Court Opinion

ID: 6890570
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:40:15.506553+00
Date Added: 2024-06-11T16:05:49.689522
License: Public Domain

McCORD, Circuit Judge
(dissenting).
This is an estate tax case which involves the question whether the trust from which it stems was irrevocable, or whether it falls within the inhibition of Section 811 (d) (2) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 811(d) (2).
Where-a grantor has attempted to dispose of his property by trust, such instrument *743must show clearly that it is irrevocable and that grantor retains no interest in or control over such property as owner. It has been repeatedly held that if the reserve power of a grantor permits him, in any manner, to alter, amend, revoke or designate the interest of the beneficiaries named in the trust, it will be sufficient to cause the property to be included in the gross estate of such grantor. Union Trust Co. v. Driscoll, 3 Cir., 138 F.2d 152, certiorari denied 321 U.S. 764, 64 S.Ct. 521; Welch v. Terhune, 1 Cir., 126 F.2d 695, certiorari denied 317 U.S. 644, 63 S.Ct. 37, 87 L.Ed. 519; Mellon v. Driscoll, 3 Cir., 117 F.2d 477, certiorari denied 313 U.S. 579, 61 S.Ct. 1100, 85 L.Ed. 1536; Millard v. Maloney, 3 Cir., 121 F.2d 257, certiorari denied 314 U.S. 636, 62 S.Ct. 100, 86 L.Ed. 511.
Paragraphs four, eleven and thirteen of the trust instrument here under consideration makes it plain that the termination of the trust would accomplish much more than “to accelerate the time of its enjoyment”; that the corpus was not by the instrument “already given to the beneficiaries,” hut on the contrary, the grantor could “change or alter the disposition of tlie trust corpus” by transforming some contingent interests into absolute ownership and thereby destroy other contingent interests altogether.
While each of the three sons named as beneficiaries was given a present interest in the income from the trust, even that interest was not absolute. The grantor had the right as trustee to withhold income payments “should he determine it for the best interest of” the named beneficiaries. This, together with the spendthrift provisions, insured continuing control over the income by tlie grantor. Moreover, he reserved the right to terminate the trust at any time in his lifetime. If the trust were terminated in this manner, the corpus would be paid to the beneficiaries then entitled to it. Thus, by exercising his retained authority, the grantor could have changed the contingent interests of his three sons with respect to the corpus into rights of absolute ownership. T3y the same token, had he terminated the trust, he could have extinguished the contingent interests which each son had in his brothers’ putative shares, the contingent interests which the issue, or potential issue, of each son would have, and also the contingent interest of the grantor’s wife.
The grantor named himself trustee of the trust and administered the same until he died; and the instrument forbade the beneficiaries from pledging or alienating their interests until it came into their possession.
It becomes patent, I think, that this instrument does not measure to an irrevocable trust, but is a substitute for testamentary disposition, and opens the door to the makers of trust instruments through which they may escape gift, inheritance or estate taxes. Welch v. Terhune, 1 Cir., 126 F.2d 695.
The Tax Court has given to this instrument a crutch with which it is enabled to stand upright, whereas it should have been permitted to fall because of its weakness and defects.
I cannot bring myself to agree with my colleagues.