25 T.C. 617 (1955), 48652, Chase Nat. Bank of City of New York v. C. I. R.
|Citation:||25 T.C. 617|
|Opinion Judge:||RAUM, Judge:|
|Party Name:||THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, TRUSTEE AND ALLEGED TRANSFEREE OF MARIE ELIZABETH MORAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.|
|Attorney:||Thomas A. Ryan, Esq., for the petitioner. Ellyne E. Strickland, Esq., and Robert J. Cowan, Esq., for the respondent.|
|Judge Panel:||MURDOCK, J., dissenting:|
|Case Date:||December 22, 1955|
|Court:||United States Tax Court|
1. Husband, residing with wife in Texas, created an inter vivos trust out of community property, reserving the income to himself for life, then to his wife for life, the corpus to be distributed thereafter. He reserved the right to alter, amend, or revoke. Held, upon the husband's death, the wife had a community property interest in the corpus, which she could have asserted, and her acquiescence in the trust constituted a gift by her of her one-half interest minus the value of her life estate.
2. Husband established insurance trust paying premiums on policies on his own life out of community funds. Held, since under law of Texas wife did not have a community property interest in the proceeds of the policies, she did not make any taxable gift by acquiescing in this trust upon the husband's death.
3. Husband's will established a residuary trust of community property, naming wife as life beneficiary. Held, wife's acquiescence in this trust resulted in making of a taxable gift measured by value of her one-half interest in the corpus minus her life interest.
4. Held, the trustee (petitioner herein) may be proceeded against as transferee, even in absence of showing that any attempt was made to collect the tax from the donor or that the donor was insolvent. Sec. 1025, I.R.C. 1939.
Respondent has determined a deficiency in gift taxes against petitioner as transferee of Marie Elizabeth Moran, alleged donor. The principal issues are whether her acquiescence in three separate trusts constituted taxable gifts by her of interests allegedly owned by her in the principal of each trust, and, if so, whether petitioner may properly be proceeded against as transferee. Another issue is whether the value of any gift held to have been made by her should be held to be the value of her one-half community interest less only a life estate retained in that one-half, as contended by respondent, or, as contended by petitioner, the value of the gift should be further reduced by the value of a life estate received by her in the other one-half of the principal as a result of her election to accept the benefits of the trusts.
FINDINGS OF FACT.
Some of the facts have been stipulated and are so found.
Petitioner Chase National Bank (hereinafter referred to as Chase) is a national banking association with principal office in the city and State of New York. The tax in controversy is a gift tax in the amount of $133,578.88 in respect of gifts allegedly made during the calendar year 1948 by Marie Elizabeth Moran. The deficiency has been determined against petitioner as donee and as transferee.
Daniel James Moran (hereinafter called Daniel) and Marie Elizabeth Moran (hereinafter called Marie) were parried prior to 1922 and remained husband and wife until Danie's death on April 3, 1948. They resided at all times material in Houston, Texas. Marie's gift tax return for the calendar year 1948 was filed with the collector of internal revenue for the first district of Texas. At no time from 1922 to the date of his death did Daniel have any separate property.
On or about November 2, 1928, Daniel and the Equitable Trust Company of New York (hereinafter called Equitable) executed an agreement creating a trust (hereinafter called the Inter Vivos Trust). Principal consisted of various securities. Income was payable first to Daniel for life, then to Marie for life, with subsequent distribution governed by provisions relevant to this proceeding. Daniel reserved the right to alter, amend, or revoke the trust. The instrument provided that its validity and effect should be governed by the laws of the State of New York.
On the same day Daniel and Equitable executed an agreement creating a second trust (hereinafter called the Insurance Trust). Principal consisted of various insurance policies on the life of Daniel. Daniel reserved the power to alter, amend, or revoke the trust, and to deal with the policies in virtually any manner he might have done had no trust been created. Nothing was to be payable to the trustee under any policy until and in consequence of Daniel's death. Daniel reserved the right to all payments of any kind to be made thereunder during his life. The agreement provided that the validity and effect of the trust should be governed by the laws of the State of New York. Upon Daniel's death, income was payable to Marie for life, with subsequent disposition provided for by other clauses not relevant here. All premiums on the policies, both before and after the creation of the Insurance Trust, were paid by Daniel from community property.
Chase is the successor to Equitable as trustee under both trusts, and is still qualified and acting in such capacity. It succeeded Equitable in 1930.
On April 3, 1948, petitioner held cash and securities of a total value of $640,480.49 as trustee under the Inter Vivos Trust. The value of Marie's life interest in one-half of the principal thereof on that date was $128,689.18, and the value of her life interest in the entire corpus thereof was then $257,378.37.
Following Daniel's death on April 3, 1948, petitioner received in its capacity as trustee under the Insurance Trust proceeds of insurance policies on Daniel's life in the total amount of $239,014.04. All such policies had been taken out between 1923 and 1940, inclusive, and had been made payable to petitioner as trustee. The value on the date of Daniel's death of Marie's life interest in one-half of the Insurance Trust was $48,024.13. The value of her life interest in the entire Insurance Trust on that date was $96,048.25.
Daniel's will was duly admitted to probate in the County Court of Harris County, in the State of Texas, on or about May 26, 1948. Chase and another were nominated as executors, but Chase did not qualify. The will created a residuary trust (hereinafter called the Testamentary Trust) of which Chase was appointed trustee, and is still so acting. The Testamentary Trust attempted to dispose of the bulk of the property
held by Daniel and Marie as community property, other than property purportedly disposed of prior to the date of Daniel's death. Marie received a life estate therein, with subsequent disposition governed by provisions of no relevance here. The provision for Marie was expressly stated to be in lieu of all rights due her as Daniel's surviving spouse. The trustee was given a broad discretionary power to distribute principal to any beneficiary. It was requested to exercise such discretion liberally, but its decision was made final and conclusive.
Chase was appointed ancillary executor by the Surrogate Court of New York County, in the State of New York, and ancillary letters testamentary were issued on August 2, 1948. Chase is still qualified and acting in such capacity.
The total value of the principal of the Testamentary Trust on April 3, 1948, was $1,010,844.62. The value of Marie's life interest on that date in one-half of that trust was $203,104.94, and in the entire trust was $406,209.88.
Since the date of Daniel's death Marie has received and accepted without protest income from each of the foregoing three trusts in accordance with their respective terms. Prior to Daniel's death, Marie had no knowledge of the existence of the trust agreements or the provisions of Daniel's will.
Respondent has determined a gift tax deficiency on the ground that when Marie accepted the benefits of the trusts she acquiesced therein and thereby surrendered and made taxable gifts to the remaindermen of her community interest in the principal of each trust, less the value of the life estate retained by her in such interest. The community interest given up is claimed by respondent to be one-half of the principal of the Inter Vivos Trust and Testamentary Trust, and one-half of the proceeds of the policies held by petitioner as trustee under the Insurance Trust.
This deficiency has been determined against petitioner as trustee and transferee. No part thereof has ever been assessed against Marie, nor any attempt made to collect any part of it from her. No part of such deficiency has been paid by Marie or by petitioner. No claim is made that Marie is or ever was insolvent, or that the transfers alleged to have been made by her rendered her unable to pay the full amount of any gift tax thereon. The determination of a deficiency against petitioner was first made after expiration of the time within which a gift tax deficiency could have been determined against Marie.
Respondent has determined that Marie had a community property interest in the three trusts, consisting of one-half of the principal of the Inter Vivos Trust and Testamentary Trust and
one-half of the proceeds of the policies in the Insurance Trust. She had the right to demand and receive, subject only to the payment of community debts, any community property interest she may have had after coverture ended as a result of Daniel's death. It is respondent's position that in failing to demand the interest which he has determined she owned at the death of her husband, she relinquished that interest and thereby made taxable gifts to the remaindermen under each trust to the extent of her community interest therein less the life estate reserved in that interest.
Petitioner, on the other hand, denied that any...
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