1939 BTA LEXIS 887 | B.T.A. | 1939
Lead Opinion
The first issue is as to the number of trusts created by decedent’s will. It is, of course, fundamental, as both parties agree, that this question is to be determined in accordance with the testator’s intention. They differ as to the tests by which that intention may
Applying this principle we conclude that the purpose of the testator was to segregate the interests of the individual grandchildren so that the rights in the property held for them and proportionately distributed to them, both as to principal and income, should be treated in severalty. Perhaps no single provision of the instrument would suffice for this conclusion. Without reciting its provisions in detail it seems clear from the entire will and particularly those portions summarized in our findings of fact that it would do violence to the testator’s intention to assume that a separate interest was not granted to each grandchild.
If that result follows in the case of the trusts for the benefit of the grandchildren the implication is even stronger with respect to the trust created by section 9 of the trust instrument, for there it is specifically provided that this “specific trust shall be separately held, administered, invested” and reinvested.
There are but two indications that might be said to lead to the conclusion that a single trust was intended. As to both, however, it is by now definitely settled that such provisions are not inconsistent with the creation of separate trusts. Neither the requirement that the property be held as one fund, United States Trust Co. of New York v. Commissioner, 296 U. S. 481; Helvering v. MoIlvaine, 296 U. S. 488, nor the provision for cross-remainders, Leonard Marx, 39 B. T. A. 537, requires us to find that there is but a single trust. We conclude that the effect of decedent’s will was to create a trust for each of the three grandchildren and an additional trust for the purposes described in section 9 of the will.
The second issue brings into question the character of the payments to be made to decedent’s daughter under section 9 of the will. The controversy is whether these constituted an annuity payable at all events, Helvering v. Pardee, 290 U. S. 365, or were income currently distributable to the beneficiary for which petitioners are entitled to a deduction. Helvering v. Butterworth, 290 U. S. 365. While in this respect the will is not so clear as might be desired, the directions of the testator appear to us to indicate that payments were to be made to the daughter only out of income. In the third paragraph of section 9 the testator provides that a fund shall be set apart
Another issue arises by reason of the claim of the trustees that they are entitled to deduct as ordinary and necessary business expenses the cost of maintenance and upkeep of the testator’s summer place called “Beggs Isle”, the use and occupancy of which was devised to testator’s daughter during her life and after her death to her husband and children. The expenses were so paid pursuant to express provisions of the will which required that the trustees establish a fund the income of which would be sufficient for that purpose.
All of the cases cited by petitioners in support of their contention are readily distinguishable on their facts, with a single exception which requires more extended treatment. In William W. Mead et al., Executors, 6 B. T. A. 752; George W. Seligmam, 10 B. T. A. 840; Florence Grandin, 16 B. T. A. 515; and Robert J. Kleberg et al., Executors, 31 B. T. A. 95, there was no question as to the character of the activities engaged in by the trustees or executors. Their extent and effect was the point at issue and it is clear from those cases as well as others that a trustee, as such, may be engaged in a trade or business by the operation or preservation of a large estate for income producing purposes.
However that may be, the respondent now urges that the maintenance of a residence for the use of a beneficiary is not a trade or business within the meaning of section 23 (a) of the Eevenue Act of 1934, and it seems to us that this contention must be sustained.
Petitioners cite with approval the definition of the term “business” contained in Flint v. Stone Tracy Co., 220 U. S. 107, 171, as follows:
“ ‘That which occupies the time, attention, and labor of men for the purpose of a livelihood or profit ’. Bouvier’s Law Dictionary, Vol. I, p. 273.” [Emphasis added.]
There is of course no reason to doubt the accuracy of the definition, but it seems to us that petitioners overlook the force of the italicized language. For here the activity of the trustees in maintaining the “Beggs Isle” property could in no event be for the purpose of a livelihood or profit. Gertrude D. Walker, 20 B. T. A. 937; Chaloner v. Helvering, 69 Fed. (2d) 571. It is true that the expenditures in question were enjoined upon the trustees by the instrument to which they were subject in administering the trust. And it is also true that the petitioners in their individual and corporate capacities may have been engaged in the trade or business of acting as trustees. But just as, according to petitioners’ contention, the trust and the beneficiary must each be considered in its respective taxpaying capacity, so it seems to us the trustees as individuals and the trust must be considered in severalty. It is the trust and not the trustees which is the taxable entity;
The contention made on behalf of the petitioners that the expenditures involved were ordinarily and necessarily incurred for the preservation of the property we believe to be equally without force. The property was being retained and for all that appears will continue to be retained until an indefinite time in the future, not for purposes of lease or sale nor for any other purpose connected with a pecuniary benefit of the trust. Under these circumstances we find nothing in the facts which would justify the conclusion that any of the expenses of maintenance and operation are necessary or ordinary as applied to any business transaction. See Gertrude D. Walker, supra.
In one respect, however, respondent does not appear to contest the assertion advanced by petitioners. That is that taxes paid by them which are deductible under the express language of section 23 (c) and regardless of the existence of any trade or business should be allowed. To that extent the respondent’s original determination on this issue is overruled, provided the parties can agree on the proper amount on recomputation.
Thei final issue does not appear to be urged with great force by petitioners. It relates to the contention that the trust estate is entitled to deduct as income currently distributable an amount which by the will is to be credited to the grandchildren “as interest” upon undistributed accumulations of income. Without setting forth the provisions of the will upon which this procedure was based, which are summarized in our findings of fact, it is sufficient to point out that the will merely provides for a method of apportioning to the grandchildren sums which will presumably compensate them respectively and equitably for any unequal distribution of current estate income. It is apparently a pure bookkeeping item without relation to income actually received by the estate and as far as the record shows it does not represent estate income. For this reason it seems to us the provisions of section 162 of the revenue act are completely inapplicable, since that section refers only to “the net income of the estate or trust” and provides only for a deduction of such portions of that net income as shall be currently distributable. Since the amounts in question do not represent estate income in the first place, we find it unnecessary to decide whether or not they were currently distributable and the deductions must be disallowed.
Reviewed by the Board.
Decision will be entered rnder Rule 50.
Secs. 142 (a), 161 (b), and 162, Revenue Act of 1934.