Court Opinion

ID: 8589654
Source: CourtListenerOpinion
Date Created: 2022-11-23 15:44:46.992481+00
Date Added: 2024-06-11T16:54:24.046123
License: Public Domain

Madden, Judge,
dissenting:
I am unable to agree with that part of the court’s decision holding that the income of the trust was not taxable to the decedent, the creator of the trust. I think that he retained, after putting the property in trust, what was, in the circumstances, the most important attribute of ownership, that is, the power to dispose of it to anyone in the world except him*154self and bis wife. He, of course, felt no need for retaining this property within his own power of use and enjoyment, or he would not have made the arrangement that he made. It being surplus to his personal needs, and he being of a generous nature, the question was, who should have the enjoyment of it. And his answer, in the trust instrument, was, such person cr persons as I may, from time to time, select and designate, among all the persons in the world except two, myself and my wife. The trust instrument, then, created no beneficial right in any person other than the settlor, except the day-to-day enjoyment of the persons designated to get the income, and the expectancy of those named in the trust instrument to take the principal upon the death of the settlor and his wife, if someone else was not, in the meantime named in their stead. The arrangement left the disposition of both income and principal completely subject to the control of the settlor, except that neither he nor his wife could personally acquire any of it. He could have given the property to a child, in the unlikely event that he had a natural child, or in the event, which might well have occurred, that he adopted a child. He could have given it to his wife, if his wife who was living at the time of the creation of the trust had predeceased him, as she did in fact, and he had married again, which he did not.
The trust was, in effect, an arrangement for the settlor to acquire, tax-free, an incom,e to be used ~by him for purposes of generosity, as those purposes appealed to him from time to time. It did not give him merely the satisfaction of homing made a generous provision in the past, permanently or for a fixed time. It left with him the current satisfaction and the future satisfaction of making gifts when and as he chose and to such persons as he chose.
Many persons who pay income taxes use some part of their income in making gifts, contributing to the support of indigent persons, assisting young friends with the expenses of their education, or doing other acts of generosity. They do these things out of what is left after they have paid the taxes on their income. The decedent in this case, because he had accumulated enough assets to feel safe in segregating a part of them and devoting them to these purposes, was able *155to do exactly these same things from time to time as the spirit of generosity toward particular persons or institutions moved him, without first paying income taxes on the income later used for these purposes. I think he should have had to first pay his taxes, and then be generous or not with what he had left, as other people have to do.
This case is in its essentials like Brown v. Commissioner of Internal Revenue, 3d Cir. 131 F. 2d 640, certiorari denied 318 U. S. 767. There the settlor originally named a servant and a friend as beneficiaries, but reserved the right to change the beneficiaries at will, both as to the income and corpus. She also reserved the right to substitute trustees. The court said:
We think that a settlor who is a person of means and who can control the spending of a fund, which she has set up, in every respect except spending it for herself is sufficiently the “owner” of the fund to make its income taxable to her under § 22 (a).
I think that the reserved power in the Brown case to name new trustees was not important enough to distinguish that case from ours. I agree with the language from that case which I have quoted, and think that the settlor, in the case before us, was properly taxed on the income of the trust.