The opinion of the court was delivered by: FLANNERY
FLANNERY, Senior District Judge.
This matter comes before the court on the parties' cross-motions for summary judgment. Oral argument was heard on April 4, 1986. For the reasons set forth below, the government's motion is granted and defendant Riggs National Bank's motion is denied.
In her last will and testament, Isabel G. Zantzinger established a trust fund. By the terms of the fund, her three children were entitled to distributions of income generated by the trust fund during their lifetimes and her grandchildren were entitled to distributions of both income and principal during their lifetimes. There were certain spendthrift and forfeiture provisions attached to the entitlements. Defendant Riggs National Bank ("Riggs") is the trustee of the trust fund.
In 1983, the Internal Revenue Service ("IRS") determined that William D. Zantzinger, one of Isabel Zantzinger's three children, owed $78,182.05 in unpaid federal income taxes, interest and penalties. By "Notice of Levy," served October 18, 1983, and "Final Demand," served May 23, 1984, the IRS seized all property in possession of Riggs belonging to William Zantzinger, not to exceed $78,182.05.
Until service of the levy, Riggs made regular distributions of the trust's income to William Zantzinger. Once the levy was served, Riggs took the position that certain forfeiture provisions of the trust wiped out William Zantzinger's entitlement under the trust. Therefore, Riggs paid over to the IRS $1,948.23 in income accumulated prior to October 18, 1983 but not distributed to Zantzinger. Riggs maintains, however, that any further income has been forfeited. Income that has accrued since October 18, 1983 therefore has been accumulated and held by Riggs pending the outcome of this litigation.
Under the trust, there is a paragraph which limits William Zantzinger's life estate in the trust income ("Trust C"). The paragraph begins with what is called a "spendthrift" clause, which prevents William Zantzinger from transferring his right to the income or from subjecting it to the claims of his creditors. It reads:
No part of the income or principal of the Trust C estate hereunder shall be pledged, assigned, transferred, sold, or in any manner whatsoever accelerated, anticipated, or encumbered by my said son, William Devereux Zantzinger, nor shall any part of the income or principal of said trust estate hereunder be in any manner subject to or liable, in the hands of the Trustee, for the debts, contracts, or engagements of my said son, whether existing at the time of my death or arising subsequently.
The same paragraph ends with what is called a "forfeiture" clause, which strips William Zantzinger of the right to the income should he try to alienate it and gives the trustee considerable discretion in then distributing the trust funds. It reads:
Should my said son attempt in any manner to anticipate, encumber, or charge his interest in this trust or any part thereof, and in the event of bankruptcy or the rendition of any judgment or decree against the interest of my said son, or the levy of any execution, or writ of attachment, or garnishment thereon, or if, in the judgment of the Trustee, it shall be to my said son's interest, then any amounts which would otherwise be paid over directly to my said son, shall, in the discretion of the Trustee, be applied directly for his support and maintenance, or be allowed to accumulate in the hands of the Trustee and be treated as and form a part of the principal of the trust estate from which it was derived and be disposed of as a part thereof.
The IRS believes that these clauses are not properly invoked in this case and that the income accumulated since 1983 (rather than paid over to William Zantzinger) is now owed the IRS. Riggs believes that William Zantzinger's right to the income was forfeited and that the discretionary aspect of the trust prevents treating the income as a property right against which the government may levy to satisfy a tax assessment. The IRS responds that the property right was not forfeited, and even if the forfeiture clause was triggered, it cannot defeat an internal revenue assessment as a matter of federal law.
To ensure that William Zantzinger's three children do not choose to participate in this action, this court has received statements from each ...