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Bankers Trust Co. v. Higgins

January 7, 1946

BANKERS TRUST CO.
v.
HIGGINS, COLLECTOR OF INTERNAL REVENUE



Author: Hand

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This is an appeal by the Collector of Internal Revenue from a judgment in favor of the Bankers Trust Company, as administrator c.t.a. of the Estate of Emmett A. Saunders, in the sum of $139,172.17, with interest. That sum represented an overpayment of estate taxes.

The amount of the estate taxes properly assessable in the case at bar depends on the effect to be given to the provisions of a trust deed made on August 15, 1923. Under it the decedent, Emmett A. Saunders and Louise M. Saunders, his wife, conveyed to Bankers Trust Company, as trustee, securities which were of the value at the date of the decedent's death on January 26, 1933 of $1,316,386.07. The Commissioner included this sum in the latter's estate after deducting $96,934.60 which represented the wife's contribution to the corpus of the trust, and $73,619.55 which represented her life interest in one-half of the corpus. The balance assessed for estate taxes amounted to $1,145,831.92.

The indenture of trust provided that the trustee should hold the corpus for the lives of seventeen designated persons and during the continuance of the trust should pay the income therefrom as follows:

"1. As long as both shall live the above net income to Emmett A. Saunders and Louise M. Saunders (husband and wife and parties of the first part hereto) in equal portions to each, and after the death of one of them then all of it shall be paid to the survivor of them; and moreover, anything to the contrary in this instrument notwithstanding, in case the income shall in any year during the lives of both of them or of the life of the survivor of them be less than Sixty thousand ($60,000) Dollars, then and in that case an amount shall be taken from the principal of this trust which added to the income thereof will make Sixty thousand ($60,000) Dollars and this Sixty thousand ($60,000) Dollars, less the commission of the trustee shall be paid to them or to the survivor of them."

The plaintiff filed a Federal Estate Tax Return showing a tax due of $20,585.96 which was paid. Thereafter the Commissioner by including in the estate the sum of $1,145,831.92, representing the value of the corpus of the trust at the date of decedent's death after deducting the amount of the wife's contribution and her life interest in one-half of the corpus, determined a deficiency which the plaintiff paid and thereafter sought to recover in this action. In our decision reported at 136 F.2d 477, 478, we said that:

"Saunders' death ended the power of the trustee to invade the principal to make up his share of the income to the amount fixed in the deed. While he and his wife both lived, his share was $30,000; in case he survived her, it was $60,000; in case she survived him, as she did, her share was $60,000. The remainders were therefore relieved of a burden by his death; that relief was an 'interest' which 'took effect' at that moment by increasing the remainders pro tanto, and it was proper to include it in the estate under the doctrine of Helvering v. Hallock, supra, 309 U.S. 106, 60 S. Ct. 444, 84 L. Ed. 604, 125 A.L.R. 1368."

In view of the foregoing we held that the amount to be included in the estate for tax purposes was only "the present value as on January 26, 1933, of the successive invasions of the principal during his life which might be needed to make up an income of $60,000 to him."

The judgment in favor of the Collector rendered upon the first trial was reversed by our former decision and the case remanded in order to appraise the future invasions of the corpus of the trust as of the date of Saunders' death. After the new trial a judgment was entered in favor of the plaintiff in accordance with the following findings of fact and conclusions of law:

"12. The life expectancy of the decedent Emmett A. Saunders on January 26, 1933, was 3.63 years, determined under the Actuaries' or Combined Experience Table which is the table provided for in the applicable Federal Estate Tax Regulations.

"13. On January 26, 1933, the prospective annual income of the trust fund during decedent's said expectancy was 4% of the value of the trust fund on January 26 1933, or $52,655.44 per annum, resulting in a prospective annual invasion of principal during such expectancy of $7,344.56, pursuant to paragraph 1 of Article First of said Indenture of Trust.

"14. The present worth on January 26, 1933, of the said prospective annual invasion during Mr. Saunders' expectancy was $20,278.77 computed under Table A of Article 10, Regulations 80 (1937 Edition)."

"II. The trust of August 15, 1923 should not have been included in the gross estate of Emmett A. Saunders, ...


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