DocketNumber： Docket No. 96527.
Citation Numbers： 1940 BTA LEXIS 1017, 42 B.T.A. 260
Judges： Sternhagen
Filed Date： 6/28/1940
Status： Precedential
Modified Date： 10/19/2024
*1017 1. The income of a trust was all to be distributed to the wife of the grantor and the corpus was to revert to him only in the event that he survived her and exercised the power to revoke.
2. The grantor of a trust and his wife, who was the beneficiary of the entire trust income and, at her demand, of 5 percent of the corpus in any year, together had the power to revest any part of the trust corpus in him prior to her death.
*260 The Commissioner determined deficiencies in decedent's income tax of $1,894.16 for 1934, $1,764.98 for 1935, and $188.85 for 1936, by including in his income the income of a trust.
FINDINGS OF FACT.
Isaac Fish died on April 27, 1936. His wife, Helen S. Fish, survived him. They had no children.
On July 3, 1930, the decedent and his wife executed a trust agreement with the Chicago Title*1018 & Trust Co., as trustee, providing in part:
(1) The Trustee shall pay the entire annual net income of said Trust Estate to HELEN S. FISH, during the term of her natural life.
*261 (2) The said Helen S. Fish is hereby given and granted the right and privilege (said right and privilege to be exercised by her as she may in her sole and uncontrolled discretion determine) to demand and receive, in any and every calendar year during her lifetime, such sum or sums of the principal of said Trust Estate, not, however, to exceed in the aggregate five per cent. (5%) of said principal in any one calendar year, said payments of principal to be in addition to any and all payments of income herein provided to be made to her.
(3) Upon the death of the said Helen S. Fish said Trustee shall pay the entire annual net income of said Trust Estate, as said Trust Estate shall at such time be constituted, to ISAAC FISH, during the term of his natural life.
(4) Upon the death of the said ISAAC FISH, or upon the death of the said HELEN S. FISH, in the event the said ISAAC FISH shall have died prior to the death of the said HELEN S. FISH, said Trustee shall pay and distribute said Trust Estate*1019 at such time in its possession as follows: [to named persons].
* * *
ISAAC FISH and HELEN S. FISH, the Donors, together, so long as both shall be living, and ISAAC FISH alone, from and after the death of HELEN S. FISH (in the event he shall survive HELEN S. FISH), shall have the right to revoke, alter or amend this Agreement in whole or in part, at any time and from time to time, by a memorandum in writing delivered to the Trustee (provided that the duties, powers and liabilities of the Trustee shall not be materially or substantially changed by such alteration or amendment without its consent thereto in writing), and to authorize and direct the Trustee to assign, transfer, pay over and deliver to their or his order, as the case may be, all or any part of the Trust Estate in such form as it may then exist. Such direction to the Trustee, upon the making of such assignment, transfer, payment or delivery, shall operate as a revocation of this Agreement and of the Trust hereby created, as to the property so assigned, transferred, paid over and delivered by the Trustee.
In the event that the said ISAAC FISH shall die prior to the death of the said HELEN S. FISH, then from and*1020 after the death of the said ISAAC FISH this Agreement and the Trust hereby created shall not be revoked, altered or amended in any way.
On December 18, 1933, the decedent and his wife, with the consent of the trustee, amended the trust agreement, changing the provisions for distribution of the estate upon the death of the decedent and upon the death of his wife, if he predeceased her. On September 12, 1934, the decedent and his wife executed an agreement with the trustee settling a dispute over investments made by the trustee which the decedent claimed to have been improper. Prior to October 3, 1934, it was the trustee's practice to notify the decedent only after investments had been made. On October 3, 1934, the agreement was amended to require the decedent's consent and approval prior to investment.
On April 23, 1930, the decedent transferred $55,000 to the trustee out of his personal funds. On July 7, 1930, he and his wife transferred to the trustee securities endorsed in blank, his having a fair market value of $69,578.76 and hers a fair market value of $14,350. *262 The decedent transferred amounts to the trustee out of his own funds as follows:
| June 13, 1930 | $1,500.00 |
| Do | 661.50 |
| Jan. 8, 1931 | 40,000.00 |
| June 12, 1931 | 5,000.00 |
| Jan. 27, 1932 | 20,000.00 |
*1021 On January 28, 1932, the decedent's wife, from her personal funds, transferred $5,000 to the trustee.
For many years prior to 1930 the decedent was in the habit of dividing equally with his wife dividends received by him on stock of the L. Fish Furniture Co., of which he owned more than 50 percent of the stok. Prior to April 1930 he had given her amounts the total of which was at least $50,000. She deposited these amounts in a bank and then gave him checks in like amounts, asking him to buy something for her. He then invested the money for her, sometimes in Government bonds and sometimes in stock. He endorsed the stock over to his wife and she placed it in her safety deposit box. On some occasions he sold securities owned by her without immediately reimbursing her. From his own funds he paid all of their household living expenses. He used his entire salary for living expenses. He traveled extensively and bought gifts for his wife. She paid none of the living expenses. She had acquired a small amount by inheritance or gift from her own family. After 1930 he did not turn over to her any of the dividends from the L. Fish Furniture Co.
OPINION.
STERNHAGEN: The Commissioner*1022 held that the decedent had retained power to revest in himself title to the corpus of the trust, in that he could revoke the trust if he survived his wife, and on this ground cited section 166, Revenue Acts of 1934 and 1936, to support the inclusion in the petitioner's income of part of the income of the trust. In this the respondent was in error. For the purpose of discussion it may be assumed, in exaggeration of the fact, that the entire corpus of the trust had been contributed by the decedent. However, by its terms the income was all to be distributed to his wife and the corpus was only to revert to him in the event that he survived her and exercised the power to revoke. Thus the power to revest in himself any part of the corpus of the trust was contingent upon his survivorship of his wife. Such a power it has been held is not within section 166. ; .
Before his wife's death the power to revest any part of the corpus in the grantor rested not alone in the decedent but in him and his *263 wife together. *1023 She was the beneficiary of the entire trust income and, at her demand, of 5 percent of the corpus in any year. She was, therefore, unquestionably a person having a substantial adverse interest. Thus the condition of section 166 has been clearly avoided. ; cf. .
The portion of the trust income which, as shown by the notice of deficiency, was included in the decedent's gross income for each of the years in question was improperly so included.
Reviewed by the Board. Footnotes