Sharpe v. Commissioner

CATHARINE D. SHARPE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Sharpe v. Commissioner Docket No. 82530. United States Board of Tax Appeals 38 B.T.A. 502; 1938 BTA LEXIS 859; September 9, 1938, Promulgated *859 Petitioner's maternal grandfather created a testamentary trust giving the net income thereof to his widow and children without limitation of time and without gift over of the corpus. Held, that petitioner's mother had a vested interest in here father's estate, the value of which was properly includable in her gross estate under section 302(a) of the Revenue Act of 1926; Held, further, that the deficiency was correctly and timely asserted against petitioner as the sole transferee of the assets of her mother's estate. Paul F. Myers, Esq., for the petitioner. Ralph F. Staubly, Esq., for the respondent. ARNOLD *502 This proceeding involves a deficiency in estate taxes asserted against the petitioner as transferee of the property of Fannie G. Dixon, deceased. The amount of the asserted deficiency is $46,970.63. Two questions are presented for determination - first, whether there should be included in the decedent's estate, i.e., estate of Fannie G. Dixon, the fair market value of an interest which the decedent had in the property of her father, the petitioner's grandfather, and, second, whether the respondent can lawfully assert a tax*860 against the petitioner as transferee after having found and ruled that there was no tax liability on the part of the estate arising from the alleged vested interest of the decedent in properties of her father's estate. The proceeding was submitted upon the pleadings, an agreed statement of facts with attached exhibits, and briefs. We will set forth *503 in our findings only those portions of the stipulated facts and the exhibits that are deemed pertinent to the determination of the issues presented. FINDINGS OF FACT. The petitioner, Catharine D. Sharpe, is an individual citizen of the United States, residing at Haverford, Pennsylvania. She is the daughter of Fannie Gilbert Dixon, deceased, and the granddaughter of John Gilbert, deceased. John Gilbert, of the city of Philadelphia, Pennsylvania, died June 28, 1877, leaving a last will and testament dated May 19, 1877. The said will was duly probated in the office of the Register of Wills of Philadelphia County on July 20, 1877, and letters testamentary were granted to Samuel H. Gilbert, P. W. Sheafer, and J. Thomas Audenreid, as executors and trustees of his will. John Gilbert left surviving him his widow, Catharine*861 H. Gilbert, and five children, Kate H. Gilbert, Clara M. Gilbert, Fannie Gilbert (mother of petitioner herein), Ida E. Gilbert, and Samuel H. Gilbert. After giving and bequeathing to his wife, Catharine, the use, benefit, improvement, and profit of his residence during her natural life and after giving and devising to her a farm for "her own use, benefit and profit during her natural life", John Gilbert's will provided as follows: Item. - I give and devise all my estate, right, title and interest in and to certain coal lands, situate in Township, Schuylkill County, Pennsylvania, and the rents, issues and profits thereof to my executors, hereinafter named, and the survivors or survivor of them in trust, nevertheless, for the following uses and purposes, to wit: 1. To pay out of the rents and profits, from whatever source, all of my just debts, funeral expenses, and the expenses of these lands, as soon as practicable. 2. To pay to my beloved wife an annuity of fifteen thousand dollars, in half yearly instalments, each and every year during her natural life, which shall be in lieu of her dower in any of my real estate, and at her death the payment of this annuity is to be*862 continued and distributed pro rata, or share and share alike, as provided under the intestate laws of this Commonwealth, to my children and grandchildren. 3. To pay to each of my children an annuity of two thousand dollars, in half-yearly instalments, during each of their natural life or lives, and in the event of the death of any of my children, the share of such deceased child or children to be paid to the child or children of such deceased child or children. 4. To pay to my sister-in-law, Margaret McConnell, the sum of one thousand dollars absolutely, if any funds remain after the foregoing provisions of my will have been carried out and fully complied with, but if no funds remain this bequest or any part of it shall not be paid until there are funds in hands sufficient from this source. And lastly, the balance from this source (if any), after the payment of taxes and other expenses incident to these coal lands, I direct to be distributed at the expiration of each year to my wife and children, share and share alike, or to the child or children of any deceased child or children. *504 Additional "items" of John Gilbert's will may be summarized as follows: (1) a*863 bequest to his cousin, Mary Collom, of $250, "half-yearly during her natural life, if she continue unmarried; and at her death I give and bequeath to her daughter Mary, if unmarried, the sum of one hundred and fifty dollars, half-yearly, if she continue unmarried, during her natural life, but not otherwise"; (2) the occupation during her life by said Mary Collom of the house and lot in Mt. Holly, New Jersey, then occupied by her, free of rent and taxes, and at her death the same to be sold and the proceeds invested and distributed as provided for with respect to Gilbert's other residuary estate; (3) the selling of a house and lot at 116 North 19th Street, then occupied by Gilbert's daughter Kate, to her at its appraised value, and if she decided otherwise, then the property was to be sold and the proceeds invested and distributed as part of Gilbert's residuary estate; (4) the sale of a house and lot at 918 Gilbert Street and a farm at Spring Mill, New Jersey, the proceeds to be invested and distributed as part of Gilbert's residuary estate; (5) the lease of a certain factory and premises to Gilbert's son, Samuel H. Gilbert, for 15 years or longer, at the son's option, at a fixed rental*864 with an option to his son to purchase the property during the continuance of the lease, or at the expiration thereof, at its appraised value, and if the son did not desire to purchase the property, it was to be sold and the proceeds invested and distributed as part of Gilbert's residuary estate; and (6) the lease by the executors of the premises at 309 and 311 North Third Street and 205 Wood Street, Philadelphia, for a term of 10 years at a fixed rental to Gilbert's "present partners in the wholesale drug business" for the purpose of their carrying on the same business under the style and name of John Gilbert & Co. The provisions of John Gilbert's will with respect to the residue of his estate are as follows: Item. - I order and direct all the rest, residue, reversion and remainder of my estate, real, personal and mixed whatsoever, and wheresoever not hereinbefore disposed of and provided for, to be converted into cash as soon as conveniently may be after the determination of the particular estates hereinbefore created and granted; and for that purpose, I authorize and empower my executors hereinafter named, and the survivors or survivor of them, to sell and dispose of the residue*865 of my estate, except the coal lands, at public or private sale or sales, for such price or prices and upon such terms and conditions as may be for the best interests of my estate, and to sign, seal, execute and deliver good and sufficient deed or deeds for the same; and the net proceeds of such rest and residue of my estate, I order and direct to be invested in first bonds and mortgages, and the interest accruing therefrom to be paid semi-annually one-third thereof to my wife, and the other two-thirds to my child or children, or the lawful issue of any deceased child or children then surviving, to all intents and purposes as is provided by the intestate laws of this *505 Commonwealth. And lastly, I nominate, constitute and appoint as executors of this, my last will and testament, Samuel H. Gilbert, Peter W. Shaffer [Sheafer], J. Thomas Audenreid. Catharine H. Gilbert, the widow of John Gilbert, died on March 23, 1880. Kate H. Gilbert, daughter of John Gilbert, married Curwen Stoddart, who died April 1, 1914, their only child having predeceased them, unmarried and without issue. Kate Gilbert Stoddart died April 23, 1915, and by will left her entire property, one-third*866 to her sister Ida Gilbert Dixon; one-third to her sister, Fannie Gilbert Dixon; one-sixth to her niece, Gertrude Gilbert (now Loening); and one-sixth to her nephew, John Gilbert. Clara M. Gilbert married Giddeon Stoddart and died February 23, 1898, without ever having had any children and by her will leaving her entire propety to her said husband, Giddeon Stoddart, who died May 2, 1911, having previously intermarried with Frances Janney and leaving a will dated May 25, 1906, by which he left the residue of his property of every kind to his widow, Frances Janney Stoddart. By indenture dated December 14, 1922, Frances Janney Stoddart conveyed, sold, and released all her interest of every kind in the estate of John Gilbert, whether under will or by intestacy, one-third to Fannie Gilbert Dixon, one-third to Clayton G. Dixon, one-sixth to John Gilbert, and one-sixth to Gertrude Gilbert Loening. Ida E. Gilbert married Henry P. Dixon and died November 22, 1916, leaving a will by which she left her entire estate to her husband, Henry P. Dixon, who died unmarried June 21, 1917, leaving a will by which he left his entire estate to his only child, Clayton Gilbert Dixon. Samuel H. Gilbert*867 married Georgeine Stoddart and died March 20, 1896, leaving a will by which he left his entire estate to his wife. He left to survive him a widow and two children, Gertrude Gilbert (now Loening) and John Gilbert. The widow of Samuel H. Gilbert subsequently intermarried with George F. Lasher, who died March 9, 1917. By instrument dated March 16, 1922, the said Georgeine Stoddart Lasher released to her only two children, John Gilbert and Gertrude Gilbert Loening, in equal shares, all her right, title, and interest in the estate of John Gilbert. Fannie Gilbert married Samuel G. Dixon, who died February 26, 1918. Fannie G. Dixon died April 2, 1931, leaving a will which was duly probated in the office of the register of wills of Montgomery County on April 10, 1931, and letters testamentary were granted to her daughter, Catharine D. Sharpe, the petitioner herein. Fannie Gilbert Dixon left to survive her only one child, the above named Catharine D. Sharpe. *506 The last will and testament of Fannie G. Dixon, dated February 12, 1931, provides for a bequest of $50,000 to her son-in-law, John Semple Sharpe, and gives all the rest, residue, and remainder of her estate, both*868 real and personal, including any property as to which she had a power of appointment, to her daughter, Catharine D. Sharpe, her heirs and assigns forever. Fannie G. Dixon specifically excepted from her residuary clause the property as to which "I have a power of appointment under deed of trust from Fannie Gilbert Dixon et al to Effingham B. Morris et al, dated August 18, 1924, which power I hereby expressly do not exercise." The original executors and trustees named under the will of John Gilbert having died, Samuel G. Dixon, Curwen Stoddart, and Effingham B. Morris were duly appointed substituted trustees by the Orphans' Court of Philadelphia County on May 16, 1896. Of the trustees thus appointed Curwen Stoddart died April 1, 1914, and Samuel G. Dixon, February 26, 1918, and by decree dated November 6, 1918, the Orphans' Court of Philadelphia County appointed John Gilbert and Clayton G. Dixon substituted trustees to act with Effingham B. Morris. Under date of June 26, 1923, the Orphans' Court of Philadelphia County in confirming nisi an account of the trustees of John Gilbert's estate, spoke as follows: The present accounting is by the Substituted Trustees, and the account*869 is filed as a tri-annual account including the entire trust estate - proceeds of sale of coal lands as well as residue. As appears from the petition for distribution annexed, testator left him surviving Catherine [Catharine] Gilbert, his widow, and five children, Samuel H., Kate H., Clara M., Ida E. and Fannie E. Gilbert, all of whom, except his daughter Fannie, now Fannie G. Dixon, are now deceased. As also appears from said petition, all of the provisions of testator's will, except those referring to his widow and children, have been fulfilled. Of testator's children Kate H. and Clara M. died without issue. The annuity to his son Samuel vested upon his death in his two children John and Gertrude, and the annuity to his daughter Ida vested at her death in her son Clayton G. Dixon. Testator's daughter Fannie is still living and has one child Catherine [Catharine] Dixon Sharpe in whom (and any other child or children she may have) her annuity will vest at her death. An examination of the will discloses that the testator contemplated his estate as consisting of two parts - his interest in certain coal lands in Schuylkill County, and residue; and as to both he, in express*870 terms, disposes of income only. As there is no express disposition of principal, the question arises Did testator die intestate as to principal, or Is the gift of income without limitation of time or gift over (except as to the annuity of $2,000 to each of his children, which again is given to their children without limitation of time or gift over) a gift of the principal under Millard's Appeal, 87 Pa. 457, Mifflin's Estate, 232 Pa. 25 and cases therein cited, Wood's Estate, 261 Pa. 480? It follows, therefore, that, even if it were held that the gift of income under this will be a gift of the principal it cannot be absolutely determined at this time whether all the parties who may be interested in the estate on final distribution are now before the court. *507 It appears, moreover, from the petition for distribution annexed that the persons entitled to the estates of those of testator's family now deceased, by devolution, will or conveyance, are Fannie G. Dixon, Clayton G. Dixon, John Gilbert and Gertrude Gilbert Loening; and they all join in requesting that the principal be awarded to the Trustees pending the death of Fannie G. Dixon, *871 and the construction of the will postponed until that time. Under the circumstances, it seems to the Auditing Judge that such award may properly be made. Under date of August 18, 1924, Fannie Gilbert Dixon, Clayton Gilbert Dixon and his wife, John Gilbert and his wife, Gertrude Gilbert Loening and her husband, and Effingham B. Morris, Clayton Gilbert Dixon, and John Gilbert, as trustees, executed an indenture which, after reciting the creation of a testamentary trust by John Gilbert for the benefit of his widow, his children, and the child or children of deceased children, which trust was applicable to certain coal lands held by the testator at his death and also to his residuary estate, and after reciting that the entire right, title, and interest of the testator's widow and of his five children to his estate "has vested in the parties hereto" provided that: The parties * * * hereto have agreed that, at the expiration of the trust created by the will of said John Gilbert on the death of Fannie Gilbert Dixon, or otherwise, the estate of said John Gilbert shall be distributed to the parties entitled to the same with the exception of the coal lands or other real estate with the*872 improvements thereto situated in Schuylkill County, Pennsylvania, but that such part of said estate as then consists of coal lands or other real estate with the improvements thereto situated in Schuylkill County, Pennsylvania, shall pass without hiatus to the Trustees herein named for the estate and on the trusts herein provided. The purpose of this instrument is to carry out such agreement, and the parties hereto also ratify and confirm, as to all their right, title and interest to the property of said John Gilbert, however by them derived, the action by the parties of the fifth part [trustees] and their predecessors in the trust * * *. For the considerations therein stated the first four parties to the instrument - * * * jointly and severally, grant, convey, sell, transfer, assign and release unto Effingham B. Morris, Clayton G. Dixon and John Gilbert, Trustees, and their successors in the trust all their right, title, interest, claim and demand of whatsoever nature to which they now are or may hereafter become entitled in and to: All that part of the property of said John Gilbert, deceased, which at the expiration of the trust by his said will created, by the death of*873 the said Fannie Gilbert Dixon or otherwise, may consist of coal lands or other real estate situated in Schulykill County, Pennsylvania, with the improvements and appurtenances thereto * * *. The trustees were to manage the trust estate and, after paying or providing for all the expenses of the trust, were to divide the net proceeds from the trust estate into six equal parts and distribute them as follows: Two sixth parts to Fannie Gilbert Dixon "during her life and from and after her death to such persons and in such shares as *508 she by her last will may appoint, and in default of appointment to such persons for such estates and in such shares and proportions as would be entitled to the same if she had died seized and possessed thereof intestate * * *." The trust created was to terminate on January 1, 1970, or on the death of the last survivor of the trustors and all of their children living at the date thereof, at which time the principal was to go to the parties previously receiving the proceeds. Shortly after the death of Fannie Gilbert Dixon, Effingham B. Morris, John Gilbert, and Clayton Gilbert Dixon, as substituted trustees, filed a petition with the Orphans' *874 Court of Philadelphia County, entitled "petition for Distribution in the Estate of John Gilbert, deceased." In connection with said petition, and under date of June 23, 1931, the Orphans' Court entered an order or adjudication, and thereafter approved a schedule of distribution filed in accordance with the court's order or adjudication of June 23, 1931. The pertinent portions of the court's adjudication read as follows: This trust arose under the will of the testator, who died on June 28, 1877, wherein, after giving all his interest in certain coal lands in Schuylkill County and the rents, issues and profits thereof to his executors and trustees, after payment thereout of debts, etc., to pay to his wife an annuity of $15,000 for her life and at her death payment of said annuity to be continued and to be distributed pro rata, or share and share alike, as provided under the intestate laws of this Commonwealth, to his children and grandchildren, to pay to each of his children an annuity of $2,000 for life, in the event of the death of any the share of such child to be paid to his or her children, and after payment to his sister-in-law Margaret McConnell, of $1,000, directed the balance*875 from this source if any, to be distributed at the expiration of each year to his wife and children, share and share alike, or to the children of any deceased child or children; and, after certain bequests and devises, directed that all the rest, residue and reversions and remainder of his estate not before disposed of and provided for to be converted into cash, except the coal lands, and directed the net proceeds to be invested in first bonds and mortgages "and the interest accruing therefrom to be paid semi-annually, one-third thereof to my wife, and the other two-thirds to my child or children, or the lawful issue of any deceased child or children then surviving, to all intents and purposes as is provided by the intestate laws of this Commonwealth." * * * The annuities of $15,000 provided for by the second paragraph of the will of $2,000 provided for by the third paragraph are paid to the same persons and in the same proportions as is the balance of income for distribution. If the trust terminates said parties will now receive the principal in the same proportions. * * * Fannie Gilbert (later Dixon) died on April 2, 1931, leaving a will which was duly probated by the Register*876 of Will of Montgomery County, and Letters Testamentary were granted to Catharine D. Sharpe, and to whom she gave the residue of her estate, excepting only the property to which she had a power of appointment under a certain deed of trust, which power she expressly did not exercise. A copy of said deed of trust was submitted and is annexed. The said Fannie Gilbert Dixon left to survive her a daughter, Catharine D. Sharpe. *509 The facts and dates relative to the above devolutions are taken from the petition for distribution where they are set forth with more particularity. From a summary of the same it will be noted that the parties in interest in the trust estate are as follows: Catharine D. Sharpe, a granddaughter 1/3rd Clayton G. Dixon, a grandson 1/3rd John Gilbert, a grandson 1/6th Gertrude Gilbert Loening, a granddaughter 1/6th The reason or purpose of the filing of the account is that Fannie Gilbert Dixon, who was the last surviving child of the decedent, died on April 2, 1931, as aforesaid, and it is necessary to adjudicate the rights of the parties. As to whether or not the trust terminates at this time I think it only necessary to quote*877 from Judge Thompson's Adjudication of June 26, 1923, as follows: * * * (The omitted paragraphs are the last 3 paragraphs of the opinion of the Orphan's Court of June 26, 1923, as hereinabove set forth.) It therefore would appear that the trust was kept alive until the death of the last surviving of testator's five children (which has now occurred) by agreement of the parties in interest. I now find that the trust consisted of a gift of income only, without any limitation of time or gift over of principal, and under the cases cited in Judge Thompson's Adjudication quoted as above, there is no alternative than that those entitled to income are now entitled to principal outright. The rule has always been that a gift of income without limitation as to time and without a gift over of principal is a gift of the corpus itself. See Mifflin's Estate, supra. All parties in interest as named above have approved the account in writing, which same is annexed, and they waive a complete income account. There was no objection to the account which shows - a balance of principal of personal estate of $428.011.16 a balance of principal, proceeds of sale of real estate (coal lands), of 14,049.47 a balance of income of personal estate of 18,055.46 and a balance of income of real estate (coal lands) of 125,297.90 making a total balance of principal and income of 585,413.99 *878 which, composed as set forth in the account, together with all additional income or interest on deposits received since the filing of the account, subject, as respects income, to any payment or payments heretofore properly made on account of distribution, and subject, as respects principal, to the payment of transfer inheritance tax, if found to be due, is awarded to the parties entitled thereto as named in the prayer of the petition for distribution in the proportions there stated. Leave is hereby granted the accountants to make all necessary transfers and assignments. The accountants will submit a schedule of distribution, in duplicate, certified by counsel to be correct and in couformity with this adjudication, and approved by all parties in interest or their counsel, which same, when approved by me, will be attached hereto and form a part hereof. AND Now, June 23, 1931, the account is confirmed NISI. *510 On August 4, 1931, the Orphans' Court approved the schedule of distribution, aforementioned, which shows distribution of the balance of principal of the personal estate in the amount of $428,245.53, one-third to Catharine D. Sharpe, one-third to Clayton Gilbert*879 Dixon, and one-sixth each to John Gilbert and Gertrude Gilbert Loening. The schedule of distribution also shows the balance of income of personal estate and from coal lands as being distributed to the same parties in the same proportions, except that accrued income distributable to Fannie Gilbert Dixon prior to her death was distributed to Catharine D. Sharpe, executrix of the estate of Fannie Gilbert Dixon, and the income accrued on said one-third interest after the death of Fannie Gilbert Dixon was distributed to petitioner in her own right. The petitioner, as executrix of the estate of Fannie Gilbert Dixon, in due time, namely, on October 9, 1931, filed a Federal estate tax return on form 706. She included in schedule D-2 of the estate tax return, entitled "Other Miscellaneous Property", the following: Income from Gilbert estate due decedent under deed of trust: Income from principal accrued to 4/2/31 $3,074.44 Income from coal lands accrued to 4/2/31 38,340.00 and in connection with said reporting stated on said schedule D-2 as follows: Decedent had a life interest in the estate of John Gilbert, deceased, who died June 28, 1877, leaving a will dated*880 May 19, 1877, recorded in Philadelphia County in Will Book No. 90, page 201, which will all parties in interest attempted to clarify by the execution of a deed of trust dated August 18, 1924. Thereafter, an internal revenue agent called upon W. Logan MacCoy, attorney at law for the estate of Fannie Gilbert Dixon, whose office is at 1000 Provident Trust Building, Philadelphia, Pennsylvania, and fully discussed with MacCoy the interest which Fannie Gilbert Dixon had under the will of John Gilbert and under the deed of trust of August 18, 1924. MacCoy furnished the revenue agent with a copy of the will of John Gilbert and a copy of the deed of trust and discussed and considered with the agent the adjudication of the Orphans' Court of Philadelphia County. MacCoy further referred the revenue agent to John Gilbert, one of the trustees above named, after the agent had requested information as to where he could learn more about the John Gilbert estate. MacCoy had several discussions with the revenue agent and furnished the agent with all the information requested pertaining to whatever interest Fannie Gilbert Dixon had in the estate of John Gilbert. Thereafter, on or about February 12, 1932, the*881 internal revenue agent in charge at Philadelphia, Pennsylvania, addressed a letter to Catharine D. Sharpe, executrix of the estate of Fannie Gilbert Dixon, petitioner *511 herein, stating that the return filed by this estate had been carefully investigated and transmitting a copy of the report of the investigating revenue agent, A. D. Lauer, which report showed that the amount included in schedule D-2 of the Federal estate tax return had been accepted as reported. Thereafter, on March 25, 1932, the Commissioner of Internal Revenue addressed a letter to Catharine D. Sharpe, executrix, estate of Fannie Gilbert Dixon, wherein it was stated that "the Bureau has confirmed the recommendations of the Internal Revenue Agent as to the items making up the gross and net estates. Inasmuch as the recommended adjustments were fully disclosed to the representatives of the estate, the adjustments made with respect to specific items are not set forth in this communication." It was further stated in said letter that the Bureau had determined a deficiency in the amount of $1,172.49, of which $234.50 has been assessed, and that the balance of the deficiency will be assessed later unless the*882 estate files the evidence as to state inheritance, legacy, estate, or succession taxes. Thereafter, the estate of Fannie Gilbert Dixon was distributed to Catharine D. Sharpe, daughter of said Fannie Gilbert Dixon, and at no time after March 25, 1932, was the executrix of the estate of Fannie Gilbert Dixon advised of any change of ruling by the Commissioner or assessed any additional tax on account of a proposed change in ruling. On or about September 25, 1935, the respondent addressed a deficiency notice to "Catharine D. Sharpe, Transferee, Estate of Fannie Gilbert Dixon," proposing to assess against her "the sum of $46,970.63 (plus interest thereon) constituting your liability as transferee of property of the decedent, Fannie G. Dixon, who died on April 2, 1931." The respondent's explanation of the proposed assessment is as follows: The value of the decedent's vested one-third interest in certain coal lands in Schuylkill County, Pennsylvania and the residuary estate of John Gilbert, deceased, was the subject of an investigation. The decedent's interest in the property indicated was not returned by the estate; neither was it disclosed in the original field investigation*883 or the Bureau's closing letter addressed to the executrix of this estate under date of March 25, 1932. It appears that this decedent was given during her lifetime, a certain income from the coal properties and the residuary estate of John Gilbert, deceased, as provided by his will. The will of said John Gilbert disposed of the income only. There was no express disposition of the principal. It appears that the rule in a case of this nature has been that a gift of income without limitation as to time and without a gift over of principal is a gift of the corpus itself. Mifflin's estate,232 Pa. page 25, and cases therein cited; Millard's Appeal,87 Pa. 457, Wood's estate,261 Pa. 480. After careful consideration of all the facts of record this office is of the opinion that the decedent had a vested interest in the coal lands and the *512 residuary estate of John Gilbert, deceased, which passed at her death, and is accordingly includable as part of the gross estate as more particularly shown below: GROSS ESTATE Returned Determined Redetermined Decedent's one-third vested interest in the principal of the estate of John Gilbert, deceased $0.00 $0.00 $147,353.54 Decedent's one-third vested interest in coal properties of John Gilbert, deceased, located in Schuylkill County, Pennsylvania 0.00 0.00 456,597.00 *884 The foregoing adjustments are refiected in the following statement showing the adjusted Federal estate tax liability of this case. Returned Determined Redetermined Gross Estate $994,122.26 $1,008,199.76 $1,612,150.30 Deductions 145,413.14 142,740.75 142,740.75 Net estate 848,709.12 865,459.01 1,469,409.55 Gross tax 37,909.64 39,082.13 86,052.76 Credit for estate or inheritance tax 30,327.71 31,265.70 31,265.7o Net tax 7,581.93 7,816.43 54,787.o6 Amount assessed as deficiency pursuant to waiver 234.50 7,816.43 Deficiency $46,97o.63 OPINION. ARNOLD: Section 302 of the Revenue Act of 1926 provides that the value of a decedent's gross estate shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, to the extent of the interest therein of the decedent at the time of his death. The respondent has determined that Fannie G. Dixon, at the time of her death, had a vested interest in the principal of her father's estate valued at $147,353.54, and that she had a vested interest in coal properties of her father's estate valued at $456,597. *885 In accordance with his determination, respondent has increased Fannie G. Dixon's gross estate by the value of these interests, and has found a deficiency of $46,970.63. Catharine D. Sharpe is the petitioner because she was the sole distributee of her mother's estate, and respondent has asserted the deficiency against her as a transferee under section 316 of the 1926 Act. There is no dispute as to the values determined. The dispute is whether Fannic G. Dixon had any interest in her father's estate the value of which should be included in her own gross estate under section 302. Or, stated differently, did Catharine D. Sharpe acquire this property from her grandfather directly, or from her mother, *513 Fannie G. Dixon? This is purely a question of law, which must be determined from an analysis of the will of John Gilbert and from the other facts of record. If Catharine D. Sharpe took the property under John Gilbert's will there was no interest vested in Fannic G. Dixon which should be included in her gross estate. On the other hand, if Fannie G. Dixon acquired property rights under her father's will, which property she passed on to petitioner, the value thereof should*886 be included in Fannie G. Dixon's gross estate. Both parties rely upon the same proposition, which is stated by the decided cases as follows: "A gift of the income of a fund without a limitation as to time is a gift in perpetuity and carries the fund itself: Robert's Appeal, 9 P. F. Smith, 70; Parker's Appeal, 11 Id. 478; Appeal of the Pennsylvania Company, 2 Norris, 312." Millard's Appeal,87 Pa. 457. See also In re Tyson's Estate,191 Pa. 218, 43 Atl. 131; In re Mifflin's Estate,232 Pa. 25; 81 Atl. 129; In re Roger's Estate,245 Pa. 206; 91 Atl. 351, and cases cited therein. While each of the opposing parties agrees with the rule, each of them seeks to apply the rule differently. For example, the respondent contends that the application of the rule shows that Gilbert intended giving his children fee estates in his property, while petitioner contends that the application of the rule demonstrates Gilbert's intention of giving life estates to his children, with a gift over of income to his grandchildren, and that, in the absence of any further disposition*887 of corpus or income, the rule then operated to pass the fund itself to the second generation. Petitioner asserts that the two opinions of the Orphans' Court of Philadelphia County support this construction of Gilbert's will. Before proceeding with our examination of the opposing contentions we must point out that the one cardinal rule in construing wills is to ascertain the testator's intention, and, unless forbidden by public policy, to give force to that intention. Smith v. Bell,31 U.S. 68. The rule which both parties hereto are invoking is not a rule of law, but a rule of construction adopted by the courts as an aid in determining the testator's intention, Tyson's Estate, supra.In order to determine what interest John Gilbert gave his daughter, and what interest, if any, he gave his granddaughter, the petitioner here, we must examine his will and ascertain from it his intentions in disposing of his property. In May 1877, when John Gilbert executed his will, his immediate family consisted of his wife and five children, who were the natural objects of his bounty. He provided for them by dividing his property into two classes - his coal*888 properties and his residuary estate. With exceptions not here material, everything he had, exclusive of his coal properties, was thrown into his residuary estate, which, after *514 proper compliance with his instructions, consisted of first bonds and mortgages. Both his coal properties and his residuary estate were placed in trust and the income therefrom was to be distributed as provided for in his will. The coal properties were charged with the payment of annuities to Gilbert's wife and children, $15,000 per annum to his wife and $2,000 per annum to each of his children. Upon his wife's death the payment of her annuity was to be continued and distributed pro rata, or "share and alike", as provided under the intestate laws of Pennsylvania to his children and grandchildren. In the event of the death of any of his children the share of such deceased child was to be paid to the child or children of the deceased child. Any balance from the coal properties Gilbert gave to his wife and children share and share alike or to the child or children of any deceased child. These provisions indicate that Gilbert intended to provide for his wife and children by giving them the income*889 from the coal properties. There was no intention of giving the income to his grandchildren unless one or more of his children predeceased him leaving issue. But since all of Gilbert's children survived him, the provisions of his will giving the share of a child that predeceased him to the issue of such child are inapplicable. In like manner Gilbert disposed of that portion of the trust income from his residuary estate. He gave his wife one-third and gave the other two-thirds to his child or children, or the lawful issue of any child or children then surviving. Gilbert certainly contemplated the possibility that one or more of his children might predecease him, and he provided for this contingency by giving the parent's share to the lawful issue "then surviving." No language in Gilbert's will indicates that he intended to make a gift over of income to grandchildren as a class, but only an intent to provide for grandchildren who survived a child that had predeceased him. In support of her contention that Fannie G. Dixon took only a life estate in the testamentary trust created by her father, petitioner points to the opinions of the Orphans' Court handed down in May 1923*890 and in April 1931. Examining the first of these decisions in point of time, it appears that the court recognized the question we have to decide, but refused to pass upon it, stating that "even if it were held that the gift of income under this will be a gift of the principal it can not be absolutely determined at this time whether all the parties who may be interested in the estate on final distribution are now before the court." This language must mean that the court was unwilling at that time to decide the question of whether Gilbert died intestate as to the principal, and that it was unwilling to decide the question of whether the gift of income without limitation of *515 time or gift over was a gift of the principal under Millard's Appeal, supra;Mifflin's Estate, supra, and cases therein cited, and Wood's Estate,261 Pa. 480; 104 Atl. 673. A further and, in our opinion, a more important reason for postponing the construction of Gilbert's will in May 1923 was stated by the Orphans' Court as follows: "It appears, moreover, from the petition for distribution annexed that the persons entitled to the estates*891 of those of testator's family now deceased, by devolution, will or conveyance, are * * *; and they all join in requesting that the principal be awarded to the Trustees pending the death of Fannie G. Dixon, and the construction of the will postponed until that time. Under the circumstances, it seems to the Auditing Judge that such award may properly be made." And accordingly the account, as approved in writing by the persons entitled thereto, was awarded to the trustees. During the interval between the Orphans' Court opinions, the parties entitled to John Gilbert's estate (namely, Fannie G. Dixon, Clayton G. Dixon, John Gilbert, and Gertrude Gilbert Loening), whether their interest was in principal or income, executed a trust agreement, dated August 18, 1924, wherein they recited that the entire right, title, and interest of Gilbert's widow and his five children in Gilbert's estate, whether under his will or by intestacy or otherwise, had vested in them, and they transferred thereby their right, title, and interests, however by them derived, to trustees, who were to take the coal lands upon the expiration of the trust created by John Gilbert's will on the death of Fannie G. Dixon, *892 or otherwise. This trust deed must be considered in the light of the opinion of the Orphans' Court in May 1923 whereby the trust corpus was left in the hands of the trustees upon request of the parties in interest. By their trust agreement the parties transferred their interests in coal lands, which they stated had vested in them, to the trustees named therein, the transfers to be effective upon the termination of the then existing trust so that the coal lands "shall pass without hiatus to the Trustees herein named for the estate and on the trusts herein provided." Although the stated purpose of the trust deed of August 18, 1924, was to insure the continued administration of the coal lands as a unit, the fact remains that the parties in interest reserved to themselves the income for life and a power to appoint by will the income, which carried with it a corresponding share of the trust principal upon termination of the trust. If Fannie G. Dixon was given only a life estate by John Gilbert's will she could not have reserved to herself a power of appointment by will. Considering, therefore, the facts which existed on August 18, 1924, it would appear that Fannie *516 *893 G. Dixon executed the trust deed as an owner of an absolute interest in the estate of John Gilbert. The 1931 opinion of the Orphans' Court supports our conclusion that that court did not determine the question in 1923, as the court said in the later opinion "the trust was kept alive until the death of the last surviving of testator's five children (which has now occurred) by agreement of the parties in interest." This, in our opinion, is a specific holding that the trust existed by agreement of the beneficiaries, and not by the provisions of Gilbert's will. The sentence immediately following the court's statement that the trust was kept alive by agreement, is a definite conclusion of law by the court that the trust consisted of a gift of income only, without limitation of time, or gift over of principal. Giving effect therefore to the established rule of construction in Pennsylvania, In re Byrne's Estate,181 Atl. 500, and cases cited, it is our opinion that Gilbert gave the income from the testamentary trust created by his will to his children, or to the child or children of any deceased child of his surviving at the date of his death. In our opinion Gilbert*894 made no provision for a gift over of income to his grandchildren as a class, but only to such grandchildren who were surviving a deceased child of Gilbert at the time of the latter's death, and, since Gilbert set up no limitation of time as to the gift of income and made no gift over of the corpus, the established rule requires a holding that it was Gilbert's intention to give the trust corpus itself, postponing only the right of possession. If there was doubt as to this matter it would have to be resolved against petitioner's contention under the established rule adopted by the courts relative to the early vesting of estates. In Millard's Appeal, supra, the court quoted the rule as laid down in Amelia Smith's Appeal, 11 Harris, 9, as follows: "'in the construction of wills the law in doubtful cases, leans in favor of an absolute rather than a defeasible estate; of a vested rather than a contingent one; of the primary rather than the secondary intent; of the first rather than the second taker as the principal object of the testator's bounty.'" In view of the foregoing discussion we agree with respondent's contention that as a matter of law Fannie G. Dixon*895 had a vested interest in the corpus of her father's estate, the value of which was includable in her gross estate under section 302 of the Revenue Act of 1926. In so far as Fannie G. Dixon transferred a portion of her interest in her father's estate by the deed of trust of August 18, 1924, that part of her interest should be included in her gross estate because at her death there was an outstanding power, reserved by her in the deed of August 18, 1924, the termination of which by her death effected a shifting of economic benefits which subjected the *517 property involved to tax. Chase National Bank v. United States,278 U.S. 327; Commissioner v. Chase National Bank, 82 Fed.(2d) 157; certiorari denied, 299 U.S. 552. The second issue is whether respondent can lawfully assert a tax against petitioner as a transferee after having found and ruled that there was no tax liability on the part of the estate arising from the alleged vested interest of the decedent in the properties of her father's estate. It is the duty of the Commissioner to determine the correct tax liability of each taxpayer, and he has authority to change*896 any determination considered erroneous, Burnet v. Porter,283 U.S. 230; Omaha Baum Iron Store, Inc. v. United States,8 Fed.Supp. 703, and where the distribution of the assets of the estate to the sole devisee left the estate without assets and a determination against it would be entirely futile, the respondent may proceed directly against the transferee, Flynn v. Commissioner (C.C.A., 5th Cir.), 77 Fed.(2d) 180; Baumgartner v. Commissioner (C.C.A., 9th Cir.), 51 Fed.(2d) 472, affirming 21 B.T.A. 623; certiorari denied, 284 U.S. 674; City National Bank v. Commissioner (C.C.A., 5th Cir.), 55 Fed.(2d) 1073, affirming 19 B.T.A. 1080; certiorari denied, 286 U.S. 561. The Commissioner's failure to determine a deficiency against the estate prior to distribution of its assets does not, therefore, preclude him from proceeding directly against the transferee, Helen Dean Wright,28 B.T.A. 543, and cases cited. In this proceeding all the assets of the estate of Fannie G. Dixon were distributed to petitioner in 1932, long*897 prior to the issuance of the deficiency notice. However, the statute of limitations did not run against the executor of Fannie G. Dixon's estate until October 9, 1934, three years after the estate tax return was filed, sec. 310, Revenue Act of 1926. Under section 311 of the Revenue Act of 1932 the period of limitation for assessment of the liability of a transferee is within one year after the expiration of the period of limitation for assessment against the taxpayer. The respondent therefore had until October 9, 1935, to make an assessment against the petitioner as transferee of the assets of her mother's estate. Since the deficiency notice was mailed to petitioner as transferee on September 25, 1935, it was within the statutory period of limitations. In view of the foregoing discussion, it is our opinion that Fannie G. Dixon's gross estate should include the value of her interest in the property left her by John Gilbert, and we are further of the opinion that respondent properly proceeded against Catharine D. Sharpe as the transferee of her mother's estate. Decision will be entered for the respondent.