Michigan Trust Company v. Kavanagh
| Citation | 284 F.2d 502 |
| Decision Date | 14 December 1960 |
| Docket Number | No. 14073.,14073. |
| Parties | MICHIGAN TRUST COMPANY, Executor of the Estate of R. Wallace Hook, Plaintiff-Appellant, v. Giles KAVANAGH, Collector of Internal Revenue for the District of Michigan, substituted by Thomas G. Kavanagh, Jr., Adm'r., Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
Peter Van Domelen, Grand Rapids, Mich. (Harold S. Sawyer and Warner, Norcross & Judd, Grand Rapids, Mich., on the brief), for appellant.
Joseph Kovner, Tax Division, Dept. of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, Loring W. Post, Carolyn R. Just, Attys., Dept. of Justice, Washington, D. C., and Wendell A. Miles, U. S. Atty., Grand Rapids, Mich., on the brief), for appellee.
Before SIMONS, Senior Judge, and MARTIN and O'SULLIVAN, Circuit Judges.
The appellant is the executor of the estate of R. Wallace Hook, and also Hook's successor as sole trustee of three identical inter vivos trusts, executed one for each of his three sons on April 17, 1931. Hook died on March 8, 1948. On or about June 3, 1949, appellant filed a federal estate tax return for Hook's estate and paid a tax thereon in the sum of $115,770.75.
The Commissioner of Internal Revenue assessed against the estate a deficiency of $69,572.50, plus interest, upon the ground that the fair market value of the decedent's residence should be increased from $40,000 to $50,000 and that the trust property in the three trusts in their entire amount should be included in the decedent's estate, for tax purposes, because the transfers with power reserved to alter, amend or revoke, are includible in the gross estate under the provisions of Sec. 811(d)(2) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 811(d)(2). The deficiency was paid by the appellant, who duly filed a claim for refund, which was denied.
On February 13, 1952, the appellant, as trustee, filed a petition in the Circuit Court for Kent County, Michigan, in chancery, seeking construction of the trusts and requesting instructions as to its rights and obligations under the power reserved by the settlor in the trust instruments, in view of the Commissioner's determination that the trusts were subject to a power to alter, amend or revoke. On April 8th, the state court entered a decree, instructing the trustee that the power of invasion by the trustee of the corpus of each of the trusts, as set forth in paragraph 7, is a limited power, exercisable only in case of special emergency and since it is measured by a definite external standard is subject to the jurisdiction and control of the court and that the plaintiff, as trustee and as executor of the estate of Hook, has no power to invade the principal of the trusts, except upon a showing of a special emergency in the ordinary meaning of the term. The trustee in this case relies upon the decision in the state court, and considers it controlling on the issue involved.
On February 24, 1955, the appellee here sought a partial summary judgment, pursuant to Rule 56, 28 U.S.C.A., on the ground that no factual issue being involved the corpus and accumulated income were includible in the decedent's gross estate, as a matter of law, under Sec. 811 (d)(2). Appellant, likewise, filed a motion for partial summary judgment, subject to the reservation that should the court hold the corpus of the trusts to be includible in the decedent's gross estate, the question of whether the accumulated income is also includible should be reserved for a later trial. The district judge of the Eastern District of Michigan granted the appellee's motion in respect to the corpus 137 F.Supp. 52 leaving the question of the includibility of accumulated income for a later trial. Subsequently, the case was transferred, by appropriate order, to the United States District Court for the Western District of Michigan. Thereafter, on February 20, 1958, the parties resolved the question of the value of decedent's residence by stipulation and agreed that the value of the trust property, at decedent's death, was $217,197.90, of which $65,658 constituted, at the time of death, the adjusted value of the corpus transferred to the trusts by the decedent and the accumulated interest of the three trusts from their creation to the decedent's death was $151,539.90. It was further stipulated that the sole remaining issue of law was the includibility of the income in the gross estate under Sec. 811(d)(2). That issue was submitted to the District Court of the Western District of Michigan which ruled that the accumulated income was likewise includible in the decedent's estate, for federal estate tax purposes.
The appellant appeals both decisions. They have been consolidated into a single appeal and were so presented to this court. We assume that the convenience of the parties dictated the transfer of jurisdiction from the Eastern District to the Western District. We have, then, a judgment in the Eastern District of Michigan that the corpus of the trusts was includible in the decedent's estate and a judgment in the Western District of Michigan that the income of the trusts was, likewise, includible.
We turn now to the consideration of applicable law, considering first the alleged includibility of the corpus of each trust in the decedent's gross estate. The pertinent statutory provision is Sec. 811 (d)(2) of the Internal Revenue Code of 1939. It provides:
Since the transfers were made in 1931, they are governed by the provisions of the statute applicable to transfers made prior to June 22, 1936, which provide that the value of the gross estate of the decedent shall be determined by including the value at the time of death of all property, real or personal, tangible or intangible, to the extent of any interest therein of which the decedent had at any time made a transfer by trust or enjoyment thereof was subject at the date of death to any change through the exercise of a power by the decedent to alter, amend or revoke. This power has been held to be the power of a settlor, during his life, to terminate the trusts and distribute the principal and income to the beneficiaries upon the conditions set forth in the trust instrument....
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...and intended to in- clude the accumulations, it would have been a simple matter for it to have so stated.' See also Michigan Trust Co. v. Kavanagh, 284 F.2d 502, 506 507 (C.A.6th Nothing in the legislative history persuades me that the statute should not be applied as it was written, and I ......
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Round v. CIR, 6248.
...v. McDermott's Estate, 222 F.2d 665, 55 A.L.R.2d 410 (7th Cir. 1955), a decision followed by the Sixth Circuit in Michigan Trust Co. v. Kavanagh, 284 F.2d 502 (6th Cir. 1960).5 Respondent concedes that these cases directly support petitioners' argument that accumulated trust income is not i......
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