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successor trustee. Under the terms of the trust, the trustee had
the power to appoint successor trustees and cotrustees.
Petitioners assert that the personal expenses that were paid
from the trust bank account were accounted for as a distribution
and that only the legitimate business expenses were deducted.
Even so, Richard Pelham had the ability to control fully the
trust’s activities and trust assets for his own benefit because
no independent trustee had any meaningful control over the
management of the trust.
No one other than Richard Pelham held any meaningful
economic interest in the trust because, under the terms of the
trust agreement, Richard Pelham was the named beneficiary of the
income and principal of the trust.
Petitioners argue that Richard Pelham achieved benefits from
operating the sole proprietorship within a trust and not forming
a corporation because: (1) The trust could avoid the State
franchise tax imposed on the profits of a corporation, which
would have been approximately $2,040; (2) the trust would not
have to pay the State incorporation filing fee of $300; and
(3) the trust did not have to maintain corporate formalities,
such as shareholder minutes.
Petitioners’ argument that a trust had advantages over a
corporation misses the point. The incorporation alternative is
not an issue here. Petitioners chose the form of a trust and are
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Last modified: May 25, 2011