6 A.2d 343 | Conn. | 1939
By an instrument dated June 5, 1923, John A. Topping of Greenwich conveyed to himself as trustee certain shares of stock to hold in trust, pay the net income therefrom to his wife, Louise J. Topping, during her life, and upon her death to transfer three-fifths to his son Wilbur B. Topping if living and if not to his issue in equal shares, pay the net income from the remaining two-fifths to his son Henry J. Topping during his life, and upon his death transfer the principal to Henry's issue then surviving him; *458 "provided, however, that if my said wife should, during my life, die, or become, in my judgment, incompetent to manage her affairs, I reserve and shall have the right and power at any time thereafter to revoke and terminate said trust. Upon such revocation or termination, all property held in trust hereunder shall revert to and become my own absolute property free and clear of all trusts and rights of others." Mr. Topping died August 24, 1934; his wife had continued competent to manage her affairs and survived him and the power of revocation provided for as above stated was not exercised. Both sons also survive, and have issue. After Mr. Topping's death the Bankers Trust Company became substituted trustee, and upon its application, with the named plaintiff, as executrix of the will of the decedent, for a determination of taxability of the transfers under the trust agreement, the Court of Probate found them taxable under 1361 of the General Statutes as amended (Cum. Sup. 1933, 360b) as a "gift or grant intended to take effect in possession or enjoyment at or after the death of the transferor." The Superior Court reached a like conclusion and rendered judgment accordingly. The issue upon this appeal is whether or not the effect of the quoted provision for revocation is to subject the transfer to the succession tax.
As to the effect of a reservation of a power of revocation by the transferor upon the taxability of a transfer as one intended to take effect in possession or enjoyment at or upon the transferor's death, the decisions are far from harmonious, but Prof. Rottschaefer, in his exhaustive discussion of the "Taxation of Transfers Intended," 14 Minnesota Law Journal (1930) p. 453, cites and discusses cases which he states (p. 477) "It can at least be said . . . give [to] those states that have not yet decided the matter a respectable *459
foundation on which to predicate the taxability of the acquisition of interests by transfers in which the transferor has reserved a power to alter, revoke or terminate." Matter of Bostwick,
"It is only when the owner relinquishes all power of control over the property and confers upon another the right to dispose of it and use its avails, without subsequent restriction or control by the donor, that the transfer escapes the tax." In re Fulham's Estate, supra, 315. "The reservation of a right to revoke — or the reservation of any other right by the exercise of which the donor may regain a beneficial interest in the trust fund — it would seem places such a deed of trust in the category of gifts intended to take effect in possession or enjoyment at or after the death of the donor. It is true that there is an actual transfer . . . of some equitable interest to the equitable donee, at the time of the delivery of the trust deed. But that equitable interest of the donee is not an absolute interest. It is defeasible at any moment the donor decides to revoke." In re Fosdick, supra, 47. The annotator in 67 A. L. R. 1248, observes "that most of the later cases have apparently repudiated the rule stated in the earlier annotation [49 A. L. R. 867], that the reservation of a power of revocation by the transferrer does not, of itself, make the transfer one intended to take *460
effect in possession or enjoyment at or after the transferrer's death." "The proposition that one can transfer property by perfect, complete, and final gift, and yet retain the power to instantly destroy the gift and retake the property at any time, involves a confusion of thought and a conflict of terms that are not easily explained or reconciled. . . ." Downes v. Safe Deposit Trust Co.,
The policy of this state as to the effect of powers of revocation upon succession taxability was evinced by legislative action in 1929 by the adoption of a statute (Public Acts, Chap. 299, 5, General Statutes, 1930, 1364, now Cum. Sup. 1933, 362b) providing that "a transfer of property by deed of trust wherein the settlor reserved to himself, or to himself and others not beneficiaries, powers of revocation, alteration or amendment, upon the exercise of which the property might revest in him, shall, upon the death of the settlor, be taxable to the extent of the value of the property subject to such powers and with respect to which such powers remain unexercised." See Hackett v. Bankers Trust Co.,
In Bryant v. Hackett,
There is some helpful analogy to the present situation in Boston Safe Deposit Trust Co. v. Commissioner of Corporations, supra. The terms of the trust there involved, which are outlined in Hackett v. Bankers Trust Co., supra, 119, included a provision that if Cecelia A. MacDonald, who was given the income for life, was unable or unwilling to devote all her time to the care of Mr. Nickerson, the grantor, and his wife, the trust indenture might be modified or terminated by agreement of the four parties — Mr. and Mrs. Nickerson, Miss MacDonald and the trustee bank. As to this it was said (see
As to the present case it may be similarly said that, from the time of the creation of the trust, the interest of the named beneficiaries succeeding the life estate of the wife was no more than a contingency unless and until it became certain that neither of the possible events — death of the wife or her incompetence to manage her affairs — would occur during the lifetime of Mr. Topping and if they did, that he would not exercise his right "at any time thereafter" to revoke and terminate the trust, uncertainties which could be resolved decisively only at and by Mr. Topping's decease. Upon the occurrence of either of the two prescribed contingencies, the settlor might revoke the trust wholly and absolutely, whereby he would become revested with the whole corpus of the fund which he would then own outright. The possibility that this might be done continued up to the time of his death, and the equitable title of the beneficiaries after the life use of the wife remained contingent until it should be conclusively established by the death of the settlor that the right to revoke would not arise and be exercised. As the trial court aptly expresses it in the memorandum of decision, "the right to possession and enjoyment of the fund by the beneficiaries has been made certain only by reason of the death of the settlor. Not until his death could it be known whether or not *464 he would terminate the trust." We conclude, therefore, that the fact that the right to revoke was contingent does not take the grants of the remainder interest out of the classification of those intended to take effect in possession or enjoyment at or after the death of the transferor.
The purpose of this tax is to prevent avoidance of inheritance tax. It applies to transfers wherein the death of the settlor is a factor in the devolution of the use or enjoyment of the property. It is intended to reach a shifting of the enjoyment of property — economic benefits thereof or economic interest therein — which bears a distinct and necessary relation to the death of the settlor. Hackett v. Bankers Trust Co., supra, 117, 122. As applied to a remainder so limited as to commence in actual possession or enjoyment at or after the death of the transferor, the reservation of a power to revoke makes the remainderman's interest so contingent, until the transferor's death, as to be, if not unmarketable at other than a nominal sum, at least so speculative as to seriously affect its value. He, therefore, acquires at that death definite economic benefits which may be said to shift to him at that time — the absolute right to a present or future enjoyment — and its absolute character in fact makes it worth more than his prior contingent interest. "There are, therefore, very cogent reasons for treating the mere reservation of a power to revoke as making the transfer of a remainder taxable where that does not in fact commence in possession and enjoyment before the contingency to which it is subject is removed by the transferor's death." Rottschaefer, Op. Cit., 479. Concerning rights to use or income enjoyed prior to the transferor's death, however, the same author says (p. 478) that "It is difficult to see on what theory [these] *465 uses . . . can be considered as having taken effect at such death; the economic benefits from them certainly did not shift to the owner of the interest at that time. The cases declining to tax the acquisition of such an interest merely because subject to a reserved power to revoke seem clearly sounder than the few that tax it."
The remainder interests after the life interest of Mrs. Topping in the income are taxable, but her interest is not, and we so construe the decree of the Court of Probate and the judgment of the Superior Court. Bryant v. Hackett, supra. If, as we hold, the result is correct, it is immaterial whether the transfer is taxable under 360b, Cum. Sup. 1933, as the Court of Probate and the trial court held, or 362b. In re Kellogg,
There is no error.
In this opinion the other judges concurred.