The opinion
Simpson, J., dissenting: I subscribe to the views forcefully set forth by Judge Wilbur, but I should like to add the following comments. In its approach, the majority has lost sight of the purpose of the criteria established by Mathews. In a gift-leaseback transaction, there is a serious question as to whether the transfer has sufficient economic reality for it to be recognized for Federal tax purposes. After reviewing and analyzing the other decisions in this area, the Mathews criteria were developed to provide a rational basis for resolving such cases. Their ultimate objective is to decide whether the transaction has economic reality, and to do so, it is necessary to decide whether the donor has, in fact, parted with the control of the property. Thus, although a lease need not be in writing for some purposes, it is important that the lease be written in a gift-leaseback situation so that we know the terms of the lease and can judge whether the donor has really parted with control of the property. Similarly, although the imposition of fiduciary obligations on a person may be sufficient to cause him to be recognized as a trustee for some purposes, it is important that the trustee be wholly independent of the donor for purposes of judging the control relinquished by the donor. When the purpose of the Mathews criteria is kept in mind, it is clear that the lack of a written lease in this situation was very material and that Mr. Gross was not the type of independent trustee who would assure that the trust and lessee dealt with each other at arm’s length.
In addition, under California law, the trust was not created before September 20, 1973, because it did not become the legal owner of the medical property before that date. In the first place, the deed purporting to transfer the property bears a date of execution of September 20, 1973. Strong proof is required to contradict the terms of a written instrument (Lucas v. Commissioner, 58 T.C. 1022 (1972)), and the record contains no such proof showing an earlier execution date. Second, the California courts would not find, as does the majority, that the trust instrument itself conveyed the property. Under California law, real property can be transferred only by a written instrument executed by the transferor. Cal. Civ. Code Ann. sec. 1091 (West 1954). To transfer property, a writing must reveal an intent to do so. Olson v. Cornwell, 134 Cal. App. 419 , 25 P.2d 879 (1933); Roberts v. Abbott, 48 Cal. App. 779 , 192 P. 345 (1920). Here, when the trust instrument was prepared by the petitioners’ attorney, a deed of the medical property was also prepared. The trust instrument stated that the petitioners “have delivered” such property to the trustees. That language indicates that the trustors believed that the property had been conveyed by some other instrument, and the simultaneous preparation of the deed reinforces that interpretation of the language of the trust instrument.
Two California cases, In re Goetz’s Estate, 13 Cal. App. 198 , 109 P. 145 (1910), and Roberts v. Abbott, supra, are analogous to this case. In each of those cases, there was a written contract for the transfer of real property. However, in each case, the contract also indicated that title was to be passed by another instrument. Principally because of the reference to another instrument of transfer, each court held that the contract did not effect a conveyance but was merely an agreement to convey. Similarly, the trust instrument in this case fully set forth the agreement between the settlors, Dr. and Mrs. May, and the trustees, Dr. May and Mr. Gross, with respect to the medical property, but the instrument itself clearly manifested an intent that the property be conveyed by the deed. In my opinion, therefore, it cannot be said that the trust instrument conveyed the medical property.
The majority cites three California cases to support its conclusion. Olson v. Cornwell, supra; Keogh v. Noble, 136 Cal. 153 , 68 P. 579 (1902); Weiner v. Mullaney, 59 Cal. App. 2d 620 , 140 P.2d 704 (1943). Olson v. Cornwell is authority for nothing more than the proposition that an instrument conveys property if it manifests an intent to do so. The instrument involved in that case showed such an intent, but was inartfully drafted. The court held that “inaccuracy of expression or * * * ineptness of the words used” did not prevent the instrument from effecting a conveyance. Keogh v. Noble did not involve the question of when an instrument conveys property. There, it was clear that a transfer had been made, and the only issue was whether the transferee owned the property outright or as trustee for the benefit of the transferor. Weiner v. Mullaney also did not involve the issue of transfer. In that case, a brother had written a series of letters to his sister indicating that he was holding property for her benefit. The court found that the letters manifested an intent to create a trust for the sister and that therefore the sister was entitled to income realized upon the sale of the property held by the brother.
I recognize, as does the Commissioner in his brief, that if Dr. May alone had been appointed as a trustee, the mere written declaration by Dr. and Mrs. May that Dr. May was holding the medical property in trust would have created a valid, funded trust since there would have been no need for a transfer of the property to a third party. See Weiner v. Mullaney, supra. However, Mr. Gross was also appointed as a trustee, and therefore, it was necessary that there be a conveyance to him. It is sufficiently clear to me that there was no such conveyance before September 20,1973.
Wilbur and Parker, JJ., agree with this dissent.