Annotations- Bank
Accounts Page4

[48-1
USTC ¶9180]
United States of America
, Plaintiff, v. The Mutual National Bank of Chicago, Defendant
In
the District Court of the United States for the Northern District of
Illinois, Eastern Division, No. 4513, 77 FSupp 609, February 5, 1948
Collection of taxes: Distraint: Bank account.--The United States
was allowed to recover by distraint levy the amount of cash in the
custody of the defendant bank derived from the sale of securities
deposited therein by a delinquent taxpayer under a pseudonym and
liquidated at his request.
Otto Kerner,
Jr.
,
U. S.
Attorney, for the plaintiff. Francis E. Hinckley, 100 W. Monroe St.,
Chicago, Ill.; Chester W. Kulp, Rathje, Sabel & Sullivan, 100 W.
Monroe St., Chicago, Ill., for the defendant.
Findings
of Fact and Conclusions of Law
Findings of Fact
SULLIVAN,
District Judge:
1. That the
plaintiff is a corporation sovereign and body politic.
2. That the
defendant is a national banking corporation duly organized, created and
existing under and by virtue of the laws of the
United States of America
as a banking institution with its office and principal place of business
in
Chicago
,
Illinois
.
3. That one J.
Roy Brangenberg and his wife, Nelda Brangenberg, are jointly and
severally liable for income taxes to the plaintiff for the years 1924,
1926, 1927 and 1928, together with penalties and interest on said income
tax liability, in the total amount of $25,411.64.
4. That said
income tax liability and penalties and interest thereon have never been
paid by the said J. Roy Brangenberg or said Nelda Brangenberg to the
plaintiff.
5. That the
defendant had in its possession certain securities which have been
deposited with defendant by one Leo Lundquist, and that said securities
consisted of bonds or certificates of deposit for bonds on five
different parcels of real estate all situated in Cook County, Illinois,
and that all such securities have been liquidated by the defendant at
the request and direction of the said Leo Lundquist, and have been
converted into cash, so that the defendant now holds in its possession
for the said Leo Lundquist the sum of $3,918.00.
6. That the
said J. Roy Brangenberg and the said Leo Lundquist are one and the same
person.
7. That on
June 12, 1941 the Collector of Internal Revenue served upon the
defendant on account of the aforesaid income tax liability of J. Roy
Brangenberg liens and levies against all properties held by the
defendant for the said J. Roy Brangenberg, alias Leo Lundquist.
8. That the
aforesaid tax liability of said J. Roy Brangenberg was assessed on the
June 1935 Special #6 List of the Commissioner of Internal Revenue, and
that prior to the expiration of six years from that date the plaintiff
herein commenced an action in the United States District Court for the
Northern District of Illinois against the said J. Roy Brangenberg as
case number 3115 for the collection of said tax liabilities.
Conclusions
of Law
1. The
aforesaid tax liability was legally, duly and timely assessed against
the said J. Roy Brangenberg.
2. That the
said J. Roy Brangenberg is indebted to the plaintiff for income taxes,
plus penalties and interest for the years 1924, 1926, 1927 and 1928 in
the total amount of $24,411.64.
3. That the
said sum of $3,918.00 held by the defendant in the name of Leo Lundquist
is the property of the aforesaid J. Roy Brangenberg.
4. That by
virtue of the provisions of law in such cases made and provided the
United States by virtue of the said assessment of income tax liabilities
has a lien upon all property or rights to property, whether real or
personal, belonging to said J. Roy Brangenberg, and that lien is still
in full force and effect.
5. That this
action was commenced at the request of the Commissioner of Internal
Revenue and at the direction of the Attorney General of the
United States
to enforce said lien against said moneys held by the defendant for the
aforesaid J. Roy Brangenberg.
6. That the
plaintiff is entitled to judgment against the defendant, The Mutual
National Bank of Chicago, in the sum of $3,918.00, said sum being all
the moneys, properties or rights to property held by the defendant for
the said J. Roy Brangenberg, and the payment of said judgment by the
defendant shall relieve it of any obligations to the said J. Roy
Brangenberg for said funds.
[42-2 USTC ¶9590]
United States of America
, Plaintiff, v. The Marine Midland Trust Company of
New York
, Defendant
United
States District Court, Southern District of New York, Civil 14-105, 46
FSupp 38, Filed July 2, 1942
Distraint: Proceeding against bank account.--Action was brought
to collect taxes assessed for the year 1936, together with a delinquency
penalty, by levy against the deposit of taxpayer in the defendant bank.
The bank declined to deliver the funds because taxpayer's account was
designated as a "Special Account." The Court holds that the
term "Special Account" is not indicative of a trust
relationship in the absence of supporting evidence and that the taxpayer
had both legal title and beneficial interest in the account which was
subject to distraint for his unpaid taxes.
Mathias F.
Correa, U. S. Attorney for the Southern District of New York, for
plaintiff. John B. Creegan, of Counsel. Sullivan & Cromwell, for
defendant. Frank J. Berberich, of Counsel.
GALSTON, D.
J.:
This is an
action of a civil nature arising under the Internal Revenue Laws and
instituted pursuant to the authority and sanction of the Commissioner of
Internal Revenue under the direction of the Attorney General.
I find the
following facts:
[The
Facts]
On September
14, 1939, the Commissioner of Internal Revenue duly assessed against
Fred B. Lloyd and Genevieve Lloyd an income tax in the amount of $125
for the year 1936. On January 22, 1940 the Commissioner duly assessed
against the same taxpayers a delinquency penalty of $31.25 for the year
1936. These taxes were not paid though notices and demand were issued by
the Collector of Internal Revenue for the Second District of New York on
September 11, 1939, and again on January 31, 1940.
On October 26,
1939 a notice of levy was served on the defendant. The Marine Midland
Trust Company of
New York
, by the Collector; and on March 25, 1940 an amended notice of levy was
served on the defendant demanding that it turn over the amount of
$179.53, which was the amount of tax and interest then due and owing by
the taxpayer. On March 25, 1940 the defendant bank had on deposit in the
name of Fred B. Lloyd the sum of $223.50 in an account designated
"Special Account". The defendant declined to turn over any
part of the said deposit of Fred B. Lloyd.
The foregoing
facts are not in dispute. In addition it appears that Fred B. Lloyd
disappeared on October 26, 1936 and has not since been heard from. The
defense apparently rests on the contention, as set up in the answer,
that it is not clear to defendant that persons other than said Fred B.
Lloyd had no interest in this "Special Account" and that the
defendant requested the Collector to withhold further proceedings until
the situation was clarified either by the re-appearance of Lloyd or by
the appointment of a temporary administrator.
[Statutes
Involved]
The statutes
involved are Sec. 3690, Title 26, U. S. C., and Sec. 3710, Title 26, U.
S. C. The former statute authorizes the Collector to collect taxes with
interest and other additional amounts by distraint, "in the manner
provided in this sub-chapter, of the goods, chattels, or equities,
including * * * bank accounts, and evidences of debt of the person
delinquent as aforesaid." And the latter statute provides that any
person in possession of property subject to distraint shall, on demand
by the Collector, surrender such property to said Collector,
"unless such property or right is, at the time of such demand,
subject to any attachment or execution under any judicial process."
Clearly then,
if the account opened by the taxpayer Lloyd, designated "F. B.
Lloyd, Special Account", is the property of the taxpayer, the
United States has a right of action against the bank for failure to turn
over the funds sought.
United States
v. American Exchange Irving Trust Company, 43 Fed. (2d) 829 [2
USTC ¶577]; United States v. National City Bank of New York, 32
F. Supp., 890 [40-1 USTC ¶9253]. The sole asserted defense of the bank
seems to be that because the account is designated "Special
Account" it served as a notice to it that some persons other than
F. B. Lloyd "may have an interest in the monies in the
account". But the defendant admits in its brief that it has found
no authority to sustain its position.
[Term
"Special Account" Not Indicative of Trust Relationship]
Thus so far as
the record in this case reveals, the funds standing to the credit of the
"Special Account" of F. B. Lloyd, were deposited by Lloyd.
Clearly then he had legal title to these funds and there is no evidence
of any beneficial or otherwise equitable or adverse interest therein. To
conclude that the term "Special Account" is indicative of a
trust relationship would go beyond any authoritative interpretation of
the nature of a trust fund. The usual indicia of a trust are lacking.
There was no agreement either written or oral proved. There is no
evidence of a named trustee or named beneficiary, nor indeed is there
any evidence of any of the usual or ordinary terms provided for in a
trust instrument. So far as the proof in the case demonstrates, Lloyd
held both the legal title and the beneficial interest in the
"Special Account". It must be concluded than that a trust was
not created by him. See generally Restatement of the Law, Trusts, Secs.
2, 4 and 17. It must be concluded that the term "special" in
the present instance was merely by way of distinguishing the account,
perhaps, from other accounts. No other reason has been disclosed.
Finally it may
be observed that the defense of the bank that it may be subject to
double liability is not sustainable. Sec. 3710, Title 26, U. S. C. would
relieve the bank only in the event that the funds had been shown to be
subject to an attachment or execution under judicial process. See Coler
v. Corn Exchange Bank, 250
New York
136; affirmed 280
U. S.
218.
Judgment is
accordingly directed in favor of the plaintiff against the defendant in
the amount of $179.53, with interest thereon from March 25, 1940,
together with costs and disbursements.
[58-2 USTC ¶9723]Richard D.
Leuschner, Appellant v. First Western Bank and Trust Company, a
California Banking Corporation, and
United States of America
, Appellees
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 15,618, 261 F2d 705, 7/1/58,
Affirming District Court, 57-2 USTC ¶9734
[1954 Code Sec. 6332 and R. S. Sec. 3466]
Collection: Lien for taxes: Priority in administration: Beneficiary
of spendthrift trust and lien by Government.--First, the Government
can reach the interest of a beneficiary of a spendthrift trust to
enforce its claim for unpaid taxes. It is for the very reason that the
taxpayer-beneficiary acquires a property right to receive the trust
income that the Government has the power to levy thereon. Second, a
claim of the United States for unpaid taxes, filed but not adjudicated
in a voluntary bankruptcy proceeding of the beneficiary, did not bar the
right of the United States of enforce a lien filed subsequent to the
adjudication of bankruptcy. The filing of notice of levy and seizure
after adjudication by the bankruptcy court seemed to preclude any
jurisdiction over the lien by that court.
C. Ray
Robinson, Merced, Calif., Lewis, Field, DeGoff & Stein, Sidney F.
DeGoff, M. S. Huberman, A. B. Canelo, San Francisco, Calif., for
appellant. Charles K. Rice, Assistant Attorney General, Arthur I. Gould,
A. F. Prescott, Lee A. Jackson, Department of Justice, Washington, D.
C., Lloyd H. Burke, United States Attorney, Lynn J. Gillard, Assistant
United States Attorney, San Francisco, Calif., for United States.
Orrick, Dahlquist, Herrington & Sutcliffs, Christopher M. Jenks, San
Francisco, Calif., for First Western Bank and Trust Co.
Before HEALY,
POPE and FEE, Circuit Judges.
FEE, Circuit
Judge:
In this case
there are only two questions for decision. First, the trial court held
[57-2 USTC ¶9734] that the right of the United States to collect unpaid
income taxes prevails over spendthrift provisions of a trust
notwithstanding the statute of the State of California, which exempts a
portion of the right of a beneficiary thereunder for his education and
support. Second, it was also held that the claim of the United States
for preference on the unpaid taxes, filed in a voluntary bankruptcy
proceeding of the beneficiary, did not bar a subsequent adjudication in
the District Court of the right of the United States to enforce a lien
upon property of the bankrupt filed subsequent to the adjudication.
The technical
framework whereby these questions were raised need not delay us.
Leuschner brought suit against his co-trustees, including the First
Western Bank and Trust Company, in the state court for moneys held by
the Bank as depository and claimed to be due him as a beneficiary of a
trust. The bank filed interpleader, joining the United States. The
United States removed the cause to the federal court and sued the Bank
independently, pursuant to 26 U. S. C. A. §6322(b), for penalty because
of failure to turn over to the United States funds belonging to
Leuschner. The adjudication of bankruptcy of Leuschner was dated July 7,
1955. The government filed lien on July 22, 1955, and on that same date
delivered a notice of levy to a trust officer of the First Western Bank
and Trust Company. On April 5, 1956, a final demand was delivered. The
court found that the Bank had made no payments to Leuschner from the
trust after that date, that the Bank was not subject to penalty, that
the United States did not state a claim in the pleadings for the
foreclosure of its lien, and that the Bank and trustee who interpleaded
were entitled to attorney fees. None of these findings has been
appealed. After determining the questions first above set out, the
District Court dismissed the complaint filed by Leuschner, and he
appeals.
The mother of
Leuschner, executed a trust agreement where he, Erida Leuschner
Reichert, Armin O. Leuschner and First Western Bank and Trust Company
were trustees, and he, along with others, was a beneficiary. The
pertinent provisions of the trust agreement reads:
"Each and
every beneficiary under this trust is hereby restrained from and shall
be without right, power or authority to sell, transfer, pledge,
mortgage, hypothecate, alienate, anticipate or in any other manner
affect or impair his, her or their beneficial and legal rights, titles,
interests, and estates in and to the income and/or principal of this
trust during the entire term hereof; nor shall the rights, titles,
interests and estates of any beneficiary hereunder be subject to the
rights or claims of creditors of any beneficiary, and all the income
and/or principal of this trust shall be transferable, payable and
deliverable solely to the beneficiaries as herein provided, and the
Trustees may require the personal receipt of any beneficiary as a
condition precedent to the payment of any money or other property to
such beneficiary."
The
provision is legal under §867 of the California Civil Code. 1 But, by
another section of the same Act, ordinary creditors are permitted to
reach all income of a beneficiary of such a provision except so much as
is necessary for his education and support. 2
It is the
claim of the United States that, under the Income Tax Amendment to the
Federal Constitution, a lien for unpaid income tax may be levied and
collected from all property or income received by a person, irrespective
of private agreements or laws of the states to the contrary. The
position of the government is that the California legislation above
considered attempts to provide an exemption for the beneficiary which is
valid as to creditors. 3 In view of
the paramount amendment, such income cannot be isolated from the lien of
the United States.
This rule is
stated in the Restatement of the Law as follows:
"Although
a trust is a spendthrift trust or a trust for support, the interest of
the beneficiary can be reached in satisfaction of an enforceable claim
against the beneficiary, * * * (d) by the United States * * * to satisfy
a claim against the beneficiary." Restatement, Trusts, §157 (1948
Supp.). 4
There
is no doubt that the paramount right to collect taxes of the federal
government overrides a state statute providing for exemptions. 5
But the
bastion of the claim built up by Leuschner is that he had a property
right to receive this income for education and support. Thus it is
sought to construe the California statute to avoid the inference that an
exemption is granted thereby. It is for the very reason that Leuschner
acquires a property right that the government has the power to levy
thereon. 6 No opinion
is expressed as to what result would follow if the trust provided that,
upon seizure of the proceeds, the gift would lapse and thereafter the
income would be payable to the other cestui que trust. So long,
however, as Leuschner has a property interest in these payments, the
government has the power to seize them. 7
The last point
made by Leuschner is not maintainable. Leuschner filed a voluntary
petition in bankruptcy and was so adjudicated. The government filed a
claim that the tax liability of Leuschner be paid in preference to other
creditors. Leuschner suffered no detriment from the filing of such a
claim, and it was not discharged by the adjudication. The trustee did
seek to have the trust income applied to the claims of creditors. The
referee held that this fund could not be reached. The claim of the
government was never passed upon or adjudicated in any way. Sometime
after the petition was filed, the lien notice was served on the Bank. No
estoppel is involved. If the referee had held that the government had no
claim or that there was no lien upon the fund by the service of the
notice, some question might be raised. 8 But the
filing of the notice of levy and seizure after the adjudication seems to
preclude any jurisdiction over the lien by the bankruptcy court. None of
the cases cited by Leuschner bears upon the point.
Affirmed.
1 "The
beneficiary of a trust for the receipt of the rents and profits of real
property, or for the payment of an annuity out of such rents and
profits, may be restrained from disposing of his interest in such trust,
during his life or for a term of years, by the instrument creating the
trust." Cal. Civ. Code, §867.
2 "Where
a trust is created to receive the rents and profits of real or personal
property, and no valid direction for accumulation is given, the surplus
of such rents and profits, beyond the sum that may be necessary for the
education and support of the person for whose benefit the trust is
created, is liable to the claims of the creditors of such persons, in
the same manner as personal property which cannot be reached by
execution." Cal. Civ. Code, §859.
3 Section 859
of the California Civil Code is an exemption statute. By enactment of
it, "the legislature has provided that the amount of income
necessary for [the] * * * 'education and support' [of beneficiaries of
the proceeds of a spendthrift trust] shall be free from claims of
creditors." Canfield v. Security First National Bank, 13
California 2d 1, 12. The New York Court of Appeals, in dealing with a
similar enactment, said that "the provisions of law which afford
protection to the beneficiaries of trusts are practically simply
statutes of exemption." Brearley School, Ltd. v. Ward, 201
New York 358, 364.
4 The leading
case in support of this proposition is similar to the instant one. It is
In re Rosenberg's Will, 269 New York 247 [35-2 USTC ¶9650],
cert. den. sub nom. Rosenberg v. United States, 298 U. S. 669.
See also United States v. Dallas National Bank, 5 Cir., 152 Fed.
(2d) 582 [46-1 USTC ¶9117]; United States v. Canfield, 29 Fed.
Supp. 734 [39-2 USTC ¶9641], appeal dismissed sub nom. Security-First
National Bank v. United States, 9 Cir., 113 Fed. (2d) 491.
"It has
been held in a number of cases that the government can reach the
interest of a beneficiary of a spendthrift trust to enforce its claim
for unpaid taxes. * * * It seems clear that the creator of a trust ought
not to be permitted to exempt the interest of the beneficiary from
liability for taxes payable by the beneficiary, even where he can exempt
it from the claims of ordinary creditors." Scott, Trusts, §157.4
(1956 ed.).
"Although
a spendthrift trust is held valid against creditors and assignees of the
beneficiary, it does not necessarily follow that the same conclusion
must be reached when a state or the United States seeks to reach the
beneficiary's interest." Griswold, Spendithrift Trusts, §342, p.
403 (2d ed., 1947).
5
"Against [federal tax] * * * liens, exemptions prescribed by State
laws are ineffective."
United States
v. Heffron, 9 Cir., 158 Fed. (2d) 657, 659 [47-1 USTC ¶9194],
cert. den., 331
U. S.
831 (state homestead exemption); Fried v. New York Life Insurance
Company, 2 Cir., 241 Fed. (2d) 504 [57-1 USTC ¶9412], cert. den.
354
U. S.
922 (proceeds of disability insurance exempt from claims of creditors by
state statute not exempt from federal tax liens). See also Knox v.
Great Western Life Assurance Co., 6 Cir., 212 Fed. (2d) 785.
6 See
United States
v. Dallas National Bank, 5 Cir., 152 Fed. (2d) 582, 584-585
[46-1 USTC ¶9117].
7 "If any
person liable to pay any tax neglects or refuses to pay the same after
demand, the amount * * * shall be a lien in favor of the United States
upon all property and rights to property whether real or personal,
belonging to such person." Internal Revenue Code of 1954, §6321.
See Glass City Bank v. United States, 326 U. S. 265 [45-2 USTC ¶9449].
8 The referee
in his findings did recite that the government had levied upon the
property claimed to be exempt on July 22, 1955, many days after the
adjudication. But this amounts to a disclaimer of jurisdiction over this
lien, which, by virtue of §67(6) of the Bankruptcy Act, was valid
against the Trustee. It is also recited in the conclusion of the referee
that the creditors have no claim on the exempt property. This finding
does not intimate that the referee is attempting to pass upon the right
of the government to levy a lien for unpaid taxes upon the property
which the referee has held exempt from claims of ordinary creditors.
[58-1 USTC ¶9499]United States of
America, Plaintiff v. R. E. Williams, Special Administrator for the
Estate of George D. Stout, and United States Savings Bank of Newark, New
Jersey, Defendants
U.
S. District Court, Dist. N. J., Civil Action, File No. 24-56, 160 FSupp
761, 4/3/58
[1954 Code Sec. 6332]
Property subject to levy and distraint: Bank account: "Totten
Trust": Beneficiary predeceased depositor: New Jersey law.--The
Government was not entitled to a savings account standing in the name of
"George D. Stout, in trust for Merritt Lane, friend," where
its claim arose through a levy and distraint for income tax deficiencies
assessed against Merritt Lane, who had predeceased Stout. The earlier
death of the beneficiary terminated the tentative trust..
Chester A.
Weidenburner, United States Attorney, Barbara Ann Morris, Assistant
United States Attorney, for plaintiff. Alden Reid, Harrigel, Bolan &
Herrigel, Joseph Ginsburg, for defendant.
Opinion
WORTENDYKE,
District Judge:
In this action
the Government sues to recover from defendant Bank the amount of the
balance due upon a savings account, No. 142,631 therein, standing in the
name of "George D. Stout, in trust for Merritt Lane, friend."
The Government's claim arises through a levy and distraint upon the
account for income tax deficiencies assessed against Merritt Lane,
deceased. 26 U. S. C. §§ 3670, 3678, 3690 and 3692. Demand for payment
or the aggregate amount of those deficiencies was made upon decedent's
executrix, who made certain payments on account thereof but left a
balance unpaid for which said levy and distraint was made.
George Stout,
the creator of the savings account levied upon, died intestate, a
resident of San Bernardino County, California, on April 9, 1947, and
defendant R. E. Williams, as Public Administrator of that County, was
duly appointed administrator of the estate of said intestate. The
beneficiary, Merritt Lane, a resident of Madison, New Jersey, died on or
before June 23, 1939. The Government seeks judgment in this action
declaring that said administrator has no interest in said savings
account. Defendant Bank admits the account which it says was opened
September 25, 1933 in the amount of $1,950.29. The following withdrawals
from the account were made by the depositor, viz.: $400 on December 12,
1933; $400 on August 25, 1936; and $200 on June 5, 1937. Items of
accrued interest were added from time to time through June 30, 1957,
when the credit balance was $1,529.38.
[Interpleader]
On October 9,
1954 the executrix of Merritt Lane duly assigned all her right, title
and interest in the bank account to the Government. The Bank concedes
its liability to pay the amount due under said Account, but alleges
doubt as to whether the Government or Williams is entitled to the
balance therein. Accordingly, the Bank has sought interpleader between
plaintiff and Williams, and an adjudication of their respective rights
in the fund. Service by mail having been effected upon the Administrator
(Williams) in accordance with order of this Court, he has answered and
claims that the balance in the bank account belongs to the estate of
George D. Stout, of which he is Administrator. In lieu of trial, the
parties have submitted the case upon a written stipulation of facts, and
upon briefs for Government and Bank respectively. No brief has been
filed for Williams.
The contract
between the Bank and the depositor having been made and to be performed
in the State of New Jersey, both the Government and the Bank concede
that right to the fund must be governed by New Jersey law. Cutts v.
Neidrowski, E. & A. 1938, 123 N. J. Eq. 481; Fidelity Trust
Co. v. Field, 1940, 311 U. S. 169. The single question here
presented, therefore, will be answered by a determination of the
ownership of the bank account as of June 23, 1939, the latest possible
date of the taxpayer's death.
[Law]
In 1933, when
the bank account here in dispute was opened, N. J. R. S. 17:9-4 read as
follows:
"When
a deposit has been or shall be made in a bank, savings bank or trust
company by a person in trust for another, and no other or further notice
of the existence and terms of a legal and valid trust has been given in
writing to the bank, savings bank or trust company, in the event of the
death of the trustee, the same or any part thereof, together with the
dividends or interest thereon, shall be paid to the person in trust for
whom the deposit was made, or to his legal representative and the legal
representative of the deceased trustee shall not be entitled to the
funds so deposited nor to the dividends or interest thereon
notwithstanding that the funds so deposited may have been the property
of the trustee. * * *"
The foregoing
statutory provisions were considered and construed in Bendix v.
Hudson County National Bank, E. & A. 1948, 142 N. J. Eq. 487,
where the Court said at p. 491:
"* * * R.
S. 17:9-4 does not give rise to a conclusive presumption of the
existence of an intention to make an absolute gift inter vivos or
to create an irrevocable trust. * * * The statute has application only
where 'no other or further notice of the existence and terms of a legal
and valid trust has been given in writing to the bank;' * * *. The form
of the account is but prima facie evidence of a gift or a trust inter
vivos; it constitutes presumptive evidence of an intention to make
the purported gift or to create the trust which stands until overthrown
by proof contra. The statute simply raises a rebuttable
presumption of a valid and enforceable gift or trust. * * *"
The evidence
in this case does not disclose some unequivocal act during the
depositor's lifetime which would give rise to an irrevocable trust, and
we are, therefore, relegated to the presumption which arises under the
statute. In the absence of any evidence which would rebut the
presumption of an intention to create a trust, or a revocation thereof pro
tanto by the withdrawal of sums by the depositor, the intended
beneficiary, had he survived the depositor, would have been entitled to
what remained in the account free from any claim on the part of the
depositor's representatives. Abruzzese v. Oestrich, Ch. 1946, 138
N. J. Eq. 33; Hickey v. Kahl, Ch. 1941, 129 N. J. Eq. 233. Where,
however, as here, the beneficiary predeceased the depositor, the
question presented is whether such survival by depositor of the
beneficiary did not terminate the tentative trust. Although the
stipulated facts, of necessity, raised this question as an issue, it was
not briefed, and my research did not result in the disclosure of any
controlling authority explicitly so holding.
["Totten
Trusts"]
Before the
passage of R. S. 17:9-4, a deposit of money in a savings account in the
name of the depositor in trust for another who was dead at that time did
not give rise to a trust. Nicklas v. Parker, Ch. 1905, 69 N. J.
Eq. 743; aff'd, E. & A. 1907, 71 N. J. Eq. 777. In New York, where a
tentative trust of savings bank deposited money was first sustained, the
rule was laid down that the trust, in absence of some unequivocal act on
the part of the depositor manifesting an intent to create an irrevocable
trust, did not arise unless the depositor died before the beneficiary
before revocation. In re Totten, 1904, 179 N. Y. 112; Conry v.
Maloney, 1950, 5 N. J. 590. Therefore, where the beneficiary
predeceases the depositor, the trust is automatically terminated. Rs.
Trusts, §58, Comment b; 1 Scott, Trusts (2nd ed.) §58.4. However, the
phrase "* * * or to his legal representative" is suggestive of
a trend toward a contrary rule.
In Jefferson
Trust Co. v. Hoboken Trust Co., Ch. 1930, 107 N. J. Eq. 310, the
court held, at p. 313, that statute which included the phrase "or
to his or her legal representatives" was intended "merely to
protect a trust company from liability in the event of its making
payment * * *." We know, today, that more was intended. Bendix
v. Hudson County National Bank, supra. However, in Thatcher v.
Trenton Trust Co., Ch. 1936, 119 N. J. Eq. 408, 411, the court said,
in answer to the argument that the 1932 act also merely intended to
protect depositaries:
"From
a comparison of the language of the acts of 1903 and 1932, and
consideration of the fact that the act of 1932 was enacted shortly after
the decision in Jefferson Trust Co. v. Hoboken Trust Co., supra,
it may well be assumed that the purpose back of the 1932 act was to
accomplish such a change in the law as to prevent in future such result
as had been adjudicated in the last named case. The meaning and effect
of a statute, however, must be determined on the basis of the language
which has actually been used."
Therefore,
there has been a gradual advancement toward the acceptance of the
"Totten Trust" in New Jersey, but a recognition that the
statute was meant to do more than protect depositories does not answer
the question of what is the effect of the death of the beneficiary
before the depositor. I doubt that the phrase in question was meant to
do more than to protect the depository in its payment while also
providing for the creation of a tentative trust in a proper case. Bendix
v. Hudson County National Bank, supra. Beyond this the legislature
did not appear to intend to permit such a trust to arise despite the
prior death of the beneficiary. In subsequent legislation, although not
conclusive as to this issue, the legislature specifically provided that
the prior death of the beneficiary terminates the trust. N. J. S.
17:9-216A(2).
The precise
question here presented was before the court in Abruzzese v.
Oestrich, supra, where the beneficiary had predeceased the
depositor. Because the beneficiary died testate leaving her property to
the depositor, thereby accomplishing the same ultimate disposition,
whether the depositor received the money because the trust was
terminated by the beneficiary's prior death or under the will of the
beneficiary, the court declined to rule on the problem, saying at pp.
43-44:
"Now for
the devolution of Mrs. Smith's half of the fund. In
New York
, it is considered that upon the death of the named beneficiary in the
lifetime of the depositor, the interest of the beneficiary terminates
and the depositor holds free of any trust, tentative or otherwise. The
direction in our statute that payment be made to the beneficiary 'or to
his or her legal representatives,' may indicate a different rule.
However, Mrs. Smith died testate, making her mother, Mrs. Bear, her sole
legatee and naming her executrix. * * * So, either because of the nature
of these bank account trusts, or by force of Mrs. Smith's will, the
representatives of Mrs. Bear are entitled to one-half of the fund."
Subsequently,
in Bendix v. Hudson County National Bank, supra, the court in
construing this statute described the beneficiary as being merely a putative
cestui who must survive the depositor, saying at pp. 490, 492:
"* * *
[I]f the decedent's design was not a presently operative gift, but
rather a transfer to himself as trustee with a reservation of full
ownership and absolute dominion over the fund or chose in action until
his death, the putative cestui to take the balance of the credit
in the event of his survival, without any immediate interest in the
deposit, there was not a gift in praesenti or a valid trust inter
vivos; and the gift in case of survival, i. e., to take
effect upon the death of the transferor, would be testamentary in
character and void for non-conformance with the Statute of Wills.
(Citing cases.)"
"Apart
from the protection afforded the depository, the evident purpose was to
raise, as between the depositor and the putative cestui inter se,
a rebuttable presumption of an inter vivos gift or trust from the form
of the account, nothing more."
If the trust
remained revocable in the lifetime of the depositor, it continued to be
revocable after the beneficiary's death. If there still remained any
trust after the beneficiary's death, it was, at best, tentative. But who
was the cestui after the death of the beneficiary? No provision
was expressed by the depositor for the contingency, which has occurred,
in which the beneficiary has predeceased the depositor. But the interest
of the beneficiary here was, at the time of his death, purely
contingent. There was no expression of intent by the depositor that the
"trust" created by the deposit was to pass to the
beneficiary's administrator, executor, or legatee upon the beneficiary's
death before the death of the depositor. There was no vesting of
equitable title to the trust res in the named sole beneficiary. No title
to the res passed to the beneficiary's executor. There was no interest
of the beneficiary which could be reached by his creditors. Restatement
Trusts, §162. See, Muller v.
Cox
,
Ch.
1925, 98 N. J. Eq. 188.
[Conclusion]
Therefore, I
hold that the prior death of the putative cestui terminated the
tentative trust and that the representative of the deceased depositor,
Stout, is entitled to the fund. Since the trust is held terminated, it
is unnecessary to discuss the effect of the deposit in trust as aided by
the rebuttable presumption raised by the statute.
This opinion
shall constitute my findings of fact and conclusions of law, as required
by Rule 52(a), and an order for judgment accordingly may be presented.
[82-1 USTC ¶9182]United Stated of
America
v. Equitable Trust Company
U.
S. District Court,
Dist.
Md.
, No. M-81-704, 524 FSupp 1133, 1/21/82
[Code Sec. 6332]
Levy and distraint: Property subject to levy: Trust account.--Where
the uncontroverted evidence established that depositors opened and
maintained a joint checking account, which was labeled a trust account
solely due to the practices of a trust company, the United States was
entitled to summary judgment against the trust company for failure to
comply with a federal tax levy made against one of the depositors. No
trust was created under state law so as to deprive the taxpayer of
property rights in the account.
Russell T.
Baker, Jr., United States Attorney, David Dart Queen, Assistant United
States Attorney, Baltimore, Maryland 21202, Mitchell R. Berger.
Department of Justice, Washington, D. C. 20530, for plaintiff, John S.
Hebb, III, Timothy L. Mullin, Jr., Miles & Stockbridge, 10 Light
Street, Baltimore, Maryland 21202, for defendant.
Memorandum
and Order
MILLER, JR.,
District Judge:
The United
States brought this action to obtain a judgment against the Equitable
Trust Company (Equitable) for Equitable's failure to comply with a
federal tax levy served on July 24, 1980. 1 I. R. C. §6331.
The levy purported to attach any property and property rights in
Equitable's possession but belonging to Douglas R. Cranston. I. R. C. §6332.
At the time of
the levy, Equitable had on deposit funds in checking account
#515-6565-5, titled in the names of Cranston and Melody L. McManus. 2 The
signature cards used by Equitable to establish the account list two
authorized signatures, "Douglas R. Cranston" and "Melody
L. McManus," and bear the legend "in trust for self and joint
owners, subject to the order of either, balance at the death of either
to belong to the survivor." 3 $qEquitable
has refused to honor the levy on the ground that it possesses no
property belonging to Cranston. According to Equitable, account
#515-6565-5 is a trust account under Maryland law, in which Cranston
does not have "property" rights subject to levy. 4 The
Government contends, among other things, that the account was not a
trust account and that, in any event, Maryland law relating to the
seizing of funds held in trust does not affect the enforcement of a
federal tax levy.
This case is
before the court on cross-motions for summary judgment. 5 Having
reviewed the entire record, the court concludes that no hearing is
necessary. Local Rule 6(E).
I. Overview.
As noted above, the signature card establishing the account indicates
that it was to be a "trust" account. 6
Nevertheless, McManus' deposition testimony indicates that neither she
nor Cranston ever requested or intended that the account be opened
"in trust" for herself or Cranston. 7
McManus was
the one who actually went to Equitable's office to open the account. She
told the bank employee who opened the account, Kathy Roach, that she and
Cranston wanted a "joint checking account." 8 According to
McManus, both she and Cranston intended to establish with Equitable only
a "regular joint checking account." 9 During her
visit at the Equitable branch, McManus made this intent known to Roach,
and there was no discussion between them regarding other available forms
of accounts. 10
McManus
testified at her deposition that the purpose of the account was to
enable her, as Cranston's fiancee, to pay bills, primarily on Cranston's
behalf, during his regular absences from their home occasioned by his
work as a moved and truck driver. 11 Both
McManus and Cranston had authority to spend from the account without
limit, and they regarded the funds as being available to either of them.
12
It is
Equitable's practice to style all joint checking accounts as "in
trust" accounts unless the parties to the account request
otherwise. 13 Apparently
because of this practice, Equitable personnel provided McManus with a
signature card bearing the "in trust" legend. 14 According
to McManus, she does not now recall the content of the signature card
and does not recall ever discussing it with Cranston. 15 McManus
simply signed the card presented to her by Equitable, and then secured
Cranston's signature on the card by bringing it to him at his work place
that same day. 16 When she
returned the completed card to Equitable, McManus received no
explanation as to the significance of the "in trust" legend.