Court Opinion

ID: 6888312
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:35:03.710103+00
Date Added: 2024-06-11T16:05:46.723299
License: Public Domain

WALLER, Circuit Judge
(dissenting).
The trusts here were irrevocable. There was no defeasance, reversion, nor was any benefit retained in the donors. This was expressly stated in Article 6 of the trust indenture.
The grandchildren were all of tender years when the trust was created, the oldest one being less than six at the time the trust was created, and the ages of several being counted in months rather than in years.
These grandchildren were given the fullest “use, possession, and enjoyment” that was possible sensibly to confer upon children of such tender age. If the reasoning of the respondent and the Tax Court is correct, then there could never be a substantial gift to a baby except a gift of a future interest, for always is it necessary for some person sui juris to handle, manage, conserve, and utilize the property of a child of tender years until he is old enough to manage it himself.
Whether or not a substantial gift of money, or its ready equivalent, is a gift of a future interest should be determined by the time and finality of its vesting rather than the time and manner of its spending.
Viewed in the light of the definition in the Treasury regulations that an interest or estate which is to commence in “use, possession, or enjoyment at some future date and time” is a future interest, we find that the beneficiaries of the trust here, being children of tender years, are possessed of the highest and best use and enjoyment possible to confer upon such young children. To donate and deliver shares of stock to a babe in the cradle, with no direction, custody, or management, would be the height of folly. Valuable shares of stock are not given to babes in cradles to chew up or use as a substitute for a pacifier. But here the corpus is being managed and preserved, and the income is being collected and safeguarded by trustees vitally interested in the welfare of the cestuis que trust. Both the income and the corpus are irrevocably dedicated to the support, maintenance, and welfare of these children—the object of the trust. The gift stands between them and adversity —a present protection against future financial hazards in time of storm”. It is submitted that the irrevocable vesting of such rights in property is a “present use”, a “present enjoyment”, of such property; that one who has the right to spend the issues, rents, and profits from an estate, or to have same spent for his benefit, has both the present use and present enjoyment of such an estate. If an adult donee of such a gift saw fit to leave the corpus of the gift intact and to accumulate the income for himself at a future date, this would not convert a present gift into a future interest, nor would such a handling of a minor’s estate by one - in loco parentis, operating either pursuant to statute or pursuant to the solemn obligations of trusteeship, convert a present and irrevocable gift into a future interest.
The cases cited in support of the majority opinion are dissimilar and undecisive of the' issues here. Some of the distinguishing features of the cited cases will be pointed out:
United States v. Pelzer, 312 U.S. 399, 61 S.Ct. 659, 85 L.Ed. 913—No beneficiary could receive any benefit from the trust before the end of ten years or before he was twenty-one, whichever occurred last, and then only if he survived. It was a trust for the benefit of eight grandchildren with provision for any after-born grandchildren.
Ryerson v. United States, 312 U.S. 405, 61 S.Ct. 656, 85 L.Ed. 917—The trust was terminable by the joint action of two trustees or by the death or mental incapacity of either of the trustees. The trust had numerous other conditions not present here.
Fisher v. Commissioner, 9 Cir., 132 F.2d 383—The distribution in this case was to the grandchildren who were twenty-one *422years of age or to the parents of any under twenty-one for the use and benefit of the parents. One-sixth of the corpus was to be distributed to each grandchild upon attaining the age of twenty-five years or to his issue if the said grandchild was not living, or, in case of death without issue, to the surviving grandchildren and to the children of the grandchildren that were deceased.
Commissioner of Internal Revenue v. Wells, 6 Cir., 132 F.2d 405—The amount of income and principal to be distributed to the beneficiary was left entirely in the discretion of the trustee.
Sensenbrenner v. Commissioner, 7 Cir., 134 F.2d 883—The income was to be paid to the donor or to another party to be designated by the donor to be used by such distributee for the support, maintenance, and education of the grandchild in such manner as the distributee in his sole discretion deemed best. Thus, the trustee was not only not required to expend the income for the beneficiary but could not even compel the distributee so to do.
Commissioner v. Phillips’ Estate, 5 Cir., 126 F.2d 851—The trust agreement provided that it should not be obligatory or mandatory on the trustee to pay any income or allowance to said beneficiaries prior to the death of the donor or prior to the expiration of ten years from the date of trust agreement. Of course, this was a gift of a future interest from which no use or enjoyment might ever come to any beneficiary.
It is conceded, however, that there are decisions supporting the majority view, but it is submitted that these decisions were in cases dissimilar from the present, or where the Court failed to take into consideration the fact that the “use and enjoyment” can only mean such use and enjoyment as the donee is at the time capable of exercising, thereby rendering it necessary for the intervention of a third party or trustee to hold, use, and possess for such donee, which in law is use and possession for and by the donee in praesenti and not in futuro.
In the present case the trustees were to use both the income and the corpus for the best interest of the beneficiaries, it being hoped it would not be necessary to spend the child’s estate. The trustee was expected to do no more than would a guardian have been expected to do. The child’s welfare was the summum bonum of the trust.
The vesting of a gift can be made dependent upon the discretion of a trustee if the language of the trust instrument leaves the matter to the sole discretion of the trustee, but in the present trust instrument the test is the need, comfort, and welfare of the beneficiary. The discretion of the trustee is far from absolute. The trustee here could not withhold support from one of his necessitous cestuis que trust, without plainly violating his trust, and this equity would prevent.
The fact that death might intervene before the cestui que trust comes into full possession of the entire gift does not make the entire gift one of future interest, and the statute does not make provision for a pro tanto tax. A present gift to a trustee for the use of another is a present gift to that other, and a donor does not have to abolish death in order to make a managed gift to an infant.
I hestitate to ascribe to Congress the absurd design to tax a gift to a babe in arms because his estate must be managed by someone sui juris, exercising the powers of a guardian or parent, while a gift to an adult, requiring no managing third party, is tax free. Congress likes adult voters, but surely not that well.