Smither v. United States, Civ. A. No. 5866.

• Decision Date: 16 May 1952
• Docket Number: Civ. A. No. 5866.
• Parties: SMITHER v. UNITED STATES.
• Court: U.S. District Court — Southern District of Texas

108 F. Supp. 772

SMITHER v. UNITED STATES.

Civ. A. No. 5866.

United States District Court S. D. Texas, Houston Division.

May 16, 1952.

Baker, Botts, Andrews & Parish, Robert Jewett, Houston, Tex., for plaintiff.

Brian S. Odem, U. S. Atty., and Wm. R. Eckhardt, Houston, Tex., for defendant.

CONNALLY, District Judge.

This action is one to recover income taxes alleged by the plaintiff to have been illegally assessed and collected for the calendar years 1944 and 1945. It presents the question as to whether the income from property, which is held by a fiduciary who is likewise a beneficiary, is taxable to the estate, or to the fiduciary personally as the actual and beneficial owner. Most of the facts are stipulated, and I refer to the stipulation and its exhibits for a complete statement of fact.

W. L. Smither, the decedent whose estate is in issue, died testate July 15, 1920. His will, prepared and executed in 1909, was duly offered and admitted to probate. By the terms thereof, Mr. Smither devised to his widow, the plaintiff here, "so long as she lives and remains my widow", all of his property "to be used by her for her own support, maintenance, comfort and enjoyment, and for the support, maintenance, education, comfort, and enjoyment of" their children; "said property, however, to be subject to the control and management of the executors of this will as hereinafter provided for". (Emphasis added.) Succeeding paragraphs of the will provide for the manner of distribution of the estate in the event of Mrs. Smither's remarriage, or upon her death without having remarried, etc. The will appointed the decedent's two brothers and the plaintiff as executors, invested them with wide discretionary powers incident to the management of the estate, and empowered the executors to expend such part of the income and to invade the corpus of said estate for the support, maintenance, comfort and pleasure of Mrs. Smither and of the children "as in the discretion of my said executors may appear to be proper or desirable". Control of the executors was to continue until the death of Mrs. Smither, or in the event of her death or remarriage during the minority of the children, then until they became of age.

The plaintiff and all of the children survive, and the plaintiff has not remarried.

The named executors qualified and entered upon their duties. They continued to serve until the death of the first brother in 1929, and the death of the second brother in 1934. There is no provision in the will for the appointment of additional or substitute executors, and no application has been made for a court appointment. Since 1934, the plaintiff has served as the sole surviving executor.

In the years in question, income from the properties of the estate was not necessary for the support, maintenance, comfort or pleasure of either Mrs. Smither or the children, and none of such income was spent by her for such purpose. An income tax return reflecting such income was prepared by the estate, as a trust estate, and the tax paid under Sec. 161(a) and (b) of the Internal Revenue Code, 26 U.S.C.A. § 161(a, b). The Government contends that it was taxable to Mrs. Smither personally, basing such contention on two propositions: first, that the will created no trust; that the executors were intended by the testator to serve as executors only and not as trustees; that title to the property passed to the beneficiaries (including plaintiff Mrs. Smither, as holder of a life estate), and hence the income was taxable to her under Section 22(a) of the Internal Revenue Code, 26 U.S.C.A. § 22(a), as income from her own property; or, second, that if in fact a trust was created under terms of the will, Mrs. Smither as sole trustee during the years in question had unlimited discretion to expend all or any part of the income for her own purposes, and hence the income should be taxable to her under Corliss v. Bowers, 281 U.S. 376, 50 S.Ct. 336, 74 L.Ed. 916; Mallinckrodt v. Nunan, 8 Cir., 146 F.2d 1; Grant v. Commissioner, 5 Cir., 174 F.2d 891, and similar cases.

Placing a contrary interpretation upon the will as to both points, the plaintiff contends a trust in fact was intended by the testator and created by the will; and that the control of the plaintiff, even though serving as sole trustee by reason of the death of her co-trustees, was subject to well recognized and enforceable rights of the children as additional beneficiaries, and that plaintiff had no such unfettered control of the income as to bring her case within the holding of cited authorities.

On the first question, the intention of the testator as expressed by terms of the will must control. From an examination of the instrument from its four corners, I am of the opinion that the testator intended that a trust relationship should arise, and that in fact a trust was created. His purpose appears to have been not alone to provide for the orderly winding up of his business affairs, payment of debts, and distribution of assets to his devisees, but likewise to provide for the long-time management of his business and assets with income to be devoted to the maintenance and well-being of his wife during the remainder of her lifetime and to his children during their minority. The powers which he delegated to his executors exceed those with which as independent executors they would have been vested under the Texas statute, Ch. 11, Art. 3426, et seq., Vernon's Ann.Civ.St., and were to be exercised over a longer period of time than normally would be required for the administration of such an estate. The broad discretion with which the testator clothed his executors extended not only to his business affairs but to those more tender and personal matters, as the support and welfare of the testator's wife and infant children. All this smacks of the trust,...