Court Opinion

ID: 4634463
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:16:04.240392+00
Date Added: 2024-06-11T07:58:13.155147
License: Public Domain

MARIAN NEAL, J. ROBERT NEAL, JR., AND NINA MARGARET NEAL TRUST, SECOND NATIONAL BANK OF HOUSTON, TRUSTEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Neal v. CommissionerDocket Nos. 92948, 92949, 95462.United States Board of Tax Appeals40 B.T.A. 1033; 1939 BTA LEXIS 755; December 7, 1939, Promulgated *755  The intention of the settlor, determined from the trust instrument itself, is controlling as to whether one or more trusts were created.  Held, under the facts here but one trust was created.  Wright Matthews, Esq., for the petitioner.  James H. Yeatman, Esq., for the respondent.  ARNOLD *1033  The respondent asserted income tax deficiencies against petitioner in the amounts of $6,543.26, $6,328.69, and $4,543.16 for the years 1934, 1935, and 1936, respectively.  His action in asserting these deficiencies is assailed by petitioner.  The cases were consolidated.  The question for determination is whether the agreement of July 8, 1929, created three taxable entities, as contended by petitioner, or a single taxable entity, as contended by respondent.  The stipulation of facts was supplemented by oral and documentary evidence, from which we make the following findings of fact.  FINDINGS OF FACT.  Petitioner is a corporation, organized under the National Bank Act, with its principal office in Houston, Texas.  It is acting in a fiduciary capacity as trustee for Marian Neal, J. Robert Neal, Jr., and Nina Margaret Neal.  On July 8, 1929, John*756  W. Neal, as settlor, executed a trust agreement whereby certain stocks and bonds, listed in schedule A attached to the agreement, were transferred to Hohn F. Sloan as trustee in trust for the benefit of settlor's three grandchildren, Marian Neal, J. Robert Neal, Jr., and Nina Margaret Neal.  The agreement, in so far as here material, is as follows.  ARTICLE FIRST * * * TO HAVE AND TO HOLD unto the Trustee, in trust, however, until the death of the survivor of the Settlor, LIZZIE H. NEAL, wife of the Settlor, JAMES R. NEAL, son of the Settlor, and MARIAN NEAL, JAMES R. NEAL, JR. and NINA MARGARET NEAL, grandchildren of the Settlor, and for a period of twenty-one years after the death of such survivor, unless sooner terminated in whole or in part as hereinafter provided, and to divide the trust fund into three equal shares, one for each of the Settlor's above named grandchildren and within the limits of the trust term to dispose of the income and principal of said shares as follows: A.  To accumulate the income of each share and add such accumulated income to the principal of said share until the grandchild for whom the share is held *1034  shall have attained the age*757  of twenty-one years, and thereafter to pay over or apply the income of such share thereafter accruing to or to the use of the grandchild for whom the same was set apart during his or her life and upon the death of such grandchild or upon the expiration of the trust term as hereinabove defined * * *.  The Trustee shall from time to time convey, transfer and pay over to any grandchild who has attained the age of thirty-five years, such portion of the principal of the share held for or her benefit as such grandchild may from time to time request in writing; provided, however, that the payments so made shall not exceed in the aggregate an amount equal to 33 1/3 per cent of the principal of such share as the same existed when the share was originally set apart.  B.  In the event that any grandchildren of the Settlor are born after the date of this agreement, then upon the birth of such grandchild the Trustee shall unite principal of remaining principal of all shares then held hereunder and shall redivide the trust fund then in his hands into so many equal shares that there shall be one for each grandchild then living and shall dispose of the income and principal of said shares in the*758  manner provided in Paragraph "A" hereof.  ARTICLE SECOND * * * C.  No assignment or order by any beneficiary by way of anticipation of any part of the income of the trust herein created shall be valid, but the income shall be paid by the Trustee direct to the person entitled to receive it or deposited to the beneficiary's account in some bank of good standing and repute without regard to any assignment or order; nor can the principal or income of said trust become attached by Trustee process or garnishment or other legal proceeding while in the hands of the Trustee.  * * * E.  In distinguishing between income and principal hereunder the Trustee shall not amortize premiums paid for trust securities and shall take no account of discounts, and all stock and extraordinary dividends shall be treated as principal and added to the trust fund so far as permitted by law.  F.  The Trustee shall not be required to make physical division of the funds except when necessary for distribution of principal, but may in his discretion keep the trust corpus in one or more consolidated funds in which the separate shares shall be undivided interests.  G.  The Trustee shall not be required*759  to cause stocks or registered bonds belonging to the trust to be registered in his name as Trustee hereunder, but he may cause such stocks or registered bonds to be registered in his own name without describing the trust or in the name of his nominee, but such registration shall neither increase nor decrease the liability of the Trustee.  * * * ARTICLE THIRD * * * B.  The Settlor reserves the right, at his option, to direct the Trustee to retain any investment at any time held by him hereunder or to direct the sale or exchange of any such investment and to designate the stocks, bonds or other property, real or personal, in which the trust fund or any re-investment thereof shall be invested, or to direct the issuance of voting proxies under any stock held hereunder, provided, however, that the Trustee shall be under no liability for any loss arising, from any action taken or omitted to be taken by the Trustee at the direction of the Settlor.  * * * ARTICLE *1035  FOURTH The Trustee may receive any other property, real or personal, including life insurance policies, devised, bequeathed, granted, conveyed, assigned or made payable to him by the Settlor or by any other*760  person for the purposes of the Trust hereby created, and all such property and policies shall be held by the Trustee subject to the terms of this Indenture.  ARTICLE FIFTH The Trust hereby created shall be deemed a Texas Trust and shall, in all respects, be governed by the laws of the State of Texas.  * * * ARTICLE EIGHTH As compensation for his services in the administration of this trust the Trustee or any successor Trustee or co-Trustee shall receive the fees agreed to in writing between the Settlor and the Trustee or such co-Trustee or successor Trustee.  ARTICLE NINTH The Trustee accepts the said trust and agrees to carry out the provisions hereof on his own part.  On July 15, 1929, pursuant to the trust agreement of July 8, 1929, the National City Bank of New York became cotrustee and, on July 31, 1929, sole trustee.  On October 21, 1929, the City Bank Farmers Trust Co. became trustee.  On June 20, 1933, the trust agreement was amended by an instrument in writing executed by settlor to permit an accounting between settlor and a successor trustee.  On February 4, 1935, an instrument was executed by settlor designating the Second National Bank of Houston, Texas, *761  trustee, and on February 15, 1935, said bank succeeded the City Bank Farmers Trust Co. as trustee and is now acting in that capacity.  For the taxable years 1929 to and including 1936 the trustees then acting filed separate income tax returns on form 1040 in the name of each beneficiary as a separate trust, on the theory that three separate and distinct trusts were created by the instrument of July 8, 1929, and the amendments thereto.  The respondent did not assert any deficiency against the fiduciary for the years 1929 to 1933 on the theory that one trust was created by the instrument of July 8, 1929.  In the statutory deficiency notices the respondent treated the trust agreement for the benefit of Marian Neal, J. Robert Neal, Jr., and Nina Margaret Neal as creating one trust and not as creating three separate trusts and his deficiencies were determined upon that basis.  The income tax returns for the years 1929 to 1934, inclusive, were filed with the collector of internal revenue for the second collection *1036  district of New York, whose office is located in New York, New York.  The returns for the years 1935 and 1936 were filed with the collector of internal revenue*762  at Austin, Texas.  No distribution of either income or corpus has been made from the trust.  Both the corpus and the income of the trust were kept in one fund and no segregation or division of the trust property, as between the beneficiaries, has ever been made.  The National City Bank and the City Bank Farmers Trust Co., trustees from July 8, 1929, to February 4, 1935, established and kept but one account for all the income derived from the corpus.  The Second National Bank of Houston, successor trustee, also established and kept but a single account for the corpus of the trust and a single account for the income derived from the corpus.  OPINION.  ARNOLD: Whether the instrument of July 8, 1929, created one trust or three separate trusts depends upon the intention of the settlor and that intention must be ascertained from the instrument itself.  ; ; ; *763 . An examination of the trust instrument of July 8, 1929, and the amendments thereto, as to terminology used, indicates an intention to create a single trust, the corpus to be divided into three shares by the trustee.  The settlor transferred to a trustee personal property consisting of stocks and bonds, as stated in the habendum clause, to have and to hold to the trustee in trust for the benefit of settlor's three grandchildren and to divide the trust fund into three equal shares, one share for each of the settlor's named grandchildren, and within the limits of the trust term to dispose of the income and principal as directed.  Article first, paragraph A, refers to the expiration of the trust term. In paragraph B, in the event of afterborn grandchildren, the trustee shall unite the principal of all shares then held and shall redivide the trust fund. In article second, paragraph C, no assignment by a beneficiary of any part of the income of the trust herein created shall be valid, nor can the principal or income of said trust be attached.  In paragraph E, all stock and extraordinary*764  dividends shall be treated as principal and added to the trust fund. In paragraph F, the trustee shall not be required to make physical division of the funds, but in his discretion may keep the trust corpus in one or more funds.  In paragraph G, the trustee shall not be required *1037  to register stocks or bonds belonging to the trust in his own name as trustee.  In article third, paragraph B, the settlor reserves the right to designate the investments of the trust fund. Article fourth authorizes the trustee to receive other property for the purposes of the trust hereby created. It is stated in article fifth that the trust hereby created shall be deemed a Texas trust. In article eighth, as compensation for services in the administration of this trust, and in article ninth the trustee accepts the said trust.On June 20, 1933, John W. Neal, the settlor, executed an instrument amending the trust agreement to permit an accounting between him as settlor and a successor trustee, wherein it is recited he created a trust of the property by the agreement of July 8, 1929, and in the amendment proper he refers in two instances to the income and*765  principal of the trust created, and in two other instances to the trust.On February 4, 1935, the settlor, designating the Second National Bank of Houston as trustee, stated he created a trust by the agreement of July 8, 1929, and in the acceptance by the Second National Bank of Houston of its appointment as trustee, John W. Neal is referred to as the donor of a trust created under trust agreement made by him dated July 8, 1929.  Neither the opiginal trust agreement nor the amendments thereto specify three separate trusts, nor does it appear from the language used that more than one trust was intended to be created by the settlor.  While terminology alone is not conclusive, the frequent references to a single trust require that indications of a contrary intention should be clear.  ;;We can find no clear indications in this agreement that the settlor intended to create three trusts.  He designated no specific lot of securities in which any grandchild had*766  a beneficial interest.  He made no direction for specific segregation, and none of the successive trustees made any segregation.  The direction of the habendum clause that the trustee divide the trust fund into three equal shares and dispose of the income and property of said shares, as qualified by the settlor's direction of distribution of income and principal which follows, convinces us that he intended to create one trust with three equal beneficiaries.  The provision that afterborn grandchildren should share equally with the three provided for in the agreement is a further indication that one general trust fund was set up with three or more equal beneficiaries.  In , the Board was affirmed in holding but one trust was created where the trust instrument provided: "My said Trustees shall divide said trust estate hereby *1038  created into five (5) equal shares, one (1) share to be held in trust for each of my five (5) children * * *." The Board in its opinion said: It will be observed that there is nothing said about separate trusts, but the direction is to divide the trust estate into five equal shares and that*767  the income from each child's share shall be paid to it and its share of the principal of "said trust estate" upon the happening of certain events.  The cases cited and relied on by petitioner all involve facts and circumstances differing from those here present to an extent sufficient to make them distinguishable from the case before us on facts.  The trust here was administered as one entity, both the corpus and the income were kept in a single fund, no segregation or division of the trust property, as between the beneficiaries, was ever made, and a single account was kept by the various trustees.  The instrument before us, considered as a whole, and in connection with all other relevant facts and circumstances, does not in our opinion show an intention on the settlor's part to create three separate trusts, and we hold the trust created thereby is taxable as a single entity.  Judgment will be entered for the respondent.