1956 U.S. Tax Ct. LEXIS 206 | Tax Ct. | 1956
Lead Opinion
OPINION.
Both factually and legally this proceeding arises against a complicated background. Decedent did not create the original trust out of which the deficiency arises. It was imposed, presumably with her consent, by the probate court upon property left by her deceased husband. The husband’s former wife was life beneficiary to the extent of $9,000 a year. At that point, the present decedent owned everything else.
Between March 3, 1931, and June 7,1932, however, decedent took a further step. She transferred to another trust her entire beneficial interest in the trust which had already been established for the life of Emma, the former wife. It is this transfer which respondent seeks to include in decedent’s estate under section 811 (c).
Petitioner then owned — and retained after the transfer into trust— two income interests. She had an immediate right to all income over $9,000 a year and a reversionary estate for her life in all the income after Emma’s death. One interest was uncertain and the other postponed, but both were capable of valuation; and they have been valued. We take it that when the parties stipulate that, if any amount is to be included in decedent’s estate on account of the transfer it is $132,461.86, they are agreeing on what that value is.
The significance of the date when this transfer took place is that it occurred between the passage of the Joint Resolution,
The conclusion that a reversionary life estate was not encompassed in the phrase “intended to take effect * * * at * * * death,” May v. Hein&r, supra, was struck down by the CTwrch case,
The language of the Joint Resolution included in a decedent’s estate transferred property as to which
the transferor has retained for his life or any period not ending before his death (1) the possession or enjoyment of, or the income from, the property * * *
By the 1982 amendments, this language was changed to read as follows, the additional words being underscored:
under which he has retained for his life or for any period, not ascertamdble vMhout reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property * * * [Rev. Act 1932, sec. 803.]
If the only retained income interest had been the reversionary life estate, it might be that the property would not be includible. Cases
As, however, Congress deemed the addition of this second phrase a substantial change, it may well be that it was intended to eradicate any part of the May v. Seiner interpretation which the Joint Resolution of 1931 * * * may conceivably have left intact. [Marks v. Higgins, (C. A. 2) 213 F. 2d 884.]
Unlike Estate of Herman Hohensee, Sr., 25 T. C. 1258, the retroactive provisions of the Technical Changes Act do not by express congressional language include this interest. And it is equally unnecessary to pass here upon the still unresolved question whether it was intended, in the Technical Changes Act, to make any real distinction between transfers taking place before and after June 7, 1932. See Estate of Myron Selznick, 15 T. C. 716, 726, affirmed per curiam (C. A. 9) 195 F. 2d 735.
However that may be, this decedent did not. retain only the rever-sionary life estate. As we have said, she retained all that she ever had as long as she lived. Only at her death did her interests terminate. These interests included the right each year during her life to receive the excess income over $9,000 a year. Since the corpus of the trust was $200,000, this interest could not have been without some value. "What that value was,
Petitioner appears to labor under the impression that the amendment to section 811 (c) (2) made by section 7 of the Technical Changes Act
The present result is directly contrary to that reached in Estate of Charles Curie, 4 T. C. 1175, where the same types of interests were retained by decedent. Inclusion on account of the right to excess income was denied because of a supposed ruling in T. D. 4868, 1988-2 C. B. 355, 356. We think the Curie case misconstrued the scope of that ruling
The second issue involves a part of the executor’s commissions paid and allowed by the local probate court. Respondent concedes “that the executor’s fees paid * * * representing the application of the rate prescribed by Alabama law for executor’s fees to the receipts and disbursements of property owned by the decedent at death and included in the gross estate, are properly deductible. This amount is $21,915.51.” The balance of the executor’s fees, or $4,439.66, is disallowed because computed upon income received by the estate after decedent’s death and upon the distribution of that income.
In George W. Oldham et al, Executors, 36 B. T. A. 523, where the question involved was the deductibility of executor’s fees from income tax, we said at page 533:
the services rendered * * * were the usual and ordinary duties performed by executors in preparing an estate for distribution. * * *
at page 529:
Ordinarily the fees- and commissions of executors * * * and other representatives of estates are regarded as administration expenses and are applied against the gross estate in determining the estate tax. * * *
and at page 530:
If the process of administration goes forward in normal course, and distribution and settlement are completed within a usual and reasonable time, the expenses of the representatives of the estate are regarded as administration expenses. * * *
In the present case the amount of the executor’s commissions was established by the probate court. The computation of the commissions was made in accordance with Alabama statutes. Ala. Code 1940, tit. 61, secs. 377 and 378. It is clear in this case that the estate or the executor for the estate was not engaged in a trade or business, and that the activities of the executor were directed toward the distribution of estate assets. The administration of the estate has continued for an extended length of time, but considering the litigation, the problems involved, and the sums to be distributed, the length of time is not excessive. On this second issue petitioner is sustained.
Reviewed by the Court.
Decision will be entered u/nder Buie 50.
Decedent referred to her rights as follows: “Wheeeas, nnder the said arrangement the said Debe Hubbard Vogeler now is the ultimate owner and sole beneficiary of the said trust fund both as to income and corpus, subject only to the prior right of the said Emma Price Williams Hubbard to receive therefrom $750.00 per month so long as she survives * * *” (Exh. 18.)
Pub. Res. No. 131, 71st Cong., Sd Sess. (1931), ch. 454, 46 Stat. 1516.
74 Cong. Rec. 7078 et seq., 7198 et seq. (Mar. 3, 1931).
Pub. L. No. 378, 81st Cong., 1st Sess. (1949), ch. 720, 63 Stat. 891.
Commissioner v. Church’s Estate, 335 U. S. 632.
Commissioner v. Nathan’s Estate, (C. A. 7) 159 F. 2d 546, certiorari denied 334 U. S. 843, reversing 6 T. C. 604; Marks, v. Higgins, (C. A. 2) 213 F. 2d 884.
Burnet v. Northern Trust Co,, 283 U. S. 782; Morsman v. Burnet, 283 U. S. 783; McCormick v. Burnet, 283 U. S. 784.
$9,000 represented an Income of only 4⅜ per cent on the corpus.
SEC. 7. TRANSFERS TAKING EFFECT AT DEATH.
(a)i Section 811 (c) of the Internal Revenue Code (relating to transfers In contemplation of or taking effect at death) Is hereby amended to read as follows:
“(c) Transfers in Contemplation op, or Taking Effect at Death.—
“(1) General Rule. — To the extent of any Interest therein of 'which the decedent has at-any time made a transfer (except in case of a bona fide sale for an adequate and full consideration In money or money’s worth), by trust or otherwise—
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“(C) intended to take effect In possession or enjoyment at or after his death.
“(2) Transfers Taking effect at Death — Transfers Prior to October 8, 1949.— An interest in property of which the decedent made a transfer, on or before October 7, 1949, intended to take effect in possession or enjoyment at or after his death shall not be included in his gross estate under paragraph (1) (C) of this subsection unless the decedent has retained- a reversionary interest in the property, arising by the express terms of the instrument of transfer and not by operation of law, and the value of such reversionary interest immediately before the death of the decedent exceeds 5 per centum of the value of such property. For the purposes of this paragraph, the term ‘reversionary interest’ includes a possibility that property transferred by the decedent (A) may return to him or his estate, or (B) may be subject to a power of disposition'by him, but such term does not include a possibUity that the Income alone from such property may return to him or become subject to a power of disposition by him. * * *” [Emphasis added.)
If such retention or reservation Is of a part only of the use, possession, Income, or other enjoyment of the property, then only a corresponding proportion of the value of the property should be Included: In determining the value of the gross estate.
Dissenting Opinion
dissenting: I dissent on the first issue, believing that Estate of Charles Curie, 4 T. C. 1175, correctly states the law here applicable and should be followed.