Sun First National Bank of Orlando v. United States

dissenting:

I respectfully dissent because I cannot agree with the following express or implied findings and conclusions of the majority which, in my opinion, are unsupported by the facts or the law and are clearly erroneous:

(1) That the settlor, Mrs. Jeanette Andersen, retained an interest in the corpus of the stock when she created the trust in 1941.

(2) That Mrs. Andersen was the owner of, or had legal title to, the stock after the trust was created.

(3) That Mrs. Andersen had control over the stock after she conveyed it to the trust in 1941.

(4) That Mrs. Andersen, and not the trustees, sold the stock in 1965.

(5) That Mrs. Andersen, and not the trust, realized the capital gain from the sale of the stock in 1965 at the time of the sale.

*486(6) That Mrs. Andersen, and not the trust, was the owner of, and had legal title to, the installment notes received from the sale of the stock in 1965.

(7) That the capital gain from the sale of the stock was income and not corpus of the trust.

(8) That by paragraph 8 of the trust instrument and by the instrument as a whole, Mrs. Andersen vested the trustees with authority to determine in their discretion what was income and what was corpus of the trust.

(9) That the Government failed to show that the order of the Florida state court was wrong, and, therefore, it was correct.

(10) That Mrs. Andersen, by her appearance in the Florida court, authorized the court to rule that the capital gain was income and not corpus of the trust.

(11) That the unpaid installment notes were owned by Mrs. Andersen and were a part of her estate at the time of her death.

(12) That the trust acquired the notes from Mrs. Andersen at the time of her death even though there was no testamentary bequest to that effect in her will.

(13) That the purposes of the trust were complied with and carried out by treating the capital gain as income and not corpus of the trust.

(14) That after Mrs. Andersen’s death, the capital gain income from the unpaid installment notes was income in respect of a decedent and by virtue thereof the trust was entitled to a deduction for the estate taxes under 26 U.S.C. § 691(c).

The facts show that Mrs. Andersen’s husband, Martin, gave the shares of stock to her in 1941. Later, marital trouble developed between them and Martin became fearful that a divorce might ensue and that his wife could remarry thus making it possible for her new husband to control the stock. Accordingly, he recommended to Mrs. Andersen on the advice of counsel that the stock be placed in an irrevocable trust with a reservation of the income to Mrs. Andersen for life and thereafter to Martin and, at his death, to their daughter. The trust was to terminate at the death of the daughter and the corpus was to be distributed to the daughter’s children. If there were no children, the corpus was to be distributed to various other remain-*487dermen. These were the purposes of the trust. An attorney drew up the trust instrument in accordance with the foregoing purposes and explained it fully to Mrs. Andersen, and "especially the fact that Jane [Mrs. Andersen] would have to part with all future control of the shares.” Mrs. Andersen agreed and signed the trust instrument for the purposes stated above. Martin was named as trustee and Mrs. Andersen transferred the stock to him as the fiduciary of the Jeanette Andersen Trust in 1941.1

Under the well-established law of trusts, Jeanette Andersen divested herself of ownership of the stock when she transferred it to the trust.2

After the transfer of the stock to the trust, new shares of the stock were issued in the name of the trustee. It is a well-settled principle of trust law that when property is placed in trust, the legal title to the property is vested in the trustee as a fiduciary of the trust. Neilson v. Lagow, 12 Howard 98, 13 L.Ed.909; Adams v. Adams, 21 Wall 185, 22 L.Ed. 504; Maguire v. Trefry, 253 U.S. 12, 64 L.Ed.739 (1920); Chicago, M. & St.P.R. Co. v. Des Moines U.R. Co., 254 U.S. 196, 208, 65 L.Ed. 219 (1920); Bogart, Law of Trusts (4th Ed. 1963) § 10. The vesting of legal title in the trustee as a fiduciary has the effect of making the trust the owner of the property. Therefore, after the transfer, the legal title and ownership of the shares of stock were held by the Jeanette Andersen Trust. Such a trust is recognized as a taxable entity separate and apart from the grantor. See Helvering v. Bullard, 303 U.S.297, 82 L.Ed. 852 (1938); United States v. O'Malley, 383 U.S. 627, 86 S.Ct.1123, 16 L. Ed.2d 145 (1966); Manufacturers Hanover Trust Co. v. United States, 160 Ct.Cl. 582, 595, 312. F.2d 785, 792, cert.denied, 375 U.S. 880 (1963); 26 U.S.C. § 641.

It is well established that when a trust is created the trustee has only the powers and authority given to him by the settlor in the trust instrument, together with implied powers which are necessary to carry out the purposes of the trust. See Bogart, Law op Trusts, § 88, 4th Ed.1963; Restatement of Trusts, § 186, 2d Ed. 1959.

*488Obviously, the Jeanette Andersen trust was a "grantor trust” governed by Subpart E of the Code (i.e., §§ 671-677).3 § 677(a)(1) of the Code provides that the grantor "shall be treated as the owner of any portion of a trust” whose income may be distributed to the grantor. Clearly, the fact that Mrs. Andersen was "treated” as the owner of the trust corpus for tax purposes did not make her the owner for the purposes of determining whether income received by the trust after her death was income in respect of a decedent.

In our prior opinion in this case, reported in 218 Ct.Cl. 339, 587 F. 2d 1073 (1978), we stated correctly:

"That section [§ 677(a)(1)], however, must be read in conjunction with section 671, which limits and qualifies it. Section 671 provides that when it is specified under subpart (E) (which includes section 677) of subchapter J of the Code (which deals with the taxation of trusts) that a grantor (or other person) should be treated as the owner of trust property, the items of income, deduction and credits against a tax of the trust shall be included in computing the taxable income of the grantor or other person.

"Section 671 is the operative provision of subpart (E); it specifies the result when a grantor is treated under subpart (E) as the owner of trust property. Section 677 is one of six subsections of subpart (E) that describe particular situations in which the grantor (or other person) is deemed to be the owner of trust property.

"Such attribution of ownership, however, is for the purpose of shifting the tax incidence of the trust income from the trust to the grantor or other person. Under this provision Jeanette Andersen would have been liable during her life for the income the trust realized upon payment of the notes, because section 677 would have attributed the notes to her. But that section did not make her 'the owner of the trust property for purposes of determining whether the income the trust received from such property after her death was income in respect of a decedent under section 691. Section 677 made her the owner of the property only for the purpose of shifting the trust income to her during her lifetime, as section 671 provides.” Id. at 351-52, 587 F. 2d at 1079-1080.

Thus, § 677 of the Code has a very limited application. It is used to shift the trust income to the grantor for income tax purposes. It does not transfer ownership.

*489The tax law does not create legal and property interests; it merely taxes them. The Supreme Court analyzed the creation of property interests, the tax law, and state law in Helvering v. Stuart, 317 U.S. 154, 87 L.Ed. 154 (1942). In that case, two taxpayers created trusts for the benefit of each of their children and each taxpayer named himself, his brother and sister-in-law as trustees. The court had to decide if §§ 166 and 167 (the predecessor of § 677 of the Code) of the Revenue Act of 1934 made the trust income taxable to the respective grantors. In order to reach a decision the court stated that:

". . . the instruments must be construed to determine whether the power to revest title to any part of the corpora in the grantors, or to distribute to them any of the income, lies with any persons not having a substantial adverse interest to the grantors. That construction must be made in the light of rules of law for the interpretation of such documents.” 87 L.Ed. at 159.

In concluding that the trust instruments and the interests created thereunder should be construed according to state law the court said:

"When Congress fixes a tax on the possibility of the revesting of property or the distribution of income, the 'necessary implication,’ we think, is that the possibility is to be determined by the state law. Grantees under deeds, wills and trusts, alike, take according to the rule of the state law. The power to transfer or distribute assets of a trust is essentially a matter of local law. Blair v. Commissioner of Internal Revenue, 300 US 5,9,81 L ed 465, 469, 57 S Ct 330; Freuler v. Helvering, 291 US 35, 43-45, 78 L ed 634, 640-642, 54 S Ct 308. Congress has selected an event, that is the receipt or distributions of trust funds by or to a grantor, normally brought about by local law, and has directed a tax to be levied if that event may occur. Whether that event may or may not occur depends upon the interpretation placed upon the terms of the instrument by state law. Once rights are obtained by local law, whatever they may be called, these rights are subject to the federal definition of taxability. Recently in dealing with the estate tax levied upon the value of property passing under a general power, we said that 'state law creates legal interests and rights. The federal revenue acts designate what interests or rights, so created, shall be taxed.’ Morgan v. Commissioner of Internal Revenue, 309 US 78,80, 84 L ed 585, 588, 60 S Ct 424.” 87 L.Ed. at 159. (Emphasis supplied.)

*490The general principle discussed in Stuart and in other federal tax cases that the state law controls the creation and existence of legal interests in property was restated in the more recent Supreme Court case of United States v. Mitchell, 403 U.S.190, 91 S.Ct. 1763, 29 L. Ed. 2d 406 (1971). The Court stated the principle as follows:

"In the determination of ownership, state law controls. 'The state law creates legal interests but the federal statute determines when and how they shall be taxed.’ Burnet v Harmel, 287 US 103, 110, 77 L Ed 199, 205, 53 S Ct 74 (1932); Morgan v Commissioner, 309 US 78, 80-81, 84 L Ed 585, 588, 60 S Ct 424 (1940); Helvering v Stuart, 317 US 154, 162, 87 L Ed 154, 159, 63 S Ct 140 (1942).” 29 L.Ed. 2d at 412. (Emphasis supplied).

Applying this principle to the case before us, it appears that Mrs. Andersen was taxable during her lifetime on the trust’s income under §§ 671 and 677 of the Code because of her retained life estate. The Code was applied to the state-created property interest and it was taxed accordingly. Even though § 677 states that she was "treated as the owner” of the trust corpus, that section does not make her the legal owner for all purposes because federal tax law does not create legal interests — it merely taxes them. The trust instrument stated that it was to be construed according to Florida law, and, therefore, the ownership of the trust corpus, as will be explained in more detail later, was vested in the trust under Florida law. As a result, Mrs. Andersen did not own any of the installment notes which made up the trust corpus and, consequently, the income from such notes that was unpaid and not due at the time of her death could not have been income in respect of a decedent.

This is not the first time this court has been confronted with the problem of deciding whether the settlor or the trust was the owner of shares of stock. That exact question was considered and decided by our court in the case of W & W Fertilizer Corporation v. United States, 208 Ct. Cl. 443, 527 F. 2d 621 (1975), cert.denied, 425 U.S. 974, 96 S. Ct. 2173, 48 L.Ed.2d 798 (1976), which was also a Florida case. In that case, the grantor created a revocable inter vivos trust and transferred shares of stock to it. He retained the right to the income of the trust for life and also the right-to *491revoke the trust and to revest the title to its assets in himself at any time. Corporate income taxes were assessed against the corporation, which sued for a refund, claiming that the grantor of the trust was the owner of the stock because of the interests he had retained. We held that the trust was the owner and that it was properly taxed as such. We held:

"Taxpayer’s third contention is that because Lemuel, as grantor of the Woods Trust, is taxed on the trust income under the 'grantor trust rules’ of section 671, et seq., the trust should be ignored. The argument is that it would be inconsistent not to consider him the owner of the shares for Subchapter S eligibility purposes and yet tax him as their 'owner’ on the income they produce. Taxpayer, however, misconceives the manner in which the 'grantor trust rules’ operate. They do not, as taxpayer urges, recognize the grantor as the legal 'owner’ of the property placed in trust. On the contrary, the rules arose under the Code because it was recognized by Congress that taxation of income is not concerned so much with refinements of title as it is with actual command over the property taxed. Corliss v. Bowers, 281 U.S. 376 (1930). The 'grantor trust rules’ treat the grantor as if he were the owner in cases where he has reserved to himself some of the powers normally attendant to outright ownership. Thus, their design is to expand the coverage of the taxing statute.”

"The applicability herein of the 'grantor trust rules’ embodied in section 671 et seq., therefore, reinforces, rather than refutes, the argument that the Woods Trust must be recognized as the owner of taxpayer’s stock.” 208 Ct.Cl. at 455-456, 527 F.2d at 627-28 (Emphasis supplied).

It is clear from our decision in that case that the grantor trust rules are purely for taxation purposes and hav'e nothing to do with ownership or legal title to the property. It should be noted, also, that the position of the grantor in that case with respect to ownership was much stronger than that of the grantor in the instant case, because of the extensive reservation of rights and almost complete control over the trust property that was reserved by the grantor of the trust. Yet we held that the trust was the owner of the *492stock. Our reasoning and decision in that case are especially applicable to the instant case.

Therefore, although the grantor is "treated” as the owner of the trust corpus for the taxation purposes of §§ 671-677 of the Code, the grantor is not made the legal owner of the trust corpus for other purposes by these sections of the Code.

In the instant case, the trust owned and controlled the stock from the time the trust was created in 1941 until the stock was sold in 1965, a period of 24 years, without any control or attempted control by Mrs. Andersen. The trust, and not Mrs. Andersen, sold the stock in 1965. The notes were payable to the trust and not to Mrs. Andersen. As the notes were paid, the payments were made to the trust, not to Mrs. Andersen. The trust, and not Mrs. Andersen, made the election to have the notes paid on the installment plan. The notes were always in the possession of the trust. As a matter of fact, there is no evidence that Mrs. Andersen ever claimed to be the owner of the notes. She did not dispose of them in her will. Neither did her daughter-executrix claim that the notes belonged to Mrs. Andersen’s estate, as they were not listed in the estate tax returns that she filed. In her suit in the Tax Court the executrix did not claim that the notes belonged to Mrs. Andersen’s estate. In fact, she stipulated in that court that they belonged to the trust. Had the notes belonged to Mrs. Andersen’s estate, there would not have been any need to file the Tax Court suit.

When the trust sold the shares of stock, the Trustee treated the gain received as income instead of corpus. The majority has concluded that since the gain was "income” and since Jeanette Andersen had the right to such income, the gain, as evidenced by the installment notes, belonged to her and not the trust. They base their conclusion on their interpretation of the trust instrument and on a Florida court decision, which approved the trust accounts and released Martin Andersen from the office of trustee and appointed Marcia Andersen Murphy and the First National Bank at Orlando as successor co-trustees.4

*493The majority misinterpreted the trust instrument. Furthermore, they have not construed it according to Florida law which the trust instrument required. These points are discussed below.

As a general rule, profit derived from the sale of stock which is a part of trust corpus is itself corpus. Scott, The Law of Trusts (1939), § 233.1; Bogart, The Law of Trusts and Trustees. (2nd Ed. 1962), § 823;5 Restatement of Trusts, (2nd Ed. 1959), § 233.

The state of Florida follows this general rule by recognizing that any profits received from the sale of trust corpus is also corpus. Fla. Stat. Ann., § 690.046 Florida recognizes an exception to this general rule which allows the grantor to direct how income and corpus are determined. Fla. Stat. Ann., § 690.03.7

*494The majority says that this exception to the general rule is applicable to the instant case. The majority relied on two provisions of the trust instrument in concluding that the grantor had given the trustee discretion to determine what is income and what is corpus. The first provision on which they rely is contained in Paragraph 1 dealing with the trustee’s power to invest, sell and otherwise handle the trust property.

Although the majority states that this provision gives the trustee discretion to determine income and corpus, such is clearly not the case. Paragraph 1 discusses the trustee’s powers as a fiduciary in investing and disposing of the trust property. The Tax Court properly construed Paragraph 1 by saying:

"Martin received broad powers as a fiduciary to deal with the trust corpus:

'It is my intention that in the management of the Trust Estate the Trustees shall have as full and complete power, authority and discretion as they would have if they were the actual owners thereof.’ ”

The plain meaning of this provision is that the trustee was to have as full and complete power and discretion as a fiduciary in managing the trust corpus as he would have if he as an individual were the actual owner of the stock instead of the trust. The provision was not a limitation on the title or ownership of the stock by the trust. Neither was it a reservation of title or ownership in Mrs. Andersen. It does not involve in any way the treatment of the proceeds received from any sale or other disposition of the property belonging to the trust. The provision is merely a "general power”, as the trust instrument so states, to enable the trustee to have a free hand in managing the trust estate.8

The other provision in the trust instrument which the majority says gives the trustee the powers and discretion to *495decide how to treat the receipts from the "disposition” of trust property is Paragraph 8. That paragraph provides as follows:

"8. I direct that any shares of stock, securities or other property of whatsoever character, except only cash, which shall be issued, assigned, transferred, conveyed or delivered to the Trustees by reason or on account of any shares of stock or securities of any corporation then owned by and constituting a part of the Trust Estate, whether the issuance, assignment, transfer, conveyance or delivery of any such shares of stock, securities or other property by such corporation be by way of a dividend by such corporation or upon its dissolution, or in any liquidation of its capital, or as a part of, in connection with or by reason of any reorganization, consolidation or merger of any such corporation or sale of its assets or adjustment of its affairs, or otherwise howsoever, shall, for all purposes of the Trust Estate and of the provisions of this instrument, be deemed to be principal and corpus of the Trust Estate, and not as income thereof.”

Even a casual reading of Paragraph 8 shows that there is no mention whatever of a sale or "disposition” of the trust corpus or any part thereof. The paragraph simply provides that the receipt by the trustees of stock, securities or other property by way of a dividend, liquidation, reorganization, consolidation or merger, sale of assets, adjustment of affairs or otherwise, except cash, from any corporation in which the trust owned stock would be principal and corpus of the trust estate and not income thereof. The paragraph is limited in two respects, namely, (1) to property received by the trust where no sale of trust property is involved, and (2) the property must be received by the trust from a corporation in which the trust owns stock. Neither situation is involved in this case. To hold, as the majority does, that this paragraph gave the trustees the discretion to determine whether the proceeds from the sale of trust property is income or corpus bridges too wide a gap for me to cross over. In my opinion, it is both illogical and contrary to the plain provisions of the trust instrument. Also, the holding of the majority is contrary to accepted principles of trust law.

An analysis of the trust instrument does not reveal any intent on the part of the grantor to give the trustee the authority or discretion to determine what is income and *496what is corpus. Certainly, no such intent or authorization is expressly stated anywhere in the trust instrument. The majority attempts to impute such intent to the grantor by implication. Such a holding will not withstand close scrutiny on the facts or under the law.

As stated above a trustee only has such powers as are stated in the trust instrument or which may be implied therefrom in order to carryout the purposes of the trust. The converse is also true, i.e., powers of a trustee that frustrate or destroy the purposes of a trust cannot be implied from a trust instrument. That is exactly what the majority opinion does in the instant case. We only need to look at the purposes of Mrs. Andersen’s trust and consider the effect the majority opinion has on such purposes to determine that this is so. The purposes of Jeanette Andersen in creating the trust were to create a fund to provide for the support and maintenance of the beneficiaries during their lives, and to provide a fund to be distributed to the remaindermen on the death of her daughter. Paragraph 9 of the trust instrument stated in pertinent part as follows:

". . . the intent and purpose of this Indenture being to provide a fund which shall under all circumstances during the life of the trusts by this Indenture created be available for the support and maintenance of the beneficiaries.”

Paragraphs 2, 3 and 4 provided that the net income would be paid to Mrs. Andersen during her life, then to her husband, Martin, during his life (he later renounced his interest in the trust), and then to her daughter, Marcia, during her life, and at her death the corpus was to be distributed to named remaindermen. Elaborate provisions were made for the support, maintenance and education of any remainderman who was a minor at the time of the distribution of the corpus.9

*497The decision of the majority that the Trustee had the implied power to determine that the gain on the notes was income and not corpus has the effect of destroying the corpus and the net income therefrom and requiring it to pass through the estate of Mrs. Andersen as her property. No longer would there be any corpus from which income could be paid to the daughter during her lifetime, nor any corpus after her daughter’s death to be distributed to the remaindermen, including the support, maintenance and education of minor remaindermen. Thus, the opinion of the *498majority effectively defeats and destroys the purposes of the trust by attributing implied powers to the Trustee that were never intended by the grantor of the trust, and which are contrary to the plain provision of the trust instrument. This is contrary to the well-established principles of trust law.

The majority’s reliance on the Florida Circuit Court decision in Martin Andersen, as Trustee, supra, for their conclusion that the Trustee properly treated the gain on the sale of the stock as income is misplaced. The majority holds that the Florida court "determined that under the trust instrument Martin Andersen as trustee had properly treated the gain on the sale of the stock as income and distributed it to Jeanette.” I do not agree. The order of the Florida court nowhere mentions the "gain on the sale of the stock” as either income or corpus. The pertinent parts of the order of the Florida court were as follows:

". . . and that said Petitioner seeks a determination and construction from this Court as to the manner of administration of the Trust provided for in Article 2 and Article 4 of the said Trust Declaration, as amended, and, in particular, that the said Petitioner seeks a construction and determination under said Articles whether any part or portion of the net income, when realized, may be retained, and if retained beyond the current year, may be considered as income for the purpose of eventual distribution to the current income beneficiary, Jeanette Andersen, and the contingent income beneficiary, Marcia Andersen Murphy, during their lives or upon their deaths must be considered as accumulated income to be added to the principal of said Trust Fund and held and reinvested for eventual distribution to the remain: dermen of the said Trust; . . .”

"[It is] ORDERED, ADJUDGED AND DECREED that the directions under Article 2 and Article 4 of the Trust Declaration dated the 25th day of March, A.D. 1941, as amended, that the Trustee pay the net income from the Trust to the current income beneficiary at convenient installments for and during the rest of her life and to the contingent income beneficiary for and during the rest of her natural life, are held and construed to mean that the said income beneficiaries, while entitled to receive the net income therefrom, possess a present and immediate, *499vested, equitable interest in the entire net income arising from the administration of the said Trust, subject, however, to a discretion granted to the said Trustee authorizing the said Trustee to initially determine the composition of net income and subject to a further discretion in the said Trustee to further determine the time and manner of distribution of such net income to the income beneficiary, and such discretions to be exercised reasonably and prudently by said Trustee during the life of the current income beneficiary, and that upon the death of such income beneficiary, any accrued, and as yet undistributed income, shall be paid to such beneficiary’s personal representative or representatives and that under the terms of the said Article 2 and Article 4 of said Trust Declaration, as amended, the Trustee is granted no authority to accumulate any of such net income as additions to the principal of said Trust Fund for eventual distribution to the named remaindermen thereunder; . .

That court’s interpretation of the trust instrument involved only two articles — Articles 2 and 4. Both of these articles related to the payment of the "net income” to the beneficiaries.10 They did not deal with the Trustee’s power to determine what is income and what is corpus.

The Florida court only considered the authority of the Trustee to decide what was "net income” of the trust. Such income would naturally include interest on the notes less the expenses of the trust. The court gave no consideration whatever to the status of the capital gain on the notes. No doubt, this was because under the laws of Florida, capital gain on the sale of trust corpus is itself a part of the corpus. Obviously, the Trustee’s power to "determine the composition of net income” was nothing more than bookkeeping authority. This did not mean, however, that he could determine what was income and what was corpus. Instead, a fair reading of the order, the purpose of the interpretation, and the articles under which the interpretation was made, indicate that the Trustee necessarily had authority to determine the "net income” of the trust for the purposes *500of payment to the life beneficiaries. He would have that authority without the Florida court order. Otherwise, he could never pay the beneficiaries anything. Furthermore, the Florida court specifically stated that the Trustee could not accumulate net income as an addition to corpus. This clearly shows the Florida court’s reluctance to imply a power, i.e., the power to add income to corpus. If the Trustee could not treat income as corpus and add it to corpus (as the Court stated) it follows that the Trustee could not treat corpus as income and add it to income. If he could not do the one, he should not be able to do the other.

In my opinion, the majority is reading findings, conclusions and holdings into the Florida court order that are not there. If that court’s decision means what the majority says it does, the decision is clearly wrong, as it is contrary to the trust instrument, is contrary to Florida law, and it frustrates and defeats the purposes of the trust. I cannot believe the court had any such intention or purpose. That court, as shown by the order quoted above, clearly intended that the corpus was to be preserved and not destroyed by the Trustee’s classifying it as income. This is shown by the provision in the order that the Trustees would hold the "principal of the trust fund for eventual distribution to the named remaindermen therein.” It follows, on the other hand, that if all of the corpus could be converted into income by the Trustee, there would be no corpus to distribute.

The majority also states that Mrs. Andersen, as grantor, "acquiesced” and "thereby approved” the allocation of the gain as income because she did not object to it at the accounting proceeding. Regardless of Mrs. Andersen’s actions and intent at that proceeding, her intent at the time of the execution of the trust instrument controls. Jenkins v. Donahoo, 231 So. 2d 809 (1970); Restatement of Trusts, (2d Ed. 1959) § 164. She could not later alter or amend the terms of the trust instrument because she renounced that power in the trust instrument. Bogart, Law of Trusts, (4th Ed. 1963), § 145.

The Florida courts have strictly construed trust instruments and have been reluctant to imply powers to a trustee. In the case of Jordan v. Landis, 175 So. 241 (1937), the Florida Supreme Court had a trust before it the *501purpose of which was the creation of a public charitable school. The grantor conveyed a tract of land to eight individuals as trustees. The school was built and put into operation. Twenty-five years after the creation of the trust, the surviving trustees conveyed the tract of land to a nonprofit corporation which had been formed sometime earlier by some of the trustees. The trustees contended that the nonprofit corporation was formed to continue the purposes of the trust. The Florida Supreme Court held that the trustees did not have the power to convey the tract of land nor appoint successor trustees, because the trust instrument did not expressly provide for the same.

Section 690.03 of the Florida Annotated Statutes which allows the grantor to give the trustee power to decide what is income and what is corpus has not been specifically construed by a Florida court. However, the Pennsylvania Supreme Court, whose decisions have been recognized on occasion by the Florida Supreme Court (See Jenkins v. Donahoo, supra), has construed its statute, which is identical to Florida’s. The Pennsylvania court has held that where a trustee is to be given discretionary power to determine what is income and what is corpus, the grantor must clearly express his intention to do so. In Re Estate of Weiss, 309 A.2d 793 (1973).

In any event, as pointed out by the majority, we are not bound by the decision of the Florida trial court. The case was not appealed and we do not have a decision on the matter by the highest court in that state. The Supreme Court held in Commissioner v. Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967), that the decision of a lower state court is not controlling "where the highest court in the state has not spoken on the point.” Also, see King v. Order of Travelers, 333 U.S. 153, 68 S.Ct. 488, 92 L.Ed. 608 (1948).

It is clear that the proceeding in the Florida court was nothing more than a routine hearing to examine the final account of trustee Martin Andersen for the purpose of discharging him from his trust. No one contested the account and it was approved as a matter of course. The hearing was not an adversary proceeding in the true sense of the term. Any practicing attorney knows that where no contest is filed, final accounts of fiduciaries, such as *502guardians and trustees, are routinely approved by courts with scarcely any questions being asked. That was the situation here. One thing we can be sure of is the fact that the problems involved in the instant case as to the capital gain on the stock and the ownership of the notes was not considered nor passed on by the Florida court. Consequently, for all of the reasons stated above, I would not give any weight to the order of that court as being relevant to the disposition of any issues in the instant case.

It should be pointed out that the trust made the election under § 453 of the Code at the time of the sale of the stock to report the gain on the installment basis. This is proof that it owned the notes.11 If Mrs. Andersen had been the owner of the notes, she should have made the § 453 election. If she had been the owner, her failure to make a timely election would have prevented her from reporting the gain on the installment basis. See Marcello v. Commissioner, 414 F.2d 268 (5 Cir. 1969): Ackerman v. United States, 318 F.2d 402 (10 Cir.1963); 26 U.S.C.A. § 453; 26 C.F.R. 1.453-8(b). This is further proof that she did not own the notes.

It is obvious that the Trust would not have dared to contend that Mrs. Andersen was the owner of the notes at the time of the sale of the stock, because (1) in the absence of an election by Mrs. Andersen under § 453 to pay the taxes on the gain on an installment basis, the I.R.S. could have collected all of the taxes on the gain at one time; and (2), if Mrs. Andersen were the owner, the trust would not have had control of the notes as trust corpus. Thus, it appears that the contention of the Trustees in the instant suit that Mrs. Andersen owned the notes is nothing but a hindsight afterthought and manuever to avoid the payment of the taxes. It appears further that the Trustees by their inconsistent positions are playing games with the courts and the taxing authorities. This should not be permitted.

The Tax Court held that at the time of Jane’s (Mrs. Andersen’s) death, eleven of the notes, each in the sum"of $242,179.50, and a larger note in the sum of $1,453,077, [all *503in the total sum of $4,117,051.50] were unpaid but not matured or due. The parties stipulated the value of the trust corpus in the Tax Court. In that connection, the Tax Court said:

". . . the parties have stipulated that the fair market value of the assets in the trust at the time of Jane’s death was $4,853,196.46.”

It is uncontroverted that the value of the unpaid notes was included in this stipulation. This is further proof that the trust and not Mrs. Andersen owned the notes.

Furthermore, the daughter, Marcia, signed the stipulation in her capacity as executrix of the estate of Jeanette Andersen. The estate and Marcia, a life beneficiary of the trust, should be bound by that stipulation, although Marcia appears in the present suit as a trustee. Nevertheless, she will be one of the ultimate beneficiaries should the trust prevail in the instant suit. It appears that she wears a coat of many colors, but we should consider substance rather than form.

As stated above, the installment notes were payable to the trust. Therefore, the taxpayer in this case (i.e., the trust), because of its past actions, would appear to be estopped from denying that it owned the installment notes. This "estoppel theory” has been recognized in other tax cases. See Farha v.