Hutchings v. Commissioner

MARY M. HUTCHINGS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hutchings v. Commissioner Docket No. 95359. United States Board of Tax Appeals 40 B.T.A. 27; 1939 BTA LEXIS 915; June 6, 1939, Promulgated *915 Petitioner, as donor, created an irrevocable trust for a term of years, to which she transferred her entire interest in certain described properties for the use and benefit of her seven children. Held, petitioner is entitled to one exclusion of $5,000 in determining the amount of her gift subject to the gift tax. I. M. Tullar, Esq., for the respondent. ARNOLD *27 This proceeding involves a deficiency in gift tax for 1935 in the amount of $2,981.05. In determining the deficiency the respondent allowed one exclusion of $5,000 upon the theory that petitioner's transfer to the trust was a transfer to one donee. The petitioner contends that since there were seven beneficiaries she is entitled to a total exclusion of $35,000. The parties submitted the proceeding upon an agreed stipulation of facts, so that the only question remaining is whether, as a matter of law, petitioner is entitled to one exclusion of $5,000 or seven exclusions of $5,000. FINDINGS OF FACT. The petitioner resides in Galveston, Texas. On December 30, 1935, she executed an indenture of trust in which she was joined proForma*28 by her husband. The instrument*916 recites that the grantor desired to "convey, assign, transfer and deliver to the Trustees certain real estate, personal property and securities hereinafter described for the purpose of creating a voluntary living trust." (Emphasis supplied.) The property conveyed was "all of the Grantor's right, title, interest and estate" in the described personal and real properties, and was valued by respondent at $144,970.34, which value is not disputed by the petitioner. The trustees were to hold the property in trust for the use and benefit of the grantor's seven children and in their sole and absolute discretion could hold and accumulate the entire net income, interest, rents, profits, and revenues of the trust corpus, or distribute the same according to the respective interests of the beneficiaries, who were to share and share alike in all distributions and payments of either principal or income. In the event of the death of a beneficiary prior to the termination of the trust, his or her interest was to go to the person or persons designated in the will of the deceased beneficiary, and in default of appointment "his or her interest in the trust estate" vested in the deceased beneficiary's*917 heirs at law as determined by the law of descent and distribution of Texas. Paragraph six of the trust agreement provides: Neither the principal nor the income of the trust shall ever be liable for the debts of any beneficiary hereunder, nor shall the same be subject to seizure by any creditor of any such beneficiary under any writ or proceeding at law or in equity, and no such beneficiary shall have power to sell, assign, transfer, convey, encumber, or in any other manner dispose of or anticipate the disposition of his or her interest in the trust property, or the income to be produced thereby, or any divisions or distributions thereof. The trust was to terminate March 1, 1957, unless sooner terminated by final division and distribution of the trust property. Upon termination of the trust any and all property was to be paid over and delivered to the then beneficiaries according to their respective interests. In paragraph numbered twelve the trust indenture provides as follows: The Grantor shall have no power to revoke the trust created hereby, in whole or in part, nor shall she have the power to revest in herself any part of the principal of the trust, nor any part*918 of the income thereof, or therefrom. [Emphasis supplied.] In arriving at the deficiency asserted in this cause the respondent allowed a specific exemption of $50,000 and one exclusion of $5,000. OPINION. ARNOLD: Section 501(a) of the Revenue Act of 1932 imposes a tax upon the transfer by any individual, resident or nonresident, of property by gift. Section 501(b) of that act provides that the *29 tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Section 504(b) of the same act provides that the first $5,000 of gifts made "to any person" shall not be included in the total amount of gifts made during the taxable year. Section 1111 of the 1932 Act, in defining the term "person," provides that it shall mean inter alia "a trust." In , we considered the question here presented and held that for the purpose of the $5,000 exclusion the trust, as an entity, was the "person" within the meaning of section 504(b). In so deciding we cited and relied upon *919 , affirming ; , affirming a memorandum opinion of this Board; and . Subsequent decisions of this Board have followed the principle announced in the Knox case, supra, and in a recent decision of the Circuit Court of Appeals for the Eighth Circuit, Robertson v. Nee (Mar. 6, 1939, not reported), it was held that a transfer in trust in 1935 to one trustee was entitled to only one $5,000 exclusion since only one trust was created. The court so decided despite the specific provisions of the trust indenture providing for the division of the trust estate into three parts and naming the wife and the two children of the grantor as beneficiaries, each being entitled to the income and principal of one of the parts of the trust estate. In , the Circuit Court of Appeals for the First Circuit reached the opposite conclusion, and was followed by the United States District Court for the Northern*920 District of Illinois in . Despite our respect for the opinion of the Circuit Court of Appeals for the First Circuit and the opinion of the Federal District Court which followed the First Circuit, we feel obliged to follow the rule laid down in , and in Robertson v. Nee, supra. The facts in the instant proceeding are on all fours with the facts in the Robertson case. The trust here created was clearly intended to be a single trust with seven beneficiaries who were to share equally in the trust income and principal. Every reference in the trust indenture points to an intent and purpose to create a single trust estate for the distribution of income and corpus among the several beneficiaries. We hold, therefore, that the property was transferred to the trust as an entity, and that petitioner is entitled to but one exclusion of $5,000 as determined by the respondent. Decision will be entered for the respondent.