Court Opinion

ID: 4595004
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:14:07.065748+00
Date Added: 2024-06-11T07:51:21.232670
License: Public Domain

BANK OF NEW YORK & TRUST CO. AS ADMINISTRATOR C.T.A., ESTATE OF ANNA BENKARD HUNT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bank of New York & Trust Co. v. CommissionerDocket No. 32881.United States Board of Tax Appeals20 B.T.A. 677; 1930 BTA LEXIS 2056; September 8, 1930, Promulgated *2056  Where the settlor of a trust estate reserves to herself alone a power to change the ultimate beneficiaries of the trust or to vary the share distributable to each, such reservation constitutes a power to alter or amend and renders the transfer incomplete until her death.  The property is, therefore, properly to be included in her gross estate subject to tax under section 302(d) of the Revenue Act of 1924.  Henry L. Stutz, Esq., for the petitioner.  Frank T. Horner, Esq., for the respondent.  VAN FOSSAN *677  This proceeding was brought for the redetermination of a deficiency in estate taxes amounting to $2,288.38.  The sole issue is whether the respondent erred in including within the gross estate the value of the property constituting the corpus of a trust declared by the decedent a number of years before her death.  The parties to the proceeding entered into a written stipulation concerning the facts.  From this stipulation and the exhibits attached thereto we make the following findings of fact.  FINDINGS OF FACT.  The petitioner is a corporation duly organized under the banking laws of the State of New York and having its principal*2057  place of business in the City and County of New York.  Anna Benkard Hunt died on July 22, 1925, a resident of Paris, France, leaving a last will and testament and a codicil thereto which were admitted to probate in the Surrogate's Court of the County of New York.  The petitioner was appointed administrator with the will annexed of the estate of Anna Benkard Hunt by the Surrogate's Court of the County of New York and April 22, 1926, and is now acting as such.  *678  On or about July 31, 1872, the decedent, Anna Benkard Hunt, being then unmarried and being known by her maiden name, Anna Benkard, made, executed and delivered her certain deed of trust wherein she conveyed and transferred unto three trustees, residents of the State of New York, certain real and personal estate situate in the State of New York upon trust for the uses and purposes therein particularly set forth.  By this trust deed the grantor conveyed and transferred to the trustees all of the estate, both real and personal, of which she was then seized or possessed or entitled to, excepting only household, furniture, wearing apparel, jewelry and personal ornaments, conferring upon such trustees full power and*2058  authority to take possession of, manage, sell, invest, keep invested and reinvest, to lease and re-lease the real estate, to receive and collect the income, rents, issues and profits of the property or the income, rents, issues and profits from the investments of the proceeds of such property and "pay and apply the net interest and income and rents, issues and profits to the use of the grantor" for and during her life.  Said deed also contained the following provisions: AND ALSO to pay and apply to the use of the said party of the first part, from time to time so much of the principal of the proceeds arising from the sale of the Real or personal Estate hereby granted, as they the said parties of the second part shall deem proper, AND UPON and after the death of the said party of the first part to pay and divide the said real and personal Estate or the proceeds thereof, to and among such person or persons, or bodies corporate, and in such relative shares, estates or proportions as she the said party of the first part shall by her last Will and Testament or instrument in writing in the nature of a last Will and Testament designate and appoint.  AND in default of any lawful designation*2059  or appointment by the said party of the first part, then to pay and divide the said real and personal Estate, or the proceeds thereof among such person or persons as under the laws of the State of New York shall then be the heirs at law of the said party of the first part, and in the same Estates shares and proportions, such heirs at law would be entitled thereto, if the same were all real Estate, situate in the State of New York, and the said party of the first part had died intestate, seized and possessed thereof in fee simple, and not married.  After the execution of said deed of trust Anna Benkard married Percy Hunt and after that date was known as Anna Benkard Hunt.  On or about November 18, 1879, Anna Benkard, Hunt, in consideration of the sum of $50,000 paid to her by the trustees under said deed of trust dated July 31, 1872, executed and delivered a supplemental deed of trust.  The supplemental deed was in words as follows: WHEREAS: By a certain Indenture duly executed under her hand and seal and dated on the 31st day of July in the year One thousand eight hundred *679  and seventy two the party hereto of the first part by her then name of Anna Benkard duly granted, *2060  bargained and sold, assigned, transferred and set over unto Benjamin H. Hutton, Charles G. Landon and Henry R. Benkard all and singular her property and estate of what kind or nature soever excepting certain articles of personal property retained by her and in said deed enumerated to be had and holden by the said Benjamin H. Hutton, Charles G. Landon and Henry R. Benkard for the term of her natural life upon trust nevertheless to pay over to her the net income, rents, issues and profits thereof, and upon her death to convey, assign and set over and divide the such relative to and among such person or persons or body corporate and on such relative shares, estates and proportions as she the said party of the first part should by her last Will and Testament or Instrument in writing in the nature of a last Will and Testament designate and appoint and WHEREAS: The said Benjamin H. Hutton, Charles G. Landon and Henry R. Benkard have each and every one of them signified their desire respectively to be relieved from the burdens and duties of such Trusteeship and are each and every one of them about to be relieved from their said duties in the manner provided for in the said deed and are*2061  about to be superseded in such duties by the said Alonzo C. Monson and William Jay two new Trustees to be appointed by said retiring Trustees in compliance with the terms of said deed and WHEREAS: The said retiring Trustees have exercised the discretion in them vested in and by the said deed by advancing to the party of the first part a certain portion of the principal of the said estate to wit the sum of Fifty Thousand Dollars on condition that she shall upon receiving the same exercise the power of appointment to her reserved by said deed and designate and appoint by deed under seal the persons to whom said estate is to be paid over, distributed and divided at her death, and WHEREAS: The party of the first part has determined so to exercise her said power of appointment to her reserved and to dispose of the said Estate held in trust as aforesaid in the manner hereinafter set forth.  Now THEREFORE THIS INDENTURE WITNESSETH: THAT in consideration of the premises and of the said sum of Fifty Thousand Dollars lawful money of the United States of America to her in hand paid by Benjamin H. Hutton, Charles G. Landon and Henry R. Benkard retiring Trustees as aforesaid the receipt whereof*2062  is hereby acknowledged hath by virtue of the power to her reserved in and by said deed of trust designated and appointed and hereby doth designate and appoint that the estate remaining in the hands of the parties of the second part or of their successors at the death of the party of the first part shall be paid over divided and disposed of as follows viz: The said party of the first part appoints and directs that the parties of the second part Trustees as aforesaid or their successors duly appointed who shall or may be in office at the time of her death, shall hold the said trust estate real as well as personal upon the same terms and conditions as in the said deed is provided and shall from and after the time of her death collect the rents, issues, income and profits thereof and after paying thereout all the necessary and proper costs, charges and expenses of the care and management of said Estate shall pay over the balance of such rents income and profits unto Percy Hunt the husband of the party of the first part for and during the term of his natural life and upon his death shall assign, transfer, convey and set over all and singular the said estate real as well as personal unto*2063  such children *680  of the party of the first part as shall then be living and to the issue of such of them as shall have died in equal shares per stirpes and not per capita absolutely and forever.  AND THIS INDENTURE FURTHER WITNESSETH: THAT the party of the first part hereby reserves to herself the right to vary the disposition hereinabove made of the said Trust Estate by her last Will and Testament or by an instrument in the nature thereof hereafter to be executed by her by directing that a certain part of such annual income shall be paid to her children during the life time of her said husband if she shall so desire, and also by directing and appointing that the said estate upon her said husband's death, shall be assigned transferred conveyed and set over unto one or more of her children or to their issue to the exclusion of other of her children and their issue or that such estate be assigned, transferred, conveyed and set over unto said children and to their issue in such unequal shares as she may desire and as she may hereafter determine.  AND in the event of there being no child or children of hers nor issue of a child or children living at the time of the death of*2064  the party of the first part then she reserves to herself the absolute right of disposing of the said Trust Estate by her last Will and Testament or Instrument in the nature thereof to any person or persons whomsoever as she may desire, and she also reserves to herself the right to dispose by last Will and Testament or by Instrument in the nature thereof of all and singular the said Trust Estate in the event of all her children departing this life without issue during the lifetime of her said husband, anything herein contained to the contrary in any wise notwithstanding.  IN WITNESS WHEREOF the party of the first part hath hereunto set her hand and seal the day and year first above written.  ANNA BENKARD HUNT (Seal) SEALED AND DELIVERED IN THE PRESENCE OF WILLIAM E. RUDISCHHAUSER An action was brought in the Supreme Court of the State of New York in and for the County of New York entitled "Charles G. Landon, Plaintiff, against Anna Benkard Hunt and others, Defendants," in which a decree was entered on November 26, 1879, settling the accounts of the resigning trustees under the deed of trust dated July 31, 1872, and confirming the appointment of the trustees appointed in the*2065  supplemental trust deed dated November 18, 1879.  The decree further adjudged and decreed that, pursuant to the discretion granted them in the deed of trust dated July 31, 1872, the trustees should pay to Anna Benkard Hunt the sum of $50,000 as set forth in the supplemental deed of trust dated November 18, 1879.  The decree also contained, among others, the following paragraph: And it is hereby further ordered, adjudged, decreed and declared, that the power to the defendant Anna Benkard Hunt reserved by the said trust deed of appointing and directing the manner in which said Trust Estate should be paid over and divided at her death, has duly and effectually exercised and exhausted by her execution as aforesaid of a certain Indenture of Deed under her hand and seal, dated on the 18th day of November, 1879, to which said *681  Indenture she is the party of the first part, and the said Alonzo C. Monson and William Jay as Trustees as aforesaid are parties of the second part, and whereby she appoints and directs in substance that the said two last named Trustees or their successors shall hold the said estate during the lifetime of her husband the defendant Percy Hunt, if he shall*2066  survive her, and shall pay him the income thereof or such part of said income as she may by her will direct to be paid to him, and upon his death, or her death as the case may be, that they shall divide the principal of said estate equally among her children, and the issue of such of them as shall have died before that time per stirpes or to pay over and divide the principal of said estate to and among her children and their issue, in such shares and proportions as she may by her will direct, all of which by reference to said original deed or to the record thereof, when the same shall have been recorded more fully and at large appear.  The decedent's last will and testament was dated September 28, 1911, and the codicil thereto was dated May 10, 1923.  The said last will and testament dated September 28, 1911, contained paragraphs as follows: Under and by virtue of the power which I have, pursuant to the terms of a certain agreement made in contemplation of marriage, and under which an Estate is held and managed by the aforesaid William Jay and Egerton L. Winthrop, Junior, as Trustees, I hereby give and appoint the sum of Twenty-five Thousand Dollars (25,000) to my son, Rupert*2067  Herbert Hunt.  All the rest, residue, and remainder of my property and Estate, both real and personal, of every kind and nature whatsoever, and wheresoever situated, including all the property and Estate over which I have a power of appointment as aforesaid or otherwise, I do give, devise, bequeath and appoint to two of my three children in the following proportions, that is to say: two thirds (2/3) thereof to my daughter, Lillian Catherine Hunt, absolutely and forever, and the remaining one-third (1/3) thereof to my son, Reginald Sidney Hunt, absolutely and forever.  The said codicil contained, among others, a paragraph as follows: Under and by virtue of the power which I have, pursuant to the terms of a certain deed of trust made and executed between myself and Benjamin H. Hutton, Charles G. Landon and Henry R. Benkard, bearing date July 31, 1872.  made in contemplation of marriage and referred to in paragraph "FOURTH" of my last Will and Testament and under which an estate is held and managed by Egerton L. Winthrop, Jr., as sole surviving Trustee, I hereby give and appoint the sum of Ninety thousand (90,000) francs (French) or its equivalent in dollars at the time of my death, *2068  to my son, Rupert Herbert Hunt, this being in addition to the bequest made to my said son under paragraph "FOURTH" of my said Last Will and Testament.  Except as therein modified and altered the codicil ratified and confirmed the provisions contained in the said last will and testament with respect to the disposition of the property of the testatrix.  Anna Benkard Hunt left her surviving two sons, Rupert Herbert Hunt and Reginald Sidney Hunt, and a daughter, Lillian Catherine Hunt.  Percy Hunt, husband of Anna Benkard Hunt, predeceased *682  her.  The trust estate at the time of Anna Benkard Hunt's death consisted of securities valued at $141,137.37.  The petitioner filed a Federal estate-tax return as administrator with the will annexed of the estate of Anna Benkard Hunt, showing tax due in the amount of $34.37 which has been paid.  This return did not include in the gross estate the value of the corpus of the said trust.  The respondent, however, holding that the value of the corpus of the trust should be included within the gross estate, stated a deficiency in tax of $2,288.38.  OPINION.  VAN FOSSAN: The question presented to us for determination is whether or not*2069  under the estate-tax provisions of the Revenue Act of 1924 the value of the corpus of the trust estate created by Anna Benkard Hunt, as set forth in the findings of fact, is taxable as a part of her gross estate.  In our opinion the trust deed and the supplemental deed dated respectively July 31, 1872, and November 18, 1879, must be read together.  So read, they constitute the declaration of trust with which we are now concerned.  By the former of these deeds the grantor created for herself a life interest in the income, rents, issues and profits of the estate granted to her in trust, reserving to herself a general power of appointment of beneficiaries to and among whom the corpus of the trust should be paid and divided upon her death.  In the latter of these deeds the settlor exercised the power of appointment reserved in the deed dated July 31, 1872, by appointing and directing that upon and after her death the trustees should pay the net income, rents and profits of the trust estate to her husband during his life and upon and after his death should "assign, transfer, convey and set over" the capital of the trust estate unto her children then living and to the issue of any deceased*2070  child in equal shares per stirpes, and not per capita, "absolutely and forever." The settlor, however, in so exercising her power of appointment, reserved to herself the right "to vary the disposition" above set forth by her last will and testament or by an instrument in writing in the nature thereof, by directing, if she should so desire, that upon and after her death a part of the annual income should be paid to her children during her husband's life and also by directing and appointing "that the said estate upon her said husband's death shall be assigned, transferred, conveyed and set over unto one or more of her children or to their issue to the exclusion of other of her children and their issue or that such estate be assigned, transferred, conveyed and set *683  over unto said children and to their issue in such unequal shares as she may desire and as she may hereafter determine." The respondent contends that the value of the corpus of the trust estate remaining at the death of Anna Benkard Hunt should be included in the decedent's gross estate under the provisions of section 302(c), (d) and (f) of the Revenue Act of 1924.  These provisions are as follows: SEC. *2071  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.  * * * (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, except in case of a bona fide sale for a fair consideration in money or money's worth.  Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of Part I of this title; (d) 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, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction*2072  with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for a fair consideration in money or money's worth; * * * (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 a fair consideration in money or money's worth.  The petitioner argues that the general power of appointment reserved in the deed dated July 31, 1872, was exercised and wholly exhausted by the execution of the supplemental deed dated November 18, 1879; that such exercise was for a fair consideration; that the right reserved to the settlor, in the supplemental deed, to "vary the disposition" of the trust estate by her last will and testament or by an instrument in the nature thereof was a reservation of such a limited power that it does not constitute a power to alter, amend or revoke; and that, in so far as it attempts to tax retroactively transfers made long before the passage of any Federal*2073  estate-tax law, when the creator of the trust has not reserved a power to alter, amend or revoke, the Revenue Act of 1924 is unconstitutional.  *684  In our view the transfer of the beneficial interests in the corpus of the trust was not complete until the death of Anna Benkard Hunt.  The power reserved by her in the supplemental deed was a power to alter such beneficial interests.  In such case, obviously, the question of the constitutionality of the tax is not involved.  Although by the execution of the supplemental deed dated November 18, 1879, the settlor divested herself, beyond her recall, of the legal title to the corpus of the trust estate, she was not thereby divested completely of control over the course of distribution of the capital of the trust upon her death.  She reserved to herself the right to determine by her last will and testament or by the execution of an instrument in the nature thereof the course of the distribution of the proceeds of the corpus of the trust estate among her children or their issue, even to the extent of excluding some of her children or their issue from a beneficial interest in the capital of the trust.  After the execution of the*2074  supplemental deed and up to the time of her death Anna Benkard Hunt, at her desire, could effect a change in the beneficial interests in the proceeds of the trust estate after her death and only her death could terminate her control of the course of distribution.  Thus, it could not be determined up to the date of the settlor's death to or among whom of her children or their issue the corpus of the trust estate would be paid and divided.  To that extent the transfer was incomplete until the settlor's death.  In our opinion, therefore, the enjoyment of the beneficial interest in the corpus of the trust estate was subject at the date of the settlor's death to a change through the exercise of a power by the decedent.  A power to effect such a change must, in our opinion, be construed as a "power to alter." As a matter of fact, Anna Benkard Hunt, by her last will and testament and the codicil thereto, did alter the beneficial interests in the corpus of the trust.  We therefore consider that the principles set forth in the cases of *2075 ; and ; and , are applicable to the issue in this proceeding.  In the Chase National Bank case, supra,the Supreme Court said: Termination of the power of control at the time of death inures to the benefit of him who owns the property subject to the power, and thus brings about, at death, the completion of that shifting of the economic benefits of property which is the real subject of the tax * * *.  In the instant proceeding, the power to effect a change in the beneficial interest was reserved to Anna Benkard Hunt alone.  She could alter the proportions of the corpus of the trust to be paid to and divided among her children, could exclude some of her children from *685  any beneficial interest therein, and her death only could "bring about the completion of that shifting of the economic benefits of property" which is the subject of tax.  We are of the opinion, therefore, that the facts in this case bring it within the provisions of section 302(d) of the Revenue Act of*2076  1924 and that the value of the corpus of the remainder of the trust estate at the date of decedent's death should be included in the gross estate of the decedent for the purposes of taxation.  Decision will be entered for the respondent.