Holdeen v. Ratterree

• Decision Date: 13 July 1961
• Docket Number: No. 395,Docket 26912.,395
• Citation: Holdeen v. Ratterree, 292 F.2d 338 (2nd Cir. 1961)
• Parties: Jonathan HOLDEEN, Plaintiff-Appellant, v. Riley J. RATTERREE, as Late District Director, and Fulton D. Fields, as Late Acting Director of Internal Revenue, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

292 F.2d 338 (1961)

Jonathan HOLDEEN, Plaintiff-Appellant, v.Riley J. RATTERREE, as LateDistrict Director, and Fulton D. Fields, as LateActing Director of Internal Revenue, Defendants-Appellees.

No. 395, Docket 26912.

United States Court of Appeals Second Circuit.

Argued June 20, 1961.

Decided July 13, 1961.

Allan E. Rappleyea, Poughkeepsie, N. Y. (Jonathan Holdeen, plaintiff-appellant, pro se, on the brief), for plaintiff-appellant.

Arthur I. Gould, Atty., Dept. of Justice, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson and A. F. Prescott, Attys., Dept. of Justice, Washington, D. C., and Justin J. Mahoney, U. S. Atty., N.D.N.Y., Syracuse, N. Y., on the brief), for defendants-appellees.

Before CLARK and SMITH, Circuit Judges, and DAWSON, District Judge.

CLARK, Circuit Judge.

PlaintiffJonathan Holdeen appeals from a judgment dismissing his complaint in an action to recover income taxes alleged to have been erroneously assessed for the year 1945.This court is thus called upon a second time to consider whether Mr. Holdeen is taxable on the income from certain trusts which he created during the years 1936 to 1945.SeeHoldeen v. Ratterree, 2 Cir., 270 F. 2d 701.In making the assessment the Commissioner relied on two grounds: (1) that the trusts were void ab initio because they provided for periods of accumulation from 500 to 1,000 years, and (2) the income of the trusts was taxable to plaintiff by reason of the ownership and control of the trust corpus retained by him, under the doctrine of Helvering v. Clifford, 309 U.S. 331, 60 S.Ct. 554, 84 L.Ed. 788, and related cases.Upon a trial concerned with this second ground the jury rendered a special verdict finding that plaintiff retained such control over all of the trust property except the 1945 trust.After receiving this verdict the district court directed a verdict for the defendant district directors as to all the trusts except the 1945 trust, and gave a judgment notwithstanding the verdict for the defendants with regard to the 1945 trust on the ground that plaintiff clearly retained control over that trust as well.D.C.N.D.N.Y., 166 F.Supp. 694.

On appeal, we sustained the district court's determination as to five of the trusts, but vacated the judgment for reconsideration of the question involving the 1944 trust and the 1945 trust.As to the 1945 trust, we found substantial evidence supporting the jury's finding that plaintiff did not retain control over the trust, with the result that plaintiff was entitled to a refund pro tanto unless the Commissioner's assessment could be sustained on the alternative ground of the invalidity of the trust.As to the 1944 trust, we approved the finding that plaintiff retained control over that trust in so far as it had an independent existence; but we remanded for consideration of the question whether the 1944 trust had become merged with the 1945 trust and should therefore be given the same tax treatment as the 1945 trust.Holdeen v. Ratterree, 2 Cir., 270 F.2d 701.

On remand, the district court held that the 1944 trust had been merged into and become subject to the terms of the 1945 trust as of June 2, 1945.The taxable gain of the 1944 trust from the period January 1, 1945, to June 2, 1945, in the amount of $33,104.44, was held taxable to plaintiff in accordance with the earlier finding that the 1944 trust was controlled by plaintiff.The court then held that the 1945 trust, whose assets included those of the 1944 trust beginning with June 2, 1945, was invalid, and that plaintiff was therefore the beneficiary of a resulting trust, and taxable on the trust income except for $13.10 actually paid to the income beneficiary.It further disapproved a charitable deduction taken by plaintiff upon his creation of the invalid 1945 trust.D.C.N.D.N.Y., 190 F.Supp. 752.Plaintiff now appeals from the resulting judgment dismissing his complaint.

The government concedes the correctness of the finding of merger, and we are therefore concerned with the terms of the 1945 trust alone.The assets of the trust, consisting of certain bonds and the assets of the 1944 trust, were transferred to three trustees, who were to hold the trust property in Massachusetts or in Pennsylvania and to administer the assets in those states.The instrument was expressly made subject to the laws of Pennsylvania.Until the year 2444, the American Unitarian Association, of 25 Beacon Street, Boston, Massachusetts, would be the income beneficiary, to receive "expendable income" and all other income not lawfully subject to accumulation."Expendable income" was defined as 1/500th of the income of the trust property multiplied by the number of years which have elapsed since July 5, 1944.In the year 2444, the principal and accumulated income of the trust would be paid to the State of Pennsylvania.

The three alleged grounds of invalidity are: (1) the trust violates the rule against remoteness of vesting; (2) the accumulation provisions are invalid; (3) the trust violates public policy.The first ground is clearly untenable.Aside from the fact that Pennsylvania's remainder interest appears to be vested, there is the principle that a future interest for a charitable purpose is exempt from the rule against perpetuities if preceded by a present interest for a charitable purpose.See Gulliver, Cases and Materials on the Law of Future Interests 508 (1959);4 Restatement, Property§§ 396-398(1944);Restatement, Trusts2d § 401, comment f(1959).

The second contention, that the trust provides for an unlawful accumulation, was adequately answered by the district court as...