May v. Heiner

• Citation: 25 F.2d 1004
• Decision Date: 12 January 1928
• Docket Number: No. 3097.,3097.
• Parties: MAY et al. v. HEINER, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Pennsylvania

25 F.2d 1004 (1928)

MAY et al. v. HEINER, Collector of Internal Revenue.

No. 3097.

District Court, W. D. Pennsylvania.

January 12, 1928.

Sachs & Caplan, of Pittsburgh, Pa., for plaintiffs.

John D. Meyer, U. S. Atty., of Pittsburgh, Pa., for defendant.

THOMSON, District Judge.

This is an action brought to recover an additional federal estate tax, on the ground of its illegal assessment and collection under the provisions of the Revenue Act of 1918 (Comp. St. §§ 6336¾a-6336¾k). The plaintiffs having filed their statement and amended statement of claim, an affidavit of defense was filed, raising questions of law, which are before the court for determination. The decision of this case has been greatly delayed, due to a combination of causes not essential to state.

Pauline May died on March 25, 1920. Having executed a paper declaring her intention to create a trust, under a formal instrument to be drawn for that purpose, she did, on October 1, 1917, execute such instrument. The question, therefore, arises whether such trust, created by the decedent more than two years prior to her death, was created in contemplation of, or intended to take effect in possession or enjoyment at or after, her death. After assigning certain property to the trustees, and giving them full power and authority to deal with the same, she directed the trustees as follows:

"To pay the net dividends, interest and income thereof, after payment of all taxes, costs and expenses incurred by them in their discretion, in the performance of the duties hereunder; to Barney May during his lifetime, and after his decease, to Pauline May during her lifetime, and after her decease, all the property in said trust, in whatever form or shape it may be, shall, after the expenses of the trust have been deducted or paid, be distributed equally among Walter A. May, Herbert L. May, Edwin G. May and Estelle May Affelder, children of the said Pauline May and Barney May, and in case any of such children be deceased, then as such deceased child shall appoint by his or her last will and testament, or by other written instrument, directed to the trustees, and duly witnessed, and in default of such appointment, to the heirs of such deceased child, per stirpes."

The material part of the Revenue Act of 1918 is as follows:

"Sec. 402. 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, tangible or intangible, wherever situated. * * *

"(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. * * *" Comp. St. § 6336¾c(c).

From the plain language of the trust, the donor gave the income of the fund to her husband for life, and the corpus of the fund to her children; but the gift of the corpus is effective only after the death of Mrs. May, the donor. In this case, it was the gift of the corpus of the fund which was included in valuing the gross estate. The gift becomes the legal, as distinguished from the equitable, property of the children only after the death of the donor of the trust.

It is certainly true that the property covered by the gift included in the gross estate came into the possession or enjoyment of the donees only after the death of the donor. It seems to be settled by the authorities that the phrase, "to take effect in possession or enjoyment at, or after death," is used to designate a situation in which the donee's rights with respect to the property (as distinguished from an estate or interest in the property) changed at, or after, and because of, the donee's death. It is perfectly clear that the donor, by adopting a trust form of conveyance, manifested her intention that the property should not come into the present possession of the beneficiaries. By providing in effect for the termination of the trust after death, the possession is made to take effect at that time. While it is true that the trust may be said to take effect in...