Court Opinion

ID: 4480890
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:34.844614+00
Date Added: 2024-06-11T14:53:59.927594
License: Public Domain

Hill, J., dissenting: The majority have construed these trust agreements as denying petitioner the right to alter or amend them for his own benefit. Their holding is predicated on the theory that the grant to petitioner of particular rights and powers under clause third negatives any other intention. It is held that “The grant of such specific rights to the petitioner indicates to us that the indefinite expression ‘alter or amend’ may not reasonably be interpreted to confer upon him additional power to take over or receive the trust income or corpus.” [Italics supplied.] I can not agree that this conclusion is warranted. “Alter or amend” is not an indefinite expression and no interpretation is warranted to limit the unlimited power conferred upon petitioner to alter or amend the trusts. Clause tenth expressly recognizes that petitioner will act in a dual capacity toward the trust property and its beneficiaries. Throughout the instrument he is not referred to by name except in clauses third and tenth. In all descriptions and enumerations of fiduciary powers and duties the word “trustee” alone is used. I think the lack of the word “trustee” is highly significant. In my opinion petitioner’s power under clause tenth to alter or amend the trust instrument is not a power in trust under New York law, because no person or class of persons has been designated as a possible beneficiary of its exercise. See Real Property Law, §§ 137 and 138, Consolidated Laws of New York. Petitioner, in his individual capacity, is empowered by clause tenth to change the beneficiary according to the dictates of his fancy and to substitute as a beneficiary thereunder whomsoever he desires. The rights of the named beneficiaries are subject to petitioner’s powers as an individual under clause tenth. He could not be held accountable in any way for advising himself as trustee that he wished to substitute a beneficiary or otherwise revise the rights and interests of the named beneficiaries. But, assuming that petitioner could not secure any part of the income for himself, nevertheless his right to alter or amend the trust instruments so as to substitute beneficiaries of the trust income is sufficient, in my opinion, to warrant taxation of the trust income to him. See Louis Stockstrom, 3 T. C. 255; affd., 148 Fed. (2d) 491; Jergens v. Commissioner, 136 Fed. (2d) 497; certiorari denied, 320 U. S. 784. I think petitioner’s power to so alter or amend the trust instrument, when coupled with the broad powers of management and control over the trust estate, and considering the facts and circumstances surrounding the execution of the trust instrument, is sufficient to hold petitioner taxable on the trust income on the authority of Helvering v. Clifford, 309 U. S. 331. In these Clifford cases all of the facts and circumstances surrounding the execution of the trusts must be analyzed. In my opinion, the whole background of the creation of these trusts clearly demonstrates a carefully, logically planned course of action, with the tax consequences of the Newman family the primary consideration. We have here an intimate family group. The husband, petitioner herein, is a successful New York attorney, with a substantial income. He admits being an experienced practitioner in the law of trusts and trust estates and in Federal tax matters. The trust agreements under consideration were prepared in petitioner’s law office. He joined in the execution of the agreements as a party thereto. The trusts were of substantial economic interest to him personally aside from his interest therein from the standpoint of the welfare of his wife and children. The trusts are doubtless couched in language designed definitely and without ambiguity to serve the ends which petitioner and the grantor, his wife, intended. Petitioner is given the power to alter and amend trusts or to revoke them in whole or in part. The language used in granting such power tolerates no limitation of the scope of the power to alter or amend or to revoke the trusts. If this power is a limited power we should be able to determine what the limitations are. Obviously such a determination would be impossible. Petitioner’s net income for the year 1940, the year here involved, was approximately $77,000. The corpus of these trusts consisted of securities valued at $10,000, truly a small percentage of the amount of his income for that year. The total income from both trusts was approximately $830. It is obvious that the income from the trusts is of small concern to petitioner and his wife at the moment. However, the future is a different matter. Under the protection of the holding of the majority, petitioner and his wife have two tax-proof trusts. The corpus thereof can be increased from time to time in the sole discretion of petitioner and his wife with a resulting increase of trust income, and a lessening of their individual incomes. Further, petitioner has the sole right to revoke the trust at any time merely by writing himself a letter as trustee. The trust property is then to be conveyed to petitioner’s wife. This power exists in petitioner in his sole discretion. The relationship between petitioner and his wife is a friendly one and will be presumed to continue. At the present time, in view of the size of petitioner’s income, it does not appear that he will ever require the small amount of money constituting the corpus of these trusts. In the future, if he should ever need it, the money is his for the taking. Considering the whole bundle of rights and powers given to petitioner as an individual over the trust income and trust estate, I think the doctrine of the Clifford case requires the holding that petitioner is the substantive owner of the trust estate and that the income therefrom is taxable to him under section 22 (a) of the Internal Revenue Code. TurneR, Smith, Arnold, Kern, and Opper, JJ., agree with this dissent.