Court Opinion

ID: 4621920
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:45:39.908488+00
Date Added: 2024-06-11T07:56:05.554326
License: Public Domain

FIFTH AVENUE BANK OF NEW YORK AS EXECUTOR OF THE ESTATE OF CETTIE G. SHEPHERD, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Fifth Ave. Bank v. CommissionerDocket No. 69166.United States Board of Tax Appeals32 B.T.A. 208; 1935 BTA LEXIS 983; March 7, 1935, Promulgated *983  Under a trust indenture decedent was given power to appoint by will those who should take the trust property at her death, but in default of such appointment her issue should take as remaindermen.  Decedent died testate, leaving two children who were legatees under her will.  They elected to take as remaindermen.  Held, the trust property is not includable in the gross estate of decedent.  A. P. Bachman, Esq., for the petitioner.  Ralph E. Smith, Esq., for the respondent.  SEAWELL*208  This proceeding is prosecuted for the redetermination of a deficiency in estate tax of Cettie G. Shepherd, deceased, determined by respondent in the amount of $9,243.38.  The deficiency is the result of the inclusion in decedent's gross estate of $241,768.99, the appraised value of an estate under a trust indenture in which decedent was given a power of appointment.  FINDINGS OF FACT.  The facts were stipulated, from which we cull the following, deemed sufficient for the understanding of the case.  On November 22, 1918, Alice G. Vanderbilt, of New York, by a trust indenture assigned, transferred, and delivered certain valuable securities to Gertrude Vanderbilt*984  Whitney, of New York, and *209  Reginald G. Vanderbilt, of Rhode Island, in trust, to hold, sell, invest, and collect the income and pay from the income the expenses and taxes and other charges and * * * to pay the balance of such income as the same shall accrue and be received to CETTIE GWYNNE SHEPHERD, during her life; and upon her death to convey, assign, transfer and deliver the principal of the trust to such person or persons as she shall by her last Will and Testament direct and appoint, or in default of such appointment to her issue in equal shares per stirpes and not per capita, or in default of such appointment and if she shall not leave issue surviving her, to the issue of said Alice G. Vanderbilt * * * The life tenant and donee of the power of appointment named in the trust indenture is Cettie G. Shepherd, the decedent herein, who died November 6, 1931, a resident of New York City, leaving surviving her two children, William E. Shepherd and Maude Shepherd Harrah.  Alice G. Vanderbilt, the settlor, was alive November 6, 1931, and was still alive at the hearing of this matter before a division of the Board.  The trustees having resigned, another was duly appointed*985  and is the acting trustee.  The decedent, Cettie G. Shepherd, left a last will and testament which was duly probated by the Surrogate's Court of New York County on November 17, 1931, and letters testamentary were duly issued by that court to the petitioner herein on November 19, 1931, who is now executor of the estate.  It is expressly stipulated as follows: 12.  That Cettie G. Shepherd, decedent herein, did not in express terms execute the power of appointment conferred by Trust Indenture, Exhibit D, but the Commissioner holds that such power of appointment was essentially exercised by the residuary clause of Exhibit A.  The residuary clause of decedent's will, copied as Exhibit A in the stipulation, is as follows: 3.  All the rest, residue and remainder of my estate, of every kind and wherever situated, I give, devise and bequeath unto my children share and share alike, hereby directing that if my said children join in a request that my real property be not sold by my executor, but shall pass to them as tenants in common, my executor shall execute and deliver proper deeds making conveyance accordingly.  The attorney who prepared the will of decedent was not informed that*986  there was a trust indenture, such as involved here, or of any power of appointment mentioned therein, and never knew of the trust indenture mentioned above until after decedent's death.  It is also expressly stipulated as follows: 14.  That William E. Shepherd and Maude Shepherd Harrah duly executed and filed with the Collector of Internal Revenue of the Third District of New York, their election to take as remaindermen under the Trust Indenture Exhibit D, as therein provided.  *210  OPINION.  SEAWELL: The section of the Revenue Act of 1926 here involved is as follows: SEC. 302.  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 - * * * (f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at or after, his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth.  *987  Heretofore there has existed irreconcilable conflict in some of the court decisions interpreting this statute, which has now been definitely cleared away.  The United States Supreme Court, in a decision handed down on February 4, 1935, , dealing with said section of the law on a state of facts comparable to those in the instant case, said: The crucial words are "property passing under a general power of appointment exercised by the decedent by will." Analysis of this clause discloses three distinct requisites - (1) the existence of a general power of appointment; (2) an exercise of that power by the decedent by will; and (3) the passing of the property in virtue of such exercise.  Clearly, the general power existed and was exercised; and this is not disputed.  But it is equally clear that no property passed under the power or as a result of its exercise since that result was definitely rejected by the beneficiaries.  If they had wholly refused to take the property, it could not well be said that the property had passed under the power, for in that event it would not have passed at all.  Can it properly be said that because*988  the beneficiaries elected to take the property under a distinct and separate title, the property nevertheless passed under the power?  Plainly enough, we think, the answer must be in the negative.  In the instant case petitioner does not admit that the power of appointment by will was exercised as in ; but even if so admitted, it nevertheless appears that the beneficiaries definitely rejected title in that way and took as remaindermen, as they had the right to do.  It therefore appears that title did not pass under the power of appointment given in the trust indenture, and the value of the trust property should not be added to decedent's gross estate.  We hold respondent was in error.  Judgment will be entered for the petitioner.