Court Opinion

ID: 4618515
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:38:47.94757+00
Date Added: 2024-06-11T07:55:29.153981
License: Public Domain

REBECCA TERRY WHITE, SOLE DEVISEE AND LEGATEE OF THE ESTATE OF ANNA DAVIS TERRY, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.White v. CommissionerDocket No. 89925.United States Board of Tax Appeals38 B.T.A. 593; 1938 BTA LEXIS 849; September 22, 1938, Promulgated 1938 BTA LEXIS 849">*849  In 1924 and in 1925 the decedent and her husband, residents of the State of Texas, by two separate trust instruments, conveyed certain funds out of their community property, irrevocably, for the benefit of their daughter, who was to receive all of the trust income.  Each of the trust instruments provided that upon the death of either settlor the trust should terminate and, "this trust estate shall be brought into hotchpotch and said Rebecca S. Terry shall receive from the community estate property the value whereof added to the then value of the trust estate will equal one-half of an amount determined by adding the then value of the community estate to the then value of the trust estate, and the remainder of the community estate shall be the property of the one of us who so survives." Upon the death of Rebecca S. Terry, both settlors surviving, the trust property was to revert to the settlors' community estate.  One of the settlors, the mother, died in 1935.  Held, that no part of the trust property is includable in her gross estate.  Ballinger Mills, Esq., for the petitioner.  Frank T. Horner, Esq., for the respondent.  SMITH38 B.T.A. 593">*593  This is1938 BTA LEXIS 849">*850  a proceeding for the redetermination of a deficiency in estate tax in the amount of $18,308.02.  The parties have filed a stipulation in which the petitioner has waived certain allegations of error contained in the petition and the respondent has admitted certain errors in the determination of the deficiency.  The only question in issue is whether one-half of the value of the property placed in trust by the decedent and her husband for the benefit of their daughter by instruments executed on December 27, 1924, and February 7, 1925, should be included in the gross estate of the decedent, under the provisions of section 302(a) and (c) of the Revenue Act of 1926.  FINDINGS OF FACT.  The petitioner is the sole legatee and devisee under the will of her mother, Anna Davis Terry.  Anna Davis Terry, hereinafter referred to as the decedent, and her husband, John Wharton Terry, also deceased, were during their entire lives residents of the State of Texas.  On December 27, 1924, they jointly executed a trust instrument under the terms of which they conveyed a portion of their community estate in trust, irrevocably, for the sole benefit of their daughter, the 38 B.T.A. 593">*594  petitioner herein. 1938 BTA LEXIS 849">*851 The trust instrument provided in material part as follows: STATE OF TEXASCounty of GalvestonKNOW ALL MEN BY THESE PRESENTS: That, whereas, we, J. W. Terry and Anna D. Terry, of said State and County, each desire, subject to the limitations and conditions hereinafter stated, to give to our daughter, Rebecca S. Terry, out of our commounity estate, property of the approximate value of Twenty-five Thousand Dollars ($25,000.00), now KNOW ALL MEN BY THESE PRESENTS: That we, the said J. W. Terry and Anna D. Terry, subject to the limitations and conditions hereinafter contained, have given, assigned and set over, and do by these presents give, assign and set over to J. W. Terry, Trustee, for our daughter, Rebecca S. Terry, the following described bonds, each of said bonds being for the principal sum of One Thousand Dollars ($1,000.00): Fifteen (15) 7 per cent. bonds of the Pennsylvania Railroad Company Five (5) 6 per cent. bonds of the Anaconda Copper Mining CompanyFive (5) 5 per cent. bonds of the Houston Lighting & Power CompanyFive (5) 6 per cent. bonds of the TennesseeElectric Light & Power CompanyFive (5) 5 per cent. bonds of Southwestern Bell Telephone Company1938 BTA LEXIS 849">*852  Five (5) 6 1/2 per cent. bonds of the Park & Forty-Sixth Street Corporation Five (5) 6 per cent. bonds of Magnolia Petroleum CompanyFive (5) 5 1/2 per cent. bonds of Bethlehem Steel CompanySaid J. W. Terry shall pay over the income of said bonds and of any other property which may become subject to this trust as hereinafter provided, or such part thereof as she may request or require, to the said Rebecca S. Terry, and he shall have authority in his discretion to invest all or any part of said income which may not be so paid to her for her in such securities as he may deem appropriate or advisable, and he shall also have authority to sell any or all of the bonds above described and invest the proceeds of any such sale or sales for her account in such securities as he may deem appropriate or advisable, and he shall also have authority when any of said bonds mature to collect the proceeds thereof and invest the same for her in such securities as he may deem appropriate or advisable.  Such authority to sell or collect and to invest shall extend to any securities which he may hereafter invest in or purchase for her account under the terms of this trust.  Any such income so invested1938 BTA LEXIS 849">*853  shall be and become a part of the trust estate to the same extent as though originally given and granted by this instrument.  These gifts are advancements from our community estate, and in the event of the death of one of us while said Rebecca S. Terry is living, this trust estate shall be brought into hotchpotch and said Rebecca S. Terry shall receive from the community estate property the value whereof added to the then value of the trust estate will equal one-half of an amount determined by adding the then value of the community estate to the then value of the trust estate, and the remainder of the community estate shall be the property of the one of us who so survives.  In the event we shall both survive said Rebecca S. Terry, then upon her death the property then subject to this trust shall revert to and become a part of our community estate. This trust shall continue in effect until the death of either of the three of us, in which event it shall terminate and the property subject thereto be disposed of as hereinbefore provided.  38 B.T.A. 593">*595  Inasmuch as said J. W. Terry has without any distinction between community and his separate estate invested his separate funds1938 BTA LEXIS 849">*854  received from the Guardian Trust Company as a result of sale of land in Houston, his separate estate, and will so continue to invest amounts hereafter received from the Guardian Trust Company, and inasmuch as some of the bonds above described have been purchased with his such separate funds, and inasmuch as it is our desire and intention to make these gifts from community estate, it is agreed that whenever it becomes necessary to settle or divide our community estate, said community estate shall account to and reimburse the said J. W. Terry for such investments heretofore or hereafter made of his separate funds received from the said Guardian Trust Company.  [Italics supplied.] By a similar trust instrument executed February 7, 1925, the settlors conveyed to the same trustee for the same uses and purposes additional property out of their community estate, consisting of certain shares of stock of the Magnolia Petroleum Co.The decedent died February 24, 1935, leaving a will in which she bequeathed all of her property to her daughter, the petitioner.  John Wharton Terry died August 25, 1936.  It is stipulated that the transfers made under the trust instruments of December 27, 1924, and1938 BTA LEXIS 849">*855  February 7, 1925, were not made in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926.  In determining the deficiency herein the respondent has included in decedent's gross estate one-half the value of the community property of decedent and her husband at the date of decedent's death, including take effect in possession or enjoyment at or after his death, except in case of a December 27, 1924, and February 7, 1925.  The entire community estate was valued at $642,799.76, of which amount $88,471.65 represented the value of the trust property.  Decedent's estate was therefore valued for estate tax purposes at $321,398.88.  The transfers by decedent and her husband under the trust instruments of December 27, 1924, and February 7, 1925, were not intended to take effect in possession or enjoyment at or after death of either of the grantors.  OPINION.  SMITH: Section 302 of the Revenuc Act of 1926 provides in part that: 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, wherever situated - (a) To the extent of1938 BTA LEXIS 849">*856  the interest therein of the decedent at the time of his death; * * * (c) 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 enjoument at or after his death, except in case of a bona fide sale for an adequate and full consideration on money or money's worth.  * * * 38 B.T.A. 593">*596  The respondent's position is that the trust conveyances made by the decedent and her husband were testamentary in character and were to take effect in possession or enjoyment at or after death within the meaning of section 302(c), above.  We do not so construe the trust instruments.  We think that they effected completed transfers of the trust properties to the trustee for the benefit of the petitioner and that the transferors retained no interest therein except the possibility of reverter in case the petitioner should predecease them.  The language of the trust instruments is that the grantors desire "to give to our daughter, Rebecca S. Terry, out of our community estate, property of the approximate value of Twenty-Five Thousand Dollars ($25,000.00)"; that the grantors 1938 BTA LEXIS 849">*857 "have given * * * and do by these presents give * * * to J. W. Terry, Trustee for our daughter, Rebecca S. Terry, the following described bonds." (Italics supplied.) The trustee was directed to pay to the petitioner so much of the trust income as she might require or request and, in his discretion, to invest the remainder of the income "for her." The income so invested was to become a part of the trust estate.  The trust instruments further provided that "These gifts are advancements from our community estate." The above provisions of the trust instruments show quite plainly, we think, that the settlors intended to make a present gift, in the nature of an advancement, to the petitioner of the property thereby conveyed to the trustee.  The further provision of the trust instruments that in the event of the death of one of the grantors during the life of the beneficiary the trust estate "shall be brought into hotchpotch" is not contradictory of, and does not defeat, this construction.  Bringing into "hotchpotch" means, generally, the blending and mixing of property belonging to different persons in order to divide it equally.  See "hotchpotch" - Bouvier's Law Dictionary, 1938 BTA LEXIS 849">*858  and Words and Phrases; ; . Article 2576 of Vernon's Annotated Texas Statutes, vol. 8, p. 153, provides that: Advancements brought into hotchpotch. - Where any of the children of a person dying intestate, or their issue, shall have received from such intestate in his lifetime any real, personal or mixed estate by way of advancement, and shall choose to come into the partition and distribution of the estate with the other distributees, such advancement shall be brought into hotchpotch with the whole estate, and such party returning such advancement shall thereupon be entitled to his proper portion of the whole estate; provided that it shall be sufficient to account for the value of the property so brought into hotchpotch at the time it was advanced.  38 B.T.A. 593">*597  An "Advancement" has been defined by the courts of the State of Texas as a payment of a portion of money or property, or a settlement of real estate, made by a parent to or for a child, in advance or in anticipation of the distributive share to which each such child would be entitled after the death of the parent, and with1938 BTA LEXIS 849">*859  a view to an apportionment or settlement in life.  See ; ; ; ; . With reference to the above quoted section of the Texas statutes the Supreme Court of Texas said in ; : * * * By another article of our statutes (Rev. St. 1895, art. 1694) the heirs are expressly required to account for advancements; but this provision, it would seem, was inserted out of abundance of caution.  Advancements are not part of an estate, though the heirs may bring them into hotchpotch and claim their full share of all the property.  * * * It is apparent from the provisions of the trust instruments here that the trust property was to be brought into hotchpotch upon the death of either of the grantors, not as a part of the community estate, but simply for the purpose of determining the amount which the petitioner was to receive from the community estate in addition to her previously acquired interest in the trust property. 1938 BTA LEXIS 849">*860  In the same paragraph of the trust instruments directing that the estate be brought into hotchpotch upon the death of either settlor is the further provision that upon the death of the petitioner the trust property "shall revert to and become a part of our community estate." Consider together, these provisions show clearly that it was not the intention of the grantors that the trust properties should revert to and become a part of the community estate upon the death of either of them, but only in case their daughter should predecease them.  The respondent contends that under the provision of the trust agreements: * * * the bonds conveyed by the decedent and her husband are brought into hotchpotch for the purpose of determining the value of the surviving spouse's interest in the community estate.  Consequently under the terms of the trusts the transfer here was to be charged to, taken out of, or become a part of the vested interest in the community estate of the spouse who was first to die.  * * * the identity of the grantor of the trust could not be determined until the death of the first spouse to die; and that the only transfer which occurred upon the execution of the trust1938 BTA LEXIS 849">*861  instruments was the transfer of the right of the beneficiary to receive the income from the trust property for the life of the decedent, her busband, and herself.  38 B.T.A. 593">*598  We do not agree with the respondent's contentions.  The transfers under the trust instruments, we think, were completed transfers of a portion of the grantors' community estate, and the properties passed completely out of the ownership of the grantors, with the possibility of reverter in case the beneficiary predeceased them.  The Supreme Court held in , that property which the decedent had previously transferred in trust, irrevocably, for the benefit of his daughter for life, with remainder over, was not a transfer intended to take effect in possession or enjoyment at or after death and was not taxable in decedent's gross estate, notwithstanding that the trust estate was to revert to the grantor in case the daughter predeceased him.  The generating source of title to the trust property, the Court said, was the trust instrument and not the death of the grantor.  To the same effect is 1938 BTA LEXIS 849">*862 . The respondent's contention here that the transfers under the trust instruments of December 27, 1924, and February 7, 1925, were intended to take effect in possession or enjoyment at or after death, and, accordingly, are taxable in the community estate of the decedent and her husband, is not sustained.  Judgment will be entered under Rule 50.