Court Opinion

ID: 4471149
Source: CourtListenerOpinion
Date Created: 2020-01-09 22:03:21.537654+00
Date Added: 2024-06-11T07:53:10.052447
License: Public Domain

OPINION. Hill, Judge: The Commissioner determined a deficiency of $1,-271.83 in estate tax by including in decedent’s gross estate the amount of certain moneys deposited by him out of his own funds in a bank in joint and several accounts with his wife, as trustees for his children. At the hearing respondent asked that the amount so added to the gross estate be increased by including the accumulated interest thereon in the amounts stipulated by the parties and that the deficiency be increased accordingly. All of the facts were stipulated and are so found. We set forth only those deemed material to an understanding of the issue. Decedent, on November 26, 1934, opened in the Harris Trust & Savings Bank, Chicago, Illinois, a savings account for each of his four children, each of which was in the following form, with the number of the account and name of the child omitted: Savings Account No_, in the name of Mr. J. H. Helfrich and/or Mrs. Elsa F. Helfrich, Trustees for_ The names and ages of the children and the numbers of their respective accounts were as follows: [[Image here]] At the time the accounts were opened decedent and his wife signed and delivered to the bank four instruments, of which the following is a copy: Special Tbust Agreement Dated November 26, 1934. - J. H. Helfrich and Mrs. Elsa F. Helfrich herein called the “trustees” hereby make known and declare that they hold all moneys now and hereafter deposited in account number_in Harris Trust and Savings Bank in trust for-.— -, herein called the “beneficiary”, whose address is 707 University Place, Wheaton, Ill. During the lifetime of the trustees and the survivor of them all moneys now and hereafter deposited in said account may be paid to or upon the order of the trustees, or either of them, and upon the death of the survivor of the trustees all moneys deposited in said account shall be payable to or upon the order of the beneficiary. If either trustee shall be under legal disability which shall have been declared by a court of competent jurisdiction, shall be deemed deceased for the purposes of this agreement. The said bank shall not be responsible for or required to see to the proper application of funds withdrawn from said account. The trustees represent that there is existing no agreement in respect of the said account except as herein set forth. Elsa F. Helfrich J. H. Helfrich Trustees for- The blank spaces on each instrument were filled with the name of one of the children and his account number. Decedent originally deposited $1,500 in each account. On January 4,1935, he added $1,000 to each and on April 1, 1935, $1,500 to each. The only withdrawal from any of the accounts was made for John Peter Helfrich about the first week in September 1939 and was used by the beneficiary in defraying part of his college expenses. Decedent died intestate September 18, 1939. The balances in the accounts on that date were as follows: [[Image here]] Decedent’s will was admitted to probate by the Probate Court of DuPage County, Illinois, on October 23,1939. The executors filed an estate tax return with the collector for the first district of Illinois, stating a gross estate of $112,155.24. In a'ddition to adjustments not contested respondent added to decedent’s gross estate the amounts in the four savings accounts here-inabove mentioned and determined a deficiency in estate tax. Respondent contends that the opening of the accounts and the execution of the so-called trust .agreements do not constitute valid trusts and that such amounts are therefore includable in decedent’s estate. He also maintains that, regardless of whether valid trusts were created, the moneys in the savings accounts were includable in the estate for estate tax purposes because (1) decedent as trustee maintains such control over their disposition as to amount to a retention of ownership thereof by the grantor and (2) such transfers in trust, if any, were to take effect in possession or enjoyment only at or after the death of decedent. Petitioners contend that the trusts were valid under Illinois law and that they were not revocable, either by decedent or by decedent in conjunction with his wife. It is not controverted that the moneys in the four bank savings accounts in question were deposited therein by decedent from his own funds. The law of Illinois controls in determining whether valid trusts were created. The requirements of a valid trust under the law of Illinois have been set forth by the Supreme Court of that state as follows in Gurnett v. Mutual Life Insurance Co., 356 Ill. 612; 191 N. E. 250: * * * To constitute a valid trust of personal property, there must be a declaration by a person competent to create it, a trustee, designated beneficiaries, a certain and ascertained object, a definite fund or subject-matter, and its delivery or assignment to the trustee, Godefroi on Trusts (5th Ed.) p. 7; Cruwys v. Colman, 9 Ves. 319; Brown v. Spohr, 180 N. T. 201; Johnston v. Soott, 137 N. Y. S. 243; Gough v. Satterlee, 52 N. Y. S. 492. It is evident that the so-called trust instruments do not meet the above stated requirement as to “a certain and ascertained object.’" Neither by express provision nor by implication from the language of the instruments here in question can the object and purpose of the so-called trusts be ascertained. We think, therefore, that valid trusts were not created. If valid trusts were not created by the instruments in question, the law of Illinois restricting the purposes to which the trust funds may be devoted as indicated in Helvering v. Stuart, 317 U. S. 154, does not apply and the decedent and his wife could have used the moneys in the accounts for any purpose they chose. This being true, such moneys were includable in decedent’s estate for estate tax purposes. Since the decedent and his wife, or either of them, had according to the literal terms of the so-called trust agreements the unrestricted power to withdraw all of the moneys from the accounts or to order them paid to whom they or either of them might designate, it appears that during the lives of decedent and his wife the accounts with the accompanying agreements were in effect merely bank savings accounts set up as a kind of budgetary reserve to meet their anticipated financial outlays in respect of their children. They, or either of them, could have terminated the accounts at any time by the mere expedient of exhausting the funds therein. If, however, such accounts should be existent at the time of the death of the survivor of decedent and his wife the transfer, under the provisions of the so-called trust agreements, of the moneys then represented in such accounts would at and by reason of such death take effect in possession or enjoyment of the children. It follows that whether or not valid trusts were created there was no gift or transfer in trust or otherwise effective in possession or enjoyment until at or after the death of decedent. Therefore, the moneys represented by the savings accounts were includable in decedent’s estate for estate tax purposes under section 811 (c) of the Internal Revenue Code.1  Assuming there were valid trusts, the trust instruments did not vest in the named beneficiaries the right to the distribution, possession, enjoyment, or benefit of any of the trust funds during the lifetime of the survivor of the trustees. Only upon the death of such survivor can the beneficiaries claim the right under the terms of the trust to the possession or enjoyment of the trust funds. If they should be given the possession or enjoyment thereof prior to the death of the surviving trustee it would not be by virtue of a right created in the trusts, but by virtue only of the exercise of a power lodged in the trustees which they were under no obligation to exercise. The only provision in the trusts with respect to the expenditure or distribution of the trust funds prior to the death of the decedent and his wife, the trustees, is the power retained by them to withdraw any or all moneys from the trust accounts or order them to be paid to others. Whether the trustees shall exercise that power, or to what extent they shall exercise it, is obviously discretionary with them. Also, the object or purposes for which expenditures of the funds may be made are not defined or limited in the trust instruments. Such object or purposes are not even referred to therein.. Unquestionably, decedent and his wife as trustees had the power to withhold, prior to his death, the possession, use, enjoyment, or benefit of any of the funds from the beneficiaries. Hence, it must be determined that the trust instruments conferred no property right in the trust funds which entitled the beneficiaries to the possession or enjoyment thereof until at or after the death of decedent. Bearing in mind that the question we have involves only those funds which were still in the saving accounts at decedent’s death, it is self-evident that the transfers of such funds to the children, if and when it may occur, can take effect in possession or enjoyment only after the death of the decedent. Also, the conclusion is inescapable that the grantor of the trusts could have intended only that the transfer of such funds should take place at or after his death. We, therefore, hold that the moneys in the bank savings accounts in question at the time of decedent’s death were properly included in his estate for estate tax purposes. Reviewed by the Court. Decision will be entered under Rule 60. Disnet and Opper, JJ., concur only in the result.   (c) Transfers in Contemplation of, or Taking Effect at Death. — To the extent of any interest therein of^which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money’s worth. * * *