# Petitioners Brief — Roberts v. Commissioner

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petitioners Brief
- **Published:** January 1, 1945
- **Citation:** 324 U.S. 841

## Text

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

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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

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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).

t
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a
2
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a

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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA34806415_2432%3A2. Public record. Not legal advice.