DocketNumber： Docket Nos. 51124, 51125, 51130
Judges： Tietjens
Filed Date： 1/18/1956
Status： Precedential
Modified Date： 10/19/2024
1. Estate Tax -- Gross Estate --
2. Deductions for Administration Expenses and Claims --
25 T.C. 794">*795 The Commissioner determined a deficiency of $ 254,759.76 in estate tax to be due from the estate of Mary Lois K. McIntosh. The same deficiency has been determined against the other petitioners as transferees.
The questions for decision are (1) whether the value of the corpus of a certain trust is includible in decedent's gross estate and (2) whether the full amount of $ 18,000 paid for the support of the decedent's husband during settlement of the estate was a proper deduction rather than the $ 12,000 allowed by the Commissioner.
In the event a deficiency is determined, transferee liability is conceded by petitioners in Docket Nos. 51125 and 51130.
FINDINGS OF FACT.
The stipulated facts are so found and the stipulation and exhibits thereto are included herein by reference.
Mary Lois K. McIntosh (hereafter sometimes called the decedent) died on May 21, 1949, aged 63 years, 9 months. Her executors filed an estate tax return on August 21, 1950, with the collector of internal revenue for the district of Connecticut.
In 1928 the decedent was sued in an alienation of affections suit and as a result she turned over to her then husband certain negotiable securities 1956 U.S. Tax Ct. LEXIS 294">*296 for management. She soon became apprehensive of her husband's management of the property and sought assistance in securing its return.
These troubles worried the decedent (who was then Mary Lois K. Perry) and for the purpose of protecting her properties against herself and generally against the misapplication of her funds she arranged for the creation of a trust on February 16, 1929. On that date she conveyed certain of her properties to Thomas J. Boland, a young lawyer in the office of Paul Bakewell, Jr. Boland, as nominal settlor, on the same day conveyed the properties to the St. Louis Union Trust Company and Bakewell, as trustees, under a written trust instrument. The use of Boland as nominal settlor was made in an attempt to avoid the rule of Missouri law that a settlor cannot create a spendthrift trust for his own benefit. The trust that was created and is here involved is a spendthrift trust.
The trust instrument provided,
said trust shall continue for the sole use and benefit of Mary Lois K. Perry, now of New York City, New York, for and during her natural life, and during said trust the Trustees shall pay the taxes on said real estate and all proper charges and 1956 U.S. Tax Ct. LEXIS 294">*297 expenses in connection with the management and administration thereof. After the payment of such taxes and such proper charges and expenses, the Trustees hereunder shall pay the entire net income from the trust estate as hereby created in monthly installments of as nearly an equal amount as may be conveniently possible to the said Mary Lois K. Perry.
25 T.C. 794">*796 During the continuance of the trust hereby created, the Trustees shall have and hold the trust estate, and the beneficiary thereof, Mary Lois K. Perry, from time to time, shall enjoy the same subject to the following conditions, limitations, powers and discretions in addition to those hereinbefore specified, to wit:
The Trustees shall receive, manage and control the trust estate and the property thereof as the Trustees may deem best for the interests of the beneficiary; * * *
* * * *
The Trustees shall, from time to time, collect the rents and profits of and from the real estate hereby conveyed, and in the event of any sale thereof, and the reinvestment of proceeds of such sale, shall collect the rent, interest, dividends or profits from any such investments made by the Trustees and shall disburse the net income as herein authorized and 1956 U.S. Tax Ct. LEXIS 294">*298 directed.
In the event that there shall come into the hands of the Trustees hereunder any stock in any corporation upon which distribution or disbursements of stock may be made in the manner or form of stock dividends, then all of such stock dividends that may be so received by the Trustees hereunder shall, by the Trustees hereunder, be regarded as income, and not as corpus, and any and all stock dividends shall be distributed and delivered to the beneficiary hereunder as income.
The beneficiary hereunder, Mary Lois K. Perry, shall not have power to sell, assign, pledge, encumber or anticipate any interest created by this instrument, whether that interest be in the income or the principal of the trust estate; nor shall the interest therein of the said beneficiary be liable for her debts, nor subject to any suit at law or equity, it being the purpose of this instrument to provide that no right to alienate or create a charge upon the income from the trust estate hereby created shall exist or vest in the beneficiary hereunder, Mary Lois K. Perry, until the said income shall have been actually paid over to her.
If any suit be filed, the purpose of which is to reach any interest of Mary Lois 1956 U.S. Tax Ct. LEXIS 294">*299 K. Perry in the trust estate, or to make same liable for her debts in any manner before the income therefrom shall have been actually transferred or paid over to her, then, until any such suit shall have been finally determined, the right of the beneficiary hereunder, Mary Lois K. Perry, to any payment from the trust estate shall stand suspended and be unenforcible.
While any such suit is pending, however, the Trustees hereunder may, in their discretion, apply such portion of the income from the trust estate as they may see fit for the maintenance and support of the said Mary Lois K. Perry.
The right of Mary Lois K. Perry as beneficiary hereunder to receive the income from the trust estate created by this instrument shall be for her sole and separate use, and free and clear of and from any claim or right, interest or control by any husband of the said Mary Lois K. Perry.
On the death of the said Mary Lois K. Perry, the trust hereby created shall end, and the entire trust estate created by this instrument, together with any and all accumulated and undistributed income therefrom, shall go to such parties and under such terms and conditions as the said Mary Lois K. Perry may, by her last 1956 U.S. Tax Ct. LEXIS 294">*300 will, direct. In the event that the said Mary Lois K. Perry shall die intestate, or should fail to exercise said power by her last will, then, on her death, the entire trust estate hereby created, together with any and all accumulated and undistributed income therefrom, shall go and pass to the then heirs at law of the said Mary Lois K. Parry [
During the continuance of any such trust for minors, the Trustees shall have the same duties and the same powers as are given them by this instrument with regard 1956 U.S. Tax Ct. LEXIS 294">*301 to the trust hereby created for the life of Mary Lois K. Perry.
The trust instrument also provided that on the death, resignation or incapacity of Paul Bakewell as trustee, "then the beneficiary hereunder, Mary Lois K. Perry, shall have the right and power to nominate and appoint a successor individual Trustee"; and further provided that "at any time or times during the continuance of the trust as hereby created, the beneficiary, Mary Lois K. Perry, in her sole discretion, shall have the right to appoint a successor or successors from time to time to the St. Louis Union Trust Company," with the limitation that such successor should be a corporate fiduciary located in St. Louis.
On May 27, 1929, Paul Bakewell addressed to the decedent a written resignation as co-trustee, "such resignation to be effective at your pleasure, whenever accepted by you."
The decedent divorced Eugene Perry in 1931 and married Russell L. McIntosh later in that year.
On 1956 U.S. Tax Ct. LEXIS 294">*302 May 14, 1934, she accepted the written resignation of Paul Bakewell as co-trustee, which written resignation had been in her possession since May 27, 1929, and on the following day she appointed her husband, Russell L. McIntosh, as successor trustee.
On June 24, 1941, the St. Louis Trust Company wrote to decedent in part as follows:
Under the terms of your trust fund with us you are not able to make any disposition of the income other than to receive it yourself. You cannot make a valid assignment of this income to your son, or in fact to any one, as it appears from the terms of this trust that the intention was to be certain that you personally receive the income produced by this trust fund. You do have the right to dispose of this fund in your will but from a tax standpoint it would seem desirable, if it is your desire that your son have this property, that you do not exercise this right.
You should, of course, have a will disposing of the property that you have other than that which is contained in this trust estate. The federal tax authorities under present practice tax the exercise of a power of disposition the same as if you owned the property if the power of disposition is exercised. 1956 U.S. Tax Ct. LEXIS 294">*303 If this power to dispose of the trust property is not exercised and this property is allowed to go to your son under the trust agreement, there would be a definite tax advantage. This does not mean that you shouldn't make a will. We strongly recommend that you have your attorney draw your will and advise you on these matters as we cannot undertake to give legal advice, and we would suggest that in the drafting of your will the tax situation be given full consideration.
25 T.C. 794">*798 Decedent had executed a will on May 10, 1935, with a codicil dated April 8, 1936, in which she exercised the power of appointment contained in the trust instrument. As a result of the suggestion made in the letter of June 24, 1941, an attorney was consulted and a new will was executed on July 14, 1941, in which the decedent specifically refrained from exercising the power.
Later, on May 27, 1943, in accordance with its policy of reviewing all trust instruments providing for a power of appointment, the Trust Company advised the decedent by letter that her powers under the trust instrument should be reviewed in the light of changes in the tax laws contained in the 1942 Revenue Act. Following this advice an attorney was 1956 U.S. Tax Ct. LEXIS 294">*304 employed. He advised that the property in the trust would be taxable as part of the decedent's estate unless the power of appointment was released by her before March 1, 1944. Accordingly, the decedent executed the following "Release of Power" on November 4, 1943:
Whereas, the undersigned is desirous of releasing and relinquishing the said power of appointment forever to, and in favor of, the persons who may be or become entitled to receive the property heretofore subject to the said power of appointment in the event that such power be not exercised,
Now, Therefore, the undersigned does hereby, irrevocably and forever, release and relinquish all power which she now has, or at any time hereafter may have had, to direct, nominate, or appoint the parties to whom the Trust Estate created by the Deed of Trust dated February 16, 1929, made by Thomas J. Boland, and any and all accumulated and undistributed income therefrom, shall go upon the termination of the said Trust, or to impose any terms and conditions with respect to the final distribution of said Trust Estate, and
The undersigned does hereby covenant with Russell L. McIntosh and St. Louis Union Trust Company as Trustees of said Trust, 1956 U.S. Tax Ct. LEXIS 294">*305 for and in behalf of the heirs at law of the undersigned, under the statutes of descent and distribution of the State of Missouri, and with Eugene Kilpatrick Perry, the sole apparent heir at law of the undersigned under such statutes, that there is not now in existence any will or other testamentary document executed by her which purports to exercise the aforesaid power of appointment, and that she will not hereafter execute any such will or testamentary document.
The decedent's purpose in releasing the power of appointment was to save estate taxes. At the time she executed the release of power of appointment decedent was in good physical condition for a woman of her age, and she had no particular concern about dying.
By order of the Court of Probate, District of Norwalk, Connecticut, dated August 16, 1949, an amount of $ 1,000 a month was allowed for the support of decedent's husband, Russell L. McIntosh, for a period of 12 months from the date of decedent's death. By order of the same court, dated May 10, 1950, these support payments were continued for 6 more months. A total of $ 18,000 was thus received by Russell L. McIntosh and deposited to his account.
25 T.C. 794">*799 In her last will, dated 1956 U.S. Tax Ct. LEXIS 294">*306 December 30, 1948, decedent provided that $ 10,000 should be paid to her husband immediately after her death. This amount was paid on July 11, 1949.
By her will decedent placed her residuary estate in trust and directed that her husband be paid not less than $ 12,000 annually, in payments of $ 1,000 a month, from the income of the trust. The first payment to decedent's husband under this provision was made on November 10, 1950, in the amount of $ 4,000, representing monthly payments from June through September 1950. After November 1950, payments of $ 1,000 a month under the foregoing testamentary trust were made to decedent's husband.
OPINION.
Respondent seeks to include in the estate of Mary Lois K. McIntosh the value of the property transferred in trust in 1929, on the ground that decedent was in reality the settlor of the trust and its only beneficiary, and as such she had the power to revoke the trust.
There is no question that the property placed in trust belonged solely to the decedent, and the parties have stipulated that Boland was a 25 T.C. 794">*800 nominal settlor. The purpose of using Boland was to avoid the prohibition under the law of Missouri against a settlor's establishing a spendthrift trust for his own benefit. Under these circumstances there is little room for seriously contesting that decedent was the real settlor of the trust set up in 1929 (1 Scott, The Law of Trusts (1939), sec. 156.3; Griswold, Spendthrift Trusts (2d ed., 1947), sec. 487), and that for purposes of applying a Federal taxing statute the transfer in trust should be considered as having been made by decedent.
Whether the trust was revocable depends on the law of the place of its creation 1956 U.S. Tax Ct. LEXIS 294">*309 -- Missouri.
Eleventh. Upon my death this trust shall terminate and the trust shall pass to and vest in my legal heirs, or as may be directed in my will.
About 2 1/2 years after the creation of the trust the settlor brought an action in equity to revoke the trust and to compel a reconveyance of the trust property. The Supreme Court of Missouri in holding the trust revocable by the settlor reaffirmed 1956 U.S. Tax Ct. LEXIS 294">*310 its adherence to the principle that "a completely executed trust, even though it be a voluntary one, without reservation of power of revocation, can only be revoked by consent of all the beneficiaries." In ascertaining who the beneficiaries of the trust were the court sought to determine whether the settlor had disposed of the entire fee in the trust property by disposing of the interest remaining after his death. It held that the trustee did not take an estate of inheritance under the deed of trust, since such an estate was not necessary to enable him to carry out his duties which consisted of managing the trust property; and no remainder interest, vested or contingent, was created in the settlor's heirs by the provision of the trust deed relating to the disposition of the trust property upon the settlor's death. On the latter point the court said (p. 604):
It is the generally accepted rule that, where there is a grant to one for life, with remainder to the heirs of the grantor, there is in fact no remainder; for the 25 T.C. 794">*801 limitation, though denominated a remainder, continues in the grantor as his old reversion, and does not devolve upon his heirs as purchasers, as it would if it were 1956 U.S. Tax Ct. LEXIS 294">*311 a remainder, but as his heirs. 23 Rawle C. L. 516; Akers v. Clark, supra. [
Considering the whole deed of trust the court could find no indication of an intention on the settlor's part of making a disposition of his estate to take effect at his death. It therefore concluded that the settlor was the only beneficiary of the trust, and that consequently the trust was revocable. Further, the court felt that the nature of the trust was such, it granted the trustee the powers only of an agent, and as the grant was not coupled with an interest or supported by independent consideration, it was revocable at the grantor's pleasure.
Insofar as the revocability of the trust in question here, we see no material difference between this case and
On the death of said Mary Lois K. Perry, the trust hereby created shall end, and the entire trust estate created by this instrument, together with any and all accumulated and undistributed income therefrom, shall go to such parties 1956 U.S. Tax Ct. LEXIS 294">*313 and under such terms and conditions as the said Mary Lois K. Perry may, by her last will, direct. In the event that the said Mary Lois K. Perry shall die intestate, or should fail to exercise said power by her last will, then, on her death, the entire trust estate hereby created, together with any and all accumulated and undistributed income therefrom, shall go and pass to the then heirs at law of the said Mary Lois K. Parry [
25 T.C. 794">*802 The quoted language of itself created no interest in the trust property in the settlor's heirs (
We therefore hold that decedent was the only beneficiary under the trust created in effect by her in 1929, and consequently she had the power to revoke the trust under Missouri law. The value of the trust property is therefore includible in her estate under
Petitioners point to the fact that the deed of trust made provision for keeping in trust any portion of the trust property passing to decedent's minor heirs during their minority, as an indication of an intention on decedent's part to create an interest in the trust property in her son at the time the trust was created. We fail to see in this provision an indication of the intention sought to be derived from it by 1956 U.S. Tax Ct. LEXIS 294">*315 petitioners. To us it indicates no more than that petitioner wanted to be certain that if any of the trust property should go to a minor heir, it would be properly cared for during minority. This is not to say that at the time the trust was created decedent wanted to put out of her power of disposition the interest in the trust property remaining after her death by then creating an interest in her son or heirs.
Another circumstance pointed to by petitioners as indicative of decedent's intention to provide her heirs with an interest in the trust property is her relinquishment of her power of appointment in 1943. This argument, it seems to us, avails petitioners nothing. The relinquishment was made in the hope of preventing the value of the trust property from being included in decedent's estate at death and thereby to save estate taxes. Even if we should conclude that at this time, in 1943, decedent intended that she should not during her lifetime have a power of disposition of the interest in the trust property remaining after her death, we should also have to conclude that in giving up her power of appointment decedent also gave up the power of revocation 25 T.C. 794">*803 she had prior to that 1956 U.S. Tax Ct. LEXIS 294">*316 time, and that this was in contemplation of death within the meaning of
Finally, petitioners contend that the Supreme Court's ruling in
argument overlooks the essential difference between a power to revoke, alter or amend, and a condition which the law imposes. The general rule is that all parties in interest may terminate the trust. 1956 U.S. Tax Ct. LEXIS 294">*317 Helvering v.
The respondent misinterprets the meaning of the Helmholz case where the court said that the Government's "argument overlooks the essential difference between a power to revoke, alter, or amend, and a condition which the law imposes". [
An additional reason asserted by respondent for including the value of the trust property in decedent's estate is that decedent's release in 1943 of the power to name the ultimate beneficiaries of the trust property was in contemplation of death within the meaning of
We have previously held that a transfer motivated solely by a desire to avoid estate taxes was in contemplation of death.
A settlor's reservation of a power to change the ultimate beneficiaries 1956 U.S. Tax Ct. LEXIS 294">*322 of trust property is sufficient to cause the value of the property to be included in the settlor's estate upon death as a power to alter or amend the transfer in trust, under
Petitioners in attempting to fit their case into the Supreme Court's holding in
The remaining question relates to the respondent's disallowance of part of the amount claimed for support of a dependent (decedent's husband) under In our view petitioners have failed to show that 1956 U.S. Tax Ct. LEXIS 294">*325 under the circumstances here an amount in excess of $ 12,000 was reasonably necessary for the support of decedent's husband during the settlement of the estate. (Respondent does not question that decedent's husband was dependent on her for support, that the amount of $ 18,000 was actually expended, and that such payment was allowed under the laws of Connecticut.) As set forth in our Findings of Fact decedent's husband received pursuant to orders of a probate court of Connecticut payments of $ 1,000 a month as a support allowance for the period from the date of decedent's death, May 1949, until November 1950, a total of $ 18,000. In July 1949, 2 months after his wife's death, decedent's husband was paid a bequest of $ 10,000 as provided for in decedent's will. In addition, in November 1950 he received $ 4,000, representing payments of $ 1,000 a month from June through September 1950, under the residuary trust created by decedent's will. While it is apparent from the whole record here that decedent was well-to-do and that she and her husband enjoyed a high standard of living, petitioners have not demonstrated why, in light of the circumstances set out above, the additional $ 6,000 1956 U.S. Tax Ct. LEXIS 294">*326 contended for was reasonably required for decedent's husband's support. Cf.
1.
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, except real property situated outside of the United States --
* * * *
(d) Revocable Transfers. -- * * * * (2) Transfers on or prior to June 22, 1936. -- To the extent of any interest therein of which the decedent has at any time made a transfer, 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, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Except in the case of transfers made after June 22, 1936, no interest of the decedent of which he has made a transfer shall be included in the gross estate under paragraph (1) unless it is includible under this paragraph;
3.
8. Restatement of the Laws of Trusts,
2. Section 403 (d) (3) of the Revenue Act of 1942 (56 Stat. 944) and section 2 (a) of the "Powers of Appointment Act of 1951" (65 Stat. 91) permit the tax-free release only of donated powers of appointment, not of reserved powers. See Conf. Rept. No. 2586, 77th Cong., 2d Sess., p. 71 (Amendment No. 418); H. Rept. No. 2333, 77th Cong., 2d Sess., p. 57 (defining a power of appointment); S. Rept. No. 382, 82d Cong., 1st Sess., p. 6 (specifically stating that the amendments made to
3.
Helvering v. Helmholz ( 1935 )
Helvering v. City Bank Farmers Trust Co. ( 1935 )
Blair v. Commissioner ( 1937 )
First Trust & Deposit Co. v. Shaughnessy ( 1943 )
Commonwealth Trust Co. of Pittsburgh v. Driscoll ( 1943 )
Farmers' Loan & Trust Co. v. Bowers ( 1938 )
Vanderlip v. Commissioner of Internal Revenue ( 1946 )
Krause v. Jeannette Investment Co. ( 1933 )
United States v. Wells ( 1931 )