DocketNumber： Docket No. 109511
Judges： Sternhagen
Filed Date： 12/9/1942
Status： Precedential
Modified Date： 11/14/2024
*19
The income of a trust which may, in the discretion of the trustees, be used for the support, maintenance, and welfare of the settlor's minor children, which in fact was not so used since the parent provided for such support, maintenance, and welfare from her individual funds,
*220 The Commissioner determined a deficiency of $ 543.69 in income tax for 1939, by taxing petitioner upon the income of trusts created by her for the benefit of her children. Other issues were settled.
FINDINGS OF FACT.
Petitioner, a resident of Buffalo, New York, filed her income tax return for 1939 in the twenty-eighth district of New York.
During 1939 petitioner was a widow with two unmarried minor children, Laura Jane and Richard Edward. On August 20, 1935, she created a separate trust for the benefit of each child and transferred certain securities and some cash to herself and Henry Schaefer, Jr., her brother-in-law, as cotrustees. She created the trusts for the children, as she testified, *20 "because things seemed to be so uncertain, and I was going to be sure they were not to rely upon me for their education and maintenance, and it seemed wiser to have a trust." The trust instruments, which were identical, stated that petitioner was "desirous of making provision for the welfare" of the respective beneficiaries. They provided that the trustees hold, invest, and reinvest, the corpus and additions thereto, collect income, and, during the minority of the beneficiaries, pay over or apply for their benefit so much of the net income as might be necessary or proper for their support, maintenance, and welfare; the trustees, in their discretion, could accumulate income during the minority of the beneficiaries, and could make advancements to them, if necessary, from corpus, whether or not the beneficiaries had reached twenty-one. At that age the beneficiaries had the right to receive all the current and accumulated income. The trustees were to distribute to the respective beneficiaries 20 percent of the corpus at the ages of twenty-five, thirty, and thirty-five, and the remainder at the age of forty. The instruments each provided that, if the beneficiary should die before reaching*21 the age of forty, the trust should cease and determine, and the corpus should be distributed to his or her issue, if any; if there should be no issue, to the beneficiary of the other trust, or, if he or she should not be living, to his or her issue, per stirpes; or, in the absence of such issue, to and among the issue of Henrietta Reeb Schaefer and Estelle Reeb Weiss, aunts of the beneficiary, per capita and not per stirpes.
The trust instruments gave the trustees broad powers of management over the corpora of the trusts, and expressly stated that:
In general the trustees are empowered and authorized to exercise all rights incidental to absolute ownership of the property constituting the trust in the same manner and to the same effect as may be exercised by an individual owning similar property in his or her own right.
The trustees were not to be responsible for any diminution of value of principal which might occur as the result of their investments. The *221 trusts were expressly stated to be irrevocable, no power to amend or alter was retained, and the beneficiaries were to become cotrustees of their respective trusts upon reaching the age of twenty-one.
The cotrustee, *22 Schaefer, is the husband of one of petitioner's sisters. They have three children, and petitioner's other sister has two children. Schaefer made all the investments for the trusts without the advice of petitioner, but he was at times aided by professional investment counsel. Petitioner's individual income was derived from stocks and bonds; Schaefer handled all of her investments, both before and after the creation of the trusts, and also handled investments for other members of her family. Petitioner collected the trusts' income and deposited it in a bank, where the assets and accounts were separately kept for each of the trusts in the trustees' names. Neither petitioner nor Schaefer has ever received a trustee's fee from the trusts. Prior to the creation of the trusts, petitioner had made provision for the children in her will. Up to and throughout 1939, the children lived with petitioner in one household and were maintained and supported by her out of her own funds.
During 1939 the net income of the trust for the daughter was $ 2,819.50, and for the son was $ 2,727.72. No part of the 1939 income of the trusts, or that of any prior year, was distributed to the beneficiaries*23 or petitioner, and the only expenditures were for the payment of taxes and expenses of the trusts. Petitioner filed a single fiduciary tax return for the two trusts for 1939 in which she reported their total net income, all of which was designated as distributable to the beneficiaries. Both of the beneficiaries filed individual income tax returns for 1939 in which they reported, and paid a tax on, the income of their respective trusts.
OPINION.
The decision is controlled by the decision of the Supreme Court, rendered November 16, 1942, in . The trust was set up to provide for the support, maintenance, and welfare of petitioner's minor children, whom, she admits in her brief, she has a duty to support. The Supreme Court expressed its disapproval of the view expressed in , and similar cases, that the settlor is taxable on only so much of the trust income as is in fact used to discharge his parental obligation and that the remainder which is not so used is not to be attributed to him. It is, therefore, of no moment in this proceeding that petitioner provided*24 for the children with her individual funds and that none of the trust income was in fact used in the tax year to provide for them. "The possibility of the use of the income to relieve the grantor, pro tanto, of his parental obligation is sufficient to bring *222 the entire income of these trusts for minors within the rule of attribution laid down in