Opinion ID: 1480148
Heading Depth: 1
Heading Rank: 2

Heading: Inclusion of the Trust Fund.

Text: In 1917 the decedent set up a trust for the benefit of his son Robert and of Robert's children and descendants. Out of the income of this fund Robert was to have annually $21,000 for ten years, at the end of which the trustees were to turn over to Robert the principal and accumulations. In case of his death his children should have the income in equal shares pending minority and for twenty years after Robert's death and then the principal. There were remainders over for the descendants of a child dying within the period. Children were limited to the offspring of Robert's first and second marriages  he had then been married a second time and had two sons by the first marriage. The settlor reserved absolute power to modify or alter in any way or to revoke in whole or in part this agreement and thereupon to direct the disposition to be made of the trust fund. In 1922 the decedent changed these provisions; he gave Robert an annual income of $21,000 for life instead of ten years, but provided that Robert's three uncles might allow the whole income  principal was then about a million dollars  or might reduce the allowance to nothing at all, both in their uncontrolled discretion. All income not paid was to accumulate and become part of the corpus which should pass in remainder to Robert's children or grandchildren upon his death. The management of this trust he also devolved upon on the three uncles, and he changed the powers reserved to revoke the trusts or to alter the limitations so as to read as appears in the paragraphs appended in the margin. [] Before September 28, 1930, one of Robert's two children had died and he had married a third wife; the class of his children as defined in the trust was therefore closed, and the only possible beneficiaries were he, his remaining son and the son's future descendants. The question is whether, having cancelled his general power of revocation, the decedent still reserved such powers to himself as brought the corpus of the trust within § 302(d) of the Revenue Act of 1926, 26 U.S.C.A. Int.Rev.Acts, page 228. The petitioner concedes that if he retained power to distribute the principal and interest between Robert and his son as he chose, the Board was right in including the trust fund. In so conceding she is clearly right. Commissioner v. Chase National Bank, 2 Cir., 82 F.2d 157; Holderness v. Commissioner, 4 Cir., 86 F.2d 137; In re Tyler's Estate, 3 Cir., 109 F.2d 421. Thus the issue turns upon an interpretation of the deed. Had the decedent reserved the power to himself to raise Robert's allowance from $21,000 to the whole income of the trust, or to reduce it down to no amount of payment at all, the corpus would certainly have been within § 302(d), for he could then have distributed the whole income, i. e. the life interest, between Robert and the remaindermen at his pleasure. The deed of 1922 was curiously drawn, because it started by amending the first article of the original deed so as to give the decedent exactly the power we have described; and it was only by a later provision that this power was vested in the three uncles. The reason for this strange draughting does not appear; but at any rate it resulted that all the decedent had to do to vest complete power of distribution in himself was to cancel the later provision, and leave the first article of the original deed as amended. Or if he had then wished to make sure that his mortmain should have extended over the whole period of Robert's survivorship of himself, he could also have provided for the distribution of the income after his death as he chose. The petitioner's answer to this is that it would frustrate the essential purposes of the trust so as to cut down Robert's allowance and accumulate the income for the son or the son's descendants. That is however exactly what the decedent contemplated as a possibility, though the power was lodged in the three uncles, not in himself. To say that a shift of this power of distribution to the decedent himself would frustrate the purposes of the trust would have been unwarranted enough, even if the amended first article had not created precisely such a power; to say so in face of the first article as so amended is absurd. Nor does the concluding clause of the article defining the reserved power, which uses the word beneficiaries, exclude Robert. The decedent would be defining and prescribing Robert's income whatever change he made in the limitations; there is no ground for saying that Robert was not one of the beneficiaries. Order modified in accordance with the foregoing.