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trust’s formation; (2) whether the trust had a bona fide
independent trustee; (3) whether an economic interest in the
trust passed to trust beneficiaries other than the grantor; and
(4) whether the taxpayer honored restrictions imposed by the
trust or by the law of trusts. See Markosian v. Commissioner,
supra at 1243-1245.
Respondent argues that Richard Pelham was effectively the
grantor of the trust because he arranged and paid for the
establishment of the trust and effectively transferred his
locksmith business to the trust. Respondent relies on Zmuda v.
Commissioner, supra at 720, and does not rely on the grantor
trust provisions under sections 671 to 678. Petitioners assert
that Hamilton was the settlor of the trust because she is named
as the donor in the trust document and she funded the trust with
$701. Richard Pelham claims that he did not transfer assets, not
even personal assets, to the trust, because he leased the
business equipment to the trust. However, Richard Pelham
testified that he had not signed the purported lease, and no
payments were made by the trust to him for use of the equipment.
Rather, the trust made the payments on the truck owned by Richard
Pelham.
“In determining the settlors of a trust, we look beyond the
named grantors to the economic realities to determine the true
grantor.” Id. Hamilton was a straw man who acted only in form
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