Opinion
Docket No. 6206.
1946-06-10
M. FRIEDMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Matt Wahrhaftig, Esq., for the petitioner. W. J. McFarland, Esq., for the respondent.
Grantor of trusts of which the corpus was invested in stock of family corporations, of which children were beneficiaries, and of which he was trustee, with broad powers of management and with discretionary powers as to accumulation of income and invasion of corpus, held, taxable on income of the trusts under section 22(a), I.R.C. Matt Wahrhaftig, Esq., for the petitioner. W. J. McFarland, Esq., for the respondent.
Respondent determined deficiencies in petitioner's income tax liability for for the years 1940 and 1941 in the respective amounts of $352.27 and $1,344.96. Petitioner concedes the correctness of certain of respondent's determinations. He contests the inclusion in his income of the income of three trusts which he created for the benefit of his children. Respondent held that the income of the trusts was taxable to petitioner under section 22(a) of the Internal Revenue Code.
Petitioner filed his return in the Oakland, California, office of the collector for the first district of California.
The facts are stipulated.
FINDINGS OF FACT.
Petitioner, Maurice Friedman, was married during the taxable years, and he resided in Oakland, California. The name of his wife is Ida Friedman. There are 3 children of petitioner and Ida Friedman, who were living in the taxable years: Bruce, Donald, and Harold, whose birth dates were, respectively, April 13, 1924, January 14, 1926, and July 14, 1929. In 1940 the 3 children were respectively, 16, 13, and 11 years of age. petitioner was 54 years of age in 1940.
Petitioner, in the taxable years, was the president of two corporations incorporated in California, M. Friedman Paint Co. and California Painting & Decorating Co. He has been president of the corporations since their organization. California Painting & Decorating Co., hereinafter called the decorating company, was organized in 1923, and M. Friedman Paint Co., hereinafter called the paint company, was organized in 1931. Both companies are engaged in the business of manufacturing, distributing, and selling paint and paint products.
As of November 30, 1940, the outstanding stock of the decorating company amounted to 1,000 shares, of which petitioner and his wife held 499 shares, each, and M. Wachsman owned 2 shares.
There were two classes of stock of the paint company, class B stock and class C stock.
As of November 30, 1940, there were outstanding 34,505 shares of class B stock and 4,537 shares of class C stock. The above stock of the paint company was held as follows:
The facts have been stipulated. There is no reference therein to any other class of stock, as for example, class A stock.
+----------------------+ ¦Class B Stock ¦ +----------------------¦ ¦ ¦Shares ¦ +-------------+--------¦ ¦Petitioner ¦21,170 ¦ +-------------+--------¦ ¦Ida Friedman ¦13,335 ¦ +-------------+--------¦ ¦Total ¦34,505 ¦ +----------------------+
Class B Stock Petitioner 2,500 M. Wachsman 479 C. Colbert 130 Employees 1,428 Total 4,537
On November 30, 1940, petitioner executed three trust agreements under which a separate trust was created for the benefit of each of his sons. The trust agreements were identical in terms, except for the differences in names. Each trust provided that Ida Friedman could convey property to the trusts. Petitioner named himself the sole trustee of each trust. The trust agreement, which is part of the evidence, is incorporated herein by reference in its entirety. The terms thereof will be described hereinafter.
On November 30, 1940, petitioner transferred to himself, as trustee, under each trust, the entire 2,500 shares of the class C stock of the paint company. On the same date he transferred to himself, as trustee, for the equal benefit of the three beneficiaries, the land and the building at 568 14th Street, Oakland, California, where the wholesale and retail store of the paint company was located. The net cost of the property to the petitioner was $16,628.34.
On November 30, 1940, Ida Friedman transferred stock in the decorating company to petitioner, as trustee of each trust.
The property held in trust in each of the trusts during the years 1940 and 1941 was as follows:
+-----------------------------------------------------------------------------+ ¦ ¦ ¦ ¦Trust for ¦ +---------------------------------+--------------+---------------+------------¦ ¦Property ¦Trust for ¦Trust for ¦Harold ¦ ¦ ¦Bruce ¦Donald ¦ ¦ +---------------------------------+--------------+---------------+------------¦ ¦Paint Co. C stock (from ¦834 shares ¦833 shares ¦833 shares ¦ ¦petitioner) ¦ ¦ ¦ ¦ +---------------------------------+--------------+---------------+------------¦ ¦Decorating Co. C stock (from Ida)¦150 shares ¦150 shares ¦150 shares ¦ +---------------------------------+--------------+---------------+------------¦ ¦568 14th Street (from petitioner)¦1/3 interest ¦1/3 interest ¦1/3 interest¦ +-----------------------------------------------------------------------------+
After the above transfers to petitioner, as trustee, the stock of the two companies was held as follows during 1940 and 1941:
+----------------------+ ¦Decorating Co. ¦ +----------------------¦ ¦ ¦Shares ¦ +-------------+--------¦ ¦Petitioner ¦499 ¦ +-------------+--------¦ ¦Three trusts ¦450 ¦ +-------------+--------¦ ¦Ida Friedman ¦49 ¦ +-------------+--------¦ ¦M. Wachsman ¦2 ¦ +-------------+--------¦ ¦Total ¦1,000 ¦ +-------------+--------¦ ¦ ¦ ¦ +----------------------+
Paint Co. Class B Stock Petitioner 21,170 Ida Friedman 13,335 Total 34,505
Class C Stock Shares Trusts 2,500 M. Wachsman 479 C. Colbert 130 Employees 1,428 Total 4,537
During 1940 the trusts received net income from rents in the amount of $422.14 and $2,000 in dividends, total $2,422.14; and during 1941, net income from rents in the amount of $3,952.33 and net income from dividends in the amount of $1,122.86, total $5,075.19.
No distributions of income were made to the beneficiaries of the trusts during 1940, 1941, or in any subsequent year, except the sums required to pay the income tax of the trusts.
Exhibit 2 shows trust income as set forth above. Respondent added $1,906.61 and $3,994.97 of the income of the trusts to petitioner's income in 1940 and 1941, respectively. Respondent has not explained the amounts in question. It is presumed that the amounts constitute net income derived from the property which petitioner transferred to the trusts.
During 1940 and 1941 petitioner received salary from the decorating company in the respective amounts of $510 and $1,200; and salary from the paint company in the amounts of $9,404 and $14,895, respectively. The salary he received from the paint company in the period 1936 to 1939, inclusive, was about $9,000 each year, more or less.
During each of the years 1942, 1943, and 1944 petitioner, as trustee of the trusts, made purchases of the class C stock of the paint company from Wachsman, Colbert, and other employees of the company out of the funds of the trusts. He purchased a total of 1,086 shares for a total amount of $,796.50.
On November 16, 1942, petitioner transferred to himself, as trustee, 2,622 shares of the class B stock of the paint company, each trust receiving 874 shares.
After the above acquisitions of stock by the trusts, the stock of the paint company was held as follows:
+----------------------+ ¦Class B Stock ¦ +----------------------¦ ¦ ¦Shares ¦ +-------------+--------¦ ¦Petitioner ¦18,548 ¦ +-------------+--------¦ ¦Ida Friedman ¦13,335 ¦ +-------------+--------¦ ¦Three trusts ¦2,622 ¦ +-------------+--------¦ ¦Total ¦34,505 ¦ +-------------+--------¦ ¦ ¦ ¦ +----------------------+
Class C Stock Three trusts 3,586 Employees, excluding M. & I. Friedman 951 Total 4,537
During 1942 the trusts acquired stock of the decorating company as follows: Petitioner, as trustee, purchased 142 shares from Wachsman for $2,250 out of funds of the trusts. Wachsman had purchased 140 shares from petitioner, who made a repurchase, as trustee, for the trusts. Petitioner made gifts to the trusts of 359 shares. Ida Friedman made gifts to the trusts of 49 shares. Upon the acquisition of the above stock the 1,000 shares of stock of the decorating company were held by the trusts in the name of petitioner as trustee.
On November 30, 1942, petitioner conveyed to himself, as trustee, a one-half interest in property at 3419 East 14th Street, Oakland, which interest cost petitioner $2,016.88. On the same day petitioner, acting as trustee of the trusts, purchased from the estate of Wachsman the other one-half interest in the property for $3,750, out of funds of the trusts. Petitioner, as trustee, held the undivided interest in the property for the equal benefit of the three beneficiaries. The property was occupied as a branch store of the paint company.
On November 30, 1942, two parcels of land and a building, the factory of the paint company, were conveyed to petitioner, as trustee for the equal benefit of the beneficiaries of the trusts. The cost basis was $1,896. On the same day a lot having a cost basis of $2,000 was conveyed to petitioner, as trustee.
No withdrawals of corpus have been made from any of the trusts.
The instruments creating the three trusts are identical in terms except for names. Petitioner is the sole trustee of each trust. The trustee has the power to appoint a successor trustee in his place. The trusts are declared to be irrevocable, provided that the trust res may be increased by additions made by the grantor or by others.
Each trust is to exist for a period of twenty years, terminating on November 30, 1960, at which time all of the trust estate of each trust is to be delivered to the beneficiary thereof. In the event a beneficiary dies before the termination date of a trust, then such trust will terminate and the trust res is to be distributed to the surviving issue of the deceased beneficiary, if any, and, if none, then to the surviving brothers of the beneficiary in equal shares.
During the existence of each trust, the income and principal may be dealt with as is prescribed in the following provision:
During the existence of this trust, at any time, and from time to time, and during any month or year of this trust, trustee in his own sole discretion shall have the right, and may pay out and distribute to the beneficiary income of this trust, but said discretion shall be completely uncontrolled and solely dependent upon the judgment of the trustee, and the beneficiary shall have no right to request or demand or compel payment of said income to said beneficiary for any reason whatsoever. Trustee shall have the right, power and discretion to accumulate any income resulting from said trust property and to invest such accumulation and income in any manner without restriction whatsoever, as provided hereinabove. Provided also that in the event trustee shall determine, in his own sole discretion, that it is advisable or necessary to expend any portion of the principal of this trust estate for the support, maintenance, care, education or welfare of said beneficiary, trustee shall have the power and right to do so.
The beneficiary of a trust is restrained from making any disposition whatsoever of any of the trust property or income under the following provision:
It is hereby declared and provided that no interest of whatsoever nature given to the beneficiary herein, shall be subject to or subject to be taken for the payment of any debt or debts whatsoever contracted or incurred by said beneficiary either before or after the date of this instrument and for any purpose whatsoever; the beneficiary under this trust is hereby restrained from and is or shall be without power or capacity to make any disposition whatsoever of any of said trust property or income by his assignment or order, voluntary or involuntary, and whether made upon the order or direction of any court or courts, whether of bankruptcy or otherwise, and said beneficiary shall be without right, power and authority to sell, transfer, pledge, mortgage, hypothecate, alienate, anticipate, or in any other manner affect or impair his beneficial and legal rights, titles, interest claims and estate in and to the income or principal of this trust during the entire term hereof, nor shall the rights, titles, interest and estates of the beneficiary hereunder be subject to the rights or claims of creditors of the beneficiary nor subject nor liable to any process of law or court, and all of the income and principal under this trust shall be transferable, payable and deliverable only, solely, exclusively and personally to the named beneficiary hereunder at the time or times entitled to take the same under the terms of this trust, and the personal receipt of the designated beneficiary hereunder shall be a condition precedent to the payment or delivery of the same by the trustees to said beneficiary. In the event an attempt is made to subject the trust estate or income or property or any part thereof to the payment of any debts or obligations of the beneficiary, the trustee in his absolute discretion may withhold any further payment or payments to said beneficiary, and may direct and apply such payment or payments to the use of the wife or descendants or brothers of such beneficiary as in his discretion shall seem best.
The trustee is given broad powers over the trust property as follows:
(1) Trustee shall have the full power and authority to operate, improve, manage and protect the property, both personal and real, from time to time forming a part of the trust estate, and to contract to sell, to grant options to purchase, to sell on any terms as in trustee's discretion is deemed advisable, to convey, to mortgage, pledge or otherwise encumber the property, real or personal, in said trust estate, or any part thereof, to lease said property, or any part thereof, from time to time, by leases to commence in praesenti or in future, and upon any terms as may be deemed advisable to trustee in his sole discretion, and for any period or periods of time, whether or not extending beyond the term of this trust, and to renew or extend leases upon any terms and for any period or periods of time, to amend, change, or modify leases and the terms and provisions thereof at any time or times hereafter, to consent to the assignment of leases, and to grant options to lease, and to contract respecting the manner of fixing the amount of present or future rentals.
(2) Trustee shall have the power to make alterations of, repairs upon, additions to, and to erect improvements upon, whether temporary or permanent, upon real estate, and to pay all taxes upon any property of the trust estate, and to sell, convey by deeds and as trustee, but not individually warrant title to and join in or make partition of any real estate, and to create or grant or release easements with respect to real estate, and to make or join in or vacate subdivisions of or dedications of real estate, and to execute consents or agreements as to the use of the same or of other real estate in the same vicinity; trustee shall have full power to lease, sell, convey, mortgage or encumber any or all of said trust estate in such manner and in such sum or sums and for such purposes as in his discretion he deems best, and in event of any sale of either real or personal property or both, trustee may sell upon such terms and times of payment, and upon such security for deferred payments as the trustee may deem best, and in any case the purchaser from the trustee shall not be bound to see to the application of the purchase money.
(3) Trustee shall have power to invest and reinvest the trust estate, to collect the income, rents, issues, profits and increase therefrom, and to compromise, adjust and settle all claims to or against the trust estate property at such amounts and upon such terms of payment as he deems best, and to employ agents and attorneys with respect to the management and disposition of the trust estate; trustee shall have the right and power to exchange or convert real estate into personalty and to convert or invest personalty or funds or income or principal of said trust into real estate, and to purchase annuities in the name of the beneficiary.
(4) Trustee shall have the right to hold any or all property or securities received by him at the commencement of this trust, and to sell and transfer or retain unsold any stocks, bonds or securities, and to exercise or dispose of all rights accruing to holders thereof and to join in by deposit, pledge or otherwise in any plan or reorganization or other means of protecting or dealing with such stocks or bonds as he would have power to do if he were the absolute owner thereof, and he is also hereby authorized to invest such part of said trust estate as may from time to time be converted into cash, or converted into other investments, in bonds, stocks, real estate mortgages, real estate or improvements thereon or in any income-producing property or securities, real or personal, either within or without the state of California, in such amounts and in such manner as to him in his absolute discretion seems advisable, although the said investments may not be of the character permitted for the investment of trust funds by the ordinary rules of law; said trustee shall not be liable to any person or persons whomsoever for any loss or damage to the trust estate hereunder or to any part thereof occasioned by his error in judgment, nor shall said trustee be liable for the consequence of any act done hereunder in good faith, nor for anything whatsoever except his own willful neglect or willful misconduct.
(5) Trustee shall have the power to borrow money and bind the trust estate for payment thereof, and/or to loan money from the trust estate, but not from the trust income, either with or without security, whenever it is deemed advisable.
(6) Trustee shall have power to vote any and all shares of stock in this trust estate and shall have all powers incident to the ownership of such stock. Said trustee shall have the right and power, in his discretion, to vote said stock in favor of himself as director and/or officer of the corporation or corporations of which he holds shares of stock as trustee of this trust.
(7) Trustee shall have the right and power to incur as a liability of the trust estate hereunder such costs, expense and/or liabilities as trustee may deem proper in the administration of this trust, and he shall have the right to institute, prosecute and/or defend action or actions at law or in equity pertaining to the trust estate and/or otherwise in connection with this trust, but without obligation on his part so to do.
(8) Trustee shall have the management and control of all the property of every kind and nature constituting said trust estate, and may continue, conduct and carry on for such length of time as he shall deem proper, any business transferred to this trust.
(9) Trustee shall have the power and shall be the sole and absolute judge as to what may be income or principal and the value or amount or apportionment thereof; and trustee shall have the power to determine whether any stock dividends are to be treated as capital or income.
(10) Trustee is authorized to make any and all sales and investments and outlays without applying to any court or judge for leave to do so; and said trustee shall have every power and authority over the trust estate, and shall have the right to deal with said property and every part thereof, that he would have if as an individual he were the absolute owner thereof, and the enumeration of specific powers shall not be taken to restrict the general powers and authority herein given.
(11) The donor hereof hereby declares that coincident and simultaneously herewith the donor has made a trust for the benefit of Harold Kenneth Friedman, his son, and another trust for the benefit of Donald Lee Friedman, his other son, each of which trusts are identical herewith, and the trustee is hereby authorized and empowered in his discretion, insofar as trust funds or the income of any trust property or real estate in which each of said trusts have an interest, is concerned, to keep, deposit, or commingle said income, trust funds or property in a common fund or deposit or account for the joint benefit of the said three trust estates; provided, however, that adequate accounts, books or records are kept which properly show and reflect the respective interests belonging to each respective trust estate. Trustee is hereby authorized and empowered to invest trust funds or property of each of said trust estates in common or joint investments or enterprises, if in the discretion of said trustee such is desirable.
It is provided in the trust instruments that the authorization of the trustee to commingle the funds of the trusts shall not be construed to mean that only one trust was created for all of the grantor's children, the intent being to create three separate trusts; that neither petitioner nor Ida Friedman shall benefit from the income or principal of the trusts; that no bond shall be required of the trustee; and that books of account shall be kept for each trust.
Fiduciary returns were filed for 1940 and 1941 for the three trusts.
Petitioner filed his personal returns for 1940 and 1941 on the community property basis. His wife, Ida Friedman, filed returns reporting one-half of the community income.
Respondent determined that the income of the trusts, as set forth in the statement attached to the notice of deficiency, was taxable to petitioner under section 22(a) of the Internal Revenue Code. Thus, he has included in petitioner's income for 1940 and 1941 the income of the three trusts in the total amount of $1,906.61 and $3,994.97, respectively.
OPINION.
HARRON, Judge:
The only question for decision is whether petitioner is taxable under section 22(a) upon income of three trusts of which petitioner is trustee, as respondent has determined. Respondent relies upon the following in support of his determination: Helvering v. Clifford, 309 U.S. 331; Louis Stockstrom, 148 Fed.(2d) 491; Edison v. Commissioner, 148 Fed.(2d) 810; Funsten v. Commissioner, 148 Fed.(2d) 805; Williamson v. Commissioner, 132 Fed.(2d) 489.
During the existence of the trusts to date, no distributions of income have been made to the beneficiaries, and all of the income has been accumulated and invested for the most part in stock of the paint company. The taxable years involved in this proceeding are 1940 and 1941, but the case has been submitted on a stipulation of facts which sets forth what additional transfers were made to the trusts and what investments were made of trust funds in 1942, 1943, and 1944. The income tax returns of petitioner show that the paint company was the corporation which earned the more substantial income of the two corporations of which petitioner was president.
The record in this case shows that by the end of 1944 the three trusts held all of the stock, 1,000 shares, of the decorating company, and most of the class C stock of the paint company, i.e., 3,586 shares out of 4,537 shares, as well as 2,622 shares (out of 34,505 shares) of the class B stock; that the trusts held title to parcels of land, with buildings, where the factory, the wholesale and retail store, and a branch store of the paint company were located; and that the trusts held title, also, to a lot.
During the period ended at the end of 1944 trust funds totaling $7,046.50 had been used to purchase stock from minority stockholders of the two corporations, who, it appears, were employees and not members of petitioner's family, and $3,750 had been used to purchase a one-half interest in a parcel of land with a building.
The broad and extensive powers of the grantor-trustee over the property of the trusts, including the power to vote stock held by the trusts in favor of the grantor, himself, as a director and/or officer of a corporation in which the trusts hold stock, together with the position which petitioner occupies as president of the two corporations the stock of which is held by the trusts, raise the question whether petitioner as the grantor-trustee of the trusts realizes and enjoys substantial economic benefits from the stock and other property despite his transfers to the trusts. See Helvering v. Stuart, 317 U.S. 154. On this point petitioner has failed to refute any presumption inherent in the respondent's determination under section 22(a) that he does not enjoy substantial economic benefits from the trusteed stock. This case, submitted on a stipulation of facts, presents a limited record. There is no statement of facts relating to the voting rights of any of the stock in question. This lack of evidence does not aid petitioner, but rather weighs against him and, in the absence of such material evidence, a presumption may not be made that any stock or any class of stock did not carry voting rights. The question to be decided turns upon the powers which the grantor-trustee of the trusts had over the property in the trusts and the income of the trusts. The failure of petitioner to dispel any suggestion that control over the stocks of the companies of which the grantor was an executive may have determined the manner of creating the trusts, Helvering v. Stuart, supra, constitutes a serious defect in petitioner's effort to overcome the prima facie correctness of respondent's determination. See Anna Morgan, 5 T.C. 1089, 1095.
There is no evidence about the operation of the businesses of the two corporations involved, but, since petitioner was the president of both corporations, it must be assumed that he was actively interested in both businesses. It is stipulated that he received salaries from both corporations. The fiduciary returns for the year 1941 indicate that no dividends were paid by the corporations in that year. Since no dividends were paid but petitioner received salaries from the corporations in 1941, petitioner was the only member of the family to receive any economic benefit from the corporations in that year. See Anna Morgan, supra.
The situation strongly suggests an instance of retention of corporate control by means of the creation of trusts. Anna Morgan, supra; Frederick B. Rentschler, 1 T.C. 814; Lillian R. Chertoff, 6 T.C. 266.
The trusts in question are long term trusts, to extend over twenty years, unless a trust is sooner terminated by the death of a beneficiary. During this entire period the grantor-trustee has the absolute power to control the paying out or the accumulation of the trust income and to determine what constitutes income and principal of the trusts. He may exercise absolute discretion to invade the principal and pay out whatever he desires for the support, maintenance, care, education, or welfare of a beneficiary, and this discretion is broad, for ‘welfare‘ is a general term which embraces a wide range of uses. This control of the purse is similar to that in Louis Stockstrom, supra, with the difference that there is lacking here the power to apportion income among various beneficiaries.
However, the question is determined not by consideration only of these broad powers over the use and withholding of income and principal, but also by consideration of the other broad powers of the grantor-trustee over the property of the trusts. In this aspect of the case, it is clear that the grantor-trustee has the broadest possible powers. He may continue to conduct ‘any business transferred to this trust‘; and he ‘shall have the right to deal with said property and every part thereof, that he would have if as an individual he were the absolute owner thereof.‘ Thus, such broad powers of management and control in the grantor as trustee are similar to those existing in the Stockstrom, Edison, and Funsten cases.
The beneficiaries of the trusts were minors. The incorporated businesses were family-controlled, from which petitioner derived economic benefits. The creation of the trusts and the transfers of property to the trusts did not in any way, as far as the record shows, diminish petitioner's enjoyment of control over the property given to the trusts and the income derived from the property. Under the circumstances and in view of the broad powers of control over the property and the income of the trusts which remained in petitioner as trustee of the trusts, the issue is controlled by the Clifford case. Respondent's determination is sustained.
It should be said that petitioner on brief has correctly pointed out inaccuracies in inept statements in respondent's brief. We have, of course, taken note of such inaccuracies and have considered the issue independently.
Neither petitioner nor respondent has cited Anna Morgan, supra, (promulgated Nov. 26, 1945); and Alma M. Myer, 6 T.C. 77 (promulgated Jan. 16, 1946), because the briefs of the parties were submitted prior to the promulgation of those cases. In holding as we do in this case that petitioner is taxable on the income of the three trusts, we follow the rationale of the Anna Morgan case, which was controlled to a large extent by the Louis Stockstrom case. We said in Anna Morgan, supra, at p. 1095:
In the aspect of the present proceedings that petitioners were in a position to accumulate trust income, add it to principal, and thereby succeed in changing the recipient from the income beneficiary to the remainderman, the situation is similar to that in Louis Stockstrom, 3 T.C. 255; affd. (C.C.A., 8th Cir.), 148 Fed.(2d) 491; certiorari denied, 326 U.S. 719; and see Stockstrom v. Commissioner (C.C.A., 8th Cir.), 151 Fed.(2d) 353. The broad powers of management and control in the grantors as trustees were similar here to those existing in the Stockstrom case.
In one respect, however, they appear actually to be more extensive. Unlike those circumstances, the subject matter of the present trust was stock of corporations in which the petitioners were actively interested. * * *
In the Louis Stockstrom case (see 3 T.C. 255, 257), the trustee was authorized to deal with the trust estate in all ways that he would do if he were the individual owner thereof. The facts here closely resemble the facts in Anna Morgan in the following respects: The trustees could permit the income of a trust to accumulate until the primary beneficiary became 30 years of age; upon the death of a beneficiary, the surviving children, if any, were to receive the benefits of the trust, and, if none, the trust was to be distributed to the surviving brothers and sisters of the beneficiary; the trustees had very broad powers of control over the trust property, so that they could treat the property of a trust as ‘if they were the owners thereof as individuals,‘ and they could vote corporate stock and hold compensating offices in corporations in which the trust had an interest, and fix their own compensation. Also, in the Anna Morgan case, the trusts received stock of corporations which were owned by the taxpayers and paid salaries to one of the grantors of the trusts, and the net income of the trusts was invested from time to time in additional stock of the corporations.
Having in this case practically the same set of relationships, i.e., family-owned corporations, the grantor serving as trustee of trusts holding stock of said corporations, and the trustee having broad powers of control over the trust property, the trust income, and the trust principal, we must conclude that the Anna Morgan case is to be followed here in deciding whether or not this case is controlled by the Clifford case doctrine as applied in the Louis Stockstrom case. It is the degree of control which is determinative. In so doing, we take the view that this case is distinguishable from the case of Alma M. Myer, supra.
In the Alma M. Myer case, the petitioner created a trust on December 19, 1934, for the benefit of her son who was born on January 19, 1917, so that he was nearly 18 years of age at the time the trust was created. The trust was to endure until he was 30 years of age, at which time it was to terminate and the property of the trust was to be distributed to him. Thus, the trust was for a period of just about 12 years. The property transferred to the trust consisted of cash and numerous Federal, state, and municipal bonds. The grantor was the trustee, and she had the power to pay out or accumulate the trust income during the term of the trust. The trust was for a shorter period than the trusts here, and the grantor-trustee did not have any personal or business interest in the corporation, the stock of which was held by the trust. In the absence of any such interest in corporations, the powers of the trustee over the property of the trust were far less extensive than is the power of the trustee in the trusts here. The differences in the degree of control of the grantor-trustee throws this case out of the ambit of the Alma M. Myer case.
Reviewed by the Court.
Decision will be entered for the respondent.
ARUNDELL, VAN FOSSAN, BLACK and TYSON, JJ., dissent.