Court Opinion

ID: 4600133
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:24:51.215406+00
Date Added: 2024-06-11T07:52:15.322767
License: Public Domain

LILLIAN M. WHEELER, AS EXECUTRIX OF THE LAST WILL AND TESTAMENT OF CHARLES S. WHEELER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Wheeler v. CommissionerDocket No. 22391.United States Board of Tax Appeals20 B.T.A. 695; 1930 BTA LEXIS 2049; September 9, 1930, Promulgated *2049 Held that certain trust instruments were not intended to take effect in possession and enjoyment at or after death and that accordingly certain trust property was improperly included in the taxable estate.  Brice Toole, Esq., for the petitioner.  Frank T. Horner, Esq., for the respondent.  VAN FOSSAN *696  This proceeding was brought to redetermine the estate tax on the estate of Charles S. Wheeler, deceased, asserted for the year 1923 in the sum of $6,296.22; The petitioner states that the amount in controversy is $5,257.08.  The petitioner asserts that the respondent erred in the following respects: (1) In finding that the corpus of four certain trusts dated July 28, 1914, September 16, 1914, April 15, 1915, and April 13, 1919, for the benefit of Elizabeth Wheeler, Lilias O. Wheeler, Olive B. Wheeler, and Jean Bolt Wheeler, respectively, constituted a part of the taxable estate of the said deceased in that such trusts were transfers made to take effect at or after death.  (2) In not finding that the entire balance of the corpus remaining in the Elizabeth Wheeler trust was returned as a part of the estate of the deceased in the original*2050  return.  (3) In finding that the community interest of Lillian M. Wheeler, widow of the deceased, in the community property of the said deceased and the said Lillian M. Wheeler was taxable as a part of the estate of the said decedent.  (4) In increasing the value of certain assets of the estate over the values originally reported and in not increasing the cost of administration thereof.  (5) In not complying with the provisions of article 1211 of Regulations 65 with respect to the mailing of notice thereunder.  At the hearing the petitioner abandoned all issues except the first and third.  FINDINGS OF FACT.  Charles S. Wheeler died on the 27th day of April, 1923, a resident of the city and county of San Francisco, Calif.  Thereafter his widow, Lillian M. Wheeler, was duly appointed the executrix of his estate.  All of the property of which the said deceased died possessed was the community property of the said deceased and his wife, Lillian M. Wheeler.  The total value of the gross estate was $438,614.50, with deductions of $152,791.40, making a net estate of $285,823.10.  In the value of the gross estate was included the sum of $12,989.19 representing the value of the*2051  residue of trust created by Charles S. Wheeler in his lifetime for the benefit of his daughters, Elizabeth Wheeler Head, Lilias O. Wheeler Walton, Olive B. Wheeler McLeod, and Jean Bolt Wheeler White.  The respondent included in the value of the gross estate the total value of the community *697  property of which Charles S. Wheeler died possessed.  The petitioner reported in his estate-tax return filed by her only one-half thereof.  Upon the marriage of each of his four daughters, Charles S. Wheeler created certain trusts for their benefit, naming himself as trustee therein.  The trust created for the benefit of Elizabeth Wheeler is as follows: DECLARATION OF TRUST KNOW ALL MEN BY THESE PRESENTS: That I, Charles S. Wheeler, do hereby declare that I now have in my possession and hold in trust upon the trusts herein declared and created, for the benefit of my beloved daughter Elizabeth Wheeler (who this day, with my cordial and full consent, is to become the wife of Cotesworth Bradway Head), the following described personal property: Twenty (20) shares of the capital stock of the First National Bank of San Francisco * * * The purposes for which I hereby declare that*2052  I hold the above-described property in trust are as follows: 1.  To collect the income therefrom and to pay the same over to my said daughter as her absolute and separate property for and during the term of her natural life, or until this trust is sooner terminated by my death, as hereinafter provided for.  2.  In the event that it shall appear to me at any time or times that the personal or family necessities of my said daughter require a payment or payments of money to her, in excess of and in addition to the income derived from said trust estate, then in my discretion, I may pay over to her, and there is hereby reserved to me the power and authority to pay over to her, such portion of the corpus of the said trust property as in my discretion I may deem necessary or proper; and in such event, any such payments may be treated by me as an absolute gift to my said daughter or as a loan to be repaid to the trust estate by her, either from future income or otherwise.  3.  I, as such trustee hereunder, am to have and there is hereby reserved to and vested in me full discretionary power and authority to sell or exchange, from time to time, all of the aforesaid property or any part*2053  thereof, or any other property belonging to this trust, upon such terms, for such price, or for such property as in my discretion I shall see fit; and the proceeds so received upon such sale or exchange shall be invested and reinvested and held upon the same trusts as are hereinabove and hereinafter declared.  4.  There is hereby further reserved to and vested in me the power and authority in my discretion, to use a portion or all of the corpus of said trust estate in or toward the purchase, acquisition, or construction of a dwelling house to be occupied by my said daughter as a home; and at my election and in my discretion I may cause the title to the land upon which said dwelling house is or shall be situate to be taken in the name of my said daughter for her benefit in fee simple absolute; or, in my discretion, I may take such title in trust upon any lawful trusts that I shall see fit to frame and declare concerning the same, with such lawful estates and remainders, in favor of such person or persons other than my said daughter as I shall in my discretion designate or appoint.  *698  5.  Upon my death, leaving my said daughter me surviving, this trust shall cease and the*2054  corpus of the trust then remaining shall vest absolutely in and go and belong to my said daughter in fee simple.  6.  If my said daughter shall die, leaving children of her body her surviving, and also leaving me her surviving, then the corpus of said trust estate shall be by me divided into as many parts as there are such children, and each such part shall be subject to a like power of sale, exchange, investment and reinvestment, and the income of one such part shall be paid to each child until my death; and upon my death the corpus of such part shall vest absolutely in and shall go and belong to such child; and I also reserve the discretionary power to pay over to any such child, for his maintenance, education, or support, in addition to such income, such portion or portions of the corpus of the trust fund thus set apart for such child as in my discretion I may deem necessary or proper.  7.  Should my daughter die in my lifetime, leaving no issue of her body her surviving, then said trust shall cease and the trust property then remaining in my hands shall revert to and belong to me absolutely.  This trust may be cancelled, revoked, and terminated at any time by the joint consent*2055  in writing of my said daughter Elizabeth and myself; and in the event of such cancellation and revocation, the trust property and estate shall be disposed of as my said daughter and myself shall mutually agree.  I hereby reserve the right and power to nominate and appoint a trustee to carry out this trust in my place and stead; but no such appointment shall extend the term of this trust.  Such appointment shall be made in writing, and a copy of such writing shall be delivered to my said daughter.  Such appointment shall be completed upon turning over and delivering to such trustee the trust property and estate.  Should I become at any time incapacitated to administer this trust, then in default of the appointment of another trustee by me, my beloved wife, Lillian M. Wheeler, shall act as such trustee, in my place until my death or until the earlier determination of this trust by the death of my said daughter.  In the event that my wife shall act as such trustee, or in the event of the appointment of another trustee by me, then each and all of the several powers and duties, both discretionary and peremptory, which I possess as a trustee pursuant to the trusts herein declared shall*2056  devolve upon my said wife or upon such appointee.  IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28th day of July, 1914.  (Signed) CHARLES S. WHEELER (SEAL) CHARLES S. WHEELER, Trustee.The declarations of trust made for the benefit of the other three daughters are identical in form with the above and vary only in the capital named.  After the establishment of the respective trusts each of the four daughters requested her father to advance a portion of the corpus of the trust for the purpose of purchasing a home.  The decedent thereupon sold certain securities forming a part of the capital of the said trusts and paid over the proceeds thereof to his daughters, Lilias Walton, Olive McLeod, and Jean White, but purchased a *699  home for his daughter, Elizabeth Head, and took title thereto as trustee to protect it from any possible attack by the creditors of the beneficiary's husband.  At the time of the decedent's death there remained in the corpus of the four trusts the sum of $12,989.19.  This amount the respondent included in the valuation of the estate for tax purposes.  OPINION.  *2057 VAN FOSSAN: The question whether the total value of the community property of which the decedent died possessed or only one-half thereof should be included in the gross estate under the laws of California has been decided by us in . Our decision in that case was affirmed by the . A rehearing was denied by the Court of Appeals on May 6, 1929, and ceriorari was denied on October 21, 1929, by the . In that case we held that the interest of the surviving wife in the community property of the deceased husband and herself both domiciled in California is subject to the Federal estate tax imposed by the Revenue Act of 1921.  On the authority of that decision we rule adversely to the petitioner.  ; . Section 402 of the Revenue Act of 1921 provides: That 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, *2058  tangible or intangible, 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 (whether such transfer or trust is made or created before or after the passage of this Act), 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 this title.  The second point at issue is whether or not the trusts established by Charles S. Wheeler for the benefit of his four daughters*2059  come within the purview of section 402 above in that they were intended *700  to take effect in possession or enjoyment at or after his death.  There is no suggestion that the trusts were made in contemplation of death.  The statute imposes an excise upon the transfer of an estate upon the death of the owner.  ; ; . Death duties rest upon the principle that death is the "generating source" from which the authority to impose such taxes takes its being and "it is the power to transmit or the transmission or receipt of property by death which is the subject levied upon by all death duties." ; . We may consider then what interest or property rights, if any, in the corpus of the trust estates were possessed by Charles S. Wheeler at the time of his death and whether or not they were of such a character as to justify the imposition of an excise upon their transfer at his death.  By the terms of the declarations of trust Wheeler*2060  declared that he held certain securities as trustee for the beneficiaries, his daughters, and described the various duties and functions he was to perform as such trustee.  He was to collect income therefrom and pay it over to the beneficiaries as their absolute and separate property.  Under certain conditions he might pay over a part or all of the corpus of the trust, treating such payment either as an absolute gift or a loan to be repaid to the trust.  In the administration of the trusts he was given full discretionary powers and the authority to exchange, sell and substitute other securities or property for the corpus as originally set aside by him.  He was further empowered to use a portion or all of the capital of the trust estates in the purchase, acquisition or construction of dwelling houses to be occupied by his daughters as homes.  He was given the authority to take the titles to the land on which such dwellings were erected in trust or to cause the said titles to be conveyed to his daughters; in the former event he might declare any lawful trusts "with such lawful estates and remainders, in favor of such person or persons other than his said daughters as he should in his*2061  discretion designate or appoint." The trust ceased upon the decedent's death and the funds or property remaining therein were to vest absolutely in his daughters.  If the daughters should die prior to his demise, he was directed to divide the corpus of the trust estates in proportion to the number of children of such daughters.  If the beneficiary should die without issue, the trust estates were to revert to the settlor.  The trust could be canceled, revoked and terminated only by the joint consent of the decedent and the beneficiaries.  Under paragraph 4 of the declaration of trust, Charles S. Wheeler advanced various sums to his four daughters for the purchase of homes.  The amounts remaining in the several trust funds after *701  deducting the sums so withdrawn for homes constituted the funds which the respondent held subject to the Federal estate tax as transfers intended to take effect in possession or enjoyment at or after the decedent's death within the meaning of section 402(c) above.  By making such advances for that purpose, Charles S. Wheeler as trustee exercised completely and fully his powers with relation to the acquisition of homes for his daughters and thereby*2062  exhausted such powers.  In the case of the trusts for his daughters, Lilias, Olive, and Jean, he did not take title in trust to the land upon which the dwelling houses were erected.  Upon assuming title to the home for his daughter, Elizabeth, he did not declare any further trusts for the benefit of any person other than her.  Therefore, the provision permitting him to declare estates and remainders in favor of persons other than his daughters does not apply to the residue of the securities constituting the trust funds.  We are of the opinion that at the death of Charles S. Wheeler there remained in him individually no interest of any measurable value which could be included in his estate.  See . The settlor reserved no power of disposition of the trust estate for his own individual benefit nor any testamentary control over it.  See . The trust was revocable only with the consent of the beneficiary and hence was beyond the recall of the decedent.  See *2063 ;The trustor retained no control, possession or enjoyment in or for himself individually.  He administered the estate as a trustee and all of his acts subsequent to the creation of the trust were and could be only those of a trustee.  In Reinecke v. Northern Trust Co. the court said: * * * Since the power to revoke or alter was dependent on the consent of the one entitled to the beneficial, and consequently adverse, interest, the trust, for all practical purposes, had passed as completely from any control by decedent which might inure to his own benefit as if the gift had been absolute.  Nor did the reserved powers of management of the trusts save to decedent any control over the economic benefits or the enjoyment of the property.  He would equally have reserved all these powers and others had he made himself the trustee, but the transfer would not for that reason have been incomplete.  The shifting of the economic interest in the trust property which was the subject of the tax was thus complete as soon as the trust was made.  His power to recall the property and of control*2064  over if for his own benefit then ceased and as the trusts were not made in contemplation of death, the reserved powers do not serve to distinguish them from any other gift inter vivos not subject to the tax.  In , the trust therein established provided that the beneficiary should receive the income from the trust estate during his lifetime and thereafter it should revert to the settlor and *702  after her death to certain designated distributees.  The court there held that the trust was not within the purview of section 402(c) and cited , as follows: In its plan and scope the tax is one imposed on transfers at death or made in contemplation of death and is measured by the value at death of the interest, which is transferred.  * * * One may freely give his property to another by absolute gift without subjecting himself or his estate to a tax, but we are asked to say that this statute means that he may not make a gift inter vivos, equally absolute and complete, without subjecting it to a tax if the gift takes the form of a life estate in one with remainder over to another*2065  at or after the donor's death.  It would require plain and compelling language to justify so incongruous a result, and we think it is wanting in the present statute.  * * * The case at bar is similar to , in that all or a portion of the trust estate might revert to the settlor upon the death of the beneficiary.  We are of the opinion that respondent erred in including in the taxable estate the remainder of the trust estate.  Decision will be entered under Rule 50.