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UNITED STATES v. WILLIAMS

April 3, 1958

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



The opinion of the court was delivered by: WORTENDYKE

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 of 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 bt 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.

 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. Fidelity Union Trust Co. v. Field, 1940, 311 U.S. 169, 61 S. Ct. 176, 85 L. Ed. 109, Cutts v. Najdrowski, E. & A. 1938, 123 N.J.Eq. 481, 198 A. 885. 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.

 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, at page 491, 59 A.2d 253, at page 256, where the Court said:

 '* * * R.S. 17:9-4, N.J.S.A., 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, 47 A.2d 883; Hickey v. Kahl, Ch.1941, 129 N.J.Eq. 233, 19 A.2d 33. 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.

 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. Micklas v. Parker, Ch.1905, 69 N.J.Eq. 743, 61 A. 267, affirmed E. & A. 1907, 71 N.J.Eq. 777, 71 A. 1135. 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, 71 N.E. 748, 70 L.R.A. 711; Conry v. Maloney, 1950, 5 N.J. 590, 76 A.2d 899. 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, at page 313, 152 A. 374, at page 376, the court held, 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 if 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, 182 A. 912, 914, 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 depositaries 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 depositary 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. 17:9A-216, subd. A(2), N.J.S.A.

 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 in 138 N.J.Eq. at pages 43-44, 47 A.2d at page 890:


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