Round v. Commissioner

John Round (plaintiff) set up three spendthrift trusts for the benefit of his five minor children in 1934 and 1935. Round and a separate financial institution were cotrustees of each trust. The trusts gave the children income from their respective shares and allowed the trustee to distribute additional sums, either in their discretion or in case of emergency. More importantly, each trust provided that on the death, resignation, or incapacity of John Round, the corporate trustee would act as sole trustee of the relevant trust. By the mid-1950s, John Round could not handle his own affairs. In April 1956, he granted one of his children a general power of attorney, and that child handled most of his matters moving forward. In October 1957, a local probate court found that John Round was incapable of caring for his property and appointed the Boston Safe Deposit and Trust Company as conservator over his property. John Round died in April 1958. His estate did not include the trusts in his gross estate for estate-tax purposes. The government (defendant) included the value of those trusts and found a deficiency in federal estate tax of $162,072.88. Round’s estate sought relief in tax court, which held that the government was correct because John Round retained the ability to control and distribute trust income and the trust corpus. Round’s estate appealed, arguing that the appointment of a conservator was a definitive act that extinguished Round’s right to act as cotrustee, meaning he had no control over the trusts, and that they should not be included in his gross estate.