Minneapolis Trust Co. v. Commissioner , 13 B.T.A. 1069 ( 1928 )

MINNEAPOLIS TRUST CO., SUCCESSOR BY CONSOLIDATION TO WELLS-DICKEY TRUST CO., TRUSTEE, E. P. WELLS FAMILY TRUST, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Minneapolis Trust Co. v. Commissioner

Docket No. 14695.

United States Board of Tax Appeals

13 B.T.A. 1069; 1928 BTA LEXIS 3121;

October 16, 1928, Promulgated

---

A legally formed trust is not dissolved by an instrument jointly executed by the donor, the trustees and all of the beneficiaries, which declares that the same is thereby revoked but conditioned upon the formation of a new trust for the same property in accordance with terms therein set forth and naming the trustee therefor.

Egbert S. Oakley, Esq., and Leavitt R. Barker, Esq., for the petitioner.

A. H. Fast, Esq., for the respondent.

---

LANSDON

Respondent asserted deficiencies in the income and profits tax of petitioner, as follows:

1920	$2,981.28
1921	21,777.73
1922	1,082.68
1923	1,553.79
1924	47.77

and petitioner appeals, assigning as error on the part of respondent his determination of a taxable gain resulting from the sale of trust assets.

FINDINGS OF FACT.

On the 21st day of June, 1911, Edward P. Wells, being the owner of 1,500 shares of the common stock of Russell-Miller Milling Co. and 266 shares of the stock of Wells & Dickey Co., executed a certain declaration of trust wherein he conveyed to Marguerite Milton Wells, Stuart Wilder Wells, Charles G. Ireys and Frank G. Jewett, as trustees, the title to said property, to be held by them in trust for certain specific purposes set forth therein, as follows:

First: To possess, retain, hold, keep, manage and care for said property and the whole thereof, with full power to sell, exchange and dispose of the same or any part thereof, at such times and on such terms as a majority of said Trustees may deem best, and to execute and deliver conveyances thereof in such manner and form as will convey to purchasers all the title possessed and enjoyed by the party of the first part at the date hereof, and to invest and reinvest the proceeds of any such sales in such interest or dividend paying stocks, bonds or other securities from time to time as may be determined by a majority of said Trustees, and to handle, manage, conserve and protect said property in all proper ways.

Second: To collect and receive all interest, income and profits arising from such personal property or from any investment or reinvestment of said trust estate or any part thereof, and after paying all proper charges and expenses, to pay the net interest, income and profit so received by them from time to time as so received, to the party of the first part during the full term of the natural life of said pary of the first part, and upon the decrease of the said party of the first part, to pay said net income, interest and profit, from time to time as received, to Nellie M. Wells, wife of the party of the first part, if then living, during the full term of her natural life, and after the death of the party of the first part and of the said Nellie M. Wells, to pay over all of the interest, income and profits received from said trust estate to Marguerite Milton Wells, Stuart Wilder Wells, Nora Wells Jewett and Florence Wells Ireys, children of said party of the first part, share and share alike, during the term of their and each of their natural lives; and in the event of the death of either of said children of Edward P. Wells leaving issue him or her surviving, such deceased person's share of said income shall be paid to his or her surviving issue; if only one, then all to that one, and if more than one, then share and share alike. Should any one of said children die or have died leaving a will but no issue, then such deceased person's share of said income shall thereafter be paid in accordance with the terms of said will and to the beneficiary named therein; but should either of the said children die or have died intestate and leaving no issue, such deceased person's share of said income shall thereafter be paid to the surviving children of Edward P. and Nellie M. Wells, equally; excepting only, that should said Stuart Wilder Wells, one of said children, die or have died leaving no issue but survived by his wife, Beatrice Ireys Wells, then one-half of all said income which would thereafter have been by the terms hereof payable to said Stuart Wilder Wells if living, shall be paid to his said widow, Beatrice Ireys Wells, while she lives and remains unmarried, and the other one-half of such share or the whole thereof after the death or remarriage of said Beatrice Ireys Wells, shall be paid thereafter to the surviving children of sais first party, or to their issue if either of them be then deceased leaving issue; the children or issue of any deceased person to take only the share which its or their father or mother would have been entitled to if living.

Fifth: It is the understanding and intention hereof that the trust created hereby shall never be adminsitered by fewer than three Trustees, the remaining Trustees after the death of any one of the Trustees hereinbefore named, having the power and it being their duty, immediately upon the death of any one of said Trustees, to elect a successor to such deceased Trustee, and whenever, by death, disability or refusal to act the number of said Trustees shall be reduced to three, it is understood and agreed that said three surviving Trustees, by an instrument in writing to be signed by at least two of them shall immediately select and appoint a competent person as additional Trustee, * * *

No reservation of the right to alter, amend or revoke said trust instrument was contained therein. These trustees joined in the execution of said trust agreement, accepted the trust, and functioned as trustees thereunder until on or about the 27th day of August, 1919, at which time they, together with certain beneficiaries named in said trust instrument, joined in the execution of a so-called revocation of trust, as follows:

WHEREAS, EDWARD P. WELLS on June 21st, 1911 established a certain trust wherein MARGUERITE MILTON WELLS, STUART WILDER WELLS, CHARLES G. IREYS and FRANK G. JEWETT were Trustees, which trust was established for the immediate benefit ofthe DONOR and for the ultimate benefit of NELLIE M. WELLS, his wife, and MARGUERITE MILTON WELLS, STUART WILDER WELLS, NORA WELLS JEWETT and FLORENCE WELLS IREYS, the children of the DONOR, and BEATRICE IREYS WELLS, and

WHEREAS, such trust has been in full force and effect since June 21st, 1911 and the trust estate has been and still is in the possession of said Trustees, and

WHEREAS, the DONOR is now desirous of surrendering the right to the income from the trust estate and to eliminate both himself and NELLIE M. WELLS, his wife, from among the beneficiaries of that trust so as to give the present use and enjoyment of said trust fund to his said children and to make WELLS-DICKEY TRUST COMPANY the Trustee of such trust, and

WHEREAS, it is deemed advisable by all parties concerned to have the terms and conditions of such trust re-written in a new document wherein EDWARD P. WELLS shall be DONOR, WELLS-DICKEY TRUST COMPANY shall be TRUSTEE and the terms and conditions of such trust and the rights of the respective parties re-stated.

Now THEREFORE, in consideration of the making of such new Trust Agreement by said DONOR and at his request, such Trustees do hereby assign, transfer, and convey the entire trust estate to WELLS-DICKEY TRUST COMPANY as TRUSTEE in trust and all of the parties hereto, each for himself or herself and on behalf of their respective issue, do hereby cancel and agree to the termination of said former trust and the full and complete revocation thereof by said DONOR, but solely for the purpose of having the entire trust estate impressed with the terms of the new trust wherein the changes are solely for the benefit and to the advantage of each and every beneficiary, present and future.

Each of the parties hereto, who were former beneficiaries, does hereby undertake and agree to and with the others and WELLS-DICKEY TRUST COMPANY that all of the beneficiaries of said former trust will accept the benefits provided for them respectively under said new Trust Agreement with said WELLSDICKEY TRUST COMPANY as TRUSTEE in lieu of all probable or possible benefits that might ever accrue under said former trust and that this promise shall be binding upon the heirs, executors, administrators and assigns of said respective parties, so undertaking and agreeing.

It is mutually understood and agreed that in making the change herein proposed that said trust estate shall not hereby become the property of said DONOR nor be subject to his authority or dominion, save and except for the purpose of reestablishing said trust, authority for the doing of which is hereby granted.

Dated at Minneapolis, Minnesota, this 27th day of August, 1919.

EDWARD P. WELLS

NELLIE M. WELLS

MARGUERITE MILTON WELLS

STUART WILDER WELLS

CHARLES G. IREYS, as Trustee

FLORENCE WELLS IREYS

FRANK G. JEWETT, as Trustee

NORA WELLS JEWETT

MARGUERITE M. WELLS, as Trustee

S. W. WELLS, as Trustee

BEATRICE IREYS WELLS

On the same date the original donor, Edward P. Wells, assuming the dissolution of the first trust, executed a second so-called trust agreement with intent to establish a new and different trust over the property conveyed to the trustees in the former declaration of trust. In the new trust agreement certain essential departures from the terms of the first created trust are noted, viz., (1) The Wells-Dickey Trust Co. is made trustee; (2) the rights of the donor and his wife, Nellie M. Wells, to the income during their respective lives are surrendered to the four children, who take at once, share and share alike; (3) certain provisions are made to protect the capital against impairment below $450,000; (4) the power of the trustee to sell the original securities without written consent of certain beneficiaries is denied; (5) rights of a majority of the living children of donor to remove trustee; and (6) the right of the donor to revoke or modify the trust as to any of its terms is reserved. Other changes in administrative details are noted, but the foregoing are sufficient to illustrate the fundamental departures from the original trust idea.

On August 27, 1919, the Wells-Dickey Trust Co. duly assumed duties as trustee for the property sought to be affected by these several trust instruments and later the petitioner, its successor, sold the same. The Commissioner reckoned the profit to petitioner from the sale of the stock of the Russell-Miller Milling Co. by deducting the March 1, 1913, value of $173 per share from the price received.

OPINION.

LANSDON: It is conceded that the declaration of trust, executed July 21, 1911, by Edward P. Wells, created a valid trust and vested legal title to the property in the trustee named therein; also, that if said trust survived the efforts of August 27, 1919, to revoke it, it was still in existence and the owner of the securities on the date of sale and that in such event the March 1, 1913, value as fixed by the Commissioner is the true cost price to petitioner. All other facts being stipulated, the sole question for determination by this appeal is the legal effect of the so-called revocation of trust, executed August 27, 1919, by the trustees, the donor, Nellie M. Wells, and the four children named as beneficiaries of the trust.

The intentions of the parties, in the execution of this revocation instrument, may be gathered from the reasons they assign in the inducement clauses of the instrument itself, and in the qualifying restrictions they impose upon their successors to the trust. The instrument first enumerates four specific objects which the original maker of the trust desires to accomplish, as follows:

(a) To surrender his rights to the income of the trust estate;

(b) To eliminate both himself and Nellie M. Wells from among the beneficiaries of the trust, so as

(c) To give the present use and enjoyment of the funds to the children; and

(d) To make Wells-Dickey Trust Co. trustee of the estate.

To accomplish this the instrument then states that itis deemed advisable by all of the parties concerned to have the terms and conditions of such trust rewritten in a new document and the rights of the respective parties restated, and that "In consideration of the making of such new trust agreement by said donor and at his request" said trustees thereby transfer and convey the entire trust estate to Wells-Dickey Trust Co. as trustee. The signers of this instrument then declare that they, each for himself or herself and on behalf of their respective issue, do thereby cancel and agree to the termination of the said former trust and the complete revocation thereof by said donor, but "solely for the purpose of having the entire trust estate impressed with the terms of the new trust wherein the changes are solely for the benefit and to the advantage of each and every beneficiary, present and future." (Italics ours.)

There is no question as to what these parties desired to accomplish in the execution of this instrument, but there is much confusion indicated in their minds as to how they were to effect these changes without losing their rights under the trust. It is noted that the trust estate is conveyed direct to the Wells-Dickey Trust Co. as trustee, but conditioned that the donor revoke the original trust and create a new one to be impressed upon said property. There is no attempt to revest the title to the trust estate in the donor and they provide against such a contingency by the provisions contained in the concluding paragraph of their instrument, as follows:

It is mutually understood and agreed that in making the change herein proposed that the said trust estate shall not become the property of said donor nor be subject to his authority or dominion save and except for the purpose of re-establishing said trust, authority for the doing of which is hereby granted.

If the donor, then, was given any authority whatever by this so-called revocation instrument, which is extremely doubtful, it was limited to the rewriting of the original trust agreement and restating the terms to conform to the changes to be made as announced in the inducement clauses of the instrument. The fact that the parties to the revocation instrument declared their intention to cancel and revoke said trust in no way affected or impaired its status, since said declarations were coupled with conditions and reservations which preserved the ultimate equities of the parties in the trust property and continued their influence and control over it. There can be no revocation which does not revoke. Whether the efforts of the parties in this case effected an amendment to the original trust, with changed terms, conditions and trustee, is immaterial since the petitioner, in possession of the trust property, is held as substituted trustee, under a resulting trust in favor of the beneficiaries of the trust estate, and as such must administer the trust until relieved of same according to law. Perry on Trusts and Trustees, 6th Ed., ch. 24, 25; ; ; In . The beneficial ownership of the securities involved having remained in the same named beneficiaries since the creation of the trust on June 21, 1911, until the date of their sale by the petitioner as trustee, and it being conceded in such event that the March 1, 1913, value is the true basis for determination of gain or loss on said sales, the action of the Commissioner will be sustained.

Decision will be entered for the respondent.