Commissioner of Internal Revenue v. Hallock

• Decision Date: 13 March 1939
• Docket Number: No. 7666-7668.,7666-7668.
• Citation: 102 F.2d 1
• Parties: COMMISSIONER OF INTERNAL REVENUE v. HALLOCK et al. SAME v. HALLOCK. SAME v. SQUIRE, Superintendent of Banks.
• Court: U.S. Court of Appeals — Sixth Circuit

102 F.2d 1 (1939)

COMMISSIONER OF INTERNAL REVENUE v. HALLOCK et al. SAME v. HALLOCK. SAME v. SQUIRE, Superintendent of Banks.

Nos. 7666-7668.

Circuit Court of Appeals, Sixth Circuit.

March 13, 1939.

Helen R. Carloss, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., and Sewall Key and Helen R. Carloss, Sp. Assts. to Atty. Gen., on the brief), for petitioner.

Walker H. Nye and W. H. Annat, both of Cleveland, Ohio (McKeehan, Merrick, Arter & Stewart, Walker H. Nye, Cannon, Spieth, Taggart, Spring & Annat, and W. H. Annat, all of Cleveland, Ohio, on the brief), for respondents.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

Petitions by the Commissioner of Internal Revenue to review orders of the United States Board of Tax Appeals redetermining and disallowing estate taxes of $6,096.97 against the estate of Henry Hallock, deceased, No. 7667, and disallowing a transferee tax for the same amount of the respondents in Nos. 7666 and 7668 as transferees of the estate. 34 B.T.A. 575.

The questions for decision are (1) whether, under Section 302(c) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 70, as amended, U.S.C.A., Title 26, § 411(c), the value of the remainder interest in a trust estate created by the decedent should be included in his gross estate; (2) whether, under Section 303 of the Revenue Act of 1926 as amended, 47 Stat. 278, 280, U. S.C.A., Title 26, § 412, there may be deducted from the gross estate as deductions, debts of the estate in excess of the value of its assets which are administered by the executrix under the jurisdiction of the Probate Court.

Henry Hallock died October 10, 1932, testate. His widow, Mary Q. Hallock, respondent, was duly appointed and qualified as executrix of his estate and she filed a non-taxable estate tax return.

On September 3, 1919, Henry Hallock entered into a separation agreement with his then wife, Anne Lamson Hallock, whereby he agreed to pay her during her lifetime $500 per month and, to guarantee the payment of this sum, on the same day transferred in trust to the First Trust & Savings Company of Cleveland, Ohio, 884 shares of 7% preferred stock of the Ohio Rubber Company, which was then paying an annual dividend of $6,188. The trustee was to receive $188 annually for its expenses and commissions. The Union Trust Company was later named successor trustee, and is now in liquidation by S. H. Squire, Superintendent of Banks for the State of Ohio, one of the respondents.

Anne Lamson Hallock was divorced on October 28, 1919. She is still living and has not remarried. The trust agreement contained the following provision for termination and disposition of its corpus:

"C. If and when Anne Lamson Hallock shall die, then and in such event and thereupon the within trust shall terminate and said Trustee shall and will pay Party of the First Part if he then be living any accrued income, then remaining in said trust fund and shall and will deliver forthwith to Party of the First Part, the principal of the said trust fund. If and in the event said Party of the First Part shall not be living then and in such event payment and delivery over shall be made to Levitt Hallock and Helen Hallock, respectively, son and daughter of the Party of the First Part, share and share alike. If and in the event either said Levitt Hallock or Helen Hallock shall at such time be dead, the share which would have gone to him or her if living, shall go to the children of such deceased child and if there be no such children living, then said entire income and principal shall be paid to that child of Henry Hallock then living.

"D. Party of the First Part reserves to himself, his heirs, executors, administrators and assigns the right at his option if and in the event said Anne Lamson Hallock shall marry any other person than said Henry Hallock to pay to said Trustee on or within six months after said marriage the sum of Twenty Thousand Dollars ($20,000.00) and deliver over to said Trustee evidence that said Anne Lamson Hallock has so remarried. Upon receipt of said fund and said proof by Trustee, if and in the event said proof is satisfactory to Trustee, then and in such event Trustee shall deliver the said fund of Twenty Thousand Dollars ($20,000.00) to said Anne Lamson Hallock. This trust shall terminate and the disposition of the then accrued income and trust fund shall be made pursuant to Paragraph C above.

"This trust may be terminated, modified, altered, canceled, or in any way varied by the written consent of the Party of the First Part and beneficiary."

The Commissioner included in decedent's gross estate the stock of the Ohio Rubber Company in the trust and valued it at date of death at $70,720 and found a deficiency in tax of $6,096.97. On the basis of this valuation and the age of Anne Lamson Hallock at the date of decedent's death, he found the fair value of the life estate or her interest in the trust estate to be $25,743.

In the return, deductions of $171,378.17 were claimed and the estate was appraised in the Probate Court of Cuyahoga County, at $114,822.36. The Commissioner reduced deductions $56,555.81, the excess over the valuation of the estate in Probate Court. The gross taxable estate determined by the Commissioner included a life insurance trust created by testator, as well as the trust involved in these proceedings. As thus valued, the gross estate exceeds the total claimed deductions.

On September 1, 1925, the decedent transferred to the respondents, Mary Q. Hallock and Central United National Bank of Cleveland, as trustees under an agreement of trust, insurance policies on his life having an aggregate face value of approximately $200,000. At the time of decedent's death, the net value of this trust was about $110,000 and its proceeds or their investment in the hands of the trustees at the time the Commissioner determined his deficiency exceeded the amount thereof.

The corpus of the insurance trust passed under contracts executed by the decedent in favor of specific beneficiaries, who are respondents in No. 7666.

The Board of Tax Appeals disallowed the deficiency of the Commissioner as determined on the foregoing facts, hence these proceedings for review.

The petitioner insists that the death of the testator was the generating source of new rights to his children under the trust instrument, because until his death there was no assurance they would at any time come into possession or enjoyment of any portion of the trust estate.

The applicable statute is Section 302(c) of the Revenue of Act of 1926, 44 Stat. 9, 70, 26 U.S.C.A. § 411(c), which provides for the inclusion in a taxable estate of a decedent's property transferred "in contemplation of or intended to take effect in possession or enjoyment at or after his death."

The statute intended to levy a tax on property possessed or enjoyed by the decedent in his lifetime having a clear value in money. It does not cover a mere technical interest without regard to a present right to possess or enjoy or without measurable value at date of death.

In the case of Helvering v. St. Louis Union Trust Company, 296 U.S. 39, 47, 56 S.Ct. 74, 75, 80 L.Ed. 29, 100 A.L.R. 1239, the trust indenture provided that, "if the daughter the beneficiary predecease the grantor, the trust shall terminate and the trust estate be transferred, paid over, and delivered to the grantor, to be his absolutely." With reference to the interest of the grantor it was said: "His death...