Theopold v. United States

• Decision Date: 14 January 1947
• Docket Number: No. 4861.,4861.
• Citation: 69 F. Supp. 946
• Parties: THEOPOLD v. UNITED STATES.
• Court: U.S. District Court — District of Massachusetts

69 F. Supp. 946

THEOPOLD v. UNITED STATES.

No. 4861.

District Court, D. Massachusetts.

January 14, 1947.

R. Gaynor Wellings and Tyler & Reynolds, all of Boston, Mass., for plaintiff.

George F. Garrity, U. S. Atty., of Boston, Mass., Sewall Key, Acting Asst. Atty. Gen., and Andrew D. Sharpe, and James P. Garland, Sp. Assts. to the Atty. Gen., for the United States.

HEALEY, District Judge.

This is an action by the executor of the estate of Henry F. Sears for the recovery of $174,392.01, and interest paid of $7,635.02, representing a portion of the Federal Estate Taxes paid upon the estate of Henry F. Sears.

The case was submitted on the pleadings, stipulation of facts, arguments and briefs of counsel.

The stipulation of facts filed by the parties, which is adopted as part of my findings of facts is as follows:

"1. Henry F. Sears, the plaintiff's testator, died on January 1, 1942, a resident of Boston, Massachusetts, and was survived by three children, Emily Esther Sears, who was born July 15, 1905, Jean Struthers Sears, who was born November 25, 1907, and Henry Sears, who was born December 10, 1913. All said children are still living.

"2. Arthur N. Maddison of Lexington, Massachusetts, was duly appointed executor of the will of said Henry F. Sears by the Probate Court in and for the County of Suffolk in said Massachusetts on January 29, 1942 and was the duly qualified and acting executor of said will from that date until he duly resigned as such executor on September 16, 1944.

"3. The plaintiff, a resident of Dedham, in the County of Norfolk, Massachusetts, is now and at all times since November 2, 1944 has been the duly qualified and acting executor of the will of said Henry F. Sears, having been duly appointed such executor by the aforesaid Probate Court on said November 2, 1944 to act in place of said Arthur N. Maddison.

"4. On December 29, 1915 said Henry F. Sears created a trust under an indenture bearing that date of which The New England Trust Company, a Massachusetts corporation having an usual place of business in said Boston, is the surviving trustee — Arthur Adams, the other trustee named therein, having deceased. Thereafter said Henry F. Sears executed certain amendments to said trust indenture by instruments dated, respectively, December 18, 1919, June 24, 1926, December 23, 1929, March 17, 1932, and October 25, 1940. True copies of said indenture and amendments are annexed to the Complaint in the above-entitled action and incorporated herein by reference.

"5. The Federal estate tax with respect to the estate of said Henry F. Sears became due and payable on April 1, 1943. On April 5, 1943 said Arthur N. Maddison, the plaintiff's predecessor as executor of the will of said Henry F. Sears, filed the Estate Tax Return for the estate of said Henry F. Sears. Said return as originally made up was in typewritten form and the total estate tax payable as shown therein was $477,287.66. However, at the time of filing said return said figure of $477,287.66 was stricken out by said Arthur N. Maddison or his duly authorized agent and $474,029.82 inserted in place thereof in pen and ink. Nevertheless, the above mentioned sum of $477,287.66 was paid by said Arthur N. Maddison at the time said return was filed as aforesaid. Said return was filed with and said sum of $477,287.66 was paid to Thomas B. Hassett, who was then but was not at the time the Complaint in the above-entitled action was filed, the duly qualified and acting Collector of Internal Revenue for the District of Massachusetts at said Boston. Said sum was allocated by said Thomas B. Hassett as follows: $474,029.82 to Federal estate tax due, $311.69 to interest due for late payment, and $2,946.15 to a suspense account.

"6. Thereafter and prior to December 24, 1943, the Commissioner of Internal Revenue determined that there was a deficiency in Federal estate taxes on said estate due from said predecessor executor in the amount of $194,254.37 with interest thereon in the amount of $8,377.57. This deficiency was paid by application thereto of the foregoing amount of $2,946.15 and by payment of the balance of $191,308.22 by said predecessor executor on December 24, 1943 to Thomas H. Buckley, who was then but was not at the time the Complaint in the above-entitled action was filed, the duly qualified and acting Collector of Internal Revenue for the District of Massachusetts at said Boston. The interest of $8,377.57 was made up of two items, interest on the foregoing amount of $2,946.15 in the amount of $1.94 and interest on the foregoing balance of $191,308.22 in the amount of $8,375.63, and was duly paid by said predecessor executor on March 9, 1944 to Denis W. Delaney, who was then and still is the duly qualified and acting Collector of Internal Revenue for the District of Massachusetts at said Boston.

"7. The aforesaid deficiency to the extent of $174,392.01 and the aforesaid interest to the extent of $7,635.02 (rather than $7,644.18 set forth in the plaintiff's amended claim for refund hereinafter referred to in paragraph 8) resulted from the inclusion of the value of the property held by The New England Trust Company as trustee as aforesaid by said Commissioner in the value of the gross estate of said Henry F. Sears for the purpose of computing the Federal estate tax.

"8. On March 30, 1945 the plaintiff filed with the Collector of Internal Revenue for the District of Massachusetts then in office a claim for refund of $174,391.83 estate tax and $7,673.24 interest, with interest from the dates thereof, and thereafter on November 15, 1945 the plaintiff filed with said Collector an amended claim for refund of the aforesaid amount of $174,392.01 estate tax and $7,644.18 interest, with interest from the dates of payment thereof. True copies of said claim for refund and said amended claim for refund are annexed to the Complaint in the above-entitled action and incorporated herein by reference.

"9. By letter dated January 17, 1946 and mailed by registered mail, the said Commissioner notified the plaintiff that said claim for refund and said amended claim for refund were rejected in their entirety. A true copy of said letter (except that the date of January 17, 1946 is omitted therefrom) is annexed to the Answer in the above-entitled action and incorporated herein by reference."

The sole issue in this case is whether by reason of the power reserved by the grantor in the fifth clause of the indenture, the corpus of this trust is taxable under Section 811(d)(2) of the Internal Revenue Code.¹

In the fifth clause of the indenture, the grantor reserved to himself the following power: "I reserve the power from time to time by an instrument in writing signed by me to amend this trust indenture so that it will more clearly express my actual intentions if I shall consider such amendment advisable, as to which I shall be the sole judge."

The plaintiff contends that the only power reserved by the settlor by this language was a power to clarify the meaning of the trust provision from time to time, so as to more clearly express the actual intentions he had at the time he created the trust, and not a power to alter the manner in which the principal and income was to be held or distributed.

He further contends that, since the language of this paragraph is clear and unambiguous, the settlor had no power to so amend the trust as to shift any economic benefits. He argues that, even if it be found that the settlor actually made several amendments which shifted the economic benefits, such actions cannot be considered as proof of his power to so amend, or as evidence of the meaning of the reserved power.

Counsel for the government contends, in effect, that the language of the reserved power, when considered in its relation to the indenture as a whole is ambiguous, and that when considered in the light of the subsequent amendments made by the settlor, constituted a power sufficient to allow the settlor to shift economic benefits. Interpreted in this manner, this power, he claims, renders the corpus of the trust taxable for purposes of estate taxation.

In interpreting a trust to determine what rights are created or what powers are reserved, the intent of the settlor is controlling. Higgins v. White, 1 Cir., 93 F.2d 357; Brewer v. Hassett, D. C., 49 F.Supp. 501; 2 Scott on Trusts, § 164.1; Gorey v. Guarente, 303 Mass. 569, 22 N.E.2d 99.

Where the provisions of a trust indenture are unambiguous, they are controlling in determining the intention of the settlor. Brewer v. Hassett, supra; 2 Scott on Trusts, § 164.1. In such a case, extrinsic evidence is not admissible, in the absence of fraud or mistake, to alter or vary the terms of the indenture. 2 Scott on Trusts, § 164.1. But, the instrument "must be interpreted with a view to all the material circumstances of the parties at the time of its execution, in the light of the pertinent facts within the knowledge of those who signed it and in such manner as to give effect to the main end designed to be accomplished by the instrument." Eustace v. Dickey, 240 Mass. 55, 132 N.E. 852, 857. See also Attorney General v. Eustace, 240 Mass. 88, 93, 132 N.E. 865; Brewer v. Hassett, supra; Dumaine v. Dumaine, 301 Mass. 214, 16 N.E.2d 625, 118 A.L.R. 834; Attorney General v. Armstrong, 231 Mass. 196, 120 N.E. 678.

However, where a provision of the indenture is ambiguous or uncertain in its meaning, resort may be had to extrinsic evidence to determine the intent of the settlor when he created the trust. 2 Scott on Trusts, § 164.1. In such a case, the circumstances existing at the time of the creation of the trust, and also the settlor's conduct subsequent to the creation of the trust are material and admissible. 2 Scott on Trusts, § 164.1.

In the trust indenture made by the settlor in the instant case, he assigned and transferred valuable securities to an individual and a corporate trustee on certain trusts.

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