DocketNumber: Docket No. 1438.
Citation Numbers: 3 T.C.M. 877, 1944 Tax Ct. Memo LEXIS 135
Filed Date: 8/17/1944
Status: Non-Precedential
Modified Date: 11/21/2020
*135 Prior to the enactment of the first estate tax statute decedent created a trust in which she retained the right to the income for life. After her death the income was to go to her two children for their respective lives with remainder to the issue of each child in the part held for his or her benefit. The corpus was to revert to the decedent upon the death of the survivor of her two children. The provisions of the trust instrument were not modified or changed during decedent's lifetime. She died in 1938.
Memorandum Opinion
TYSON, Judge: The respondent has determined a deficiency in estate tax against the estate of Myra C. Kitchen, in the amount of $4,491.30, resulting, in part, from respondent's inclusion in decedent's gross estate of the amount of $16,146.88 as the value, at the date of decedent's death, of *136 property transferred by decedent to a trust created by her on May 15, 1915. Other adjustments are not in controversy.
The issues presented are: (1) Should the above mentioned amount of $16,146.88, or any part thereof, be included in decedent's gross estate; and, in the alternative, (2) if any part thereof is to be so included, should the amount be limited to the value of decedent's contingent reversionary interest.
The proceeding has been submitted upon the pleadings and a stipulation of facts. Such of those stipulated facts as are not set forth herein are included by reference.
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The petitioners are the executors of the estate of Myra C. Kitchen who died on December 15, 1938. On May 15, 1915, the decedent and the New York Life Insurance & Trust Company executed a written instrument, the material portions of which are as follows:
"That the party of the first part in consideration*137 of the sum of one dollar, * * * paid by the party of the second part * * * has granted, bargained, sold, assigned, transferred and set over and by these presents does grant, bargain, sell, assign, transfer and set over, unto the said party of the second part, the indentures of mortgage hereinafter described, together with the bonds or obligations therein mentioned and the money due and to grow due thereon, with the interest:
"To take possession of and hold the said bonds and mortgages and the proceeds thereof, when received, and all reinvestments of such proceeds as a trust fund during the life of the party of the first part, and to invest and keep invested the principal of such fund, and to collect and receive the income, interest, dividends, issues and profits derived therefrom, or from any property by which the said fund, or any part thereof, may at any time be represented, and after paying and discharging all taxes, excises and other charges, which may be lawfully imposed upon the property constituting*138 the principal of the trust estate, or upon the income derived therefrom, and all proper and necessary expenses incurred or paid in the administration of the said trust, and in the care and preservation of the trust estate, and in reinvesting the principal thereof, and duly accounting for the same and for the income thereof when lawfully required so to do, to pay over the net income of said trust estate to the party of the first part as and when received by the said trustee, after deducting or providing for the charges and expenses aforesaid, during her life, and upon her death to divide the principal of the trust estate into two equal parts or shares and to hold each of said parts upon separate trusts and invest and reinvest the principal of each of said shares and receive the income, interest, dividends, issues and profits derived therefrom, and after deducting or providing for the expenses and charges above mentioned, to pay over the net income of one of said shares, as and when received, to the daughter of the party of the first part
In accordance with the provisions of the trust instrument, decedent, on or about May 15, 1915, transferred certain securities to the trustee, which had a fair market value on the date of decedent's death, December 15, 1938, of $16,146.88.
Myra C. Kitchen, decedent, was born on April 4, 1855. She was survived by her daughter born April 26, 1886 and her son born April 9, 1891.
Decedent did not at any time relinquish the life estate provided for her by the trust agreement and received the income pursuant thereto. The provisions of the agreement were not modified or changed during her lifetime.
The estate tax return was filed with the collector for the fifth district of New Jersey. In determining the deficiency here involved the respondent included in decedent's gross*141 estate $16,146.88 as the value at the date of decedent's death, of the property transferred under the trust instrument.
There is no contention by respondent that the transfer was made in contemplation of death. Neither does respondent rely, in support of his position, on the fact that the decedent retained a life interest in the property conveyed to the trust. He relies solely on the fact that under the terms of the trust instrument the trust would terminate on the death of the last survivor of her two children during the lifetime of the decedent grantor. whereupon, "the whole of said trust estate shall revert to and become the absolute property" of the grantor; and contends that because of that fact the value of the property, at the date of decedent's death, transferred to the trust is includible in the gross estate of decedent under section 302 (c) of the Revenue Act of 1926, as amended. 1
*142 Petitioners contend: (1) that no part of such value is includable in the gross estate of decedent, because when the transfer was made to the trust there was no statute imposing an estate tax and that to apply section 302(c), as amended, would be retroactive taxation in violation of the
We will now consider the first contention of petitioners. Section 302(h) of the Revenue Act of 1926, in force and effect at the time of decedent's death, provides that section 302(c),
Is Section 302(c),
In
There, as here, the taxpayer contended that because the trust was created prior to the enactment of an estate tax statute a retroactive application of section 302(c),
* * * It is urged that the
Where a constitutional question is presented growing out of a claimed retroactive application of a statute such as that here involved, it is the date of decedent's death which is to be considered in the solution of such question rather than the date of the instrument creating the contingent right of reversion.
We think the principle and reasoning applied in the cited cases are controlling, and hold that the application here of the statute in question is not unconstitutional as contravening the
The
Having disposed of the constitutional question we will now consider the second contention of petitioners. They make no argument in support of this contention, but merely state it to the effect that none of the value of the property transferred to the trust at the date of decedent's death ($16,146.88) should be included in decedent's gross estate under section 302(c),
In the trust instrument the grantor decedent, after first providing for payment of the net income to herself for life, provided for a life estate to each of her two children, to begin immediately after her death with remainder to the issue of*147 each child in the part held for his or her benefit. The trust instrument expressly provided that if either child should die in the lifetime of the grantor, with or without issue, the part held for the benefit of the child so dying should revert to the grantor, and the part held for the benefit of the surviving child should be held for the benefit of the grantor during her life and for the benefit of the surviving child during his or her life and be paid to his or her issue upon his or her death, but that if both children should die, with or without issue, in the lifetime of the grantor, the whole of the trust estate should revert to the grantor upon the death of the last surviving child. Under the latter provision the grantor decedent had a possibility of reverter in the whole of the trust property contingent upon whether or not she survived either or both of her children. In this respect the case is indistinguishable in any material way from
The petitioners cite no authority in support of their third, and alternative contention, that if any value of the trust property is to be included in the gross estate of decedent such value should be limited to the value at the time of her death of decedent's contingent reversionary interest in that property.
In one of the cases considered in
We think the holding in the
In another case considered in
In
We have no such situation here as was presented in the
If, however, we are wrong in our conclusion on this third contention of petitioners, we would nevertheless reach a like result, since the value of decedent's reversionary interest at the time of her death is not shown by the record; the petitioners merely suggesting on brief that the value of the children's interest in the trust property would be disclosed by resort to annuity tables.
1. SEC. 302 (as amended by section 404 of the Revenue Act of 1934). 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 the United States.
(a) To the extent of the interest therein of the decedent at the time of his death;
* * * * *
(c) 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. * * *↩