Court Opinion

ID: 4497715
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:34.313932+00
Date Added: 2024-06-11T14:54:15.240184
License: Public Domain

VaN FossaN,
dissenting: The underlying and controlling question here is whether under the trust above set out Mary E. Fulham had a substantial adverse interest within the meaning of that term in section 166 (2) of the Eevenue Act of 1934. If she did, the income of the trust was not taxable to the grantor and petitioner must prevail. If she did not, the contrary result is indicated. It is not contended that section 167 is applicable.
The right to change, alter, and revoke the trust under consideration was originally vested in a committee. In 1932, however, the committee, by formal action, had abridged the provisions of the trust and the question at issue must be decided in the light of such amendment or abridgement.
By this amendment the right to revest the corpus in the grantor, as originally granted to the committee, was changed so as to require the written consent of Mary E. Fulham. To make assurance doubly sure the committee formally relinquished and extinguished any power possessed by it to alter, amend, or revoke the provision requiring the consent of Mary E. Fulham. Such was the status in the taxable year.
Obviously, the committee acting alone, as it might prior to 1932, did not possess a substantial adverse interest.. Accordingly, prior to 1932 the trust would have come within the provisions of section 166 (2). Subsequent thereto, as just indicated, this power, formerly vested in the committee, was conditioned on the written consent of Mary E. Fulham. Thus we arrive at the controlling question: Did Mary E. Fulham have a substantial adverse interest? In considering the question reference is made first to the trust provisions. Clause first provides:
Clause: First : Until the death of my wife, Mart E. Fulham, the trustees shall accumulate the income of the trust fund. During my wife’s life the trustees may pay to her at any time or from time to time any part or parts or the whole of the principal and/or accumulated income of the. trust fund.
Respondent contends that the quoted provision was permissive but not mandatory and that Mary E. Fulham, could not have compelled payment to her of any part of the corpus or income. I can not agree.. In construing a trust, the intent of the grantor is controlling. It is not to be assumed that the provisions of the trust were idle gestures, lacking in substance. A reading of the trust instrument convinces me that the grantor contemplated and intended that Mary E. Fulham, his wife, have the right and power to draw on the trust, both corpus and accumulated income, so far as her needs might require and that if need had arisen she could successfully have enforced her demands. It is noteworthy that the provision in question is placed in clause first of the trust instrument. It is also to be noted that clause second provides, “upon the death of my said *56wife the trustees shall divide the remaining principal and all unpaid, accrued and accumulated income”, etc., thus confirming the suggestion that the grantor contemplated the payments to Mary E. Fulham. I am of the opinion that under the trust instrument Mary E. Fulham was a beneficiary of the trust holding a substantial adverse interest in the corpus and income thereof. See Jane B. Shiverick, 37 B. T. A. 454; Smith v. Commissioner, 59 Fed. (2d) 56 (C. C. A., 1st Cir.); Bessie B. Jones, 27 B. T. A. 171. Entertaining this view, it follows that I can not concur hi the opinion of the majority. I do not believe that the trust here in question falls within the provisions of section 166 (2) of the Revenue Act of 1934.
Arundell agrees with this dissent.