Court Opinion

ID: 4605198
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:35:51.687039+00
Date Added: 2024-06-11T07:53:08.830404
License: Public Domain

ST. LOUIS UNION TRUST COMPANY, AS SUCCESSOR TRUSTEE TO LIBERTY CENTRAL TRUST COMPANY, AS SOLE RESIDUARY LEGATEE AND DISTRIBUTEE OF THE AMERICAN ESTATE OF WILLIAM J. ORTHWEIN, DECEASED; JOINED BY MERCANTILE COMMERCE BANK & TRUST COMPANY, SUCCESSOR TRUSTEE TO MERCANTILE TRUST COMPANY, OF THE TRUST CREATED BY TRUST INDENTURE OF WILLIAM J. ORTHWEIN, DATED JANUARY 1, 1920, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.St. Louis Union Trust Co. v. CommissionerDocket No. 47633.United States Board of Tax Appeals28 B.T.A. 107; 1933 BTA LEXIS 1183; May 16, 1933, Promulgated *1183  1.  The decedent, who died a nonresident of the United States on September 4, 1925, created a trust fund January 1, 1920, the income of which was to be paid to his daughter for life, with remainder over.  The instrument provided that if the daughter died prior to the decedent the principal of the fund should be paid to him.  Held, the value of the remainder interest was not includable in decedent's gross estate.  2.  At the date of his death the decedent owned property located in the United States consisting of shares of stock, bonds, etc., the symbolical evidences of which were located in the United States.  Held, the value of such property constituted part of the decedent's gross estate.  Daniel N. Kirby, Esq., for the petitioners.  Ralph F. Staubly, Esq., for the respondent.  SMITH *108  This proceeding is for the redetermination of a deficiency in estate tax of $15,565.18.  The deficiency was determined against the American estate of William J. Orthwein, who died a nonresident of the United States.  Certain issues raised by the pleadings respecting the taxability of jointly owned property, the allowance of deductions on account*1184  of administration expenses and debts of the decedent, and the allowance or credit on account of inheritance taxes paid, have been disposed of by a stipulation of facts filed.  The issues presented for the determination of the Board are: (1) Where the decedent, a nonresident, places property in trust with a domestic corporate trustee, consisting of shares of stock in domestic corporations and foreign and domestic bonds, to pay the income to his daughter for life, the remainder to be distributed according to the provisions of the trust instrument but in the event of the daughter predeceasing the decedent the property to revert to the grantor, is the value of the property in excess of the value of the life estate of the daughter subject to be included in the decedent's gross estate pursuant to the provisions of section 302(c) of the Revenue Act of 1924?  (2) Should the value of (a) shares of stock in domestic corporations, (b) domestic bonds, and (c) foreign bonds, the symbolical evidences of which were physically located in the United States at the date of the decedent's death, be included in the gross estate of the nonresident decedent pursuant to the provisions of section 302(a) *1185  of the Revenue Act of 1924?  FINDINGS OF FACT.  The decedent, William J. Orthwein, a citizen of the United States, died in Switzerland, September 4, 1925, then a resident of, and domiciled in, Switzerland.  The decedent left a will dated and executed at Territet, Switzerland, November 28, 1923, by which he appointed the Liberty Central Trust Co. of St. Louis, Missouri, executor of his American estate, i.e., "All that relates to my American Affairs," and "La Societe de Banque Swisse" (Swiss Bank Corporation), branch of Lausanne, executor of the rest of his estate wherever situated.  The Swiss Bank Corporation, as such foreign executor, took charge of and administered the estate outside of the United States.  The American administration was conducted in the Probate Court, City of St. Louis, Missouri, where an authenticated copy of the will was filed and Liberty Central Trust Co. was appointed executor d.b.n. on March 16, 1926.  *109  The Liberty Central Trust Co., as executor, made final distribution of the residue of the estate to itself as trustee of the trust created by the will and was discharged as executor.  Thereafter the St. Louis Union Trust Co., a trust company*1186  organized and doing business under the laws of Missouri, succeeded the Liberty Central Trust Co. as trustee of the trust and took over the trust estate.  Consequently, the St. Louis Union Trust Co., as sole distributee of the residue of the probated estate, is the legal successor in title and liability to the Liberty Central Trust Co., executor, and the trust estate in the hands of the St. Louis Union Trust Co. as trustee will have to pay any additional estate tax that may be assessed, and therefore is one of the petitioners herein.  The Mercantile Commerce Bank & Trust Co. of St. Louis is successor trustee to Mercantile Trust Co. of the trust created by trust indenture made by William J. Orthwein, the decedent, dated January 1, 1920, and it joins in this proceeding because the respondent seeks to include within the estate of William J. Orthwein the assets that constituted the corpus of the last named trust estate.  The decedent left a substantial estate, hereinafter referred to as the American estate, consisting of: (a) Personal property (choses in action, stocks and bonds), a substantial part of which was evidenced by: stock certificates located in the United States (chiefly*1187  in St. Louis, Missouri), evidencing shares of stock in corporations domestic to various of the United States; coupon bonds that were physically located in the United States, issued by the United States, by foreign governments, by corporations, public and private, which are domestic to various of the United States; and choses in action (like bank balances, etc.) owed by persons or corporations located in the United States.  As to the securities held by the Liberty Central Trust Co.: When decedent, having retired from business, moved his place of residence to Switzerland, he turned over these securities to the German Savings Institution (predecessor of the Liberty Central Trust Co.) with which he then and thereafter (until his death) conducted a deposit account.  He gave no power of attorney to the bank, but told its officer with whom he made the arrangement that he had instructed or would instruct the corporations which had issued the shares of stock thus turned over and which stood in his name, to mail to the bank the dividend checks thereon, which would be payable to him, so that the bank might deposit such checks, together with the interest coupons on the bonds that were also turned*1188  over, to the credit of decedent's deposit account with the bank.  Pursuant to this arrangement, the bank received the income from these securities and credited it, together with other deposits made by the decedent, to him on his *110  deposit account with the bank.  The bank neither had nor exercised any power of control, sale or management over these securities.  They were held subject to the order of decedent.  The same situation or relation existed between the Trust Co. and decedent, except that a year or so before decedent's death he borrowed money from the Trust Co., which was credited to his deposit account, and he gave the Trust Co. either his collateral note or its equivalent which gave the Trust Co. a lien on the securities for the payment of this debt.  At decedent's death the unpaid principal of this debt was about $16,000.  The personal property thus in the keeping of the Trust Co. consisted of the items of stocks and bonds in schedule (b) of the Federal estate tax return.  As to the securities held in New York City, these stock certificates and bonds never came into the possession of the American executor, although it endeavored to obtain them.  They were held*1189  in New York until under the control of the Swiss Bank Corporation at the date of decedent's death.  Accordingly they were not included in the Trust Co.'s inventory or estate tax return, except five items of stocks in American corporations which were included in the estate tax return as "jointly owned property" and treated in the deficiency notice attached to the amended petition at their full (not their one-half) value.  They were inventoried and otherwise treated by the foreign executor as among the assets held by it and as "in New York." The above securities, physically located in New York City, in the custody of a New York banking house at decedent's death, have not heretofore, for the purpose of administration, been treated as part of the American estate.  (b) Real estate (or interests therein), located in the United States, the reasonable, fair value of which at the date of death was $2,501, the amount at which it was returned by the executor and determined by the respondent.  The gross foreign estate of the decedent (outside of the United States) included both tangible and intangible personal property having a total value at the date of decedent's death of $277,635.59. *1190  On January 1, 1920, by his trust indenture, the decedent transferred various securities to the Mercantile Trust Co. of St. Louis, in trust to hold, manage, and dispose of as an active trust and to pay the net income thereof to decedent's daughter, Alma Feraldo, during her life and upon her death for disposition as provided in the trust indenture.  *111  The trust indenture contained a provision that if the daughter predeceased the grantor the trust should terminate and the trust estate should be paid over to the grantor, if living.  The trustee of the trust was given discretionary power to terminate the trust deed "at such time as the trustee may deem it wise that the trust be terminated." The daughter was born February 1, 1891.  She did not predecease the decedent but survived him and the trust is still alive.  The value of the trust securities at the date of the decedent's death, including accrued income thereon, was $101,421.24 and an agreed value at decedent's death of the reversionary interest in the trust corpus subject to the daughter's life estate is $34,544.06.  The respondent in determining the deficiency claimed included said reversionary interest in the gross*1191  estate at a value of $34,544.06.  The gross estate heretofore considered as within the United States had a value at date of decedent's death of $612,815.29.  This is exclusive of $25,462.50, the value of 300 shares of stock in Gillette Razor Co. included in the gross estate by the respondent but later found to be the property of decedent's daughter, and also of the remainder value of the trust estate of $34,544.06.  OPINION.  SMITH: The first question for the determination of the Board is the propriety of including in the gross estate the value of the reversionary interest of the decedent in the trust estate.  There is no contention on the part of the respondent that the value of this reversionary interest of $34,544.06 should be included in the gross estate upon the ground that the trust was created in contemplation of death.  It is contended, however, that the amount should be included in the gross estate under section 302 of the Revenue Act of 1924, which, so far as pertinent, reads 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, *1192  wherever situated - (a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate; * * * (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 *112  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.  The trust indenture expressly declared the intention of the decedent grantor to make "an absolute and irrevocable gift and a settlement of the property hereinafter described, so that the grantor shall, during the life of*1193  his said daughter, have no further individual or beneficial interest therein." The grantor retained unto himself no power of revocation or alteration.  The only power to end the trust during the life of the grantor rested in the trustee alone.  The decedent could do nothing to alter the fact that he had parted irrevocably with the trust estate.  The only possibility of his ever reacquiring an interest in the trust property depended upon the happening of certain contingencies which in fact never happened; viz., (1) a termination of the trust by the trustee during decedent's life; or (2) the death of his daughter, the life tenant, before his death plus the then existence of the trust.  His daughter survived him and the trust is still alive, so the contingencies upon which he might have reacquired the property never happened.  At his death, his daughter still being alive, the decedent "had no further individual or beneficial interest" in the trust estate which would or could pass by his death.  The power of termination given to the trustee alone did not render the remainder subject to the tax.  The decedent of his own volition had no power to terminate the trust and the power of the*1194  trustee gave him no control over the termination thereof.  ; ; ; . The provision of the trust instrument that upon the prior death of the daughter, the life tenant, the trust estate should revert to the grantor, the decedent herein, did not render the value of the reversionary interest a part of the decedent's gross estate.  The situation here is parallel to that which obtained in , in which the court said: The transfer of October 1st, 1917, was not made in contemplation of death within the legal significance of those words.  It was not testamentary in character and was beyond recall by the decedent.  At the death of Mrs. May no interest in the property held under the trust deed passed from her to the living; title thereto had been definitely fixed by the trust deed.  The interest therein which she possessed immediately prior to her death was obliterated by that event.  *1195 To the same effect is ; affd., ; Nanaline H.*113 ; affd., . Cf. ; . The contention of the petitioners upon this point is sustained. The second point for determination of the Board is the inclusion in the gross estate of the value of bonds, certificates for shares of stock, etc., physically located in the United States but belonging at the date of death of the decedent to a nonresident alien.  The contention of the petitioners upon this point is not sustained.  The decision of the Supreme Court in , is dispositive of this issue. Reviewed by the Board.  Judgment will be entered under Rule 50.