Court Opinion

ID: 9446624
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:59:57.343648+00
Date Added: 2024-06-11T17:30:43.496672
License: Public Domain

MAGRUDER, Chief Judge
(dissenting).
The opinion of the court in this case was prepared on the eve of our departure for the Caribbean and our court session annually held at San Juan, Puerto Rico. It seemed desirable not to delay announcement of the court’s opinion and judgment. Therefore, at the conclusion of the court’s opinion, the following notation was added: “Magruder, Chief Judge, dissents from the opinion and judgment of the Court, and reserves the right to file a dissenting memorandum at a later date.”
Though this was not quite equivalent to a commitment on my part to file such a memorandum, I still feel that I ought to indicate the reasons for my dissent.
In Van Beuren v. McLoughlin, 1 Cir., 262 F.2d 315, decided by us December 12, 1958, we pointed out the drastic, perhaps even ruthless way in which § 811 (d) of the Internal Revenue Code operates against the taxpayer. The operation of § 811(c) (1) (B), upon which the opinion of the court is here based, is even more drastic, for whenever that section is properly applicable, there must be included in the gross estate the whole value of the corpus of any property which the decedent had transferred during his lifetime. On the other hand, under § 811(d) there must be included in the gross estate only the value of the particular interests, the enjoyment of which had been subject to a change through the exercise of a described power vested in the decedent at the date of his death.
For the reasons explained in my dissenting opinion in Industrial Trust Co. v. Commissioner, 1 Cir., 1947, 165 F.2d 142; 148, 1 A.L.R.2d 144, I would think that the taxpayers here were entitled to claim that only § 811(d) could apply and therefore in any event the whole of the value of the corpus ought not to have been included in the gross estate. But I go further, and suggest that neither § 811(c) nor § 811(d) is properly applicable to this ease.
At the outset, I would concede that the fact that the grantor holds the described powers only as a fiduciary is not in itself enough to preclude the imposition of an estate tax. See Welch v. Terhune, 1 Cir., 1942, 126 F.2d 695, certiorari denied 1942, 317 U.S. 644, 63 S.Ct. 37, 87 L.Ed. 519. That case was a holding under § 811(d), but I suppose that by a parity of reasoning the same result must be reached under § 811(c).
It is admitted by the court that the various types of broad powers of management conferred upon the trustees here are familiar grants, to trustees as such, and that the case is a “very close” one. Confining itself narrowly to the facts of the particular case, the court says that perhaps “no single power conferred by the decedent on the trustees would be enough to warrant inclusion of the corpora of the trusts in his estate. But we believe that the powers conferred on the trustees, considered as a whole, are so broad and all inclusive that within any limits a Massachusetts court of equity could rationally impose, the trustees, within the scope of their discretionary powers, could very substantially *641shift the economic benefits of the trusts' between the life tenants and the re-maindermen.” The court comes to this conclusion, though recognizing that “in the ordinary case” the power of a trustee in the exercise of familiar controls over investments, whereby he would be enabled (and perhaps required by his duties) to effect some shifting of benefits as between a life tenant and re-maindermen, cannot amount to a “right” to designate the persons who shall enjoy the property or the income therefrom, within the meaning of § 811(c) (1) (B) (ii).
It seems to me that, despite the undoubtedly broad powers of management vested in the trustees here, the court stretches the statutory language too far. It has to say that these powers of management, taken as a whole, because of their breadth make it impracticable for a Massachusetts court of equity effectively to control the exercise of these fiduciary powers, and therefore constitute a “right” (as distinguished from a “power” — the word used in § 811(d)) to designate the persons who shall enjoy the property or the income therefrom. I know of no case that has gone this far.
Moreover, I cannot accept the premise that a Massachusetts court of equity would consider itself impotent to supervise the administration of these trusts so as to control any attempt to shift the incidence of their enjoyment.
It is difficult to imagine how the power “to exchange property for other property” could contribute to the defect the court found — ability to prefer the life tenants to the remaindermen or vice versa — except perhaps by a warped investment policy (and investment powers are specifically dealt with). A requirement that the trustee obtain fair value, even if not implied by the word “exchange”, would certainly be imposed by any court of equity. And the Massachusetts court will look behind an apparently authorized exchange of property and strike it down if it conceals any skulduggery or if its result is detrimental in any way to the purposes of the trust the settlor created. See Morville v. Fowle, 1887, 144 Mass. 109, 112, 10 N.E. 766.
The investment powers, although obviously designed to permit a more imaginative program of investment than trustees usually may pursue, were not uncontrolled. Although the portfolio might contain, instead of “legáis”, investments in wasting assets companies and in stocks with attractive growth potential but paying no current dividends, the trustees were only authorized “to act in such manner as it is believed by them to be for the best interests of the Trust Fund regarded as a whole.” I think this clearly requires the trustees to balance these extraordinary investments so that neither income nor principal would be prejudiced by the unusual nature of the portfolio. The Massachusetts court will enforce such a standard as “best interests” and will substitute its judgment for a bona fide, considered, but unsound decision of the trustee. Corkery v. Dorsey, 1916, 223 Mass. 97, 111 N.E. 795; see Hays’ Estate v. Commissioner, 5 Cir., 1950, 181 F.2d 169, 171-172.
The accounting power given to the trustees is obviously corollary to this investment power and necessary to the successful maintenance of this balance; I believe it must be limited to this purpose and restricted to the best interests of the trust as a whole.1 It is somewhat ironic that a power apparently designed to relax the strict Massachusetts rules that capital gains and stock dividends are both always principal and cash dividends are income, so as to maintain the enjoyment of both the life beneficiaries and the remaindermen, is assigned as *642contributing to the “right” to prefer one over the other.
To me, all these powers are limited by. standards which the Massachusetts court of equity could and would apply to supervise effectively the administration of the trust, and therefore none is either a § 811(c) “right” or a § 811(d) “power”. See Jennings v. Smith, 2 Cir., 1947, 161 F.2d 74. Nor, since in this context the whole cannot be greater than the sum of its parts, is anything gained by lumping them together.

. The broad language in Dumaine v. Dumaine, 1938, 301 Mass. 214, 16 N.E.2d 625, 118 A.L.R. 834, was uttered in the very different context of a trust which gave the trustee broad discretionary powers to accumulate or pay out the income and also to pay out receipts, whether income or principal.