#### DAVID R. J. ARNOLD, AS ADMINISTRATOR WITH THE WILL ANNEXED OF MARY E. JORDAN, DECEASED, v. THE UNITED STATES1

[No. E-16.

Decided June 14, 1926]

*On the Proofs*

*instate tats; conveyance to trustees.*— A widow 11 years before ber death conveyed certain property to trustees to be administered under the terms of her husband’s will during the minority of their granddaughter, one-half of the income to be paid to the widow and the other half to their two children. Upon the majority of the granddaughter the trust was to terminate and a life estate in said property was to go to the widow, and upon her death the property was to pass absolutely to their two children. *Held,*that the estate tax collectible under sections 401 and 402 of the revenue act of 1918 did not apply to the property conveyed by the widow to the trustees, nor to the estate passing from her to the remaindermen.

*440
      *The Reporter's*statement of the case:

*Mr. T. Ludlow Ghrystie*for the plaintiff. Messrs, *Joseph F. McGloy*and *Thomas A. S. Beattie*were on the brief.

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

The court made special findings of fact, as follows:

I. Mary E. Jordan died a citizen of the State of New York and a resident of the city, county, and State of New York on the 14th day of September, 1919, and thereafter on the 14th day of October, 1919, letters testamentary were duly issued by the surrogate’s court of the said county of New York to William C. Arnold and Louis T.' McClenan, as the executors of the last will and testament of said Mary E.. Jordan, deceased, who thereupon duly qualified as such executors. Said Louis T. McClenan died on the 16th day of' August, 1922, and since that time the said William C. Arnold has died, and on, to wit, January 6,1926, David ft. J. Arnold was duly appointed by the surrogate’s court of the county of New York, State of New York, administrator with the will annexed of the said Mary E. Jordan, deceased. The plaintiff as such administrator with the will annexed is the owner of the claim upon which this suit is brought and has been admitted to prosecute this suit, originally brought by William C. Arnold as sole surviving executor of the last will and testament of Mary E. Jordan, deceased.

II. The said William C. Arnold and Louis T. McClenan as executors as aforesaid filed on the 27th day of April, 1920, with the collector of internal revenue of the United States for the second district of New York a return for Federal estate tax, Form 706, according to the provision of law in that regard and the regulations of the Secretary of the Treasury established in pursuance thereof, except that on said return the amount of the tax due was not stated. On the 16th day of July, 1920, said collector of internal revenue in writing informed said executors that the Federal estate tax was the sum of $866.98, and thereafter on the 5th day *441of August, 1920, the said executors paid to the said collector of internal revenue for the second district of New York the said sum of $866.98 as payment for the Federal estate tax upon the estate of said Mary E. Jordan, deceased.

III. Said return for the Federal estate tax made as aforesaid by the said executors did not include in the gross estate of the said Mary E. Jordan, deceased, certain property which had béen in the city of New York irrevocably assigned, transferred, and delivered to and accepted by the trustees under the last will and testament of Thomas D. Jordan, deceased, by a trust deed dated and duly delivered in the city of New York by said Mary E.- Jordan, a resident of the city of New York, to said trustees, residents of the said city of New York, on the 30th day of October, 1908. A copy of said trust deed of the 30th day of October, 1908, is marked *“*Exhibit A” and is printed at pages 8 to 10 of the petition herein, and is made a part hereof as if set forth in full herein. Upon the creation of said trust as aforesaid the securities then composing the capital of said trust estate were in the city, county, and State of New York, and said securities and others which had been purchased to replace such as had been sold, have been kept continuously in the said city, county, and State,- and all the acts and doings of the trustees with respect thereto have been had in said city, county, and State. Said Thomas D. Jordan died a resident of the city, county, and State of New York on the 14th day of July, 1908, and his last will and testament was duly admitted to probate in the surrogates’ court of said county of New York on the 10th day of August, 1908. A copy of said last will and testament of Thomas D. Jordan, deceased, is marked “ Exhibit B ” and is printed at pages 11 to 15 of the petition herein, and is made a part hereof as if set forth in full herein. The fact of said transfer of October 30,1908, was, as required by the regulations of the Secretary of the Treasury, listed in Schedule E of said return, but the value of said property transferred by said trust deed of October 30, 1908, was not extended for inclusion in the gross estate because the said executors claimed that said property transferred on said October 30, 1908, was not subject to the Federal estate tax.

*442IY. Thereafter on the 8th day of August, 1922, over the-protest of the said executors, the Commissioner of Internal Eevenue added the value on the 14th day of September, 1919, of said property transferred as aforesaid on said 30th day of October, 1908, to wit, $355,262.03, to the gross estate, and increased the gross estate by other additions, not here material, whereby the said gross estate was increased from the-sum of $125,570.67, returned by the said executors to the-sum of $483,043.03, and thereupon assessed an additional Federal estate tax of $11,660.36, making a total Federal estate tax of $12,527.34, of Avhich amount said executors had already paid $866.98. Thereafter said William C. Arnold duly obtained an extension to the 15th day of September, 1922, to pay said additional tax, and thereafter duly paid on the 11th day of September, 1922, the sum of $41.44, making a total tax paid of $908.42, which amount was by the executors calculated to be the additional tax due upon the-transfer of the decedent’s net estate exclusive of the property transferred as aforesaid on the 30th day of October, 1908. Of said additional Federal estate tax of $11,660.36 the sum of $11,618.92 was the additional Federal estate tax resulting from the inclusion in the gross estate of the decedent of the value of the said property transferred on the said 30th day of October, 1908. Said Commissioner of Internal Eevenue notified said William C. Arnold of said action by a communication dated August 8, 1922, said communication being forwarded to him in a communication from the said collector of internal revenue for the second district of New York, and in and by said communication payment of said additional Federal estate tax was demanded-Thereafter the said William C. Arnold filed with the-Commissioner of Internal Eevenue a claim for abatement, verified the 11th day of September, 1922, of said additional, estate tax of $11,618.92, which claim was rejected by the Commissioner of Internal Eevenue on the 3d day of October,. 1922. Thereafter a rehearsing was held on said claim for abatement, and on the 11th day of April, 1923, said rejection of said claim for abatement was confirmed. Upon said notice and demand said $11,618.92, together with the interest; *443thereon amounting to $774.59, making a total of $12,393.51, was paid by said William C. Arnold to said collector of internal revenue for the second district of New York under duress to prevent distraint and to avoid further penalty for nonpayment and under specific protest on the 10th day of May, 1923.

V. On the 12th day of November, 1923, said William C. Arnold filed a claim for refund of said $12,393.51 with the said Commissioner of Internal Eevenue, which claim was by said commissioner rejected on the 29th day of January, 1924.

YI. Frank B. Jordan and Elizabeth J. O’Brien, the son and daughter, respectively, of said Thomas D. Jordan, survived said Mary E. Jordan and are still alive. Marie DeMilt Jordan attained her majority on the 26th day of August, 1916. By virtue of said instrument, dated the 30th day of October, 1908, there was delivered to said Frank B. Jordan and Elizabeth J. O’Brien upon the death of the said Mary E. Jordan the property transferred by said instrument. Marie DeMilt Jordan, Thomas DeMilt Jordan, Frank Bertram Jordan, jr., John Williams Jordan, and Kathryn Semmes Jordan are the five children of Frank B. Jordan and survived said Mary E. Jordan. Said Elizabeth J. O’Brien has had no issue.

The court decided that plaintiff was entitled to recover $12,393.51, with interest thereon at 6 per cent per annum from May 10, 1923, to date of this judgment, aggregating $14,694.57.

.Writ of certiorari granted.

Campbell, *Chief*Justice,

delivered the opinion of the court:

This suit is to recover certain taxes collected as an estate tax under the construction given sections 401 and 402 of the revenue act of 1918, 40 Stat. 1057, by the Commissioner of Internal Eevenue. The agreed facts show that the value of the gross estate for the purposes of the tax was ascertained by including the value of certain property which Mrs. Jordan transferred in October, 1908, to trustees to be administered under the terms of her husband’s will, he having died a few months prior to this conveyance or transfer. The hus*444band’s will devised and bequeathed property to trustees in trust “ for and during the minority of ” the testator’s granddaughter, with authority in the trustees to manage the estate and apply its net income and profits during the continuance of the trust as follows: One-half thereof to the use of the testator’s wife, Mary E. Jordan, and one-fourth to each his son and daughter. The trust was to cease when the granddaughter should attain her majority, and upon that event the residuary estate was devised and bequeathed to the wife, Mary E. Jordan, for life, with remainder at her death to the son and daughter of the testator. The granddaughter attained her majority in August, 1916, and at that time the trust terminated, the widow, Mary E. Jordan, being vested with the life estate in accordance with the terms of the will. We are not concerned with the value of this life estate in property acquired under the husband’s will, but with her estate in property which had been the subject of her transfer in 1908. Manifestly the wife’s life estate in the property belonging to the husband’s estate would cease with her death and her estate would not be taxable on the value of the gross estate passing to the remainderman. But is her estate taxable because of her transfer in 1908 of certain property owned by her in her own right which was transferred to active trustees to be managed under the trusts specified in her husband’s will ? The tax imposed by section 401 of the revenue act of 1918, 40 Stat. 1057, is upon “ the transfer of the net estate of every decedent ” dying after the passage of the act. Section 402 prescribes the method of ascertaining this net estate and requires the inclusion in the value of the gross estate of all property “ (c) to the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust in contemplation of or *intended to*take effect in possession or enjoyment at or after his death.” . The tax is made applicable whether such transfer or trust is made before or after the passage of the act. In terms, it is laid upon the transfer of the net estate.

It is imposed upon the interest which ceases by reason of the death. *Edwards*v. *Slocum.,*264 U. S. 61; *Y. M. C. A.*v. *Davis,*264 U. S. 47, 50. To be taxable the transfer must *445have been made, or the trust created, in contemplation of or intended to take effect in possession or enjoyment at or after the decedent’s death. Mrs. Jordan owned the property in her own right and had and was entitled to have its possession and enjoyment. She transferred it to trustees irrevocably upon defined trusts. When that transfer became effective she ceased to be the owner of the property in her own right, she gave up its possession, and instead of being entitled to its use and enjoyment she directed that the trustees pay her one-half of its income and profits and pay two other persons the other half. So far as that feature of the trust was concerned, it can not be said to be a transfer or trust intended to take effect after her death. It took effect presently, and the right of these two other persons to one-half of its net income was absolute. When the granddaughter attained her majority the trusts declared in the will terminated, and from that time on Mrs. Jordan had a life estate in the residuary estate of the husband; and at the same time the interest of Mrs. Jordan in the property she had conveyed in 1908 was transmuted by the berms of the trusts declared in the will into a life estate with remainder to the children. On the other h^nd, if Mrs. Jordan had died before the granddaughter attained her majority her interest in the estate conveyed by her in 1908 would have gone to the two children at the termination of the trust established by the will. We think that the conveyance of 1908 does not come within the terms of the taxing statute and therefore that the plaintiff should recover. And it is so ordered.

GRAham, *Judge;*Hat, *Judge;*and Booth, Judge, concur.