Estate of Wall v. Commissioner

101 T.C. 300 (1993)

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Estate of Wall v. Commissioner

United States Tax Court
101 T.C. 300 (1993)

JC

Facts

Helen Wall established multiple irrevocable trusts in which a corporation was trustee. The corporation was to distribute principal and income to a trust beneficiary with no real standard of direction in doing so. Wall retained the right to replace the corporate trustee with another corporate trustee, which was required to be independent from Wall. After Wall’s death, the government (defendant) asserted that Wall’s ability to replace the trustee constituted retained control over the trust property sufficient for it be calculated as part of her gross estate. Wall’s estate (plaintiff) appealed that decision of the IRS commissioner, arguing that being able to switch between disinterested corporate trustees was not actually retained control over the trust property because the trustee’s fiduciary duty lay with the beneficiary, not with the settlor. In the absence of some sort of fraudulent outside deal between Wall and the trustee, Wall would have no power to impact the timing and extent of distributions. In a 1979 revenue ruling, the IRS had previously held that in a situation like that of Wall, the trust grantor did retain control over the trust because she could threaten or cajole the trustee into handling the trust corpus exactly as the grantor wished. However, the Internal Revenue Code section that governed retained estates from a grantor had been construed to apply only to legally ascertainable and enforceable powers.

Rule of Law

Issue

Holding and Reasoning (Nims, J.)

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