#### GEORGE P. MILLER, NELSON S. HOPKINS, CLARENCE L. DILLON, AS TRUSTEES UNDER DEED OF TRUST OF GEORGE DOUGLASS, v. THE UNITED STATES1

[No. D-809.

Decided June 14, 1926]

*On the Proofs*

*Estate taw; conveyance to trustees.*— Long before tbe taxing act was passed a man conveyed an estate to trustees, part of tbe income to be paid to bim and bis wife and part to their children; upon tbe death of either, part to be paid to tbe survivor and part to their children; upon the death of both, the trustees to distribute the estate among the children *per stirpes*and the trust to terminate. The husband died after the passage of the taxing act. *Held,*that only the estate which he actually possessed at the time of his death was subject to the estate tax, and the interest which he parted with in the conveyance to trustees was not subject to the tax.

. *The Reporter's*statement of the case:

*Mr. William. D. Williams*for the plaintiffs. *Williams, Myers, Quiggle c& Breeding*and *Miller, Mach & Fairchild*were on the brief.

*Mr. T. n. Lewis, jr.,*with whom was *Mr. Assistant Attorney General Herman J. Galloway,*for the defendant. *Mr. Fred K. Dyar*was on the brief.

The court made special findings of fact, as follows:

I. During the year 1908 George Douglass, then a resident of Milwaukee, Wis., acquired by bequest the full ownership of a one-tenth interest in the estate of R. G. Dun, of New York, N. Y., of which the principal asset was the mercantile agency of R. G. Dun & Co. Each of the three brothers of George Douglass also inherited a one-tenth interest in the estate of R. G. Dun, and the remaining six-tenths were inherited by other connections or relatives of R. G. Dun.

II. The three brothers of George Douglass, after said inheritance, engaged actively in the management of the business of R. G. Dun & Co. George Douglass had very little business experience or knowledge of business affairs, and took *405no part in the conduct of business of R. G. Dun & Co. except from time to time to sign papers, which his brothers submitted to him for the immediate purpose, without particular study or understanding by him of their contents. Said inheritance constituted almost the entire property owned by George Douglass at that time. Because of his lack of knowledge concerning the business of the estate which he had inherited, and fearing that he might sign papers seriously affecting his interest, George Douglass, upon advice of counsel, under date of December 5, 1910, transferred his interest acquired from the ft. G. Dun estate in trust to George P. Miller, George A. Douglass (a son of the aforesaid George Douglass), and Clarence L. Dillon, as trustees with broad powers, so' that with their knowledge of business affairs they might properly look after his interests and participate in the management of the business of E. G. Dun & Co. At the time the said deed of trust was executed George Douglass was in good health and was not afflicted with any mental or physical disability or injury, and the deed was not made by him in contemplation of death.

A copy of said deed of trust is attached hereto as Appendix “ A ” and is made a part of this finding by reference thereto.

III. George P. Miller, George A. Douglass, and Clarence L. Dillon, the persons named as trustees under said deed of trust dated December 5, 1910, thereupon accepted their appointments as such and served in said capacity until February 23,1918, when one of the trustees, George A. Douglass, died. Thereafter, on April 1, 1918, Nelson S. Hopkins was duly appointed as trustee pursuant to the provisions of said deed of trust in the place of George A. Douglass, deceased, and accepted the appointment as such. Since that time George P. Miller, Nelson S. Hopkins, and Clarence L. Dillon, the plaintiffs herein, have served as trustees under the said deed of trust and are now serving in that capacity.

IV. On September 29, 1919, George Douglass, then a resident of Pasadena, Calif., died, leaving a will in which he named as executrix of his estate his wife, Susan Dun Douglass, who' qualified as such under the laws of the State of California.

*406On September 13, 1920, there was filed in the superior court of the State of California in and for the county of Los Angeles an inventory, sworn to by said Susan Dun Douglass, as executrix of the estate of George Douglass, of the assets of the said estate, and an appraisement thereof made by appraisers duly appointed for the purpose by said court. Said inventory and appraisement showed the assets of said estate to consist of real estate valued at $50,000 and personal property valued at $82,495.54, or a total of $132,495.54, before deducting the debts and expenses of administration. On January 12, 1921, said court issued an order settling the final account of said executrix on the basis of a finding that she had in her possession belonging to said estate, after deducting the credits to which she was entitled, a balance of $111,026.97, and directing that said balance, which consisted of cash in the amount of $5,437.47 and other property, be distributed to the beneficiary under the will of George 'Douglass. Said distribution was thereupon made, and on May 2, 1921, Susan Dun Douglass received her final discharge as such executrix from said superior court.

Y. Under date of September 13, 1920, Susan Dun Douglass, as executrix of the estate of George Douglass, filed with the collector of internal revenue at Los Angeles, Calif., a return for said estate for the purposes of the estate tax imposed by Title IY of the revenue act of 1918. Said return showed a gross estate in the amount of $123^590.49, a net estate subject to the estate tax of $49,916.36, and a liability to said estate tax of $499.16, which latter amount was paid by said executrix to the collector of internal revenue at Los Angeles, Calif., at the time of filing the return. Said return did not include any part of the property covered by the said deed of trust in the gross estate, although a copy of said deed of trust and a list of the property covered thereby were submitted with the return for the information of the Bureau of Internal Revenue.

YI. In June, 1923, the Commissioner of Internal Revenue of the United States, after an audit and investigation of said return, determined and found that the value of the property *407covered by said deed of trust of December 5, 1910, should be included as part of the gross estate of George Douglass for the purposes of the estate tax, and that the value thereof at the time of the decedent’s death was $1,502,863.47. The commissioner made certain other changes in the return, which changes are not material to or involved in this litigation. As a result of the aforesaid addition of $1,502,-863.47 and other changes, the commissioner determined and found that the total gross estate was $1,642,433.60; that the net estate subject to the tax was $1,571,840.98; and that the total estate-tax liability of the estate was $110,096.92. Thereupon the Commissioner of Internal Revenue made an additional assessment of estate tax against the estate of George Douglass in the amount of $109,597.76, after crediting against the total tax liability computed by him of $110,-096.92 the amount of $499.16 paid by the executrix at the time of filing the return. On July 9, 1923, the collector of internal revenue at Los Angeles, Calif., addressed a letter to Susan D. Douglass, inclosing letter dated June 16, 1923, from a Deputy Commissioner of Internal Revenue addressed to Susan D. Douglass, executrix, estate of George Douglass, giving notice of said additional assessment, and demanded payment thereof. The said demand by the collector was the only demand made therefor and no distraint warrant was issued.

VII. Under date of July 19, 1923, following the .demand of the collector of internal revenue at Los Angeles, Calif., for payment of the additional tax of $109,597.76, a claim for the abatement of the assessment in the amount of $39,004.41 was filed in behalf of the estate of George Douglass in the name of George P. Miller, attorney in fact for executrix. On August 20, 1923, the remainder of the tax demanded, in the amount of $70,593.34, together with interest for 14 days in the amount of $294.15, was paid to the said collector of internal revenue by the plaintiffs under protest. On November 15, 1925, a claim for refund of said payment of $70,887.49, bearing the signatures of Susan Dun Douglass, executrix, Susan Dun Douglass, and George P. Miller, N. S. Hopkins, and Clarence L. Dillon, trustees under trust deed *408dated December 5, 1910, was filed with said collector. On April 29, 1924, said claim for abatement and claim for refund were denied by the Acting Commissioner of Internal Revenue. Under date of June 3, 1924, pursuant to a demand from said collector addressed to Susan Dun Douglass, executrix, plaintiffs paid to him under protest the amount of $39,004.41, representing the amount of the rejected claim for abatement, and interest thereon in the sum of $3,174.50, and on the same day there was filed with said collector a claim for refund of the amount so paid of $42,178.91, which was signed in the names of Susan D. Douglass, sole beneficiary under the will of George Douglass and executrix of said will, by George P. Miller, her attorney, under power of attorney dated October 15, 1923, and in the names of George P. Miller, Nelson S. Hopkins, and Clarence L. Dillon, trustees under trust deed dated December 5, 1910, by George P. Miller, their attorney under power of attorney dated October 15, 1923. This claim was denied by the Commissioner of Internal Revenue on September 5, 1924.

VIII. At the time said demand was made for payment of said additional tax of $109,597.76, to wit, on July 9, 1923, the said executrix of the estate of George Douglass had been discharged and the net assets included in said estate in the administration proceedings in California had been distributed, as aforesaid. Thereupon the plaintiffs, as trustees under the aforesaid deed of trust, made the aforesaid payments of additional taxes and the interest thereon in order to avoid the possible distraint and seizure by the collector of internal revenue of the property held by them as trustees and determined by said commissioner to be properly included in the gross estate of George Douglass. It is hereby stipulated that the said trustees are the proper plaintiffs in this action.

IX. If the value of the trust property transferred as aforesaid is excluded from the gross estate the amount recoverable by plaintiffs is $111,684.73, with interest thereon as provided by law. If 25 per cent of the said value is excluded from the gross estate, the amount recoverable by plaintiffs is $42,337.67, with interest thereon as provided by law.

*409The court decided that plaintiffs were entitled to recover $111,684.73, with interest thereon at 6 per cent per annum from June 3, 1924, to the date of judgment, aggregating $125,291.65.

1

 Writ of certiorari denied.

Campbell, *Chief*Justice,

delivered the opinion of the court:

This suit is to recover certain estate taxes assessed upon ' the estate of George Douglass. From the facts which are stipulated it appears that in December, 1910, George Douglass and his wife, Susan Dun Douglass, conveyed to trustees named certain property acquired by him under the will of Robert Graham Dun. These trustees were invested with large powers in the management, control, and reinvestment of the property, and in connection with the good will and business and property of the R. G. Dun Mercantile Agency. They were to distribute the net income and profits as follows : To George Douglass, as long as he and his wife lived, *75*per cent of the net income, and 25 per cent to their children, share and share alike. Upon the death of either George Douglass or his wife the distribution of net income was to go in the proportion of 50 per cent to the survivor and 50 per cent to the children. Upon the death, of both George Douglass and his wife the trust would terminate and the trustees were required to distribute the estate among the children, or their descendants, *per stirpes.*George Douglass died in September, 1919, nearly nine years after the creation of the trust. In his will he named his wife, Susan Dun Douglass, as executrix, and she duly qualified as such. In due time the executrix filed an inventory and appraisement of the estate showing property of a total value of $132,495.34. On September 13, 1920, she filed her tax return showing a gross estate of approximately $124,000, a net estate of approximately $50,000, and a consequent estate-tax liability of $499.16, which was paid. The estate was then distributed in accordance with the will. This return did not include any part of the property covered by the trust deed of December, 1910. In June, 1923, the Commissioner of Internal Revenue determined that the value of *410the property covered by this trust deed should be included as part of the gross estate of George Douglass for the purposes of the estate tax imposed by the revenue act of 1918, 40 Stat. 1057, sections 401, 402, 403. The commissioner accordingly found the gross estate to be $1,642,433.60, the net estate $1,571,840.98, and a tax liability of $109,597.76 in addition to the $499.16 which the executrix had paid. The estate that came into the hands of the executrix having been distributed, the additional tax assessed by the commissioner was paid out of the trust estate in the hands of the trustees, and they bring suit for its recovery. The stipulation provides they are the proper parties to sue. We have another case involving the same general question here presented, and refer to it in connection with this *case*— David *R. J.*Arnold, administrator, decided this day, post, p. 439. The statute imposes a tax upon the transfer of the net estate of a decedent to be ascertained in a stated manner. To be included in the gross estate of the decedent is the value at the time of his death of all his property, including, among others, “ to the extent of any interest therein of which the decedent has at any time ” made a transfer or created a trust in contemplation of or intended to take effect in possession or enjoyment “ at or after his death.” It is stipulated that the transfer was not made or the trust created by George Douglass in contemplation of death.

In the instant case the transfer or trust created relied on to authorize the tax was made long before the taxing act came into existence. The fact furnishes an additional reason for applying the rule that taxing statutes are to be construed in favor of the citizen where their meaning is doubtful or uncertain. The trust created in December, 1910, was not to terminate upon the death of the “ decedent,” George Douglass, but upon the death of the survivor of him and his wife, Susan Dun. Thus, if taken literally, the language of the statute does not reach it, unless the word “after” postpones the event. The children to whom the trustees would distribute the estate in their hands were delayed in the acquisition of the *corpus*of the trust until after the death of Mrs. Douglass, she surviving and becoming executrix of *411the “ decedent’s ” will. The tax is imposed upon the transfer of the net estate of the decedent, and taxes “ not the interest to which some person succeeds on a death, but the interest which ceased by reason of the death.” *Edwards*v. *Slocum,*264 U. S. 61, 63. The transfer by George Douglass in December, 1910, Tested title in the trustees and separated him from ownership of the property. His right of disposition, possession, or control of it was ended, except the right to receive a proportion of the income. The children, succeeding on the death of their mother to the *corpus*of the trust estate, then in the hands of trustees, and because of the large powers confided to these trustees succeeding to an estate that may have included little, if any, of the property originally transferred by the father, did not take, it seems to us, “ an interest which ceased by reason of the death,” but took an interest which, so far as the creator of the trust was concerned, ceased when he separated himself from the property and legal interest in the *corpus*of it in 1910. By the trust the children took a vested interest in 1910, not merely in 1919, when the decedent' died. There existed in 1910 a present capacity of taking effect in possession. If it be said that the trust created or transfer made was intended to take effect “ after ” the decedent’s death, it seems to us a sufficient answer to say the transfer was an irrevocable one, taking effect presently. The estate of George Douglass did not own the *corpus*of the estate held by the trustees, but it had passed to them long before the taxing act was passed. See *Lewellyn*v. *Frick,*268 U. S. 238, 251. By the action of the commissioner an estate whose actual property, legal and equitable, amounted at the decedent’s death to about $125,000, is made to bear a tax of more than $110,000 because of a transfer or trust created in 1910 that conveyed to trustees property in which at the time of his death the deceased had not any legal estate.

Our conclusion is that the plaintiffs are entitled to judgment. And it is so ordered.

Graham, *Judge;*Hay, *Judge;*and Booth, *Judge,*concur.