Adams v. Commissioner

MABEL G. ADAMS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Adams v. Commissioner Docket No. 101820. United States Board of Tax Appeals 44 B.T.A. 1091; 1941 BTA LEXIS 1232; July 24, 1941, Promulgated *1232 Petitioner in 1936 transferred certain properties in trust, reserving to herself an annuity of $700 per month and disposing of the corpus on her death among her descendants. Held, petitioner did not make a completed gift of the trust properties in 1936 subject to gift tax under section 501 of the Revenue Act of 1932 as amended by section 511 of the Revenue Act of 1934. Ellis D. Bever, Esq., for the petitioner. Gene W. Reardon, Esq., for the respondent. ARUNDELL *1091 The respondent has determined a deficiency of gift tax for the calendar year 1936 in the sum of $300, arising from his determination that petitioner made a completed gift in that year of funds of $128,349.50 which she transferred in trust. Petitioner claims an overpayment of $1,155.34. Two issues are presented: (1) Whether petitioner made a completed gift of all or any part of the funds transferred in trust in 1936, and (2) whether, if it be determined on the first issue that petitioner made a completed gift, she is entitled to any exclusions of $5,000 in computing the tax due thereon. The facts have been stipulated and are found as stipulated. The material portion*1233 of them is set forth hereinafter with our other findings of fact. FINDINGS OF FACT. The petitioner is an individual, residing at Topeka, Kansas. By two instruments, executed on November 6 and December 11, 1936, petitioner transferred certain real and personal properties, having a value of $128,349.50, to the National Bank of Topeka and to a named individual as trustees, to be held in trust by them. The trustees were directed to collect the income from the properties and to pay to petitioner an annuity of $700 per month for her life. It was provided further that the trustees at petitioner's request should purchase and make available to her during her life, rent and taxfree, a home to cost not less than $8,000 or more than $25,000. In the acquisition of the home the trustees were directed to give "due consideration to the wishes and preference" of the petitioner. In addition it was provided by terms of the trust instruments that the trustees should pay out of income or principal such further sum which "in the judgment of the trustees is reasonably necessary *1092 to provide for the comfort, health and well-being" of the petitioner, including the "comforts, pleasures, *1234 entertainment, travel and living" which she had heretofore enjoyed. On petitioner's death the trust corpus was made distributable as follows: (1) Sums of $20,000 each were made payable to Mabel Rae Tod and Mary M. Dougan, daughters of the petitioner, and if either predeceased her, to the living children of the deceased; (2) three-fourths of the remainder was made payable in equal shares to Mabel Rae Todd, Mary M. Dougan, and Bessie E. Robert, or, if they or any of them predeceased petitioner, to their children then living; (3) out of the final one-fourth, $7,000 was to be paid to Raymond E. Adams, or to his children should he predecease petitioner. The remainder was to be placed in trust for Helen Olney Miller, the trustee, to pay to the beneficiary $125 per month for life and such additional amounts as might be necessary for her support. The corpus of this trust was made distributable on the beneficiary's death, or, if she predeceased petitioner, on the latter's death, one-fifth to a named son of Helen Olney Miller and the remaining four-fifths to another of her sons, also named. By additional terms of the instruments the trust was made irrevocable and broad powers of management*1235 and investment were given to the trustees. Provision was made also for the appointment of successor trustees and for an annual accounting of the administration of the trust to the petitioner. Finally, it was provided that any beneficiary contesting the trust instrument through legal proceedings should lose all rights and properties given him therein. The fair market value of the annuity of $700 per month retained by the petitioner at the time of transfer was $49,123.79. The petitioner received $700 per month under the annuity during each of the years 1937, 1938, and 1939. On November 17, 1938, the petitioner filed a gift tax return for the calendar year 1936, reporting as a gift $79,255.71, the value of the properties transferred in trust less the value of the retained annuity. She claimed credits totaling $65,000, including $40,000 specific exemption and five exclusions of $5,000 each. The tax due thereon, which was duly paid by petitioner, was $277.67. In 1939 the Commissioner asserted a deficiency in gift tax of $877.67, which was paid by petitioner on July 28, 1939. The net income of the trust distributable to petitioner during the years following the transfer was*1236 as follows: [1937] $6,017.61 [1938] 5,794.22 [1939] 7,264.76 *1093 OPINION. ARUNDELL: The question before us may be disposed of by decision of the first issue. The gift tax, by familiar principle, may not be applied to gratuitous transfers which are incomplete in nature and will not be consummated, if at all, until some later time. ; ; . Indicia of such incompleted transfers have been given in numerous decisions. ; ; see ; . The factors which are significant here in large measure determine also the applicability of the estate tax to transfers made during life in which the decedent retains some benefit or right of control. ; *1237 ; ; . Examination of the transfer before us discloses that the petitioner's disposition of the corpus of the trust was conditioned on her right to have principal applied when necessary to furnish to her an annuity of $8,400 per year. There remained thus in the petitioner after the 1936 transfer the right to receive portions of the principal of the trust whenever income did not equal that amount. His right pervaded the entire trust corpus and in this circumstance may not be restricted here to only a portion of the trust by assigning a market value to the annuity. The possibility, moreover, that the corpus would be used to furnish the annuity was not remote, as is demonstrated by the failure of the trust income to equal the annuity in any of the years of which proof is made. Cf. ; ; see also *1238 . In these circumstances it may not be said that petitioner has parted finally with her rights in the properties transferred and there was, in consequence, no completed gift in the 1936 transfer. In the instant case, moreover, the principles drawing together in pari materia the estate and gift taxes may appropriately be applied. The latter tax can have no application where, as here, the transfers made were so far incomplete as to compel the inclusion of the transferred properties in the petitioner's estate; the rights and benefits retained by the petitioner in the trust corpus bring it within the scope of the estate tax, see ; , and accordingly the gift tax, which, in so far as it may, has application exclusive of the field of the estate tax, may not be here imposed. ;. *1094 In view of what has been said above, it becomes unnecessary to consider the additional arguments of the petitioner based on other incidents of*1239 the transfer, reserving to petitioner the right to occupy a home purchased with trust funds and to receive from the trustees such income in addition to the annuity as they might consider necessary for petitioner's support. Cf. ; affd., ; . In accordance with the stipulation of the parties, it is held that there is an overpayment of $1,155.34. Decision will be entered under Rule 50.