Docket No. 46672. | B.T.A. | Jul 26, 1932
Lead Opinion
On brief, the respondent states his contention as follows:
It is the contention of the Commissioner that the transfer to- the decedent’s issue was one intended to take effect in possession or enjoyment at or after the decedent’s death within the meaning of Section 302 (c) and that the value of the entire property is subject to tax with the exception of the remainder interest therein deductible under Section 303 (a) (3) as a bequest to charity.
On brief, the respondent discusses generally the common law relative to contingent remainders, and treats the question before us as though the status of the rights of the decedent’s issue is determinative of the question. Similar rights were not considered to have affected the transfer involved in Shukert v. Allen, 273 U.S. 545" court="SCOTUS" date_filed="1927-03-21" href="https://app.midpage.ai/document/shukert-v-allen-101034?utm_source=webapp" opinion_id="101034">273 U. S. 545. To illustrate the erroneous conclusion reached by that line of reasoning, the respondent argues that upon the death of the decedent “ for the first time the children possessed interests susceptible of definite valuation and subject to all of the incidents of absolute ownership,” which interests he values not upon the basis of their life expectancy, during which they could receive the income from the trust (although that was the basis of his first determination of the
The petitioners contend that the decedent’s gifts to the Harvard Mutual Foundation were absolute, complete, and beyond her control, and nothing passed upon her death to the living — that there was no taxable transfer of property — citing May v. Heiner, 281 U.S. 238" court="SCOTUS" date_filed="1930-04-14" href="https://app.midpage.ai/document/may-v-heiner-101552?utm_source=webapp" opinion_id="101552">281 U. S. 238; Burnet v. Northern Trust Co., 283 U.S. 782" court="SCOTUS" date_filed="1931-03-02" href="https://app.midpage.ai/document/burnet-v-northern-trust-co-8148419?utm_source=webapp" opinion_id="8148419">283 U. S. 782; Morsman v. Burnet, 283 U.S. 783" court="SCOTUS" date_filed="1931-03-23" href="https://app.midpage.ai/document/edgar-m-morsman-jr-administrator-of-the-estate-of-edgar-m-morsman-v-david-burnet-commissioner-of-internal-revenue-101779?utm_source=webapp" opinion_id="101779">283 U. S. 783; McCormick v. Burnet, 283 U.S. 784" court="SCOTUS" date_filed="1931-03-23" href="https://app.midpage.ai/document/cyrus-h-mccormick-v-david-burnet-101780?utm_source=webapp" opinion_id="101780">283 U. S. 784.
The respondent also relies upon Sargent v. White, 50 Fed. (2d) 410, decided by the Circuit Court of Appeals for the First Circuit (to which Circuit an appeal from our decision would lie). That decision followed Klein v. United States, supra, in which the court said:
* * * differs ¡rom this case to this extent, that the grantor by deed transferred a life estate in some real property directly to his wife, expressly reserving to himself the fee, which, or as in this case the absolute title to the trust funds, passed to the wife at his death in case she survived him.
The court, in distinguishing May v. Heiner, supra, said:
* * * the absolute disposition of the trust property was provided for in the trust instrument and only the income was reserved to the husband of the grantor and to herself for life, if she survived him.
The stipulated facts show that the decedent made an absolute disposition of the property by irrevocable transfer to the Harvard Mutual Foundation, reserving to herself and her issue the right to receive the net income hereof. The decedent had no control over the trustees and their handling of the trust fund, and she had no power of disposition of the corpus of the fund by will or otherwise (cf. Edward J. Hancy, Executor, 17 B. T. A. 464; John S. Montgomery et al., Executors, 17 B. T. A. 491; Cortlandt F. Bishop, Executor, 23 B. T. A. 920, 928); neither was there a possibility of the property reverting to her or going to her heirs upon the happening of any event (cf. Sargent v. White, supra). As the Supreme Court said in May v. Heiner, supra:
* * * no interest in tbe property held under the trust deed passed from her to the living; title thereto had been definitely fixed by the trust deed. The interest therein which she possessed immediately prior to her death was obliterated by that event.
It is of significance, although not conclusive, that the only section imposing the tax, section 401, does so on the net estate of decedents and that the miscellaneous items of property required by section 402 to be brought into the gross estate for the purpose of computing the tax, unless the present remainders be an exception, are either property transferred in contemplation of death or property passing out of the control, possession or enjoyment of the decedent at his death. They are property held by the decedent in joint tenancy or by the entirety, property of another subject to the decedent’s power of appointment and insurance policies effected by the decedent on his own life, payable to his estate or to others at his death. The two sections read together indicate no purpose to tax completed gifts made by the donor in his lifetime not in contemplation of death, where he has retained no such control, possession or enjoyment. In the light of the general purpose of the statute and the language of section 401 explicitly imposing the tax on net estates of decedents, we think it at least doubtful whether the trusts or interests in a trust intended to be reached by the phrase in section 402 (c) “ to take effect in possession or enjoyment at or after his death,” include any others than those passing from the possession, enjoyment or control of the donor at his death and so taxable as transfers at death under section 401. That doubt must be resolved in favor of the taxpayer. * * *
The decedent’s life estate was obliterated by her death; the right of her issue to receive the income after her death was established by the trust agreement, and the clause in her will designating the beneficiaries after her death, while ostensibly the exercise of the power of appointment, was in reality executed almost contemporaneously and in accord with the special agreement regarding the trust property and was not an enlargement of that agreement. Where, as here, irrevocable gifts are made to a trust and the donor reserves the income to himself for life and the right to designate the beneficiaries of the income after his death, which right is exercised in accordance with the trust agreement, it is doubtful whether any portion of the trust property should he included in the decedent’s gross estate, in view of the decision in May v. Heiner, supra. Such doubts should be resolved in favor of the taxpayer (Gould v. Gould, 245 U.S. 151" court="SCOTUS" date_filed="1917-11-19" href="https://app.midpage.ai/document/gould-v-gould-99024?utm_source=webapp" opinion_id="99024">245 U. S. 151, 153), particularly in view of the fact that immediately following the per ewriam decisions in Burnet v. Northern Trust Co., supra; Morsman v. Burnet, supra; and McCormick v. Burnet, supra, Congress amended section 302 (c) of the Revenue Act of 1926 by joint resolution (Public 131), approved March 4, 1931, which specifically provides for the inclusion of property transferred in trust where the transferor “ has retained for his life * * * the income from the property or * * * the right to designate the persons
The respondent’s action in including the trust property in the decedent’s gross estate and deducting therefrom the value of the remainder interest of Harvard College, is reversed. Cf. Lillian M. Wheeler, Executrix, 20 B. T. A. 695; Frederic Ullman et al., Executors, 20 B. T. A. 782; Frances Plumer McIlhenny et al., Executors, 22 B. T. A. 1093; Colonial Trust Co. et al., Executors, 22 B. T. A. 1377; Namaline H. Duke et al., Executors, 23 B. T. A. 1104; Frank G. Williams et al., Executors, 25 B. T. A. 1078.
"Judgment will be entered under Rule 50.