Court Opinion

ID: 9637787
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:20:35.489476+00
Date Added: 2024-06-11T18:10:00.570073
License: Public Domain

JONES, Circuit Judge
(dissenting).
In my opinion, the power to alter, amend, or revoke here reserved was not such as to render the trust property includible in the settlor’s gross estate under Sec. 302(d) of the Revenue Act of 1926, which is the relevant statute so far as the federal tax on this decedent’s estate is concerned. The creation of the trust, which originally was by oral declaration in 1918, was accompanied by the settlor’s legally effective and complete contemporaneous transfer of the res to the trustees (one of whom was the settlor). The transfer was irrevocable and, so far as the settlor’s being a trustee is concerned, the effect was no different than if another person had been named in her stead. Cf. Becker v. St. Louis Union Trust Co., 296 U.S. 48, 50, 56 S.Ct. 78, 80 L.Ed. 35, reversed on another ground in Helver-ing v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368. Subsequently, by written instrument of June 22, 1931, the trust was confirmed in substantially the terms of the original oral declaration. The power to alter, amend, or revoke (which extended only to the right to reapportion the shares in the trust income among specifically identified and definitely limited third party beneficiaries) was reposed in the trustees and their successors as such. That fact, I think, spelled the non-includibility of the trust property in the decedent’s estate under Sec. 302(d) as that provision stood in the Revenue Act of 1926 before amendment. Cf. Nicholson v. United States, D.C., 25 F.Supp. 424, 425, 426; Daniel J. Gallery et al. v. Commissioner, 38 B.T.A. 1211.
Of course since the amendment of Sec. 302(d) of the Revenue Act of 1926 by Sec. 805(a) of the Revenue Act of 1936, 26 U. S.C.A. Int.Rev.Acts, page 229, the limitation of the critical power to such as is exercisable by a settlor in his individual capacity (acting either alone or in conjunction with any person) is no longer important where the amendment is applicable. As so amended, Sec. 302(d) now embraces any property transferred in trust, the enjoyment whereof is subject at the date of the transferor’s death to any change through his exercise (alone or with another) of the power to alter, amend, revoke, or terminate in whatever capacity exercisable and without regard to when or from what source the decedent (settlor) acquired such power. But, to relate the 1936 amendment back so as to embrace the power respecting the trust in the instant case would work a deprivation of property in violation of the Fifth Amendment. See Helvering v. Helmholz, 296 U.S. 93, 97, 98, 56 S.Ct. 68, 80 L.Ed. 76; White v. Poor, 296 U.S. 98, 102, 56 S.Ct. 66, 80 L.Ed. 80.
In answer to the constitutional objection to applying the 1936 amendment to the facts of this case the Collector argues that the portion of the amendment (viz., “in whatever capacity exercisable”) which obliterates the distinction between a settlor’s several capacities as an individual and as a trustee was but declaratory of existing law. I do not think so, notwithstanding a *156statement in H.Rep. No. 2818, 74th Cong. 2d Sess. p. 9, that “To some extent [just what is not indicated], it is believed this amendment [of Sec. 302(d)] is declaratory of existing law.” Prior to the amendment the applicability of Sec. 302(d), 26 U.S.C. A. Int.Rev.Acts, page 228, had been made to depend upon the power’s being exercisable by the donor in his individual capacity. See Nicholson v. United States, and Daniel J. Gallery v. Commissioner, loe. cit., supra. Moreover the importance of the distinction as to the capacity in which the power was exercisable by the deceased transferor seems to be implicit in the decision in White v. Poor, supra, which the amendment of 1936 was expressly designed to offset. True enough, in White v. Poor the settlor, who was one of the original trustees in whom was reposed the power to terminate the trust, resigned her trusteeship, but a year later she again assumed that office upon election thereto by the other trustees. Thenceforth until her death she had the power in conjunction with the other trustees to terminate the trust, but she was none the less the settlor who had made the transfer in trust. The manner in which she reacquired the power to terminate the trust only served to give point to the limited capacity in which the power was exercisable. It seems to me that the mandatory inclusion of the provision “in whatever capacity exercisable” was just as essential to meeting the situation presented by the decision in White v. Poor as was the other added clause, viz., “without regard to when or from what source the decedent acquired such power”. If that is so, then certainly the 1936 amendment was not declaratory of the law in part here material.
Furthermore I think that the power vested in a decedent to alter, amend, or revoke his transfer in trust which subjects the enjoyment of the trust at the date of his death to any change through the exercise of the power contemplates a conclusively effective change and not such a change as may be completely nullified from the moment following his death through his successor trustees’ subsequent competent exercise of the continuing power. In this case the power to reapportion interests in income among the specified beneficiaries was exercised for the first time by successor trustees after the settlor’s death. This, of itself, points up the capacity to which the exercise of the power was attached. I am not unmindful that Welch v. Terhune, 1 Cir., 126 F.2d 695, holds to the contrary, but, with all deference, I feel that that decision overlooks the relevant influence of the decedent’s death as the necessarily efficient cause (under a death duty statute) for limiting the decedent’s change of the trust and for rendering it unchangeable thereafter. Nor does the fact that in changing beneficial interests in the trust income the trustees did not act in a fiduciary relation to the beneficiaries seem to be the thing of importance under Sec. 302(d) prior to its amendment but rather that the action to that end by authorized nominees (including even the settlor) was pursuant to a power not attaching to the transferor in her individual capacity which her death must necessarily terminate.
For these reasons I think the case was correctly decided by the court below and should therefore affirm.