Department of Revenue v. Kentucky Trust Co.

• Decision Date: 21 March 1958
• Parties: DEPARTMENT OF REVENUE et al., Etc., Appellants, v. The KENTUCKY TRUST COMPANY, Executor under the Will of Alex Galt Robinson, Deceased, Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 401

313 S.W.2d 401

DEPARTMENT OF REVENUE et al., Etc., Appellants, v. The KENTUCKY TRUST COMPANY, Executor under the Will of Alex

Galt Robinson, Deceased, Appellee.

Court of Appeals of Kentucky.

March 21, 1958.

Rehearing Denied June 13, 1958.

Jo M. Ferguson, Atty. Gen., John L. Ward, Hal O. Williams, Asst. Attys. Gen., Dept. of Revenue, for appellants.

James W. Stites, Louisville, for appellee.

SIMS, Judge.

Appellant, Department of Revenue, hereinafter referred to as Department, assessed a tax of $6,961.08 against a trust estate created by Alex Galt Robinson on the theory there was a possibility the estate would revert to Mr. Robinson and the entire corpus of same was taxable at his death under KRS 140.010. The executor paid this tax under protest and filed its petition for appeal in the Franklin Circuit Court asking that under KRS 134.580 the court order the Department to refund the tax paid. The trial judge held that under the trust agreement there was a possibility the estate would revert to Mr. Robinson and the value of the 'possibility of reverter' was taxable under KRS 140.100. Both the Department and the executor have appealed.

On November 27, 1935, Mr. Robinson executed an inter vivos trust providing his wife should receive the income from the trust fund for life and at her death the income should be paid to his two daughters during their lives, with cross-remainder in the event of no lineal descendants, otherwise to such descendants; if both daughters should die without lineal descendants, the instrument provides 'said trust shall be distributed to Trustor's heirs at law in accordance with the laws of descent and distribution then in existence under the laws of Kentucky.'

Paragraph 7 of the trust agreement reads:

'This Trust Agreement shall be irrevocable and Trustor reserves no right or interest in the income or principal of the trust estate unto himself. He reserves only the right to approve or disapprove the investment changes and likewise the right to change or add to the advisory committee hereinbefore designated and to add other cash to property to the trust estate.'

On March 4, 1953, Mr. Robinson wrote this letter to his trustee:

'March 4th, 1953.

'The Kentucky Trust Company

'Trustee under Agreement with

'Alex Galt Robinson

'Dated November 27, 1935.

'Louisville, Kentucky

'Gentlemen:

'Under date of November 27th, 1935, I entered into a Trust Agreement with you which was intended for the benefit of my wife, Maria L. B. Robinson, my daughters, Alexina R. Wilson and Elizabeth R. Wilson, and their descendants. I am now advised that I may have a possible reverter interest in the fund established by this trust in the event of the death of my wife, my two daughters and their descendants, prior to my death.

'In establishing this trust, it was my intention to part with all right, title and interest of every kind, and if it should develop that I have any interest in the principal or income by the way of reverter to me, if my wife, two daughters and their descendants should all predecease me, then I direct that such interest as I may have now or in the future in said trust fund shall be paid and delivered to Christ Church Cathedral of Louisville, Kentucky, to be added to its General Endowment Fund.

'In Testimony Whereof, witness my signature this 4th day of March, 1953.

'Alex Galt Robinson

'Accepted this March 4th, 1953:

'The Kentucky Trust Company

'By S. Lyman Barber, Trust Officer.'

Mr. Robinson died April 1, 1954, survived by his widow, his twin daughters (who were then 47 years of age) and four grandchildren, two for each daughter. A tax is imposed by KRS 140.010 on a gift made or intended to take effect in possession or enjoyment at or after the death of the donor.

It is insisted by the Department that as the widow, the two daughters and the four grandchildren all might have died before Trustor there was a possibility the estate would revert to him, therefore the entire corpus of the trust estate (which amounted to some $189,000 at Mr. Robinson's death) was taxable at the death of Mr. Robinson.

There might be merit in this contention had no provision been made for this contingency. However, the trust agreement expressly provides in that event 'said trust shall be distributed to Trustor's heirs-at-law, in accordance with the laws of descent and distribution then in existence under the laws of Kentucky.' This clause creates a class of remaindermen as though Trustor had died intestate simultaneously with the death of the last beneficiary who might die during Trustor's lifetime. This clause certainly does not create a reversionary interest in the trust estate. When this clause is read in connection with paragraph 7 of the trust agreement, which contains these words: 'Trustor reserves no right or interest in the income or principal of the trust estate unto himself,' there can be no doubt the trust agreement contained no possibility of a reverter; and if the trust failed, the corpus would go to those who would be at that time (the death of the last beneficiary dying during Trustor's lifetime) his heirs-at-law. The important facts in this case are the terms of the trust agreement and the intention of the Trustor, both of which plainly show no possibility of reverter.

In this jurisdiction we not only have the common law doctrine of reversion as is shown in Weddle v. Weddle, Ky., 280 S.W.2d 509, but the right of reversion is recognized by KRS 381.210 which provides: 'Rights of reversion may be sold and conveyed.' However in Thurman v. Hudson, Ky., 280 S.W.2d 507, 508, it is written:

'It seems to us the doctrine of reversions may still be resorted to as a rule of construction in seeking the intention of the grantor from the language used. In the instant case the grantor did not specify that his heirs should take the remainder.'

When we apply to this trust agreement the rule just...