Gibb v. Commissioner

Estate of Florence Althea Gibb, Deceased, Althea Gibb Hunter, Malcolm DuBois Hunter and Charles S. McVeigh, as Executors, Petitioners, v. Commissioner of Internal Revenue, Respondent Gibb v. Commissioner Docket No. 6947 United States Tax Court 6 T.C. 1088; 1946 U.S. Tax Ct. LEXIS 190; May 20, 1946, Promulgated *190 Decision will be entered under Rule 50. In 1930 the decedent created a trust providing that the income should be paid to herself for life, then to her daughter for life, with remainders over to the daughter's children; but that, if no children or issue of children survived the daughter, then upon the daughter's death the trust estate was to be paid "to those persons or institutions and in the shares, proportions, or amounts in which they would, in that event, be entitled to receive the same under and pursuant to the provisions of the Last Will and Testament of the Grantor which shall cover the disposition of her residuary estate under such conditions." The decedent was survived by her daughter and four grandchildren. Held, that the value of the trust assets at the date of decedent's death formed a part of her gross estate. *191 Francis J. Rogers, Esq., Whitney N. Seymour, Esq., and Richard D. Duncan, Esq., for the petitioners. James C. Maddox, Esq., for the respondent. Smith, Judge. SMITH *1088 This proceeding is for the redetermination of a deficiency in estate tax in the amount of $ 669,950.89. The petitioners allege that the respondent erred in his determination of the deficiency by (1) including in the gross estate of the decedent the assets of a trust created by the decedent under deed of trust dated March 10, 1930, with the Brooklyn Trust Co. as trustee, and (2) including in the gross estate of the decedent the assets of the above mentioned trust at their full value as of the date of the decedent's death, without deduction of the value of the life estate of decedent's daughter and of the various remainder estates as created by the deed of trust. FINDINGS OF FACT. Florence Althea Gibb died May 17, 1941, a resident of Nassau County, New York. Her last will and testament, dated January 17, 1938, was duly admitted to probate in the Surrogate's Court of Nassau County, New York, and letters testamentary thereunder were issued to Althea Gibb Hunter, Malcolm DuBois Hunter, and Charles*192 S. McVeigh, who are still acting as executors. As such executors they filed an estate tax return for the decedent with the collector of internal revenue for the first district of New York on or about August 15, 1942. The decedent was born on October 7, 1864. Her daughter, Althea Gibb Hunter, was born on November 18, 1892, and is the mother of four children born on the following dates: *1089 Mary Althea Eldredge, Apr. 6, 1919. Elaine Gibb Eldredge, Apr. 6, 1919. Edward Irving Eldredge, Mar. 31, 1921. Florence Hunter, May 5, 1928. Decedent's daughter and grandchildren survived her, and since decedent's death four children of decedent's grandchildren have been born and are now living. On March 10, 1930, Florence Althea Gibb executed a deed of trust transferring certain property to the Brooklyn Trust Co., as trustee, to be held and administered as provided by the terms of the deed of trust. The value of the corpus of the trust as of the date it was created was approximately $ 1,000,000. The value of the corpus on the date of decedent's death was $ 1,106,190.57. The above indenture of trust provided that the net income from the fund should be paid to the grantor for her*193 life and upon her death the income should be paid to her daughter, Althea Gibb Hunter, for life; that upon the death of the latter the principal of the trust should be distributed to the surviving issue of Mrs. Hunter, in equal shares per stirpes; that in the event the decedent should leave no issue her surviving, then upon her death the trust estate should be paid "to those persons or institutions and in the shares, proportions or amounts in which they would, in that event, be entitled to receive the same under and pursuant to the provisions of the Last Will and Testament of the Grantor which shall cover the disposition of her residuary estate under such conditions." The indenture further provided that if upon the death of the grantor her daughter, Mrs. Hunter, should have predeceased her, the trustee should divide the trust estate into equal shares or parts, one for each child of Mrs. Hunter who should survive the grantor, and one share for the issue taken collectively of each child of Mrs. Hunter who should have predeceased the grantor leaving issue surviving the grantor. A further provision was made for the holding of such shares in trust during the lifetime of each child entitled*194 to receive a share, and for the distribution of income to such child and for the transfer and delivery of the share outright to the issue of such child who should survive him upon his death. It was further provided that, in default of issue of any such child entitled to receive a share of the trust estate, his share upon his death should be paid to the then living issue of Mrs. Hunter, and, in default of any such issue "to those persons or institutions and in the shares, proportions or amounts in which they would, in that event, be entitled to receive the same under and pursuant to the provisions of the Last Will and Testament of the Grantor which shall cover the disposition of her residuary estate under such conditions." The decedent executed a number of wills. In none of them was any reference made to the indenture of trust or the power of appointment *1090 referred to in the indenture of trust. One of these wills was executed prior to the date of the creation of the trust. Her last will and testament was dated January 17, 1938. It provided with regard to the disposition of her residuary estate that it should be held in trust, the net income thereof to be paid to her daughter, *195 Althea Gibb Hunter, for her life, and provided that as each child of the daughter married or attained the age of 30 years he or she should be entitled to receive $ 15,000 annually until age 40 and thereafter the sum of $ 25,000 annually, subject to the limitation that the total annual payments of income to all of the children should not exceed four-tenths of the net income of the trust estate. It further provided that upon the death of the daughter, Althea Gibb Hunter, the residuary trust should be divided into equal parts, one for each child her surviving, and one for the issue taken collectively of each child who had predeceased her, leaving issue her surviving, the share so set aside for any child of the daughter not in being at the date of the death of Florence Althea Gibb to be paid outright to such child, the share so set aside for such issue to be paid outright to such issue, and the share of each child of Althea Gibb Hunter who was in being at the date of the death of Florence Althea Gibb to be held in trust, the income thereof to be paid, applied or accumulated for the child until age 21, and thereafter to be paid to the child for life. On the death of any of the children*196 one-half of his share should be disposed of as he or she might appoint by will and the remaining one-half, or all in default of appointment, should be distributed to the surviving issue of such child, in equal shares per stirpes, and in default of such issue then to the surviving issue of the grantor, Florence Althea Gibb. The total value of the estate of Florence Althea Gibb in 1930 was approximately $ 10,000,000. The theoretical value at the time of Florence Althea Gibb's death of the possibility that the trust property should be distributable pursuant to the residuary clause of her will, as computed by a qualified actuary using the Actuaries, or Combined Experience Table of Mortality, with 4 percent interest, was $ 1,070.79. In the determination of the deficiency the respondent has included in the gross estate the entire value of the assets of the trust created by the decedent on March 10, 1930. OPINION. The question presented by this proceeding is whether the value of the assets of a trust created by the decedent on March 10, 1930, is includible in her gross estate. The respondent contends that it is so includible by virtue of section 811, Internal Revenue Code, which provides*197 in material part as follows: *1091 SEC. 811. GROSS ESTATE. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, * * * * * * * (c) Transfers in Contemplation of, or Taking Effect at Death. -- To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without 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, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; * * * No contention is made by the respondent that the transfer to trust on March 10, 1930, was in contemplation of death. The respondent does contend, however, that this*198 transfer to trust was a testamentary disposition of a part of the decedent's gross estate and that it was intended to take effect in possession or enjoyment at or after death. He submits that the decedent retained the income from the property for her life and retained the ultimate disposition of the property to persons or institutions to be named by her in the residuary clause of her will. The petitioners take the position that the decedent intended the transfer to trust on March 10, 1930, to be an absolute irrevocable transfer of all of her right, title, and interest to the trust property, save only that she was to have the income from the trust property for her life. In making this contention they rely upon certain statements made by the decedent after the trust was created that she had absolutely parted with all her interest in the property transferred to trust and had no power or control over it. They also submit that the provisions of the trust instrument providing that under certain conditions all or some of the trust assets were to pass according to the terms of the decedent's will were incorporated into the trust instrument by the decedent's attorney, and that they were*199 merely for the purpose of providing against a remote contingency, which it was unbelievable on the part of the grantor would ever happen. Although the provisions of the trust instrument adverted to above were incorporated in the deed of trust at the instigation of the decedent's attorney, we, nevertheless, think it is clear that the decedent was fully aware of the provisions of the trust instrument and, by executing the instrument, approved those provisions; in other words, we think that the intention of the grantor must be gathered from the words of the trust instrument. In our opinion this case is ruled by Fidelity-Philadelphia Trust Co. ( Stinson Estate) v. Rothensies, 324 U.S. 108. In that case the grantor *1092 retained the right to appoint by will the recipients of the remainder interests in the event the remaindermen did not survive her, or in the event of failure of remaindermen after her death. The daughters were the holders of life estates, but if they did not survive the grantor or leave issue surviving, the grantor had the right to dispose of the property by will, which power, in such circumstances, the Supreme Court said constituted*200 the string which held the corpus of the trust within the grantor's estate for Federal estate tax purposes. Substantially the same situation exists in the instant proceeding. By the trust instrument the grantor retained the right in certain contingencies to control the devolution of the trust property by her will. That right was cut off by her death. The petitioners make much of the point that decedent's final will provided for the same disposition of the remainder interests as was contained in the trust instrument. But the fact remains that up to the date of her death she could have changed her will so as to provide that her residuary estate would go to different parties than those named in the trust instrument. This fact alone, we think, is sufficient to require the inclusion in the gross estate of the trust assets. In the Stinson case the Supreme Court said: * * * Only at or after her death was it certain whether the property would be distributed under the power of appointment or as provided in the trust instrument. * * * The remainder interests of the descendants of the daughters were contingent upon their surviving both the decedent and the daughters and took effect *201 in possession only after the death of the decedent. Thus until the moment of her death or until an undetermined time thereafter the decedent held a string or contingent power of appointment over the total corpus of the trust. The retention of such a string, which might have resulted in altering completely the plan contemplated by the trust instrument for the transmission of decedent's property, subjected the value of the entire corpus to estate tax liability. * * * It is enough if he [the grantor] retains some contingent interest in the property until his death or thereafter, delaying until then the ripening of full dominion over the property by the beneficiaries. * * * [Emphasis supplied.] Cf. Estate of Arthur Sinclair, 6 T. C. 1080. The petitioners make the further contention that, if any part of the trust assets is to be included in decedent's gross estate, the only part so includible is the value of the daughter's right to control the devolution of the trust property, which they submit was only $ 1,070.79. A question similar to this was disposed of by the Supreme Court in the above cited Stinson case. In fact, that was the only question*202 before the Supreme Court in that case. We hold that the respondent did not err in including the entire value of the trust assets in the gross estate. Decision will be entered under Rule 50.