Court Opinion

ID: 4624476
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:55:13.584786+00
Date Added: 2024-06-11T07:56:32.055121
License: Public Domain

ARIOCH W. ERICKSON AND WILLOUGHBY H. STUART, JR., EXECUTORS, ESTATE OF SUSAN M. STUART, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Erickson v. CommissionerDocket No. 47550.United States Board of Tax Appeals26 B.T.A. 831; 1932 BTA LEXIS 1241; August 16, 1932, Promulgated *1241  It not appearing that the trust or the transfer of property thereunder was intended to take effect in possession or enjoyment at or after settlor's death, the corpus of the trust property should not be included in the taxable estate of decedent (settlor) under section 302(c) of the Revenue Act of 1924.  Francis R. Hines, Esq., for the petitioners.  R. F. Staubly, Esq., for the respondent.  VAN FOSSAN *831  The respondent determined a deficiency in estate tax amounting to $76,160.52.  Against this sum he allowed a net credit of $19,040.14 on account of state inheritance tax paid and by notice dated December 21, 1929, notified the petitioners that the balance of the deficiency, namely, $57,120.38, was proposed for assessment.  The only question for solution is whether or not the respondent erred in including in decedent's gross estate the value of certain property *832  conveyed by her in trust on December 30, 1915.  One other error was alleged in the petition, but it has been settled by a stipulation of fact filed in this proceeding, it being stipulated in effect that certain cash items which were not in fact a part of decedent's estate*1242  were included by the respondent in the gross estate.  These cash items are specifically described in the stipulation and amount to $122,528.36.  The facts were stipulated.  From the stipulation, the pleadings and the exhibits we find the following facts material to the issue before us.  FINDINGS OF FACT.  The petitioners are executors under the will of Susan M. Stuart, late of Swampscott, Massachusetts, deceased February 10, 1926, having been duly appointed by the Probate Court for Essex County, Massachusetts, on March 8, 1926.  By her deed of trust dated December 30, 1915, Susan M. Stuart conveyed two parcels of real estate in Boston, Massachusetts, and one parcel of real estate in Swampscott, Massachusetts, to Arioch W. Erickson, Willoughby H. Stuart, Jr., and Augustus P. Loring on trusts.  This deed of trust was executed, acknowledged and delivered by Susan M. Stuart to her trustees as aforesaid on December 30, 1915.  The following clauses, among others, were included in the deed of trust: TO HAVE AND TO HOLD to the said Arioch W. Erickson, Willoughby H. Stuart, Jr., and AUGUSTUS P. Loring, and the survivor of them, their heirs and assigns, to their own use and behoof*1243  forever, but in trust nevertheless as follows: 1.  To hold, convert, invest and reinvest said property and manage and care for the same, and to pay the net income, after deducting all expenses and the trustees' compensation chargeable thereto, as follows, viz: To Willoughby H. Stuart as hereinafter provided, five thousand, five hundred dollars (5500) a year, subject to the provisions of Section 4, in equal payments monthly, in advance, so long as he shall live, and shall continue to live separate and apart from said Susan, and shall not molest her by legal process or otherwise, and shall acquiesce in all the matters pertaining to the settlement of the estate of Arioch Wentworth, and to Susan M. Stuart the rest of said net income, or if she shall have deceased before the termination of said trust, then to pay it in equal shares to her issue per stirpes and not per capita.  2.  And further in trust on the death of said Willoughby H. Stuart or the earlier termination of this trust in whole or in part as hereinafter provided to pay over and convey the trust property to said Susan M. Stuart if she be living, or if she has deceased, to her issue equally, per stirpes and not per capita, *1244  free and discharged of all trusts.  3.  If any of said real estate be sold, said Susan M. Stuart may revoke and rescind these trusts as to the proceeds thereof, and call for a reconveyance of the trust funds in whole or in part in the case and on the terms and conditions *833  following - She may call for a reconveyance from time to time of any funds of the trust provided the property remaining in the hands of the trustees is then producing and can reasonably be counted on to produce a net income of eleven thousand dollars a year, or said Susan may call for a reconveyance of all the trust funds if she purchases an annuity of five thousand, five hundred dollars ($5500) for said Willoughby H. Stuart, payable in equal monthly instalments in advance in a sound company selling such annuities.  The determination of the trustees made in good faith as to the amount of property to be left in the hands of the trustees on a partial withdrawal, or to the company in which an annuity is to be purchased on an entire determination of the trust, to be final.  The transfer of property made and effected by the deed of trust dated December 30, 1915, was in fact made for the considerations*1245  stated in the deed of trust.  It was not a gift in contemplation of death.  On February 10, 1926, the date of death of Susan M. Stuart, the trust created by the instrument hereinbefore described was still in existence and the trustees then held and had continuously held from December 30, 1915, to that date the first two parcels of real estate described in the trust deed.  The third parcel was sold in 1921.  The notice of deficiency herein referred to included as a part of the adjusted gross estate of the decedent, Susan M. Stuart, cash in the amount of $1,680.81.  This item was in fact a part of the principal of the trust corpus under the deed of trust above described.  The decedent never, by will or otherwise, exercised any of the powers given to her by clause three of the trust deed quoted herein.  Willoughby H. Stuart, Sr., who was born October 23, 1846, survived Susan M. Stuart, his wife, and died February 6, 1931.  OPINION.  VAN FOSSAN: The question we are called upon to solve is whether or not the value of the corpus of the trust described in the findings of fact should be included in the decedent's gross estate under the provisions of section 302(c) of the Revenue*1246  Act of 1924.  That section reads in part as follows: 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.  * * * It is stipulated that the conveyance of the property in trust does not constitute a gift in contemplation of death.  The respondent *834  claims, however, that pursuant to the provisions of the trust deed the decedent's death effected a transfer of the corpus of the trust to her issue which was intended to take effect in possession or enjoyment at or after her death and that therefore pursuant to the provisions of the quoted section the corpus of the trust should be included in decedent's gross estate.  We do not concur in that view.  By her trust deed which was executed and delivered*1247  on December 30, 1915, the decedent provided an annuity of $5,500 for her husband, which was to be paid out of the net income of the corpus of the trust.  The trust deed further provided that the balance of the net income, if any, should be paid to the settlor, or, if she died before the termination of the trust, that the net balance of income, if any, should be paid in equal shares to her issue.  The trust deed also provided that upon the death of the decedent's husband or upon the earlier termination of the trust the trustees should pay over and convey the trust property to the decedent if then living, or, if she should be deceased, to her issue equally per stirpes and not per capita.The intention of the settlor in executing and delivering the trust deed was to secure to her husband a fixed annual income for his life for the consideration expressed in the deed.  The provisions in respect to the payment of the net balance of income were only incidental to the settlor's main purpose.  It is conceivable that in the course of the years succeeding 1915 there might have been no net balance of income after the payment of the husband's fixed annuity.  Upon his death the course*1248  of succession to the corpus of the trust was definitely determined by the provisions of the trust deed and could not be controlled by any absolute power of recall reserved to the decedent.  The power of recall provided in the third paragraph of the trust deed quoted in the findings of fact is so hedged about with conditions and limitations and is so dependent upon the action and approval of the trustees that it could not be said that the decedent could exercise it freely of her own will in any event.  The property was not, therefore, under her absolute control and she made no attempt to exercise the limited control referred to in any way at any time before her death.  The possession and enjoyment of the trust property had passed from the decedent immediately upon her execution and delivery of the trust deed on December 30, 1915.  At her death, which occurred before that of her husband, the possession and enjoyment of the corpus of the trust, as well as title thereto, remained in the trustees, and nothing passed from her to the living.  Title to the trust property had been definitely fixed by the trust deed.  *1249 . Cf. . Possession and enjoyment of the corpus of the trust could not and did not, as a *835  matter of fact and law, pass to the decedent's issue until at or after the death of her husband.  In our opinion the facts of this proceeding bring it directly within the principles stated in , in which Mr. Justice Stone, in discussing the provisions of section 402(c) of the Revenue Act of 1918, which are similar to those of section 302(c) of the Revenue Act of 1924, said: In the light of the general purpose of the statute and the language of section 401 explicitly imposing the tax on net estates of decedents, we think it at least doubtful whether the trusts or interests in a trust intended to be reached by the phrase in section 402(c), "to take effect in possession or enjoyment at or after his death", include any others than those passing from the possession, enjoyment or control of the donor at his death and so taxable as transfers at death under section 401.  That doubt must be resolved in favor of the taxpayer.  In accordance*1250  with the foregoing, it is our opinion that the corpus of the trust should not be included in decedent's gross estate.  Judgment will be entered under Rule 50.