Morton v. Commissioner , 23 B.T.A. 236 ( 1931 )

MARMADUKE B. MORTON, ADMINISTRATOR, ESTATE OF JOHN S. LOGAN, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Morton v. Commissioner

Docket No. 32241.

United States Board of Tax Appeals

23 B.T.A. 236; 1931 BTA LEXIS 1906;

May 14, 1931, Promulgated

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">*1906 1. ESTATE TAX. - The amount of inheritance tax paid by the estate to the State of Missouri allowed as a credit, subject to the limitation contained in section 301(b) of the Revenue Act of 1924.

2. Land owned by the decedent in Missouri at the time of his death is not subject to the expenses of administration of the estate, and the value thereof is not includable in the gross estate. Crooks v. Harrelson,282 U.S. 55">282 U.S. 55.

3. The value of land in Missouri, held by decedent and his wife at the time of the death of the decedent as tenants by the entirety, is properly includable in the gross estate of the decedent. Tyler v. United States,281 U.S. 497">281 U.S. 497.

4. Insurance on the life of the decedent which is payable to one other than the executor of the estate of the decedent, but which is, in fact, receivable by or for the benefit of the estate, is includable in the gross estate of the decedent.

Walter E. Barton, Esq., and Raymond C. Cushwa, Esq., for the petitioner.

L. S. Pendleton, Esq., for the respondent.

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MCMAHON

">*237 This is a proceeding for the redetermination of an alleged deficiency in estate">*1907 taxes in the amount of $1,713.47 on the estate of John S. Logan, Jr., who died on March 17, 1925.

It is alleged in the petitioner that the respondent erred in:

(1) Finding a deficiency against the petitioner in the amount of $1,713.47, or in any amount whatsoever;

(2) Finding that the real estate of the value of $10,158.90, which decedent owned in the State of Missouri at the date of his death, constituted a part of his gross estate;

(3) Finding that the proceeds of certain life insurance policies, amounting to $25,444.69, constituted a part of the gross estate;

(4) Finding that certain real estate of the value of $8,500 which the decedent and his wife owned as tenants by the entireties, constituted a part of the gross estate;

(5) Failing to give credit for the amount of inheritance taxes paid by decedent's estate to the State of New York; and

(6) Failing to give credit for certain additional inheritance taxes paid by decedent's estate to the State of Missouri.

FINDINGS OF FACT.

The decedent, John S. Logan, Jr., died on March 17, 1925.

At the time of decedent's death, he owned certain real estate situated in the State of Missouri of the value of $10,158.70. ">*1908 The respondent, in computing the estate tax, included this real estate as a part of the gross estate of decedent.

Prior to his death the decedent took out upon his own life eleven policies of insurance in which his wife, Caroline Logan, was named as beneficiary. Later the decedent changed the beneficiary named in these policies from his wife to the Bartlett Trust Company, as ">*238 trustee under his will. The Bartlett Trust Company was also duly qualified as the executor of the decedent's estate.

After decedent's death, the proceeds of the foregoing insurance policies, amounting to $25,444.69, were paid to the Bartlett Trust Company as trustee. These proceeds were not inventories as part of the estate of the decedent, but the respondent included this amount as part of such gross estate.

Under the terms of his will, dated November 13, 1918, the decedent, after bequeathing certain household goods to his wife, left the entire rest, residue, and remainder of his estate to the Bartlett Trust Company of St. Joseph, Mo., in trust, to have and to hold to certain used and trusts. He directed the Trust Company to pay all debts against his estate; to set apart to his wife, ">*1909 Caroline Logan, property to the value of a child's share in lieu of dower; to pay over to Caroline Logan quarterly, each year, from the income or corpus of the estate, a sum sufficient for the support, maintenance and education of his minor children; to pay over specified sums to the children as they became of age, and, when the youngest child reached the age of 21 years, to distribute the balance of the trust estate among the children equally. The decedent, in his will, expressed his desire that there should be no administration on his estate, but appointed his wife executrix in the event that administration should become necessary. By a codicil to his will, dated June 16, 1919, the decedent appointed the Bartlett Trust Company as executor in the place and stead of Caroline Logan. During the course of administration, the Bartlett Trust Company, trustee, advanced to the Bartlett Trust Company, executor, a total of $16,879.32 for the payment of administration expenses and demands against the decedent's estate.

In addition to the directions given the Bartlett Trust Company to pay decedent's debts and distribute the balance of his estate, the trustee was also authorized:

* * * ">*1910 to demand, sue for and collect all debts and claims that may be owing to my estate; to manage, control and preserve and care for all properties real and personal belonging to my estate; to sell, convey, assign, transfer, mortgage, pledge, encumber, or otherwise dispose of any property belonging to my estate; to invest and reinvest the monies that may come into its hands and I direct that said Trust Company shall render to my said wife annually while the trust estate continues a true account of all receipts and disbursements of the trust funds and a statement of the condition of the trust estate. * * *

On July 1, 1909, a certain tract of land situated in St. Joseph, Mo., known as Lot No. 1 in Brady's Addition, was conveyed to the decedent and his wife by deed, which reads in part as follows:

This deed made and entered into this 1st day of July, 1909, by and between Louis Huggins, a single man, of the County of Buchanan, State of Missouri, ">*239 party of the First Part, and John S. Logan, Jr., and Caroline Logan his wife, of the County of Buchanan, State of Missouri, parties of the Second Part:

Witnesseth, That the said party of the First Part, in consideration of the sum">*1911 of One and no/100 Dollars, to him paid by the said parties of the Second Part, the receipt of which is hereby acknowledged, do by these presents Grant, Bargain and Sell, Convey and Confirm unto the said parties of the Second Part their heirs and assigns, the following described Real Estate, lying situate and being in the County of Buchanan and State of Missouri, to wit: All of Lot numbered one (1) in Brady's Addition as addition to the City of St. Joseph,

To Have and to Hold the same, with all and singular the rights, privileges, immunities and appurtenances thereto belonging or in anywise appertaining unto the said parties of the Second Part and their heirs and assigns Forever * * *.

The value of this land at the date of decedent's death was $2,000.

On May 18, 1911, a certain tract of land situated in St. Joseph, Mo., known as Lots 1 and 2 in Huggins Terrace, was conveyed to the decedent and his wife by deed, which reads in part as follows:

This deed made and entered into this 18th day of May, 1911, by and between William Huggins, a single man, of the County of Buchanan, State of Missouri, party of the First Part, and John S. Logan, Jr., and Caroline Logan, his wife, of">*1912 the County of Buchanan in the State of Missouri, parties of the second Part:

Witnesseth, That the said party of the First Part, in consideration of the sum of Twelve Hundred Dollars, to him paid by the said parties of the Second Part, the receipt of which is hereby acknowledged, do by these presents, Grant, Bargain and Sell, Convey and Confirm unto the said parties of the Second Part and unto the survivor of them and their assigns, the following described Real Estate situate and lying and being in the County of Buchanan and State of Missouri, to wit: All of lots numbered one (1) and two (2) in Huggins Terrace, an addition to the City of St. Joseph, reserving for the use of William Huggins, his heirs and assigns, a right of way north and south over and across the East 30 feet of said lots one (1) and two (2), also reserving for the use of William Huggins, his heirs and assigns, a right of way East and West over and across the South twenty (20) feet of the West one hundred twenty (120) feet of the East one hundred fifty (150) feet of lot one (1) Huggins Terrace,

To Have and to Hold the same with all and singular the rights, privileges, immunities and appurtenances thereto belonging">*1913 or in anywise appertaining unto the said parties of the Second Part as tenants by the entirety and unto the survivor of them and their assigns Forever. * * *

The value of this land at the date of the death of the decedent was $6,500.

In determining the deficiency the respondent included as a part of the decedent's gross estate the sum of $8,500 representing the value of the above two tracts of land.

An original inheritance tax amounting to $551.32 was paid to the State of Missouri by the decedent's estate, which respondent allowed as a credit in determining the estate tax. Subsequently, an additional inheritance tax of $1,456.04 was paid to the State of Missouri by decedent's estate. The respondent, in computing the deficiency ">*240 in question, did not allow any credit for this additional payment of inheritance tax.

By order dated January 29, 1927, the Probate Court of Buchanan County, Missouri, revoked the letters testamentary issued to the Bartlett Trust Company, as executor of the will of John S. Logan, Jr., deceased, and on the same date letters of administration de bonis non cum testamento annexo were issued to M. B. Morton, upon the estate of John S. ">*1914 Logan, Jr., deceased.

OPINION.

MCMAHON: At the hearing the petitioner waived the contention with regard to inheritance taxes paid to the State of New York. This assignment of error need, therefore, not be considered.

In his brief, the respondent conceded that the petitioner is entitled to a credit of $1,456.04, additional inheritance tax paid to the State of Missouri subject to the limitation contained in section 301(b) of the Revenue Act of 1924, which provides:

The tax imposed by this section shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or Territory or the District of Columbia, in respect of any property included in the gross estate. The credit allowed by this subdivision shall not exceed 25 per centum of the tax imposed by this section.

Upon the redetermination, the petitioner will be credited with the full amount of the additional inheritance tax paid to the State of Missouri, $1,456.04, provided that amount, together with the amount of inheritance taxes paid and already credited by the respondent, does not exceed 25 per centum of the tax as computed in the light of the decision in this proceeding. ">*1915 If such total is greater than 25 per centum of the estate tax, then petitioner will be credited with so much of the additional inheritance tax as is not in excess of 25 per centum of the estate tax computed in accordance with this decision.

There remain for consideration three assignments of error. The applicable provisions of the Revenue Act of 1924 are contained in sections 301 and 302. Section 301 provides:

(a) In lieu of the tax imposed by Title IV of the Revenue Act of 1921, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this Act, whether a resident or nonresident of the United States. * * *

Section 302 provides:

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, wherever situated -

">*241 (a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses">*1916 of its administration and is subject to distribution as part of his estate;

* * *

(e) To the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than a fair consideration in money or money's worth: * * * Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of point tenants;

* * *

(g) To the extent of the amount receivable by the executor as insurance under policies taken">*1917 out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life.

(h) Subdivisions (b), (c), (d), (e), (f), and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relinquished before or after the enactment of this Act.

The respondent included in the gross estate of the decedent certain real estate situated in the State of Missouri which decedent owned at the date of his death and which had a value of $10,158.70 at such date. Real estate situated in Missouri is not subject to the expenses of administration of the estate and, therefore, under section 302 of the Revenue Act of 1924, is not to be included in the gross estate. .

The respondent included in the gross estate of the decedent two tracts of land which had been transferred by deed to the decedent and his wife in 1909 and 1911. It is the contention of">*1918 the petitioner that the decedent and his wife held both tracts of land as tenants by the entirety and that respondent erred in including them in the gross estate.

In his answer the respondent admitted that both tracts of land were held by the decedent and his wife as tenants by the entirety. At the hearing respondent raised a question as to whether one of the tracts was held by decedent and his wife as tenants by the entirety and the two deeds were submitted in evidence. The respondent was allowed to amend his answer by striking from the answer that ">*242 part admitting that the land was held by the decedent and his wife as tenants by the entirety. However, in his brief the respondent states: "At the time of his death, the decedent and his wife held as tenants by the entireties two parcels of real estate, * * *" and contends that his action in including both tracts in the gross estate of the decedent was proper, relying upon .

There is no doubt in our minds that both tracts of land were held by the decedent and his wife as tenants by the entirety. ">*1919 Under the deeds, parts of which we have set forth in our findings of fact, the decedent and his wife both became seized of the property. The law in Missouri is settled that a deed to husband and wife in the usual form creates an estate by the entireties. ; ; ; ; ; ; .

There has been no showing that any part of the land constituting the tenancy by the entirety had, prior to the creation of the tenancy, ever belonged to the surviving spouse, and, by the express provisions of section 302 of the Revenue Act of 1924, the full value of the property held by the decedent and his wife must be included in the gross estate of the decedent for estate-tax purposes. ; ; ">*1920 ; ; and . The respondent did not err in including in the gross estate of the decedent the full value of the land held at the time of his death by him and his wife as tenants by the entirety.

We now turn to a consideration of the final question we are called upon to decide. At some time not disclosed by the record the decedent took out upon his own life eleven policies of insurance in which his wife, Caroline Logan, was named as beneficiary. Later the decedent changed the beneficiary named in these policies to the Bartlett Trust Company, as trustee under his will. In his will the decedent expressed his desire that there should be no administration on his estate, but appointed his wife executrix in the event that administration should become necessary. By a codicil to his will the decedent appointed the Bartlett Trust Company as executor in the place and stead of Caroline Logan. Thus, under the will of the decedent, the Bartlett Trust Company was the executor and also trustee. As trustee, the Bartlett">*1921 Trust Company held all of the estate of the decedent except certain household goods which were specifically bequeathed to Caroline Logan. The decedent in his will directed that the trustee first pay all the debts against the estate and then, at a later time, distribute the balance of the trust estate. As trustee, ">*243 the Bartlett Trust Company duly received the amount of $25,444.69 as proceeds of the insurance policies and during the course of administration it paid over a total of $16,879.32 out of the trust estate to the Bartlett Trust Company, executor, for the payment of administration expenses and demands against the decedent's estate. The respondent included the insurance proceeds as part of the gross estate and this, the petitioner contends, was error.

It will be noted that subdivision (g) of section 302 of the Revenue Act of 1924 requires that there be included in the gross estate the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life, and also the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life. Since the total">*1922 amount of proceeds of the insurance is under $40,000, none of it could be included in the gross estate under the second provision of section 302(g), so we have only to deal with the first provision of that section.

The petitioner contends that the Bartlett Trust Company, in its capacity as executor, was a different legal entity from what it was as trustee under the will, and that the proceeds of the life insurance policies payable to the trustee are not to be included in the gross estate. Petitioner contends that section 302(g) clearly and unambiguously includes in the gross estate only the amount of insurance receivable by the executor and that the respondent, in taxing these proceeds, extended the application of section 302(g) beyond the intention of Congress.

The respondent contends that subdivision (g) of section 302 of the Revenue Act of 1924 must be construed in the light of subdivision (a) of that section, and that the real test as to whether or not the insurance proceeds in question are taxable is not whether the insurance was in terms payable to or receivable by a person other than the decedent's executor, but whether it was subject to the payment of debts and expenses">*1923 and therefore receivable for the benefit of the decedent's estate.

Prior to the enactment of the Revenue Act of 1918 there were no provisions in the Federal estate-tax law corresponding to subdivision (g) of section 302 of the Revenue Act of 1924. Such provisions first appear in subdivision (f) of section 402 of the Revenue Act of 1918. The reasons for the insertion of the clause expressly relating to insurance are explained in the report of the Committee on Ways and Means (Report 767, p. 22) submitted to Congress while the Revenue Bill of 1918 was under consideration. This report reads, in part, as follows:

The gross estate section has been amended to specifically include (1) insurance receivable by the executor under policies taken out by the decedent upon ">*244 his own life and (2) insurance in excess of $40,000 receivable by all specific beneficiaries under policies taken out by the decedent upon his own life. (1) Insurance payable to the executor or to the estate is now regarded as falling within section 202(a) of the existing statute and this construction of the existing statute is now written into the new bill for the sake of clearness. The amendment will serve">*1924 the further purpose of putting on notice those who acquaint themselves with the statute for the purpose of making more definite plans for the disposition of their property. (2) The provision with respect to specific beneficiaries has been included for the reason that insurance payable to such beneficiaries usually passes under a contract to which the insurance company and the individual beneficiary are the parties in interest and over which the executor exercises no control. Amounts passing in this way are not liable for expenses of administration or debts of the decedent and therefore do not fall within the existing provisions defining the gross estate. It has been brought to the attention of the Committee that wealthy persons have and now anticipate resorting to this method of defeating the estate tax. Agents of insurance companies have openly urged persons of wealth to take out additional insurance payable to specific beneficiaries for the reason that such insurance would not be included in the gross estate. A liberal exemption of $40,000 has been included and it seems not unreasonable to require the inclusion of amounts in excess of this sum.

It is reasonable to assume">*1925 that Congress enacted the corresponding section of the Revenue Act of 1924 for the same purpose that it enacted section 402 of the Revenue Act of 1918. It therefore seems clear to us that Congress, in enacting section 302 of the Revenue Act of 1924, intended that there should be included in the gross estate of a decedent the full amount of his life insurance which after his death is subject to the payment of charges against his estate and the expenses of its administration, and which is subject to distribution as part of his estate, and that it was not the intention of Congress, in enacting subdivision (g) of that section to exempt from taxation life insurance meeting such tests, although in terms payable to some one other than the executor. To otherwise interpret section 302 of the Revenue Act of 1924 would be to allow every testator the power of determining whether his life insurance, amounting to less than $40,000, shall be subject to the estate tax even though it is in fact, subject to charges against the estate, subject to expenses of administration of the estate, and subject to distribution as part of the estate.

In the instant proceeding the proceeds of the insurance policies">*1926 were, under the will of the decedent, subject to payment of the charges against the decedent's estate and the expenses of its administration. It is true that they were not to be distributed by the executor as such, but we believe that under the circumstances they were subject to distribution as part of the decedent's estate within the meaning of the taxing act. Under decedent's will practically all of the estate was placed in the hands of the Bartlett Trust Company, as trustee, for distribution. The evidence discloses that the proceeds of the life insurance policies, amounting to $25,444.69, were mingled with the ">*245 other assets of the trust estate and that a total of $16,879.32 of such commingled funds was paid over by the trustee to the executor to pay administration expenses and demands against the estate. We conclude that the respondent did not err in including in the gross estate of the decedent the amount of $25,444.69, proceeds from the life insurance policies.

Reviewed by the Board.

Judgment will be entered under Rule 50.

MURDOCK concurs in the result only.