## Facts

- In 1953, E.S. Morris and his wife executed 10 written declarations of trust.
- Each instrument purported to create two irrevocable trusts: one for B.R. Morris and one for Estelle Morris, with income accumulated for the primary beneficiary’s life and remainder for surviving issue.
- The instruments stated each beneficiary’s interest was separate and not to be commingled, though paired trusts could be co-managed if ultimately divided evenly.
- Each numbered trust was initially funded with small gifts and was further financed by loans from E.S. Morris.
- Separate bank accounts were opened for each numbered trust, and accountants prepared separate financial statements.
- The trustee filed 20 separate fiduciary income tax returns each year (10 for the Estelle trusts and 10 for the B.R. trusts).
- The trusts participated in real-estate development ventures and generated substantial income; the multi-trust structure was designed to reduce anticipated income taxes.
- The Commissioner issued deficiency notices for fiscal years ending 1961–1965 asserting the trusts should be treated as fewer taxable entities (first as two, later as one) for federal income tax purposes.

## Issues

1. Whether each declaration of trust created one trust or two trusts for federal income tax purposes.
2. Whether the trusts created under the 10 instruments should be aggregated and taxed as one or two trusts, or respected as 10 or 20 separate trusts.

## Decision

- The Tax Court held that each of the 10 instruments created two distinct trusts—one for B.R. and one for Estelle—for federal income tax purposes.
- The Tax Court refused to aggregate the arrangement into one trust (or two trusts) and treated the 20 trusts as separate taxable entities for the years at issue.
- The court found the trusts were primarily tax-motivated but concluded that motive alone did not justify collapsing them as shams.
- The Ninth Circuit affirmed the Tax Court’s judgments on the Tax Court’s stated reasoning.

## Legal Principles

- Multiple trusts are not disregarded for federal income tax purposes merely because they were created primarily to reduce taxes; aggregation requires a sufficient showing that the arrangement lacks independent legal significance or is a sham in substance.
- In determining whether multiple trusts exist, courts consider the settlors’ intent as reflected in the trust instruments, including whether beneficiary interests are expressly segregated.
- Consistent, long-term separate administration (e.g., separate bank accounts, accounting, and separate returns) supports recognition of distinct trusts as separate taxable entities.
- Substance-over-form principles permit recharacterization, but the Commissioner bears the burden to justify collapsing formally valid trusts absent specific statutory authority barring the structure.

## Conclusion

The Tax Court held that ten declarations of trust created twenty separate trusts, and it respected each as a distinct taxable entity despite a dominant tax-avoidance purpose because the instruments and administration consistently treated the trusts as separate and the Commissioner did not prove they were mere shams warranting aggregation.


Estelle Morris Trs. Nos. 401-410 v. Comm’r, 51 T.C. 20 (1968)