Estate of Farish v. United States
| Decision Date | 23 July 1964 |
| Docket Number | Civ. A. No. 14316. |
| Citation | 233 F. Supp. 220 |
| Parties | ESTATE of Stephen P. FARISH, Jr., Deceased, Anne Francis Farish, Independent Executrix v. The UNITED STATES of America. |
| Court | U.S. District Court — Southern District of Texas |
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John G. Heard, Carl Estes, II., Vinson, Elkins, Weems & Searls, Houston, Tex., for plaintiffs.
Woodrow Seals, U. S. Atty., Houston, Tex., Stanley F. Krysa, Robert L. Waters, Tax Division, Dept. of Justice, Fort Worth, Tex., for Government.
Anne Francis Farish, Independent Executrix of the Estate of her deceased husband, Stephen P. Farish, Jr., has brought this action to recover federal estate taxes and interest alleged to have been erroneously assessed and collected from the estate. Jurisdiction exists under 28 U.S. C.A. § 1346(a) (1).
This controversy had its source in a dispute between the taxpayer and the Internal Revenue Service over the proper construction to be placed on certain language in each of two trust indentures providing for gifts over. Separate trusts were created by each of such instruments, but they involved the same beneficiaries and were generally similar in nature. The material provisions of the two trust agreements involved in this litigation are identical in wording.
The fundamental question in dispute is whether an indefeasible interest in the respective estates of the two trusts vested in Stephen P. Farish, Jr., when he attained thirty years of age, about two years prior to his death. The taxpayer says that the matter was settled contrary to the present contention of the government by two declaratory judgments of a district court of Harris County, Texas; and that, if not, the provisions of the trust agreements themselves require the construction that the interest of Stephen P. Farish, Jr., in the corpus of each trust estate was not to vest indefeasibly until such estate was actually distributed to him by the trustee. The government contends that the declaratory judgments were not binding for tax purposes because the state court proceedings were non-adversary and collusive; and that this Court should construe the terms of the two instruments and hold that indefeasible title vested in Stephen P. Farish, Jr., in each of the trust estates when he reached the age of thirty, regardless of whether there was any actual distribution. The government further claims that even in the event that each of the above questions is decided adversely to it, it is still entitled to prevail here for the reason that Stephen P. Farish, Jr., had a general power of appointment over each of the trust estates before his death.
Stephen Power Farish, Sr., and wife, Lottie Rice Farish, actually created three separate trusts in which their son, Stephen Power Farish, Jr., was the original beneficiary, and all of them were in existence at the time of the son's death. The first one, known by the interested parties as "Trust No. 1", was created by indenture dated November 10, 1933, between Stephen Power Farish, Sr., and wife, as settlors, and S. P. Farish & Company, as trustee. About three years later, the same settlors created two additional trusts. The indenture dated June 18, 1936, named Roland Tracy as trustee, and is generally referred to as "Trust No. 3." Roland Tracy was also an executive officer of S. P. Farish & Company. The one dated August 31, 1936, appointed S. P. Farish & Company, a corporation, trustee, and is called "Trust No. 2."
All three trust agreements were executed and delivered in Texas. The settlors, the trustees and the original beneficiaries were residents of that State, and the trusts were to be administered there. Each of the trusts involved large and valuable estates.
There is no dispute here over the nature of the interest of Stephen P. Farish, Jr., in the corpus of Trust No. 1. The parties to this litigation have been in agreement on the fact that he did acquire an indefeasible interest, and that federal estate taxes were due by reason thereof. However, brief references will be made to matters in connection with Trust No. 1, because the nature of the provisions of the indenture creating it and the actions of the parties in connection therewith have some evidentiary value in regard to the questions of the intent of the settlors in connection with the gift over provisions of Trust No. 2 and Trust No. 3, and of the good faith of the persons involved in the declaratory judgment actions.
Section VI of the Trust No. 1 indenture provided, insofar as it is material here:
"The principal and income of the Trust Fund shall be held in trust for the benefit of the Grantor's son, STEPHEN POWER FARISH, JR., born September 8, 1924, until the latter attains thirty (30) years of age, at which time the trustee shall pay over to him the entire Trust Fund, including principal, income and all accumulations of every kind whatsoever * * *."
Section VI in the Trust No. 2 indenture was identical with the same numbered section in the Trust No. 3 indenture. They were in turn exactly the same in meaning as Section VI of the Trust No. 1 indenture, even though there were a few immaterial differences in the words used.
The picture is entirely different as to Section VII. That portion of the agreement creating Trust No. 1 provided:
"In the event of the death of the Grantors' said son before he attains the age of thirty (30) years, the Trust Fund, or the part thereof which has not been distributed to him at the time of his death, shall be held in trust for a period of twenty-one (21) years after the death of the Grantor's said son for the equal use and benefit of the children of the Grantors' said son who shall be living * * *." (Emphasis added).
Section VII in Trust No. 2 indenture was the same as Section VII in the one governing Trust No. 3; but they vary materially from the comparable section of Trust No. 1. Sections VII of Trust No. 2 and of Trust No. 3 both read as follows:
"In the event of the death of the Grantors' said son before final distribution of the Trust Fund has been made to him, the Trust Fund, or the part thereof which has not been distributed to him at the time of his death, shall be held in trust for a period of twenty-one (21) years after the death of the Grantors' said son for the equal use and benefit of the children of the Grantors' said son who shall be living * * *." (Emphasis added).
Stephen Power Farish, Jr., reached thirty years of age on September 8, 1954, and died about two years later, on June 18, 1956. No part of any of the respective estates of any of the three trusts was distributed to or received by him between the two dates above. Each of the trustees continued during that period to administer his trust in the same manner as he had done under the provisions of his trust indenture prior to September 8, 1954.
Stephen P. Farish, Jr., was survived by his wife, Anne Francis Farish, age twenty-five, and their only three children: Stephen P. Farish, III, born on November 20, 1951, George Rice Farish, born on February 1, 1953, and Martha Francis Farish, born on March 20, 1955. He left a will naming his wife independent executrix and sole legatee and devisee of his estate. She qualified as independent executrix shortly after the will was admitted to probate in Harris County, Texas, on August 9, 1956, and has served continuously in that capacity since that time.
The inventory, appraisement and list of claims of his estate filed in the Probate Court of Harris County, Texas, on August 7, 1957, by Anne Francis Farish in her representative capacity contained the following statement on page 2:
" "
On September 18, 1957, Anne Francis Farish, acting in her representative capacity, timely filed a United States Federal Estate Tax Return (Form 706) for the estate of her deceased husband showing a federal estate tax liability of $1895.27, which was paid at the time the return was filed. The following notation appeared on Schedule F of that return:
Both the inventory and appraisement and the estate tax return were prepared by or under the direct supervision of one of the attorneys for Mrs. Farish and the estate who is representing her in this action.
Sometime shortly prior to November, 1957, Mrs. Farish, both individually and in her representative capacity for the estate, made oral demands on each of the respective trustees of the three trusts for distribution to her, in such capacities, of the entire trust funds still being administered by each of them. In the early part of November, 1957, Mr. George A. Hill, III., a competent and reputable attorney of the Houston Bar, was employed by each of the trustees to represent him in connection with the questions raised by the demands. After Mr. Hill had consulted with the trustees, had had conferences with counsel for Mrs. Farish, and had done some research on the matters, he requested that the demands be presented in writing. Mrs. Farish complied and presented separate demands dated November 14, 1957, on each of the trustees. The language of each of the demands pertinent here is identical and reads:
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