Court Opinion

ID: 4471150
Source: CourtListenerOpinion
Date Created: 2020-01-09 22:03:21.544109+00
Date Added: 2024-06-11T07:53:10.054005
License: Public Domain

Leech, J., dissenting: The majority support their conclusion, apparently, upon three premises. These are: (1) no trusts were created; (2) if created, they were revocable; and (3) the transfers of the funds thereto were to take effect in possession or enjoyment only at decedent’s death. In my opinion, none of these positions is sound. Obviously, Illinois law controls. Helvering v. Stuart, 317 U. S. 154. I agree with the general statement of that law contained in the majority opinion as appearing in Gurnett v. Mutual Life Insurance Co., 356 Ill. 612; 191 N. E. 250. In my opinion, under the rule there stated, four trusts were created. See Robinson v. Appleby, 75 N. Y. S. 1; affd., 73 N. Y. 626 ; 66 N. E. 1115; Macey v. Williams, 8 N. Y. S. 658; Farleigh v. Cadman, 159 N. Y. 169; 53 N. E. 808; and Minor v. Rogers, 40 Conn. 512. The majority do not and can not question the existence of a competent declarant, trustees, beneficiaries, subject matter, and delivery. They think, however, that there was no “certain and ascertained object.” But how can that be said? Each fund was expressly declared to be held “in trust” for a named “beneficiary” — the child of the declarant. Can it be doubted that the benefit of one’s own child is “a certain and ascertained object?” I think not. Kilgore v. State Bank of Colusa, 372 Ill. 578; Brown v. Spohr, 180 N. Y. 201; 73 N. E. 14. See also Appleby case, supra. So far as I know, the specific question here has not been squarely decided by the Illinois courts. It will be noted, I think with significance however, that most .of the authorities cited by the Illinois court,' supra, are those of New York courts. And the question has been, I think, categorically answered there in a situation that goes far in disposing of the entire controversy here. That case is Robinson v. Appleby, supra. The facts in that case were that one Helen Pratt deposited $2,700 in a savings account entitled “Helen C. Pratt in trust for Freddie H. Bobinson. Note. Not to be paid to F. H. B. until he is thirty years of age.” The depositor also signed a paper stating that she desired to open an account in her name in trust for Freddie Bobinson, the account to be governed by the rules and regulations of the bank, and after her death the balance then due on the account not to be payable to Freddie Bobinson until he was thirty years of age. The beneficiary predeceased Helen Pratt, his death occurring about a year after the trust account had been opened. Four years after his death Helen Pratt closed the account and gave the bank a receipt in full signed: “Helen C. Pratt in Trust.” After her death the legal representative of the beneficiary brought an action against the legal representatives of Helen C. Pratt to recover the amount of money withdrawn from the account at the time it was closed subsequent to the death of Freddie Bobinson. The court held in favor of the administrator of Freddie Bobinson’s estate, permitting judgment for the amount withdrawn plus interest at 6 percent per annum. In the decision the court cited 67 N. Y. S. 480, stating: * * * The intent of the depositor at the time of the deposit determines the nature and legal effect of the act, and all the surroundings, facts, circumstances, and declarations will be taken into consideration on the question of intent, but the deposit in the form of a trust, unqualified and unexplained, creates a trust at the time, which, once legally established cannot be revoked, in the absence of a reservation of the power of revocation. Were these trusts revocable? In Illinois, as in New York and generally, a power of revocation by the settlor must be -reserved to be effective. Hubberd v. Buddemeier, 328 Ill. 76; 159 N. E. 229. No such power appears in the literal provisions of any of the present instruments. The position of the majority, nevertheless, is that each trust was, in fact, revocable because the grantor had the power to revoke each trust, fro tanto, by withdrawing the funds thereof in his individual capacity during his lifetime. Each trust instrument consists of five sentences. Effect must be given, if possible, to each of these in construing the entire instrument. Heitzig v. Goetten, 347 Ill. 619; 180 N. E. 428; Brinkerhoff v. Bidgley, 232 Ill. App. 12. So read, no funds could be withdrawn legally from these accounts except by the trustees as such, and not in their capacity as individuals. The second sentence of each trust provides that the moneys in each account “may be paid to or upon the order of the trustees, or either of them * *' No provision is made for payments to the settlor or his wife as individuals. The fourth sentence of each instrument provides that “The said bank shall not be responsible for or required to see to the proper application of funds withdrawn from said account.” That sentence can mean nothing else than the expression of an intention that the money paid to the trustees continues to be impressed with the trust. Any other construction would render the last quoted sentence meaningless. As petitioners argue, “If any withdrawal by the trustees amounted to a revocation fro tanto there would be no occasion to protect anyone from the duty of watching the application of the funds so withdrawn”. Decedent, as trustee, was given broad power over each trust corpus. He was the settlor. But, neither the common identity of the settlor and trustee, nor those powers, renders the trusts revocable. Estate of Edward E. Bradley, 1 T. C. 518; Frederick Ayer, 45 B. T. A. 146 (Com. acq., I. R. B. No. 4, Jan. 26, 1942). In the latter case, where both such conditions existed, we said such power: * * * was not an unlimited power in the trustees, but concerned only the management of the trust property for the purposes of the trust as set forth in the indentures. In Carleton H. Palmer, 40 B. T. A. 1002; affd., 115 Fed. (2d) 368, the trustees were given the power “to exercise freely and in their uncontrolled discretion all the rights, powers and privileges appertaining to full and complete ownership thereof.” In referring to the broad powers of the trustees, we stated in our opinion as follows: * * * Those powers which petitioner as grantor reserved to himself as one of the trustees relate to the management of the trust corpus and do not vest in the grantor any control as an individual over the economic benefits or enjoyment of the trust property. * * * Under the common law, which Illinois follows, a trustee is subject to a very high standard of accountability in the management of trust funds. He can not even loan trust funds to himself' under a trust which gives him “absolute and uncontrolled discretion in making trust investments.” Carrier v. Carrier, 226 N. Y. 114; 123 N. E. 135. I am satisfied that the trustees here could not withdraw the trust funds without becoming personally accountable therefor, and that no power of revocation by the settlor was therefore reserved in any of the trusts. See Appleby case, supra. It may be argued that the trustees could use the trust funds for the maintenance of the minor children and that these funds were therefore includable in the decedent grantor’s gross estate. Mathilde B. Hooper, Administratrix, 41 B. T. A. 114. It is true that in Illinois a parent does have the legal obligation to support his minor children until they are emancipated. Peters v. Industrial Commission, 314 Ill. 560; 145 N. E. 629. But here, as distinguished from the Hooper case, the trust instruments did not provide that the funds were to be used for the maintenance of the children. Generally, such funds can not be used to perform this or any other obligation of the parents if the instrument does not so provide. Perry on Trusts, 7th Ed., vol. 2, secs. 612, 618. This is the rule followed in Illinois. Bedford v. Bedford, 136 Ill. 354; 26 N. E. 662. Thus, the trust funds here could not be used to meet that legal obligation of the decedent, and the Hooper case is, therefore, not in point. The only withdrawal from any of the trusts here was a $500 disbursement on account of expenses of a college education for one of the children. However, a college education for the children was not a necessity. 27 American Jurisprudence 762. Were the transfers to the trusts for the children intended to take effect in possession or enjoyment only at the death of decedent? Again I think not. Even if it be assumed that the decedent would have had the right to the property of the trusts for such of his children who predeceased him, at the death of those children, we have already decided that such a right was not one intended to become effective in possession or enjoyment at the death of decedent. Estate of Edward Lathrop Ballard, 47 B. T. A. 784; Albert D. Lasker, 1 T. C. 208; Mabel Shaw Birkbeck, Estate, 47 B. T. A. 803. See also Commissioner v. Kellogg, 119 Fed. (2d) 54. In such circumstances it would have been the death of the children and not the decedent that would have been the determinant of the possession or enjoyment of the property by decedent. But, in my opinion, decedent did not retain even that contingent right here. The funds of these trusts, from the date of their creation, could be used only for such benefit and enjoyment of decedent’s children as were not within the legal obligation of the decedent to supply. The gift was complete at that time. Each beneficiary then became absolutely and irrevocably entitled to receive such benefit and enjoyment during his or her lifetime, or their respective estates at’their death. The death of decedent could not and did not affect that fact. Fowler v. Gowing, 152 Fed. 801. See Robinson v. Appleby, supra; Farleigh v. Cadman, supra. If the decedent grantor ever lawfully received, as an individual, any of the property of these trusts, it could have been only by means of a voluntary transfer from a child, inter vivos, or as heir or beneficiary of the will of a child who predeceased him. That, of course, does not constitute a reversion, and the rule of Helvering v. Hallock, 309 U. S. 106, is not applicable. Robinson v. Appleby, supra; Farleigh v. Cadman, supra. I think- four irrevocable trusts were created and that the funds in the savings accounts composing their corpora are not includable in decedent’s estate for Federal estate tax purposes. Aeundell, Black, Mellott, and Tyson, JJ., agree with this dissent.