Court Opinion

ID: 4608861
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:43:33.824724+00
Date Added: 2024-06-11T07:53:46.616841
License: Public Domain

FLORA M. BONNEY AND ALICE E. CRAWFORD, EXECUTRICES OF THE LAST WILL AND TESTAMENT OF JAMES A. MACDONALD, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bonney v. CommissionerDocket No. 55248.United States Board of Tax Appeals29 B.T.A. 45; 1933 BTA LEXIS 1008; September 22, 1933, Promulgated *1008  Many years prior to his death the decedent transferred in trust certain securities, the income from which was to be paid to him during his lifetime and upon his death to his wife for her lifetime should she be living and upon her death to his daughter for her lifetime, with power of testamentary disposition in the daughter.  In event of decedent surviving both his wife and daughter the properties were to be returned to him.  However, should he and the daughter predecease the wife the properties were to be distributed to the distributees of his personal estate entitled to receive the same under the laws of New York in force at her death.  The decedent reserved to himself the right to supervise investments of the trustee, but reserved to himself no power either alone or in conjunction with another to alter, amend or revoke the provisions of the trust agreement.  Held, that upon the death of the decedent subsequent to that of his wife and prior to that of his daughter the property contained in the trust is not to be included in his gross estate.  Edwin W. Cooney, Esq., for petitioners.  Frank T. Horner, Esq., for the respondent.  TRAMMELL *45 *1009  This is a proceeding for the redetermination of a deficiency in estate tax in the amount of $47,214.61.  The issues raised in the pleadings were settled by stipulation of the parties, except the issue *46  as to whether the corpus of a certain trust createo by the decedent in 1901 should be included in the gross estate subject to the estate tax.  The case was submitted upon the pleadings and stipulation of facts.  FINDINGS OF FACT.  The following facts were stipulated: 1.  That James A. Macdonald died a resident of the County of Queens, State of New York, on April 15, 1929.  2.  That said decedent left a last will and testament bearing date the 22nd day of November 1928, which was duly admitted to probate by the Surrogate's Court of Queens County on or about the 24th day of April 1929.  3.  That letters testamentary were duly issued to Flora M. Bonney and Alice E. Crawford, the executrices named in the will, on or about the 24th day of April 1929.  4.  That the said Flora M. Bonney and Alice E. Crawford have ever since and still are acting as such executrices.  5.  That James A. Macdonald was born March 16, 1844; that Cara C. Macdonald was born July 21, 1855; and*1010  that Flora Macdonald (now Flora Macdonald Bonney) was born December 30, 1892; Cara C. Macdonald died January 12, 1922.  6.  That the trust agreement was entered into by and between said James A. Macdonald and the Commercial Trust Co. of New Jersey on April 8, 1901.  7.  That the said trust agreement and the transfers made on April 8, 1901 were not made in contemplation of death.  8.  That the net taxable estate of said decedent, exclusive of the fund comprising the corpus of the trust created by the decedent on April 8, 1901, is (or was) $4,733,526.69 as of April 15, 1929, the date of death.  This amount is arrived at by the following computation: Net estate as shown by Commissioner's 60-day letter dated February 9, 1931$4,965,998.97Subtract:1.  Deduction claimed by petitioners in paragraph 4(b) of their petition, which deduction is now conceded by respondent$2,500,002.  Deduction claimed by petitioners in paragraph 4(c) of their petition, which deduction is now conceded by respondent16,096.313.  Value of the said trust fund which the respondent contends is taxable255,289.89273,886.20$4,692,112.77Add:1.  Net amount of a refund of income tax as reported by petitioners by affidavit dated January 5, 193341,413.92Net Estate exclusive of said trust fund$4,733,526.69*1011  9.  That the value of the fund comprising the corpus of the trust created by the decedent on April 8, 1901, was $255,289.89 on April 15, 1929, the date of death.  * * * 11.  *47  That the executrices have submitted acceptable proof of payment of state inheritance taxes to the extent of $368,323.99 for which amount they are entitled to credit on federal estate tax, to the extent that said sum does not exceed 80 percent. of the federal estate tax as finally determined in this proceeding.  * * * The trust agreement, in so far as it is material, is as follows: THIS INDENTURE, entered into this eighth day of April, in the year One thousand nine hundred and one, between James A. Macdonald of the City and State of New York, hereinafter designated as the first party, and Commercial Trust Company of New Jersey a corporation organized under the laws of the State of New Jersey, having its principal place of business at Jersey City, in said State of New Jersey, hereinafter designated as the second party, WITNESSETH: That in consideration of the sum of one dollar by the second party to the first party in hand paid, the receipt whereof is hereby acknowledged, the first party*1012  said James A. Macdonald, hereby sells, assigns, transfers and sets over unto the second party, said Commercial Trust Company of New Jersey, the corporate stocks and other securities mentioned in the Schedule hereunto annexed and marked "Schedule referred to in the annexed instrument," TO HAVE AND TO HOLD the same in trust for the following uses and purposes, during the lives of Cara C. Macdonald, the wife of, and of Flora Macdonald, the daughter of, said James A. Macdonald, the first party, to wit: IN TRUST to pay over the dividends, interest, issues and income which shall be received by the second party from said stocks and other securities after deducting therefrom its charges, first to said James A. Macdonald, the first party, during his life; second after his death to his wife, Cara C. Macdonald, should she be living, during her life, and third, after the death of said James A. Macdonald, and of said Cara C. Macdonald, to said Flora Macdonald, during her life, free from the debts and from the control of any husband of said Flora Macdonald.  AND upon the further trust, upon the death of said Flora Macdonald, after the death of said James A. Macdonald, the first party, and of*1013  Cara C. Macdonald, his wife, to assign, transfer and set over said stocks and other securities, to such person or persons and for such lawful uses and purposes as said Flora Macdonald may by her last will and testament appoint, and in default thereof, to the distributees of her personal estate entitled to receive the smae under the laws of The State of New York in force at the time of her death, in the proportions prescribed by said laws.  AND upon the further trust, in the event said Cara C. Macdonald shall survive said Flora Macdonald, then on the death of said Cara C. Macdonald, to assign, transfer and set over said stocks and other securities to James A. Macdonald, the first party, should he be then living, but if he should be then dead, to assign, transfer and set over said stocks and other securities to the distributees of the personal estate of James A. Macdonald, the first party, entitled to receive the same under the laws of the State of New York, in force at the time of her death in the proportions prescribed by said laws.  AND the second party agrees with the first party, and with the beneficiaries of the foregoing trusts, that it will receive, hold and finally surrender*1014  said stocks and other securities and faithfully carry out the trusts hereinbefore specitied pursuant to the terms hereof.  AND it is stipulated between the parties, that said stocks and other securities mentioned in said schedule, shall be forthwith transferred to the name *48  of the second party "As Trustee under deed of trust of James A. Macdonald," and whenever the second party may deem it desirable to sell any of said stocks or other securities and reinvest the proceeds thereof at any time during the continuance of the trusts herein provided for, that said stocks and other securities, or any part thereof, shall not be sold nor the proceeds reinvested, except by the written consent of James A. Macdonald, during his life, of Cara C. Macdonald after his death during her life, and of Flora Macdonald, or of her guardian after the death of both said James A. Macdonald and said Cara C. Macdonald, during her life, and investments shall only be made in stocks, of which the income or dividend is guaranteed by some other corporation, and which shall at such time have paid dividends during five consecutive years prior thereto, or in bonds, such as savings banks under the laws of the*1015 State of New York are or may be allowed to invest their funds in.  In case any corporation, the stocks or bonds of which may be held by the second party under the terms hereof, should be reorganized or should be consolidated with any other corporation, then the second party is authorized to accept such securities as may be offered in lieu of the stocks or bonds of the corporation reorganized or consolidated, and to pay any assessment upon such reorganization or consolidation which in the judgment of the second party it may be proper to pay, and in order to provide the funds necessary to pay such assessment, it is authorized to sell so much of the securities deposited with it as may be requisite for such purpose.  AND it is further stipulated, that on the demand of James A. Macdonald, the first party, at any time during his life and the continuance of the trusts herein provided for, the second party will reassign and redeliver to him any of the stocks and other securities, which may be held by the second party under the terms of this instrument, upon the assignment and delivery to the second party of stocks or other securities in lieu thereof, which shall become subject to the terms*1016  of this instrument, provided such substituted stocks or other securities have a value at least equal to the value of the stock or other securities which the first party may demand.  The second party shall pass upon and determine the equality of value of the stocks or other securities offered by the first party, and its determination of value by the acceptance and substitution of other stocks and securities in lieu of those surrendered to the first party shall be final and binding upon all persons who have or may have any interest under this instrument, and the second party shall incur no liability of any kind to any person whomsoever for complying with said demand of the first party and permitting such substitution.  AND it is further stipulated between the parties that the second party will receive and hold, subject to the trusts and terms of this instrument, any other stocks or other securities which the first party may at any time hereafter assign, transfer and deliver to the second party, for the purpose of subjecting the same to the terms of this instrument, and when so assigned and transferred, the second party will hold and dispose of the same and the dividends, interest, *1017  issues, and income thereof pursuant to the trusts, terms and covenants hereof, the same as if such additional stocks and other securities had been assigned and delivered to the second party at the time of making this instrument.  * * * IT IS UNDERSTOOD AND AGREED, that the above mentioned trust in favor of James A. Macdonald, the first party shall continue only during the lives of said Cara C. Macdonald and Flora Macdonald, and in the event that both shall die before the death of said James A. Macdonald, the first party, then the operation *49  or this instrument shall cease and determine, and the second party shall reassign and transfer to said James A. Macdonald, all the stocks and other securities received by it under the terms hereof.  OPINION.  TRAMMELL: The question here is whether the corpus of the trust should be included in the gross estate of the decedent.  The respondent has determined that it should be.  The trust agreement reserved to the settlor the right to receive the imcome from the trust during his lifetime; it reserved to the settlor the right to supervise investments for the trustee, and there was included in the trust agreement a provision under the*1018  operation of which there was a possibility of the trust property reverting to the settlor in the event the beneficiaries predeceased him.  In our opinion, neither nor all of these reservations combined is sufficient to warrant the inclusion of the trust property in the decedent's gross estate.  The decedent herein, by means of the trust agreement executed in 1901, sold and transferred to the trustee therein named the stocks and securities referred to and did not reserve unto himself any power, either alone or in conjunction with any other person, to alter, amend or revoke the provisions of the trust agreement.  The trust instrument when signed and the actual transfer of the securities when consummated, were beyond the recall of the decedent.  It was a completed transaction.  The only beneficial interest the decedent had after the creation of the trust was the right to receive the income from securities comprising the corpus thereof.  The right of the settlor to receive the income from the fund or trust, which right he possessed immediately prior to death, was obliterated by his death, and the direction to the trustee to pay such income to him during his life does not make the*1019  transfer of the property comprising the trust a transfer to take effect in possession or enjoyment at or after the settlor's death within the meaning of section 302(c) of the Revenue Act of 1926, or identical provisions of prior acts.  See ; ; . A joint resolution of Congress to amend section 302 of the Revenue Act of 1926, approved March 3, 1931, is not retroactive and has no bearing upon the decision of this case.  See . Nor was the reservation by the settlor of the right during his lifetime to supervise investments sufficient to constitute the transfer one to take effect in possession or enjoyment at or after the settlor's death.  See . *50  The respondent contends that, since there was a possibility of the trust property reverting to the settlor during his lifetime, due to the beneficiaries predeceasing him, the property should be included in the settlor's gross estate. *1020  This question, however, was decided adversely to respondent in the case of In the McCormick case, as in this case, the corpus of the trust was to be transferred to the settlor in case she survived the beneficiaries to whom the income by the terms of the trust was payable after her death, but the Supreme Court held that even though there was a possibility of a reversion, the value of the trust property should not be included in the gross estate of the decedent.  In both the cases of , and , there was present the possibility that the children of the grantors, together with their issue, might predecease the grantors, in which case the trust of its own accord would have terminated and the property would have gone back to the grantors or their estate.  The court, however, did not consider in either of those cases that this possibility of a reverter was a sufficient interest in the property to render the transfer thereof subject to tax.  This question was also involved in the case of *1021 ; affd., , and also in the cases of ; ; ; and All of these cases were decided adversely to the respondent's contention.  There is a material distinction between a possibility of property reverting to the grantor and a contingency upon which the property might be transferred from the grantor at death.  If the decedent made a complete and absolute transfer of his property it is not subject to estate tax, notwithstanding under some contingency it might revert to him.  On the other hand, if the decedent did not convey his entire right, title and interest in the property, or make his death the time and occasion of the transfer, as was done in , and *1022 , then such properties so transferred are included in the gross estate because of the fact that the transfer takes effect in possession or enjoyment at or after the decedent's death.  The mere possibility or contingency of the property reverting to the transferor is not sufficient.  We therefore hold that the property included in the trust herein involved should not be included in the gross estate of the decedent.  Judgment will be entered under Rule 50.