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DURST v. UNITED STATES

March 18, 1976

Marien E. Durst and G. Chester Durst, Executors of the Estate of John E. Dieteman, Deceased
v.
United States of America


Weber, District Judge.


The opinion of the court was delivered by: WEBER

WEBER, District Judge:

 This is a suit for refund of estate taxes erroneously assessed and paid brought in this court under 28 U.S.C. § 1346(a)(1). Plaintiffs are the executors of the estate of decedent who died in 1971. It is the government's inclusion of the assets of an inter vivos irrevocable trust in the decedent's taxable estate that gives rise to the present claim.

 Decedent, hereinafter called Settlor, created an irrevocable trust in 1951 for the benefit of his daughter and her descendants and their spouses. The trust agreement is an elaborate document of 21 pages, executed between Settlor and the Corporate Trustee, a national bank located in Ohio. The instrument provides that it shall be construed in accordance with the law of Ohio.

 The instrument makes detailed provisions for the accumulation of income and the apportionment and distribution of income and principal and grants wide discretion to the Trustees with regard to these matters.

 ARTICLE SIXTH. ADDITIONAL AND SUCCESSOR TRUSTEES, (A) of the trust instrument reads as follows:

 
"The Settlor reserves the right at any time during his life to appoint one or more Individual Trustees to act with the Corporate Trustee by giving a written notice of such appointment, signed by the Settlor, to the Corporate Trustee. After the death of the Settlor the Individual Trustee may appoint a successor Individual Trustee by giving written notice thereof to the Corporate Trustee, or by Will."

 The United States claims that the value of the trust is properly includible in the decedent's gross estate in accordance with Sections 2036 and/or 2038 of the Internal Revenue Code of 1954. These sections of the Internal Revenue Code generally require the inclusion in the decedent's gross estate of the value of any property which the decedent has transferred where the decedent retains the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. They likewise make taxable in the decedent's estate of any property transferred by trust, or otherwise, where the enjoyment thereof was subject at the date of decedent's death to any change through the exercise of a power, in any capacity, by the decedent alone or by the decedent in conjunction with any other person.

 The question at issue, therefore, is whether under this instrument the decedent could have appointed himself as an Individual Trustee of the trust and thereby make the assets taxable as part of his own estate by reason of the powers granted to the Trustees of this trust over the distribution of income and principal.

 As in Mathey v. United States, 491 F.2d 481, 485, the task of this court is to ascertain whether the trust agreements reposed the power in the settlor to name himself Individual Trustee.

 The interpretation of the trust instrument is governed by the law of Ohio.

 
"[While] the taxability of the interest possessed by the decedent is to be determined by federal law, we must look to the local law . . . to determine the legal rights and interests possessed by decedent under the trust (citations omitted)." Peoples Trust Co. v. United States, 412 F.2d 1156, 1159.

 Ohio law, both by judicial decision, Jones v. Luplow, 13 Ohio App. 428, and by statute, permits a settlor to appoint himself trustee of a trust which he has created. The revised code of Ohio § 1335.01 provides:

 
"The creator of a trust may reserve to himself any use of power, beneficial or in trust, which he might lawfully grant to another, including the power to alter, amend, or revoke such trust . . .. "

 The plaintiffs argue that since the power to "alter, amend, or revoke" is included among the powers in the foregoing statute, which the creator of a trust may reserve to himself, such a reservation in a written trust instrument must be express. In Central Trust Co. v. McCarthy, 73 Ohio App. ...


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