## Facts

- Robert P. Morsman executed a “Trust Agreement” on January 28, 1929, declaring he held specified securities in trust and naming himself trustee, with United States Trust Company as successor trustee.
- The instrument contemplated that income would be accumulated for five years, then paid to Morsman for life, with remainder provisions for any future issue, or alternatively a widow, and otherwise his heirs under Nebraska law.
- Morsman retained broad control over the property, including the practical ability to terminate or modify the arrangement, and he did not initially segregate the purported trust assets or create a separate trust account.
- Acting as “trustee,” Morsman sold some of the securities in 1929 at a substantial profit.
- He did not report the gain on his individual return, asserting it belonged to the trust.
- The securities were carried as his individual holdings until May 3, 1929, when they were transferred to an account in the name of United States Trust Company as trustee.
- The Commissioner determined a deficiency, treating the 1929 gain as Morsman’s individual income; the Board of Tax Appeals sustained the deficiency, finding no valid trust existed before May 3, 1929.

## Issues

1. Whether the January 28, 1929 instrument created a present, legally effective trust before May 3, 1929.
2. Whether the 1929 profit from sales of the securities was taxable to Morsman individually or to a separate trust entity.

## Decision

- The Eighth Circuit affirmed the Board of Tax Appeals and sustained the deficiency.
- The court held no valid, present trust existed during the period in which the 1929 gain was realized.
- Because Morsman remained the true owner for tax purposes at the time of the sales, the gain was taxable to him individually.

## Legal Principles

- A trust requires separation of legal and equitable interests; a trust does not exist where the same person holds both legal title (as trustee) and the entire present beneficial interest.
- A valid trust requires enforceable duties owed to beneficiaries with a present equitable interest; purely contingent future interests, without an ascertainable beneficiary able to enforce the trust, may be insufficient to create a present express trust in a self-declared arrangement.
- Where a settlor declares himself trustee and is the sole present beneficiary, with other beneficiaries unborn or unascertained, the arrangement may be treated as leaving the beneficial interest in the settlor (a resulting trust concept), so income remains taxable to the settlor.
- For income tax purposes, retained control, lack of segregation of assets, and the timing of transfer to an independent trustee may support disregarding a purported trust for the period before a genuine separation of ownership occurs.

## Conclusion

The court treated the 1929 securities gains as Morsman’s personal income because, before the assets were placed with an independent trustee, the purported trust lacked a present separation of legal and equitable interests and lacked an ascertainable beneficiary with enforceable rights.


Morsman v. Commissioner, 90 F.2d 18 (8th Cir. 1937)