United States Trust Co of New York v. Commissioner of Internal Revenue
| Decision Date | 06 January 1936 |
| Docket Number | No. 169,169 |
| Citation | 80 L.Ed. 340,296 U.S. 481,56 S.Ct. 329 |
| Parties | UNITED STATES TRUST CO. OF NEW YORK v. COMMISSIONER OF INTERNAL REVENUE |
| Court | U.S. Supreme Court |
Mr. Clay Judson, of Chicago, Ill., for petitioner.
The Attorney General and Mr. J. Louis Monarch, of Washington, D.C., for respondent.
Petitioner is trustee under a trust created by John P. Wilson, in 1913, for the benefit of his three children. Under a reserved power, the trust was four times amended. The sole question is whether the amendments created three separate trusts. The question arises in relation to the taxation of income. If there is but a single trust, as the Commissioner of Internal Revenue ruled, an additional tax would be payable. If there are three trusts, as the Board of Tax Appeals determined, there would be no additional tax. The Circuit Court of Appeals held that there was only one trust. 75 F.(2d) 973. Certiorari was granted (296 U.S. 557, 56 S.Ct. 106, 80 L.Ed. 393) because of the conflicting decision of the Circuit Court of Appeals for the Seventh Circuit in Commissioner of Internal Revenue, Helvering, v. McIlvaine, 78 F.(2d) 787; Helvering v. McIlvaine, 296 U.S. 488, 56 S.Ct. 332, 80 L.Ed. 345.
By the original deed, one-third of the net income of the securities held in trust was to be paid to each of the three children while living, and upon the death of any one, to those who were to succeed to his or her interest in accord- ance with the provisions of the deed. During the first fifteen years of the trust the income could be accumulated by the trustee, with the written consent of the primary beneficiaries, and added to the principal. The trust was terminable at any time in whole or in part by the three children (or survivors) subject to the approval of the grantor, if living, and in any event was to terminate on the death of all the children. Upon termination, one-third of the principal was to be distributed to each of the three children if living, and the share of a deceased child was to go according to the provisions of his or her will or, in the absence of such disposition, to the surviving issue of the decedent or, in default of such issue, to the surviving issue of the grantor per stirpes. Provision was made for the alteration of the trust 'in any respect and to any extent at any time' by the three children, or survivors, subject to the approval of the grantor if living. Thereafter the 'rights and powers of all parties concerned' were to be the same as though the trust deed had originally been executed in the altered form.
In 1918, the three children, with the approval of the grantor, modified the trust so as to provide:
'The trust estate now held under said trust deed shall be divided into three separate and equal parts or shares (to which may be assigned undivided interests in the whole or any part of the said trust estate), which parts or shares shall severally be designated by our respective names, and each of us and our respective legal representatives shall have the same rights, interest and power in and over one of said three equal parts or shares and the income thereof which is given to us respectively by said indenture ove one-third of said trust estate and the income thereof, except as may be otherwise specifically provided herein.'
It was further provided that the whole of the net income received from each share during the remainder of 1918 and one-half of the net income received thereafter and during the life of the grantor, should be accumulated and added to the principal of such share, with privilege of withdrawal by the beneficiary, with the grantor's consent, of the amount so accumulated. All the provisions of the original trust deed, except as they were 'expressly or necessarily' modified by the new instrument, were to continue in force.
In 1919, the three children, with the grantor's approval, executed another modifying instrument which provided that one-half of the net income 'of each of the three trust estates' should be paid over, as received, to the beneficiaries entitled thereto, and that the other one-half should be paid to them when the payment was requested by any two of the original beneficiaries; the net income not so paid over was to 'be added to the principal of the trust fund from which it is derived.' Provision was also made for the disposition of the net income in case of the death of any of the original beneficiaries and for the distribution of the 'several trust estates' upon termination.
In 1920, the three children, with the approval of the grantor, modified the amendment of 1919 with respect to the disposition of income by providing that the trustee should pay out 'as much of the net income from each of said separate trusts' to the beneficiaries as should be requested by a majority in interest of the beneficiaries, with the added requirement that 'equal payments must be made out of the net income from each of said separate trusts, to the end that said several separate trusts may be maintained on a basis of equality in amount so far as practicable.' There was a further provision that so much of the net income, 'received in any year from each separate trust estate,' which was not paid out should form part 'of the principal of the separate trust estate' from which it was derived, and the trustee was required to devote to charitable purposes so much of the net income 'of said trusts' as should be requested by the three children (or survivors), such payments to be made 'in equal amounts from each of said separate trusts.'
There was a further amendment in 1928 enlarging the powers conferred upon the trustee by the original deed with respect to the borrowing of money, the borrowed sums to be dealt with 'as part of the principal of the three trusts hereunder, in equal shares.'
The purpose of the first amendment and the subsequent course of dealings are thus described...
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