Court Opinion

ID: 4492889
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:03:39.104105+00
Date Added: 2024-06-11T13:33:55.578148
License: Public Domain

Tbammell,
dissenting: I agree that the portion of the purchase price of each lot which it was represented would be set aside for perpetual care should not be added to the purchase price of the lots, but can not agree that the entire selling price of the lots should be included in income.
The Commissioner in his determination has excluded from taxable income in each of the years here involved such amounts as were *240actually set aside in a trust fund by the petitioner, upon the ground that such amounts were received impressed with the trust for perpetual care. The question here is whether the amounts received by the petitioner which were to be placed in such fund but were not actually placed there are to be excluded from income. In the sale of lots the contract provided, “ The purchase price hereof shall include perpetual care,” and salesmen represented to purchasers that a fund would be set up for this purpose and that 10 per cent of the purchase price of each lot would be set aside in a trust fund to be used exclusively for perpetual care. In my opinion, if a stated portion of the amounts received from the sale of lots was impressed with a trust, the petitioner received such amounts in trust, and if it did in fact commingle it with its other funds and did not set up a trust fund as agreed, that is a question of liability to lot owners on the part of the petitioner, with which we are not here concerned. If the petitioner should have misappropriated money received in trust and did not segregate it as agreed, the lot holders undoubtedly had their remedy. With this remedy, or whether the lot owners cared to exercise or resort to a remedy, we are not here concerned. With respect to the duty to keep trust property separate, the Tentative Draft No. 2 of the Restatement of the Law of Trusts of The American Law Institute, on p. 97, sec. 174, states as follows:
The trustee is under a duty to the beneficiary to keep the trust property separate from his individual property and ordinarily to keep it separate from other property not subject to the trust, and so far as it is reasonable he should see that the property is designated as property of the trust.
See also Lannin v. Buckley, 256 Mass. 78; 152 N. E. 71. However, I know of no authority to the effect that, if a trustee violates his duty as trustee, the trust is destroyed or there is no trust.
The facts indicate, however, that the funds were actually used for perpetual care as provided in the contract, but that they were commingled with the general funds of the petitioner, except with respect to the small amount of trust to the extent of $6,500 set up in 1924.
I think that the facts in this case, on account of the provision contained in the contract with the lot purchasers, the - representations made by the salesmen of the lots, and the published literature with respect to the perpetual care fund, are of such a character as to impress a definite proportion of the funds received from lot owners with a trust. It was clearly understood by the purchasers of lots that 10 per cent of the total purchase price of each lot was to be devoted to a trust fund. When they paid their money in, they paid it with these facts and representations before them. It seems clear that they would have had a remedy to have enjoined the misapplication of the specified portion of the fund to any other use than for *241perpetual care if they had seen fit to do so, or they could have had any other remedy afforded to a beneficiary for the failure on the part of a trustee to perform his duty according to the trust agreement.
I think that this case is governed by our decision in the case of the Los Angeles Cemetery Assn., 2 B. T. A. 495; Greenwood Cemetery Assn., 2 B. T. A. 910; Metairie Cemetery Assn., 4 B. T. A. 903; Portland Cremation Assn. v. Commissioner, 31 Fed. (2d) 843; Inglewood Park Cemetery Assn., 6 B. T. A. 386.
In the Inglewood Park Cemetery Assn, case the facts were that salesmen employed by the petitioner were instructed to call the attention of all purchasers of lots to the provision relating to perpetual care. Each deed conveying title to lots contained a perpetual care guarantee that 25 per cent of all receipts from the sale of lots was transferred to the perpetual care fund at the end of each month. The perpetual care fund was deposited in a special bank account designated “ Trust Fund for Perpetual Care.” It is to be observed in that case that the amount when received by the petitioner was commingled with its own funds and that a portion of the receipts from the lot sales was not transferred to the trust fund until the end of each month. Certainly the transfer to a fund after the receipt thereof is not sufficient in and of itself to create the trust relation or to impress a trust upon the fund at the time of its receipt. If a taxpayer sets up a trust fund of its own funds which it had previously received, clearly this would not be sufficient to impress a trust thereon retroactively, but we held in that case that a portion of the funds received was impressed with the trust and did not constitute income when received. If it was impressed with a trust at the time received, the trust relation is then established and whether at the end of the month it is set aside into a special trust fund would add no strength to the trust relationship. In the case at bar there were representations made and the contracts of sale were substantially identical with the representations and contracts of sale in the Inglewood Park Cemetery Association.
In the case of Los Angeles Cemetery Assn., supra, reliance was placed on a provision of the California Civil Code to the effect that any cemetery corporation or association under contract for the perpetual care of certain lots in the cemetery is expressly forbidden to use the funds received for the perpetual care for any other purpose. There is a similar statute in Illinois, to wit, ch. 21, ¶ 51, sec. 4 of Cahill’s Illinois Revised Statutes, relative to cemetery associations, in effect during the taxable years, as follows:
¶51. Trust fund.] §4. Tlie board of directors of such cemetery society, or cemetery association, or the trustees of any public graveyard, may set apart such portion, as they see fit of the moneys received from the sale of the lots *242in such cemetery or graveyard, which sums shall he kept separate from all other assets as an especial trust fund, and they shall keep the same invested in safe interest or income paying securities, for the purpose of keeping said cemetery or graveyard, and the lots therein, permanently in good order and repair, and the interest or income derived from such trust fund shall be applied only to that purpose, and shall not be diverted from such use.
In the case of Evergreen Cemetery Assn. of Chicago, 21 B. T. A. 1194, we held that amounts received by the petitioner in that case for perpetual care were received in trust and were not to be included in taxable income. Our opinion in that case was based upon “ The representations made by the petitioner in its advertising matter, contracts and deeds as to the ‘ perpetual care fund,’ taken in connection with the positive and uncontradicted testimony of the treasurer of the fund touching the same * * In that case, however, the fund was actually set up. We have similar or even stronger representations and more specific statements and clearer testimony in this case with respect to the paying in of a definite portion of the price of each lot.
In the Portland Cremation Assn. case, supra, decided by the Circuit Court of Appeals, the court said: “ In the case at bar the representations went no further than to say that a portion of the purchase price would he placed in a maintenance fund.” The court further said:
In short, the decisions of the Board of Tax Appeals seem to narrow the question here involved to this: That, in case the taxpayer specifies in its representations to purchasers that its covenant to maintain is backed by a permanent fund to be created by placing aside either all or a named portion of the purchase price received on each sale, the fund will be a trust fund, but, if in the representations to purchasers the portion of the money so received and so to be set aside is left unspecified, there will be no trust or obligation enforceable in equity but only a contract, breach whereof will be remediable only by an action at law. This seems to us an unsubstantial distinction. We cannot agree that the fund so set aside by the petitioner here is not essentially a trust fund. The deeds it gave to purchasers contained a covenant to the grantee and his heirs that the petitioner would maintain the niche or vault forever. All sales were made with the representation that said covenant was guaranteed by a permanent maintenance fund and that a portion of the purchase price paid by each purchaser would be placed in that fund, and that the fund could not and would not be used for any other purpose. [Italics ours.]
The court held on the facts in that case that the money was received in trust and was not to be included in the taxpayer’s income. It is to be observed that the court placed its decision on the “representations that a portion of the purchase price would be placed in a maintenance fund.”
The court further said, “And any words which indicate with sufficient certainty a purpose to create a trust will be effective in so doing.”
*243In the case of Spring Canyon Coal Co. v. Commissioner, decided by the Circuit Court of Appeals, Tenth Circuit, 43 Fed. (2d) 78, the petitioner corporation had set aside out of its funds a reserve for the payment of workmen's compensation insurance. The court held that amounts added to that reserve fund were to be included in taxable income. The court further said, “the present case is not analogous to a trust set up by an employer to assist employees in sickness or old age, where he is under no obligation so to do; neither is it governed by Portland Cremation Association v. Commissioner, * * * where a cemetery corporation, in consideration of the purchase of a lot, agreed to pay a portion of the price into a perpetual maintenance fund.”
The situation presented in this case is materially different from the case of Springdale Cemetery Assn., 3 B. T. A. 223, and similar cases where a reserve fund is set aside for perpetual care of lots. When the money from the sale of lots is not impressed with a trust when received, it is not important that a reserve is set up or that a trust is afterwards set up. The setting up of a reserve out of income does not affect income and makes no income exempt. Nor does the creation of a trust out of income already received, if the income when received was not impressed with a trust, relieve the tax burden which falls on the income received. But, if when some money is received a portion of it is impressed with a trust, a different situation exists. Such portion so impressed is not income, and it remains impressed with the trust regardless of whether it is improperly commingled with other funds.
Nor do I think that it is important that the trust fund here was not mandatory under the Illinois statute, but was merely permissive. Manifestly trusts can be created by the voluntary action of the parties. As a rule trusts are so created. I can not agree in this respect with the language of the Springdale case, supra, which distinguishes a mandatory from a permissive trust.
Nor do I think it is of importance whatever that the board of directors and the stockholders took no formal action. There can be no doubt, it seems to me, that the corporation is bound by representations of its authorized officers, which statements are corroborated by published literature, especially when concededly the corporation was permitted by law to do the very things which it was represented would be done. Lack of authority certainly would have been no defense if the corporation had been sued as a trustee by lot owners.
From a consideration of the evidence in this case apd the authorities, it is my opinion that 10 per cent of the amount received as the selling price of each lot was impressed with a trust for perpetual *244care when received, and should not be included in the taxable income of the petitioner.