Opinion
Docket Nos. 7503 7504 7506.
1946-11-29
PRUDENCE MILLER TRUST, HAROLD A. MILLER AND JANE S. MILLER, TRUSTEES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ACHSAH JANE MILLER TRUST, HAROLD A. MILLER AND JANE S. MILLER, TRUSTEES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.JOANNE MILLER TRUST, HAROLD A. MILLER AND JANE S. MILLER, TRUSTEES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Carl E. Davidson, Esq., and Charles P. Duffy, Esq., for the petitioners. Leonard A. Marcussen, Esq., for the respondent.
Held, on the facts, that gifts of cash and securities to three minors by their grandfathers were outright and not in trust, and the income from the gift properties is the individual income of the minors, to whom it is properly taxable. Carl E. Davidson, Esq., and Charles P. Duffy, Esq., for the petitioners. Leonard A. Marcussen, Esq., for the respondent.
These proceedings, duly consolidated for hearing and disposition, involve income tax deficiencies for the calendar year 1941, as follows:
+------------------------+ ¦Docket No. 7503 ¦$462.07¦ +----------------+-------¦ ¦Docket No. 7504 ¦296.39 ¦ +----------------+-------¦ ¦Docket No. 7506 ¦544.06 ¦ +------------------------+
The question presented is whether the income giving rise to the asserted tax liabilities is the individual income of three minor children or the income of three trusts established for their benefit. Stated another way, it is whether the property which produced the income was given outright to the children by their grandparents or in trust.
Some of the facts have been stipulated and are accordingly adopted. Only those necessary to an understanding of the issue are set out in our findings. Other facts are found from the testimony and other evidence of record.
FINDINGS OF FACT.
Petitioners Harold A. and Jane S. Miller are the parents of Joanne, Prudence, and Achsah Jane Miller herein sometimes referred to as the ‘children‘). They filed no fiduciary returns for the taxable year, but an individual return was filed on behalf of each child with the collector of internal revenue for the district of Oregon. These returns were signed in the name of the particular child, ‘by Harold A. Miller, father.‘
C. W. Stimson is the maternal grandfather and E. C. Miller the paternal grandfather of the Miller children.
Joanne Miller was born on April 24, 1930, Prudence Miller on June 22, 1934, and Achsah Jane Miller on November 9, 1936.
C. W. Stimson made gifts of cash and securities to each of the children in the period from shortly after birth through the taxable year, usually near Christmas time. The securities given in the years through 1938 were issued in the name of the particular child-donee. At Christmas of 1940, Stimson made gifts of a large number of shares of stock in Marine Bancorporation, 660 shares to each of the three children. The certificates for these shares were issued in the names of ‘Harold A. Miller and/or Jane S. Miller, Trustees‘ for the particular child. Stimson, however, had nothing to do with the manner in which the certificates were registered.
Subsequently Harold A. Miller experienced some difficulty on an occasion when it was desired to transfer and dispose of a part of the Marine Bancorporation stock because of the fact that it was registered in trustee form. Accordingly, he requested that Stimson, in making further gifts of stocks and bonds to the children in December of 1941, have the securities issue in the names of Harold A. and Jane S. Miller as tenants in common. So, certain stocks given by Stimson on December 12, 1941, and bonds given by him on December 15, 1941, were registered in that form. At Harold A. Miller's request Stimson wrote him a letter relating to each of the three gifts of December 12 and each of the three gifts of December 15. Except for dates, names of the donees, and the types of securities given, the letters were substantially identical and read as follows:
December 15, 1941
Mr. Harold A. Miller.
Portland, Oregon
Dear Harold:
I am today giving certain securities described hereunder to my grandchild—Joanne Miller— as follows:
The Olympic, Inc., 6% bonds— due 11/1/43 of a par value of $19,700.00.
The above bonds have been delivered to you. In order to save difficulties when and if it becomes desirable to sell or otherwise deal with the above bonds, or any part thereof, I have had these bonds registered thus:
Harold A. Miller and Jane S. Miller as tenants in common
You understand that these bonds and all interest thereon belong to Joanne Miller. You and/or Jane are, however, authorized to manage, deal with and sell said bonds and to handle or reinvest the proceeds thereon on the account of Joanne Miller in any manner which you may see fit without limitation. Your joint and several powers in dealing with these bonds or substituted investments are to be the same as you have with respect to your own property.
When Joanne reaches the age of twenty-one years, the above bonds and/or the property then representing such bonds, are to be transferred into the name of Joanne Miller.
Very truly yours,
(Signed) CHARLES W. STIMSON
Securities acquired by purchase for the benefit of each of the children up to December 31, 1941, were all acquired with the proceeds of the sale of other gift property or with gift cash from C. W. Stimson. In some instances these were issued in the name of the particular child; in others, in the name of Harold A. Miller; in one instance in the names of Harold A. Miller and/or Jane S. Miller, trustees for the child; and in one instance in the names of Harold A. and Jane S. Miller as tenants in common.
E. C. Miller also made several small cash gifts to his grandchildren in the period from shortly after birth through the taxable year. His gifts, in the case of Joanne, totaled $180; in the case of Prudence, $110; and in the case of Achsah Jane, $95. These were deposited by Jane S. Miller in separate savings accounts at the First National Bank, Portland, Oregon, in her name as trustee for the particular child.
The cash gifts from C. W. Stimson to each of the children were deposited in three checking accounts at the Forest Grove National Bank, Forest Grove, Oregon, one for each child. Income from the gift and purchased securities and proceeds from the disposition of securities were also deposited in these accounts. Checks on the accounts were signed in the child's name, ‘by Harold A. Miller, trustee.‘
There was no agreement, verbal or written, between C. W. Stimson and Harold A. or Jane S. Miller that either or both of the latter should act as trustees or that any trust was created by the transfer of the property for the benefit of the children. No limitations as to investment, reinvestment, or disposition were made in connection with the transfers. Stimson's intent at the time of making the gifts in 1940 and 1941 was no different from his intent in making the gifts in earlier years, when the securities were issued in the names of the children-donees.
Harold A. and Jane S. Miller wished to avoid the appointment of a legal guardian or guardians because of complications involved in guardianship. The matter of legal guardianship was at times discussed between Miller and Stimson, but Stimson told Miller he did not consider a legal guardianship necessary.
C. W. Stimson did not intend to create any trust at the time of conveyance of any of the property to the Miller children.
The income reported in the individual returns of the children for the taxable year consisted entirely of dividends and interest. Joanne's return showed net income of $4,594.44; Prudence's return, $4,112.18; and Achsah Jane's return, $2,841.49. Respondent has taken these figures and held that they represent net income of trusts established for the benefit of the children, determining the asserted deficiencies accordingly.
OPINION.
ARUNDELL, Judge:
Whether the gifts in question were in trust is important here because of the fact that, if the income is trust income, each trust is entitled to an exemption of only $100, whereas, if it is the individual income of the children, each child is entitled to a personal exemption of $750 and the earned income credit. Petitioners contend that no trusts were intended or created and that the income in question was the individual income of the children. We agree.
Form 1930 through 1939 Stimson's gifts of securities to his granddaughters were issued to their individual names. Stimson told the Millers that these were gifts to the children and that the Millers would have to handle the properties until the children themselves were able to take care of them. No conditions were imposed on the gifts. Stimson suggested that the Millers start separate sets of books for their children and keep records of receipts and expenditures— a practice which the Millers have followed. He testified positively that he did not intend to create a trust; that in view of his past experience with different kinds of trusts that was one of the last things he wanted to do; that he expected the Millers to manage the property in a reasonably prudent manner while their children were were minors; that he had at times discussed with Harold Miller the question of a legal guardianship for the children's property, but told Harold that so far as he was concerned that was not necessary and, in substance, that he thought the children's investments managed by their parents were in better hands than they would be under a trust, legal guardianship, or other formal arrangement subject to strict court supervision.
Stimson's categorical denial of intent to create a trust, of course, would not be conclusive in the face of other evidence clearly and convincingly demonstrating or manifesting a trust intent. But we find nothing in his actions inconsistent with or contradictory of his positive testimony concerning his intent. Cf. Edward H. Heller, 41 B.T.A. 1020, 1033.
In managing and dealing with the gift properties over the course of the years Harold Miller sometimes used his name alone, sometimes the child's name by him, or by him as ‘father,‘ or by him as ‘trustee.‘ He testified that he used the term ‘trustee‘ simply to designated that the property was not his, but belonged to the child, and we are satisfied that such was his purpose. In any event, in the absence of an intent on Stimson's part to create a trust, nothing either Harold or Jane Miller might do with the property could have the effect of creating the kind of trust which is a separate taxable entity within the contemplation of the revenue laws. Express trusts, and not constructive trusts, are the ones to which the statute is applicable. See Stoddard v. Eaton, 22 Fed.(2d) 184. On the whole Harold Miller's testimony is corroborative of Stimson's with respect to the circumstances under which the gifts were made and further supports the conclusion that Stimson had no trust intent in making them.
The first gifts of securities which were not issued in the name of the particular child-donee were those of shares of stock in the Marine Bancorporation in 1940. Stimson testified that he had nothing to do with the issuance of the certificates in the names of Harold and Jane miller as trustees, but that his intent in making those gifts was no different from his intent in making the previous gifts in earlier years. Miller thereafter experienced some difficulty in connection with a contemplated transfer or sale of some of the Marine Bancorporation stock because it was registered in trustee form, and for that reason he requested Stimson to have the securities given in December 1941 issued in his and Jane Miller's names as tenants in common to facilitate transfers. The letters written by Stimson in connection with these gifts were likewise written at Harold Miller's request and for his purposes. Again, Stimson testified that his intent in making these gifts was the same as in making the previous gifts of securities which were issued direct in the names of the children. His intent was not changed by the fact that these securities were issued in the parents' names as tenants in common.
Respondent devotes much of his brief to a dissertation on the law of guardianships and contends that the parents of the Miller children, as natural guardians, would have no legal right to meddle in the property of the children. Even if that be so, and assuming that in the event of mismanagement the parents may be answerable in equity to the children, it does not follow as a matter of law that the parents are trustees of an express trust. If anyone would have cause to complain, it would be the children, not the respondent.
We think it is of no particular moment in the present proceedings what designation, whether natural guardian or other, is applied to the Millers. Although in strict contemplation of law it may have been more proper for them to apply for appointment as legal guardians to manage the estate of the children, their desire to avoid the expense and complications of such a procedure is understandable. As a practical matter, it is certainly not unusual for parents to manage the property and attend to the affairs of their minor children without such formalities. See Edward H. Heller, supra. It was only natural for Stimson to expect his daughter and son-in-law to do that in connection with the property he gave to their minor children, his granddaughters. But he imposed no conditions on the gifts to the children or binding legal obligations on the parents. Suggestions made by him as to the handling of the property were only precatory in nature. We are unable to find in this record that evidence of trust intent upon which to predicate the creation of express trusts.
The total gifts from E. C. Miller, the paternal grandfather of the children, were inconsequential in amount and might well be ignored for purposes of these proceedings. However, from what we have already said, it is apparent that the mere fact that Jane Miller handled these gifts and deposited them in separate savings accounts in her name as trustee for the children can not have the effect of creating express trusts thereof.
We conclude that all the gifts were outright, that no taxable trusts existed, and that the income in question was the individual income of the children, to whom it is accordingly taxable.
Reviewed by the Court.
Decisions will be entered for the petitioners.
TURNER, J., dissenting: It is my view, on the facts found and appearing herein, that the letter of Charles W. Stimson under date of December 15, 1941, as a matter of law, effected the creation of an express trust and that the Court's conclusion to the contrary is in error. Direct gifts to the granddaughters had been made in prior years and had proved troublesome and unsatisfactory in so far as the subsequent management of the property was concerned, and the parties, for good and sufficient reasons, decided that subsequent gifts should not be direct, and it is my view that the duties and obligations conferred upon and accepted by Harold A. Miller and Jane S. Miller were under the law trust duties and obligations. I do not regard the question decided as a question of fact, or as a matter of mixed law and fact, but a question of law, and it is my view that the Court erred in reaching its conclusion.
I accordingly note my dissent.