## Facts

- Helen S. Wall died domiciled in Wisconsin on October 7, 1987; her daughter served as personal representative.
- Before death, Wall created three irrevocable inter vivos trusts for her daughter and two granddaughters and made additional transfers to them, reported on gift tax returns.
- The estate’s original and corrected federal estate tax returns did not include the trusts’ assets in the gross estate, though lifetime transfers to the trusts were reflected as adjusted taxable gifts.
- Each trust named a corporate trustee and allowed Wall (and, for one trust, the beneficiary) to remove the trustee and appoint a successor trustee.
- Any successor trustee had to be a corporation qualified to conduct trust business in the United States and “completely independent” from Wall.
- Wall retained no express power to direct distributions, to serve as trustee, or to appoint herself or a related/non-independent person as trustee.
- The Commissioner determined an estate tax deficiency, asserting the trust assets were includible in the gross estate under IRC §§ 2036(a)(2) and 2038(a)(1) based on Wall’s trustee removal and replacement power.

## Issues

1. Whether a decedent’s retained power to remove a sole corporate trustee and appoint a successor limited to an independent corporate trustee causes inclusion of trust assets in the gross estate under IRC § 2036(a)(2).
2. Whether the same retained power constitutes a power to alter, amend, revoke, or terminate under IRC § 2038(a)(1).

## Decision

- The Tax Court held for the estate.
- The trust assets were not includible in Wall’s gross estate under § 2036(a)(2) or § 2038(a)(1).
- A power to remove an independent corporate trustee and appoint another independent corporate trustee, standing alone, did not give Wall a legally enforceable power to affect beneficial enjoyment of the trusts.

## Legal Principles

- IRC §§ 2036(a)(2) and 2038(a)(1) require a retained power that is substantive and legally enforceable to control enjoyment or change the trust’s terms; mere practical influence is insufficient.
- A settlor’s ability to replace a trustee does not trigger §§ 2036 or 2038 when the replacement power is restricted to independent corporate fiduciaries and the settlor cannot appoint herself or a controlled party.
- Trustees’ fiduciary duties to beneficiaries limit the settlor’s ability to direct trustee discretion; a replacement power does not convert fiduciary discretion into the settlor’s legally enforceable control.

## Conclusion

Because Wall could only replace the trustee with an independent corporate trustee and retained no legally enforceable power to direct distributions or modify the trusts, the trusts’ assets were not included in her gross estate under IRC §§ 2036(a)(2) or 2038(a)(1).


Estate of Wall v. Commissioner, 101 T.C. 300 (1993)