Stix v. Commissioner of Internal Revenue, 77-79.
| Citation | 152 F.2d 562 |
| Decision Date | 21 December 1945 |
| Docket Number | No. 77-79.,77-79. |
| Parties | STIX v. COMMISSIONER OF INTERNAL REVENUE (three cases). |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Harry Silverson and Charles H. Meyer, both of New York City (Meyer, Wallach & Silverson and Myron Semmel, all of New York City, of counsel), for petitioners.
Loring W. Post, Asst. Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, A. F. Prescott, and Melva M. Graney, Sp. Assts. to Atty. Gen., for respondent.
Before L. HAND, SWAN, and FRANK, Circuit Judges.
These cases come up on appeal from three orders of the Tax Court, two of which assess the petitioner, Edgar R. Stix, for deficiencies in his income tax for the years 1938, 1939 and 1940; and the third, which assesses the petitioner, Lawrence C. Stix, for deficiencies in the same years. The facts were as follows. In 1935, Lena Stix, a widow, executed two deeds of trust, conveying personal property left her by her husband; each in the amount of $200,000. The grantees and trustees in each deed were her two sons, the taxpayers, Lawrence and Edgar: one deed described Lawrence as "Primary Beneficiary"; and the the other so described Edgar. Each deed provided that during the life of the "Primary Beneficiary" the trustees were to pay all the income to him "except that the trustees may in their sole and exclusive discretion at any time, or from time to time, pay over all or any of said income to * * * the sons of the Primary Beneficiary, or either of them." They might also at any time pay over to the "Primary Beneficiary" such parts of the principal "as the trustees in their sole and exclusive discretion may consider proper." Upon the death of a "Primary Beneficiary" they were to pay the principal, or so much of it as was left, as he should designate in his will; and in default thereof, they were to divide it in ways not relevant here. During the years in question all the income of Lawrence's trust was distributed to one of his sons, who was a minor, and all the income of Edgar's to one of his sons, who was also a minor. Each of these sons entered what he had received from his father in his tax return for the year, and paid a tax upon it; and the only question is whether the income so entered was part of the income of Lawrence and Edgar. The Tax Court — four judges dissenting — held that it was, and assessed deficiencies accordingly.
The words of each deed, if read literally, mean no more than that the income is given outright to the "Primary Beneficiary" during his life, and that, if he chooses to give any of it to his sons, he must get his brother's consent. If that were the meaning, it would have been so fatuous that it seems scarcely credible that the grantor should so have intended. It is possible and on the whole more rational to construe the words as imposing upon the "Primary Beneficiary" and his brother jointly a duty to make some use of the power in favor of the "Primary Beneficiary's" sons, though that duty was hedged about as far as the law would permit. Nevertheless, we agree that no language, however strong, will entirely remove any power held in trust from the reach of a court of equity. After allowance has been made for every possible factor which could rationally enter into the trustee's decision, if it appears that he has utterly disregarded the interests of the beneficiary, the court will intervene. Indeed, were that not true, the power would not be held in trust at all; the language would be no more than a precatory admonition. Collister v. Fassitt, 163 N.Y. 281, 57 N.E. 490, 79 Am.St.Rep. 586; In re Van Zandt's Will, 231 App.Div. 381, 247 N.Y.S. 441; Commissioner v. Dravo, 3 Cir., 119 F.2d 97, 100; Phipps v. Commissioner, 2 Cir., 137 F.2d 141; ...
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