Higgins v. White
| Citation | 93 F.2d 357 |
| Decision Date | 08 December 1937 |
| Docket Number | No. 3272.,3272. |
| Parties | HIGGINS et al. v. WHITE. |
| Court | United States Courts of Appeals. United States Court of Appeals (1st Circuit) |
Charles M. Rogerson, of Boston, Mass. (Roger W. Hardy, of Boston, Mass., on the brief), for appellants.
Joseph M. Jones, Sp. Asst. to the Atty. Gen. (James W. Morris, Asst. Atty. Gen., and Sewall Key and Norman D. Keller, Sp. Assts. to the Atty. Gen., on the brief), for appellee.
Before BINGHAM, WILSON, and MORTON, Circuit Judges.
These two income tax cases, in which Clara C. Higgins and John W. Higgins are the respective plaintiffs, involve the same question and are consolidated in one record on appeal to this court. The actions were separately brought in the District Court for the district of Massachusetts to recover taxes claimed to be erroneously assessed. The government demurred to the plaintiff's declaration in each case, which was sustained. Exceptions were allowed. The following assignment of error is sufficient to raise the sole issue in the cases: That the District Court erred in ruling that the income of the trusts described in the plaintiff's declaration was taxable to the grantor of the trusts under section 219 (g) of the Revenue Act of 1924, 43 Stat. 275, which was reenacted without change in the Revenue Act of 1926, 44 Stat. 32.
The plaintiff Clara C. Higgins, on June 24, 1924, created certain trusts, naming herself and the Boston Safe Deposit & Trust Company as trustees, and her husband, John W. Higgins, at the same time created similar trusts, each trust providing mutatis mutandis that certain policies of life insurance payable to the creator of the trust should be payable to the trustees named, and also assigning to said trustees certain other property, with the right in said trustees to pay the premiums of said policies out of the property so transferred; also, to use any dividends on said policies to reduce premiums thereon, or to allow said dividends to remain with the insurance company at interest, or to have them added to the policies as paid-up insurance, or to surrender such policies and receive the cash surrender value thereof, or to convert such policies into paid-up policies of life insurance.
The provisions of the declarations of trust in which Clara C. Higgins was the grantor, and also in those in which John W. Higgins was the grantor, that give rise to the questions raised on appeal, are contained in paragraph third of the trust indentures, which reads as follows: "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 one 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."
The decision of this case rests in the proper interpretation of the provisions of this paragraph.
If, as the government contends, the last clause is separate and independent of what has gone before, and the grantor and the other trustee under each trust has the absolute and unconditional power to surrender the trust res at any time to the grantor and terminate the trust, then under subdivisions (g) and (h) of section 219 of the Revenue Acts of 1924 and 1926, the income of the trust is taxable to the grantor; but if, as the plaintiffs contend, before the trust property may be surrendered to the grantor it must be determined first by the trustees as such, whether they deem it advisable to use a part of the principal of the trusts for the comfort, maintenance, and support of Clara C. Higgins, and mutatis mutandis of John W. Higgins, or the education and welfare of the issue of Clara C. Higgins and John W. Higgins, or to surrender the entire trust property to the grantor of the trusts and thus terminate the trusts, then the trusts do not fall within section 219 (g) or (h) of the 1924 and 1926 acts, which read as follows:
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White v. Higgins
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