Court Opinion

ID: 4498862
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:10.143821+00
Date Added: 2024-06-11T15:04:06.303156
License: Public Domain

Mellott,
dissenting: The essence of the test applied in all of the cases cited in the majority opinion is: Did the beneficiaries receive, at the time of the creation of the trust, “a right to the present enjoyment of the corpus or of the income”? They did not where the income was to be accumulated for ten years at the end of which it was to be distributed to a class, the members of which could not be ascertained until then (United States v. Pelzer); where the enjoyment of the trust fund by the beneficiaries was postponed until such time as they, in their capacity as trustees, should join in the exercise of a power (Ryerson v. United States) ; where the settlor-trustee, in his sole discretion, could hold the trust property for his lifetime and pay over to his children such amounts as he should determine (Welch, v. Paine); or where the beneficiaries had no more than contingent interests, dependent upon the trustee’s discretion (Helvering v. Blair and Commissioner v. Taylor).
Under the trust instrument in the instant proceeding the settlor established trusts for the education of her two 16-year old granddaughters and her two 19-year old grandsons and to prepare them “to attain and occupy an advantageous and desirable position in life.” The amount set aside for each was approximately $5,000. That she expected all of it to be expended, commencing immediately, is indicated by several circumstances. The trustees were to use the “principal and income.” The annual income reasonably to be anticipated from a corpus of $5,000 would not exceed $250 or $300. It is not unreasonable to assume that she realized such a small annual income could not be expected to provide the expenses of a year in college. The unusual sequence of the words “principal and income” indicates that she expected the principal to be used immediately for the designated purposes. This view is strengthened when consideration is given to the clause authorizing payment of either principal or income “direct to said minor, or to his natural guardian, without requiring qualification according to law.” Moreover, the references in other sections of the trust instrument to the discretion of the trustee do not, in my judgment, justify a holding that the gift can *957“be regarded as realized” only when the trustee has exercised his discretion “to permit enjoyment of the gift.” His discretion was “to use the principal and income” for the designated purpose — to determine which should be used rather than to determine whether either should be used. In other words, the property was to be used for the designated purpose and could not arbitrarily be withheld by the trustee. Nor should article sixth of the trust instrument be ignored in this connection. Under- it the trustee is authorized to expend any or all of the principal for the personal care and maintenance of the beneficiaries, if in his judgment and discretion necessary, and is also authorized to pay for any or all professional or medical care. As to the latter no specific discretion or judgment is vested in the trustee.
It seems to me that the beneficiaries had an absolute right, under article first (b) of the trust instrument, to have the principal and income used for the designated purpose. Under article sixth they had the absolute right to require the payment of medical attention out of principal and a right, enforceable in equity, to require the expenditure of a reasonable amount for their personal care and maintenance. The aggregate of all these rights is surely “ a right to the present enjoyment of the corpus or income.”
In spite of the language quoted by the majority from Commissioner v. Brandegee that case is not a very satisfactory authority upon which to rest a conclusion that the gift in the instant proceeding is one of future interest. The court remanded the proceeding to the Board “on the issue whether the beneficiaries took future interests in property.” It held that if petitioner can establish “that when the gift was made in 1937 there were no mortgages or other encumbrances outstanding, the existence of which would postpone the unqualified right of the beneficiaries to enjoyment of the net income”., she must prevail in her contention that the gift was of a present interest; for then the trustee would be required to pay the net income to the beneficiaries. As to this phase the court held that “the gift of an immediate life interest in income is to be regarded as a present interest”, pointing out that “in ordinary usage a life tenant under a trust, having the right to the immediate beneficial enjoyment of the income, is considered as having a present interest, even though possession of the corpus is withheld from him or postponed.” Cf. Kinney v. Anglim, 43 Fed. Supp. 431. The cited case, therefore, is but an application of the rule enunciated by the Supreme Court in the Pelzer and Ryerson cases.
Being of the opinion that the beneficiaries in the instant proceeding have- a present interest in the property placed in trust for them by their grandmother, I respectfully note my dissent.
Murdock, Yak Fossan, ToeneR, and Habron agree with this dissent.