Estate of Joseph P. Grace, Deceased, Michael P. Grace, Ii, Joseph Peter Grace, Jr., and Charles MacDonald Grace, Executors v. The United States , 393 F.2d 939 ( 1968 )

OPINION

PER CURIAM:

This case was referred to Trial Commissioner Mastín G. White with directions to make findings of fact and recommendation for conclusions of law. Following a trial on the merits, the commissioner filed an opinion and report, and the case was submitted to the court on the briefs of the parties. After hearing oral argument of counsel, we remanded the case to the commissioner for determination “whether the decedent [Joseph P. Grace] was motivated in the setting up of the Joseph Grace and the Janet Grace trusts, in December 1931, by the desire to avoid and lessen estate taxes.” A further trial was held and thereafter the commissioner filed his supplemental report and a memorandum opinion.

After hearing additional oral argument and considering the briefs and exceptions of the parties, we have determined that the findings of fact made by the commissioner are amply supported by the record and that where such findings consist of inferences based on circumstantial evidence, the inferences may reasonably be drawn from the record. The court is also in agreement with the opinions of the trial commissioner, as modified and combined into a single opinion, and hereby adopts the same, together with his findings of fact, as the basis for its judgment in this case.^* Therefore, plaintiffs are entitled to recover and judgment is entered to that effect with the amount of recovery to be determined pursuant to Rule 47(c).

Commissioner White’s opinions, as modified and unified by the court, are as follows:

The primary question to be decided in this case is whether the Internal Revenue Service acted correctly in adding to the gross estate of Joseph P. Grace, who died on July 15, 1950, the sum of $1,116,888.-62, representing the value of a trust that had been created on December 30,1931.

The Internal Revenue Service purported to act under the authority of Section 811(c) of the Internal Revenue Code of 1939, as amended.¹ That section, at the time of the decedent’s death, provided (among other things) that the value of the gross estate of a decedent should be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, “To the extent of any interest therein of which the decedent has at any time made a transfer * * * by trust or otherwise * * * under which he has retained for his life * * * the possession or enjoyment of, or the right to the income from, the property * * *.”

It is clear that under the provisions of the trust of December 30, 1931, the decedent for his lifetime had the right to the income from the income-producing portion of the trust property, and that he was entitled to the possession and enjoyment of the remainder of the trust property. On the other hand, the decedent, at least in form, was not the settlor of the trust, he had not directly “made a transfer” of any property or interest in property to the trust, and, strictly speaking, he had not “retained” any beneficial interest in the trust property but, rather, had obtained such interest by virtue of the instrument creating the trust. The person who executed the instrument creating the trust of December 30,1931, and who directly transferred to that trust all the property covered by it,- was the decedent’s wife, Janet Grace. (For the sake of convenience, the trust of December 30, 1931, will usually be referred to hereafter in the opinion as “the Janet Grace trust.”)

The defendant contends that the decedent, by himself creating on December 15, 1931, a reciprocal trust which conferred on Janet Grace benefits similar to those which were conferred on the decedent by the Janet Grace trust, furnished consideration for the creation of the Janet Grace trust; and, therefore, that for estate-tax purposes the decedent and Janet Grace should be switched or crossed as settlors and the decedent should be regarded as having been in substance the settlor of the Janet Grace trust. This contention is based upon a judicially developed rule that was first announced in the case of Lehman v. Commissioner of Internal Revenue, 109 F.2d 99 (2d Cir. 1940), cert. denied 310 U.S. 637, 60 S.Ct. 1080, 84 L.Ed. 1406.

The facts in the Lehman case were stipulated by the parties. According to the stipulation, two brothers, Harold M. and Allan S. Lehman, owned equal shares in certain stocks and bonds. Harold agreed to transfer his share in trust for Allen and the latter’s issue, in consideration of Allan transferring his share in trust for Harold and Harold’s issue, and trusts were created in accordance with the agreement. The income from the trust property transferred by Harold was to be paid to Allan for his life, with the remainder to Allan’s issue, and Allan had the right to withdraw not to exceed $150,-000 of the principal. Similarly, the income from the trust property transferred by Allan was to be paid to Harold for his life, with the remainder to Harold’s issue, and Harold had the right to withdraw up to $150,000 of the principal. Harold later died, and the court was called upon to decide whether trust property transferred by Allan was taxable as part of Harold’s estate. This question was answered in the affirmative. The court said (109 F.2d at pp. 100-101) that Harold, by transferring his share of the stocks and bonds in trust for the benefit of Allan and the latter’s issue, had “paid for and brought about” the transfer by Allan of his share of the stocks and bonds in trust for the benefit of Harold and Harold’s issue; and, therefore, that Allan’s transfer was in substance a transfer by Harold, so as to make the property so transferred part of Harold’s taxable estate.

There are two divergent views of the precise proposition that the Lehman case stands for, each espoused in several cases. Since in this case the same result is reached under either view, we have not felt it necessary to choose between the two lines of cases. Each shall be considered in turn.

According to one line of cases, the crucial factor in the Lehman case was that, under the agreed facts, Harold Lehman had furnished consideration for —i. e., he had “paid for and brought about” the transfer of property by Allan Lehman in trust for the benefit of Harold Lehman and the latter’s issue. In re Lueders’ Estate, 164 F.2d 128, 133-134 (3d Cir. 1947); Newberry’s Estate v. Commissioner of Internal Revenue, 201 F.2d 874, 877, 38 A.L.R.2d 514 (3d Cir. 1953); McLain v. Jarecki, 232 F.2d 211, 213 (7th Cir. 1956); Tobin v. Commissioner of Internal Revenue, 183 F.2d 919 (5th Cir. 1950), cert. denied, 340 U.S. 904, 71 S.Ct. 280, 95 L.Ed. 654. See, also Estate of Lindsay, 2 T.C. 174 (1943); Guenzel’s Estate v. Commissioner of Internal Revenue, 258 F.2d 248 (8th Cir. 1958). In the present case, it becomes necessary, under the rule followed in the above-cited cases, to determine whether the decedent by creating the trust of December 15, 1931, was furnishing consideration for — i. e., whether he was paying for — the subsequent creation of the Janet Grace trust on December 30, 1931. This is a question of fact, which involves an inquiry into the element of motivation. The facts show that when decedent created the Joseph Grace trust, he was not paying for the transfer of the property covered by the Janet Grace trust and that when Janet Grace made such transfers to the Janet Grace trust, she was not induced or caused to do so by reason of the previous establishment of the Joseph Grace trust by the decedent.

Unfortunately, it is necessary to rely largely on circumstantial evidence in making the factual determination that is crucial in the disposition of this case, as both the decedent and Janet Grace were dead at the time of the trial. Consequently, it will be necessary to outline in considerable detail the known facts which appear to be pertinent in drawing inferences with respect to the motivation which led the decedent and Janet Grace to create the trusts of December 15 and 30, 1931.

The decedent and Janet Grace were married in August 1908. Five children, three sons and two daughters, were born to them. One of the daughters died in 1935, but the other four children were living at the time of the trial.

The decedent was a man of great wealth at the time of his marriage to Janet Grace and thereafter. Janet Grace, on the other hand, had no wealth or property of her own at the time of her marriage to the decedent, and she did not thereafter inherit any substantial wealth. However, Janet Grace acquired the ownership of extensive property and financial interests during her marriage to the decedent as the result of transfers which the decedent made to her, either directly or indirectly. For example, when the decedent on April 5,1911, paid the purchase price for and acquired a 167-acre farm on Long Island for the purpose of developing it into a homestead for the family, he caused the legal title to be vested in Janet Grace. Thereafter, the decedent proceeded at great expense to convert the acreage into a country estate for use as the family home. The property was called Tulla-roan, and it included among the numerous improvements a 65-room colonial-style residence for the family. Tullaroan became the home of the decedent and Janet Grace in about 1911, and it continued to be their home for the remainder of their lives.

There is in the record evidence concerning 24 transfers of property and financial interests by the decedent to Janet Grace during the period between April 19, 1917 and May 10, 1929. One of these transfers involved 3,000 shares of stock in the Ingersoll-Rand Company having a book value of $300,000, and there were 9 additional instances where property having a book value of $100,000 or more was transferred by the decedent to Janet Grace.

The record also contains evidence regarding the creation by the decedent, during the period between August 26, 1920 and June 5, 1930, of 26 trusts for the benefit of his children. While in most instances the properties transferred by the decedent to these various trusts had relatively modest book values, the decedent provided 5 of the trusts with properties having book values in excess of $100,000 for each trust.

In addition, the record contains evidence concerning five instances during the period between August 26, 1920, and March 31, 1929, when Janet Grace made transfers of assets to or for the benefit of the decedent or their children. These incidents involved transfers of properties having book values ranging all the way from $3,860.15 to $613,344.32. It is interesting to note that the largest of these tranfers, which was shown by the record to have been a gift from Janet Grace to the decedent, in effect involved a retrans-fer by Janet Grace to the decedent of property which the decedent had transferred to her in the first instance. What Janet Grace transferred to the decedent in that instance was stock in a personal holding company which had been set up on behalf of Janet Grace to hold valuable corporate shares which the decedent had previously transferred to Janet Grace.

The decedent exercised supervision and control over, and he made the decisions that were involved in the management of, the business affairs of the family. In performing this function, he made the decisions regarding the management and disposition of the property and financial interests that were in the ownership of Janet Grace. The latter did not concern herself with business matters, but relied on her husband’s judgment as to such matters. Janet Grace’s time and attention were devoted to her home and to society, music, the theater, the arts, and civic affairs. When the decedent decided that some formal action by Janet Grace was required in connection with the management or disposition of a piece of property or a financial interest that was in her ownership, the decedent customarily would have the appropriate instrument prepared for his wife’s signature, and he would then have her execute such instrument. Therefore, although there is no direct evidence, in the record relative to the circumstances that were involved in the transfers of assets by Janet Grace previously mentioned, it is reasonable to infer that such transfers were made by Janet Grace in accordance with plans devised by the decedent.

In managing the business affairs of the family, including the property and financial interests that were in the ownership of Janet Grace, the decedent utilized the services of the Customers’ Securities Department of W. R. Grace and Company to assist him by handling the details that were involved in carrying out his decisions.

The events that led directly to the creation by the decedent of the trust dated December 15, 1931, and to the creation of the Janet Grace trust on December 30, 1931, began in early December of 1931, when the decedent conferred with J. Morden Murphy, head of the Customers’ Securities Department of W. R. Grace and Company, concerning the creation of additional trusts by the decedent and Janet Grace. The decedent believed that a new gift tax would probably be enacted and become effective early in 1932, and he had decided that additional trusts for the benefit of the family should be created prior to the close of 1931 in order to avoid paying the new gift tax in connection with transfers of assets to such trusts. Mr. Murphy furnished to the decedent balance sheets that were maintained for the decedent and Janet Grace, showing the capital assets in their respective ownerships. The decedent, in consultation with Mr. Murphy, selected the various properties in his ownership and in the ownership of Janet Grace that should be included in the trusts that were to be created by the decedent and Janet Grace. At the time of the conference with Mr. Murphy, the decedent had in his possession drafts of trust instruments that were to be executed by the decedent and Janet Grace, except for the listing of the properties that were to be included in the respective trusts.

Following the conference mentioned in the preceding paragraph, and in accordance with the plan devised by the decedent, he executed on December 15, 1931, a trust instrument which created a trust that will be referred to hereafter in the opinion as “the Joseph Grace trust.” William R. Grace, William G. Holloway, and the decedent himself were named in the instrument as trustees of the Joseph Grace trust. The trustees were directed to pay the income from the trust to Janet Grace during her lifetime, and also to pay to her any amounts of the principal which a majority of the trustees might deem advisable. Janet Grace was given the power to designate, by will or deed, the manner in which the trust estate remaining at the time of her death should'be distributed to or for the benefit of the decedent and their children.

In connection with the execution of the trust instrument on December 15, 1931, the decedent transferred to the Joseph Grace trust blocks of the capital stock of three corporations, several parcels of real estate, and a one-fourth undivided interest in a certain joint venture which, at the time, owned a tract of land, a number of real estate mortgages, other receivables, cash, and 10,620 shares of common stock in the Ingersoll-Rand Company.

Fifteen days after the creation of the Joseph Grace trust by the decedent, Janet Grace on December 30, 1931, acting in accordance with the plan of the decedent previously mentioned, executed the trust instrument which created the Janet Grace trust. William R. Grace, William G. Holloway, and Janet Grace were named as the trustees of the Janet Grace trust. Under the provisions of this trust, the trustees were to pay the income from the trust property to the decedent during his lifetime, together with any amounts of the principal which a majority of the trustees might deem advisable. Also, the trust instrument directed that, during the life of the decedent, he should be entitled to the use and occupancy of the real property that was included in the trust.

In connection with the execution of the trust instrument referred to in the preceding paragraph, Janet Grace on December 30, 1931, transferred to the Janet Grace trust the family homestead, Tullaroan, and 40 shares of stock in a corporation known as Lundy’s Lane Corporation. That corporation was a personal holding company which had been incorporated on behalf of Janet Grace on November 9, 1923. At that time, she received 607 shares of Lundy’s Lane stock in exchange for 12,000 shares of Ingersoll-Rand Company stock, 3,600 shares of W. R. Grace and Company common stock, and 3,040 shares of W. R. Grace and Company preferred stock, all of which had been received by Janet Grace as gifts from the decedent at various times during the years 1917, 1918, 1919, and 1922. Of the 607 shares of stock in Lundy’s Lane Corporation originally owned by Janet Grace, she made a gift of 200 shares to the decedent on March 31, 1929, and the decedent in turn made gifts totaling 100 shares to trusts for his five children (20 shares each) on April 4, 1930. After the creation of the Janet Grace trust on December 30, 1931, Janet Grace continued to own 367 shares of stock in Lundy’s Lane Corporation, the decedent owned 100 shares, the Janet Grace trust owned 40 shares, and the five trusts previously created by the decedent for the benefit of his children owned 20 shares each.

The pattern of creating trusts for the benefit of members of the family, and of transferring assets directly to members of the family, continued during the years that followed the creation of the Joseph Grace trust and the Janet Grace trust in December of 1931. Both the decedent and Janet Grace were involved in such actions.

Janet Grace died on December 31, 1937, at the age of 53 years. The Joseph Grace trust terminated with the death of Janet Grace. The estate of Janet Grace filed a Federal estate tax return in which the Janet Grace trust was disclosed and reported as a nontaxable transfer by Janet Grace. Following an examination of the return by the Internal Revenue Service, the IRS asserted a deficiency on the ground that the Joseph Grace trust and the Janet Grace trust were reciprocal. Negotiations were then conducted between representatives of the Internal Revenue Service and representatives of the estate of Janet Grace. During the course of these negotiations, the representatives of the estate countered the contention of the Internal Revenue Service by contending that the gross estate should be adjusted by reductions in the values, as shown on the return, of certain blocks of corporate stock owned by Janet Grace at the date of her death, and by elimination from the assets shown on the return as Janet Grace’s property of certain household effects which (according to representatives of the estate) belonged to the decedent. As a result of the negotiations, the Internal Revenue Service and the estate of Janet Grace entered into a compromise agreement whereby 55 percent of the total appraised value of the corpus of the Janet Grace trust at the time of her death was included in her taxable estate, and the estate of Janet Grace abandoned its counter-contentions.

In discussing the issue as to the reciprocity of the Janet Grace trust and the Joseph Grace trust, as indicated in the preceding paragraph, the negotiators believed that the value of the Janet Grace trust was less than the value of the Joseph Grace trust, and that if the doctrine of reciprocal trusts were applicable, it would be the value of the lesser trust (i. e., the Janet Grace trust) that would be taxable as part of the estate of Janet Grace.

The decedent died on July 15, 1950, at the age of 73 years. A Federal estate tax return was filed on behalf of the decedent’s estate. In this return, the transfers of assets by the decedent to the Joseph Grace trust were disclosed as transfers not includible in the decedent’s gross estate, and the Janet Grace trust was reported as a trust under which the decedent held a limited power of appointment. Neither trust was included in the taxable gross estate of the decedent.

Following an examination of the return referred to in the preceding paragraph, the Internal Revenue Service (in addition to several relatively minor adjustments that are not involved in this litigation) added to the decedent’s gross estate the sum of $1,116,888.62, with the following explanation:

Represents reciprocal trust made by decedent’s wife, Janet, on Dec. 31 [sic], 1931, for the benefit of decedent. In-cludible in the gross estate under Section 811(e) of the Internal Revenue Code. A full explanation of this adjustment was given to the estate representatives.

On the basis of this adjustment (and others that are not involved in this litigation), the Internal Revenue Service assessed an estate tax deficiency in the net amount of $363,500.97 against the decedent’s estate. This deficiency, plus assessed interest in the amount of $55,-720.08, was paid by the decedent’s estate on July 14, 1954.

A claim for refund was subsequently filed with the Internal Revenue Service on behalf of the decedent’s estate. Administrative relief was not obtained, and the present action followed.

A very significant fact in connection with the creation of the Joseph Grace trust and the Janet Grace trust was that, as inferred from the evidence in the whole record, neither the decedent nor Janet Grace had any desire to acquire property from the other. Instead, the motivation behind the creation of these trusts was the desire of the decedent to effect transfers of assets among, and for the benefit of, members of the family with a minimum of gift-tax consequences. These transfers were part of a well-established pattern of conduct, managed by the decedent, which began as early as 1911, which continued for many years, and which involved numerous transfers of valuable property and financial interests among the members of the family.

It is certainly obvious that the decedent, when he created the Joseph Grace trust on December 15, 1931, was not motivated by any intention to give consideration for, or pay for, the transfer of Tullaroan by Janet Grace to the Janet Grace trust on December 30, 1931, in order that he might obtain the right to the use and enjoyment of the family homestead. As previously indicated, Tullaroan had been the family homestead since about 1911. The decedent had paid the original purchase price for Tullaroan, although the title had been taken in the name of Janet Grace, and the decedent had subsequently provided the funds that were required for the construction of the buildings and other improvements in developing Tullaroan into a country estate (except that an uncle of the decedent bore the cost of making certain additions to the main residence in about 1920). At the time of the creation of the Joseph Grace trust and the Janet Grace trust, there was no indication that either Janet Grace or the decedent ever expected to leave Tullaroan during their lives; and, in fact, they both continued to live there until they died. There was no change whatever in the use and enjoyment of the homestead by the decedent, Janet Grace, and their children as a result of the transfer of the legal title from Janet Grace to the trustees of the Janet Grace trust. Consequently, there is no basis in the record for a finding that the decedent created the Joseph Grace trust and transferred property to it in order to induce Janet Grace to transfer Tullaroan to the Janet Grace trust so that the decedent might obtain the right to the use and enjoyment of the family homestead.

It would also be unrealistic to find that the decedent, in creating the Josph Grace trust on December 15, 1931, intended to furnish consideration for, or pay for, the transfer by Janet Grace of the 40 shares of stock in Lundy’s Lane Corporation to the Janet Grace trust. That corporation was a personal holding company that had been established on behalf of Janet Grace to hold valuable shares of corporate stock which the decedent himself had previously given to Janet Grace. Actually, as stated heretofore, the inference to be drawn from the whole record is that the decedent, when he created the Joseph Grace trust and transferred property to it, was not motivated by a desire to obtain any sort of property, or interest in property, from Janet Grace. Rather, he was merely continuing a long-established pattern of conduct, and the immediate motivation was a desire to effect transfers of assets among members of the family before an expected new gift tax became effective.

Conversely, there is no basis in the record for a finding that Janet Grace, in transferring Tullaroan and 40 shares of stock in Lundy’s Lane Corporation to the Janet Grace trust, was influenced in any way by the circumstance that the decedent had previously created the Joseph Grace trust. Indeed, there is no evidence in the record that Janet Grace even knew about the creation of the Joseph Grace trust by the decedent. Cf. Hanauer’s Estate v. Commissioner of Internal Revenue, 149 F.2d 857, 859 (2d Cir., 1945), cert. denied 326 U.S. 770, 66 S.Ct. 175, 90 L.Ed. 465. On the basis of the whole record, it is reasonable to infer that Janet Grace executed the instrument creating the Janet Grace trust, and that she transferred property to that trust, merely because the decedent requested that she do so; and that if any explanation at all was given to Janet Grace by the decedent, it was merely to the effect that a probable saving in gift tax could be effected if such actions were taken by Janet Grace before the end of 1931.

However, there remains for consideration a separate line of cases which apply different legal standards in determining the existence of consideration within the meaning of the Lehman case. These cases vary somewhat in the statement of the rule, but basically they look at the objective evidence to determine whether trusts created by husband and wife similar to those involved in this case are reciprocal and taxable. In some of these cases, consideration is inferred from the fact that the properties included in the two trusts are of approximately the same amount, that the trusts are created at or about the same time, and that each grantor gives the other a life estate in income, so that the trust would normally be included in his estate if the grantor had reserved that power to himself. Cole’s Estate v. Commissioner of Internal Revenue, 140 F.2d 636, 151 A.L.R. 1139 (8th Cir. 1944) . Other cases in this group hold that the same inference will be made unless rebutted by clear evidence. Hanauer’s Estate v. Commissioner of Internal Revenue, 149 F.2d 857 (2d Cir. 1945), cert. denied, 326 U.S. 770, 66 S.Ct. 175, 90 L.Ed. 465; Orvis v. Higgins, 180 F.2d 537 (2d Cir. 1950), cert. denied, 340 U.S. 810, 71 S.Ct. 37, 95 L.Ed. 595. In still others, the presence or absence of a motive to avoid the payment of estate taxes has been an important factor in deciding the application of the “reciprocal trust” doctrine. Estate of Louis D. Ruxton, 20 T.C. 487 (1953). The additional evidence heard at the second trial in this case and the facts found therefrom do not change the result when the rule announced in the above-cited cases is applied here.

It appears from the evidence in the augmented record that Joseph P. Grace never said or did anything which would indicate or imply that he was motivated by the desire to avoid or lessen estate taxes when he created the Joseph Grace trust on December 15, 1931 and caused his wife to create the Janet Grace trust on December 30, 1931. The evidence also establishes the existence of other logical and even compelling motives for these transactions.

It is true that there is a great deal of evidence in the record, as supplemented in July 1966, about a plan which was being promoted during the period 1930-1931 by Alan Ross, of the Grace National Bank’s Trust Department, which involved the creation of trusts by a husband and wife for the benefit of each other, and which had, as one of its supposed advantages, the possibility of ultimately minimizing estate taxes. At that time, both the Grace National Bank and W. R. Grace and Company were controlled by the Grace family, of which Joseph P. Grace was generally considered to be the head. The two companies occupied the same building in New York City, and Joseph P. Grace maintained his office in that building.

Alan Ross was very active during the period 1930-1931 in attempting to generate and obtain trust business for the Grace National Bank. He approached many people with respect to the desirability of creating trusts and naming the Grace National Bank as trustee. As one of his promotional activities, Mr. Ross endeavored to interest wealthy married couples of his acquaintance in a plan whereby a husband and wife would each set up a trust for the benefit of the other, each spouse receiving the income for life from the trust created for his or her benefit by the other spouse, and then, upon the death of a spouse-beneficiary, the property in the particular trust would pass to the children of the couple. One of the advantages of his plan, according to Mr. Ross, was that it provided a means whereby a husband and wife could equalize the family income between them and thus effect annual savings in income taxes. Mr. Ross also asserted that his plan could be utilized to minimize estate taxes upon the deaths of the spouses, provided an adequate period of time — and Mr. Ross suggested at least a year — were permitted to elapse between the creation of the two trusts, so as to avoid a subsequent inference by the taxing authorities that the two trusts were created for the specific purpose of avoiding estate taxes.

Details concerning the Ross plan, and regarding Mr. Ross’ efforts to interest various persons in the plan, are set out in the additional findings 37-41.

Alan Ross never discussed the creation of trusts with Joseph P. Grace. However, in some manner that is not shown by the evidence, Mr. Grace learned of Alan Ross’ plan relative to the creation of trusts by a husband and wife for the benefit of each other. Sometime in 1931, Mr. Grace asked Harold J. Roig what the latter thought about the Ross plan. Mr. Roig had formerly been head of the Legal Department of W. R. Grace and Company, was then an official of that company, and occupied an intimate and confidential relationship with Joseph P. Grace. Mr. Grace did not indicate that he was considering the creation of such trusts, and Mr. Roig did not understand that Mr. Grace was consulting him for legal advice. Mr. Roig responded to Mr. Grace’s inquiry by indicating that he had not done any legal research on the plan, but that it was his “curbstone” opinion that Mr. Ross’ plan would not be advantageous in so far as any prospective savings in estate taxes were concerned.

That Joseph P. Grace, in connection with the creation of the Joseph Grace trust and the Janet Grace trust in December 1931, was not attempting to carry out the Ross plan to minimize estate taxes is indicated by the circumstances that Mr. Grace created the Joseph Grace trust on December 15 and caused Mrs. Grace to create the Janet Grace trust 15 days later, or on December 30, 1931, whereas an essential part of the Ross plan to lessen estate taxes was the lapse of a considerable period of time between the creation of trusts by a husband and wife.

Perhaps specific reference should be made to the circumstances that, as indicated in additional finding 46, Joseph P. Grace was aware of the contention made by the Internal Revenue Service after the death of Janet Grace that the Joseph Grace trust and the Janet Grace trust were reciprocal and one of the trusts was includable as part of the taxable estate of Janet Grace; that Mr. Grace preferred not to litigate the issue; and that he instructed counsel for the estate of Janet Grace to go ahead and make the best settlement with the Internal Revenue Service that was possible. Subsequently, a compromise agreement was entered into between the Internal Revenue Service and the estate of Janet Grace whereby 55 percent of the total appraised value of the corpus of the Janet Grace trust at the time of her death was included in her taxable estate. However, Mr. Grace’s willingness to compromise a disputed claim cannot properly be regarded as an admission by him that the Internal Revenue Service was correct in its contention that the two trusts were reciprocal. 4 Wigmore, Evidence § 1061(c) (1940).

The reasonable inference to be drawn from the record as a whole is that Joseph P. Grace was not motivated by a purpose to minimize taxes of any kind in originally deciding to create the Joseph Grace trust and to have his wife create the Janet Grace trust, although Mr. Grace did indicate that, from the standpoint of timing, he desired that the creation of the trusts be accomplished promptly, in December 1931, because it was his view that a gift tax was “coming along any day now.”

Therefore, if we take the view of those cases which impose the burden on the taxpayer to rebut any inference arising under the circumstances of this case that the Janet Grace trust was created in consideration of the trust previously established by the decedent, we think the burden has been met. It has been shown that the two trusts were not created to avoid estate taxes but merely as another step in a long-established pattern of family giving. Thus, since it has been shown that there was substance to the transactions and that they were not merely shams to avoid the imposition of estate taxes, the Janet Grace trust should not be included in the estate of the decedent. Accordingly, plaintiffs are entitled to recover, with the amount of the recovery to be determined pursuant to Rule 47(c).

* The dissenting opinion of Davis, Judge, in which Nichols, Judge, concurs follows the opinion of the Trial Commissioner which has been adopted by the court.

1 . When the decedent died on July 15, 1950, the original language of Section 811 (c), as found in 53 Stat. at pp. 120-121, had been amended by Section 7(a) of the Act of October 25, 1949 (63 Stat. 891, 894).