Pennsylvania Co. for Insurances on Lives & Granting Annuities v. United States

MaddeN, Judge, delivered the opinion of the court. The issue in this estate tax case is whether the Commissioner of Internal Eevenue properly included in the gross estate of the decedent, Edward C. Knight, Jr., certain property transferred by him in trust June 28,1912. The basis of the Commissioner’s action was that under the trust instrument there was a possibility of reverter which could not terminate until decedent’s death and therefore the transfer was intended to take effect at decedent’s death. The trust instrument gave successive life interests to Edward C. Knight, Jr., and to his daughter, Clara W. K. Colford. It then provided for the further disposition of the trust property upon the death of Mrs. Colford under three different described conditions; (1) her death, after [789] Knight’s death, leaving children or descendants of children; (2) her death, in Knight’s lifetime, without descendants; (3) her death, after Knight’s death, without descendants. In situation (1) the property was to go to the descendants living at Mrs. Colford’s death, per stirpes; in (2) it was to go back to Knight; and in (3) it was to go as Knight might have appointed by a testamentary disposition. In fact, Mrs. Colford died before Knight, and left two children, so that no one of the three described conditions covered by the trust instrument occurred.' The consequence was that the trust instrument made no disposition of the property at all except that of the life estates to Knight and Mrs. Colford, in the circumstances which in fact occurred. This may well have been an oversight on Knight’s part. But we think it is not permissible for the court to fill in a complete gap in a deed in order to make a disposition of property which the grantor did not, by his language, make, but which he probably would have made if be had thought of it. It is true that, as shown in finding 11, the Pennsylvania court having supervision of the trust approved a distribution of the property as if it had been covered by the trust deed. But this approval was in response to a petition presented by all interested parties, including the executor of Knight’s estate, and was nothing more than a consent decree. It represents no determination at all by a Pennsylvania court that it is the law of Pennsylvania that complete gaps in a trust deed will be filled by writing into them what would probably have been the intent of the grantor if he had given thought to the matter. We cannot, therefore, agree that the Pennsylvania court’s decree binds the Government, with regard to the taxability of this transaction, or binds this court in this contested case between different parties, to follow the Pennsylvania court’s consent decree. The trust deed made no disposition of the property beyond the two life estates, in the event which occurred, and accordingly, from the time that Mrs. Colford’s life estate was extinguished in 1924, Knight had a life estate by the terms of the deed and a resulting trust of the undisposed [790] of reversion. He was therefore, in equity, the complete owner of the property at the time of his death and the estate tax should apply. If the court should seek to fill the gap in the trust deed with some gift of a remainder to Mrs. Colford’s issue, it still would have the task of formulating the language to be inserted. It must determine whether to make, for the creator of the trust, a gift of a remainder to the descendants of Mrs. Colford who should be living at her death, or to those who should be living at the death of Knight, the time at which the interest of Mrs. Colford’s descendants would take effect in possession. A reasonable construction of the trust instrument is that if Knight had made provision for the event which in fact occurred, he would have provided, as he did in the parts of the deed which he wrote, that the interests of the descendants of Mrs. Colford should not vest until they vested in possession, upon his death. For instance, if one of the two daughters of Mrs. Colford who survived her had died before Knight, leaving a child, and creditors, Knight’s intention, as shown by the provisions of his deed, would have been that the child should get the property, when Knight died, and not the creditors. Family settlements in general keep the interests contingent, SO' that those of the family who are alive when the time for enjoyment arrives may not find their inheritance has been dissipated without ever being enjoyed. It is reasonable theref oi’e to conclude that if a provision is to be written into the deed it should be that upon the expiration of the life estates of both Knight and his daughter, no matter which died first, the trustee should “pay, assign, transfer and set over the principal to and among the children of the said Clara W. K. Colford, then living, and the descendants of any child then dead, share and share alike, per stirpes, upon the principal of representation.” The quoted language is the language actually used by Knight for one of the situations which he foresaw and provided for. If his deed is so read, the gift would have failed if the two daughters who survived Mrs. Colford had died without issue before Knight died. Until that question was resolved by Knight’s death, he had an equi [791] table reversion in the property, and an estate tax was payable thereon upon his death. The decree of the Pennsylvania court, even if it had been a decision in a contested case, would have been of no assistance in this latter question of construction. The daughters who survived Mrs. Colford in 1924 survived Knight in 1936 and the court would have had no occasion, after Knight’s death, to determine whether their interests had vested in 1924 or not until 1936. It follows that the petition should be dismissed. It is so ordered. Jones, Judge; and Whaley, Chief Justice, concur.