrom to be for her sole, separate, and exclusive use free from the debts, control, and marital rights of any husband she may hereafter have, with power in her to deal with, charge, and dispose of same or any part thereof as if she were unmarried.

"In the event any one of the three children of the first parties hereinbefore mentioned should die before the termination of the trust herein created, leaving a child or children, his or her portion of the income from his or her share of the trust estate herein created shall be appropriated by the trustee so far as necessary to the maintenance, support, or education of such child or children until such child or children shall become of legal age, when such portion of the income and any accumulations thereof in the hands of the trustee shall be paid over and delivered free of any trust or limitation to such child or children respectively when coming of age.

"Should any of the three children of the first parties hereinbefore mentioned die before the termination of this trust leaving no child or children, the share of such child so dying in the net income of the trust herein created shall belong and be paid over to the survivor or survivors of said three children and to the child or children of such as may have theretofore died, the child of any deceased beneficiary taking the parent's share.

"III.The trust herein created shall continue until December 1, 1922, and, except as herein provided, shall be terminated on that day, at which time the trustee shall by proper deeds convey the trust property in fee simple, free of any trust, to the persons entitled on that day to receive the income of the trust estate in the proportions in which they shall then be entitled to said income, excepting that such proportion of the trust property as may on that day belong or pass under this deed to minor children or heirs as provided in section II shall continue to be held by the trustee in trust for such minor children until they shall respectively attain the age of twenty-one years, when the trustee shall convey to each in fee simple, free of any trust, his or her portion of the trust estate."

On September 2, 1915, Mr. Smith and his wife executed a writing, conveying to the Fidelity & Columbia Trust Company, trustee, certain real and personal property therein described, in trust for their three children.Some of the property conveyed by this instrument was contributed by Mr. Smith and some by Mrs. Smith.The Commissioner of Internal Revenue fixed the value of the part contributed by Mr. Smith at $329,787.50.This instrument contained the following pertinent provisions:

"All of said personal and real property to be held by said second party in trust upon the following terms and conditions:

"First.The trustee shall have, and is now given, authority to sell any and all of the property transferred under this agreement, to reinvest the proceeds thereof, and to continue to do so from time to time as in its judgment it is to the interests of this trust to do so, provided that so long as said M. H. Smith may be disposed to act, any proposed sale of property transferred hereunder, together with the proposed reinvestments of the proceeds thereof, shall be submitted to and approved by him, and provided further that, if M. H. Smith shall cease so to act, any and all proposed sales and reinvestments shall be submitted to Sidney Smith, Milton Smith, and Eva Lee Cooper, hereinafter named as beneficiaries of this trust, the approval of two of whom shall be sufficient to authorize the trustee to make such sale or reinvestment, and, if by reason of death or other cause any two of said beneficiaries shall fail to agree, the trustee shall have and is hereby given power to act.

"Second.The net income derived from the trust fund shall be equally divided between and paid to Sidney Smith, Milton Smith, and Eva Lee Cooper, children of the first parties, in quarterly or monthly installments as may be most convenient to them."

"Fourth.If, prior to the expiration of this trust, any of said beneficiaries should die, leaving surviving issue, such issue shall receive the parent's share of the income.

"Fifth.If prior to the expiration of the trust hereby created any of said three beneficiaries, namely, Sidney Smith, Milton Smith, or Eva Lee Cooper, should die without leaving surviving issue, or should leave surviving issue that should thereafter die during the continuance of the trust, the income theretofore paid to said deceased beneficiary, or to his or her issue, shall thereafter during the continuance of the trust be paid to the other two of said three beneficiaries, or per stripes to the issue of either that may be then dead leaving issue then surviving.

"Sixth.If prior to the expiration of this trust all of said beneficiaries should die without surviving issue, or should leave issue that died before the termination of this trust, then and in that event this trust shall cease and determine, and one-half of the corpus of the trust estate shall pass in fee to the then living children of Sidney Bradford Jones, nephew of Annette M. Smith, or to the heirs of said Jones in the event he shall have no children then living, and the other one-half of said corpus shall pass in fee to the then living children of Addison R. Smith, nephew of M. H. Smith, or to the heirs of said Addison R. Smith, in the event he shall have no children then living.

"Seventh.At the expiration of fifteen (15) years from the date hereof, this trust agreement shall terminate, at which time the principal of the trust fund shall be distributed as follows:

"(a) Equally divided between said beneficiaries, Sidney Smith, Milton Smith, and Eva Lee Cooper, if all are living at that time."

The instrument also makes disposition of the interest of the children in event of their death before the expiration of the trust period.

On November 15, 1915, Mr. Smith transferred to the Fidelity & Columbia Trust Company $4,000 in cash, to be by it held in trust for the benefit of certain heirs of Mrs. Emma Weiland, a sister of Mr. Smith.This $4,000 came into Mr. Smith's hands as the result of two trust agreements executed to him as trustee — one by Mrs. S. G. Gibbs, dated February 14, 1902, conveying $1,000 to him as trustee, the interest on which was to be paid to Mrs. Gibbs during her life and after her death to Mrs. Weiland, and after the death of Mrs. Weiland the fund to be divided between Mrs. Weiland's children; and one by Mr. Smith and the other brothers and sisters of Mrs. Weiland, dated January 3, 1910, by which there was conveyed to Mr. Smith as trustee $3,000, to be held in trust for the benefit of Mrs. Weiland and her children, she to receive the income during her life, and the corpus of the trust fund to be divided among her children at her death.The $3,000 covered by this trust deed was the entire estate left by a Mrs. Blanchard, and which at her death passed to Milton H. Smith and his brothers and sisters, and which, by agreement, was voluntarily turned over to Mr. Smith as trustee, to be by him held for the benefit of Mrs. Weiland and her children.Each of these deeds authorized Mr. Smith, if he so desired, to appoint some reputable trust company as trustee to act in his stead.

By a written assignment, dated September 4, 1915, Mr. Smith transferred to his wife, Mrs. Annette M. Smith, two policies of insurance on his life, each for the sum of $10,000.

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