Rushmore v. Commissioner

JEANETTE E. RUSHMORE, EXECUTRIX OF THE ESTATE OF CHARLES E. RUSHMORE, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Rushmore v. Commissioner Docket No. 77164. United States Board of Tax Appeals 36 B.T.A. 480; 1937 BTA LEXIS 705; August 26, 1937, Promulgated *705 On April 23, 1929, petitioner's decedent created an irrevocable trust, which was to continue during the lives of the donor's daughter and grandson. By the terms of the trust instrument the net income was to be paid in quarterly installments of equal amounts to the donor and his wife, and upon the death of either all the net income was to be paid to the survivor; thereafter in equal shares to the donor's daughter and grandson, with remainder over to designated persons, except that upon termination of the trust, the principal should revert to the donor and his wife, or to the survivor, if then living. Held, the transfer under the trust instrument was not intended to take effect in possession or enjoyment at or after the donor's death, and the value of the transferred property is not includable in decedent's gross estate under section 302(c), Revenue Act of 1926, prior to amendment. May v. Heiner,281 U.S. 238. Held, further, that since the transfer was completed prior to the effective dates of the amendments to section 302(c), embodied in Joint Resolution No. 131 of March 3, 1931, and in section 803(a), Revenue Act of 1932, such amendments have no application*706 in this case. Nichols v. Collidge,274 U.S. 531. Joseph B. Lynch, Esq., for the petitioner. F. T. Horner, Esq., for the respondent. HILL *480 This is a proceeding for the redetermination of a deficiency in estate tax of $22,786.20. The petition, under paragraph (d), presents nine assignments of error, numbered consecutively from I to IX, inclusive. Assignments of error Nos. I, II, IV, V, VI, and VIII have been waived. Stipulations determinative of the issues raised by assignments of error Nos. III and IX have been submitted by counsel. The only remaining issue for redetermination is that raised by assignment of error No. VII. That issue is whether the Commissioner, in determining the value of the net estate, erred in including in the value of the gross estate $257,716.03 representing the value of the alleged interest of the decedent in a certain trust created by decedent on April 23, 1929. The facts were all stipulated and from such stipulation we make the following findings of fact. FINDINGS OF FACT. The decedent, Charles E. Rushmore, died on October 30, 1931, testate and a resident of Woodbury Falls, County*707 of Orange, State of New York. *481 The last will and testament of the decedent was admitted to probate on November 25, 1931, in the Surrogate's Court of the above mentioned county, and on that date the petitioner, Jeanette E. Rushmore, was appointed executrix of such will and has been since such date and is now such executrix. The indenture or deed of trust, a copy of which is attached to the petition as "Exhibit B" and by reference made a part of these findings, was executed on April 23, 1929, by and between the decedent, as donor, and Guaranty Trust Co. of New York, a New York corporation, as trustee, and on the same date such indenture of trust was delivered to and accepted by the Guaranty Trust Co. of New York as such trustee. On April 23, 1929, the decedent delivered to such trustee the cash and securities listed in the schedule marked "Schedule A" annexed to such indenture, to have and to hold for the period limited and set forth in the indenture, and for and upon the uses and purposes and upon and subject to the terms, provisions, powers, agreements, limitations, and trusts set forth in the indenture. The decedent never made any additions to the cash and securities*708 listed in "Schedule A" annexed to the indenture. Such indenture of trust is in material part as follows: WHEREAS the Donor desires to create a trust for the use and benefit of his wife, his daughter, his grandson and himself, and to provide for the disposition and transfer of the trust funds, NOW, THEREFORE, THIS INDENTURE WITNESSETH: That, in consideration of the premises, and of the mutual covenants herein contained, and in consideration of the Donor's natural love and affection for his wife, his daughter and his grandson, and of the sum of One Dollar ($1.00) to him in hand paid by the trustee, at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, the Donor has given, granted, assigned, transferred, set over and delivered, and by these presents does give, grant, assign, transfer, set over and deliver unto the Trustee, and its successors and assigns, all of the personal property described in the Schedule hereto annexed, marked Schedule A, and hereby made a part hereof, together with the appurtenances and all the estate and rights of the Donor therein and thereto; TO HAVE AND TO HOLD the same unto the Trustee, its successors*709 and assigns, IN TRUSE, however, for the period hereinafter limited and set forth, and for and upon the following uses and purposes, and upon and subject to the following terms, conditions, powers, agreements, limitations and trusts: 1. The trust shall continue during the lives of the Donor's daughter, JEAN RUSHMORE PATTERSON, and of the Donor's grandson, CHARLES RUSHMORE PATTERSON; and the trust shall terminate upon the death of such one of said two persons, to wit, the Donor's daughter and the Donor's grandson, as has survived the other one of them. 2. The Trustee is to receive, and during the continuance of the trust, is to hold, manage, invest and reinvest the trust fund and every part thereof, in the manner hereinafter specified, is to collect the income thereon and, after deducting all proper and lawful charges and expenses, is to pay over the net income *482 in quarter annual instalments of equal amounts, or of amounts as nearly equal as may be conveniently possible, as follows: (a) To the Donor and his wife, JEANETTE E. RUSHMORE, in equal shares, as long as they are both living and the trust continues; and upon the death of either one of them all of such net*710 income is to be paid to the survivor of them, until his or her death or until the termination of the trust; (b) Upon the death of the survivor of the Donor and his said wife, to pay the net income, in equal shares, to the Donor's daughter, JEAN RUSHMORE PATTERSON, and the Donor's grandson, CHARLES RUSHMORE PATTERSON, if both of them are then living, or, if only one of them is then living, to the one so surviving, until the termination of the trust. 3. Upon the termination of the trust as hereinbefore provided, the Trustee is to pay over, transfer and deliver the principal of the trust fund, free and clear of any trust or condition whatsoever, as follows: (a) If the Donor and his said wife, JEANETTE E. RUSHMORE, are both then living, the principal of the trust fund is to be paid over, transferred and delivered to them, in equal shares; or if only one of them is then living, all of the principal of the said trust fund is to be paid over, transferred and delivered to such one of them as is then living; (b) If both the Donor and his said wife have died before the termination of the trust, the entire principal of the trust fund is then to be paid over, transferred and delivered*711 to the issue then living of the Donor's said grandson, CHARLES RUSHMORE PATTERSON, per stirpes and not per capita; or, if there be no such issue then living, then to such person or persons and in such shares and proportions as the survivor of the Donor's said daughter and his said grandson may, by her or his Last Will and Testament duly admitted to probate, designate, appoint and direct; and if the survivor of the Donor's said daughter and his said grandson shall fail to leave such Last Will and Testament, then to such person or persons and in such shares and proportions as, under the laws of the State of New York providing for the distribution of the personal property of intestate decedents in effect at the time of the termination of the trust, would be entitled thereto as the Donor's next of kin, had he lived until, and died intestate at, the time of the termination of such trust, owning the said property outright. The decedent's wife, Jeanette E. Rushmore, his daughter, Jean Rushmore Patterson, and his grandson, Charles Rushmore Patterson, named in the indenture, all survived the decedent and are still living. The decedent did not make, execute, or deliver the indenture, or*712 give, grant, assign, transfer, or deliver the cash and securities listed in "Schedule A" annexed to the indenture in contemplation of death. Ever since April 23, 1929, the Guaranty Trust Co. of New York has been and is now the duly constituted, qualified, and acting trustee under the indenture, and the property held by such trustee under the indenture on October 30, 1931, the date of decedent's death, had a value on that date of $297,978.94, of which $257,716.03 has been included in the gross estate of the decedent by the respondent. The *483 amount so included was arrived at, as shown in the notice of deficiency, as follows: Donor's one-half interest $148,989.47 Donor's one-half interest subject to life estate of wife 108,726.56 Total $257,716.03 The fair market value, at the date of death of decedent, of a mortgage covering premises at 800 Sixth Avenue in the Borough of Manhattan, City and State of New York, was $112,000. The net taxable estate of the decedent, exclusive of the property held by the Guaranty Trust Co. of New York as trustee under the indenture, was $1,118,410.08 as of October 30, 1931, the date of death of the decedent. It is*713 stipulated by counsel that the petitioner has submitted acceptable proof of payment of, and is entitled to credit for, state estate, inheritance, legacy, or succession taxes in the amount of $44,750.53; and that such stipulation is made without prejudice to the petitioner's right to any further credit to which petitioner may become entitled for additional state estate, inheritance, legacy, or succession taxes hereafter actually paid, upon submission of acceptable proof of payment thereof. The Federal estate tax upon the estate of decedent to the amount of $11,293.35 has already been assessed. OPINION. HILL: The issue raised by assignment of error No. III is whether the value of a mortgage on the premises at 800 Sixth Avenue, Borough of Manhattan, City and State of New York, should be included in the gross estate at its face value of $115,000 as determined by the Commissioner, or at a less value as contended by the petitioner. Counsel have agreed that such value is $112,000. Accordingly, we hold such value to be $112,000. Assignment of error No. IX raised the issue that the Commissioner failed to allow proper credit for estate taxes imposed by the State of New York upon*714 decedent's estate. Counsel have agreed with respect to this assignment of error as shown in our findings of fact. In accordance with such agreement we hold that petitioner is entitled to credit for such taxes in the amount of $44,750.53 and to further credit for such additional state estate, inheritance, legacy, or succession taxes as shall be actually paid, upon the submission of acceptable proof of such payment. *484 The remaining issue, raised by assignment of error No. VII, is whether under the terms of the indenture of trust executed by petitioner's testator, Charles E. Rushmore, deceased, on April 23, 1929, the corpus of the trust, to the extent of $257,716.03, is includable in the gross estate of decedent for estate tax purposes, on the sole ground that it was a transfer "intended to take effect in possession or enjoyment at or after his death." There is no controversy as to value. The only issue is the propriety of such inclusion. The trust was not created in contemplation of death and is irrevocable, terminable upon the death of the trustor's daughter or grandson, whichever should survive the other. This issue involves two questions. The first question is*715 whether the transfer under the trust instrument was intended to take effect in possession or enjoyment at or after the death of the trustor within the meaning of section 302(c) of the Revenue Act of 1926, 1 prior to amendment thereof. *716 The second question presented under this issue is whether section 302(c) of the Act of 1926, as amended by House Joint Resolution No. 131, 2 71st Congress, effective March 3, 1931, and/or as amended by section 803(a) of the Revenue Act of 1932, 3 effective June 6, 1932, is applicable here; in other words, whether the provisions of these amendments, or either of them, are applicable to the transfer here by retroaction. *717 *485 The first question stated involves the application to the facts here of section 302(c) of the Revenue Act of 1926, as it stood prior to March 3, 1931, and prior to June 6, 1932, the respective dates of amendments thereof. The transfer by trust indenture was made on April 23, 1929, and the trustor died October 30, 1931. The trust, during its continuance, reserved to the trustor one-half of the income from the trust property during the joint lives of himself and wife and the whole of the income during the period of his survivorship of his wife should she predecease him. No power was reserved to alter, modify, or revoke the trust. The transfer of the property held in trust was to specifically named persons or those whose identities are definitely ascertainable. The only reversionary interest the trustor had in the property was contingent upon his surviving both his daughter and his grandson. This was a remote contingency and one which, in fact, did not happen. The possibility of reverter did not rest upon the exercise of any right or power reserved to the trustor. The transfer was complete and absolute by the terms of the trust at the date of its execution and no*718 title to, or interest in, the property remained in the trustor after that date. There was no shifting of economic interest in the property at or after his death. We hold, therefore, that under section 302(c) of the Revenue Act of 1926, as it stood prior to amendment, the transfer was not intended to take effect in possession or enjoyment at or after the trustor's death. ; ; ; ; ; ; Daisy Christine Patterson, Executrix, 36 B.T.T. 407. Considering now the second question stated, it must be conceded that the mere fact that decedent reserved to himself income from the trust property during his natural life brings the transfer within the provisions of both the amendments (above mentioned) to section 302(c), supra. If such amendments, or either of them, are retroactive in their operation, *719 respondent's contention that the transfer is includable in decedent's gross estate for estate tax purposes must be sustained on the ground that he retained for his life the right to the income from the property. The question of whether the amendments are retroactive is not new. It has been before the Board and the courts in a number of cases and, so far as we are advised, it has been uniformly hald that the provisions of the amendments are only prospective in operation and have no application to transfers completed prior to their enactment. ; ; *486 ; ;. We hold, therefore, that the amount of $257,716.03, or any part thereof, involved in assignment of error No. VII is not includable in the gross estate of decedent for estate tax purposes. Judgment will be entered under Rule 50. Footnotes 1. (c) 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, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Where within two years prior to his death but after the enactment of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or intended to take effect in possession or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of $5,000, then, to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death but prior to the enactment of this Act, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title. ↩ 2. "(c) 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, including a transfer under 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 * * * ↩ 3. SEC. 803. FUTURE INTERESTS. (a) Section 302(c) of the Revenue Act of 1926, as amended by the Joint Resolution of March 3, 1931, is amended to read as follows: "(c) 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 * * *" ↩