Render to Caesar Before Yourself – United States v. Read, T.C.
In 1999, Randy Read established an irrevocable trust for his children, naming himself as Trustee, and contributed stock options (earned by his wife) worth well over $700,000. Two years later, the trust assets had a value of just over $160,000 and a tax liability of about $122,000. Thereafter, he made distributions from the trust for renovations to his residence, investment in real estate, and payment of private school tuition for his children, as well as cash distributions to himself. These distributions rendered the Trust insolvent (assets were reduced to an amount below the unpaid income tax liability of over $120,000 owed to Uncle Sam).
Describing Read as “the self-dealing transferee” of trust assets, the Tax Court found that Randy did not act as a reasonably prudent person serving as trustee, since he did not inquire into the tax liability and the consequences of the failure to pay the tax, and that Randy did not act prudently. He was found personally liable for the full amount of the debt owed by the Trust, which exceeded $200,000 with penalties and prejudgment interest. Thus, the Government was able to “secure adequate revenue” for the United States by preventing this trustee from depleting a trust to evade the trust’s tax liability. United States v. Read, T.C. Memo. (Jan. 26, 2016).