Annotations- Bank Accounts Page4

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 [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.