Stanley Forman Reed

“ This decision applied federal definition to determine whether an interest in property was called a 'future interest.' 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. ”

“ The real issue is whether, under Illinois law, the trustees' authority under paragraph nine of the trust instruments 'to alter, change or amend this Indenture at any time and from time to time by changing the beneficiary hereunder * * * or in any other respect,' does so far as to permit the substitution of the donor for the beneficiaries. Would the trustees with authority to change the terms and 'the time when the Trust Fund * * * is to be distributed' be permitted to revoke the trust and thus vest the corpus in the donor. ”

“ We are dealing with a trust for minors where the trustees, without any interest adverse to the grantor, have authority to devote so much of the net income as 'to them shall seem advisable' to the 'education, support and maintenance' of the minor. ”

“ This was the view of the Circuit Court of Appeals. 7 Cir., 124 F.2d 772, 777. Their examination of the Illinois law led them to conclude that 'the wife and brother as trustees had no authority under the Illinois law to revest the property in the grantor,' a requirement for liability under Section 166. This conclusion does not spring from a statute of that state nor even from a clear or satisfying line of decisions. It is, however, the reasoned judgment of the circuit which includes Illinois in which a judge of long experience in the jurisprudence of that state participated. ”

“ This right to realize income by revocation at the settlor's option overcame the technical disposition. The 'non-material satisfactions' (gifts-contributions) of a donor are not taxable as income. Helvering v. Horst, supra.
That economic gain for the taxable year, as distinguished from the non-material satisfactions, may be obtained through a control of a trust so complete that it must be said the taxpayer is the owner of its income. ”

“ Since the federal revenue laws are designed for a national scheme of taxation, their provisions are not to be deemed subject to state law 'unless the language or necessary implication of the section involved' so requires. ”