Petitioners Brief — Roberts v. Commissioner

Serres Poe jae SALTY :

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No.

IN THE

Supreme Gourt of the United States

OCTOBER TERM, 1944

DORA ROBERTS,

Petitioner,

v.

JOSEPH D. NUNAN, JR.,

Commissioner of Internal Revenue,

Respondent.

eo. ‘

Brief In Support of Petiticn For Writ of Certiorari

To the Circuit Court of Appeals For the Fifth Circuit

Opinions Below

The opinion of the Circuit Court of Appeals is re-

ported at 143 Fed. (2d) 657. The opinion of The

Tax Court of the United States is reported at 2

T. C. 679.

Jurisdiction

The judgment of the Circuit Court of Appeals was

entered July 7, 1944. The jurisdiction of this Court

is invoked under Section 240 (a) of the Judicial

Code, as amended by 48 Stat., 938 (U. S. C. Title

28, Section 347).

Poon tea ak AER ae Bt NES a Ry Se Ree ER NE SEe Dele ec Ske eget Ss Cpa WS Te

— we

Statutes and Regulations Involved

The statute applicable to the three (3) taxable years

involved in this proceeding is Section 1003 of the In-

ternal Revenue Code. It reads as follows:

“Sec. 1003. NET GIFTS.

(a) General Definition—The term ‘net gifts’

means the total amount of gifts made during

the calendar year, less the deductions provided

in Section 1004.

(b) Exclusions from gifts.

* ok *

. + =

(2) Gifts after 1938.—In the case of gifts

(other than gifts in trust or of future interests

in property) made to any person by the donor

during the calendar years 1939 and subsequent

calendar years, the first $4,000 of such gifts to

such person shall not, for the purpose of sub-

section (a), be included in the total amount of

gifts made during such year.”

For years prior to 1939, the amount excluded from

taxable gifts (Sec. 1003 (b) (1) of the Internal

Revenue Code) was $5,000.00.

The applicable Treasury Regulations are Regula-

tions 79 (1936 Ed.) Article 11, which reads as fol-

lows:

“Art. 11.—Future interests in property.—No

part of the value of a gift of a future interest

may be excluded in determining the total amount

of gifts made during the calendar year. ‘Future

interests’ is a legal terrn, and includes reversions,

remainders, and other interests or estates, wheth-

er vested or contingent, and whether or not sup-

ported by a particular interest or estate, which

9785 Sp NT ERNE GIRL REE ORME

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are limited to commence in use, possession, or en-

joyment at some future date or time. The term

has no reference to such contractual rights as

exist in a bond, note (though bearing no interest

until maturity, or in a policy of life insurance,

the obligations of which are to be discharged by

payment in the future. But a future interest or

interests in such contractual obligations may be

created by the limitations contained in a trust

or other instrument of transfer employed in ef-

fecting a gift. * * * * * * (Emphasis supplied).

Question Presented

Whether irrevocable gifts of money made by peti-

tioner in the calendar years 1938, 1939, 1940 and

1941 are required to be classified as gifts of ‘future

interests” and, therefore, excepted from the exclu-

sions from taxable gifts provided by Section 1003 of

the Internal Revenue Code and Treasury Regulations

promulgated thereunder, because the gift funds were

forthwith invested in contracts, the obligations of

which were to be discharged by payment in the future,

and because for a period of ten years after the date

of certain of the gifts (a period that ended before the

minor donees attained their majorities) and for a

longer time after the date of other of the gifts, a

limited amount of control over the res of the gifts

was lodged in the widowed mothers of the donees

who, in the case of the minor donees, was their

natural guardian.

Statement

The statement of facts contained in the petition

for certiorari (pages 3 to 5 supra) sufficiently de-

59 BAS Wan SRSA ts cs Se PEL AL SR Se

apes

SHEE FEBS iw 9p ORR Or Te ea

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velops the salient facts. Reference to that statement

is hereby made.

Specification of Errors To Be Urged

The Circuit Court of Appeals erred:

1. In holding and deciding that the gifts of money

with which to acquire the annuity contracts made by

petitioner in 1938 were gifts of “future interests in

property,” as defined in Section 1003 (b) of the

Internal Revenue Code.

2. In holding and deciding that the gifts of money

made in the years 1939, 1940 and 1941, with which

to pay premiums on the said annuity contracts were

gifts of “future interests in property,” as defined

in Section 1003 (b) of the Internal Revenue Code.

3. In failing to hold and decide that the said gifts

were gifts of a present interest in property.

4. In failing to hold and decide that, with respect

to the said gifts, petitioner is entitled to exclusions

under Section 1003 (b) of the Internal Revenue Code

totaling $15,000.00 for 1938, and $12,000.00, $12,-

000.00, and $12,000.00, for 1939, 1940 and 1941,

respectively.

5. In holding and deciding that the net taxable

gifts reported by donor for the years 1939, 1940 and

1941 should be increased by the respective amounts

of $24,500.00, $34,800.00 and $46,400.00.

6. In adjudging and deereeing that petitioner is

due deficiencies in gift tax for the calendar years

1939, 1940 and 1941 in the respective amounts of

$1,423.34, $2,620.06 and $1,682.30.

"=

7. In failing to adjudge and decree that petitioner

is due no deficiency in gift tax for either of the said

years 1939, 1940 and 1941 in any amount.

Summary of Argument

I.

The gifts here involved were present gifts of sums

of money. If viewed as gifts of contractual obliga-

tions, they are nevertheless present gifts. The hold-

ing of the Court below to the contrary was based

on the fact that certain control over the res of the

gifts was lodged in the mothers of the donees. Cer-

tainly, in the case of the minor donees at least, this

control was no more than would have been lodged in

their mother, their natural guardian, by operation of

law, and did not operate to convert what would other-

wise be a present interest into a future interest.

Argument

I.

The statute excludes from taxable gifts for the

calendar year 1938, the first $5,000.00, and for the

calendar years 1939 to 1941, inclusive, the first

$4,000.00 of gifts made within the year to any one

person by a donor. The exclusion does not, however,

apply in the case of gifts in trust or gifts of “future

interests in property.” The quoted term is defined

by Article 11 of Treasury Regulations 79 (1936 Edi-

tion) as “interests or estates * * * which are limited

to commence in use, possession or enjoyment at some

future date or time.”

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Petitioner contended in the Court below that the

gifts with which we are here concerned were simple

gifts of money, presently complete, and that the sub-

sequent investment of them in annuity policies did

not alter their nature. Clearly, if the gifts were

gifts of money, they fall within the class of excluded

gifts to the extent they do not exceed the sum of

$5,000.00 or $4,000.00, respectively, to any one per-

son in any one calendar year, and the exceptions con-

tained in the statute do not apply.

The Court below thought otherwise (R. 54). It

conceded that the donor could simply have given

money to her adult grandson, or to a guardian or

trustee for the minors, who might afterwards have

invested it in the policies and that, had this been

done, present gifts undeniably would have resulted

(R. 54).

Because donor did not do this, but in 1938 took

the money to Insurance Companies and procured

them to issue their policies to the grandchildren,

and in the later years paid the money herself to the

Insurance Companies and thereby increased the sums

payable under the policies, the Court below adopted

the view that donor obtained contractual obligations

from the Companies to her grandchildren and gave

them those obligations. The first payment due, un-

der the terms of these contractual obligations, was

to be made (in the absence of a permitted election

to the contrary) in a year subsequent to the year

of gift. “Because of this, the Court below held that the

gifts were, under the statute, gifts of “future in-

terests.” We respectfully submit that this reasoning

=!

of the Court below unwarrantably exalts form and

procedure over substance.

The Tax Court found that physical possession of

the annuity policies passed immediately to the donees

(R. 30). As soon as payments were made by donor

to the Insurance Companies, the amounts paid began

immediately to earn returns, and there was created

an obligation on the part of the Insurance Com-

panies to make specified payments out of the in-

vested funds and the accumulated earnings thereon

to the several annui‘ants, which obligation, under

the terms of the contract, was to be discharged by

payment in the future. Accordingly, the annuitants

began to “enjoy” forthwith, the benefits of the in-

vestments made on their behalf.

It is to be noted that in the test laid down by

Article 11 of Regulations 79 for determining a future

interest, the terms ‘“‘use, possesion or enjoyment” are

used disjunctively. ,.

The annuitants here had possession of the con-

tracts. The amounts invested for their benefit by

the donor were being used to earn additional funds

which, under the obligations contained in the con-

tracts, were to be paid to the annuitants at the ma-

turity dates of the respective contracts. It is clear,

therefore, that in the last analysis the decision of

the Court below on review that the gifts here in-

volved constituted gifts of “future interests” rested

upon the fact that immediate payments under the

annuity contracts could not be demanded by the

annuitants without the active cooperation of their

QPRSASSNNA DL TO TOMAS ELAR Oo

igen alee RES RAS & ERE RER BES

Piatioiamenameie:.

~_

mothers, in whom, under the contract, the right to

exercise the option to advance the due date of the

first payment under the contract was lodged.

The donor had parted with her money. The In-

surance Companies were obligated to make payments

of specified amounts at specified times to the an-

nuitants. Neither the donor, the Companies, the an-

nuitants, nor their mothers, had the right to change

the payees under the contract and the only option or

election that any one had in the premises was one

vested in the mothers to demand the immediate, in-

stead of deferred, payment of the sums due under

the contracts. In the nature of things, a demand for

immediate payment would have reduced the total

amounts ultimately to be received by the annuitants

under the contracts, and was not lightly to be made.

In the case of the two minor annuitants, their

mother was their natural guardian. As such, the dis-

cretion reposed in her was a legal one and, there-

fore, reviewable by a Court of competent jurisdic-

tion for an abuse thereof. Such discretion might

not be exercised arbitrarily or capriciously and, we

venture to assert that, had the annuitants been in

want, the mothers could have been required by a

proper proceeding to immediately demand and re-

ceive for their benefit such sums as the Companies

were required, under the contract, to pay in the

event of the exercise of the option to accelerate the

due date of payments under the contract.

Because of this, we respectfully submit that an

immediate and irrevocable gift was made by the

=

donor upon the payment of each premium on the

policies. Such gifts did not depend for their con-

summation or continuation upon the happening of

uncertain future events but constituted a transfer

of a present interest, notwithstanding that provi-

sion was made for the accumulation of interest on

the funds invested with the Companies during the

minority of the minor donees, and that a different

result does not follow solely because, during the

period oi minority, certain powers of control over

the res of the gifts were lodged with their natural

guardian.

Because the opinion of the Court below holds other-

wise, it is in the teeth of the applicable statute and

regulations, and is in direct conflict with the princi-

ples laid down in its own decision in Commissioner v.

Kempner, 126 Fed. (2d) 853, and its decisions in the

instant proceeding and in Fondren v. Commissioner,

141 Fed. (2d) 419, (Waller, Justice, dissenting), peti-

tion for certiorari filed May 19, 1944, now pending, are

in direct conflict with the principles laid down by the

Third Cireuit Court of Appeals in William D. Disston

v. Commissioner of Internal Revenue, .... Fed. (2d) ...,

decided July 12, 1944.

EN ERS 3

=_

Conclusion

It is respectfully submitted that the decision below

is erroneous; deals with an important question of

federal law; conflicts with other decisions of the

Court below, and with decisions of another: Circuit

Court of Appeals, and that the petition for certiorari

should be granted and the decision below reversed.

R. B. CANNON,

HARRY C. WEEKS,

909-13 Sinclair Building,

Fort Worth, Texas.

Attorneys for Petitioner.

September, 1944.

Of Counsel:

WEEKS, BIRD & CANNON,

909-13 Sinclair Building.

Fort Worth, Texas.

INDEX

616094— 44——1

Page

Opinions below_—_— ____- ; eee oe ee a ag OO 1

Jurisdiction : ea z 1

Question presented | __ ees Sa eae tie bee a wate a a 2

Statutes and regulations involved 2

Statement____-_ pe ane 3

Argument __—__ 8

Conelusion . Z 13

Appendix _ _ _- oe " 14

CITATIONS

Cases:

Commissioner v. Kempner, 126 F. 2d 853. tos 9

Disston v. Commissioner, 144 F. 2d 115_- shes ae pay ky we

French v. Commissioner, 138 F. 2d 254_.___...._..-._---- 12

Fondren v. Commissioner, 141 F. 2d 419, certiorari granted,

October 9, 1944. ee roe Pease eas ee

Ryerson v. United States, 312 U.S. 405_- ~~~ E 9

United States v. Pelzer, 312 U.S. 399. ____- Sone ty eee 9

Welch v. Paine, 120 F. 2d 141 ante: 9

Welch v. Paine, 130 F. 2d 990________- owes ime. |

Wisotzkey v. Commissioner, decided August 10, 1944______ 11

Statues:

Internal Revenue Code: ‘

ON RS OR A ORS: | | hr 14

mee eee te, 0, ©. 2001) 6.4... 2.5... Are 14

mueoweee tae U. is. %. 8000)... 2... ec cee 7,14

Revenue Act of 1932, c. 209, 47 Stat. 169:

SnD hehe eee Sins ow oS ew ek cw wee 15

ee ee cee wna Gna ee 7,15

Miscellaneous:

Treasury Regulations 79 (1936 ed.):

te eee ot ia obec ap eeenecaes 17

etd 2s Ah a awa & wate eee 8,17

Treasury Regulations 108:

eee td lA ek ese Ga daetansebsee 15

I ee ee oe ee ce tee ep ceuen ee seleian 8,17

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Inthe Supreme Court of the United States

OctToBER TERM, 1944

No. 556

Dora Roeserts, PETITIONER

v. :

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE FIFTH

CIRCUIT

MEMORANDUM FOR THE RESPONDENT

OPINIONS BELOW

The opinion of the Tax Court of the United

States (R. 18-32) is reported in 2 T. C. 679. The

opinion of the Circuit Court of Appeals for the

Fifth Circuit (R. 52-55) is reported in 143 F.

2d 657.

JURISDICTION

The judgment of the circuit court of appeals

was entered on July 7, 1944 (R. 55). The pe-

tition for a writ of certiorari was filed on Oc-

tober 6, 1944. The jurisdiction of this Court is

invoked under Section 240 (a) of the Judicial

(1)

S SMR RONAE ELT

eT TT PNT F So tat

Code as amended by the Act of February 13,

1925. Foes

QUESTION PRESENTED

Whether gifts of payments of premiums made

in 1939, 1940, and 1941 on annuity insurance poli- |

cies taken out for grandchildren of the taxpayer,

one adult and two minors, were gifts of future

interests and therefore to be included in tax-

payer’s net gifts under Section 504 of the Revenue

Act of 1932 and Section 1003 of the Internal

Revenue Code.

STATUTES AND REGULATIONS INVOLVED

The applicable statutes and regulations are set

forth in the Appendix, infra, pp. 14-17.

STATEMENT

This case involves deficiencies in gift taxes for

the years 1939, 1940, and 1941. The facts as found

by the Tax Court (R. 20-27) may be summarized

as follows:

In 1938, the taxpayer made, or caused to be

made, three applications to Aetna Life Insurance

Company of Hartford, Connecticut (hereinafter

called Aetna), and three applications to Connecti-

cut Mutual Life Insurance Company of Hartford,

Connecticut (hereinafter called Mutual), for the

issuance of installment annuity contracts in favor

of three grandchildren of the taxpayer (R. 20),

two of whom were minors and one an adult

(R. 35). Each of the six policies involved was

3

of the type termed a guaranteed endowment an-

nuity (R. 24).

Typical of the contracts executed by Aetna is

that in favor of Roger Elwood Canter, annuitant,

evidenced by policy No. AP 7 949. Under this

policy, dated December 18, 1938, Aetna agreed

to pay Roger (then nine years of age) a life an-

nuity payable monthly to commence upon the an-

niversary date of the policy nearest to the age

of the annuitant elected from a table beginning

with the age fifty and ending with age sixty

(R. 21). If the annuitant should die before reach-

ing the age of fifty, the beneficiary of the policy

will receive (R. 21-22)—

a death benefit equal to the cash surrender

value of this policy herein described for

the end of the policy year in which death

occurs (less any unpaid premiums for the

current policy year) or equal to the total

premiums paid hereon, whichever amount

is greater.

The beneficiaries of the death benefits named in

the policy are the mother or brother of the annui-

tant, if they survive him, and if not, then the

executors or administrators of the annuitant

(R. 22). The right to receive cash value and

dividends and to exercise other privileges under

1 It is necessary to describe but one policy issued by each

of the two companies as it was agreed that they are typical

of the others here in question. The two policies hereinafter

described were incorporated in the record by reference and

made a part thereof (R. 25).

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4

the contract, is granted in the following manner

(R. 22-23) :

During the lifetime of the annuitant, the

right to receive all cash values, dividends

and other benefits accruing hereunder, to

exercise all options and privileges described

herein, and to agree with the Company to

any change in, amendment to, or cancella-

tion of this policy shall vest alone in the

life owner (hereinafter so called) desig-

nated as follows:

Until the death of Eloise Roberts Canter,

mother of the annuitant, said mother shall

be the life owner, and after the death of

said mother the annuitant shall be the life

owner, Provided However, that neither

said Jife owner shall have the right to sur-

render the contract for its cash value except

on the following terms and _ conditions,

to-wit:

At any time before June 1, 1948, the life

owner may elect that the cash value of the

contract be payable to the annuitant in

accordance with Mode 1, interest payable

monthly, with the proviso that on June 1,

1948, the cash value shall then be payable

to the annuitant in accordance with Mode 4

in monthly instalments for a fixed period of

Ten (10) years and for as long thereafter

as the annuitant shall live.

On or after June 1, 1948, the life owner

may elect that the cash value be payable

to the annuitant in accordance with Mode 4

in monthly instalments for a fixed period

5

of Ten (10) years and for as long there-

after as the annuitant shall live.

All sums payable by the Company under

this policy shall be payable at its Home

Office. The death benefit will be payable

under the terms hereof only upon receipt

by the Company of this policy duly re-

leased.

Typical of the contracts executed by Mutual is

that in favor of Roger, annuitant, evidenced by

policy No. 996,867. Under this policy, Mutual

agrees to pay an income of $1,248.50 per month

for life to Roger E. Canter, beginning on the 21st

day of December, 1984. The beneficiaries of the

‘‘Death Benefit Before Maturity Date,’’ named in

the policy, are the mother, aunt, cousin and

brother of the annuitant, depending upon sur-

vivorship, with limitations on their method of en-

joyment up to and after ten years from the date

of the policy. (R. 23.) With respect to the exer-

cise of privileges under this policy, it is provided

(R. 23-24) :

The right to receive all cash values, loans,

dividends and other benefits accruing here-

under, to change the beneficiary, to exer-

cise all privileges and options contained

herein, and to agree with the Company to

any release, modification or amendment of

this contract, shall, unless herein otherwise

specifically provided, belong and be avail-

able without the consent of any other per-

son, to Eloise R. Canter, if living, during

a a oe |

6

the period prior to December 21, 1948; and

subsequent to December 12,* 1948, or if

said Eloise R. Canter be deceased, to the

Annuitant.

(*Note: Evidently a transposition of

figures—December 21 is undoubtedly the

date meant.)

But the policy carries the following indorsement

(R. 24):

Anything in the printed provisions of

this Contract to the contrary notwithstand-

ing, no person or persons entitled to exer-

cise the privileges of this Contract shall

have the right, power or privilege to change

any beneficiary hereunder, withdraw any

cash or loan values or dividends prior to

December 21, 1948, and after said date

only for the purpose of leaving such

amounts under Option 2 or Option B or D,

under the terms and conditions set forth

in such options, for the benefit of the

Annuitant.

Option 2 and Options B and D are all options

exercisable by the annuitant at the maturity date

of the contract (R. 24). This policy, No. 996,-

867, carries on its reverse side athe following

provision (R. 24): is

The Annuitant under this Contract is

a member of this Company and enjoys

thereby the advantages of annual partici-

pation in surplus earnings until the ma-

turity date as provided in this contract

SI SAMIR 0H TOR ARID e230 — —— a

and the right to vote, person or by

proxy, at all meetings of its members.

The basic provisions of each policy call for

premiums of $2,500 a year for a specified num-

ber of years until a named maturity date, and

then a payment to the annuitant of a specified

sum of money per month for life, beginning with

the maturity date of the contract (R. 24-25).

At the time of the applications for all six of

the annuity policies, taxpayer, who was the grand-

mother of the three proposed annuitants, gave her

check, or checks, to the agent for the issuing in-

surance company for the first annual premium

payable with respect to each of the annuity con-

tracts. Taxpayer signed most of the applications

for the policies but did not obligate herself in any

way to pay future premiums on the policies. In

the tax years involved, taxpayer made gifts to

her three grandsons by paying on their respective

behalves the annual premiums due under the an-

nuity contracts. (R. 25-26.)

The taxpayer filed gift tax returns for the tax

years 1939, 1940, and 1941 (R. 20). In comput-

ing her net gifts for those years, taxpayer claimed,

as to each of the three grandchildren, the ex-

clusion provided by Section 1003 (b) (2) of the

Internal Revenue Code (R. 19).

* For the year 1939, Section 504 (b) of the Revenue Act of

1932 is controlling.

616094-—-44-— —-2

ne |

PETROL EAB HA

er ee ONE rE ot oS a a

8

The Commissioner disallowed all exclusions of

the amounts paid in those years as premiums on

the annuity policies, on the ground that the gifts

are of future interests. And in ascertaining the

aggregate sum of the net gifts made in the year

1938,’ for the purpose of computing the tax for

the years 1939, 1940, and 1941, the Commissioner

disallowed the exclusions taken\in 1938 on ae-

count of the gifts of the policies and premium

payments made in that year, (R. 10=15.) The

Tax Court found that the gifts in question are

gifts of future interests and that the taxpayer is

not entitled to any exclusions by reason thereof

in 1939, 1940, and 1941, nor is she entitled to any

such exclusions in 1938 in determining the amount

of net gifts to he brought forward from that year

to succeeding years (R. 32). The circuit court

of appeals affirmed the Tax Court’s decision (R.

D9).

ARGUMENT

The statute excepts gifts of future interests

from the exclusion allowed in determining the

total amount of gifts made by taxpayer in any

tax year. It does not define the term ‘future

interests’, but the definition given in Regulations

108, Section 86.11, and Regulations 79, Artiele 11

(Appendix, tvfra, p. 17), and speeifieally ap-

“Gift tax for the year 1938 is not in issue and is not

affected by the determination of liability for the years 1939,

140, and 1941.

~ ai

9 ~

proved in United States v. Pelzer, 312 U. S. 399,

408-404, and Ryerson v. United States, 312 U.S.

405, includes those gifts ‘‘which are limited to

commence in use, possession, or enjoyment at

some future date or time.’? The instant case ing:

volves three annuity contracts issued by the Mu»

tual Company and three annuity contracts issued

by the Aetna Company. Any benefits to be de-

rived by the donees are necessarily controlled by

the terms of these contracts, and the Treasury

Regulations state that future interests may be

created by the limitations contained in a trust or

other instrument of transfer employed in effect-

ing a gift (Appendix, infra, p. 17).

In support of her application for a writ of cer-

tiorari, the taxpayer asserts (Pet. 6-7) a conflict

with Commissioner v. Kempner, 126 F. 2d 853

(C. C. A. 5th), and with Disston v. Commissioner,

144 F. 2d 115 (C. C. A. 3d), petition for certio-

rari filed, No. 589, October 12, 1944." The Kemp-

ner ease Was decided by the Fifth Cireuit Court

of Appeals, as was the instant case, and was

adequately distinguished in the opinion below

(R. 54455). In the Disston case, the trust in-

struments by which the gifts were made provided

*In support of the Government's application for a writ of

certiorari, conflict with the following cases was asserted :

Welch v. Paine, 120 F. 2d 141 (C.C. A. Ist) ; Weleh v. Paine,

130 F. 2d 990 (C. C. A. Ist); and Fondren v. Commissioner,

141 F. 2d 419 (C. C. A. 5th), in which certiorari was granted

on October 9, 1944, No. 88, this Term.

10

that income was to be accumulated for a_bene-

ficiary during his minority, but the trustee was

directed to apply ‘‘such income therefrom as may

be necessary for the education, comfort and sup-

port’? (p. 117) of the minor. In the event of

the beneficiaries’ death during minority, the ae-

cumulated income was to pass as part of their

respective estates. It was there held that the

gift of income was a gift of a present interest.

The court states (p. 118) that the gift did not de-

pend upon the donees’ survivorship or the hap-

pening of any uncertain future event.

Since the provisions of the Mutual contracts

prevent enjoyment of any rights in all events for

ten years, the situation is totally unlike that in

the Disston case and in Fondren v. Commissioner,

141 F. 2d 419 (C, C. A. 5th), certiorari granted,

October 9, 1944, No. 88, this Term, and the ruling

below that these gifts are of future interests in

no way conflicts, therefore, with the decision of

the Third Circuit in the Disston case. Under the

Aetna contracts, enjoyment of any part of the

grandchildren’s interests during their mothers’

lives is contingent upon the exercise of their

mothers’ discretion. It is clear, therefore, that

the holding of the court below that the interest

of the adult grandchild is future does not conflict

with the Disston decision. It may be said, how-

ever, that that ruling, as to the interests of the

minor grandchildren, conflicts in principle with

11

the decision of the Third Circuit in the Disston

case.

1. The annuity policies executed by the Mutual

Company in 1938 provide that the Company will

pay the annuitant a monthly income for life,

beginning the 21st day of December, 1984 (R.

23). Those policies also provide that the right

to receive all cash values, loans, dividends, and

other benefits accruing, belongs and is available

to the mother of the respective annuitants, if

living, during the ten-year period prior to Decem-

ber 21, 1948; in the case of her death prior to

that date, such rights are to belong to the annui-

tant (R. 23). But neither the mother nor the

annuitant, as respective owners of the above

rights, may withdraw any cash or loan values

or dividends prior to December 1, 1948 (R. 24).

There is, therefore, no possibility of present en-

joyment by the beneficiaries as there was in the

Disston ease. Cf. Wisotzkey v. Commissioner,

C. C. A. 3d, August 10, 1944 (P-H, par. 62,695).

2. Each of the Aetna policies, issued in 1938,

provides that the Company will pay the annui-

tant a monthly income for life, beginning on the

anniversary date of the policy nearest to the

age of the annuitant elected from a table begin-

ning with age 50 and ending with age 60 (R. 21).

These policies also provide that the right to

receive all cash values, dividends, and other

benefits accruing, to exercise all options and

est SEE

Daeg te ne,

12

privileges, and to agree with the Company to

any change in, amendment to, or cancellation of

policies, should vest alone in the mother of the

annuitant during her lifetime; after her death,

the annuitant is to become the life owner (R. 22).

Thus the beneficiaries may receive the available

benefits of ownership during their mothers’ lives

only upon the exercise of their mothers’ discre-

tion (R. 22-23). While an interest the enjoy-

ment of which is subject to such discretion has

been properly held to be a future interest (e. ¢.,

French v. Commissioner, 138 F. 2d 254 (C. C. A.

8th); Welch v. Paine, 130 F. 2d 990 (C. C. A,

Ist)), it may fairly be said that insofar as the

two contracts for the benefit of the minor bene-

ficiaries are concerned, the lower court’s decision,

like that in Fondren v. Commissioner, supra, con-

flicts in principle with that of the Third Circuit

im the Disston case. However, we do not think

that the Disston case is in conflict with the deei-

sion below as regards the Aetna contract for the

benefit of the adult grandchild. The Court held

in the Disston case that even where the income

from a trust is payable to minors only upon the

exercise of the trustees’ discretion, there is a

gift of a present interest. Its theory was that

the gift in trust to the minors in that case was

as complete as a gift to minors could lawfully be.

But even if it can properly be said that there are

such legal restrictions on gifts to minors, there

_—_—

b

PLA ALENT EE 0 REI DEELEY LONER, DRO ARIEL AED:

13

is no legal requirement that the enjoyment by the

adult grandchild of his interest under the Aetna

contract be made subject to his mother’s dis-

cretion.

CONCLUSION

The decision of the court below is correct,

and as to the gifts effected by the Mutual con-

tracts and the Aetna contract for the adult grand-

child, there is no conflict. However, we do not

oppose the petition for a writ of certiorari in re-

spect to the decision in relation to the Aetna con-

tracts for the benefit of the minors, but certiorari

on this petition, if granted, should be limited to

those contracts.

Respectfully submitted.

CHARLES Fany,

Solicitor General.

SaMUEL OQ. CLaRK, Jr.,

Assistant Attorney General.

SEWALL Key,

A. F. Prescort,

Moris. 8. Pav,

Special Assistants to the Attorney General.

NovEMBER 1944.

MRE ER Map Oe

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