The opinion of the court was delivered by: COOPER
Plaintiff seeks a refund of individual income taxes for the year 1952. She here makes a motion, and the government makes a cross motion, each for summary judgment pursuant to Rule 56, Fed.R.Civ.P., 28 U.S.C.A.
In 1903 plaintiff and her husband executed a 'reciprocal testament' in Frankfurt, Germany, where they then resided. Paragraph '2' thereof provided in material part:
'We legate to each other reciprocally the lifelong usufruct of the entire estate left by either of us. As long as either of us spouses making this will shall live, he or she shall retain the unrestricted possession and enjoyment of the entire property of both of us and shall in no way be restricted in disposing inter vivos also of its substance, so that our children and remaindermen will have to be satisfied with what will be left at the death of the survivor of either of us spouses.'
Plaintiff's husband died in 1939. In 1951 the 'reciprocal testament' was found and submitted to the Surrogate's Court, County of New York, where it was admitted to probate on September 23, 1952. The papers before the court do not disclose whether an administrator c.t.a. actually qualified before the end of 1952.
In 1953 an application to the Surrogate's Court was brought by the administrator c.t.a. urging construction of the instrument 'as creating a testamentary trust for the benefit of the sons of deceased, * * * granting the income to the widow, Recha Hirschmann, during her life with the right to invade the principal.' In re Hirschmann's Estate, 124 N.Y.S.2d 801. The Surrogate determined that German law applied and that the language of the 'reciprocal testament', quoted supra,
'specifically exempts the surviving spouse from the limitations imposed by the German Civil Code which would otherwise prevent her from invading or otherwise disposing of the corpus of the estate.
'Moreover, the nature of the reciprocal testament itself * * * argues strongly against the contention that the spouses intended to impose upon the survivor any of the restrictions or limitations that lead testators to establish trusts under our laws. * * * On the contrary, as is stated by the expert, legal title or ownership vests in the surviving spouse along with the beneficial interest in the property. Under our law this situation negates the very idea of a trust, but is characteristic of what is known as a legal life estate (sec. 92, Real Property Law * * *).
'* * * Accordingly, the court holds that the reciprocal testament creates legal relationships between decedent's widow and his two sons substantially similar to the relationship known under out law as that of a legal life estate, with power to invade in the widow, and remainder interests in the two sons.'
On July 3, 1953, a decree was entered in the Surrogate's Court providing in pertinent part that the instrument
'creates legal relationships between decedent's widow and his two sons known as that of a legal life estate, with power to invade the principal in the widow and remainder interests in the two sons. * * *'
Capital gains were realized from the sale of portions of the principal of the life estate. Plaintiff reported those gains in her 1952 individual income tax return. The tax was paid. Thereafter, plaintiff filed a timely claim for a refund, which was disallowed.
Although no specific date is mentioned, plaintiff alleges that some time subsequent to September 23, 1952, the assets of the estated, consisting solely of securities, had been segregated and were thereafter managed by an administrator who has paid only income to the plaintiff. However, the government does not concede these allegations and, in any event, asserts that they are immaterial.
Is the plaintiff taxable as a fiduciary? Plaintiff's memorandum states: 'The powers bestowed on plaintiff are so broad that it seems impossible to consider her occupying a fiduciary relationship with the remaindermen.' Nor does the government vigorously oppose that interpretation.
In this regard the court finds that plaintiff is by the terms of the instrument given unfettered power to spend the entire corpus for her own benefit; that, as the Surrogate observed, this 'negates the very idea of a trust,' and that ...