Colonial Trust Co. v. Commissioner

THE COLONIAL TRUST COMPANY AND WILLIAM FULTON KURTZ, EXECUTORS OF THE WILL OF WILLIAM B. KURTZ, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Colonial Trust Co. v. Commissioner

Docket No. 43073.

United States Board of Tax Appeals

22 B.T.A. 1377; 1931 BTA LEXIS 1957;

April 29, 1931, Promulgated

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In March, 1919, the decedent conveyed to trustees certain property to hold in trust for the benefit of his children and their issue, to pay the income from said property to said children and their issue during a period of twenty-five years, and at the end of that period to divide the corpus among said children and their issue then living. In October, 1919, the decedent, with the consent of the trustees and of the beneficiaries then living and of full age, modified the terms of the trust and also reserved the right further to amend, alter, or modify the trust at any time, in conjunction with the trustees and such of the beneficiaries as might then be living and of full age. In December, 1924, the decedent further modified said trust, pursuant to the power so reserved, and transferred additional property thereto. The decedent died in 1925. Held, that no part of said property transferred to said trustees should be included in the estate of the decedent subject to the Federal estate tax.

James B. Lichtenberger, Esq., for the petitioners.

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

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MARQUETTE

This proceeding is for the redetermination of estate taxes asserted by the respondent against the estate of William B. Kurtz, deceased, in the amount of $8,861.96. The petitioners allege that the respondent erred: (1) Including in the gross estate of the decedent the value of certain securities transferred by the decedent by deed of trust under date of March 27, 1919, and agreements supplemental thereto dated October 1, 1919, and December 31, 1924; (2) in including in the gross estate the interest of the decedent in the estate of Madge Fulton Kurtz, deceased, at $454,738.17 instead of at the amount of $437,467.85; (3) in failing to deduct from the gross estate the amount of $2,261.77 representing additional income taxes assessed against the decedent for the years 1923 and 1924; and (4) in allowing as a deduction from the gross estate, on account of property theretofore taxed as part of the estate of Madge Fulton Kurtz, deceased, only the amount of $340,886 instead of the amount of $426,922.85.

FINDINGS OF FACT.

The petitioners are the duly appointed, qualified, and acting executors of the last will and testament of William B. Kurtz, who died May 18, 1925, a resident of Philadelphia, Pa.

On March 27, 1919, the said William B. Kurtz, The Colonial Trust Company, and William Fulton Kurtz, executed a written instrument as follows:

This INDENTURE, made this twenty-seventh day of March A.D. 1919, by and between William B. Kurtz, of the City of Philadelphia, State of Pennsylvania, hereinafter called "Grantor", party of the first part, and The Colonial Trust Company, a corporation of the State of Pennsylvania, and William Fulton Kurtz, both of the City of Philadelphia, State of Pennsylvania, hereinafter called "Trustees", parties of the second part, WITNESSETH:

WHEREAS, the Grantor desires to make a present gift for the benefit of his children and their issue, as hereinafter specified, and to create a trust with respect thereto;

NOW, THEREFORE, THIS WRITING WITNESSETH that, for and in consideration of the premises and one dollar ($1.00) lawful money of the United States of America, to the Grantor in hand paid by the Trustees, the receipt whereof is hereby acknowledged, the Grantor has assigned, transferred, and set over, and by these presents does assign, transfer, and set over unto The Colonial Trust Company and William Fulton Kurtz, their successors and assigns,

100 shares of General Asphalt Company, Preferred;

100 shares of Philadelphia Company Six Per Cent., Preferred,

100 shares of Commonwealth Power, Railway and Light Company, Preferred,

150 shares of Nashville Railway and Light Company Preferred,

100 shares of St. Joseph Railway, Light, Heat and Power Company, Preferred,

$10,000 par value, United Railways Investment Company, San Francisco 5's,

4,000 par value, Denver City Tramway First Refunding 5's, and

$3,000 par value, Lake Superior Corporation First and Collateral Trust 5's,

IN TRUST, nevertheless, for the uses, intents, persons, and purposes, and upon the conditions following:

IN TRUST, to take, receive, hold, convert, invest, and reinvest the said trust estate and all additions thereto and accumulations thereof, and to collect the rents, issues, and profits therefrom; and

IN TRUST, for and during the period of twenty-five (25) years from and after the date hereof, to pay and distribute the net income therefrom in quarter-yearly installments, and hereinafter specified, in equal shares, unto the children of the Grantor, Alice Kurtz Whiteman, Edith Kurtz Newhall, and William Fulton Kurtz, or their respective surviving spouse, children and issue, as hereinafter specified; and

IN TRUST, upon the expiration of the said period of twenty-five (25) years, then to pay and distribute the principal of the said trust estate unto the persons then entitled to and receiving the net income from the said trust estates; provided, however, that if any person shall become entitled to receive any part of the said principal who shall not have attained the age of twenty-five (25) years, then the said Trustees shall hold, under the terms hereof, such portion of the principal of the said trust estate for the benefit of such person until such time as such person shall be or become at least twenty-five (25) years of age, or until twenty-one (21) years after the decease of the last surviving of the children herein named, whichever shall first occur; the net income therefrom to be paid to such person or to be applied to the maintenance, education, and support of such person until the principal shall becomes payable; and

IN TRUST, if any one of the said children of the Grantor shall die within the said period of twenty-five (25) years, leaving spouse, children, or issue surviving, then the income and principal of the share of such deceased child shall be paid and distributed unto and among the spouse, children and issue of the said deceased child surviving at the time for distribution thereof; the surviving spouse to receive one-fourth (1/4) and the children and issue to receive, per stirpes and not per capita, the remaining three fourths (3/4) thereof, the issue to take by representation the deceased parent's share; and if there shall be no children or issue then surviving, then the surviving spouse shall receive the entire share thereof, and if there shall be no spouse then surviving, then the children or issue shall receive the entire share; provided, however, that the deceased child of the grantor may, by last will and testament, or other writing, direct that the share of such deceased child shall be distributed unto and among any one or more of the persons aforesaid; and

IN TRUST, if any surviving spouse, children or issue of any deceased child of the Grantor shall die prior to any date for distribution hereunder to such deceased spouse, child or issue, then the share of such deceased spouse, child or issue shall be paid, as hereinbefore specified, unto the them surviving spouse, children and issue of such deceased child; and if no spouse, child or issue of any deceased child shall be surviving at the time for distribution hereunder of any part of the share of such deceased child of the Grantor, then such share shall be paid and distributed in equal shares unto and among the then surviving children and issue of deceased children of the Grantor, the issue to take by representation the deceased parent's share; and

My Trustees shall be and they are hereby authorized and empowered in the conversion, investment or reinvestment of the said trust estate, or any part thereof, to make sales thereof at public or private sale, for such prices and upon such terms and conditions as they shall, in their sole discretion, deem for the best interest of my estate, and to invest and reinvest the said trust estate or any part thereof in stocks, bonds or other securities of corporations, in addition to the class of investments known as legal investments, whether such stocks, bonds or other securities shall be now in existence or be hereafter created; provided, however, that not more than five thousand dollars ($5,000.00) shall be invested in the stocks, bonds, or other securities of any single corporation; and provided, also, that each such corporation shall have paid during the period of three years immediately preceding such investment, the interest on its bonds and funded debt, and at least five per cent. (5%) per annum as dividends upon its capital stock; and provided, also, that during the life of the Grantor, all conversions, investments and reinvestments of the said trust estate shall be made when and as directed by him, as evidenced by his written authority, request, approval or consent; and the said TRUSTEES shall not be liable for any loss of principal or income on account of any conversion, investment or reinvestment made in accordance with his written authority, request, approval, or consent, or made after his decease in good faith in accordance with the provisions thereof; and the Trustees shall not be liable for any error in judgment, or any mistake of law or fact, or any other thing hereunder, excepting for gross or wilful negligence or neglect; and the Trustees shall make distribution of net income under the terms hereof quarter-yearly on or before the fifteenth day of the months of March, June, September, and December in each year, the first three instalments to be each in the sum of One Hundred and Fifty ($150.00) Dollars, and the December instalment to be the balance of the net income for the twelve months' period ending December first of such year; and statements or accounts shall be rendered by the Trustees to the beneficiaries hereunder annually during the month of December in each year; and

The Colonial Trust Company and William Fulton Kurtz, the Trustees hereunder, do covenant and agree with William B. Kurtz, the said Grantor, that they will accept, receive, and hold the trust estate aforesaid upon the terms and conditions herein specified, and that if William Fulton Kurtz shall cease to be the President of The Colonial Trust Company during the period of the trusts aforesaid, then The Colonial Trust Company shall be succeeded as Trustee by such other trust company of the City of Philadelphia, as the said William Fulton Kurtz may, in writing designate; and, upon such designation The Colonial Trust Company shall, and it does hereby agree that it will assign, transfer, and set over unto such successor trustee all its rights, title and interest of, in, and to the trust property assigned, transferred, and set over hereunder, and such successor trustee shall have and may exercise the power and authority conferred upon The Colonial Trust Company; and upon the death of William Fulton Kurtz, the Trust Company, which shall then be co-trustee hereunder, shall be the sole trustee hereunder, and shall have and may exercise the power and authority granted and conferred upon the Trustees herein-named; and The Colonial Trust Company shall receive as full compensation for acting as trustee hereunder the sum of five hundred dollars ($500.00), which sum shall be paid upon the execution and delivery hereof, and three per cent (3%) of the income received from the said trust estate to be charged annually and deducted from the income to be distributed in December of each year; and William Fulton Kurtz shall act as trustee hereunder without compensation; and it is hereby covenanted and agreed that the Grantor may, from time to time hereafter, assign, transfer, and set over unto the Trustees aforesaid, other and additional stocks, bonds, securities and other property to be held as a part of the trust estate hereinbefore specified, under and subject to the terms, conditions, and provisions hereinbefore set forth, in the same manner and to the same extent as though such stocks, bonds, securities and other property had been specifically included and mentioned herein.

IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed, sealed and delivered, the day and year first above written.

On October 1, 1919, the said William B. Kurtz, as grantor, the said Colonial Trust Company and William Fulton Kurtz, as trustees, and the said Alice Kurtz Whiteman, Edith Kurtz Newhall, and William Fulton Kurtz, as beneficiaries, executed a written instrument altering, modifying, and amending said written instrument of March 27, 1919. Said written instrument of October 1, 1919, is in the words and figures following:

THIS INDENTURE, made this First day of October, A.D. 1919, by and between WILLIAM B. KURTZ, of the City of Philadelphia, State of Pennsylvania, hereinafter called "the Grantor," party of the first part; The Colonial Trust Company, a corporation of the State of Pennsylvania, and William Fulton Kurtz, both of Philadelphia, Pennsylvania, hereinafter called "Trustees," parties of the second part, and Alice Kurtz Whiteman, Edith Kurtz Newhall, and William Fulton Kurtz, all of the City of Philadelphia, Pennsylvania, hereinafter called "the beneficiaries," parties of the third part, WITNESSETH:

WHEREAS, the Grantor has heretofore executed and delivered to the Trustees, for the benefit of the Beneficiaries, a certain Indenture or Deed of gift, dated March 27, 1919; and

WHEREAS, the Grantor intends from time to time to add to and increase the trust estate thereby created, subject, nevertheless, to the provisions hereof; and

WHEREAS, the parties hereto desire to modify the said deed of gift as hereinafter specified;

NOW, THEREFORE, THIS WRITING WITNESSETH, that for and in consideration of the premises and the addition to or increase of the said trust estate this day made by the Grantor, and the acceptance thereof by the Trustees for the benefit of the beneficiaries, it is covenanted and agreed by and between the parties hereto as follows:

First: That the clause of the said deed of gift of March 27, 1919, reading:

"and to invest and reinvest the said trust estate and any part thereof in stocks, bonds, or other securities of corporations, in addition to the class of investments, known as legal investments, whether such stocks, bonds, or other securities shall be now in existence or be hereafter created; provided, however, that not more than five thousand dollars ($5,000.00) shall be invested in the stocks, bonds, or other securities of any single corporation;"

shall be altered, modified and amended so as to read as follows:

"and to invest and reinvest the said trust estate and any part thereof in stocks, bonds, or other securities of corporations, in addition to the class of investments known as legal investments, whether such stocks, bonds, or other securities shall be now in existence or be hereafter created; provided, however, that not more than fifteen thousand ($15,000.00) shall be invested in the stocks, bonds, or other securities of any single corporation;"

Second: That the clause of the said deed of gift of March 27th, 1919, reading as follows:

"and the Trustees shall make distribution of net income under the terms hereof quarter-yearly on or before the fifteenth day of the months of March, June, September and December in each year, the first three instalments to be each in the sum of one hundred and fifty ($150.00) Dollars and the December instalments to be the balance of the net income for the twelve months' period ending December first of such year;"

shall be altered, modified, and amended so as to read as follows:

"and the Trustees shall make distribution of net income under the terms hereof quarter-yearly on or before the fifteenth day of the months of March, June, September, and December in each year, the first three instalments to be each in the sum of five hundred dollars ($500.00), and the December instalment to be the balance of the net income for the twelve months' period ending December first of each year;"

Third: That the Trustees shall be and they are hereby authorized, empowered and directed to keep and maintain all uninvested funds of the said trust estate on deposit with The Colonial Trust Company, any law, usage, or custom to the contrary notwithstanding, and shall not be required to keep or maintain the same or any part thereof on deposit with any other person, firm, or corporation.

Fourth: That the said deed of gift of March 27th, 1919, and this and subsequent supplements thereto, may from time to time be altered, amended and modified by written instruments under seal duly executed by the Grantor, the Trustees, the children of the Grantor, Alice Kurtz Whiteman, Edith Kurtz Newhall and William Fulton Kurtz, and the surviving spouse and issue of any said child deceased, or such of them as shall at the time be living and be of full age, and such instrument so executed shall have the same force, validity and effect as if the same had been executed and delivered by the Grantor, the Trustees and every person who is or may be or become beneficially interested in the said trust estate.

Fifth: That the deed of gift of March 27th, 1919, shall have the same force, validity and effect as if the alterations, modifications and amendments thereof hereby made had been made to the said deed of gift of March 27th, 1919, prior to the execution and delivery thereof, and the said alterations, amendments and modifications shall be and be deemed to be a part of the said deed of gift and incorporated therein.

Sixth: That if any person who now is or who may hereafter become beneficially interested in the said trust estate shall contest the validity or sufficiency of this instrument, then the interest of every such person in the portion of the trust estate hereupon or hereafter contributed by the Grantor to the said Trustees shall be thereby terminated and ended, and the interest of such person shall thereupon vest in the person or persons who shall under the terms of the said trust become entitled to the interest of such person upon the decease of such person; and if it should be determined that this instrument is not sufficient for the purposes herein specified, then such portion of the trust estate as shall have been added thereto from and after the date of this instrument shall be held by the Trustees under and subject to the said deed of gift of March 27th, 1919, as modified by this and subsequent supplements thereto.

IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed, sealed and delivered the day and year first above written.

On December 31, 1924, the said William B. Kurtz, as grantor, the said Colonial Trust Company and William Fulton Kurtz, as trustees, and the said Alice Kurtz Whiteman, Edith Kurtz Newhall, and William Fulton Kurtz, as beneficiaries, executed a written instrument further altering, modifying and amending the said written instrument of March 27, 1919, as altered, modified and amended by the written instrument of October 1, 1919. The said written instrument of December 31, 1924, is in the words and figures following:

THIS INDENTURE made this 31st day of December, A.D. 1924, by and between WILLIAM B. KURTZ of Philadelphia, Pennsylvania, hereinafter called "the Grantor", party of the first, THE COLONIAL TRUST COMPANY, a corporation of the State of Pennsylvania, and WILLIAM FULTON KURTZ, both of Philadelphia, Pennsylvania, hereinafter called "the Trustees", party of the second part, and ALICE KURTZ, WHITEMAN, EDITH KURTZ NEWHALL and WILLIAM FULTON KURTZ, hereinafter called "the beneficiaries", parties of the third part,

WITNESSETH:

WHEREAS, the Grantor did heretofore execute and deliver for the benefit of the beneficiaries a certain Indenture or Deed of gift dated March 27th, 1919, and supplemental thereto; and

WHEREAS, the parties hereto did execute and deliver a supplement to the said Indenture dated October 1st, 1919; and

WHEREAS, the Grantor in consideration of the execution hereof, on the date hereof, will make a substantial addition to the said trust estate and contemplates from time to time hereafter making other additions to the said trust estate, rpovided the said trust estate be subject to the provisions of the said supplement of October 1st, 1919, and the provisions hereof;

NOW, THEREFORE, THIS WRITING WITNESSETH, that, for and in consideration of the premises and addition to or increase of the said trust estate, this day made by the Grantor, and the acceptance thereof by the Trustees for the benefit of the beneficiaries, it is covenanted and agreed by and between the parties hereto as follows:

FIRST: That the proviso on page 3 of the indenture of March 27, 1919, reading,

"provided, however, that no more than $5,000 shall be invested in stocks, bonds, or other securities of any single corporation;"

as modified by the supplement thereto of October 1st, 1919, so as to read,

"provided, however, that not more than $15,000 shall be invested in the stocks, bonds or other securities of any single corporation;"

shall be altered, modified and amended so as to read as follows:

"provided, however, that no more than $75,000 shall be invested in the stocks, bonds or other securities of any single corporation;"

SECOND: That the clause of the deed of gift of March 27th, 1919, reading,

"and the trustees shall make distribution of net income under the terms hereof quarter-yearly on or before the 15th day of the months of March, June, September, and December in each year, the first three instalments to be each in the sum of $150, and the December instalment to be the balance of the net income for the twelve months' period ending December 1st of each year;"

as altered, modified, and amended by the supplement thereto of October 1st, 1919, shall be and it is hereby further altered, modified, and amended so as to read as follows:

"and the trustees shall make distribution of net income under the terms hereof quarter-yearly on or before the 15th day of the months of March, June, September, and December in each year, the first three instalments to be each one-fifth of the estimated net income for such year, and the December instalment to be the balance of the net income for the twelve months period ending December 1st of each year;"

THIRD: That the clause of the said deed of gift dated March 27th, 1919, beginning in line 10 of page 2, and reading,

"for and during the period of twenty-five years (25) from and after the date hereof,"

shall be, and it is hereby altered, modified, and amended, so as to read,

"from and after the date hereof, and until twenty-one years after the death of the last survivor of the grantor, his wife, and children;"

FOURTH: That the clause in the said deed of gift of March 27th, 1919, reading,

"IN TRUST, upon the expiration of the said period of twenty-five (25) years, then to pay and distribute the principal of the said trust estate unto the persons then entitled to and receiving the net income from the said trust estate; Provided, however, that if any person shall become entitled to receive any part of the said principal who shall not have attained the age of twenty-five (25) years, then the said Trustees shall hold, under the terms hereof, such portion of the principal of the said trust estate for the benefit of such person until such time as such person shall be or become at least twenty-five years of age, or until twenty-one (21) years after the decease of the last surviving of the children herein named, whichever shall first occur; the net income therefrom to be paid to such person or to be applied to the maintenance, education and support of such person until the principal shall become payable; and

IN TRUST, if any one of the said children of the Grantor shall die within the said period of twenty-five (25) years, leaving spouse, children or issue surviving, then the income and principal of the share of such deceased child shall be paid and distributed unto and among the spouse, children and issue of the said deceased child surviving at the time for distribution thereof; the surviving spouse to receive one-fourth (1/4th) and the children and issue to receive, per stirpes and not per capita, the remaining three-fourths (3/4ths) thereof; the issue to take by representation the deceased parent's share; and if there shall be no children or issue then surviving, then the surviving spouse shall receive the entire share thereof, and if there shall be no spouse then surviving, then the children or issue shall receive the entire share; provided, however, that the deceased child of the Grantor may, by last will and testament, or other writing, direct that the share of such deceased child shall be distributed unto and among any one or more of the persons aforesaid; and"

shall be altered, amended, and modified, so as to read as follows:

"IN TRUST, upon the expiration of twenty-one (21) years after the death of the last surviving of the Grantor, his wife and children, then to pay and distribute the principal of the said trust estate unto the persons then entitled to and receiving the net income from the said trust estate; and

IN TRUST, if any of the said children of the Grantor shall die leaving spouse, children or issue surviving, then the income and principal of the share of such deceased child shall be paid and distributed unto and among the spouse, children, and issue of the said deceased child surviving at the time for the distribution thereof; the surviving spouse to receive one-fourth (1/4th) thereof; and the children and issue to receive, per stirpes and not per capita, the remaining three-fourths (3/4ths) thereof, the issue to take by representation the deceased parent's share; and if there shall be no children or issue of such child then surviving, then the surviving spouse shall receive the entire share thereof; and if there shall be no spouse of such child surviving, then the children or issue shall receive the entire share; provided, however, that each child of the Grantor may, by last will and testament or other writing, direct, nominate and appoint that the share of such child shall be distributed unto and among any one or more of the persons aforesaid, and in the absence of the exercise of said power by any child, and there being no issue and/or spouse of such child, then surviving such child to take hereunder, then the share of such child and of the issue of such child shall vest in the persons entitled to such child's estate under the now existing laws of Pennsylvania; and"

FIFTH: That the Grantor shall be, and he is hereby, authorized and empowered to purchase, or otherwise acquire from the Trustees, under the said Deed of gift of March 27th, and the supplements thereto, any part of the trust estate at the market value; and if there be no market value, at a price which shall be to the satisfaction of the trustees, and the Grantor is likewise authorized and empowered to sell or otherwise dispose of to the said Trustees such securities as may be to the satisfaction of the Trustees, at the market price and if there is no market price, at a price satisfactory to the trustees, and the said trustees are hereby granted full and complete power and authority in the premises.

SIXTH: That this supplement to the said deed of gift of March 27th, 1919, is made, executed and delivered pursuant to paragraph "Fourth" of the said Supplement thereto of October 1st, 1919, and shall have the same force, validity and effect as provided by paragraphs "Fifth" and "Sixth" of the said supplement of October 1st, 1919.

IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed, sealed and delivered as of the day and year first above written.

The property transferred by the decedent to the said Colonial Trust Company and William Fulton Kurtz, as trustees under said written instruments of March 27, 1919, October 1, 1919, and December 31, 1924, had a fair market value of $115,250.55 on the date of the death of William B. Kurtz.

The respondent, upon audit of the estate tax return filed by the estate of the decedent, included in the gross estate said amount of $115,250.55, made certain other adjustments in the gross estate, and determined a deficiency in estate tax in the amount of $8,861.96.

OPINION.

MARQUETTE: The petitioners now claim, and the respondent concedes, that the interest of William B. Kurtz in the estate of Madge Fulton Kurtz should be included in the gross estate of William B. Kurtz at $438,712.10, and that in computing the net estate of the decedent deductions should be allowed as follows: (1) $2,261.77 on account of additional income taxes assessed against William B. Kurtz for 1923 and 1924, and (2) $427,072.85 on account of property previously taxes as part of the estate of Madge Fulton Kurtz.

The only other issue presented is whether the value, or any part thereof, of the property transferred by the decedent under the three written instruments set forth in the findings of fact, should be included in the gross estate of the decedent subject to the Federal estate tax. The respondent admits that none of the transfers was made in contemplation of death, but he contends that each of them should be included in the gross estate under section 302(c) of the Revenue Act of 1924, as a transfer intended to take effect in possession or enjoyment after the death of William B. Kurtz, or under section 302(d) of that act because the decedent reserved the right to amend, alter, or modify the trust in conjunction with the trustees and the beneficiaries. The petitioners contend that no part of the property in question is taxable as part of the decedent's estate. On this issue our decision is in favor of the petitioners. ; ; ; and .

Judgment will be entered under Rule 50.