La Fortune v. CIR
| Decision Date | 15 December 1958 |
| Docket Number | No. 5927-5938.,5927-5938. |
| Parties | Fred J. LA FORTUNE, Trustee for Suzanne M. LaFortune, Renee Elizabeth LaFortune, and Colette M. LaFortune, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Jeanne LaFortune HENRY, Trustee for Patrick Joseph Henry, and Carol Jean Henry, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. J. A. LA FORTUNE, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent (two cases). Lucius LA FORTUNE, Trustee for Daniel LaFortune, and Kathryn LaFortune, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Mary Ann LaFortune WILCOX, Trustee for Homer Frank Wilcox, Jr., and Mary Teresa Wilcox, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Gertrude L. LA FORTUNE, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent (two cases). Joseph A. LA FORTUNE, Jr., Donee and Transferee of J. A. LaFortune, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Joseph A. LA FORTUNE, Jr., Donee and Transferee of Gertrude L. LaFortune, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Robert James LA FORTUNE, Donee and Transferee of J. A. LaFortune, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Robert James LA FORTUNE, Donee and Transferee of Gertrude L. LaFortune, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Court of Appeals — Tenth Circuit |
COPYRIGHT MATERIAL OMITTED
Corinne Childs, Tulsa, Okl., for petitioners.
James P. Turner, Atty., Dept. of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson and Melva M. Graney, Attys., Dept. of Justice, Washington, D. C., were with him on the brief), for respondent.
Before BRATTON, Chief Judge, and PICKETT and BREITENSTEIN, Circuit Judges.
These twelve consolidated appeals involve deficiencies in gift taxes for the calendar years 1951 to 1954, inclusive, on gifts made by J. A. LaFortune and Gertrude L. LaFortune, his wife, in trust for minors. The Tax Court, with one judge concurring specially and three judges dissenting in part, upheld the Commissioner.1
During the years in question Mr. and Mrs. LaFortune made total gifts of $495,026.11, which included gifts of $215,881.25 in trust for minors. The Commissioner determined that as to the latter the annual $3,000 exclusion provided by § 1003(b) (3) of the 1939 Internal Revenue Code, as amended, 26 U.S.C.A. § 1003(b) (3), was not allowable with respect to the 1951-2 gifts of corpus and gifts of the present right to receive income and was not allowable with respect to the 1953-4 gifts of corpus. The total deficiency of $34,986.91 was assessed against the donors in the amount of $25,636.79 and against transferees in the amount of $9,350.12. The transferee liability is only for the tax arising from the 1951 gifts.
Of the 29 gifts to trustees for the benefit of minors, 13 were made during 1951 and 1952 and 16 during 1953 and 1954. Each trust was for the benefit of named minors. In each the designated trustee was a parent of the beneficiary and with one exception2 the first successor trustee was the other parent. The second successor trustee was a bank.
Each trust agreement provides that the trustee is to pay the income annually to the beneficiary or to his or her guardian if such guardian "has been appointed by the proper court." The termination provisions of the trusts involved in the years 1951-2 differ in one important particular from those provisions of the trusts involved in the years 1953-4. In each instance there are termination and distribution of corpus upon the attainment by the beneficiary of the age of majority or upon the death of the beneficiary. In the event of death distribution is to the heirs of the beneficiary in accordance with the Oklahoma laws of descent and distribution. The difference arises in that the following provision is contained in the 1951-2 trust agreements but not in the 1953-4 trusts:
"Trustee shall have the right and authority, in his or her sole discretion, to terminate this trust at any time he or she deems it for the best interests of the beneficiary to do so * * *."
In event of such termination distribution is to be made to the beneficiary or guardian. No termination of any trust occurred during the period involved.
The $3,000 annual exclusion provided by § 1003(b) (3) does not apply in the case of gifts of future interests in property. The disabilities of minority are such that, in many instances, a gift to a minor takes the form of a trust for the benefit of the minor with either payment or accumulation of income and with corpus distribution deferred to attainment of majority or some greater age. Future interests are interests "limited to commence in use, possession, or enjoyment at some future date or time."3 Recognizing the problem of whether a gift in trust for a minor can be a present interest and the resulting hindrance to such gifts, Congress, by § 2503(c) of the 1954 Internal Revenue Code, 26 U.S.C.A. § 2503(c), provided that gifts to minors will not be considered gifts of future interests if the income and property can be spent by or for the child before he attains age 21 and if not so spent pass to the child when he reaches that age or to his estate if he dies prior thereto.4 Such amendment is of no avail in these cases which must be decided under the previous law.
Separate and independent consideration must be given to the gift of the corpus and to the gift of the income. If the income of a trust is required to be distributed periodically, as annually, but distribution of the corpus is deferred, the gift of the income is one of a present interest and the gift of the corpus is one of a future interest.5 In the instant cases there is an unconditional direction to each trustee to pay the income "at least annually" to the beneficiary or his guardian, and an alleged deferment of distribution of the corpus.
The decisive test as to whether a gift is so limited to commence in enjoyment at a future date as to constitute a gift of a future interest is "the barrier of a substantial period between the will of the beneficiary or donee now to enjoy what has been given him and that enjoyment."6
In the 13 trusts involved in the 1951-2 gifts distribution of corpus can occur when a beneficiary reaches majority, when a beneficiary dies before attaining majority, or when the trustee in his sole discretion terminates the trust for the best interests of the beneficiary. A gift of an interest which is contingent upon survivorship is a gift of a future interest.7 This rule controls unless the power of the trustee to terminate before majority alters the situation. Speaking generally, when enjoyment is contingent on the exercise of a trustee's discretion, the gift is of a future interest.8
With regard to the 1951-2 gifts the appellants contend that there is no barrier to the right of present enjoyment because the trustee, in each case a parent, has the uncontrolled power to terminate at his sole discretion. Relying on the rule that the nature of the interest of the donee is determined as of the date of the gift and not by what a trustee may subsequently do in the exercise of a discretionary power,9 they insist that the parent-trustee could have immediately exercised his discretion to terminate and hence the minor beneficiary had the right to immediate enjoyment and a present interest was given by the donor.
Gifts in trust take such different and varied forms that it is difficult to lay down a categorical rule as to whether a gift is of a future or present interest. Each case must be decided on its particular facts.10 As a general proposition, the minimum qualification for a present interest is the right in some one, a parent, guardian or the beneficiary himself, to make an effective demand for the present enjoyment of the property.11
The 1951-2 gifts of corpus were each to a single parent-trustee who may terminate the trust in his sole discretion at any time when he deems it for the best interest of the beneficiary. No one was given the right to demand such termination. There is nothing in the stipulation of facts upon which the cases were tried which bears on the needs of the minor beneficiaries or the financial abilities of the parents. There is no claim that any parent-trustee was the legally appointed guardian of his beneficiary.
In substance the argument of the appellants is that the parent-trustee was given the broad general powers of a guardian and hence, at the moment of execution of each agreement, the beneficiary had all the advantages and incidents of ownership of corpus that it is possible for a minor to have. Further, they say that in such circumstances there is no necessity for the trustee to make a demand on himself. The acceptance of such an argument would require that we disregard the legal distinctions which differentiate the identities of parent, guardian, and trustee. While there is a fiduciary relationship between a guardian and his ward, a guardianship is not a trust.12 There are numerous differences. While a trustee has title to trust property, a guardian has ordinarily only powers and duties respecting property to which the ward holds title. A ward has normally a legal interest while the beneficiary of a trust has an equitable interest in the corpus of the trust.
In Oklahoma13 a parent as such has no control over the property of a child.14 Also, in Oklahoma, no person whether a parent or otherwise has any power as a guardian of property except by appointment which in pertinent situations has to be by a county court.15
Under each of the 13 trusts the right of the minor child to immediate enjoyment was dependent upon the exercise of the trustee's discretionary power to terminate when he deemed it "for the best interest of the beneficiary." This limitation upon the discretionary power may not be disregarded. In the absence of a showing that the best...
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