DocketNumber： Docket No. 6214
Citation Numbers： 1946 U.S. Tax Ct. LEXIS 320, 6 T.C. 30
Judges： Muedock
Filed Date： 1/10/1946
Status： Precedential
Modified Date： 10/19/2024
1946 U.S. Tax Ct. LEXIS 320">*320
Trust -- One Trust or Two Created by Will. --
6 T.C. 30">*30 The Commissioner determined deficiencies of $ 14,443.40 and $ 17,616.28 for the calendar years 1940 and 1941 in the income tax of a single trust. The only issue for decision is whether the tax should be computed for a single trust or upon the basis of a separate trust for each of the two beneficiaries.
6 T.C. 30">*31 FINDINGS OF FACT.
Jennie M. Wainwright died testate on April 30, 1939, while residing in Clinton, Iowa. Her will provided in part as follows:
I give, devise and bequeath all the rest, residue and remainder of the property and estate, real and personal, which at the time of my death shall belong to me, unto Ernest L. Miller and The City National Bank of Clinton, of the City of Clinton, Iowa, as trustees, upon the trust following, that 1946 U.S. Tax Ct. LEXIS 320">*321 is to say, to hold, invest, reinvest and keep the same invested, to collect the rents, income and profits therefrom, and after paying from such income the taxes and other disbursements and charges incidental to such trust and trust estate properly charged against the income from time to time:
(a) During the minority of my grandnephews, Edward M. Hiecke and Fred E. Hiecke, to apply to their support, maintenance, and education so much of said income as in the judgment of said trustees may be necessary, providing for my said grandnephews the best education possible, and to pay to my said grandnephews such further sums from said income as such trustees in their absolute discretions shall deem advisable, not to exceed, however, the sum of one hundred dollars, accumulating during the minority of my said grandnephews the surplus income for their benefit; and,
(b) Upon my said grandnephew, Edward M. Hiecke, attaining the age of twenty-one (21) years, to transfer, and pay over to him one eighth (1/8) of the corpus of said trust estate and all accumulations of income, and to set aside for my said grandnephew, Fred E. Hiecke, one eighth (1/8) of the corpus of said trust estate and all accumulations1946 U.S. Tax Ct. LEXIS 320">*322 thereof, and upon the said Fred E. Hiecke's attaining the age of twenty-one (21) years to transfer and pay over to the said Fred E. Hiecke the said one eighth (1/8) of said trust estate and accumulations; and,
(c) Upon and after my said grandnephews attaining the age of twenty-one (21) years respectively, to make such further provisions from the income of said trust estate for the education of my said grandnephews as shall be consistent with their respective desires and abilities, it being my intention as hereinbefore stated that said grandnephews shall have the best education possible, and to pay to my said grandnephews such further sums from said income as said trustees in their absolute discretion shall deem advisable, not to exceed, however, the sum of two hundred ($ 200.) dollars per month to each grandnephew, until they shall have attained the age of twenty-five (25) years, respectively, but so, nevertheless, that each grandnephew shall receive equal benefits from my said estate, and in the event one grandnephew shall continue his education for a longer period or require a larger allowance than his brother, then I direct that the share of the income of said trust estate which1946 U.S. Tax Ct. LEXIS 320">*323 would have been appropriated for the education or otherwise for the benefit of such grandnephew not receiving the same, be permitted to accumulate for his benefit and be transferred and paid over to him upon his arriving at the age of twenty-five (25) years; and,
(d) Upon my said grandnephew, Edward M. Hiecke's attaining the age of twenty-five (25) years, to transfer and pay over to him one sixth (1/6) of the remaining principal of said trust fund and all accumulations of income, and to set aside for my grandnephew, Fred E. Hiecke, one sixth (1/6) of said remaining principal of said trust fund and all accumulations of income, and upon the said Fred E. Hiecke's attaining the age of twenty-five (25) years, to transfer and pay over to the said Fred E. Hiecke said one sixth (1/6) of said trust estate and accumulations; and,
6 T.C. 30">*32 (e) Upon and after my said grandnephews arriving at the age of twenty-five (25) years respectively, to pay over to my said grandnephews such further sums from the income of my said trust as such trustees in their absolute discretion shall deem advisable, not to exceed, however, the sum of two hundred fifty (250) dollars Per month to each grandnephew until 1946 U.S. Tax Ct. LEXIS 320">*324 each shall attain the age of thirty-five (35) years; and upon each grandnephew's attaining the age of thirty-five (35) years to transfer and pay over to him one half of the remaining principal of said trust fund and all accumulations of income.
(f) If at the time of my death either of my said grandnephews shall have alienated, charged or disposed of, or if at any time or times thereafter during the continuance of said trust either of my said grandnephews shall alienate, charge or dispose of the said trust or income or any part thereof or interest therein, or if, by reason of his bankruptcy or other event happening, either before or after my death, the said income shall wholly or in part fail or cease to be personally enjoyed by my said grandnephews or either of them, but the same or any part thereof shall, or but for this present provision would belong to or be vested in some other person or persons, then the trust hereinbefore expressed concerning the said income or trust estate to be paid to such grandnephew shall thereupon cease and determine and the said income shall be held by the said trustees during all the residue of the life of such grandnephew in the manner following, that1946 U.S. Tax Ct. LEXIS 320">*325 is to say, upon trust during the residue of the life of my said grandnephew, to pay and apply the said income or any part thereof to and for the personal support and maintenance or otherwise for the benefit of my said grandnephew, and in such manner as the trustees shall, in their absolute discretion, think fit, and upon the death of my said grandnephew to pay and transfer the said trust estate, as the same shall then be, to the surviving child or children, if any, of my said grandnephew and to the issue of any deceased child or children, if any, per stirpes and not per capita, and if there be no issue, then said trust fund shall be held by my said trustees for the use and benefit of my surviving grandnephew subject to the same trust and for the same use and purposes that it would have been held by my said trustees had it passed to them under the provisions contained herein for the use and benefit of my surviving grandnephew.
(g) If either of my said grandnephews shall die before the termination of said trust, leaving issue surviving, then I direct my said trustees to immediately transfer and pay over to such issue, per stirpes and not per capita, the share of said trust estate to1946 U.S. Tax Ct. LEXIS 320">*326 which such deceased grandnephew would have been entitled, if living. If either of my said grandnephews shall die before the termination of said trust without leaving issue surviving, then and in that event from and after the death of said grandnephew the share of said trust fund to which said deceased grandnephew would have been entitled had he lived shall be held by my said trustees for the use and benefit of my surviving grandnephew subject to the same trust and for the same use and purposes that it would have been held by my said trustees had it passed to them under the provisions contained herein for the use and benefit of my surviving grandnephew.
(h) I direct that all stocks, bonds, and other securities belonging to me at my decease which have not been otherwise disposed of by the executor of my estate shall form part of the trust created by this second codicil to my will, but I authorize my trustees or their successors to sell or dispose of the same or any of them whenever such trustees shall think proper. I expressly direct that my trustees are not to be held responsible or liable for or charged with any loss or 6 T.C. 30">*33 depreciation that may arise by reason of holding such1946 U.S. Tax Ct. LEXIS 320">*327 securities. In making investments and reinvestments, however, my said trustees shall invest trust funds in securities in which trustees are authorized to invest trust funds under the laws of the State of Iowa.
Ernest L. Miller qualified as executor of the will and the trustees named in the will assumed and performed their duties.
Edward M. and Fred E. Hiecke, grandnephews of the testator, survived her and were minors during the taxable years.
Miller, as executor, asked the Clinton County Court, on November 28, 1939, for authority to transfer 9,375 shares of Weyerhaeuser Timber Co. stock to the trustees for Edward M. Hiecke and a like number of shares of the same stock to the trustees for Fred E. Hiecke. Those shares were the principal asset of the estate. The court, after reciting that the two boys, then 8 and 11, were in school where the decedent had placed them and were almost entirely dependent upon the decedent's estate for support and education, ordered the transfers. Later, the remaining property of the estate was similarly transferred in equal portions.
The trustees set up a separate trust for each beneficiary, kept the trusts entirely separate, kept separate books and 1946 U.S. Tax Ct. LEXIS 320">*328 records for each, made separate accountings to the court and had them approved separately, and made separate reports of the income of the two trusts.
It was known to the trustees at the time the decedent died that the two boys were quite different physically and mentally and that the support and education of the one would require expenditures differing materially from those required for the other. The one needed special tutoring, medical care, and assistance, while the other did not. The trustees concluded that separate trusts were required to carry out the provisions of the decedent's will. The expenditures made by the trustees for the one boy differed substantially from those made for the other. The two trusts ceased to be identical almost immediately.
The stipulated facts are incorporated herein by this reference.
The Commissioner, in determining the deficiencies, held that there was but one trust and computed the tax accordingly.
OPINION.
There is only one question for decision. The Commissioner has determined the deficiencies upon the theory that the testator created but one testamentary trust, with two beneficiaries. The petitioners contend that he erred in failing to recognize1946 U.S. Tax Ct. LEXIS 320">*329 that the testator created two trusts, one for each beneficiary. The parties are agreed as to the amount of tax due under each theory. The question must be decided by examining the will, as probated, to determine the intent of Jennie M. Wainwright, that is, to determine from her will 6 T.C. 30">*34 whether she intended to create two trusts or only one. If she intended to create only one trust, then the trustees had no authority to set up two and the Commissioner was right in computing the tax on a single trust.
There is no mention in the will of two trusts. The decedent consistently used the singular in referring to the trusts and the plural in referring to the beneficiaries. She carefully directed how the single trust should be maintained and operated for the equal benefit of her two grandnephews. She directed the trustees to pay Edward, when he became 21, "one eighth (1/8) of the corpus of said trust estate," and to set aside at that time another one-eighth for Fred, to be paid to him later when he reached his 21st birthday. Edward was to receive "one sixth (1/6) of the remaining principal of said trust fund" at 25, and one-sixth was to be set aside for later payment to Fred. "One1946 U.S. Tax Ct. LEXIS 320">*330 half of the remaining principal of said trust fund" was to go to Edward at 35 and the remaining one-half was to be held for Fred until he reached 35. Those distributions disposed of the entire trust. The fractions mentioned are of one whole, a single trust fund. Otherwise, two trusts continued with no terminal facilities. An interpretation recognizing two trusts would be wholly inconsistent with the words of the testator, especially those referred to in this paragraph. If she had had two trusts in mind, she undoubtedly would have used different words to convey such an intent. There would have been no sense in the provisions setting aside Fred's share every time Edward, the older of the two, reached one of the ages mentioned for distributions of corpus if there were two separate trusts. We have tried unsuccessfully to find in this will an intention to create two trusts.
One of the purposes of the testator was to have each boy treated exactly like the other. The trustees thought this purpose could be accomplished best by separating the corpus and administering it as two separate trust funds. But they can not change what the testator created. If this idea had occurred to the1946 U.S. Tax Ct. LEXIS 320">*331 testator, and if it had been incorporated in her will, it might have enabled her to accomplish her purpose more easily. But obviously it never occurred to her and she did not use it in her will. The single trust corpus will have to be separated into separate fractional shares at times for Fred, and there may have to be a separation under (f), but during the taxable years there was but one trust created by this testator. It does not appear impossible to carry out her desire to treat the two boys to equal shares of corpus and income while using only one trust. The difficulties of administration were not sufficiently great to force a finding in the will of an intent to create two separate trusts. The Commissioner did not err in taxing all of the income as that of a single trust.