DocketNumber： Docket No. 16552
Citation Numbers： 12 T.C. 569, 1949 U.S. Tax Ct. LEXIS 228
Judges： Kern, Only, Hill
Filed Date： 4/13/1949
Status： Precedential
Modified Date： 1/13/2023
*228
1. Decedent's employer, for the purpose,
2. In 1941 decedent's employer, for the purpose of providing additional compensation to decedent and others, voluntarily created a trust to which it transferred certain amounts of money, to be held in trust for 10 years and then distributed to certain named employees, including decedent. On the death of an employee before the expiration of 10 years, his share of the trust corpus was to be immediately paid to the person appointed by the employee's will, and, failing such appointment, to his issue. Upon decedent's death in 1943 without having exercised this *229 power of appointment, his share of the trust corpus was paid to his children.
*569 This case involves the determination of a deficiency*230 of $ 2,117.48 in estate tax liability.
The first issue is whether the entire proceeds of group life insurance under which decedent was insured are includible in the gross estate or, *570 as petitioner contends, only that part directly paid for by decedent. The second issue is whether there is includible in the gross estate the decedent's share of a trust fund established by the decedent's employer.
The parties have settled two remaining issues by stipulating (1) that the decedent owned $ 3,516.12 of joint bank accounts totaling $ 8,016.12, and (2) that the sum of $ 67.50 paid as brokerage fees in securing a sublease of the decedent's home is a proper deduction from the gross estate.
FINDINGS OF FACT.
Those facts covered by the stipulation of the parties are found by us to be as stipulated.
Petitioner is Martha P. Saxton, representing as executrix the estate of her husband, Eugene F. Saxton, who died a resident of New York at the age of 58 on June 26, 1943. In addition to the widow, the decedent was survived by two adult sons, Mark and Alexander Saxton. The widow was the sole beneficiary under the decedent's last will and testament. The estate tax return was filed with the*231 collector of internal revenue for the second district of New York.
At date of his death, and for many years prior thereto, the decedent was employed by the publishing company of Harper & Brothers as vice president, secretary, and director, and head of the literary department.
In 1942 Harper & Brothers, out of gratitude for the services rendered by its employees, as added compensation and as an added inducement in hiring other employees, entered into an agreement with an insurance company providing for a group insurance policy insuring the lives of the employees. Only an employee was entitled to be insured. The original master policy was issued to the company in 1921, and it has been in effect continuously since then. Pursuant to this term group life insurance contract, the decedent received in 1942 one policy for $ 500, upon which the decedent paid no premiums. This policy was automatically issued after six months of service. In addition he received a policy in the amount of $ 9,500, upon which the decedent paid .44063 of the premium and the employer the remaining .55937. The receipt of this policy and the amount thereof were optional on the part of decedent, but the amount *232 of the policy could not exceed a maximum of twice his annual salary, or $ 10,000. The decedent's policies, totaling $ 10,000, designated the wife as the sole beneficiary, the right to change the beneficiary being reserved to the employee.
The premium payments by the employee were limited to 60 cents a month for each $ 1,000 of insurance. Liability for premiums would be suspended during any period wherein the employee was totally disabled. Dividends received from the insurance company operated to *571 reduce the payments of the net premiums paid by the employer, but not the employee.
The employee's insurance policy terminated upon cessation of employment, or upon failure to make the agreed contributions. Termination also occurred with cessation of active work, except when occasioned by sickness, injury, or retirement. However, upon termination, or after 5 years, at the option of the employee, the employee could convert the policy without further evidence of insurability to an individual policy of life insurance in any form, except term insurance or policies containing disability benefits, in an amount not to exceed the lesser of $ 2,000 or the amount for which the employee*233 was insured. The employee could also elect to have the insurance proceeds paid to the beneficiaries by monthly installments over a period of 10 years. The employee's interest was nonassignable.
After the death of the decedent, the widow received the $ 10,000. Of this amount, $ 4,406.30 was reported as an asset of the estate, computed as the portion of the $ 10,000 for which the decedent directly contributed premium payments by withholdings from his salary.
In addition to the group insurance plan, Harper & Brothers created a 10-year, profit-sharing trust by an instrument dated December 30, 1941, for the exclusive benefit of its employees, in compliance with
*235 The trust instrument provided that under no circumstances would the amount placed in trust revert to the grantor. The grantor could amend the instrument upon the consent of the trustees if within reason, but in no sense could the amounts already granted in trust be diminished. In the event that any beneficiary should reject his interest in the trust the employer retained the right to designate another employee to receive the share.
The duties of the trustees were to invest the corpus, to accumulate the income for the period of the trust, and to pay over the beneficiaries' share upon the termination of the trust term or, under certain circumstances, prior thereto.
The term of the trust was for 10 years, and during that period the employee could not anticipate the fund by assignment or encumbrance.
However, before the expiration of the term, the corpus could be distributed upon the death of any beneficiary, upon the disability of a beneficiary, upon unanimous vote of the trustees with the consent of the employer, or upon the death of the last beneficiary before expiration of the term of the trust.
In the event of death of the employee during the term of the trust, the trustees were*236 to pay over the employee's share according to his testamentary directions. If no directions were made by the employee, then the share would be paid to the decedent's issue, or, in default of issue, then to the wife if living, and, if she were not living, then according to New York laws of intestate distribution. Upon the death of the decedent before the end of the term and in the absence of testamentary direction, the trustees paid the decedent's issue $ 2,142.85 as the decedent's one-fourteenth interest in the $ 30,000 corpus. This amount was not included in the gross estate for Federal tax purposes.
None of the benefits created or payments made by the employer as hereinabove set forth were reported by decedent as income for Federal income tax purposes.
Decedent owned 1,213 shares of no par common stock in Harper & Brothers. As a condition of the ownership, the decedent had to offer this stock for sale to Harper & Brothers if he left their employment or if he desired to sell the stock. The decedent received dividends on this stock of $ 6 a share in 1942 and $ 8 a share in 1943.
OPINION.
The first issue presented herein is whether that portion of proceeds from life insurance *237 policies which was directly paid for by the employer, pursuant to the terms of a group life insurance *573 agreement covering the employee, is includible in the gross estate of the deceased employee in addition to that portion directly paid for by the employee. This issue was decided in the affirmative in
In the
*238 There is nothing in the instant case which distinguishes it in principle from the
The second issue is whether the decedent's share of the corpus of a 10-year, profit-sharing trust created by the employer for the exclusive benefit of its employees, within the meaning of
The trust deed provided that the corpus consisted of amounts earned by the employee as proper compensation, and that in no event should the amounts paid in trust revert to the employer. In the event of the death of the employee during the term, the trustees were to pay the employee's share according to the testamentary directions of the employee. In default of such testamentary appointment, the employee's share of the corpus was to be paid to his issue equally
Respondent urges that the amount of trust corpus thus paid should be included in the gross estate by virtue of the provisions of
*240 The provisions of
*241 *575 Respondent, therefore, makes no contention on this issue predicated on
If Harper & Brothers had been obligated by a contract with decedent to pay him additional compensation, or if decedent had asserted a claim for additional compensation, and the employer, by agreement with decedent, had satisfied this obligation or compounded this claim, by creating the*242 trust and transferring to it the funds here in question, we might find merit in respondent's argument as addressed to that hypothesis. See
In the instant case, however, there was no legal obligation upon Harper & Brothers to pay additional compensation to decedent and no claim asserted by decedent to additional compensation. Consequently, there was no agreement between the employer and decedent calling for the creation of the trust. Nor was any power granted by the trust or exercised by decedent under which decedent could, or did, carve out and transfer a part of his beneficial rights to his widow or issue. Nor can it be said that there was here a "transfer of property procured through expenditures by *243 the decedent with the purpose effected at his death, of having it pass to another." See
Even though we might be of the opinion that, as a matter of legislative policy, the amounts thus paid ought to be includible in decedent's gross estate, it is impossible for us to reach this result by any construction of subsections (c) and (d) of
Upon this issue our decision is in favor of petitioner.
1. The inducement clauses of the deed of trust read as follows:
"Whereas the settlor is desirous of augmenting the compensation paid to certain of its employees over the many years they have served the company and of paying same at the time likely to be most useful to them: and whereas in the belief that such a plan will establish an incentive to faithful service to settlor and will improve employee morale and will increase economy of operation, and will serve the interests of the employees as well as of settlor, the settlor has, after long consideration of such profit sharing and retirement plan for the benefit of some of its employees, decided to inaugurate such a plan and to contribute twenty-five thousand dollars ($ 25,000) from the earnings of 1941 as a fund to establish such plan with the hope as future circumstances may permit of adding in future years further sums from profits for similar purposes either by independent trust deed or deeds or by augmenting the trust fund herein established or by other means; and to distribute same at later times when it will presumably be of greater benefit to them than at present: and
"Whereas the settlor has accordingly set aside said twenty-five thousand dollars ($ 25,000) to be paid in the manner and at the times as more fully set out below, to those of its said employees named below, as proper compensation earned by them in the year 1941 in the light of their duties, responsibilities and accomplishments during 1941; and resolutions of settlor's Board of Directors have been duly passed to carry the foregoing into effect and to authorize the execution and delivery of these presents and the performance thereof:"↩
2.
* * * *
(g) Proceeds of Life Insurance. --
(1) Receivable by the executor. -- To the extent of the amount receivable by the executor as insurance under policies upon the life of the decedent.
(2) Receivable by other beneficiaries. -- To the extent of the amount receivable by all other beneficiaries as insurance under policies upon the life of the decedent (A) purchased with premiums, or other consideration, paid directly or indirectly by the decedent, in proportion that the amount so paid by the decedent bears to the total premiums paid for the insurance, or (B) with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person. * * *↩
3.
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 * * *. --
(c) Transfers in Contemplation of, or Taking Effect at Death. -- To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. * * *
(d) Revocable Transfers. --
(1) Transfers after June 22, 1936. -- To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation of decedent's death.↩
4. SEC. 403. POWERS OF APPOINTMENT.
(a) General Rule. --
"(f) Powers of Appointment. --
"(1) In general. -- To the extent of any property (A) with respect to which the decedent has at the time of his death a power of appointment, or (B) with respect to which he has at any time exercised or released a power of appointment in contemplation of death, or (C) with respect to which he has at any time exercised or released a power of appointment by a disposition intended to take effect in possession or enjoyment at or after his death, or by a disposition under which he has retained for his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death (i) the possession or enjoyment of, or the right to the income from, the property, or (ii) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth."↩
Chase National Bank v. United States , 49 S. Ct. 126 ( 1929 )