Keck v. Commissioner

Estate of Emma L. Keck, Deceased, Elizabeth Keck Leh, G. Edward Leh, and Andrew Saeger Keck, II, Executors, Petitioners, v. Commissioner of Internal Revenue, Respondent Keck v. Commissioner Docket No. 14534 United States Tax Court 10 T.C. 1121; 1948 U.S. Tax Ct. LEXIS 157; June 15, 1948, Promulgated *157 Decision will be entered under Rule 50. On the record, held, the value of the corpus of an inter vivos trust executed by decedent is not includible in her gross estate under section 811 (c) of the Internal Revenue Code, as a transfer by trust intended to take effect in possession or enjoyment at or after decedent's death, or as a transfer in contemplation of death. Albert Barnes Zink, Esq., and George F. Shinehouse, Jr., Esq., for the petitioners. Robert H. Kinderman, Esq., for the respondent. Leech, Judge. Turner and Murdock, JJ., dissent. LEECH *1121 Respondent has determined a deficiency in estate tax in the sum of $ 34,509.26. The two issues presented are whether the value of the corpus of an inter vivos trust created by petitioners' decedent*158 on November 17, 1928, is includible in her gross estate pursuant to the provisions of section 811 (c), Internal Revenue Code, (1) as a transfer by trust intended to take effect in possession or enjoyment at or after decedent's death, or (2) as a transfer in contemplation of death. The facts are established by a formal stipulation filed by the parties and by testimony and exhibits introduced upon the hearing. The stipulation is included herein by reference. Such of the following facts as do not appear in the stipulation are found upon testimony presented at the hearing. FINDINGS OF FACT. The petitioners are the executors of the will of Emma L. Keck, who died January 29, 1944, a resident of Allentown, Pennsylvania. The estate tax return for the decedent was filed with the collector of internal revenue at Philadelphia, Pennsylvania. On November 17, 1928, 15 years prior to her death, the decedent, Emma L. Keck, executed an indenture of trust under which she transferred and delivered to the Lehigh Valley Trust Co. of Allentown, Pennsylvania, as trustee, the sum of $ 122,000. She executed no will at or in connection with her execution of this trust. The trust in question was irrevocable*159 and no right to amend was retained by the grantor. It provided that the trustee should pay the net income from the corpus to the grantor for life, and thereafter to pay such income to the grantor's two children, Elizabeth Keck Leh and Andrew Saeger Keck, 2nd, in equal shares during their lifetime. Upon the death of either of these children one-half of the principal held in trust was to be immediately distributed to the issue of such *1122 beneficiary so dying, in equal shares per stirpes. The trust indenture further provides that, in case there should be no issue surviving either Andrew Saeger Keck, 2nd, or Elizabeth Keck Leh, the entire fund is to be kept intact and the net income thereof is to be paid to the survivor during his or her lifetime, and upon the death of the survivor the entire fund or the balance of principal remaining, from which the survivor was receiving the income, is to be paid unto his or her children in equal shares. The decedent, Emma L. Keck, was 68 years old at the time of the execution of the indenture of trust. Her 2 children, named as beneficiaries, were, on the date of the execution of the trust, 28 and 26 years of age, respectively. Both of *160 these children of the grantor still survive. Two grandchildren of the grantor were living at the date of the execution of the trust and still survive. A third grandchild of the grantor was born after the execution of the trust, but prior to the grantor's death, and that grandchild is also surviving. The circumstances surrounding the execution of the indenture of trust above mentioned were that William G. Keck, the husband of the decedent, died in the year 1921. By his last will and testament, written in his own hand in a few lines during his last illness, he bequeathed "all my possessions to my wife Emma L. outright and appoint her administratrix to use as she sees fit and at her death to go equally to Elizabeth & Andrew S. Equally." As the will of decedent's husband left her all his property to do with as she saw fit, the entire estate was awarded to her individually by the orphans' court. The net estate was approximately $ 184,000. She had declined to act as executrix and the Lehigh Valley Trust Co. of Allentown, Pennsylvania, was appointed administrator c. t. a. The administration of the estate of decedent's husband occupied some time, as one of the principal assets was a *161 lumber business operated by him in his lifetime. Decedent did not wish to act as executrix because she desired to travel and did not wish to be tied down by the necessity of operating or liquidating a business. Approximately $ 60,000 was distributed to the decedent from her husband's estate in installments by the administrator and subsequently a final payment was made to her of $ 122,700 in cash. This was shortly before the execution by her of the trust involved herein. Upon delivery to her of the check covering the final payment in question, the decedent stated that it was her desire to place this amount in trust for her two children, as she considered that under the will of her husband it was his desire that their receipt of it should be assured. At various times she advised the officers of the trust company and her children as to this intention and that the reason for her action was her desire to assure the receipt by her children of this sum and that it not be subjected to a chance of dissipation by being *1123 commingled with her own personal estate. The decedent at the time of the death of her husband was possessed of a substantial individual estate inherited by her *162 from her father and in an amount not less than $ 100,000. At the time of the execution of the trust in question the decedent was a woman in excellent health, both mentally and physically. She had never been under a physician's care for any chronic illness and her first illness of any consequence occurred in July 1935, when she had heat prostration, which required medical attention. From this attack in 1935 she recovered and continued to be active and enjoyed good health until shortly prior to her death on January 29, 1944, after an illness which confined her to her bed for a period of only four days. The decedent at all times until shortly prior to her death took a very keen interest in club and church affairs and in associating with her children in their activities and pleasures. She accompanied them to football games, the theatre, and the opera in other cities. On the day the trust here involved was executed she went with her son and daughter to the Yale-Princeton football game and was in high spirits. The decedent was exceedingly fond of traveling, and from the year 1924 to the time of her death in 1944 she traveled extensively, making prolonged cruises around the world and*163 numerous trips abroad in the years 1924, 1925, 1926, 1927, and 1928 and in 1932 and 1935. Some of these trips she made unaccompanied by either relatives or friends, since she had a very live interest in seeing things and meeting people and stated that she could meet more new friends, which she enjoyed if by herself and not in the company of those she already knew. At intervals between her many trips to Europe and around the world the decedent made trips to Bermuda, Florida, Maine, New York, and places within several hundred miles of her home. In 1929, the year following the execution of the trust in question, decedent, in collaboration with an architect, made plans for the erection of a new home, which was built and into which she moved in 1930. This was her home until the time of her death 14 years later. The last will and testament of the decedent was executed in the year 1939, 11 years after the execution of the trust indenture here involved. The beneficiaries under her will were the same individuals specified as beneficiaries in the trust indenture executed in 1928. The declaration of trust of November 17, 1928, was not made by the decedent in contemplation of death. OPINION. *164 It is argued by respondent that the facts show that the predominant thought in decedent's mind at the time of the execution *1124 of the trust instrument in question was the situation existing at her death and the desire to make provision for her children as of that time. The rule is clear that if the motivating cause of a transfer was a consideration by the grantor of his or her death and the desire to make provision for such an event, the transfer was in contemplation of death within section 811 (c) of the Internal Revenue Code. United States v. Wells, 283 U.S. 102. The respondent relies heavily upon Kroger v. Commissioner, 145 Fed. (2d) 901; certiorari denied, 324 U.S. 866. The facts in that case, however, are wholly different from those here and lead to a different conclusion as to the intent of the grantor. In the Kroger case, the decedent, an old man intending to marry a young wife, executed a deed of trust, to which he conveyed a large part of his estate, and made his children by a first marriage the beneficiaries thereof upon his death. This was done with the express*165 purpose of cutting off his intended wife from participation in this portion of his estate. There the transfer was made specifically to meet a situation which would arise at his death, and consequently, was held to be one made in contemplation of death. In the present case the facts lead us to an opposite conclusion. Certainly if the conveyance, instead of having been made to the trust, had been made directly and absolutely to the children, no possible reasonable basis would exist for a finding that the motivating cause for the transfer was the contemplation of Emma L. Keck's death. That she retained a life estate does not, we think, change the situation for present purposes. The circumstances surrounding the execution of the trust indicate to us that the decedent really had in mind, as the moving cause for her action, nothing more than the desire to carry out what she considered a moral obligation laid upon her by her husband to take action to assure that their children would receive the property in question. The decedent was a woman in excellent health and with a very keen interest in life. The record demonstrates that hers was a full life for many years following the execution*166 of the trust in question and one containing many interests and pleasures which she enjoyed to the fullest extent. That the effect of the action by the decedent in executing the trust was to assure her children the receipt of the fund upon her death does not establish alone such action as having been taken in contemplation of death. As the Supreme Court said in Colorado National Bank v. Commissioner, 305 U.S. 23, "The mere purpose to make provision for children after a donor's death is not enough conclusively to establish that action to that end was 'in contemplation of death.' * * * something more than this is required to show that a conveyance comes within the ambit of the statute." Respondent *1125 also relies upon Davidson's Estate v. Commissioner, 158 Fed. (2d) 239, as peculiarly applicable by reason of the fact that the trust there was made in accordance with a request contained in the will of the decedent's husband. In that case, however, there was involved a trust executed together with a will, forming part of a general scheme for the disposition of the decedent's estate at death. Here there was no*167 such condition. Neither at the time of nor in connection with her execution of the trust in the present case did the decedent make a will. She did not make her will until 11 years after the execution of the trust indenture. The mere fact that under that will the beneficiaries were her children, the same as the beneficiaries under the trust indenture, can not be taken as an indication that the two were part of a general scheme and must be considered as one act. It is only natural that the individuals to whom the decedent would leave her property upon death would be her children, and no particular significance can be attached to this disposition of her estate. Flick v. Commissioner, 166 Fed. (2d) 733. The record establishes to our satisfaction that the execution by the decedent of the trust in question was not in contemplation of death, and we have so found. The second issue goes to the propriety of the inclusion of the trust estate in the gross estate of decedent as a transfer intended to take effect in possession or enjoyment at or after death by reason of the fact that under the trust instrument there exists a remote possibility of reverter*168 by operation of law. It is not claimed by respondent that the trust corpus is includible in the gross estate by reason of the fact that decedent retained a life interest, since the trust was executed prior to the Joint Resolution of March 3, 1931 ( Hassett v. Welch, 303 U.S. 303). His argument is that the retention of such life interest, together with the possibility of reverter by operation of law, creates such a condition as to require the holding that the death of the grantor was the intended event that passed the trust estate from the dead to the living. We have had this question and this same theory advanced in a number of cases before this Court. Our conclusion has been consistent that such theory can not be sustained. Estate of Edward P. Hughes, 7 T. C. 1348; Commissioner v. Hall's Estate, 153 Fed. (2d) 172, affirming memorandum opinion of this Court; Estate of Edward E. Bradley, 1 T. C. 518; affd., 140 Fed. (2d) 87; Estate of George W. Hall, 6 T. C. 933; Francis Biddle Trust, 3 T. C. 832;*169 Estate of Harris Fahnestock, 4 T. C. 1096; and Estate of Mary B. Hunnewell, 4 T. C. 1128. We are aware of the decision of the Second Circuit in Commissioner v. Bayne's Estate, 155 Fed. (2d) 475, which differs from our interpretation of the decisions of the Supreme Court in Fidelity-Philadelphia *1126 v. Rothensies, 324 U.S. 108, and Commissioner v. Field, 324 U.S. 113. We adhere, however, to our position taken in the cited cases. It is our conclusion that respondent erred in including the corpus of the trust in decedent's gross estate for estate tax purposes. Since certain adjustments made by respondent in determining the deficiency here in question are not contested, Decision will be entered under Rule 50.