DocketNumber： Docket No. 28141.
Citation Numbers： 15 B.T.A. 1410, 1929 BTA LEXIS 2671
Judges： Siefkin
Filed Date： 4/12/1929
Status： Precedential
Modified Date： 10/19/2024
*2671 Where certain stocks were transferred to petitioner as trustee under a revocable trust in 1915, were later placed in the corpus of another trust in the hands of another trustee, and subsequently, in 1917, upon the revocation of both such trusts, were transferred to a third trust of which petitioner was trustee;
*1410 This proceeding results from a determination of deficiencies in income taxes of $14,816.75 for 1922, and $14,996.28 for 1923, of which only the amounts of $8,651.26 and $8,863.15, respectively, are in controversy. Petitioner alleges that certain stock was acquired as trustee on December 31, 1917, rather than on July 12, 1915, as determined by respondent.
FINDINGS OF FACT.
Petitioner is an Ohio corporation with principal offices at Cleveland. Under date of July 12, 1915, Roland H. White created a trust, known*2672 as the R. H. White Trust No. 1, with petitioner as trustee. The trust was for the benefit of the grantor for life, remainder over to his wife and children, provision being made for distribution of certain trust properties and the remaining principal among the several beneficiaries in case of need or at designated times. Further provision was made for the benefit of certain persons and charities in event the grantor survived his family. White reserved the right to revoke the trust in whole or in part, as well as the right to modify its terms at any time.
Among the assets placed in this trust at the time of its creation were 392 shares of the comon stock of the Park Drop Forge Co., *1411 which stock was represented by certificate No. 102, which was assigned on the reverse side thereof to the petitioner on July 12, 1915.
On March 31, 1917, White executed an instrument, termed a "Trust Agreement," purporting to transfer certain assets, among which were the above mentioned stock of the Park Drop Forge Co., to Alfred R. Horr of New York City as trustee. This trust was known as the R. H. White Trust No. 3, but will be hereinafter referred to as the Horr Trust. Petitioner*2673 was constituted and appointed agent of the donor to receive from the trustee the income as it accrued, which was to be transmitted to White in accordance with the terms of the R. H. White Trust No. 1. Petitioner was also designated as the custodian of the assets involved and was responsible for their safe-keeping. White reserved the right to add to the trust corpus, to revoke in whole or in part, as well as the right to modify the trust. Petitioner was clothed with the full right and power to remove the trustee at any time, such removal to be evidenced by an instrument signed by White or by petitioner and sent to the last known address of Horr. Upon such removal all property then constituting the trust estate was to be transferred by the trustee or his legal representatives to petitioner to be held, administered and disposed of and for the uses and purposes, as provided in the agreement of the R. H. White Trust No. 1. Horr subsequently became associated with the petitioner in the capacity of vice president.
On December 31, 1917, White executed written revocations of the two above mentioned trusts, the revocation instruments being addressed to the respective trustees. They*2674 were substantially similar in substance. The revocation of the Horr Trust is as follows:
Rollin H. White #3
REVOCATION
CLEVELANDOHIO,
ALFRED R. HORR,
In pursuance of the power of revocation reserved under my trust agreement with you dated March 31, 1917, as defined by my trust agreement with The Cleveland Trust Company dated July 12, 1915, I hereby revoke the settlement evidenced thereby as to all of the assets transferred to you as Trustee thereunder, and I hereby acknowledge receipt of all of such assets and hereby release you from all further responsibility and agree to indemnify you against any and all liability or expense arising therefrom.
(Signed) ROLLIN H. WHITE.
Immediately thereafter White and his wife, Katharine King White, executed a trust agreement transferring certain assets, among which were the 392 shares of stock of the Park Drop Forge Co., to the petitioner as trustee to pay the income to them for their lives and to the survivor of them for life as well as so much of the principal as was needed during their lifetime or the life of the survivor of them.
*1412 This trust, known as the R. H. & K. K. White*2675 Trust, will be hereinafter referred to as the Joint Trust. The grantors reserved to themselves, acting jointly, or to the survivor of them, the right to revoke in whole or in part, or to modify the terms of the trust. After the death of both grantors the trust was to be held for the benefit of their children and others, at least one (B. F. Gilkeson, a relative of K. K. White) of whom had not been a beneficiary under either of the two earlier trusts created solely by White. Some provision was also made for charities.
The Joint Trust instrument makes no reference to the two earlier trusts. At the time such prior trusts were revoked the White Trust No. 1 held only stock of the Cleveland Plough & Manufacturing Co. Separate ledger accounts of the three alleged trusts were kept on the books of the petitioner, the accounts of the two earlier trusts being treated as closed as of the date revoked, and the named trustees ceased to act in that capacity at that time. The assets of the Horr Trust were not all taken from the White Trust No. 1, and the assets placed in the Joint Trust consisted in part of those which had theretofore formed part of the corpus of the prior trusts and in part*2676 from other investments. When the two earlier trusts were revoked, immediately preceding the creating of the Joint Trust, none of the assets making up the trust corpus were actually delivered to White. Some of them were transferred to the account of the Joint Trust, which also included other assets transferred by the grantors at that time. The remaining assets held by the two earlier trusts were transferred to another trust (with which we are not concerned) in which petitioner likewise acted as trustee.
In 1920 the 392 shares of the Park Drop Forge Co. (being held by the Joint Trust) were exchanged for 7,840 shares of no par common. In 1922 the Park Drop Forge Co. declared a 45 per cent stock dividend, payable in preferred stock. Of the 3,528 shares of preferred stock thus received by petitioner, 1,528 shares were sold in 1922, and the remaining 2,000 shares in 1923, at $100 per share. Respondent in computing the gain derived from such sales used the value of the stock transferred to the White Trust No. 1 as of June 30, 1915, the approximate date of the creation of such trust, computing the basic value of the preferred stock to be $22.43 per share. Such basic cost or value*2677 if the basic date be December 31, 1917, the date on which the Joint Trust was established, amounted to $67.72 per share.
OPINION.
SIEFKIN: The only question presented for our consideration is whether the value of the stock of the Park Drop Forge Co., as of July 12, 1915, or as of December 31, 1917, should be used as the basis in *1413 computing gain to the petitioner trustee. Respondent contends that there was but one continuing trust beginning with the R. H. White Trust No. 1, created July 12, 1915, at which time petitioner acquired title to the stock. He also urges that petitioner held the legal title to the stock under the White Trust No. 1, a remainder interest therein under the Horr Trust, and legal title under the Joint Trust; and concludes that petitioner never had parted with title thereto.
We are unable to follow the respondent in either of his contentions. The issue as presented is confined to the question whether the Joint Trust is distinct from the White Trust No. 1, and, accordingly, we will consider the Horr Trust only in so far as it throws light upon the relationship between the other two trusts.
The White Trust No. 1 and the Horr Trust, if distinct, *2678 existed concurrently, after the creation of the latter, until their dissolution by the revocation instruments of December 31, 1917. The Horr Trust, by reference to the White Trust No. 1, granted the trustee the same power, and was established for the same uses and purposes. Such facts are hardly indicative as two trusts might very well be for the same uses and purposes and still remain distinct and separate trusts. There were two different trustees named and the assets of each trust were kept separate. The fact that petitioner was named the custodian of the investments placed in the Horr Trust means nothing except that the investments were to be deposited with it for safe-keeping. Petitioner was authorized to remove Horr as trustee, in which event legal title was to be revested in petitioner. The fact remains, however, that Horr was not so removed and revesting in petitioner did not take place under the provisions of that instrument. We see no justification for the conclusion that two distinct trust funds in the hands of different trustees were in effect the same trust. The agreement of the Horr Trust on its face creates a trust. True, it does refer to the earlier trust, but*2679 not in such a way as to lead us to believe that only a modification of the terms of such trust was intended.
The revocation instruments purport to terminate both of the above mentioned trusts, were so interpreted and acted upon by all parties concerned, and we are unable to see any reason why we should not treat them as having had that effect. We think such facts a complete answer to respondent's contention that there was but one continuing trust.
Nor is the remaining contention of the respondent persuasive. Respondent asserts that petitioner was the remainderman under the second instrument. The instrument does not so specify. Apparently the contention is based on the authority in petitioner to remove the trustee and to require a retransfer to it as trustee. But, as we have *1414 pointed out above, no such removal occurred and we are at a loss to comprehend how such authority constitutes petitioner a remainderman. How can it be said that the legal title was in petitioner at all times, when during an intervening period it passed to another trustee, to say nothing of the fact that White, in his revocation instrument respecting the Horr Trust, acknowledged receipt of*2680 such assets and in the Joint Trust instrument retransferred them to petitioner? It should be further noted that the White Trust No. 1 and the Joint Trust differed in that the grantors and beneficiaries, as well as the assets comprising the trust funds, were different.