Bridgeport City Trust Co. v. Commissioner

THE BRIDGEPORT CITY TRUST COMPANY AND ARTHER E. ALLING, EXECUTORS OF THE ESTATE OF NOYES E. ALLING, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Bridgeport City Trust Co. v. Commissioner Docket No. 87136. United States Board of Tax Appeals 41 B.T.A. 191; 1940 BTA LEXIS 1219; January 26, 1940, Promulgated *1219 Where a decedent created a trust for the benefit of his children and grandchildren, reserving only a power to alter the disposition of the trust income among the several beneficiaries, it is held: (1) The value of the corpus is not includable in the decedent's gross estate either as a transfer to take effect at or after death under section 302(c) of the Revenue Act of 1926, or as a transfer subject to a power to alter, amend, or revoke under section 302(d) of the Revenue Act of 1926. Waldemar R. Helmholz, Executor,28 B.T.A. 165; affd., 75 Fed.(2d) 245; affd., 296 U.S. 93; and Charles H. W. Foster et al., Executors,26 B.T.A. 708; affirmed without opinion, First Circuit Court of Appeals, March 20, 1933, followed, (2) the Joint Resolution of March 3, 1931, amending section 302(c) of the Revenue Act of 1926 operates prospectively only. Hassett v. Welch,303 U.S. 303, followed. Valentine B. Havens, Esq., for the petitioners. John R. Wheeler, Esq., for the respondent. LEECH *191 This is a proceeding to redetermine a deficiency in estate tax in the amount of $32,719.03. *1220 Such part of the deficiency as is in controversy arises because respondent included in decedent's gross estate the value of the corpus of an inter vivos trust created by decedent. The questions for decision are whether the value of the corpus of the trust is so includable under either section 302(c) or section 302(d) of the Revenue Act of 1926. The following material portions of the stipulation of the parties are adopted as our findings of fact. FINDINGS OF FACT. * * * the petitioners are the duly authorized and acting executors of the estate of Noyes E. Alling, who died on June 19, 1934, a resident of the City of Bridgeport, Connecticut. * * * under date of January 10, 1929, the decedent transferred in trust certain securities of a fair market value as of the date of death, June 19, 1934, of $138,735.12 for purposes named in the trust instrument, * * *. The trust agreement provides in part as follows: "1. * * * (a) To pay the net income in quarterly installments unto my daughters, EDNA ALLING DOHERTY, of Bridgeport, Conn., MADELINE ALLING MASON, of Bridgeport, Conn., and RUTH ALLING BARBER, of Wilkes Barre, Penn., or the survivor or survivors of any of them, share*1221 and share alike, as long as they or any of them shall live. "(b) After the death of all of said beneficiaries, said net income shall be distributed unto as many of my grandchildren as shall survive my said daughters, share and share alike, as long as they or the survivor or survivors of any of them shall live. *192 "(c) When all of said grandchildren shall be deceased, the corpus of said Trust Estate shall be equally divided among such of my lineal descendants as shall survive my said grandchildren, share and share alike, to belong to them and each of them absolutely and forever. "(d) If there should be no lineal descendants of mine who shall survive my said grandchildren, then I order and direct that the corpus of said Trust Estate be equally distributed between the Bridgeport Hospital and the Boys' Club of Bridgeport, to belong to them and each of them and their successors and assigns absolutely and forever. "2. I reserve to myself the power at any time to reallocate the disposition of the income of this said trust fund, such re-allocation, however, to be limited strictly to those named as beneficiaries herein; and no such re-allocation shall be made except by*1222 notice in writing to be given to the Trustee hereinunder of such re-allocation." * * * the trust here involved, * * * was not created in contemplation of death within the provisions of section 302(c) of the Revenue Act of 1926, as amended. * * * a question arose as to whether or not the trust here involved violated the rule against perpetuities. With doubt as to the validity of the trust existing, the trustee could not administer the said trust fund until this doubt was removed. Under these facts, the trustee brought an action for the construction of the trust agreement in the Superior Court in Fairfield County, Connecticut, which was reserved by the said court for the advice of the Supreme Court of Errors of the State of Connecticut. After having duly considered the matter, the said Supreme Court of Errors of the State of Connecticut rendered an opinion (officially reported in 7 Atlantic (2d) 833) * * * upon which a final judgment was entered. The fair market value, as of the date of decedent's death, June 19, 1934, of the life estate granted to the decedent's three daughters, EDNA ALLING DOHERTY, MADELINE ALLING MASON, and RUTH ALLING BARBER, aged respectively, *1223 fifty-one, forth-three, and thirty-eight, at the date of the decedent's death, under the Trust Agreement of January 10, 1929, referred to in paragraph "2" herein, was $88,225.82. The fair market value, as of the date of decedent's death, June 19, 1934, of the life estate of the three daughters, EDNA ALLING DOHERTY, MADELINE ALLING MASON, and RUTH ALLING BARBER, aged respectively, fifty-one, forth-three, and thirty-eight, at the date of the decedent's death; and of the three grandchildren, NOYES ALLING JAYCOX, EDNA ALLING MASON, and PAUL ALLING BARBER, aged respectively, thirty, twenty-five, and eighteen, at the date of the decedent's death, under the Turst Agreement of January 10, 1929, referred to in paragraph "2" herein, was $120,949.28. The final judgment of the Supreme Court of Errors of the State of Connecticut was that the trust did not violate the rule against perpetuities. OPINION. LEECH: Section 302(c) of the Revenue Act of 1926, as originally enacted, and so far as material, reads as follows: 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, *1224 wherever situated - * * * (c) *193 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. * * * By joint resolution, Congress amended 302(c) on March 3, 1931, 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, 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; except in case of a bona fide sale for an adequate*1225 and full consideration in money or money's worth. There can be no doubt that the foregoing amendment covers the trust in this case, and petitioners concede as much. The decedent's reserved power to reallocate the disposition of the income among the beneficiaries falls precisely within the statutory language respecting "the right * * * to designate the persons who shall possess or enjoy the property or the income therefrom." But, petitioners argue, this trust was created in 1929, and the amendment can have no application to transfers made before its enactment. We agree with petitioners. The effect of the joint resolution is prospective only. ; . Eliminating the amendment from consideration, it is settled law that the retention of a power to alter the disposition of trust income does not make the trust a transfer to take effect at or after death; it is only a power to alter the disposition of corpus that has such estate tax consequence. *1226 ; affd., ; affd., ; ; affirmed without opinion, First Circuit Court of Appeals, March 20, 1933. The value of the corpus of this trust may not be included in decedent's gross estate under section 302(c). Section 302(d) of the Revenue Act of 1926 requires the inclusion of the value of the corpus of a trust in a decedent's gross estate where "the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke." Here again, it is settled that the value of the corpus is not includable in the gross estate unless the power to alter, amend, or revoke extends *194 to corpus. See also . Respondent has cited a number of cases in support of his position, with particular reliance on *1227 ; certiorari denied, . However, in each of these, including the Chase National Bank case, the retained power extended to corpus, enabling the settlor, as was said in , "to make a complete revision of all he has done." That is not the situation here, where the power to alter by appointment is not only limited but is restricted to income. In affirming the Board in its decision on this issue raised upon substantially similar facts, in , the Circuit Court for the District of Columbia said: * * * we think it perfectly obvious, as the Board found, that in the trust agreement Mrs. Helmholz divested herself completely of legal title to the shares contributed by her to the trust estate and merely reserved a life interest in the income and a limited power of appointment respecting it; and if we are correct in this conclusion, if follows that the value of the shares of stock which she transferred to the trust some nine or ten years before her death could not legally be included*1228 in determining the amount of her estate. * * * [Emphasis supplied.] There is no ground, consequently, for inclusion of the value of the corpus of this trust in decedent's gross estate under either section 302(c) or section 302(d) of the Revenue Act of 1926. In order to take care of the issues conceded by the parties, Decision will be entered under Rule 50.