Camp v. Commissioner of Internal Revenue
195 F. 2d 999, 41 A.F.T.R. (P-H) 1148, 1952 U.S. App. LEXIS 4158 (1952)
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Rule of Law:
A transfer of property in trust is considered a completed gift for tax purposes only as to the beneficial interest of a person whose consent is required for the donor to alter or revoke the gift. Gifts to other beneficiaries, whose interests are not adverse to the consenting party, remain incomplete.
Facts:
- In February 1932, Frederic E. Camp created an irrevocable trust, naming Bankers Trust Company as trustee.
- The trust provided for income to be paid to Camp's wife, Alida, for her life, and upon her death, the principal was to be distributed to Camp's issue.
- Contingent remainder interests were granted to Camp's mother, Johnanna R. Bullock, and his half-brother, H. Ridgely Bullock.
- The original trust indenture allowed Camp to alter, amend, or revoke the trust in conjunction with either Johnanna or Ridgely.
- On December 11, 1937, Camp amended the trust, removing Johnanna and Ridgely from the revocation clause and providing that the power to alter, amend, or revoke could only be exercised by Camp in conjunction with his wife, Alida.
Procedural Posture:
- The Commissioner of Internal Revenue determined deficiencies in Frederic E. Camp's gift tax filings for the years 1937 and 1943.
- Camp petitioned the Tax Court for review of the Commissioner's determination.
- The Tax Court held that Camp made a completed gift of the entire trust corpus in 1937, thereby finding a deficiency in his gift tax for that year.
- Camp, the petitioner, sought review of the Tax Court's decision in the U.S. Court of Appeals for the First Circuit.
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Issue:
Does a donor make a completed, taxable gift of the entire trust corpus when he amends the trust to require the consent of the life income beneficiary—who has a substantial adverse interest in her own life estate—to exercise his power of revocation, even though that beneficiary's interest is not adverse to the revocation of other remainder interests?
Opinions:
Majority - Magruder, Chief Judge.
No. When a donor reserves a power to alter or revoke a trust in conjunction with a designated beneficiary, a completed gift has been made only as to the interest of that specific beneficiary who has a veto over the power's exercise. The court reasoned that a gift is not complete until it is "put beyond recall." When the trust was amended in 1937 to require Alida's consent for any changes, the gift of her life estate became complete because her interest was substantially adverse to its own revocation. However, Alida's interest was not adverse to the revocation of the remainder interests that would pass to others after her death. Therefore, as to those remainder interests, Camp retained the power to change the disposition in conjunction with a person (Alida) who had no interest in preventing such a change, meaning those gifts remained incomplete and were not subject to gift tax in 1937.
Analysis:
This decision refines the 'substantial adverse interest' rule by applying it on an interest-by-interest basis rather than to the trust as a whole. It establishes that a gift is only complete to the extent that the party whose consent is required for revocation has an interest adverse to the revocation of that specific gift. This prevents donors from nominally completing a gift of an entire trust corpus by simply requiring consent from one beneficiary, while retaining practical control over the remainder interests. The case thereby adds a crucial layer of nuance for analyzing the completeness of gifts in trust for tax purposes.
