Court Opinion

ID: 4634452
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:16:02.792111+00
Date Added: 2024-06-11T07:58:13.329641
License: Public Domain

THE ESTATE OF DR. CHARLES JEFFERSON MILLER, THE HIBERNIA NATIONAL BANK IN NEW ORLEANS, TESTAMENTARY EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Miller v. CommissionerDocket No. 94006.United States Board of Tax Appeals40 B.T.A. 138; 1939 BTA LEXIS 890; June 23, 1939 Promulgated *890  By an instrument of donation dated June 30, 1921, the decedent gave to a bank in trust for the account of his crippled daughter, nine years of age, $75,000 par value of negotiable bonds.  The income of the trust fund was to be accumulated and added to the principal.  The instrument of donation provided that it should remain in effect for a period of 10 yers, whereupon the bonds and the income accumulated therefrom should revert to the donor.  At the end of the 10 years the donor made no demand upon the trustee for any part of the income or principal.  The bank continued to hold the bonds as custodian for the account of the daughter.  Upon the daughter's arriving at the age of 21 years in 1933 the bank dealt with her as the owner of the fund and thereafter paid her the income from the fund, all with the knowledge of the donor.  The donor died in 1936 and the respondent has added to his gross estate the entire value of the fund.  Held, that the donor had made a completed gift of the fund to the daughter during his lifetime and that no part of the fund constituted a part of the decedent's gross estate.  Percy S. Benedict, Esq., and Burt W. Henry, Esq., for the petitioners. *891 Joe D. Hughes, Esq., and William P. Blake, Esq., for the respondent.  SMITH *138  This proceeding is for the redetermination of a deficiency in estate tax in the amount of $10,527.15.  The petition alleges that the respondent erred in adding to the gross estate returned by the petitioner the value of a trust fund created by the decedent for the benefit of his daughter.  FINDINGS OF FACT.  The petitioner is the testamentary executor of the estate of Charles Jefferson Miller, who died a resident of New Orleans, Louisiana, March 21, 1936.  It filed an estate tax return for the decedent, excluding therefrom the value of a trust fund held by the bank for the decedent's invalid daughter.  The respondent has added to the *139  gross estate reported $69,464.07, the entire value of the trust fund.  The decedent left a will which was duly probated and provided in part as follows: * * * All the property I may die possessed of, real, personal, or mixed, I bequeath and devise, in trust, in accordance with the provisions of Act, No. 107, 1920, of the General Assembly of the State of La. unto the Hibernia National Bank in New Orleans, or its legal successor, *892  as Trustee, for the use and benefit of my child, Elizabeth Miller.  * * * It shall invest and add to the trust estate such portion of the income as is not required for the support and education of the beneficiary in her station in life.  During the existence of this trust it shall in no event pay to the beneficiary any portion of the principal of the trust estate, except on the ground of emergency, involving the necessary maintenance of the health, support or education of the beneficiary, and further provided that the trustee is of the opinion that such is necessary.  The Trustee shall pay to or for the account of the beneficiary, quarterly or oftener if agreeable to the Trustee and desired by the beneficiary, such portion of the income earned upon the share of the beneficiary in the trust estate as may be required for her maintenance and education giving due regard to the age of the beneficiary and her station in life.  When my daughter Elizabeth, the beneficiary, shall have reached the age of thirty years, the trust hereby created shall terminate and the Trustees shall deliver and pay over to her the full share of the trust estate.  * * * * * * As my wife will be protected*893  by her community interest, I have made no disposition in her favor because of that fact.  * * * This will was executed June 6, 1933.  The decedent left surviving him a daughter, Elizabeth, who was his only child.  She had infantile paralysis while a young girl, which left her badly crippled.  The decedent was solicitous for the welfare of his only child and executed the following instrument, which was witnessed by two credible witnesses and reads in part: STATE OF LOUISIANAPARISH OF ORLEANSCITY OF NEW ORLEANSBE IT KNOWN, That on the Thirtieth day of June 1921 Before me, Percy S. Benedict, a Notary Public, duly commissioned, sworn and qualified in and for the Parish of Orleans, State of Louisiana, therein residing and in the presence of the witnesses hereinafter named and undersigned - Personally came and appeared: Charles Jefferson Miller, of the full age of majority and a resident of the City of New Orleans, hereinafter called the Donor, who declared unto me, Percy S. Benedict, Notary, that in consideration of the natural love and affection which he has for and bears unto his minor daughter, Elizabeth Miller, now age nine years, hereinafter called the Donee, *894  he does by these presents give, grant and donate inter vivos unto the said Elizabeth Miller, herein represented by her said father, Charles Jefferson Miller, and accepting for her, her heirs and assigns, and acknowledging due delivery and possession thereof, the following described movable property, to-wit: [Then follows a description of $75,000 par value of negotiable bonds.] * * * Now *140  unto these presents comes and intervenes the Hibernia Bank & Trust Company, herein represented by Louis V. DeGruy, who, as Trustee for Elizabeth Miller, acknowledges the receipt and delivery from Charles Jefferson Miller for the account of said Elizabeth Miller, the above described numbered bonds, and obligates itself to hold said bonds as Trustee for the said Elizabeth Miller under the following terms and conditions: 1st.  That this agreement is made under the provisions of Act 107 of 1920, and shall remain in force for a period of ten years from the date that said agreement becomes effective, unless the death of the Donor should occur while the Donee is still a minor, in which event this agreement will remain in force until ten years after the Donee reaches her majority.  *895  2nd.  That the coupons from said bonds shall be collected and the proceeds thereof deposited in the Trust Department of the HIBERNIA BANK AND TRUST COMPANY, there to remain at interest until such time as, in the judgment of the Trustee, the same is sufficient to invest in bonds approved by the Trustee, the interest rate to be that rate then allowed on savings accounts.  3rd.  That if the Donor should become insolvent prior to the death of said Donee, the Trustee shall be authorized to expend for the benefit of the Donee, the natural income from said bonds.  4th.  That in the event of the death of the Donor, while the Donee is still a minor, the income from said bonds shall be paid over to the tutor or guardian of said minor for her support, or if she shall have reached her majority, the annual income will be paid to her during the life of this trust agreement.  5th.  That in the event of the death of the Donee, or the expiration of this agreement before the death of the Donor, said bonds and the income accumulated therefrom shall revert to the Donor.  6th.  That said Trustee shall have all necessary power and legal administration to preserve and protect said bonds, including*896  the power to transfer same into its name as Trustee and to consent to such reorganization, consolidation or other transaction necessary.  7th.  That for its service in executing this trust, the Trustee shall receive five per cent per annum on the natural income from said bonds and from any other bonds in which the accumulated income shall be invested.  8th.  That it is expressly provided that the Donor shall have the right to make one or more donations to the Donee during his life, such donations to be made the same as if a part of this original agreement, and that when such donations are made, an additional act in notarial form shall be drafted conformable to this agreement, giving a detailed description of such property.  Thus done and passed in my office in the City of New Orleans, State of Louisiana, on the day, month and year first above written, in the presence of A. P. HOWARD and J. M. Schexnaydre, competent witnesses, who hereunto sign their names together with said appearers and me, Notary, after due reading of the whole.  The 10-year period mentioned in the instrument of donation expired on June 30, 1931.  Neither at the end of the 10-year period nor at any time*897  thereafter did the donor make any demand upon the trustee for a return to him of any of the bonds or the income therefrom which had been deposited by him for the benefit of his daughter.  The bank continued to hold the fund for the account of Elizabeth Miller.  Elizabeth Miller attained her majority on May 20, 1933.  Subsequent to the banking holiday on March 1, 1933, and the placing of the *141 Hibernia Bank & Trust Co. in liquidation on May 20, 1933, the bank addressed a letter to Miller dated May 25, 1933, as follows: Dr. C. Jeff Miller Hibernia Building New Orleans, La. Dear Dr. Miller: The attached letter addressed to The Hibernia National Bank in New Orleans should be signed by Elizabeth and returned to me at your earliest convenience.  I mentioned this matter to you a few days ago.  With very best regards, Yours very truly, [Signed] L. V. DeGruyL. V. DEGRUY Trust Officer.The Hibernia National Bank in New Orleans, successor to the Hibernia Bank & Trust Co. in Liquidation, received the following letter on or about May 29, 1933: New Orleans, La.May 28, 1933 The Hibernia National Bank in New Orleans New Orleans, Louisiana Gentlemen: *898  This letter will constitute your authority to obtain possession of and to handle for me the securities formerly in the possession of the Hibernia Bank & Trust Company for my account as trustee.  Yours very truly, [Signed] ELIZABETH MILLER In order to obtain possession of the securities from the Hibernia Bank & Trust Co. in Liquidation, the Hibernia National Bank was compelled to secure the permission of Elizabeth Miller to that effect.  She gave permission in the following letter: May 29, 1933.  Hibernia Bank & Trust Company in Liquidation, Mr. R. N. Sims, Special Agent, Room 226, Hibernia Bank Building, New Orleans, Louisiana.  Gentlemen: You are directed to deliver to The Hibernia National Bank in New Orleans and to take their receipt therefor, the securities described in the list attached.  These securities are held in the Trust Department of the Hibernia Bank & Trust Company for my account.  You will also deliver to them such correspondence, documents and statistical files as you may hold relating to my business with the Hibernia Bank & Trust Company.  This authority is given in lieu of the original receipt or receipts issued by the Hibernia Bank & Trust*899  Company covering the securities involved, and delivery as per these instructions relieves said Hibernia Bank & Trust Company in Liquidation of all responsibility in the premises.  Yours very truly, List approved: [Signed] ELIZABETH MILLER *142  The Hibernia Bank & Trust Co. in Liquidation complied with the directions of Elizabeth Miller as contained in the foregoing letter, which is shown by the following communication: June 2, 1933.  Miss Elizabeth Miller, c/o Dr. C. Jeff Miller, Hibernia Bank Building, New Orleans, Louisiana.  Dear Miss Miller: We received from the liquidator of Hibernia Bank and Trust Company all of your securities which we will continue to handle as heretofore.  In order to complete our records, may we ask you to please sign and return to us promptly the enclosed form of letter addressed to The Hibernia National Bank in New Orleans.  We now enclose Trust Department receipts of The Hibernia National Bank in New Orleans, Nos.  229230231232233234238239240241which represent a full and complete description of all your securities, as per list recently approved by you.  Please return at your convenience*900  all the old trust receipts of Hibernia Bank and Trust Company now in your possession.  Yours very truly, L. V. DEGRUY, Trust Officer.ML.  The above referred to letters were not only written with the full knowledge of C. Jeff Miller, but the letter of the Hibernia National Bank dated May 25, 1933, was addressed to him with the request that the letter "should be signed by Elizabeth and returned to me at your earliest convenience." The other letters sent by the several banks for Elizabeth Miller's signature were usually sent to Miller for delivery to his daughter, his office being in the Hibernia Bank Building.  The instructions given to the Hibernia National Bank by Elizabeth Miller with the full knowledge and consent of her father, C. Jeff Miller, constituted manual delivery of the fund to Elizabeth Miller in 1933.  OPINION.  SMITH: The question presented by this proceeding is whether the respondent erred in including in the gross estate of the decedent, Charles Jefferson Miller, $69,464.07 representing the corpus of the trust created by the decedent on June 30, 1921.  The respondent contends that he did not err and that the entire value of the corpus of the trust*901  constituted a part of the gross estate of the decedent *143  and not one-half of the value thereof, which would be the case if the fund was includable in the gross estate.  In his deficiency notice the respondent states: It is contended that the transfer by the decedent formed no part of his gross estate on the date of death.  Clause five of the trust instrument reads as follows: "That in the event of the death of the Donee, or the expiration of this agreement before the death of the Donor, said bonds and the income accumulated therefrom shall revert to the Donor." The trust agreement clearly indicates the length of time it will remain in force is limited to ten years from the date of the agreement.  As no new agreement was created or provision made by the donor as to the disposition of the property, upon expiration of the trust agreement the Bureau considers that the property in question reverted to the donor.  The language of the trust agreement does not appear to be ambiguous, but clearly shows the intention of the donor at the time it was created.  On brief the petitioner contends: * * * that the Donation Inter Vivos was complete and irrevocable when made*902  by Dr. Miller, and accepted by him for his daughter, and that Article 5 has reference only to the administration of the securities by the Trustee, and that the provision, that in the event of the expiration of the agreement before the death of the donor, the bonds and the income accumulated therefrom should revert to the donor, is so contrary to and violative of the provisions of the law of Louisiana relating to grantuitous donations, Inter Vivos, that when construed in the light of the conduct of the parties at the time of and following the making of the donation, must be reputed as not written; or in any event, as referable to the trust only.  Under the laws of Louisiana donations inter vivos are of three kinds: (a) The donation purely gratuitous, or that which is made without condition and merely from liberality; (b) The onerous donation, or that which is burdened with charges imposed on the donee; (c) The remunerative donation, or that the object of which is to recompense for services rendered.  We think there is no question but that the donation, if it was a donation under the laws of the State of Louisiana, was a gratuitous donation and was without any charges*903  or conditions.  It was made merely because of the love and affection of the donor for his daughter.  No burden was imposed upon the donee by the instrument of donation and, as no services were required to be rendered or performed by the donee, the donation can not be classed as either an onerous or a remunerative donation.  Under the Revised Civil Code, article 1527, by which the interpretation of the act of donation must be governed, the donor may *144  impose upon the donee any charges or conditions that he pleases provided they contain nothing contrary to law or good morals.  Under the jurisprudence of Louisiana the word "charges" can only mean that a burden is placed upon the donee to do something that is required to be done by the donor, such as to pay taxes, etc.  The Suprenme Court of Louisiana, in interpreting articles 1527 and 1559 of the Revised Code in the case of ; , held as follows: The donor may impose on the donee any charges or conditions he pleases, provided they contain nothing contrary to law or good morals.  Civ. Code, Art. 1527.  Donations inter vivos are liable*904  to be revoked or dissolved on account of nonperformance of the conditions imposed on the donee.  Id. Art. 1559.  The word "conditions" as used in this article, is synonymous with the word "charges"; and when a donation contains charges it is considered as made under the condition that it may be dissolved or revoked if they are not executed.  Mourion, Examen Du Code Napoleon, vol. 2, p. 366.  Conditions" mean charges or obligations of the donee. Delloz, Repertoire de Legislation, Supplement 5, No. 404, p. 149.  It will be noted that the instrument of donation provides "That this agreement is made under the provisions of Act 107 of 1920." The creation of trusts is not contemplated by the Civil Code of Louisiana.  There was no provision of a Louisiana Statute for the creation of trusts prior to Act 107 of 1920.  Section 1 of that act provided: It shall be lawful for anyone to make a donation inter vivos or mortis causa of any kind of property, and of any amount, whereby an individual or individuals or, a bank or banks now or hereafter organized under the laws of this state for the purpose of conducting savings, safe deposit and trust banking business, or which have accepted*905  the provisions of law relative thereto, and banks organized under the acts of congress of the United States, are designated as trustee or trustees; provided, however, that nothing in this act shall be construed to affect the law in regard to the disposable portion save that it shall be permissible to provide that the legitime or any portion thereof of any forced heir or heirs shall be administered in trust for his or their benefit by said trustee or trustees, the income to be paid annually or oftener to said forced heir or heirs, or his or their legal representives.  Section 2 of the same act provides: * * * the period of duration of said trust, which shall not exceed ten years after the death of the donor, except when the beneficiary is a minor at the time of the death of the donor, in which case it shall not exceed ten years after the minor has attained majority.  * * * Section 16 of article 4 of the Statutes of Louisiana, adopted June 18, 1921, provides: * * * No law shall be passed abolishing forced heirship or authorizing the creation of substitutions, fidei commissa or trust estates; except that the legislature may authorize the creation of trust estates for a period*906  not exceeding ten years after the death of the donor; provided, that where a natural person *145  is the direct beneficiary said period may be made to extend until ten years after his majority; * * * The respondent submits that the instrument of donation is unambiguous; that it created a trust which was to continue for a period of 10 years, at the end of which time the donated bonds and the accumulated income therefrom should revert to the donor.  This argument overlooks, however, the fact that the instrument also provides: That in the event of the death of the Donor, while the Donee is still a minor, the income from said bonds shall be paid over to the tutor or guardian of said minor for her support, or if she shall have reached her majority, the annual income will be paid to her during the life of this trust agreement.  Of course, if it was the understanding of the donor that the period of the trust instrument was to expire on June 30, 1931, the beneficiary would not have reached her majority during the life thereof.  Why then should the instrument make any reference to the beneficiary reaching her majority during the life of the instrument?  In the circumstances of*907  this case the Board is of the opinion that it is unnecessary to determine whether the donation made by the decedent on June 30, 1921, was an irrevocable donation.  The petitioner contends that if the donated bonds and the accumulated income therefrom reverted to the decedent ten years after the date of the instrument of donation, there was, nevertheless, a manual delivery of the fund to Elizabeth Miller after that date and prior to the close of 1933.  We sustain this contention.  There can be no question that the decedent considered the corpus and income of the trust fund as Elizabeth Miller's on and after May 20, 1933, at which date she attained her majority.  The decedent was in close touch with the Hibernia National Bank.  That was where he had his bank account.  He always referred to the trust fund as constituting the property of his daughter, Elizabeth.  He never made any claim to any part of the fund or the income therefrom.  The bank's officers considered the property as belonging to Elizabeth Miller and not to the decedent.  With the knowledge of the decedent the bank carried on correspondence with Elizabeth Miller and obtained her permission for the transfer of the securities*908  from the Hibernia Bank & Trust Co. in Liquidation to the Hibernia National Bank.  It is also to be noted that under the instrument of donation the bank was entitled to receive a fee of 5 percent per annum on the natural income from the bonds and from any other bonds in which the accumulated income might be invested.  Elizabeth Miller, however, made an agreement with the Hibernia National Bank that its compensation for services rendered should be 3 percent on all coupons collected and 2 percent on all dividends collected.  This was not an *146  arrangement by the decedent with the bank but an arrangement between the bank and Elizabeth Miller.  The respondent insists that there was no manual delivery of a gift by the decedent to Elizabeth and the officers of the bank were unable to testify that the decedent ever stated to them after June 30, 1931, that he was making a gift of the fund to Elizabeth.  The evidence plainly shows, however, that the decedent at all times considered the fund and accumulations thereof as belonging to Elizabeth and that she with the knowledge of her father dealt with the fund as her own and in 1933 received money from the fund to complete her education*909  and thereafter received the income from the fund.  In , we said: It is well settled that before there can be a completed gift the donor must surrender dominion and control of the subject matter of it.  ; ; ; ; ; ; certiorari denied, ; ; . The "delivery" must be as perfect as the nature of the property and the circumstances and surroundings of the parties will reasonably permit.  ; ; . Manual delivery of the thing given is not necessary, *910 ; and delivery need not be made directly to the donee.  The gift may be executed by delivery to a third person for the benefit of the donee where there is an intention that present title and ownership shall pass and appropriate language is employed to effect such intention.  . In such instances "constructive delivery is recognized, not on principles of agency, but because the third person becomes a trustee for the donee." The fact that such third person also acted as agent of the donor does not affect the validity of the gift nor prevent title to the subject matter from passing to the donee.  ; ; but "If the donor deliver the property to the third person simply for the purpose of his delivering it to the donee as the agent of the donor, the gift is not complete until the property has actually been delivered to the donee." *911 ; . Cf. ; . In ; , the Supreme Court of the State of Louisiana said: The manual gift - that is, the giving of corporeal movable effects, accompanied by a real delivery - is not subject to any formality, Civ. Code, art. 1539.  If the donation has been executed by delivery, it has full effect though not accepted in express terms.  Civ. Code 1541.  * * * Where the decedent, an old bachelor of means, caused a certain sum of money to be deposited in a savings bank to the credit of his two dependent sisters, living with him, the delivery to the bank was a delivery to the sisters, and the donation had full effect eo instante.*147  The above cited case was referred to with approval in ; , in which the Supreme Court of Louisana said: Money may be donated by manual gift, *912 . And in the , it was held to be an unconditional donation of money where the decedent, a bachelor of means, caused a certain sum of money to be deposited in a savings bank to the credit of his two dependent sisters living with him, the delivery to the bank being a delivery to the donees, the donation becoming effective eo instante.In ; , it was held: Bonds payable to bearer, and title to which is transmissible without endorsement or assignment, but, by simple delivery, may be the objects of a manual gift, and are not required to be donated by authentic act.  This sort of donation is subject to no formality.  Upon the authority of the cases above cited, the Board concludes that the entire trust fund in the possession of the Hibernia National Bank to the credit of Elizabeth Miller at the date of decedent's death formed no part of the decedent's gross estate.  Reviewed by the Board.  Judgment will be entered under Rule 50.