Westhus v. Union Trust Co. of St. Louis

• Decision Date: 04 November 1908
• Docket Number: 2,654.
• Citation: 164 F. 795
• Parties: WESTHUS et al. v. UNION TRUST CO. OF ST. LOUIS.
• Court: U.S. Court of Appeals — Eighth Circuit

164 F. 795

WESTHUS et al. v. UNION TRUST CO. OF ST. LOUIS.

No. 2,654.

United States Court of Appeals, Eighth Circuit.

November 4, 1908

Henry W. Blodgett, U.S. Atty., and Truman P. Young, Asst. U. S Atty., for the plaintiffs in error.

S. L Swarts (Montague Lyon, on the brief), for the defendant in error.

Before HOOK and ADAMS, Circuit Judges, and CARLAND, District Judge.

HOOK Circuit Judge.

This was an action by the trust company, as executor and trustee under the will of George A. Madill, deceased, to recover of the collector of internal revenue a tax imposed in respect of a legacy and exacted by him pursuant to the war revenue act of 1898, and paid by the trust company under protest. Judgment went against the collector in the trial court, and this writ of error was obtained to review it.

Briefly stated, the facts upon which the government required the payment of the tax are as follows: George A. Madill of St Louis, Mo., died December 11, 1901, leaving a will whereby after the payment of his debts and certain specific legacies, he bequeathed all his property to the trust company in trust, with direction that the net income of the trust estate, after a deduction not material here, should be divided into three equal parts called A, B, and C respectively. We have only to do with part C. The will provided that the trust company should pay the net income represented by part C to the testator's son, Charles A. Madill, at least semiannually during his lifetime, with remainders after his death to other persons upon various contingencies. The will denied Charles A. Madill all right or power to anticipate his portion of the income, or to sell, pledge, hypothecate, or otherwise incumber the same before the trust company had actually paid it to him. There was like denial of control over the principal or corpus of the trust property; and neither income nor corpus was to be subject to the payment of his debts. The trust company made its final settlement and was discharged as executor April 6, 1904. It had previously, in April, 1902, about four months after the death of the testator, paid to Charles A. Madill on account of his legacy the sum of $2,000. In January, 1905, the government exacted the payment of the tax in controversy in respect of the life estate of Charles A. Madill in the income of the trust property.

The statutes bearing on the case are: Sections 29 and 30 of the Act of June 13, 1898, c. 448, 30 Stat. 464, 465 (U.S. Comp. St. 1901, pp. 2307, 2308) popularly known as the 'War Revenue Act'; section 11 of the act of March 2, 1901, c. 806, 31 Stat. 948 (U.S. Comp. St. 1901, p. 2308); section 7, 8, and 11 of the act of April 12, 1902, c. 500, 32 Stat. 97, 99 (U.S. Comp. St. Supp. 1907, pp. 649-652); and section 3 of the act of June 27, 1902, c. 1160, 32 Stat. 406 (U.S. Comp. St. Supp. 1907, p. 652).

The tax was prescribed by section 29, and the method of collection by section 30, of the act of 1898. The tax was to remain a lien and charge upon the property of the testator for 20 years unless sooner paid. The act of 1901, amendatory of the prior one, provided that the tax should be due and payable in one year after the death of the testator, and be a lien and charge upon his property for 20 years unless sooner paid. The act of April 12, 1902, repealed those provisions of the acts of 1898 and 1901 with a saving clause as to all taxes that had been 'imposed' before July 1, 1902, that being the day the repeal took effect. The lien of all prior imposed taxes and the machinery for collecting them was preserved. The act of June 27, 1902, provided for the refunding of taxes that had been collected on account of contingent beneficial interests which had not become vested in possession or enjoyment prior to July 1, 1902, and forbade the imposition of such taxes in the future.

Upon the facts recited and laws referred to these questions arise: (1) Was the interest of Charles A. Madill in the income of the trust estate a contingent one not vested in enjoyment, and therefore, under the act of June 27, 1902, exempt from the tax? (2) When was the tax 'imposed'? Was it automatically 'imposed' by force of the statute at the time of the death of the testator and the coming into existence of the conditions upon which it operated, or was there no 'imposition' of the tax until it became due and payable, to wit, a year after the testator's death? If the former, the tax was imposed December 11, 1901, and therefore survived the repealing act which took effect July 1, 1902. If the latter, it was not imposed before December 11, 1902, and fell with the act that authorized it. More briefly stated, the questions are: Was the legacy vested in enjoyment? When, under the acts of Congress, is the tax imposed in respect of a legacy vested in possession or enjoyment? It should at once be conceded that the tax is not imposed, does not come into existence, until there is a beneficial vesting of the legacy either in possession or in enjoyment, but the second of these questions proceeds upon the assumption there has been such a vesting, and then inquires: When, as to such a legacy, is the tax imposed? We apprehend the failure to observe that these questions are quite distinct has led to conclusions at variance with those we have reached.

We think the bequest to Charles A. Madill was absolutely vested in enjoyment at the death of the testator. The right of the legatee to the enjoyment of the income was not postponed to the end of a precedent estate, nor was it made to depend upon the happening of any contingency or uncertain event. A present and immediate right passed to him, not subject to devestment short of his death. The interest which passed by the will and in respect of which the tax was imposed was an ordinary life estate in the income of property held in trust, and the beneficiary was a person in being. The intervention of a trustee between the legatee and the physical handling of the corpus of the estate is unimportant in this connection. True, the precise amount of the income depended upon the amount or value of the corpus of the trust property, the definite ascertainment of which might have to await the payment of debts and the preparation of schedules, but such an uncertainty no more makes a bequest of income contingent than does the fluctuation of rates of interest upon the invested funds of the trust estate.

The income bequeathed began to accrue from the day the testator died. In determining the character of a bequest, whether contingent or vested, whether immediately to be enjoyed or the enjoyment of which is postponed, regard should be had to the terms of the will evidencing the purpose of the testator, and not to the adventitious circumstances connected with the administration of the estate which are not mentioned in the will as affecting the testamentary intent; otherwise, through their measurable control of such circumstances, power would rest with executors or trustees to determine when, if ever, the passing of an estate by will should be subject to the payment of a tax imposed by act of Congress. That the legatee was not given control over the income in advance of the actual payment thereof to him did not render the bequest contingent nor prevent it from vesting in enjoyment within the lines of restriction imposed by the testator. The effect of restrictions of that character would be upon the value of the interest which the legatee secured, and concerning that there is no controversy here.

When was the tax imposed? Section 30 of the original act of 1898, as amended by the act of 1901, provided: 'That the tax or duty aforesaid shall be due and payable in one year after the death of the testator and shall be a lien and charge upon the property of every person who may die as aforesaid for twenty years or until the same shall, within that period, be fully paid,' etc. The words italicized were interpolated by the amendatory act; otherwise the clause is as it stood originally in the act of 1898. Upon this the trust company contends that as the testator died December 11, 1901, the tax did not become due until December 11, 1902, and therefore was destroyed by the repealing act of 1902, because it had not been 'imposed' within the meaning of the saving clause of that act. Two grounds are urged in support of this contention: First, that the tax cannot be said to have been imposed before it became due and payable; and, second, that the effect of the amendment of 1901 was to postpone the commencement of the lien period for one year from the testator's death, and the tax cannot be said to be imposed before the lien attaches.

The language of section 29 of the act of 1898 is that the persons having the legacies or distributive shares in charge 'shall be, and hereby are, made subject to a duty or tax,' etc. And we think that when there came into existence the conditions upon which the statute operated the tax was at once imposed, and the estate of the decedent became subject to a lien therefor. Then is when the right to the tax accrued or came into existence, though the tax may not have been at once demandable as due. The act of 1898 specified no time when the tax became due and payable, and the amendment of 1901 that it should become due and payable in one year after the death of the testator was designed to secure uniformity in administration and to give those subject to the tax a reasonable time to adjust the affairs in their charge and make provision for payment. The imposition of a tax and its maturity are distinct and separate things, and are commonly recognized to be so in schemes of taxation.

To impose a tax means to levy it, and we all know that it is not the general custom to make a tax due and enforceable the very day it is imposed...