subject to the consent of the Settlor during his lifetime and competency.
Article Fifth, Subsection F(b) speaks of the powers of the Trustees after the death of Settlor, without designating them as "surviving trustees".
Article Sixth, Subsection A, speaks of the power of the Individual Trustee to appoint a successor Individual Trustee after the death of Settlor. This description of the Individual Trustee is not limited by the language "if there shall be one" as set forth in Article Fifth, Subsection E.
Article Sixth, Subsection B, provides for notice of an intention to resign to be given by the Individual Trustee to the Settlor.
Article Seventh provides that the Settlor, with the consent of the Trustees, may increase the principal.
Article Fifth, Subsection C, imposes limitation on the powers of certain persons who might become Trustees, including any descendant of Settlor, or spouse, with respect to application or allocation of principal or income. The obvious purposes is the avoidance of adverse tax consequences. It may be inferred that Settlor would have included himself as a Trustee with limited powers for the same purpose if there were any intention that he could so appoint himself.
Plaintiffs have argued other matters in the instrument from which similar inferences might be drawn, which we do not find sufficiently significant to note individually. Defendant classifies these as a "minor surplus of language". This appellation might apply to individual instances, but their repeated pattern throughout the trust indenture gives support to plaintiffs' argument on the intent of the Settlor.
The gestalt which we derive from a consideration of the instrument as a whole is that the Settlor intended to exclude himself from appointment as Individual Trustee.
Extrinsic evidence which we deem admissible on the question of Settlor's intent comes in the form of a series of documents contemporaneous with the preparation and execution of the trust instrument. The correspondence between Settlor, the corporate trustee, the estate planning consultants whom he employed, and the Internal Revenue Service show that the Settlor was an extremely astute individual with considerable knowledge of the operation of the Internal Revenue laws. He was concerned with the taxable effects of what was being done. Although a resident of Pennsylvania, he chose an Ohio corporate trustee to provide for the accumulation of income which would not have been possible under the law of Pennsylvania, his domicile. He was concerned with the tax effects of the location of the trust res in Ohio.
Of considerable importance in determining Settlor's intent here are the gift tax returns filed by Settlor and his wife for the year in which this trust was created. The extraneous evidence shows that Settlor was well aware of the tax consequences of the gift and the consequences of having his spouse join in the gift to receive the benefit of the marital deduction. It appears that the Settlor prepared these returns himself as the duplicate copies of the typewritten returns show no indication that someone else prepared the returns for him. He engaged in correspondence with the Internal Revenue Service over matters arising from this return. From this we draw the inference that the Settlor intended the gift to be complete by reason of the fact that he retained no right to alter the interest of beneficiaries which would not be true if he intended to reserve the power to appoint himself as Individual Trustee. Reg. 25.2511-2(c) provides that a gift is incomplete if a reserved power gives the donor the power to name new beneficiaries or to change the interest of the beneficiary as between themselves. We know from the Settlor's correspondence that he desired to establish an irrevocable trust and to pay the gift tax chargeable thereon, both of which are inconsistent with any intent to reserve powers to himself to change the interest of the beneficiaries.
Because there is nothing within the body of the instrument itself, or in the extrinsic evidence from which an inference may be drawn that Settlor intended to retain a power of control over the distribution of income or principal we believe that due regard should be given to the evident estate planning activities of the Settlor designed for the purpose of reducing the taxes upon his estate. His creation of an irrevocable trust and the payment of the gift tax thereon, his employment of the marital deduction formula in the gift tax return, and his contemporaneous correspondence with his estate planning consultants, all evidence an intent to reduce estate taxes. The estate plan revealed in the trust instrument itself shows a regard for tax consequences, his postponement of the vesting of the principal for a generation, and his provision for limiting the powers of trustees who might be beneficiaries under the trust, all evidence a plan to reduce taxes. In Dodd v. United States, 345 F.2d 715, the court recognized a presumption that a testator intended his estate to have the full benefit of the marital deduction despite the fact that his intention was not clear from the instrument involved. Similarly the tax court, construing a will as a whole, found that since the purpose of the trust was to qualify for the marital deduction an ambiguous description of the powers of the trustees would not authorize the withholding of any income from the wife which would result in a loss of the marital deduction. Estate of James S. Todd, Jr., 57 T.C. 288.
In all the years in which Sections 2036 and 2038 of the 1954 Code, and their predecessor statutes have been in effect there have been few cases in which a close parallel situation has been revealed. Both parties point to Mathey v. United States, cit. supra, as the controlling case. There the court held the trust assets taxable in decedent's estate because Mrs. Mathey retained the power to change the trustee and it was, therefore, held that under this clause she had the power to appoint herself. The only contrary indication contained in the trust instrument itself which was argued as evidence of intent was the use of the word "it" to describe a successor trustee from which it was argued that donor intended only a corporate trustee. The district court found that the use of the neuter pronoun did not signify an intent on Mrs. Mathey's part to allow a corporation only to be named as successor trustee and that, therefore, an individual could be substituted for the original trustee.
This was a finding of fact by the trial court relevant to a determination of grantor's intent, and under Fed. R. Civ. P. 52(a) could not be set aside unless clearly erroneous. The Court of Appeals could not hold this finding to be clearly erroneous.
In Mathey the court considered testimony extraneous to the document in question to determine intent. However, this testimony in large part concerned only the likelihood of Mrs. Mathey exercising the power. The Court of Appeals held such testimony largely irrelevant on the question of the existence of the power. Similarly, whether a New York court would find the grantor suitable to serve as trustee would be a question of fact in a purely hypothetical case, unrelated to the question of her power to make such appointment.
We find the present case to be distinguished from Mathey, by both the intrinsic and extrinsic evidence of intent of the Settlor. We find that Settlor's intent was to exclude the Settlor from appointment as an Individual Trustee under the trust in this case. Therefore, Settlor retained no right or power to designate persons who should possess or enjoy the property or the income therefrom.
AND NOW, this 18th day of March, 1976, the court finds for the Plaintiff on the question of liability in the within action, based on the foregoing Opinion which shall constitute the Court's findings of fact and conclusions of law.
IT IS ORDERED that the parties shall submit a computation of the liquidated damages, including interest, to be awarded sufficient for the entry of final judgment. If the parties agree this should be in the form of a stipulation, otherwise each party shall submit its suggested computation. Said matters shall be submitted on or before April 14, 1976.
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