Court Opinion

ID: 4602948
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:30:53.34426+00
Date Added: 2024-06-11T07:52:45.830601
License: Public Domain

WILLIAM W. BOLTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bolton v. CommissionerDocket No. 104299.United States Board of Tax Appeals45 B.T.A. 317; 1941 BTA LEXIS 1135; October 10, 1941, Promulgated *1135  TRUST INCOME - TAXABLE TO GRANTOR. - Income of a trust held not taxable to petitioner who was not the grantor, although his gift a number of years previously was the source of the corpus, and who could not benefit personally from the trust, but as trustee was to manage the trust for the benefit of others named by the grantor.  Robert A. B. Cook, Esq., for the petitioner.  Martin M. Lore, Esq., for the respondent.  MURDOCK *317  The Commissioner determined deficiencies of $1,827.87 and $2,151.30 in income tax for 1936 and 1937.  The only issue for decision is whether the Commissioner erred in including in the income of the petitioner $8,665 for 1936 and $10,440.07 for 1937, the income of a trust established by his wife.  FINDINGS OF FACT.  The petitioner is an individual who filed separate returns for 1936 and 1937 with the collector of internal revenue for the district of Massachusetts.  The Commissioner included in the income of the petitioner $8,665 for 1936 and $10,440.07 for 1937, the income of a trust established on December 4, 1931, by Ethel B. Bolton, the wife of the petitioner.  The petitioner and Ethel B. Bolton were married*1136  in 1912.  They have four children, who in 1941 ranged in age from 15 to 25.  The petitioner had given his wife property from time to time following *318  their marriage and as a result the wife had her own estate and filed a separate return of income.  The petitioner, during the summer of 1928 and prior to August 1, 1928, assigned to his wife a number of policies of insurance on his own life and, on August 1, 1928, made an absolute and complete gift to his wife of 500 shares of preferred stock of John W. Bolton & Sons, Inc., a corporation.  Certificates for the 500 shares were issued in the name of the wife.  The wife created a trust on August 20, 1928, naming a bank as trustee.  She transferred to the trustee securities, including the 500 shares of preferred stock of John W. Bolton & Sons, Inc.  The trust was revocable and could be amended.  New trusts were created upon several occasions at the request of the bank as additional property was added to the trust.  They were all similar.  Ethel's purpose in creating the trusts was to protect the children in case their father died.  The last of the series was created on May 13, 1930.  That trust recited that Ethel B. Bolton, *1137  the wife of the petitioner, was bound to pay the premiums on certain described policies of insurance on the life of the petitioner.  Certain described securities, including the 500 shares of preferred stock, were transferred to the trustee, who was to pay the premiums on the policies from the income of the securities.  Excess income was to be accumulated and added to corpus.  The proceeds of the policies were to be added to the corpus upon the death of the petitioner and thereafter $500 a month was to be paid to Ethel for life, or until she remarried, from the income of the trust.  Thereafter the income and eventually the principal was to be paid to the four children, or their issue.  The trustee, in its discretion, could also pay a share of the income to Ethel in case she remarried.  If Ethel predeceased the petitioner, the trust property was to go to him.  That trust was amended on April 30, 1931, to provide for the payment of some excess income to the petitioner in case he became incapacitated and to increase the amount payable to Ethel after his death.  The 500 shares of preferred were exchanged in the latter part of 1931 for 500 shares of common stock of John W. Bolton & Sons, *1138  Inc.  That was done to help the company, which was having difficulties due to the depression in business.  The bank failed about that time, Ethel requested the return to her of all trust property, and within a few months all of the trust property was returned to her.  Ethel created a new trust on December 4, 1931, naming the petitioner as trustee and transferring to him as trustee the 500 shares of John W. Bolton & Sons, Inc., common stock.  She retained all of *319  the other property previously in the trust.  The retained property had a value in excess of $100,000.  She retained that on account of unsettled business conditions.  The trust deed of December 4, 1931, was in part as follows: The trustee, in addition to and not in limitation of all common law and statutory authority, shall have power with regard to both real and personal property in the trust fund and any part thereof, to mortgage, to lease with or without option to purchase, to sell in whole or in part at public or at private sale without approval of any court and without liability upon any person dealing with the trustee to see to the application of any money or other property delivered to it; to exchange*1139  property for other property; to invest and reinvest in securities or properties although of a kind or in an amount which ordinarily would not be considered suitable for a trust investment, and to purchase or retain any securities the purchase or retention of which are requested by the Donor; to keep any or all securities or other property in the name of some other person or corporation or in its own name without disclosing its fiduciary capacity; to determine what shall be charged or credited to income and what to principal notwithstanding any determination by the courts and specifically but without limitation, to make such determination in regard to stock and cash dividends, rights and all other receipts in respect of the ownership of stock and to purchase or retain stocks which pay dividends in whole or in part otherwise than in cash and in its discretion to treat such dividends in whole or in part as income; to determine who are the distributees hereunder and the proportions in which they shall take; to make payments of principal or income direct to and otherwise to deal with minors as though they were of full age; to make distributions or divisions of principal hereunder in property*1140  in kind at values determined by it; to decide whether or not to make deductions from income for depreciation, obsolescence, amortization or waste and, if so, in what amount; to pay, compromise or contest any claim or other matter directly or indirectly affecting this fund; to employ counsel for any of the above or other purposes and to determine whether or not to act upon his advice, and generally to do all things in relation to the trust fund which the Donor could do if living and this trust had not been executed.  All such divisions and decisions made by the trustee in good faith shall be conclusive on all parties at interest.  The trustee shall receive reasonable compensation for its services hereunder.  The trustee shall pay over the net income from the trust or so much thereof as he may in his sole discretion deem for the best interests of the beneficiaries to WILLIAM W. BOLTON of Lawrence, during his lifetime and after his death the trustee hereunder shall pay over said net income in equal shares to my children, HARRIET ELIZABETH BOLTON, JOHN GAINES BOLTON, ETHEL ANN BOLTON and WALLACE LADD BOLTON, until the youngest of said children shall arrive at the age of thirty years, *1141  at which time the trustee shall transfer and pay over the principal and accummulated income of the trust in equal shares to my said children or their issue by right of representation, free and discharged from all trusts.  The trustee shall make all payments of principal and income upon the personal receipt of the beneficiaries thereunto entitled, and no interest of any beneficiary hereunder, either principal or income, shall be anticipated, alienated or in any other manner assigned by such beneficiary and shall not be subject to any legal process, bankruptcy proceedings or the interference or control of creditors or others *320  In the event that WILLIAM W. BOLTON shall cease to be trustee hereunder during my lifetime I reserve the right to appoint a succeeding trustee.  If I shall have deceased, the majority of the beneficiaries then in receipt of income from the trust, who are of full age and mental capacity, shall have the right to appoint a succeeding trustee.  Upon the appointment of a succeeding trustee such trustee shall be entitled to receive forthwith all securities and other property theretofore held by the retiring trustee, and such retiring trustee shall do all*1142  acts necessary and proper to transfer the legal title and possession of the trust assets to the succeeding trustee.  The petitioner continued as trustee through the taxable years.  He accumulated all of the income of the trust and invested it, in the latter part of 1937, in preferred stock of John W. Bolton & Sons, Inc., which then became a part of the corpus of the trust.  Returns were filed for the trust for 1936 and 1937, reporting taxable income of $8,665 and $10,440.07.  The petitioner has never in any way dealt with the trust property or the income therefrom in his individual capacity, but only in his fiduciary capacity.  He and his wife regard the trust as one for the benefit of their four children.  The petitioner was consulted by his wife in regard to all of the trusts created by her, but he never attempted to influence her or to gain any personal advantage through those trusts.  He was one of the principal officers of John W. Bolton & Sons, Inc.  The stock of that company has been held equally by the families of the petitioner and his brother since the death of their father in 1939.  Ethel created the trusts at the solicitation and suggestion and with the advice of an*1143  officer of the bank who had also been an insurance salesman.  OPINION.  MURDOCK: The respondent attacks the credibility of the witnesses and the bona fides of the alleged gift of the 500 shares of preferred stock of John W. Bolton & Sons, Inc., in 1928 in an effort to show that the petitioner must be regarded as the true grantor of the trust.  He would then have to contend that section 166 or 167 applied.  He cites ; affd., , and some similar cases.  The evidence shows that the gift in 1928 was absolute, complete, and not a sham to avoid taxes.  The stock was transferred to the wife and became hers to do with as she pleased.  She chose to place it with other property, about which there is no dispute, in a trust.  The trust was changed several times.  Although the petitioner was consulted about the formation of the original trust of 1928, he never influenced his wife to make any provision for his benefit in any of the trusts.  He was not made *321  trustee until bank failure had eliminated the original corporate trustee.  An employee of the bank apparently suggested most of the provisions*1144  of the trusts and had the instruments written for Ethel B. Bolton.  But she, and not the petitioner, was the grantor who decided upon the trusts.  The entire corpus of the trust of December 4, 1931, consisted of common stock which the petitioner had never owned.  He was not the grantor of that trust and sections 166 and 167 could not apply for that reason alone.  The respondent says the petitioner was free to use the trust income.  Although some of the wording of the instrument is inept, as if the individual trustee had been substituted at the last minute in a trust originally drawn for a corporate trustee, nevertheless, the petitioner was given no right to use any of the trust property except for the benefit of the children.  He was not given sufficient control over the trust property to justify taxing the income to him under section 22(a).  Cases where a grantor "retained" substantial powers are not in point.  The beneficiaries were named and their interests fixed.  He could only manage the trust for their benefit.  No authority is cited for taxing the income of a trust to a trustee who was not a grantor, who could not benefit personally from the trust, and who could only manage*1145  the trust and use its income for named beneficiaries.  Decision will be entered for the petitioner.