Estate of Holdeen v. Commissioner

ESTATE OF JONATHAN HOLDEEN, DECEASED, RANDAL HOLDEN and JANET ADAMS, Co-executors, and ESTATE OF STELLA H. HOLDEN, DECEASED, RANDAL HOLDEN, Executor, et al., 1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Estate of Holdeen v. Commissioner

Docket Nos. 65867, 65869, 71972, 71997, 82081, 82946, 87569, 89076, 94066, 94080, 94081, 94084, 94085, 94107, 94186, 95138, 95143, 5376-65 and 5382-65.

United States Tax Court

T.C. Memo 1975-29 ; 1975 Tax Ct. Memo LEXIS 343 ; 34 T.C.M. (CCH) 129 ; T.C.M. (RIA) 750029 ;

February 19, 1975 , Filed.

Jonathan Holdeen during his life entered into some 186 agreements with his adult daughters or friends to create trusts. About 50 of these agreements are here involved. In some of these he named his grandchildren or his brother's grandchildren as income beneficiaries for life, with income thereafter to be paid in part to a charity and in part to be accumulated. In others he named an exempt organization as beneficiary as to part of the income, with part to be accumulated. All provided for a term of 500 or 1,000 years with the principal and accumulated income then to be paid to the State of Pennsylvania. Holdeen's wife was a co-grantor in some agreements. The original assets of each trust were of appreciated securities transferred irrevocably with reservation of payment of grantor's cost. Later some trusts purchased improved real properties. Certain early trusts were involved in litigation in U.S. courts over taxability to Holdeen of trust income for 1945 and 1946 in which income of some trusts was held taxable to him and income of others was held not so taxable.

Holdeen and his wife made certain other contributions to the fully charitable trusts in the years *344 1951-1957.

Trusts I, II and III were created in 1936, MS and NS Trusts in 1940 and others in 1944 and later years.

Trust II provided for payment of its income to family members during the lives of two daughters of Holdeen, the income thereafter to be paid to Hartwick College and at the end of 1,000 years the principal to be paid to the State of Pennsylvania. It was modified in 1943 to be deemed made under and with reference to Pennsylvania law, and to provide that capital gains would not be treated as income. In the fiscal years ended in 1955 and 1956 the ordinary income was paid to family beneficiaries and the capital gains were permanently set aside by the trustee pursuant to the trust deed for the educational or public purposes of the trust. The amounts set aside were reinvested within a reasonable time in property held for the production of investment income. The amounts set aside were not unreasonable in amount or duration, were not used to a substantial degree for noncharitable purposes and were not invested in such a manner as to jeopardize the interests of Hartwick College or the State of Pennsylvania.

Trust 45-10, a fully charitable trust, provides for payment of a part of *345 its income to the American Unitarian Association (AUA), an exempt organization, and accumulation of the remainder of its income. The trust is subject to Pennsylvania law and regulation. The amounts to be paid to the AUA are one 500th of the income for the year times the number of years elapsed since 1944, and all other net income not lawfully subject to accumulation. After 500 years the corpus and accumulated income is payable to the State of Pennsylvania.

Trust 55-10 is a split trust. A part consists of units of 200 or 500 shares of stock the income to be paid to family members for life with the remainder returned to the corpus of the trust after such lives. The other part is a fully charitable trust with part of the income payable for charitable purposes or to the AUA, and corpus and accumulated income to the State of Pennsylvania after 1,000 years. The trust is subject to Pennsylvania law and regulation. The payments are one 1000th of the income for the year times the number of years since 1950. The remainder of the income is to be accumulated, except that any part of such income for which accumulation is unlawful shall be paid to Trust 45-10.

Held, Holdeen and his wife intended *346 to and did create valid and genuine trusts.

Held further, In the taxable years 1951-1957 Holdeen, with the exceptions noted infra, did not retain or exercise ownership or control of the corpus or income of any of such trusts and the income of the trusts was not taxable to him. The exceptions referred to above are: (1) Income of Trusts II and III was taxable to Holdeen until June 30, 1954, and not thereafter. (2) Income of a portion of Trust 45-10 was taxable to Holdeen until September 30, 1956, and not thereafter. (3) Income of portions of MS and NS Trusts was taxable to Holdeen until September 30, 1955 and not thereafter.

Held further, Contributions made by Holdeen and his wife to the fully charitable trusts in the years 1951-1957 are deductible as claimed.

Held further, Trust II is entitled to deduct its capital gains as amounts permanently set aside for educational or public purposes pursuant to section 642(c), I.R.C. 1954 in the fiscal years ended in 1955 and 1956.

Held further, The accumulation provisions of Trusts 45-10 and 55-10 are unreasonable and void as contrary to public policy and the entire income of the trusts is payable to the income beneficiary, the AUA, now the UUA, *347 on a current basis. In re Estate of Frank James, 199 A.2d 275 (Sup. Ct. Pa. 1964) . There is therefore no accumulation subject to the provisions of sec. 681(c), I.R.C. 1954 or sec. 162(g)(4), I.R.C. 1939 , and these trusts have no taxable income.

Held further, The portions of Trust 55-10 applied to the payment of current income to family members with remainder to the principal of the trust are charitable remainder trusts and have no taxable income.

Louis Bender and Allan Rappleyea for the petitioner Estates.

Allan Rappleyea and Henry C. Clark, for the petitioner Trusts.

Dorrance R. Belin and F. Patrick Matthews, III , for the respondent.

Frank G. Opton filed briefs for the Unitarian Universalist Association as Amicus Curiae.

FORRESTER , Judge: Respondent determined deficiencies in income tax in these consolidated cases as follows:

Estate of Jonathan Holdeen, Deceased, Randal Holden and Janet Adams, Co-executors, and Estate of Stella H. Holden, Deceased, Randal Holden, Executor. Docket No. Taxable Year Deficiency

82081 1951 $ 162,116.81

82081 1952 160,835.28

82081 1953 198,406.06

82946 1954 390,027.57

89076 1955 267,438.63

87569 1956 397,464.25

94186 1957 441,714.94

Also an addition to tax for the year 1951 *348 for deliquency in the amount of $ 15,449.90 in Docket No. 82081 under section 291 of the Internal Revenue Code of 1939 . Holdeen Trust II, Janet Adams, Trustee

Docket No. Taxable Period Deficiency Additions to Tax *

65867 1948 $ 5,212.10 $ 1,303.02

65867 1949 1,685.67 None

65867 1950 2,436.86 609.21

71972 1951 1,947.77 486.94

71972 1/1-6/30/1952 2,249.47 112.47

71972 FY 6/30/1953 2,457.64 122.88

71972 FY 6/30/1954 12,575.64 None

Janet Adams Trust II, Janet Adams, Trustee

94085 FY 6/30/1955 $ 12,074.75 None

94081 FY 6/30/1956 20,420.51 None

Holdeen Trust 45-10, Janet Adams,

Trustee

65869 1949 $ 4,839.62 None

65869 1950 18,805.46 $ 4,701.36

71997 1951 18,174.13 4,543.53

71997 1952 23,158.02 None

71997 1953 26,822.44 6,705.61

94080 1954 6 7,619.94 None

94084 1955 32,986.27 1,649.31

94107 1956 33,708.35 None

95138 1957 42,294.74 None

5376-65 1958 87,744.39 None

5376-65 1959 28,437.83 None

5376-65 1960 28,789.43 None

5376-65 1961 30,045.53 None

5376-65 1962 27,612.70 None

5376-65 1963 33,319.72 None

5376-65 1964 45,486.34 None

Holdeen Trust 55-10, Janet Adams, Trustee

94066 1956 $ 34,125.63

95143 1957 44,961.46

5382-65 1958 88,906.31

5382-65 1959 30,363.69

5382- 65 1960 30,768.82

5382-65 1961 34,354.98

5382-65 1962 31,299.04

5382-65 1963 36,326.02

5382-65 1964 48,649.28

HISTORY *349 OF THE CASES

Jonathan Holdeen (sometimes hereinafter referred to as Holdeen) entered into a large number of written agreements, as settlor or trustor, with one or more members of his family or a friend, as trustee, in which he created, or purported to create, trusts, some for the benefit of members of his family with remainders to a college or charitable organization, some for the benefit of a charitable organization, and all with a remainder for public purposes, the trusts to have a duration of 500 or 1,000 years. In some of these agreements his wife, Stella, was also settlor or trustor.

Respondent has determined deficiencies against Holdeen and Stella and alternatively against some 50 of the trusts under such agreements. Holdeen and his wife have died while their case was pending and their estates have been substituted as petitioners. By agreement between the parties, three of the trusts so created have been selected as test cases in the present proceeding for decision as to the liabilities of the trusts.

Holdeen filed individual Federal income tax returns for the years 1945, 1946 and 1947. Holdeen and his wife filed joint income tax returns for the calendar years 1948, 1949 and *350 1950.

On November 28, 1956, the respondent mailed notices determining deficiencies as to each of the foregoing years. Holdeen paid the deficiencies determined and brought action against the district director of internal revenue at Albany, New York, seeking a refund of the tax paid with respect to the year 1945. The deficiencies were based primarily upon including in Holdeen's income income accrued to trusts known as Trust I, Trust II, Naylor-Sanford, MacPherson-Sanford, Trust 44-10 and Trust 45-10. The case was tried in May 1958 before a jury. The jury held for Holdeen as to Trust 45-10 but for the district director as to the income of all the other trusts. The District Court set aside the jury's findings as to Trust 45-10. [ 166 F. Supp. 694 ]

On appeal the Court of Appeals for the Second Circuit [270. F.2d 701] concluded that Holdeen was not taxable on the income of Trust 45-10 but upheld the District Court's conclusion as to the other trusts. The case was remanded to determine the effect of a merger of Trust 44-10 and Trust 45-10 under the terms of the latter trust. Upon the remand the district court in 190 F. Supp. 752 concluded that the income of Trust 44-10 after June 2, 1945, *351 the date of Trust 45-10, was part of the income of Trust 45-10 but the court also concluded that the accumulation under Trust 45-10 was unlawful.

On appeal, the court of appeals reversed the holding that the accumulation was unlawful. [ 292 F.2d 338 ]

Holdeen also brought an action in the District Court for the Southern District of New York to recover the taxes paid for 1946 upon income of Trusts I, II, 45-10, 46-10, MacPherson-Sanford and Naylor-Sanford. The case was tried in December 1960. The jury returned a verdict for the Government. On appeal, the Court of Appeals for the Second Circuit reversed the lower court as to income attributable to Trusts 45-10 and 46-10 but sustained the lower court as to income from Trusts I, II, Naylor-Sanford and MacPherson-Sanford. [ 297 F.2d 886 ]

Holdeen and his wife brought a further action in the District Court for the Southern District of New York to recover taxes paid for the years 1947, 1948, 1949 and 1950 which action is still pending. Trial was begun in April 1965 but was suspended.

Also on November 28, 1956, notices of deficiency were sent to Holdeen Trust II, under the title Janet Adams Trust II, with reference to the taxable years 1948, 1949, *352 and 1950 and to Holdeen Trust 45-10 with reference to the years 1949 and 1950. Notices were sent to several other Holdeen Trusts at that time or in the following years. Petitions were filed with this Court by such trusts.

On May 5, 1959, a notice of deficiency was sent to Jonathan Holdeen and Stella with respect to the years 1951, 1952 and 1953. They filed a petition with this Court for a redetermination of the deficiencies. Subsequent notices were sent with respect to the years 1954 through 1957 and petitions were filed with this Court with respect thereto.

In 1967 respondent moved to disqualify Henry C. Clark, one of the attorneys of record for a number of the trusts, and who was formerly an employee of the Internal Revenue Service. The motion was denied. See MacPherson-Sanford Trust, 52 T.C. 580 , filed June 30, 1969.

At a conference on December 22, 1969, in the Chambers of the Chief Judge of this Court, the parties agreed that instead of attempting to try all pending individual and trust cases, certain cases would be selected for trial as test cases.

In March 1970 there were 92 docket numbers involved and pending before this Court. We ordered on April 10, 1970, that 19 cases be *353 consolidated in four groups for purposes of trial, briefing and opinion as follows:

The Court having considered respondent's MOTION TO CONSOLIDATE filed herein on March 18, 1970, and having considered petitioners' RESPONSE thereto filed herein on April 6, 1970, and being fully advised in the premises, it is hereby

ORDERED, that the 19 docket numbers which are listed first in the caption hereto are designated for trial in the Tax Court Courtroom, Room 208, Federal Building, 26 Federal Plaza, New York, New York, commencing at 10:00 o'clock a.m. on Monday, June 1, 1970, and that the said 19 cases be and they are hereby consolidated into the following four groups for purposes of trial, briefing, and opinion: Group Petitioner Docket Nos.

I Jonathan Holdeen 82081, 82946, 87569

89076 and 94186

II Holdeen Trust II 65867, 71972, 94081,

and 94085

III Holdeen Fund 45-10 65869, 71997, 94080,

94084, 94107, 95138

and 5376-65

IV Holdeen Fund 55-10 94066, 95143 and

5382-65

IT IS FURTHER ORDERED, that in accordance with the agreement of the parties, the above 19 cases hereby grouped and designated for trial shall be considered as "test cases", insofar as the remaining 73 related cases in the caption hereto are concerned, *354 and the Court will consider what action should be taken as to the said remaining 73 related cases on June 1, 1970.

These cases were tried in New York, February 16 to March 2, 1971, and in Washington, D.C., March 10 to 17, 1971.

In February 1971 the Unitarian Universalist Association, which is successor in interest to the American Unitarian Association, filed a complaint in the Supreme Court of the State of New York, County of Westchester, against Janet Adams, Randal Holden, and the Commonwealth of Pennsylvania, alleging that the plaintiff is an income beneficiary of certain express trusts for charitable purposes created by certain written agreements made by Jonathan Holdeen, including Holdeen Trusts 45-10, 46-10, 54-120, 47-10, and 55-10 and seeking judgment directing the trustees of these trusts to account for all income received from the inception of the trusts to date and to pay the same over to plaintiff with interest and directing the trustees to pay to plaintiff all future income of such trusts currently.

POST TRIAL

On October 17, 1971, the Commonwealth of Pennsylvania filed a motion in this Court in these proceedings to hold the record open and to withhold decision pending a *355 determination by the Supreme Court of Pennsylvania.

The motion states that on September 3, 1971, upon the petition of the Trustees of Holdeen Fund 45-10, the Court of Common Pleas of Philadelphia County, Orphans Division, awarded a citation, directed to the United States of America, the Commissioner of Internal Revenue, the Unitarian Universalist Association, the Commonwealth of Pennsylvania and the Attorney General of the Commonwealth of Pennsylvania - to show cause why that Court should not grant a declaratory judgment on the validity of the provisions for the accumulation of income in Holdeen Fund 45-10.

The motion further states that it is brought in the interest of the sound administration of justice, that the relief sought will avoid the possibility of inconsistent judicial determinations in the Federal and state courts, assure that the determinations of this Court as to the law of Pennsylvania is in accord with that of the highest court of the state and avoid future needless litigation concerning the same question of Pennsylvania law as it applies to taxable years not covered in the present proceedings, that in view of the holding by the Supreme Court of the United States in *356 Commissioner v. Estate of Bosch, 387 U.S. 456 (1967) that only a decision of the highest court of the state whose law governs the underlying issue before a Federal tribunal shall be controlling on that tribunal, it is the intention of the Attorney General of the Commonwealth of Pennsylvania to obtain, as expeditiously as possible, a final review and determination by the Supreme Court of the State of Pennsylvania on the question of the validity of accumulation of income provisions presented in the aforesaid declaratory judgment actions now pending before the Court of Common Pleas of Philadelphia County and that no previous application for this relief has been made.

We denied the motion on October 26, 1971.

In the Orphans' Court Division of the Court of Common Pleas of Philadelphia, Janet Adams and Randal Holden, as trustees of Holdeen Trusts, including five in which the American Unitarian Association was named as income beneficiary, filed five petitions in September 1971 for declaratory judgment. The relief prayed for was that the income accumulation provisions of these trusts be declared valid. On December 31, 1971, the trustees filed petitions for 17 trusts, including the five above *357 mentioned, seeking reformation or other relief appropriate under the Tax Reform Act of 1969 and the Pennsylvania Charitable Instruments Act of 1971.

In an opinion filed November 20, 1972, The Orphans' Court Division held that it had jurisdiction and venue despite prior administration of the trusts in New York and prior pending action in New York to question the validity of the accumulation provisions of such trusts.

The trustees have deposited a substantial amount of trust assets, $ 7,000,000, in the Girard Trust Company in Philadelphia subject to the jurisdiction of the Pennsylvania courts.

ISSUES

The principal issue in the case of the Estates of Jonathan Holdeen and Stella H. Holden is whether the income realized by some or all of approximately 50 trusts or purported trusts created by Holdeen or by Holdeen and his wife is taxable to the grantors of such trusts in the years 1951 through 1957.

A second and related issue is whether contributions made to such trusts in such taxable years by Holdeen and his wife are deductible as claimed upon their income tax returns.

If the trust income is not taxable to Holdeen and his wife, respondent in the alternative determined that such income *358 is taxable to the trusts.

The issues in each of the cases of Trust II, Trust 45-10 and Trust 55-10 are:

Whether the doctrine of intergovernmental immunity bars the deficiencies,

Whether amounts of petitioner's gross income were permanently set aside for charity,

Whether such amounts for years subsequent to 1950 were unreasonable in amount or duration, were used for non-charitable purposes, or were so invested as to jeopardize the interests of the charity.

In the cases of Trust II and Trust 45-10, whether petitioner is liable for additions to the tax for late filing.

In the case of Trust 45-10, whether petitioner is entitled to an exemption of $ 300 or of $ 100.

The petitioner Estates concede that an addition to tax for late filing for the year 1951 is in order. They also concede additional capital gains for 1954, 1955 and 1956 and some additional interest, dividends and rents for 1956.

FINDINGS OF FACT

JONATHAN HOLDEEN

Jonathan Holdeen was born in Sherburne, Chenango County, New York, in 1881, as Jonathan Holden. He graduated from Colgate University in 1901, read law in his father's law office, and in 1903 was admitted to the New York State Bar. He worked for several years with the *359 Title Guaranty & Trust Company in New York City examining land titles. In 1910 he married. He opened a law office in Pleasantville, New York and engaged more in business than in law.

In 1931 he published a pamphlet referring to the family name Holden and suggested the variant from Holden to Holdeen to identify the Northern Westchester branch of the family. Apparently he adopted this name from that time forward although other members of his family refused to do so.

In 1932 he moved to Pine Plains, a small town near Poughkeepsie, established a law office in Poughkeepsie, and considered himself a resident of Pine Plains from then until 1961.

In 1936 he executed three trust agreements hereinafter referred to as Holdeen Trusts I, II, and III, with his daughter, Janet Holden, as trustee, which trust agreements are hereinafter described.

In 1940 he was in business for several months at Buckhannon, West Virginia, with his son-in-law, Maxwell MacPherson. In September of 1940 he executed a trust agreement with Maxwell MacPherson and a similar agreement with his daughter, Audrey Naylor, who resided at Oakland, Maryland. These trust agreements are hereinafter described as the MacPherson-Sanford *360 and Naylor-Sanford Trusts.

Shortly thereafter, he returned to reside at Pine Plains but spent the major part of his time in business in New York City and vicinity.

Between 1944 and 1956 he executed a number of trust agreements with his daughters, or son, Randal, or a friend, as trustees, as hereinafter described.

In 1961 his wife, Stella H. Holden, died. Following this Holdeen moved to Sherburne, New York.

In 1964 he purchased the Onondaga Hotel at Syracuse and lived there until the time of his death, June 14, 1967.

As of December 31, 1957, Jonathan Holdeen had ten children and 25 grandchildren. Their names and the names of the other great grandchildren of Jonathan Holdeen's father, Stephen Holden, are as follows: Stephen Holden Jonathan Holdeen Elizabeth Holden

Stella Hamblen

Janet Holden Jon H. Adams

Charles F. Adams Carol Adams

Arthur G. Adams

Daniel H. Adams

Andrew Adams

Haldis Adams

Randal Holden Ann Leslie Holden

Dorothy Meyers Roger J. Holden

Tyler B. Holden

Sherley Holden Jonathan A.

Macpherson

Maxwell Macpherson Maxwell Macpherson

II

Audrey Holden Alonzo D. Naylor

Howard Naylor Gail H. Naylor

Michael Naylor

Elizabeth H.

Naylor

Bartlett Naylor

Hildred Holden James R.

Cushing-Murray

James Geoffrey

Cushing-Murray Cushing-Murray

Bentley

Cushing-Murray

Kathryn

Cushing-Murray

Haldis Holden Dermott A.

Macpherson

Forest Macpherson Neil F. Macpherson

Laird H.

Macpherson

Roger Holden Randal C. Holden

Rosemary Angela M. Holden

Cyrus Denton Holden

Pamela J. Holden

Stephen Holden Stephen Holden, Jr. Stephen Holden III

Cesidia Randal Holden

James Holden James Holden, Jr.

Martha Samuel C. Holden

Charles R. Holden

Martha C. Holden

Adeline Holden Jonathan Wheeler

Henry Wheeler Phebe Wheeler

Timothy Wheeler

Phebe Holden Susan G. Washburn

Arthur Washburn Arthur H. Washburn

Mary Jane Washburn

Alfred Washburn

*361 Holdeen signed a will in 1913 which will, with a codicil, signed in 1964, was admitted to probate in 1967. In this will he gave to certain nominated trustees a portion of his estate in trust to cause a corporation to be formed under the laws of Pennsylvania under the corporate name "Holden Foundation." The corporation was to be organized for and devoted to the following purposes:

First; By the example of the accumulation of the funds of said "Holden Foundation", to call to the attention of the various governments of the world, the advisability of the adoption of said governments of a system under which they shall create or receive funds which shall be invested in productive investments and the income of which funds shall be wholly or partly accumulated until the amount of such funds shall be large enough so that the income thereof will pay all governmental expenses, general and local, to the end that taxation may be discontinued, * * *.

I direct that the property hereby devised and bequeathed for the purposes of said "Holden Foundation" shall be invested in productive investments, and that that part which equals 1/2000 or.0005 multiplied by the number of years which shall have elapsed *362 since the establishment of said "Holden Foundation", of the net income of said investments shall annually be expended for the foregoing purposes, which part of said income is herein termed the "expendable income". The remainder of said income shall be accumulated and annually added to the principal for two thousand years and thereafter the entire income shall be used for the second of said two purposes unless the amount of such income shall be excessive therefor, in which case the excess income shall be applied by the political subdivisions for other governmental expenses of said subdivisions.

* * * * *

If a compound interest table is consulted, it will be observed that one dollar, kept invested at four per cent for a century becomes 50 dollars and in 235 years becomes 10000 dollars. A short computation will demonstrate that if a single cent could be kept invested at four per cent interest for 1000 years it would become a thousand trillion dollars. The market value of all the real and personal property in the world is less than one trillion dollars. It has been suggested that Peter Minuet did not make a good investment when he bought Manhattan Island from the Indians in 1626 for twenty *363 four dollars for interest rates were then very high and if that amount of money had been kept invested at an average rate of seven per cent, it would have amounted in 1912 to five billion dollars which was more than the value in 1912 of all the land and buildings on the island.

Holdeen in 1912 wrote an article entitled, "Should Thrift be Nationalized." He published this article, with others, in a book in 1932.

In the article he stated, in part:

However desirable a policy of national thrift may be, its adoption by collective society is doubtless far in the future, but any individual to whom its possibilities appeal, has it in his power to set in train, a process which will contribute more forcefully to that end than exhortion. One of the first American statesmen performed an act which is suggestive of possibilities. When Benjamin Franklin died, it was found that besides providing for his children, he had made a number of philanthropic bequests out of his modest estate, two of which were unusual. He gave two funds of five thousand dollars each, one for Philadelphia where most of his life was passed and the other for Boston which was his native city. These funds were directed to be invested *364 by being loaned to apprentices, starting in business for themselves, at 5% interest. The income was to be accumulated for one hundred years when the greater part of each fund was to be expended in providing some building or public work for the betterment of each city. As might be expected from the character of the investments, there were some losses. Nevertheless at the end of the century, Franklin's Philadelphia fund is said to have increased from $ 5,000 to $ 450,000. There was a delay of some years while the citizens debated what to build with the fund. Meanwhile it increased to something like $ 650,000. The Boston fund has a similar history.

If some citizen of the present day felt disposed to carry the "Franklin Plan" still farther, suppose that he were to give or bequeath a like sum of $ 10,000 in trust, providing that there should annually be expended 1/2000 or.0005 times the number of years since the foundation of the trust of the income, toward the support and improvement of public schools or some other educational, philanthropic or governmental purpose, and that the remainder of the income should be accumulated for two thousand years. If the interest averaged 3% for the first *365 two centuries and then progressively declined to 1%, the portion of the income accumulated would reach 180 trillion dollars.

* * * * *

It may be objected that the history of the past, with its records of invasions and revolutions proves that it is impossible for any aggregation of capital permanently to avoid destruction. If an accumulative endowment had been created two thousand years ago it would not survive today. Apparently, however, we have now reached a stage of civilization when vested property rights will be unmolested even in case of conquest, unless they unjustly conflict with the common welfare. There are endowments existing, which have weathered all storms for half a thousand years, for example Winchester College, England, which was endowed by William of Wickham in 1393.

In most jurisdictions no accumulations are allowed by law except during a minority, but in Massachusetts where Franklin was born and in Pennsylvania where he died they are permitted, when for public or philanthropic purposes. It has been decided by the highest court of New York ( Hope v. Brunner, 136 N.Y. 126 ) that where the will of a resident of the State of New York bequeaths a fund to be accumulated *366 for the benefit of an educational or philanthropic corporation of Pennsylvania, such bequest will be upheld by the New York courts, providing the fund is to be transmitted to, and administered under the laws of Pennsylvania.

RESIDENCE

The legal residence of Jonathan Holdeen and Stella H. Holden was Pine Plains, New York, at the time they filed their petitions in these cases.

The legal residence of Janet Adams, trustee of Trusts II, 45-10 and 55-10, and the legal residence of the trusts was Pine Plains, New York, at the time the petitions were filed by these trusts.

During the years 1951 to 1957, inclusive, Janet Adams, Stella H. Holden and Sherley MacPherson resided at Pine Plains. Phebe Washburn, James Holden and Hildred Cushing-Murray resided at Pleasantville, New York. Haldis MacPherson resided at Millbrook, New York. Audrey Naylor resided at Oakland, Maryland and Elizabeth Holden in Washington, D.C. Randal Holden resided in New York City for a time and moved to Queen's Village, New York. Albert Kreulen resided in New York City until 1955 and thereafter in Brooklyn, New York.

CHARITABLE BENEFICIARIES

Trusts 45-10, 46-10, 47-10, 54-120 and 55-10 distributed expendable income as described *367 in the trusts to the American Unitarian Association and its successor the Unitarian Universalist Association. These are organizations to which contributions made are deductible by the donor under the Internal Revenue Codes of 1939 and 1954.

These are sometimes hereinafter referred to as the AUA and the UUA.

Hartwick College, West Virginia Wesleyan College, and Telladega College are organizations to which contributions made are deductible by the donor under such Codes.

THE TRUST AGREEMENTS

In October and November, 1936, Holdeen entered into three written agreements with Janet Holden, his daughter, then aged 24 years. These trusts are hereinafter referred to as Holdeen Trusts I, II, and III.

Janet Holden had attended Hartwick College for 2 years of a 4-year course and had worked in a law office in Pleasantville, New York, as a legal secretary. She had a law clerkship certificate. Since 1932, she had resided in Pine Plains, New York.

In each trust, Holdeen is referred to as the "settlor" and Janet as the "trustee." In each case Holdeen transferred to her certain shares of stock subject to a lien in his favor of an amount of cash representing the cost thereof. The stocks at the time were *368 of a fair market value in excess of his cost.

Under the Trust I agreement, the trustee was to hold the stocks and any other assets added to the trust and to invest and reinvest in such securities as the trustee may elect. The trustee was to pay the income annually in equal shares to Stella H. Holden and to any great-grandchildren of settlor's father, Stephen Holden, who may be living during any income year until the death of Haldis and Hildred Holden. Upon the death of such survivor, the trustee was to transfer the principal to the First National Bank and Trust Co. of Easton, Pennsylvania, and the trust estate was to be thereafter administered in Pennsylvania.

The successor trustee was to pay over one-tenth of 1 percent of the income of the trust multiplied by the number of years elapsed since 1936, but not to exceed $ 200,000 in any year, to Hartwick College. The remainder of the income was to be added to the principal until the year 2936 when the entire estate was to be paid over to the Treasurer of Pennsylvania.

The trustee was to have the right to appoint a substituted trustee and the settlor reserved the right until the death of Haldis and Hildred Holden to appoint a substituted *369 trustee.

The provisions of Trust II are similar except that the income is first to be applied to the support and education of Hildred Holden until she attains the age of 21 years, and that the settlor reserves the right to modify the proportionate share in which any of the income beneficiaries except Stella H. Holden shall be entitled to share in the income. Trust II provides:

TRUST AGREEMENT made this 20th day of November 1936 between Jonathan Holden herein referred to as the settlor and Janet Holden, herein referred to as the trustee

WITNESSETH that the parties hereto in consideration of the mutual covenants, promises and transfers herein set forth do mutually covenant and agree as follows:

FIRST: That the settlor transfers and assigns to said trustee 200 shares of capital stock of New York Central Railroad Company, certificates number 209180 and 208702 subject to a lien thereon in favor of settlor for the sum of $ 4000, it is being understood that the said stock is now subject to a collateral loan, the release of which is contemplated, wholly or partly by said lien reserved.

SECOND: Such other assets as the settlor shall transfer to the trust estate established under this instrument *370 shall be added to the principal of said trust estate and be subject to all the provisions herein set forth.

THIRD: Said stocks and all other assets of said trust estate shall be held and invested and reinvested in such securities as said trustee until the year 1955 may elect without any restriction until 1955 to such investments as are prescribed by law for trust investments and said trustee is authorized and empowered to loan the funds of said trust estate at interest with or without collateral security and after 1955 to continue to hold any investment then held.

FOURTH: During the minority of Hildred Holden said trustee shall apply the income thereof to the support, maintenance and education of said Hildred Holden until she attains the age of twenty-one years and thereafter subject to the right reserved to settlor to modify the proportionate shares in which any of the income beneficiaries except Stella H. Holden shall respectively be entitled to share in income accrueing [sic] under this instrument. Said trustee shall pay the income of said trust estate, annually in equal shares to Stella H. Holden and to any great grandchildren of settlor's father Stephen Holden who may be living *371 during any income year until the death of the survivor of Haldis and Hildred Holden except that if any person who would be entitled to share in such income be a minor, the share to which said minor would be entitled except for such minority shall be paid to such minor's mother. The beneficiaries hereunder are advised to dispose of the amounts received under this instrument as the installments of principal to be added to the capital funds of such beneficiary. [sic]

FIFTH: Upon the death of the survivor of said Haldis and Hildred Holden said trustee shall transfer the principal of said trust estate to First National Bank and Trust Co. of Easton, Pennsylvania as successor trustee and such trust estate shall thereafter be administered in Pennsylvania and be domiciled therein and subject to the laws thereof.

SIXTH: Said successor trustee shall thereafter pay over yearly in Pennsylvania one-tenth of one percent of the income of said trust estate multiplied by the number of years which have elapsed since the year 1936, but not to exceed $ 200,000, in any year to Hartwick College, Oneonta, to be added to the permanent capital funds, property and plant of said college and accumulate and add *372 to the principal the remainder of said income until the year 2936 when said entire trust estate and its accumulation shall be paid over to the treasurer of the state of Pennsylvania to be used as a permanent capital fund for the support of public education in said state or if such funds cannot be used advantageously for such support then for the other expenses of said state.

SEVENTH: Said trustee shall have the right to delegate until the death of Haldis and Hildred Holden the duties of trustee hereunder by appointing a substituted trustee who shall succeed to the office of trustee hereunder with a like power of appointment.

EIGHTH: Said settlor shall until the death of Haldis and Hildred Holden have a paramount right to appoint a substituted trustee hereunder who shall thereupon be vested with and entitled to receive and administer said trust estates.

IN WITNESS WHEREOF settlor and trustee have hereunto set their hands and seals.

STATE OF NEW YORK /s/ Jonathan Holdeen / Jonathan Holden SS:

COUNTY OF DUTCHESS /s/ Janet Holden / Janet Holden

Haldis and Hildred Holden were twin daughters of Holdeen, born in 1920.

Trust III is similar to Trust I except that settlor reserved the right *373 to modify the proportion in which the great-grandchildren of Stephen Holden shall share in benefits or to exclude any such great-grandchildren or to cause to be included among the beneficiaries any descendants of such great-grandchildren and to substitute as residuary beneficiaries any other educational or philanthropic corporation of any state, county, or any governmental entity.

In November 1940, Holdeen entered into a written agreement with his daughter, Audrey Naylor, then residing in Oakland, Maryland, in which he is referred to as the donor and she as trustee, and at the same time a similar agreement with his son-in-law, Maxwell MacPherson, of Pine Plains, New York, in which Holdeen is referred to as the donor and MacPherson as the trustee. In each case there was transferred by donor to trustee one-half of the right, title, and interest of Donor in certain property and estate of which Henry Sanford of Bridgeport, Connecticut, died the owner. The will of Henry Sanford was admitted to probate by the Probate Court of Bridgeport. Holdeen was owner of an interest in the Sanford estate.

Each trustee was to pay forthwith out of the principal of the trust corpus to Holdeen the sum of *374 $ 3,000.

Each trustee was, during the lives of Cyrus and Pamela Holden and of any unborn grandchildren of donor then in being, at the end of each calendar year, to divide the net income of the trust into as many shares as there then be living persons under 21 years of age who shall be descendants, but other than sons and daughters of donor, and pay each such share of income for the benefit of such descendants.

When there are no beneficiaries under these provisions, the principal was to be transferred to Somerset Trust Company, Somerset, Pennsylvania, and the trust created by the instrument was to be carried on in Pennsylvania, subject to regulation and control by the courts of that State.

It was further provided that when no person shall be entitled to income under the provisions thereof, one 1/1000 part of the income of the trust multiplied by the number of years since the date thereof shall be deemed "expendable income."

The "expendable income" was to be paid to a specified college until the year 2340 and thereafter 1/10 of such expendable income. The remainder of the income was to be paid to the Treasurer of the State of Pennsylvania and in the year 2940 the principal was to be *375 paid to such Treasurer.

These trusts are hereinafter referred to as the Naylor-Sanford and MacPherson-Sanford Trusts, or NS and MS.

Donor reserved the right to modify provisions for income beneficiaries, provided no such beneficiary be donor, his wife, or a dependent of donor, and the right to substitute any new trustee, also the right to modify the provision with respect to beneficiaries provided that such modification be for the benefit of philanthropic, charitable or educational corporations or public purposes.

In September 1942, Maxwell MacPherson was about to enlist in the Naval Forces of the United States and an agreement was made substituting Sherley MacPherson, Maxwell's wife and Holdeen's daughter, as trustee of the MacPherson-Sanford Trust.

In October 1945, Holdeen entered into an agreement with Audrey Naylor to modify the Naylor-Sanford Trust to eliminate the powers he had previously reserved and to extend the powers of the trustee or trustees to modify the provisions with respect to benefits after the deaths of Cyrus and Pamela. He executed a similar agreement with Sherley MacPherson relinquishing his powers with respect to the MacPherson Trust. Sherley did not sign this *376 document.

Janet Holden married Charles F. Adams in 1942.

In August 1943, Holdeen executed an agreement with Janet Adams concerning Trusts I, II, and III which provides:

THIS AGREEMENT made this second day of August, 1943, between JONATHAN HOLDEEN, herein referred to as the Settlor, and JANET ADAMS, herein referred to as the Trustee,

WITNESSETH that the parties hereto, in consideration of the mutual covenants, promises and transfers herein set forth, do mutually covenant and agree as follows:

The several Trust Agreements entered into in the year 1936 between the parties hereto for the benefit during the life times of Haldis and Hildred Holden, of the great grandchildren of Settlor's father and of Stella H. Holden and which contain the reservation by Settlor of the right to modify the proportionate shares in which any of the income beneficiary other than Stella H. Holden should benefit, shall be deemed merged in this instrument and the shares of income to which any person is entitled under said agreements, shall on and after January 1, 1944, be as follows:

Said Trustee shall pay the income of said trust estate, annually, in equal shares to Stella H. Holden and to any great grandchildren *377 of Settlor's father, Stephen Holden, born after the year 1940, who may be living during any income year until the death of the survivor of Settlor's daughters Haldis and Hildred except that if any person who would be entitled to share in such income be a minor, the share to which said minor would be entitled except for such minority shall be paid to such minor's mother. Upon the death of the survivor of said Haldis and Hildred and at any prior time when no person shall be entitled to income under the previous provisions hereof, Donor directs that said principal and share be transferred to Somerset Trust Company, Somerset, Pennsylvania, and the administration of the uses and trusts created by this instrument shall be carried on in Pennsylvania and shall be subject to regulation and control by its courts, and this instrument shall be deemed made under and with reference to the laws of that State.

When no person shall be entitled to income under said previous provisions herein, one one-thousandths part of the income of said trust estate multiplied by the number of years which shall have elapsed since the date hereof shall be deemed expendable income. The remainder of said income shall, *378 at the end of each year, be added to the principal and accumulated.

Donor reserved the right by written notice to modify and substitute provisions for income beneficiaries during said lives provided no such beneficiary be Donor or his wife or a dependent of Donor, and to substitute any new trustee named by him for the trustee named herein.

Trustee shall at the end of each year pay over to Hartwick College, at Oneonta, New York, until the year 2340, said expendable income and thereafter one-tenth (1/10) of said expendable income toward its endowment, and pay the remainder thereof and in the year 2940, the principal of said estate to the Treasurer of the State of Pennsylvania for educational endowment. Should the principal of the trust estate be reduced by capital losses, then the entire income shall be accumulated until said capital shall have been restored.

Donor reserves the right by written declaration to modify the provisions hereof with respect to beneficiaries after said deaths, provided such modification be for the benefit of philanthropic, charitable or educational corporations or public purposes.

Should the Trustee named hereunder to act, prior to said deaths, cease to act, *379 Somerset Trust Company of Somerset, Pennsylvania, is appointed such Trustee.

The Trustees named hereunder shall be entitled to commissions only upon income and not upon principal.

Trustees may retain any investments which are included in the trust estate and, with the written consent of Donor, make new investments, regardless of whether they are of the character authorized by law for investment by trustees. Increases in value of capital assets upon sales and exchanges shall not be considered income.

No bond shall be required of a trustee.

The assets hereinafter mentioned now held by said trustee, individually or as Trustee, shall include the following to the extent that they are now held by her: Koelsch $ 475.00

Woodbury 4,000.00

Woodbury 3,000.00

Mortgage certificates issued by City

Bank Farmers Trust Co. Formerly of

Knapp Estate

Campbell 17,500.00

Globert 3,000.00

Walsh 2,800.00

Park Central bonds (57M) 19,250.00

Textile bonds (27-1/2) 7,291.25

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals the day and year first above written.

/s/ Jonathan Holdeen / Jonathan Holdeen (SEAL)

Janet Adams (SEAL)

/s/ Janet Adams

In 1944, Holdeen, as trustor, and his daughter, Janet Adams, *380 Randal Holden and Jonathan Holdeen, as trustees, executed Holdeen Trust Agreement (44-10).

Holdeen transferred to the trustees $ 100,000 of first mortgage bonds of Broadway-Exchange Corporation; $ 8,000 of 870-7th Avenue Corporation; 700 shares preferred stock of Bowman Biltmore Hotel Corporation and 100 shares preferred stock of General Realty and Utilities Corporation.

The trustees were to pay him money equal to the cost of these assets amounting to $ 29,820. The instrument was to be deemed made under and with reference to the laws of Pennsylvania. There were no individual beneficiaries. One five-hundredths part of the income multiplied by the number of years elapsed since July, 1944 was to be deemed "expendable income." It was provided that the trustees shall annually pay the expendable income and all other net income not lawfully subject to accumulation to the American Unitarian Association of Boston, Massachusetts, for endowment or other charitable use or to such other religious, charitable, scientific or educational corporations as the trustees might designate, subject to the right reserved by the trustor to make such designation. The trustor reserved the right by written declaration *381 to modify the terms of the instrument but not so as to change beneficiaries unless to donees and purposes which are educational or public.

In 1945, Holdeen as trustee and Janet Adams and Randal Holden as trustees entered into Trust Agreement 45-10 which reads as follows:

THIS HOLDEEN FUND TRUST AGREEMENT (45-10) made this 2nd day of June, 1945 between JONATHAN HOLDEEN, as Trustor, and JANET ADAMS and RANDAL HOLDEN as Trustees,

WITNESSETH, that the parties hereto, in consideration of the transfer and covenants herein contained, do covenant and agree as follows:

FIRST: That there be transferred by said Trustor to said Trustees, Forty-Three Thousand Dollars principal amount of the first mortgage bonds of 61 Broadway Corporation numbers 3114 to 5153 inclusive, and 3187 to 3189 inclusive.

SECOND: That all property and assets received by the Trustees hereunder shall be held by them for the uses and purposes stated herein.

THIRD: Said Trustees shall pay to Trustor in consideration of the transfer to them the sum of Eleven Thousand Seven Hundred Forty-three and 75/100 ($ 11,743.75) Dollars.

FOURTH: The property and assets subject to this agreement shall be held by the Trustees hereunder at *382 Easton or elsewhere in the State of Pennsylvania or in the Commonwealth of Massachusetts and the trust estate hereby created shall there be administered. This instrument shall be deemed made under and with reference to and shall be subject to the laws of Pennsylvania and to regulation and control by it.

FIFTH: When assets and property subject to this agreement shall be in Pennsylvania or in Massachusetts and to the extent that the Trust estate hereby created is subject to and controlled by the laws of Pennsylvania, one five hundredths part of the income of said estate, multiplied by the number of years which shall have elapsed since July 5, 1944, shall be deemed "expendable" income. The remainder of the said income shall be accumulated in Pennsylvania and added to the principal until the year 2444 when said principal, including accumulated income, shall be paid to the State of Pennsylvania for educational endowment or other public purposes.

Said Trustor does hereby transfer, assign and convey said bonds and assets to said Trustees and they shall be held pursuant to the provisions hereof but of record may stand in the name of one or more of the Trustees hereunder as individuals.

SIXTH: *383 Said Trustees shall annually pay over said expendable income and all other net income hereunder which is not lawfully subject to accumulation under the terms hereof, to the American Unitarian Association, of 25 Beacon Street, Boston, Massachusetts, for endowment or other use in aid of maternity, child welfare and maintenance and migration expenses of natives of India and their descendants, or to such other corporations, funds or foundations organized and operated exclusively for religious, charitable, scientific, literary or educational purposes as said American Unitarian Association or its successor may designate and said Janet Adams and Randal Holden as Trustee may increase that portion of said income which is to be deemed expendable hereunder to any amount not exceeding half of said income.

The property and assets held in trust under "Holdeen Trust Agreement" (44-10) dated July 5, 1944 between Jonathan Holdeen, as Trustor and Janet Adams and others as Trustees, shall from the date hereof be held subject to the provisions of this agreement (45-10) and said former agreement shall be deemed modified so as to be converted into the trust created hereunder and to be consolidated therewith. *384

SEVENTH: Said Trustees are authorized and advised to cause the "Holdeen Fund" at Easton, to be incorporated under the nonprofit Corporation Law, being public law 289 of the Pennsylvania Statutes of 1932, and to convey and transfer to it all the assets held by Trustees hereunder, such assets to be held by said "Holdeen Fund" for the same uses and purposes as those for which said Trustees are directed to hold same by said terms hereof.

EIGHTH: During the life time of said named trustees and until the year 1965, bonds and all other assets of said trust estate shall be held and invested and reinvested in such securities and investments as said Trustees may elect without any restriction to such investments as are prescribed by law for trust investment then held.

No bond shall be required of any Trustee named herein.

Increases in value of capital assets upon sales or exchanges shall not be considered income.

Said Trustees may appoint additional or substituted Trustees to act hereunder and any trustee may appoint any agent to whom may be delegated by such Trustee the right to perform any act which said Trustee is authorized to perform.

Should there be no Trustees acting hereunder, then Easton *385 Trust Company shall be such Trustee.

In Witness Whereof, Trustor, and Trustees have hereunto set their hands and seals.

IN PRESENCE OF:

/S/ Jonathan Holdeen / Jonathan Holdeen

/s/ George C. Will 101 Church St. Pine Plains, N.Y.

/s/ Janet Adams / Janet Adams

/s/ Randal Holden / Randal Holden

In 1946, Holdeen, as trustor, and Janet Adams as trustee entered into Holdeen Trust Agreement 46-10. The principal was 100 shares of stock of Commodore Hotel, Inc., and such other stocks as trustor might thereafter contribute. There were no individual beneficiaries of this trust. Expendable income was defined as 1/500 part of the income multiplied by the number of years since the date of the trust. Expendable income and all other net income which is not lawfully subject to accumulation was to be paid to the American Unitarian Association for purposes similar to those specified in Trust 45-10. The trustor appointed as directors of the trust Alphonse V. Brisson, Albert H. Kreulen and Gabriel Elias. The trustees were given authority to modify the provisions as to payment of expendable income except that it was to be applied only to charitable, educational or public purposes.

In 1947, Holdeen entered *386 into Trust Agreement 47-10 with Albert H. Kreulen as trustee. It was therein specified that trustor should transfer 100 shares of Commodore Hotel, Inc., to be held by trustee and that the instrument was subject to the laws of Pennsylvania. There were no individual beneficiaries to this trust. One-five hundredths of the income multiplied by the number of years elapsed since the date thereof was to be deemed "expendable income". The expendable income and other net income not lawfully subject to accumulation was to be paid to the American Unitarian Association; the principal together with accumulated income was to be paid to the State of Pennsylvania in the year 2947. The trustor appointed Alphonse V. Brisson, Janet Adams and Gabriel Elias as directors of the trust with authority to appoint a substituted trustee or trustees in place of any trustee or trustees thereunder, and to modify the provisions as to payments of expendable income under certain situations.

Albert H. Kreulen was born in 1910, attended Columbia University in 1929 to 1931, was employed by the Home Insurance Company from 1928 to 1964 except during military service from 1943 to 1945. He became employed by Holdeen in 1945 *387 on a part time basis and scouted real estate under Holdeen's direction for possible investments. Holdeen appointed him one of the directors of Trust 46-10 and also Trustee of Trust 47-10.

Alphonse V. Brisson was an attorney, a resident of Pleasantville, New York and a long time associate of Holdeen.

Gabriel Elias was an associate of Holdeen and a coowner of certain real properties in later years.

In the years 1944 to 1948, inclusive, Holdeen made certain gifts of approximately $ 3,000 each for the benefit of his grandchildren. Some were direct gifts and others were in trust form. The record indicates that there were 18 such gifts in 1944, 20 in 1945, 24 in 1946, 32 in 1947, and 18 in 1948. No such gifts were made in 1949.

In Trusts 44-10, 45-10, 46-10 and 47-10, the trustees or directors were authorized to incorporate the trusts under the non-profit corporation laws of Pennsylvania. Similar provisions were incorporated in a number of the subsequent trusts.

In 1950, Holdeen, as trustor, and Janet Holden Adams, as trustee, entered into Trust 50-10. The corpus was 1,800 shares of capital stock of Lincoln Building Corporation subject to a lien of $ 24,000. The trustee was to hold 50 shares *388 of such stock or the proceeds thereof, for the benefit of each grandchild of trustor for life. The remainder of the property and the 50 share units when the life estate ended was to be administered by the trustee in the State of Pennsylvania subject to the laws of Pennsylvania. One-thousandth part of the income multiplied by the number of years elapsed since the date of the trust was to be deemed "expendable" income which was to be paid for endowment or other use in the aid of maternity, child welfare, educational migration expenses of Asians, except as otherwise provided.

The remainder of the income was to be added to the principal until the year 2950 when the principal, including the accumulated income, was to be paid to the State of Pennsylvania for educational endowment or other public purposes.

The trustor appointed Alphonse Brisson, Janet Adams and James Holden as directors of the trust with authority to modify the provisions as to payment of "expendable" income in certain respects or to modify the charitable and educational purposes of expenditures.

The trustees were to have broad powers of investment and authority to loan funds unrestricted by any law as to the trust investments *389 with or without collateral security until 1987.

Holdeen and Janet devised a system of numbering trusts, the first number showing the year and the second number or two numbers, or letters identifying the individual beneficiary or beneficiaries. In some trusts the original number was not in accordance with the system and the correct number was substituted later.

Holdeen entered into Trust 50-16 (correct number 50-32 & 33), with Audrey Naylor providing income from certain bonds for the benefit of Audrey's children with the provision that after their lives the bonds or their proceeds should be transferred to the trustee under Trust 50-10.

On April 2, 1951, Holdeen and Janet Adams entered into Trust Agreement 51-10. The corpus was 400 shares of 50 Broadway, Inc. The trustee was to hold such stock or the proceeds thereof for the same purposes, with the powers, and upon the same terms as provided in Trust 50-10.

On the same date Holdeen and his wife entered into 19 other trust agreements with one of his daughters or a niece as trustee of each. The income was to be used for the benefit of specified grandchildren of Holdeen or members of the family of the trustees. The trustee was to have the *390 same powers as the trustees under Trust 51-10. After the lives of the beneficiaries, the corpus was to be transferred to the trustee of Trust 51-10.

The following is a list of these trustees and trusts: Janet Adams Haldis MacPherson

51-5 51-20

51-14 51-25

51-17 51- (Correct #26)

51-22 51-30

51-29 51-35

51-14 (Correct #33) 51-34 (Correct #36)

Phebe Washburn Audrey Naylor

51-34 51-28

51-34a 51-32

Elizabeth Holden Sherley MacPherson

51-2 51-2M

51-21

On copy of Trust 51-32 was signed by Audrey Naylor. A counterpart was signed by Holdeen and by Stella H. Holden.

The corpus in each trust was 400 shares of 50 Broadway, Inc., of a stipulated value of $ 5,600.

Later in 1951 Holdeen entered into Trust Agreement 51-37, and 38 with Janet Adams.

In the years 1952 through 1956 Holdeen or Holdeen and his wife entered into a number of other trust agreements with relatives as trustees, as follows: Year Trust No. Grantor Trustee

1952 52-1 & 4 Holdeen and wife Haldis MacPherson

52-10 Jonathan Holdeen Janet Adams

1953 53-10 Holdeen and wife Janet Adams

53-10A Holdeen and wife Janet Adams

53-10B Jonathan Holdeen Janet Adams

53-40 Jonathan Holdeen Phebe Washburn

1954 54-50 Jonathan Holdeen Janet Adams

54-18 Jonathan Holdeen James Holden

54-LIH Holdeen and wife Janet Adams and

Stella H. Holden

54-50A Jonathan Holdeen Janet Adams

54-120 Holdeen and wife Janet Adams

54-33a & 21a Jonathan Holdeen Janet Adams

54-32 & 33 Holdeen and wife Elizabeth Holden

1956 56-10 Jonathan Holdeen Janet Adams

56-4 Jonathan Holdeen Janet Adams

56-4 Jonathan Holdeen Janet Adams

56-15 Jonathan Holdeen Janet Adams

In *391 some of these trusts the first beneficiaries were specific grandchildren of Holdeen or his brother. In some the ultimate remainder was to be paid to the State of Pennsylvania after 500 or 1,000 years. In others the principal was to be paid over to a preceding trust such as 51-10 or 54-50. In 54-50 and 54-120 the expendable income was to be paid to the American Unitarian Association, hereinafter referred to as the AUA. In some trusts Alphonse V. Brisson, James Holden and Janet Adams were appointed directors. The second copy of Trust 56-4 was signed to correct an omission in the original.

On December 2, 1953, Holdeen signed a statement concerning certain prior trusts, as follows:

WHEREAS the Undersigned Trustor, Jonathan Holdeen, residing at 152 Bangal Road, Pine Plains, New York, executed certain trust instruments, including the following: Recorded

Date of Beneficiary or Liber & Page -

Trustee Agreement Remainderman Dutchess Co.

Sherley MacPherson 11/23/40 Talladega College; 5 Misc 167

grandchildren of Jona-

than Holdeen

Audrey Naylor 11/23/40 West Virginia Wesleyan 5 Misc 108

grandchildren of Jona-

than Holdeen

Janet Adams 10/18/36 Hartwick College; great 5 Misc 94

grandchildren of

Stephen Holden

Janet Adams 8/2/43 " 5 Misc 97

45-10 Janet Adams 7/2/45 American Unitarian Asso. 5 Misc 154

46-10 9/10/46 "

47-10 Albert Kreulen 4/22/48 " New York County

50-10 Janet Adams 4/6/50 New York County

41 Misc 268

*392 and other trust instruments under all of which property has been held for the income benefit of certain incomees with remainders applicable to certain charitable, educational and/or public purposes therein specified, and said Trustor has heretofore executed certain instruments renouncing and revoking certain powers with respect to the direction of the administration of certain of said trusts and substitution of trustees thereof,

NOW THEREFORE said Jonathan Holdeen does hereby renounce, revoke, release and annul every power which he reserved or might be deemed to have reserved to modify any provision or direction in any such trust instrument, including those hereinbefore mentioned and all other trust instruments and grants executed by said Trustor, and Trustor ratifies and confirms all previous specific or general renunciations of power reserved in trust instruments heretofore executed by him.

On June 3, 1955, Holdeen as trustor and Janet Holden Adams as trustee executed Trust Agreement 55-10, providing:

THIS HOLDEEN FUND TRUST INSTRUMENT 55-10 dated this third day of June, 1955, between JONATHAN HOLDEEN, residing at 152 Bangal Road, Pine Plains, New York, as Trustor, and JANET HOLDEN-ADAMS, *393 residing at 101 Church Street, Pine Plains, New York, as Trustee,

WITNESSETH

FIRST: Trustor, in consideration of the execution of this instrument by said Trustee and her acceptance of the duties and obligations resulting therefrom, agrees to transfer and hereby assigns to trustee 37,764 shares of capital stock of Commodore Hotel, Inc., subject to trustor's lien thereon for the cost thereof to him amounting to $ 154,394.00.

SECOND: Said trustee shall hold units of 200 shares each of said stock or the proceeds thereof for the life use of each great grandchild, under ten years of age, of trustor's father, Stephen Holden, now living even tho unborn, and apply the income thereof toward the maintenance of each such great-grandchild until it reaches the age of 21 years, and thereafter, pay such income to it yearly during its life.

THIRD: Trustee shall hold 500 shares of said stock or the proceeds thereof for the life use of Stella H. Holden and pay the net income thereof to her yearly during her life.

FOURTH: The remainder of said property and assets and each of said 200 shares units and said 500 share unit and said 1000 share unit, when said life estates end, shall be held and administered *394 by the trustee and said trustee's successors hereunder at Easton, Pennsylvania, or elsewhere in the State of Pennsylvania and the trust estate hereby created shall be there administered.

This instrument shall be deemed made under and with reference to and shall be subject to the laws of Pennsylvania and to regulation and control by it, except that, until the year 1999, they may be held and administered at Sheffield or elsewhere in Massachusetts if trustee so elects.

FIFTH: One thousandth part of the income of said Trust Estate, except as to said life estate income, multiplied by the number of years which shall have elapsed since April 6, 1950, shall be deemed "expendable" income. The remainder of said income shall be accumulated in Pennsylvania or, until 1999, in Massachusetts, and, added to the principal until the year 2950 when said principal, including accumulated income, shall be paid to the State of Pennsylvania for Educational endowment or other public purposes.

WHEREVER said stock and assets shall be on deposit, they shall be held pursuant to the provisions hereof, but of record may stand in the name of one or more of the trustees hereunder, as individuals, until the year 1987. *395

SIXTH: Trustees shall annually pay or apply said expendable income for endowment or other use, in aid of maternity, child welfare, educational and or migration expenses of Asians except that trustees may pay all or part of said expendable income to American Unitarian Association for intended but not Mandatory use by it for said purpose or to Pennsylvania, and, except as aforesaid as to life estates.

SEVENTH: Said trustees are authorized to cause this trust to be incorporated under the non-profit Corporation Law, being public law 39 of the Pennsylvania statutes of 1932, and to convey and transfer to it all the assets held by trustees hereunder, such assets to be held for the same uses and purposes as those for which said trustees are directed to hold same by said terms hereof.

EIGHTH: During the life time of said trustees, and until the year 1987, said stock and all other assets of said trust estate shall be held and invested and reinvested in such securities as Trustees may elect, without any restrictions as to whether such investments are real, personal, tangible or intangible property or any other assets, and trustees shall, until 1997, not be subject to the statutory or other usual *396 investment restrictions upon trustees, and said trustees are authorized and empowered to make and deliver any and all assignments, deeds or transfers, mortgages or hypothecations of real and personal property which trustees may elect, and to borrow money and contract debts.

NINTH: Trustor appoints Alphonse V. Brisson, of 194 Battle Avenue, White Plains, New York, Janet Adams, of Pine Plains, New York, and James Holden, Sr. of Hoanjova Lane, Pleasantville, New York, as Directors of the trust hereby created. Said Directors, by written declaration made by a majority of the survivors of such directors, may appoint substituted trustees or directors in place of any trustee or director acting hereunder, and/or may appoint additional trustees or directors, and may modify the provisions herein as to the payment of the expendable income hereunder by increasing the portion of income in any year which shall be deemed expendable income to an amount not exceeding 80% thereof prior to the year 1960 and 50% prior to 1957, and by directing the payment of any of the expendable income toward the expenses of promotion of education by research, experiment, publications and publicity relative to improved *397 alphabets and phonetic and graphic symbols for the visible protrayal of language and ideas.

TENTH: Said trustee and directors and their successors may modify the charitable and educational purposes to which said expendable income shall be applied, by joining prior to 1960, in a written modification of this instrument as to such purposes.

ELEVENTH: The non-expendable income of any period during which the provision herein for accumulation shall be unlawful shall be paid to Holdeen Fund 45-10 dated the 2 day of June, 1945, between Jonathan Holdeen as trustor and Janet Adams and Randal Holden as trustees and recorded in the Dutchess County Clerk's Office in Liber 5 of miscellaneous volumns, [sic] page 154, such moneys to be added to the capital account or corpus of said trust.

TWELFTH: Except for the life estates hereinbefore provided for, no income shall be paid or used for any purpose not charitable, educational or public, except when accumulated.

In the event that there shall cease to be any acting trustee otherwise appointed by the terms hereof or by said Directors, Lafayette Trust Company of Easton, Pennsylvania, shall be the trustee of the trust hereby created.

No bond shall be required *398 by any trustee appointed hereunder.

Increases in value of capital assets upon sales or exchanges are not to be considered income.

The trustees are empowered to co-mingle the shares or proceeds thereof and assets to be held for each great-grandchild for investment.

In presence of

/s/ Jonathan Holdeen

/s/ Janet Adams

GENERAL FACTS CONCERNING THE TRUSTS

In his lifetime, Holdeen entered into approximately 186 trust agreements. Prior to 1950, there were fairly large trusts designated as I, II, III, 45-10, 46-10, 47-10, MS and NS. In addition, during the years 1944 through 1948, he made gifts, some in trust form and others as outright gifts, approximating $ 3,000 each for the benefit of individual grandchildren of himself or his brother and without a charitable remainder. The number of these approximated 112, and these are not involved in the cases pending in this Court.

The trust agreements entered into from 1950 through 1956 as heretofore described are approximately 50 in number. Stella H. Holden was a joint grantor in some of these.

Janet Holden Adams was a trustee or a co-trustee in a number of the agreements made during the years 1950 to 1956. She was trustee or co-trustee of some *399 28 to 30 of the trusts not counting the pre-1950 non-charitable trusts.

The original assets of all the trusts consisted of stocks, bonds or cash. In a number of cases the trustees subsequently purchased rental properties or real estate mortgages as additional assets.

Holdeen advised Janet, Sherley and Audrey if any rental property did not earn 20 percent on the investment the trustee could transfer the property to him at her option, so that the trust would not lose. This occurred in several instances. In some cases when such property was improved by Holdeen, he transferred it back to the trust in order that it might be sold at a profit by the trust.

Some of the trust agreements provided that assets should be held and administered in Pennsylvania or that non-expendable income should be accumulated in Pennsylvania or Massachusetts.

No trust created by Jonathan Holdeen was administered in Pennsylvania or Massachusetts prior to 1971. None of the income of any trust was accumulated in Pennsylvania prior to 1971, and none of the trusts were incorporated in Pennsylvania under that state's non-profit corporation law.

The following banks were designated as successor-trustees in some of the *400 trusts: First National Bank and Trust Co. Easton, Pa.

Somerset Trust Company Somerset, Pa.

Easton Trust Co. Easton, Pa.

Lafayette Trust Company Easton, Pa.

None of the trustees was specifically authorized to trade on margin.

In some cases the assets of the trust were not in Holdeen's possession at the time of the execution of the trust agreement. They were deposited with a bank or brokerage firm as security for obligations of Holdeen. The trustees secured the release of such assets by paying to the bank or broker the amount retained by Holdeen under the agreement.

Jonathan Holdeen reserved the following powers in the following trust deeds: Power Trust Deed

a. Power to substitute Trusts I, II, III, Naylor-

trustees Sanford, MacPherson-Sanford

b. Power to change the Trusts II, III, Naylor-Sanford,

shares of the bene- MacPherson-Sanford

ficiaries

c. Power to change Trust III, Naylor-Sanford,

beneficiaries MacPherson-Sanford

d. Power to allocate Trust III, Naylor Sanford,

among charitable MacPherson-Sanford

beneficiaries or sub-

stitute charitable

beneficiaries

e. Power to accumulate Naylor-Sanford, MacPherson-

income for benefit Sanford

of minor beneficiaries

The trust deed for Trust 44-10 was not signed by Randal Holden, *401 one of the co-trustees. The agreement signed by Holdeen in 1945 amending the MacPherson-Sanford Trust was not signed by Sherley MacPherson. In Trust 51-32 one copy was signed by Audrey Naylor and another copy by Holdeen and his wife.

Many of the trust deeds, either directly or by incorporating by reference, authorize the trustee to loan the trust assets "at interest with or without collateral security."

The trust deeds for Trusts 51-1, 51-4, 52-1 and 4, and 53-40 authorize the trust to loan principal of the trust estate upon any collateral security or personal obligation approved by the trustee.

The trust deeds for Trusts 55-10, 56-4, and 56-15 authorize the trustee to "contract debts."

None of the following trust deeds contain a lending power: Naylor-Sanford 50-32 and 33

MacPherson-Sanford 54-LIH

At the time of the creation of trusts 52-10 and 53-10, they were merged into Trust 50-10 pursuant to express powers in such documents.

Some of the trusts did not specifically provide a power to lend trust assets.

In the creation of Trusts 46-10, 47-10, 50-10, and 51-36, the assets designated as trust corpus in the trust deeds were not transferred by Holdeen to the trustees. Other securities were *402 substituted as follows: Number of

Trust Shares Stock Substitution

46-10 100 Commodore $ 79,325 of 15 Park Row Bonds

Hotel, Inc.

47-10 100 Commodore ($ 40,000 Lower Broadway Bonds

Hotel, Inc. ($ 253,000 50 Broadway Bonds

($ 67,500 80 John St. Bonds

51-36 400 50 Broadway 100 shares Duplan

In Trust 50-10, 1,800 shares of Lincoln Building were transferred to the wrong account and later recovered.

Title to real property owned by a trust was never held in the name of the trust or trustee. It was usually in the name of the trustee as an individual, without any fiduciary designation. Sometimes a nominee or a dummy corporation was used.

The following trust deeds provide for the following distributions: Trust Deed Distribution

Trust I a. 1) Net income to family members for term of

Trust II years, or life

Trust III

Naylor-Sanford 2) Thereafter, expendable income (or fraction

MacPherson-Sanford thereof) for 1,000 years from date of trust

creation payable to a designated college

3) Nonexpendable income accumulated for 1,000

years from date of creation

4) Remainder to Pennsylvania after 1,000 years

44-10 b. 1) Expendable income to charity

45-10

46-10 2) Nonexpendable income accumulated for stated

47-10 period of 500-1,000 years

52-10

53-10B

54-50 3) Remainder to Pennsylvania after stated

period

50-10 c. 1) Portion of net income to family members

51-10

53-10

53-10A 2) Expendable portion of remaining income to

54-120 charity

55-10

56-10 3) Nonexpendable portion accumulated for

stated period of 500-1,000 years

4) Remainder to Pennsylvania after stated

period

32 other trusts d. 1) Net income to family members for term

of years, or life

2) Remainder to 50-10, 51-10, 54-50, 54-120

or 55-10

*403 AGES OF HOLDEEN AND HIS FAMILY DURING YEARS INVOLVED Year

Born 1936 1945 1951 1957

Holdeen 1881 55 64 70 76

Janet 1912 24 33 39 45

Randall 1915 21 30 36 42

Sherley 1916 20 29 35 41

Audrey 1918 18 27 33 39

* Haldis &

Hildred 1920 16 25 31 37

Roger 1921 15 24 30 36

ADMINISTRATION OF THE TRUSTS

Janet Adams

In 1936, Janet Holden agreed with her father to serve as trustee under the trust agreements identified as I, II, and III. She received the securities designated as the corpus of these trusts, sold portions of them to pay her father the amounts reserved in the agreements, opened a checking account in the name of each trust, kept a record of purchases and sales, paid amounts due the beneficiaries under the terms of the agreements, notified the State of Pennsylvania and the colleges of their remainder interests, filed tax returns for each trust and guarded the assets. She had bank accounts with the Stissing National Bank in Pine Plains and later with Grace National Bank and Bankers Trust Company in New York City.

Trust III acquired an interest in an estate and was inactive for 5 years. She treated Trust II and Trust III as a single unit from an early date.

In 1942, she married Charles F. Adams who was in the U.S. Air Force. She *404 followed him when his station was changed.

In August 1943, she entered into an agreement with her father amending the trust agreements of 1936 tending to modify powers he had reserved in such agreements.

In 1944 she accepted an appointment as co-trustee in Trust 44-10 and in 1945 she accepted appointment as a co-trustee in Trust 45-10.

In 1945, her husband returned from the service and they settled in Pine Plains occupying a house a few doors away from her parents' residence. She established an office on the premises for handling the business of the trusts under which she was trustee. In succeeding years she accepted appointment as trustee or co-trustee or director of a number of other Holdeen trusts.

Lester E. Palmer, Jr., of Poughkeepsie, New York, was attorney for Janet Adams and for Holdeen. He was unrelated to the Holden family. He died in 1958.

In September 1947, when her father's bank account was overdrawn, Janet deposited $ 6,500 from Trust II funds to cover the overdraft. The loan was made without Holdeen's knowledge and he repaid it several days later.

During the years 1951-1957, Janet spent 95 percent of her time in Pine Plains, New York, which is 100 miles from New York *405 City.

Some of the trusts of which Janet served as trustee acquired rental property in or near New York City. Some of this was managed by Janet's brothers, Randal or Roger, or by her brother-in-law, James Cushing-Murray, and other properties were managed by employed managers.

In the first few years of her administration as trustee, her father advised her on purchases. Later she handled such purchases and sales on her own initiative and consulted with her brother Randal or the brokers.

Janet regularly reported to Hartwick College as beneficiary under Trusts I and II showing the income, expenses and assets of those trusts. She reported to the American Unitarian Association as beneficiary under Trusts 45-10 and 46-10, and others showing the income, expenses, and assets of those trusts and remitting the expendable income as computed under the terms of the trusts.

Prior to 1945 Holdeen and Gabriel Elias occupied office space at 170 Broadway, New York City. When Randal Holden returned from the service he joined them there. Later, Holdeen and Elias moved to a building they owned at 205 E. 40th Street, New York City, and established offices there with Randal Holden and later with James Cushing-Murray *406 and Roger Holden. At this address Randal and Elias engaged in the management of real properties including properties owned by some of the trusts. Albert H. Kreulen occupied a room in this building from about 1945 to 1955. Holdeen and Elias sold this building in 1951.

In June 1949 Trust 47-10 acquired the Astral Building at 180 Franklin Street in Brooklyn. Kreulen, as trustee of Trust 47-10, managed the property. In 1951 Randal established an office there. In addition to his law business he assisted Kreulen in managing the building and collecting rents. Holdeen occupied a room there at a rental of $ 3 per week. In the years 1951 to 1957 Holdeen sometimes used Randal's office before 9 a.m. and Randal used it during the rest of the day. Kreulen used this office on Saturdays or evenings for the collection of rents. Holdeen sometimes used a room near Randal's office and near the plumber's shop as a place for meeting people. His records were usually kept by Stella H. Holden at Pine Plains.

Janet Adams, Audrey Naylor and Sherley MacPherson did business with the brokerage firm of Baker, Weeks & Harden, later Baker, Weeks & Co., and hereinafter sometimes referred to as "Baker." This firm was *407 located at One Wall Street, New York. The representative dealing with Janet was Frank Smythe. Holdeen also did business with this firm.

Janet also made investments with Walter Murphy & Co., whose representative was William Mellin, Murphy and Mellin later became associated with H. C. Wainwright & Co., at 30 Pine Street, New York, New York. Mellin saw or telephoned Randal almost daily and was in touch with Janet weekly. Holdeen also did business with this firm and sometimes was accorded the use of the firm's secretarial services.

Mellin's dealings with Janet were principally in connection with over-the-counter real estate securities. Mellin was aware of the fact that some of Janet's accounts were trustee accounts although not so identified. She had approximately 10 accounts with this firm. At one time she signed a statement that all her accounts with the firm were personal.

The brokers usually communicated with Randal Holden to propose the purchase of certain securities and if Randal was satisfied with the merits of the purchase he might buy for Janet Adam's account or communicate a proposal to her.

During the years 1951 to 1957, the decision on purchases of securities for the trusts *408 in which Janet Adams was trustee were made by Janet. On occasion Holdeen would advise concerning sales of securities from the trust accounts or concerning real estate investments.

Audrey Naylor gave Randal a power of attorney over her New York checking account for the Naylor-Sanford Trust. Randal made purchases and sales of securities for Audrey according to his best judgment. Randal also acted as agent for Sherley MacPherson in purchasing and sale of investments for the MacPherson-Sanford Trust.

Holdeen had no authority over the brokerage accounts or checking accounts of any of the trustees.

In December 1953 Janet Adams wrote Sherley, Audrey and other family members suggesting that they send funds available for investment to Walter Murphy & Co., to keep on account and awaiting investment, saying "Randal and Murphy will buy you the things you prefer. If by chance you have changed your mind after you have received the confirmation, you notify Randal or me and we arrange to get the thing sold to another family member." Later the trustees left funds on deposit with the brokers awaiting investment.

Holdeen informally agreed with the brokers, Wainwright and Baker, that he would personally *409 take and pay for any security not accepted by a family member or trust after being ordered by Randal or Janet. This rarely occurred in the later years.

In 1954, Janet opened a brokerage account with Thomas E. Logan of Wappingers Falls, New York, a representative of Merrill Lynch, Pierce, Fenner and Beane. She made purchases and sales through him for trust accounts and personal accounts as well. He was aware that she was trustee of at least 10 trusts. Also he was acquainted with Randal and had met Holdeen. He dealt only with Janet. While no regulation prevented the brokers from dealing with trust accounts, the need for documentary evidence or authority created complications in dealing with a trust. For convenience the accounts were carried in the name of Janet Adams followed by a number.

In the years 1951-1957, Janet frequently wrote to Audrey and consulted with Sherley in arranging for investments or asked for information on funds available for investment by the NS and MS Trusts. Janet received copies of some of the brokerage statements sent to her sisters and some of the records of the NS Trust. Janet's children were beneficiaries of those trusts.

During the years 1951-1957, Janet *410 operated a "liability pool." Holdeen, family members, and the trusts contributed to this pool, which was used instead of real estate liability insurance. Janet considered the cost of such insurance excessive.

In the course of her administration of the trusts of which she was trustee and in assisting the trustees of other Holdeen Trusts, Janet from time to time transmitted checks between Holdeen and other persons, rounded up funds for investment, prepared lists of interfamily debts, informed members of the family about investments and prepared annual asset summaries.

Janet prepared lists of interfamily loans sometimes as often as once a month. These lists were sent to members of the family including Holdeen. She also maintained a file dealing with these loans.

In about 1954, Janet established an escrow account for the use of paying her office employees and superintendents of buildings employed in New York City which account she referred to as "Empire Employees." This account was used to cover Social Security taxes and income taxes withheld and workmen's compensation premiums relating to such employees. It was also used to cover office employees in Randal's office in Brooklyn. Approximately *411 15 employees were listed.

Assets belonging to certain trusts were sometimes commingled. Assets belonging in both family members and trusts were sometimes in the same checking or brokerage account.

In certain of the trusts of which Janet Adams was trustee were provisions for specified income to be paid to grandchildren of Holdeen for life and the remaining portion of the income to be divided into expendable income and accumulated income. The expendable income and all other income not lawfully subject to accumulation was to be paid to the American Unitarian Association or for some charitable purposes and the accumulated income and the principal was to be held for the State of Pennsylvania until a remote date. Janet divided trust assets under some of these agreements into two portions. One portion was to be held for the life estates and the remainder to be treated as a separate trust. For example Trust 50-10 was so divided, a part being treated as the Adams-Lincoln Trust, the remainder as Trust 50-10, and Trust 55-10 was similarly divided into Adams-Commodore and 55-10.

During the years 1955-1957, Janet, on the advice of Lester Palmer and Randal, created joint arrangements of some of *412 the trusts of which she was trustee, which she referred to as "partnerships." "Big A 15" was a group composed of Adams-Lincoln, Adams-Commodore, Adams-Graybar and Adams-50 Broadway. Another was "Adams 4-4-4," her children's accounts, personal as well as trusts. "Ten Funds" was a group comprised of 45-10, 46-10, 54-50, 54-120 and 55-10, with no individual beneficiaries. There were other groups. The purpose of this was to simplfy record keeping. The assets of the group were retained as a unit and each individual trust was assigned a percentage of the whole based upon the value of its assets at the time of the merger. Janet filed partnership returns for the group as well as individual returns for each trust in some of these cases.

Prior to buying real property from or selling real property to their father, or acquiring mortgages on such property, Janet, Sherley, and Audrey, as trustees, did not either physically inspect or obtain an independent appraisal of such property. They relied upon Randal or Roger or upon the rental experience of the property. Janet visited and personally evaluated some of the properties.

When family members or trusts acquired property from Holdeen, they paid *413 him in cash or property that could be used to secure his loans with banks or brokers. He preferred property that was acceptable as security.

James Cushing-Murray, the husband of Hildred Holden, was a Canadian. In about 1946 Janet invited him to come to New York to manage some of the real properties owned by the trusts. He also managed properties owned by Holdeen. While in New York he invested some of Hildred's funds in parcels of real estate and in constructing a shopping center. He encountered difficulties through underestimating costs and bad financing. Janet had some correspondence with him in an effort to collect income due the trusts from the property he was managing.

In 1950 Janet received a check from James Cushing-Murray for income from buildings he managed. Janet paid a portion of this to Holdeen as his share of income from a building he owned.

In September 1951, Janet negotiated with Cushing-Murray concerning a claim for reimbursement for income lost on account of rental losses in 1949. She wrote as follows:

Dear Jim Re check exchange

Your solution to the problem is simple and quite satisfactory to me. As I understand it with this method we postpone the 1949 rental losses *414 until 1952. I'm sure I can get Dad & Randal to agree to this. I will undoubtedly be able to repair the schedule with the use of your answers to my questions.

Perhaps it will help you understand part of my bookkeeping problem re 1949 rental losses if you ignore the Fed income tax return and take that particular problem up in 1952. I believe that we had agreed that an additional fee would be added to the "1952" management fee. Whatever plan we finally agree upon (and I think we have already agreed and Randal and Dad will fall in line) I intend to carry out in a logical fashion, spreading on a percentage of the rent roll. * * *

In April 1952, Janet wrote Cushing-Murray concerning money to be paid him for managing properties owned by the trusts and by Holdeen, "I will send the money after I get it initialed as okay by Dad."

In October 1953, Janet wrote Cushing-Murray concerning certain transactions in which he was involved while managing buildings owned by some of the trusts or by Holdeen. She commented, "Why don't you address your next question directly to Dad since you know I can not do much without his advice."

In March 1954, Janet wrote Cushing-Murray recommending that a friend she *415 knew in or near Pine Plains, Werner Mueller, might be able to assist in the problems Cushing-Murray found in managing properties of some of the trusts and saying that Werner would phone Jim in the near future. She commented also "Dad agrees that Werner is the man for the job at the moment."

Janet Adams' records were not good accounting. On some occasions Janet lost track of moneys paid or received or of securities which belonged to certain trusts. For example, one of her accounts included 1,000 shares of Commodore Hotel stock. She was unable for a time to locate the dividends paid upon this stock.

In 1948 Janet purchased mortgages for Trust 45-10 on property on Bryant Avenue. She lost track of the investment, failed to collect interest due on the mortgages and considered that the trust had lost $ 80,000. In another case Janet paid $ 2,092 in taxes on property at 177th Street. The property belonged to Holdeen and Janet paid the taxes by mistake. Holdeen later repaid her.

In December 1949, the Naylor-Sanford Trust loaned $ 5,000 to Holdeen. This loan was secured by a second mortgage on property he owned at 457 W. 125th Street, New York City. In 1954 Janet wrote her father:

I'm about *416 to advise NS to call this mortgage. It seems a very unromantic investment. Maybe it could be assigned to a charity trust?

If you are about to sell the house, we will hold off foreclosure.

Holdeen repaid the principal amount of this $ 5,000 loan on October 4, 1954. In November 1954, he paid the interest on this loan for 1949-1954. In June, 1956, Janet wrote Audrey regarding this loan:

Actually maybe you should have collected interest from Dad for about 36 days but since the amount is so small, I assumed you would be willing to waive it. * * *

In 1949 Trust I paid Holdeen $ 2,475 for 90 shares of stock in Lincoln Building Corporation. The stock was not transferred of record at that time. In December, 1952 Janet wrote Holdeen concerning this stock asking him to transfer the stock or pay her. She said, "I enclose bill assuming I am right. * * * Or you can pay yourself. Anyhow okay the bill please. Initial and date of initial." If he did this she could take the paper to her mother and get the money. Subsequently the shares were transferred to the trust.

In December 1950, Holdeen loaned $ 27,000 to Janet for use in the purchase of real property at Overlook Terrace in New York City for Trust *417 II. Janet repaid the loan from her account with Baker, Weeks in January 1951 without interest. For a time Janet forgot that Holdeen had advanced funds and believed that her payment to him amounted to a loan. She commented "The Gov. would love to catch dad at a snatch like this."

In September 1951 Janet loaned $ 50,000 from Trust II to James Cushing-Murray at 18 percent on a mortgage on a shopping center constructed in Yonkers, New York. The reason for the high rate of interest was to persuade the borrower to refinance the mortgage. As of October 7, 1952, no interest had been paid.

In October 1951, Holdeen and Janet agreed that he would sell and assign to her as trustee, a mortgage of $ 30,000 covering certain property in Yonkers, New York, and a mortgage of $ 15,000 covering property at Ditmars Boulevard and 47th Street, Queens, for a total price of $ 45,000 payable: $ 42,058.13 By check to Murphy and Co., in

payment for 2,250 shares of stock

bought for the account of Holdeen

and

$ 2,941.87 By check of Janet Adams to Holdeen

In September, 1952, Janet wrote her father:

Dear Dad:

Re Ck to Murphy #542 $ 42,058.13 October 15, 1951

These loans were siphoned off my Baker margin, put thru Bankers *418 and loaned to you for a Murphy purchase.

There seems to be no record of the money finding its way back to Baker. If it was an oversight, you will have to pay Baker on the interest charges. Randal cannot seem to recall what it was you bot. Are there any records in Pine Plains I can look at.

Janet's payment to Murphy & Co., was for the purchase of the two mortgages referred to above. She paid $ 2,941.87 to complete the transaction. The mortgages were on Cushing-Murray properties she acquired for Trust II.

In November 1951, 500 shares of stock of Commodore Hotel owned by Trust 45-10 were held in a brokerage account designated "Cash #3 (margin)" that Janet maintained at Baker. At this same time the following shares of stock in this corporation owned by the following individuals were also held in this account: Haldis MacPherson 400 shares

Janet Adams 100 shares

Ralph Dowdy 300 shares

Matthew Netter 100 shares

Howard Naylor 100 shares

All of this stock was held in the name of Janet Adams. Dowdy and Netter were friends of Janet.

In March 1952, Holdeen in a note to Janet mentioned several investments which had appreciated in value and suggested the possibility of transferring them to new 1952 trusts. *419

In October 1951 Janet wrote "Have you a story made up for the closing which took place September 20, 1951, in which my Grace check was given to Jim for $ 50,000 * * *. Our understanding is that the $ 50,000 is to be returned as Jim rents the Yonkers taxpayer [shopping center] more fully or sells the building. * * * I would like the whole story to put in my trust book."

In January 1952, Janet wrote Holdeen, "Should a remainderman like 50-10 (for 51-37) be put on notice that there is such a trust. * * * The chief reason for doing this would be to give 51-37, etc., a bona fide look."

In 1952 Holdeen agreed to transfer certain securities from his account with Baker to Janet's account. She wrote Smythe when this transfer was delayed.

In May 1952, Smythe wrote Janet:

Regarding you r letter of May 6th, I spoke to your father about it on Saturday and he asked me to delay making the transfers requested by you until he had a chance to go over the matter.

Again this morning, I spoke to Randal and asked him to let me know as soon as he could so that we could make the transfers without delay.

As you can understand, I can do nothing until I hear from them.

In January 1953, Janet wrote Randal concerning *420 a property. In the same letter she asked "where is the Westchester M.C. seal? Dad intimates that certain deeds were sort of forged with the use of this seal."

In September 1953, Janet wrote Holdeen concerning certain loans saying, "I think possibly some of this money will come back in a week or so. What does not come back will be borrowed of Baker and Wain within 2 weeks or sooner if you say so."

In December 1953, Holdeen gave a trust property described as:

All his right, title and interest in the Corpus of the trust estate created by the last will and testament of Alice E. Burton and in a 1/9 share of the bonds and stocks held by San Diego Trust Co. as trustee for trustor and others as of July 1953.

It is stipulated that the value of such property at that time was $ 15,000. On May 11, 1954, Janet wrote her father concerning this property stating "I see you declared your December gift to 45-10 at $ 15,000, but I think I picked the figure out of the blue." The property was sold in December 1954 by Trust 45-10 for $ 27,853.70.

Janet, as trustee of Trusts I and II, owned real property located at 231 E. 13th Street, New York City, from March 1, 1947 to February 29, 1956. She loaned $ 15,000 *421 to Holdeen from a checking account she maintained for this property. The record does not show the date of this loan. On February 3, 1954, Holdeen repaid $ 5,000 of this $ 15,000 loan. Subsequently he repaid the balance of $ 10,000 without interest stating that he was unaware of this unpaid debt, and asking whether interest at 6 percent was due. Regarding the interest, Janet wrote "Maybe I just have to let you decide what to do rather than run the risk of your being accused of using trust funds for your own."

In June 1954, Janet wrote her father commenting that some New York Central stock was transferred by him to Trust 45-10 in 1949 and sold at a loss by the trust in 1950. She wrote, "In other words, the transfers were by no means all for evasion of capital gain. (I do hope they do not look around and decide they would be a device for your dumping worthless stuff?) This has happened at other times." Holdeen noted on the memo that the sales were at the then market price because he needed the cash and that such a transaction was not subject to challenge. In this note Janet was needling her father as to the consequences of the transaction.

In July 1954, Holdeen offered some Fred H. French *422 Company securities he owned for sale to members of the family or trusts. On July 28, 1954, Janet wrote him, "We have not decided who will buy all the French stuff." She explained that she was lining up the available funds. On August 1, 1954, she wrote Randal concerning a plan to buy the securities for Trust II, and noted "Dad wrote me on July 20 suggesting the move we all feel is good."

In February 1955, Holdeen agreed to transfer to Janet Adams as trustee of Trust 45-10, $ 20,000 principal amount of 5 percent convertible bonds of Chicago & Eastern Illinois Railway Company subject to a lien of $ 7,000 which the trust should assume. The cost to Holdeen was $ 7,262.50.

In February 1955, Janet loaned $ 23,000 to Holdeen from her No. 4 account with Baker Weeks. This account contained personal funds and funds for Janet's children pursuant to the pre-1950 non-charitable trusts. There were no funds of charitable trusts in this account. In May 1955, Holdeen repaid $ 10,000 plus interest of $ 460. In October 1955, Janet billed him for the balance of $ 13,000 plus interest for 5 months at 6 percent. She commented, "You are getting a bargain since you had the use of $ 10,000 for some months for *423 which I did not charge you." The loan was repaid.

In December 1955, Holdeen wrote Janet as trustee of Trust II, recommending that she pay James Holden the sum of $ 300 as compensation for his duties as trustee of a building in Yonkers, New York, for 1954 and 1955.

In some of Janet's memoranda, she refers to asking for her father's approval, or having the proposed action initialled as okay by him.

In a memorandum of April 1955, Janet suggested to Audrey and Sherley that they pay Hildred her part of the trust income in quarterly installments instead of annually and recommended "what we propose to do is probably not legal but I am sure you're willing to take the chance."

In February 1955 Holdeen arranged to loan $ 15,000 at 6 percent to a foundation to take up an existing mortgage. He had an assignment drawn to Janet and wrote her asking for a check for $ 15,000. He stated: "you will know best what persons or trusts should carry this mortgage for the present and how to raise the money."

In October 1955 Janet wrote other trustees suggesting that payments of trust income to Hildred by withheld to restore funds which she had dissipated. Janet said "I guess we all know that I am doing this *424 at the request of the donor."

In December 1955 Janet wrote concerning a proposed deed, "It is no wonder I rarely make a move without consulting Dad. He really picked this apart." Holdeen had pointed out to her that the deed was defective.

In February 1956, Janet wrote concerning a mortgage owned by Trust 45-10 "Janet has decided and Dad concurs that the simplest way for the above to be handled is for NS to buy out 45-10 for $ 8,886.65."

In January 1956, Janet wrote Haldis MacPherson as trustee of Trust 51-20, stating in part:

The above series trust was made to you in 1951 and you appointed Hil as your successor. She sold the 800 bonds 50 Broadway which were the corpus of the trust and invested it about as above.

We have decided that you should step in and act again as trustee. * * *

Trust 51-20 authorized the trustee to appoint a substituted trustee. It provided that after the lives of the beneficiaries the assets shall be transferred to Trust 51-10, of which Janet was trustee.

In 1956 the Grace National Bank sent Janet a check for interest on certain bonds which it represented were "hypothecated by you to secure our loan to Jonathan Holdeen." The bonds were assets which Holdeen had *425 contributed to one of the trusts after he had deposited them with the bank as security for his loans. They were subsequently released to Janet upon her payment to the bank or to her father of the amount of the loan in question. They were not deposited by Janet.

By check dated March 7, 1957, Janet paid $ 1,101 to the American Unitarian Association. This payment represented the distributions for the year 1955 from the Holdeen Funds 45-10, 46-10, 50-10, 54-50 and 54-120.

Janet paid $ 150,000 to Holdeen on May 23, 1957. This was a partial repayment of an amount that he had loaned Trust II. No interest was paid on this loan.

On October 29, 1957, Janet repaid to Holdeen $ 30,000 of a loan that he made to the Ten Funds partnership. The balance due Holdeen on this loan was $ 79,695.

From time to time one of the trusts loaned amounts to other trusts for short periods of time, some 30 to 60 days, which loans were repaid without interest.

As of December 31, 1957, the Holdeen Fund 47-10 owed Janet $ 50,000.

Janet had more than 10 checking accounts and more than 10 brokerage accounts in 1958.

In January 1958, Janet wrote Holdeen that a trust deed that they were going to execute should be "dated *426 early in September since we want this trust to join a partnership as of October 1, 1957."

In June, 1958, Janet wrote:

111th St. sale

Since dad threatens to force us into a sell campaign as soon as he has time and since Janet is as anxious as he is, should we not consider forcing dad into selling this house.

My thought is that a proportionately small part of the cash on closing needs to be reported. I don't know how this will compare with the amount of gain realized on the sale of securities but we may get down to the point where we will run out of low gain securities.

Someday it may be possibly that JH will sell some of the PM mortgage? ?

If this is to be considered, I will work up a part of the cap gain schedule that cost is based on.

In September 1959, Janet sent to the American Unitarian Association a list of the assets held and income received by the trustees under trust agreements made by Holdeen and with a Holdeen Ten Fund having a remainder interest listing 35 such funds.

Janet did not communicate with any Pennsylvania Bank or trust company named as a successor trustee in these trust agreements.

Janet filed an application for exemption from Federal income tax in the name of *427 Holdeen Fund 45-10 on November 9, 1961.

OLD BROADWAY

In 1950 Holdeen made a $ 15,000 down payment toward the purchase of real property located at 48-56 Old Broadway, New York City. Subsequently in 1950, Janet, as trustee of Trust II, borrowed $ 90,000 from Trust 47-10, and repaid $ 15,000 to Holdeen. The $ 90,000 loan was secured by a mortgage on this property.

Trust II loaned $ 24,000 of this $ 90,000 to Trust 50-10, which this trust transferred to Holdeen in repayment of an amount that he had loaned to it.

Two days later Trust 50-10 repaid the $ 24,000 loan to Trust II without interest.

Trust II loaned $ 15,500 of the $ 90,000 loan to the MS Trust.

The $ 90,000 loan from Trust 47-10 is not listed as a liability on a balance sheet dated December 31, 1950, for Trust II. This shows Trust II as having a 40 percent interest in "Old Broadway house" costing $ 20,000.

Randal paid closing costs of $ 20,000 when the Old Broadway property was purchased. As of January 26, 1951, he had not been reimbursed for these closing costs.

On January 28, 1951, Janet considered that Trust 45-10 had "acted as agent" for the buyers of the Old Broadway property.

STISSING LIME PLANT

In 1953 Holdeen negotiated *428 a loan to be made to Stissing Lime Co., Inc. and offered it to Janet subject to her approval for one of her trusts. Holdeen was to guarantee the loan. At this time he was making a gift to his nephew, James Holden, who was expected to buy a part of the Stissing note and to furnish collateral for the loan. Holdeen wrote his brother, Stephen, that it "is better not to have Janet give a check to a Holden on the lime loan, as Int. Rev. might be suspicious so I suggest the loan be secured by note of Stissing Lime and that James execute a guaranty * * *."

Janet decided to have Trust I make the loan. She wrote Holdeen, "Enclosed is Stissing Lime note for 5M with collateral stock of James Holden and check for 5M to Stissing, for your approval and consummation."

GROVE STREET

Holdeen and his wife reported rental income from property at 346 Grove Street, Jersey City, in their tax returns for 1951 through 1955. On April 20, 1955, Holdeen, Janet and Randal signed a document stating that premises known as 346 Grove Street form part of the assets held pursuant to Holdeen Fund trust instrument 45-10. Janet wrote Randal concerning Grove Street under date of October 8, 1955, "Dad decided this spring *429 that since Tr. I was already involved, it would be the owner of the house. * * *" The income tax return filed for Trusts I and II for the fiscal year ended June 30, 1956, reports that 246 [346] Grove Street was acquired June 1, 1936 and sold October 1, 1955, for a long-term capital gain.

MacPHERSON-SANFORD TRUST

Sherley MacPherson became trustee of the MacPherson-Sanford Trust in 1942 in place of her husband who went into the Naval service. She was living in Pine Plains, New York. Sherley attended secretarial school for 1 year, she did not go to college.

Sherley had a bank account with the Stissing National Bank at Pine Plains. She found that the brokers were reluctant to accept trustee checks for the purchase of stocks, therefore she changed her account and used personal checks or checks with a numeral following her name. She maintained her records at her home. She also had an account with the Grace National Bank at New York City.

Randal managed real estate in New York for her and helped with advice upon her investments.

Sherley acquired a rental property in 1946 at 1707 Bathgate which she bought from her father at his cost of $ 13,000. When the property was not paying well, Holdeen *430 bought it back in 1947 at her cost. He improved it and sold it back to the trust in 1953 for the same price. Later she sold it for $ 15,000. Holdeen made no profit on this transaction.

In 1951 Sherley was appointed trustee of Trusts for the benefit of her children known as Trust 51-2M and Trust 51-21.

Sherley relied on advice from Janet or Randal as to securities' transactions. She paid legal fees to Randal.

Holdeen looked at Sherley's books once or twice a year but otherwise did not concern himself with her trust business except for advice to keep her money working. She did not loan him money from trust funds. At times she loaned money to other trusts or to Janet or Audrey and sometimes she borrowed from them.

In filing tax returns for the trusts she received help from Janet whose children were beneficiaries of MacPherson-Sanford Trust. She paid fees to Janet.

Sherley's children were beneficiaries of trusts administered by Janet.

In 1957 Sherley and Audrey joined the MS and NS trusts in a partnership as Holdeen-Sanford #25. This was for convenience in administration.

According to Sherley's records the net assets of MS as of September 30, 1953, were over $ 80,000. The assets as of *431 March 31, 1958 were $ 246,708.

In the years 1951-1957 Sherley actively administered the MS Trust, maintained its records and bought securities and real estate. In those years Holdeen did not select the securities or real estate purchased by Sherley for this trust.

Sherley in her individual capacity made interestbearing loans to Holdeen at various times through 1957.

In 1948 the MS Trust acquired property at 712 Fox Street. In 1952 Sherley transferred this property to her father for $ 20,000. In 1954 Holdeen transferred the property back to the trust for the same price, Sherley paying $ 15,000 in April and $ 5,000 later.

NAYLOR-SANFORD TRUST

When Audrey Naylor was appointed trustee of the Naylor-Sanford Trust in 1940, her father explained the nature of the trust and her responsibilities as trustee.

Audrey attended West Virginia Wesleyan College for 2 years in the late 1930's.

Audrey received the original trust assets in cash by a check for $ 39,000. She opened an account at the Garrett National Bank in Oakland, Maryland, and deposited the check in her name as trustee. She used the account for the purchase of assets, stocks, bonds and real estate.

In about 1956 she changed the account *432 to"Audrey Naylor No. 1." She found it was awkward for the brokers to handle accounts in the name of a trustee. Her husband helped her with the affairs of the trust from 1946 when he returned from Naval service. She notified the West Virginia Wesleyan College of its interest as a beneficiary. There were subsequent gifts by Holdeen to the trust.

She filed fiduciary tax returns in the name of the trust for each year from 1944.

In 1945 the trust was modified by an agreement in which her father released certain rights retained in the original agreement.

She did not visit New York frequently in the years 1951 to 1957. During these years she saw her father once or twice a year. He sometimes visited Oakland and she sometimes visited Pine Plains and New York City.

In about 1956 Audrey's husband took over most of the responsibility of administration. Later she appointed him a co-trustee. She did not loan money to her father from trust funds during the years 1951 to 1957. On real estate investments she took the advice of Randal, Roger, Janet and her father.

In 1950 and 1951 she was appointed trustee of Trusts 50-16, 51-28 and 51-32.

In about 1957 Audrey and Sherley joined the MS and NS Trusts *433 in a partnership as Holdeen-Sanford 25. This was for convenience in administration. Audrey then sent some of her records to Pine Plains.

Audrey took the advice of Randal as to investments in securities. She had an account with the Chemical Corn Exchange Bank in New York City. She gave Randal a power of attorney on that account for making investments.

On January 1, 1949, the net assets of the trust as reported by Audrey to the West Virginia Wesleyan College were over $ 200,000.

During the years 1951 through 1957, Holdeen sometimes looked at the trust records maintained by Audrey. Janet prepared schedules of real estate for her, deposited checks in her New York bank account and helped her prepare fiduciary income tax returns. Audrey was frequently represented by her brother, Randal. She paid both Janet and Randal for their services.

In September 1951 the NS Trust loaned the MS trust $ 4,000. This loan was repaid on June 30, 1953, without interest.

On July 26, 1952, the NS Trust loaned $ 6,000 to the MS Trust. Although this was repaid on January 12, 1953, no interest was paid, and this loan was not secured.

In 1953 Holdeen loaned $ 2,000 to the NS Trust to cover an overdrawn checking *434 account. This loan was repaid on July 19, 1954, without interest.

In October 1954, Holdeen agreed With Audrey Naylor to convey to her premises at 2517-2519 Amsterdam Avenue for a price equal to cost to him less depreciation, such price being computed at $ 26,602, in exchange for her transfer to him of a participating interest in a mortgage of property at 529 W. 111th Street, New York City, amounting to $ 30,000. He was to pay her any amount by which $ 30,000 exceeded the cost to him of the Amsterdam Avenue property.

In November, 1955, Janet wrote her father concerning this transaction. She suggested an exchange of checks between Holdeen and the NS Trust to clear the record. She said: "Dad: Will you give your okay on above after adjusting."

WOODYCREST

Audrey Nylor, individually and not as trustee of the Naylor-Sanford Trust, acquired real property at 1098 Woodycrest, an apartment building. This property later was losing money. In 1953 Janet suggested to Audrey and Holdeen that he exchange his property at Mott Street with Audrey for her Woodycrest property.

In 1953 Audrey sold Woodycrest to Holdeen for $ 12,000 cash. It was subject to a mortgage. Holdeen reported income or loss from *435 this property in 1953, 1954, and 1955. On December 31, 1953, Woodycrest had an estimated value of $ 76,000, subject to a mortgage of $ 30,634.

In a list of interfamily loans dated November 11, 1953, prepared by Janet Adams, it is indicated that "RH" owed Audrey $ 13,000 in connection with"Woodycrest operating." In a list dated January 29, 1954, it is not clear whether JH or RH is the debtor to NS. In a list dated June 16, 1954, "JH" is shown as owing the NS Trust $ 13,000 re Woodycrest operating. The last entry was erroneous.

In July 1955, Holdeen proposed to sell this property to the NS Trust, taking it back if an outside sale failed. He stated his cost as $ 48,921, subject to a mortgage of $ 23,026.

In September 1955, Audrey purchased the property from Holdeen for the NS Trust. She sold the property in 1956 for $ 80,000. Holdeen was not indebted to the NS Trust or Audrey on account of these transactions.

RANDAL HOLDEN

Randal Holden was born in 1915; attended Hartwick College and Fordham University Law College. He graduated in 1941. He had 3 years of accounting in college. He served in the armed services during World War II.

He joined his father in New York City in 1945, and was admitted *436 to the Bar of the State of New York in 1946.

He was married in 1946.

He assisted his sisters, Janet Adams, Sherley MacPherson and Audrey Naylor in making investments for the trusts of which they were trustees. He helped to locate rental properties and to manage rental real estate, some of which was property of the trusts. He also did research on investments.

In 1951 or 1952, he moved to Queens Village on Long Island. He maintained an office in the Astral Building owned by Trust 47-10. His father had a room in the building and sometimes came in Randal's office when in the city. Randal assisted Kreulen in managing the building, and in paper work relating to rent controls, and other legal work. He paid no rent for his office space.

Randal received copies of the monthly brokers' statements for his sisters' trust accounts. He received 30 to 50 such statements each month. He placed orders for purchases or sales in some cases subject to approval by the trustees. During the years 1951 to 1957 Holdeen had no part in buying or placing these orders. Sometimes Randal received fees from his sisters for these services. He had a power of attorney on the bank account of Trust 45-10 at Grace National *437 Bank and on Audrey's bank account for the NS Trust at Chemical Corn Exchange in New York City.

During the years 1951 to 1957, Randal consulted his father once or twice per month on investments. Holdeen did not suggest securities purchases but suggested investments in certain real estate.

TRUST 47-10

Albert H. Kreulen resided from 1945 to 1955 at 205 East 40th Street in the building where Holdeen, Elias and Randal Holden had offices. He scouted real estate for Holdeen in the years 1945 to 1949.

In 1947 Kreulen agreed to serve as trustee of Trust 47-10. Upon Holdeen's suggestion he borrowed funds from Janet Adams in order to buy from Holdeen the securities which constituted the original corpus. The agreement specified 100 shares of capital stock of Commodore Hotel, Inc. However, Holdeen substituted bonds of Lower Broadway, 50 Broadway and 80 John Street. Kreulen sold some of the bonds and repaid the loan from Janet.

Somewhat later Kreulen opened an account at the Grace National Bank in his own name. He learned that the brokers did not want to accept trustee checks. He took steps to inform the American Unitarian Association of his activities as trustee and paid a visit to the Boston *438 office of that Association. He ceased to scout for real estate for Holdeen.

In July 1949 he purchased the Astral Building at 180 Franklin Street in Brooklyn as an asset of the trust. The cost was $ 73,240. It was an ancient building containing 110 units and having a second address, 77 Java Street. Kreulen served as manager of the Astral Building and Randal Holden assisted in this respect after moving his office to that building. Kreulen used Randal's office in the building for the collection of rents.

Kreulen invested in stock and bonds consulting Frank Smythe of Baker, Weeks and Hardin on Holdeen's recommendation. He also consulted William Mellin of H. C. Wainwright & Co., on the basis of securities offered. While Holdeen advised him on investments during the first few years, he made his own decisions thereafter or upon consulting with Randal. He did research on investments in a library. He paid Randal fees for management.

Kreulen carried on the business of Trust 47-10 making the decisions as to investments from 1951 until 1957 when Lester Palmer was appointed co-trustee by the directors of the trust. Palmer died in 1958 and the directors appointed Janet as co-trustee of this trust. *439

Holdeen occupied a room in the Astral Building at a rental of $ 3 per week. Kreulen did not always collect the rent from Holdeen when due as he was too embarrassed. Sometimes he billed Stella Holden in Pine Plains for this rent.

After Janet was appointed co-trustee, Kreulen attended to liquidating slowly the securities held in his name as trustee and turned the proceeds over to Janet. He made no new investments. He continued to receive commissions.

After the appointment of Palmer as co-trustee, most of the records of Trust 47-10 were maintained at Janet Adams' office in Pine Plains. She was one of the directors of the trust.

Kreulen filed an application for exemption from Federal income tax on behalf of Trust 47-10 with the Internal Revenue Service on July 28, 1959.

Kreulen did not contact the Lafayette Trust Company of Easton, Pennsylvania to see if it would serve as successor trustee of this trust.

Kreulen, as trustee of Holdeen Trust 47-10 reported annually to the American Unitarian Association the income and expenses of this trust and remitted the expendable income as computed under the terms of the trust. For the year 1957, the report was made by Kreulen and Lester E. Palmer, *440 Jr., as co-trustees. The net assets were reported as valued at $ 191,903.88 on December 31, 1947, and as $ 1,061,422.12 on December 31, 1957. The amount remitted for 1947 was $ 2.09 and for 1957 was $ 1,273.36.

Holdeen owned income producing property at 351 East 138th Street, referred to as Davis-Hall, in the years 1951 to 1954. He sold it to his son Roger for little or no cash but with provision for a purchase money mortgage. Roger was paying interest on about $ 50,000 of purchase price. In August 1956, Holdeen suggested selling the mortgage "perhaps coupling a gift transfer of stock at less than cost to a trust so as to rebut tax dept suspicion that I was exploiting trust by dumping on it nonmarketable vendor's lien. "

The mortgage was transferred to Trust 47-10. The amount due the trust on the mortgage as of December 31, 1956 was $ 13,225.

Under date of December 20, 1956, Lester E. Palmer, Jr., wrote Roger Holden, in part:

Enclosed is an agreement of guarantee from you to Kreulen regarding the 351 East 138th Street mortgage.

A trust which qualifies for a tax exemption as 47-10, does so on the basis that it has permanently set aside those funds normally subject to taxation for a *441 chartable use. The Courts and the Code itself hold that where a trustee jeopardizes those sums set aside by entering into business transactions with the moneys or investing them in speculative enterprises, the funds might never eventually reach the charity. Therefore, when a tax exempt trust makes such investments they automatically lose their tax exemption. The investment in this mortgage at the time - August 1, 1956 - was such a speculative investment that 47-10 would lose its exemption. However, with a guarantee of collection from you, it could not be so considered.

Obviously, the amortization of this mortgage has rendered it safe now for all parties concerned BUT, nevertheless, the trust could still lose its tax exemption; just because the investment turned out all right is not material.

Enclosed you will find this agreement which I would like you to sign and return for our 47-10 file. Needless to say, no obligation will ever arise as a result of this guarantee for the mortgage is perfectly good right now but the records must justify the investment.

There was some hesitancy about asking you to do this but now I am sure when you understand the tax situation you will not feel offended. *442

HOLDEEN

Holdeen did not reside in Pennsylvania at any time. Nor did his wife.

Holdeen filed gift tax returns for the years 1953, 1954, 1955, 1957 and 1959. Stella H. Holden filed a gift tax return for 1954.

Stella H. Holden maintained some of her husband's books and records during the period 1951 to 1957, inclusive. She also maintained records for real property located at 50 Overlook Terrace, New York City, which was owned by Trust II.

Holdeen searched real estates title and sometimes attended closings of real estate sales or pruchases by the trusts.

During the years 1951 to 1957 Holdeen recommended parcels of real estate for investments by members of his family and trusts. Sometimes he made a down payment He also told the trustee that if the trustee did not want the property he would take it.

In 1955 Holdeen deducted a rental loss for 5 months on real property located at 420 East 10th Street, New York City. During the year he transferred this property to Janet as trustee of the trusts that were in the Ten Funds partnership. The transfer was made between April 22 and June 2.

Holdeen conveyed to Audrey, as trustee of the Naylor-Sanford Trust, a building located at 2517-19 Amsterdam *443 Avenue, New York City. On his 1954 income tax return (Form 1040) Holdeen deducted $ 1,023.75 as 11 months' depreciation on this building and $ 605 as 11 months' depreciation of this building's boiler. The transfer was made between October 27 and December 1, 1954.

Holdeen acquired real property located at 246-252 Mott Street, New York City, on January 1, 1951. He sold it on January 1, 1954, to Sherley MacPherson, as trustee of the MacPherson-Sanford Trust. During Holdeen's ownership of this property Trust 45-10 owned mortgages on 252 Mott Street. Holdeen did not pay interest or principal on these mortgages. In July 1954, interest in the amount of $ 45 and principal in the amount of $ 952.99 was paid to Janet by Stella H. Holden and Sherley MacPherson, respectively. This paid the obligation in full.

On his 1957 income tax return Holdeen deducted a loss in the amount of $ 40,586 attributable to the operation of Lacey Gardens for the last 6 months of that year.

The largest investment in a single concern held by members of Holdeen's family and trustees was in stock of the Commodore Hotel. The total amount of this stock so held at any time was less than 10 percent of the outstanding shares. *444 By 1955, Holdeen had transferred all his Commodore Hotel shares to various trusts. All of this stock was sold by 1958 at a substantial profit to the trusts.

During the years 1951 through 1957, inclusive, Holdeen donated to the several trusts more than $ 1,000,000 with no economic benefit to himself.

Holdeen did not vote any of the stocks held by Janet as trustee. These stocks were voted by Janet or by the brokers under proxies. Janet attended some of the annual meetings of the corporations involved.

In 1958 when the Legislature of Massachusetts considered expropriation of Franklin's Boston Fund, Holdeen printed and sent to the members of the Legislature a protest against such action.

Holdeen had theories of frugality and thrift. He did not own an automobile. He was opposed to large public debt. He was also interested in phonetics and simplified spelling.

On November 8, 1944, Holdeen wrote the American Unitarian Association, as follows:

I have had some correspondence with Mr. Percy W. Gardner with regard to a trust agreement naming you as an income beneficiary.

Herewith I am sending signed multiple originals of trust agreement dated July 5, 1944 between Jonathan Holdeen as Trustor and *445 Janet Adams and Randal Holden and Jonathan Holdeen as Trustees under which you are income beneficiary and the State of Pennsylvania is remainderman. The assets made subject to this agreement were $ 100,000 face amount bonds of Broadway-Exchange Corporation secured by first mortgage upon 61 Broadway, New York City; $ 8,000 bonds of 870 Seventh Avenue Corp.; 700 shares first preferred stock of Bowman-Biltmore Hotel Corp and 100 shares General Realty and Utility Corporation preferred. I am also sending signed multiple copies of supplementary agreement (44-10A) dated October 7, 1944 adding certain assets to the trust estate.

I would appreciate it if you would return a copy of this letter with dated notation of receipt at the foot and also one copy of each of the trust agreements with similar notation.

It seems likely that under the reserved power of modification a substantial increase will be made in the amount of presently "expendible" income and it may be that at a somewhat later date American Unitarian Association will be made a substituted trustee but for the present I feel that a larger income will accrue to the trust with the present type of investments in which it would hardly be *446 practicable for you to invest. At the end of each year an accounting to you as to income of the year and assets on hand is contemplated.

Any comment which you care to make on the provisions of the trust agreement will be appreciated.

Yours very truly

/s/ Jonathan Holdeen

Holdeen wrote his daughters Haldis and Hildred on February 6, 1952, with reference to certain bonds:

Herewith is sent to each of you, check of N Y Trust Co. for $ 5,585.25, received today from N Y Trust Co. in payment of your above bonds.

These bonds were assigned to you in 1951 by J Holdeen to be held in trust by you for the maintenance of certain of your children as to income, subject however to a lien held by Grace Bank on said bonds for $ 3,000, and interest at the time of the assignment. This lien was purchased by Janet Adams to whom is due $ 1,500 and perhaps interest, from each of you.

In November 1955 Holdeen wrote Hildred Cushing-Murray in part, as follows:

If the principal of the trust funds created for the benefit of Cushing-Murray children under the terms of trusts 51-20 and 51-30 was invested in Rurmont and/or the Puerto Rican candle, etc., business, is it not reasonable that there should be an assignment *447 to the trusts of these series gifts of a participation in Rurmont and the fire insurance claim equal to the amount of the children's trust funds. As you know, the children had only the life use of these funds after which the principal became the property of the charitable trust 50-10.

Had there been no such charitable remainder, a capital gain tax of perhaps 25% would have been payable so that it was beneficial to the children that there should be a charitable remainder. If the trust is not restored and the transactions are reviewed by the United States Treasury there is danger that they will claim that the remains have been disregarded and the charity is a mere fiction and the 25% will then become payable.

Jonathan Holdeen

Contributed by Janet

BRYANT AVENUE

Holdeen was the owner of houses at 1963 to 1985 Bryant Avenue In Bronx County, New York, from 1947 until 1955. The property was subject to prior mortgages. Janet, for Trust 45-10, purchased a mortgage on the property from Manufacturers' Trust Co., at a discount for approximately $ 80,000 in 1948. Sherley for MS and Audrey for NS purchased such mortgages in the amount of $ 20,000 each. On one occasion when Holdeen was visiting Audrey *448 at Oakland he examined her records and wrote on her entry for this property "Why no int. collected?"

Holdeen's income tax returns show annual payments of interest on the Bryant Avenue property and report the cost of the property as $ 316,000. Interest reported as paid in 1951 included $ 6,120 shown as paid to "MS."

MS records show receipt of interest on Bryant Avenue mortgage by checks from Holdeen, for 6 percent interest on $ 34,000 as follows: 4/21/48 $ 2,040

3/ 4/49 2,040

7/10/51 (3 years) 6,120

12/19/52 2,040

1/ 4/54 2,040

10/29/54 2,040

MS records also state:

12/13/54 sold interest in mortgage. received JH check $ 20,000

In 1952 Janet inquired of Randal whether Holdeen's equity in Bryant Avenue exceeded $ 85,000.

Respondent valued the property as of December 31, 1953 at $ 460,000 subject to mortgages of $ 304,563, or a net value of $ 155,437.

In June 1954 Janet remitted to Holdeen $ 5,648.97, representing rental income from the Bryant Avenue property for 1950 which she had collected from James Cushing-Murray who had been manager of the property in 1950.

Holdeen wrote Janet on December 7, 1954, that it appeared from certain records that Janet, on February 13, 1948, advanced through Randal *449 to Manufacturer's Trust Co., toward the purchase of mortgages for 1965 and 1975 Bryant Avenue the amount of $ 61,833.13. He commented "Whether JH ever paid Janet any part of this is unknown. No book record has been found." Shortly thereafter he wrote that NS and MS trusts had advanced $ 20,000 each for an interest in these mortgages and that he proposed to purchase their interests. He concluded that Janet had advanced $ 79,000 from Trust 45-10 by a note which she paid November 22, 1948, and that there was no record of interest payments to the trust. He said consideration should be given to the question whether the 6-year statute of limitations did not bar the claim, and that any claim to a mortgage debt payable in cash may not be free from reasonable doubt. He wrote that he might through sympathy with Trust 45-10 donate perhaps $ 100,000 in stock.

Janet was unable to locate records of the transaction and believed that Trust 45-10 had lost $ 80,000.

In December 1954 Holdeen paid Audrey $ 20,000 for NS and Sherley $ 20,000 for MS to purchase their certificates. In February 1955 he paid Audrey $ 3,600 as interest and in July 1955 paid her $ 4,250 as interest.

On September 26, 1955, Janet *450 wrote "* * * it seems to me that if the house [Bryant Avenue] were transferred to 45-10 any errors would be coated over on the theory that 45-10 would be redeeming its outlawed loan of? for which it borrowed $ 80,000."

In January 1956 Holdeen transferred the Bryant Avenue property to Janet, for Trust 45-10, MS and NS Trusts. Audrey paid $ 41,000 for an interest for NS in August 1956.

Janet sold the Bryant Avenue property in October 1958 for a gross price of $ 600,000. It was subject to an existing first mortgage of $ 200,000 and a purchase money mortgage of $ 360,000 to Janet for the trusts.

LACEY PARK

In 1957 Lester Palmer, as co-trustee of Trust 47-10, made a bid to the Federal Housing Administration for the Lacey Park property in Hatboro, Pennsylvania, which was offered for sale. The bid was in excess of $ 3,000,000. When he was successful upon the bid, he deemed it too much to handle. Janet, a director of the trust, was also apprehensive as to the investment. She asked her father to relieve the trust. Holdeen and Elias, as equal partners, agreed to take the property. They gave a mortgage and transferred stock of Chicago & Eastern Illinois Railroad Co., as security to Trust 47-10. *451 The trust participated in the purchase to the extent of a loan of $ 217,541. Other family members loaned $ 50,000 more. Title was taken by Bella Angel, the mother of Gabriel Elias, as a nominee.

ON May 29, 1957, Holdeen wrote members of the family concerning recent purchases jointly with Gabriel Elias of Government housing listing properties referred to as:

Wentworth Acres Portsmouth, New Hampshire

Lacey Park Hatboro, Pennsylvania

Southview HomesSpringfield, Vermont

The total prices were in excess of $ 5,000,000, but Government mortgages of 80 to 88 percent of the prices were involved.

Elias subsequently moved to Hatboro, Pennsylvania, to take charge of the property at Lacey Park.

Interest was paid on the mortgage to Trust 47-10 in 1958 in the amount of $ 6,328. In 1959 the outstanding loan was reduced to $ 105,977.

1958 LOANS

In 1958 the Internal Revenue Service made transferee assessments against Trusts 47-10 and 55-10, among others, with respect to the tax liability determined against Holdeen for the years 1947-1950. With the consent and at the solicitation of the New York Regional Counsel of the Service, these two trusts paid over to the Government the amount of their transferee *452 assessments and Holdeen gave each trust a note for the appropriate amount bearing 6 percent interest and secured by adequate collateral.

Janet loaned $ 300,000 from the Ten Funds' account. The trust received some cash and real estate the value of which more than covered the remainder of the loan and interest. The principal was repaid before September 1958. Janet did not allot any amount as interest for this loan in the tax returns for the period.

Kreulen paid $ 265,717 to the Service from the funds of Trust 47-10. He treated this as a loan to Holdeen. No interest was paid during 1958. Interest was paid in 1959 in the amount of $ 22,320. Interest was paid in later years. Holdeen repaid the loan with interest in 1964.

Holdeen suffered from ulcers. He was hospitalized from December 28, 1952 to January 15, 1953 at Brooklyn. He was later hospitalized for surgery at Sharon, Connecticut from January 13 to February 18, 1954. He was bedridden thereafter for the best part of a year.

In the 1954 income tax return of Holdeen and his wife medical expenses of $ 2,889.19 were shown including hospital expense of $ 1,242.69.

In October 1953 the Department of Health of the State of New York requested *453 the signature of Holdeen upon a certain order. In July 1954 Janet replied stating: "Due to the fact that my father was quite ill last fall and winter, we have only recently had the chance to get the order signed."

The net worth of Jonathan Holdeen and Stella H. Holden as of December 31, 1953, as computed by respondent was as follows: Jonathan Holdeen

Assets

Cash

Stissing National Bank $ 17,128.00

Corn Exchange National Bank 2,450.00

Grace National Bank 2,139.00

Bronx CountyTrust Co. 2,856.00

H. C. Wainwright & Co. 18,397.00

Baker Weeks & Co. 12,649.00

Total $ 55,619.00

Stocks 2,068,058.38

Bonds 333,656.56

Mortgages 5,495.00

Real Estate 590,897.00

Total $ 3,053,725.94

Liabilities 2,569,422.07

Net Worth $ 484,303.87

Stella H. Holden

Assets

Cash $ 9,956.00

Stocks 81,759.63

Loans and mortgages 12,423.37

Real Estate 58,938.00

Total $ 163,077.00

Liabilities -0-

Net Worth $ 163,077.00

Total Net Worth $ 647,380.87

The liabilities included bank loans amounting to $ 604,000, brokers' loans of $ 624,621.35 and income tax deficiencies and interest for the years 1945 through 1953 aggregating $ 1,302,743.22.

Jonathan Holdeen made charitable gifts for the years 1951 through 1956 in the following amounts: 1951

Net Fair Market

Assets Transferred Donee Value of Gift

Holdeen Fund

400 shares 50 Broadway, Inc. stock 51-10 $ 5,600

5-1/2 M Bonds Master Printers Bldg. bonds 51-1)

50 shares of Master Printers Bldg. stock 51-1) 3,100

400 shares 50 Broadway Inc. stock 51-2 5,600

400 shares 50 Broadway, Inc. stock 51-2M 5,600

5-1/2 M Bonds Master Printers Bldg. bonds 51-4) 3,100

50 shares of Master Printers Bldg. stock 51-4)

400 shares 50 Broadway, Inc. stock 51-5 5,600

400 shares 50 Broadway, Inc. stock 51-14 5,600

400 shares 50 Broadway, Inc. stock 51-17 5,600

400 shares 50 Broadway, Inc. stock 51-20 5,600

400 shares 50 Broadway, Inc. stock 51-21 5,600

400 shares 50 Broadway, Inc. stock 51-22 5,600

400 shares 50 Broadway, Inc. stock 51-25 5,600

400 shares 50 Broadway, Inc. stock 51-26 5,600

400 shares 50 Broadway, Inc. stock 51-28 5,600

400 shares 50 Broadway, Inc. stock 51-29 5,600

400 shares 50 Broadway, Inc. stock 51-30 5,600

400 shares 50 Broadway, Inc. stock 51-32 5,600

400 shares 50 Broadway, Inc. stock 51-33 5,600

200 shares 50 Broadway, Inc. stock 51-34 2,800

200 shares 50 Broadway, Inc. stock 51-34A 2,800

400 shares 50 Broadway, Inc. stock 51-35 5,600

400 shares 50 Broadway, Inc. stock 51-36 5,600

13-1/2 M 18 E. 41st Building Corp. bonds 51-37 4,800

13-1/2 M 18 E. 41st Building Corp. bonds 51-38 4,800

1952

97M bonds 165 Broadway Co. Inc. 52-10 37,500

400 shares Celanese Corp. of America stock 52-1 and 4 8,000

1953

1100 shares Chicago E. I. Bonds 47-10 $ 4,502.21

800 shares Marion Power Shovel 47-10 8,145.50

1410 shares Eastern Office, Inc. stock 53-10 86,000.00

(Graybar Building)

125 M General Mortgage Bonds of 165 53-10A 78,125.00

Broadway Building, Inc.

60 General Mortgage Bonds of 165 53-10B 37,500.00

Broadway Building, Inc.

All his right, title and interest in the 53-10C 15,000.00

last will and testament of Alice E.

Burton and in a 1/9 share of the

bonds and stocks held by San Diego

Trust Co. as trustee for trustor

and others as of July 1953

1 M Park Avenue and 91st Bonds 53-39 3,000.00

200 shares Marion Power Shovel Co. stock 53-40 2,400.00

1954

800 shares B & O RR stock 47-10 600.00

8000 shares 50 Broadway Bldg. Inc. stock 54-50 104,000.00

1000 shares 50 Broadway Bldg. Inc. stock 54-50A 13,000.00

5000 shares Equitable Office Building 54-120 4,500.00

Building Corporation stock

1000 shares 50 Broadway Bldg. Inc. stock 54-LIH 13,000.00

326 shares 50 Broadway Bldg. Inc. stock 54-2M 4,238.00

700 shares 50 Broadway Bldg. Inc. stock 54-18 9,100.00

400 shares Equitable Office Building 54-21A 410.00

Inc. stock

550 shares Equitable Office Bldg. stock) 54-32 2,420.00

2 shares Textile Realty Corp.) 100.00

550 shares Equitable Office Bldg. stock) 54-33 2,420.00

2 shares Textile Realty Corp.) 100.00

400 shares Equitable Office Bldg. 54-33A 410.00

Corp. stock

400 shares Equitable Office Bldg. 54-39 410.00

Corp. stock

400 shares Equitable Office Bldg. 54-41 410.00

Corp. stock

1955

37,764 shares Commodore Hotel, Inc. stock 55-10 511,196.00

1956

99M Chicago & E. I. Bonds 56-10 $ 7,000.00

500 shares City Investing Co. stock 56-10 9,400.00

10 M Chicago, Milwaukee, St. Paul & 56-10 6,600.00

Pacific, Inc. "A" bonds

147-1/2M 165 Broadway Bldg. Inc. bonds 56-15 86,000.00

2700 shares Curtiss Publishing Co. stock 56-15A 5,962.50

900 shares Bangor & Aroostock R.R. Co. stock 56-15B 38,200.00

1200 shares Bing & Bing Inc. stock (56-4 34,800.00

(56-8

(56-20

1 instrument (56-30

(56-37

*454 The approximate values of the assets of certain trusts at the dates listed, in thousands of dollars, were: Year I II 45-10 47-10 55-10 NS MS

1945 27 a

1946 80 b 86 c 155 d

1947 189 e

1948 142 f 278 192 g 95 i

1949 213 h

1950

1951 218 j

1952 566

1953 558 k 518 k 399 m 182 i

1954 197 m 270 m 696 m 567 m 218 i

1955 511 c 213 i

1956 840 n 834 n 252 i

1957 1,061 g 268 i

1958 750 879 i 247 i

Holdeen and his wife paid over $ 125,000 in Federal income taxes for the years 1951-1956. They claimed a loss for 1957.

In May 1958 Holdeen testified in the U.S. District Court for the Northern District of New York in his action to recover income taxes paid with respect to the year 1945. In the course of his testimony he said, in recent years he could not do much investing for himself but had been investing for members of "our clan."

In testimony in 1960 concerning his liability for taxes for 1946 he said he had not borrowed from the trusts.

Jonathan Holdeen and Stella H. Holden filed joint Federal income tax returns on the cash basis for the calendar years 1951 to 1957 inclusive, with the collector or district director of internal *455 revenue at Albany, New York. Janet Adams helped to prepare these returns. The returns included the following amounts of income, gains and (losses): 1951 1952 1953 1954

Income Included:

Dividends 81,290.50 83,259.25 90,556.80 118,366.55

Interest 12,649.39 13,323.01 27,306.98 25,695.68

Professional

Income (880.87) (2,715.10) (1,341.61) (1,326.02)

Capital Gain,

Gross 56,963.96 10,658.79 (335.89) 9,273.42

Rents (24,817.39) (41,662.79) (35,787.18) (72,363.21)

Number of

Rental Prop-

erties 23 23 27 22

Expenses In-

cluded

Contributions 14,000.00 27,527.00 16,000.00 15,000.00

Interest Expense 22,103.08 23,874.42 34,514.37 47,876.81

Tax 20,382.15 27,117.85 8,958.96 1,497.04

1955 1956 1957

Income Included:

Dividends 125,044.00 101,344.26 102,739.85

Interest 14,423.00 15,371.46 12,070.16

Professional

Income (5,475.32) (5,545.60) (1,682.73)

Capital Gain,

Gross 2,094.00 33,383.27 199.26

Rents (6,578.00) 4,525.73 (33,715.00)

Number of

Rental Prop-

erties 14 5 6

Expenses In-

cluded

Contributions 26,711.00 26,000.00 16,000.00

Interest Expense 51,108.00 not shown 76,801.40

Tax 20,953.00 11,908.07 none

The income tax returns reported the following contributions: 1951 Trust II $ 23,000; 51 series $ 78,000

1952 Trust 52-10, $ 12,527; 51-10 $ 15,000

1953 Holdeen Fund 53-10, $ 16,000

1954 Holdeen Fund 54-50, $ 15,000

1955 Holdeen Fund 55-50, $ 26.711

1956 Holdeen Fund 56-15, $ 26,000

1957 Holdeen Trust I, $ 16,000

1957 Holdeen Trust II, over $ 5,000

In *456 determining the deficiencies in the Estates cases the respondent included in the income of Holdeen and his wife the income of the trusts which had income in the taxable years. These included Trusts I, II, Naylor-Sanford, MacPherson-Sanford, 45-10, 46-10, 47-10, 50-10, and Adams-Lincoln for all years, Trusts 54-120, Adams-Graybar, and Adams-125 Broadway for the years 1954 through 1957 and Trusts 55-10, Adams 50 Broadway and Adams-Commodore for the years 1955 through 1957, and over 20 other trusts in each year.

Respondent also disallowed the deductions claimed for contributions made to the trusts.

The trust income determined as taxable to Holdeen and his wife was in the following amounts: Date Amount

1951 $ 227,105.14

1952 215,652.17

1953 276,896.30

1954 588,181.75

1955 357,093.27

1956 443,500.00

1957 660,019.33

ULTIMATE FINDINGS OF FACT AS TO ESTATES CASES

Jonathan Holdeen, individually, and jointly with Stella H. Holden, intended to, and did, create valid and genuine trusts.

In Trust 45-10 and all later trusts Jonathan Holdeen reserved no rights or powers of ownership or control. He did not possess or exercise any powers of ownership or control in these trusts in the years 1951 through 1957.

In the *457 MacPherson-Sanford and Naylor-Sanford Trusts Jonathan Holdeen released in 1945 all prior retained powers. He did not possess or exercise any powers of ownership or control in the years 1951-1957.

The powers which Jonathan Holdeen retained in Trusts I, II, and III were renounced by him in December 1953. He did not possess or exercise any powers of ownership or control in these trusts after that date.

Additional Findings of Fact re Trusts

Trust II filed fiduciary income tax returns (Forms 1041) for the calendar year 1949; the taxable period January 1, 1952 through June 30, 1952; and the taxable years ending June 30, 1953, 1954, and 1955. For the taxable year ending June 30, 1956, a fiduciary income tax return was filed that reported the combined income of Trust II and Trust I. All of these returns were filed with the district director in Albany, New York.

The taxable years in issue are the calendar years 1948 through 1951; the period January 1 through June 30, 1952; and the fiscal years ending June 30, in 1953, 1954, 1955, and 1956. During each of these taxable years Trust II used the cash receipts and disbursements method of accounting.

Janet Adams, as trustee, commingled the assets *458 of Trust II with those of Trusts I and III.

Deeds to parcels of real property owned by Trust II were not usually recorded.

In 1951 Holdeen transferred to Trust II certain property with a fair market value of $ 23,000.

On April 15, 1957, Holdeen transferred bonds worth $ 35,275 to Trust I and II. He transferred an interest in an estate worth $ 7,400 to these two trusts on July 5, 1957.

James Cushing-Murray managed several buildings owned by Trust II, including properties located on West 114th Street and West 116th Street.

As of March 17, 1952, James Cushing-Murray had not paid Trust II the 1949 rental income from its properties that he managed. As of March 26, 1953, he owed Trust II the 1951 rental income from the 116th Street property in the amount of $ 6,479.80. He also had not paid Trust II the 1952 rental income from this property and the 114th Street property.

Trust II loaned $ 9,000 to James Cushing-Murray in 1949. Subsequently, some principal was paid, but the balance of this loan had not been repaid as of April 1, 1952.

On September 15, 1951, Trust II loaned $ 50,000 to James Cushing-Murray. This loan was secured by a mortgage on a shopping center. As of November 3, 1952, no *459 interest had been paid on this mortgage.

On June 29, 1954, Trust II loaned James Cushing-Murray $ 3,000. This loan was still outstanding as of September 30, 1954.

Trust II owned mortgages of which James Cushing-Murray was the mortgagor. As of September 15, 1953, no interest had been paid on some of these mortgages. Janet believed that Trust II would have to write off some of these mortgages because they were worthless.

Holdeen advised the trustees of all the trusts to "keep their money working". Janet tried to keep all funds invested and to avoid having any money idle. She expressed disappointment upon learning that Audrey had money in the bank.

The capital gains of the trusts were within a reasonable time reinvested in property acquired and held for the production of investment income.

In August 1952 Janet entered into a stipulation with Hildred and James Cushing-Murray under which Janet received $ 50,000. She elected to apply $ 12,075 in payment of interest and the balance upon principal of certain mortgages owed by the Cushing-Murrays.

In January 1953 Janet wrote Audrey Naylor:

Re Trust Income outlook

All trusts will be in the hole for 1952-53. Violations are very severe.

We are *460 going to try to sell as fast as possible this spring (That's not very fast). Also there seems every indication for rent increase which might more than offset our hardships. However figure on it being bad.

Dad also does talk of '53 series gifts.

The lists of interfamily and inter-trust loans prepared by Janet show the following under the dates given.

March 1953

Cushing-Murray owes Trust II 3 items aggregating about $ 9,700

November 1953

Trust II owes JH 6M Trust II owes Baker-Weeks, see statements Trust II owes 50-10 $ 4,000 NS owes Trust II $ 6,000 NS owes Trust II $ 6,028.57 Jim owes Trust II see survey

January 1954

Jim owes Trust II 149 M see survey Trust II owes Baker-Weeks 127 M

June 1954

Trust II owes Baker-Weeks 127M

The income of Trust II as computed by respondent was as follows: Holdeen Trust II

Gross Ordi- Distribution Capital Ordinary

Year nary Income Expenses Deduction Gain Income

1948 $ 12,760.61 $ 478.00 $ 12,282.51 $ 35,182.28 0

1949 19,141.33 1,737.34 15,483.97 12,214.99 $ 1,920.02

1950 29,397.51 1,962.12 26,488.89 18,598.84 946.50

1951 36,860.34 6,521.11 22,400.00 0 7,939.23

1/1-6/30/52 6,968.75 3,435.63 4,485.51 14,421.65 0

TYE 6/30/53 28,975.05 5,883.97 19,215.35 9,825.58 3,875.73

TYE 6/30/54 31,632.76 7,044.79 24,852.70 28,335.01 0

TYE 6/30/55 26,725.12 1,262.31 20,769.21 43,591.70 4,693.60

TYE 6/30/56 30,668.27 541.20 17,082.38 66,457.16 13,044.69

Trust *461 45-10 filed fiduciary income tax returns (Form 1041) for the calendar years 1951, 1952, 1956, 1957, 1958, 1959, 1961, 1962 and 1964. The Trust filed an amended fiduciary income tax return for the calendar year 1964. All of these returns were filed with the district director in Albany, New York. Trust 45-10 filed a fiduciary income tax return for the calendar year 1954 with the district director in Upper Manhattan, New York.

During each of the calendar years 1949 to 1964, inclusive, Trust 45-10 computed its taxable income by using the cash receipts and disbursements method of accounting.

The amounts Trusts 45-10 and 55-10 distributed to charity were paid to the American Unitarian Association and its successor, the Unitarian Universalist Association, herein referred to as the AUA and the UUA, respectively. These are organizations contributions to which are deductible under the Internal Revenue Codes of 1939 and 1954. TRUST 45-10

Major investments as of December 31, 1952

Shares Stock

8,816 Duplan $ 119,445

5,670 Seatrain 57,550

547 LeTourneau 35,677

9,756 Commodore Hotel 66,163

5,900 CNV Stock 36,300

4,614 Lamston 30,684

1,600 NYC Stock 22,400

5,260 50 Broadway 21,291

Total $ 557,535

The income of Trust 45-10 as *462 computed by respondent was as follows: Holdeen Fund 45-10

Gross Ordi- Charitable Capital Ordinary

Year nary Income Expenses Contributions Gain Income

1949 $ 17,064.67 $ 1,525.31 $ 192.80 $ 3,117.21 $ 15,346.56

1950 26,439.95 2,504.97 335.07 39,763.29 23,599.91

1951 32,770.67 1,414.60 512.96 16,999.84 30,843.13

1952 38,9 31.17 2,199.14 661.17 16,805.49 36,070.80

1953 29,697.47 2,281.97 511.05 53,619.54 26,904.45

1954 40,371.02 3 ,774.16 950.37 173,822.92 45,696.49

1955 63,903.59 7,491.63 0 11,659.28 56,411.96

1956 60,006.98 8,471.70 0 29,734.02 51,535.28

1957 56,166.82 9,375.30 1,941.00 82,730.40 44,850.52

1958 48,874.97 2,990.00 1,268.00 262, 672.06 44,616.97

1959 54,286.84 3,270.00 1,434.00 8,413.60 49,582.84

1960 44,098.35 1,999.00 0 33,782.75 42,0 99.35

1961 57,919.04 2,857.00 2,640.00 9,359.42 52,422.04

1962 49,477.61 3,626.00 1,887.00 23,980.78 43,964.61

1963 52,832.28 3,547.00 0 32,374.86 49,285.28

1964 69,616.86 3,345.00 1,228.08 47,214.32 65,043.78

Trust 55-10 filed fiduciary income tax returns (Form 1041) for the calendar years 1956, 1957, 1958, 1959, 1962 and 1964. Trust 55-10 filed an amended fiduciary income tax return for the calendar year 1964. All of these returns were filed with the district director of internal revenue in Albany, New York.

During each of the calendar years *463 1956 to 1964, inclusive, Trust 55-10 computed its taxable income by using the cash receipts and disbursements method of accounting.

The income of Trust 55-10 as computed by respondent was as follows: Holdeen Fund 55-10

Gross Ordi- Charitable Capital Ordinary

Year nary Income Expenses Contributions Gain Income

1955 $ 8,329.20 $ 1,163.00 0 $ 1,705.11 $ 7,165.20

1956 59,565.74 7,416.77 0 29,515.38 52,148.97

1957 55,753.83 6,917.57 85.00 82,122.08 48,751.26

195 8 48,515.60 1,493.00 129.00 260,740.66 46,893.60

1959 53,887.68 1,524.00 193.00 8,351.73 39,056.00

1960 45,76 4.52 1,241.00 0 35,059.18 44,219.00

1961 60,107.42 1,537.00 479.00 9,713.06 59,110.00

1962 51,140.70 1,881.00 420.00 24,786.83 32,536.00

1963 54,608.15 1,599.00 0 33,463.10 53,009.15

1964 71,956.95 1,599.00 1,269.36 48,801.38 69,038.59

ULTIMATE FINDINGS OF FACT IN TRUST CASES

Trust II permanently set aside its capital gains for educational or public purposes in the taxable years ended June 30, 1955 and 1956. Such capital gains were reinvested within a reasonable time in property held for the production of investment income.

The amounts permanently set aside by Trust II were not unreasonable in amount or duration; were not used to a substantial degree for noncharitable purposes, and were not *464 invested in such a manner as to jeopardize the interests of Hartwick College, or the Commonwealth of Pennsylvania.

The income of Trusts 45-10 and 55-10 was paid in part to the American Unitarian Association, or its successor, the Unitarian Universalist Association, and the remainder of such income was retained by the trusts for the current charitable uses of these organizations.

OPINION

The Estates of Jonathan Holdeen and Stella H. Holden

(1) In these cases the principal issue is whether the income realized in the taxable years 1951 through 1957 by some 50 trusts created by Jonathan Holdeen or by Holdeen and his wife is taxable to the grantors. In the notices of deficiency respondent alleged (1) that the gifts in trust were void ab initio by reason of the period of accumulation and the remoteness of vesting, and (2) that the net income of the trusts was taxable to the grantors by reason of Holdeen's ownership and control of the trust corpus after the transfers.

At the hearing and on brief respondent abandoned his contentions based upon the period of accumulation and remoteness of vesting, and argues (consistent with his second amended answer) that the trusts were void ab initio because *465 Holdeen and his wife had never created, nor intended to create, any valid trusts.

The petitioners contend that Holdeen and his wife did intend to create valid trusts.

(2) A second issue in these cases is whether certain contributions made to some of the trusts in the taxable years 1951-1957 are deductible as claimed.

INTENT TO CREATE TRUSTS

Respondent contends that Holdeen did not create or intend to create any valid trusts, that while these trust agreements may have been valid under state law, when the motives, the trust terms, the selection of trustees, and the administration of the funds are considered, it must be concluded that the trusts were shams for Federal tax purposes. While Holdeen's apparent motive in the peculiar provisions for 500 or 1,000-year trusts was to effectuate his plans for cumulative endowment, in actual conduct it was tax avoidance. If no taxes were paid he and his family would receive more income than if taxes were paid. Only an infinitesimal amount was paid to the American Unitarian Association or to the college beneficiaries in the early years. Therefore the charitable provisions were only window dressing. Some 51 trusts and amendments thereto are herein *466 involved. The many trusts with similar terms indicate that they are illusory. Some were captioned incorrectly; some were not executed; two documents were executed for a single trust; some assets were not transferred to the trustees, and some assets were not in the possession of Holdeen at the time the agreement was executed. Holdeen filed gift tax returns beginning with 1953 and probably filed none earlier. Such failure to file raises the question of intent to create trusts.

Respondent contends that prior testimony of Holdeen indicates that he knew the terms of the trusts would not be followed and that the accumulation provisions might be invalidated. Respondent also says that Holdeen knew none of the trusts would be administered in Pennsylvania or incorporated under Pennsylvania law, that he planned to direct all the activities from New York, and in four of the trusts the corpus must be located in Pennsylvania in order to determine the expendable income.

The banks and trust companies in Pennsylvania designated as successor trustees were not contacted in any case. Respondent says the trustees were not qualified for their responsibilities and all were members of the family except for *467 Kreulen and Palmer.

Respondent argues that the trustees of the MacPherson-Sanford and Naylor-Sanford trusts had no power to make loans but the trustees never hesitated to provide funds on request. Sherley and Audrey received instructions from Janet Adams and Janet was controlled by Holdeen. Kreulen was not qualified since he had never held a position of responsibility before. Respondent says that Holdeen borrowed funds from the trusts.

Respondent argues that other indications that the trusts were shams are that some trusts never received the assets designated as corpus, Janet Adams had 10 brokerage accounts for 100 trusts, no bank records or brokerage accounts were held in the name of the trusts and Janet executed a false document concerning ownership of brokerage accounts which her broker knew was false. The fact that Janet paid the American Unitarian Association from five trusts by a single check 15 months late indicates the trust was not operated for the benefit of the charity. The appointment of Brisson and Elias as directors of some of the trusts was solely to add substance. Furthermore, trading on margin by the trustees was not authorized in the agreements although it was always *468 done. The provisions in some trusts that the property might stand in the name of the trustee was not authority to commingle. Titles were held in the name of a dummy corporation or in the name of the trustee as an individual. This did not comply with the law of New York requiring title of trust property to be held in the name of the trust.

Applications for exemptions from taxes for trusts established in 1945 and 1947 were not filed until 1959 or later. None of the trust deeds were recorded before 1951.

Respondent cites Emil Morton, 46 T.C. 723 (1966) ; Roy C. Acuff, 35 T.C. 162 (1960) , affirmed per curiam 296 F.2d 725 (C.A. 6, 1961) and Herman Paster, T.C. Memo. 1961-240 . In these cases purported trusts were not recognized as valid and subsisting for tax purposes. In all of these cases the property designated as a trust corpus was an interest in the business operated by the grantors. The properties were not conveyed to the trusts as such and the grantors continued to hold, manage and control the properties as though the trust agreement had not been written. Also, there were no distributions made to beneficiaries who were minor children of the grantors.

In Acuff, supra , we stated:

Respondent *469 argues that petitioners may be taxed on the income of the trust under either section 674, relating to the power to control the beneficial enjoyment of the corpus or income, or section 675 , relating to retention by the grantor of specified administrative powers. Had this trust and partnership been established other than on paper we would have to decide whether, under the entire setup as envisioned by the trust and partnership agreements and as actually conducted by the donors as partners and trustee, the grantors of the trust retained any of the powers that would permit taxation of the trust income to them under section 671 of the 1954 Code or would require taxation of the trust income to them under the Clifford regulations and cases decided under the 1939 Code. But, we think it is clear that where the trust and partnership have no substance and the grantors continue to hold, manage, and control the properties as though the trust and partnership agreements had not been written, these questions need not be answered.

While we recognize that section 671 of the 1954 Code appears to limit more specifically than did the socalled Clifford regulations the taxation of income of a trust to the *470 grantor solely on the grounds of his dominion and control ov

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