91 F.2d 880 (7th Cir. 1937)
In December 1927, the taxpayer contemplated trading in the stock market during 1928 after deciding that conditions were favorable.1 He consulted a lawyer who advised that it was possible for him to trade in trust for his children and other members of his family.2 He stated to them that he declared a trust of his stock trading during 1928 for the benefit of his family.3 Taxpayer agreed to assume personally any losses resulting from the venture, and to distribute the profits, if any, in equal shares to his wife, mother, and two minor children after deducting a reasonable compensation for his services.4
The taxpayer’s two children were one and three years of age at the time.5
During 1928 the taxpayer carried on the trading operations contemplated.6 At the end of the year he determined his compensation at slightly less than $10,000, which he reported in his income tax return for that year.7 The profits remaining were then divided in approximately equal shares among the members of his family, and the amounts were reported in their respective tax returns for 1928.8 The amounts allocated to the beneficiaries were credited to them on the taxpayer’s books, but they did not receive the cash except to a small extent in the case of the taxpayer’s mother.9
The Board of Tax Appeals held that the income in controversy was taxable to the petitioner as a part of his gross income for 1928 and decided that there was a deficiency.10 The petitioner seeks review of that decision in this court.11
Whether under the circumstances set forth in the findings of the Board of Tax Appeals, the taxpayer created a valid trust, the income of which was taxable to the beneficiaries under section 162 of the Revenue Act of 1928?12
An interest that has not come into existence cannot be held in trust.13 A gratuitous declaration purporting to create a trust over such a future interest amounts only to a promise to create a trust later, which is unenforceable absent consideration.14 Even when the interest later arises, no trust attaches unless the declarant manifests an intention to create the trust at the time the property comes into existence.15
No. The taxpayer's December 1927 declaration addressed profits from contemplated stock trading that did not exist and in which the taxpayer held no present interest at the time of the declaration.16 The declaration was gratuitous, with no consideration furnished by the wife, mother, or minor children.17 The profits came into existence during 1928 as the trading operations proceeded and stocks were sold at a gain.18 The taxpayer's first subsequent manifestation of intention to create the trust occurred only when he credited the allocated amounts to the beneficiaries on his books at the end of the year.19 Prior to that crediting, the profits remained the taxpayer's sole property and were not impressed with any trust.20
The Board of Tax Appeals therefore correctly included the income in the taxpayer's gross income for 1928.21 Because the original declaration lacked consideration and no timely manifestation occurred when the profits arose, the income was not deductible by the taxpayer or taxable to the beneficiaries under section 162 of the Revenue Act of 1928.22
The taxpayer did not create a valid trust, the income of which was taxable to the beneficiaries under section 162 of the Revenue Act of 1928.23