Tait v. Peck

Letitia Tait (plaintiff) was beneficiary of a trust her late husband created in 1935. The trust directed all income to Tait for life, with the principal to be distributed to remaindermen. Tait had no right to principal distributions. The trust held 100 shares of a trust company, Linden Associates. The trust instrument specified that if Linden were liquidated during Tait’s lifetime, the trustees would receive the distributive share of Linden’s assets allocable to the trust, pay the net income to Tait for life, and then distribute the remainder to the remaindermen. In 1961 Linden was liquidated following an asset sale to Broad Street, which is classified as a mutual investment trust under the Internal Revenue Code. Initially, the trust received 55,434 Broad Street shares and cash dividends from income. At year’s end, Broad Street delivered an additional 1,463 shares of stock as distributions of gain—not dividends from income—with the option to take the distributions in cash or shares. The trustees paid Tait the cash dividends from income but refused to transfer the additional 1,463 shares to her. The trustees argued that the shares should be treated as trust principal because the trust had to pay taxes on the shares as distributions of gain. Tait filed a petition against the trustees and remaindermen (defendants) requesting a declaration how the distribution should be treated. No party claimed the trust showed what Tait’s husband intended with respect to capital-gain dividends.