Harris Trust & Savings Bank v. Comm'r of Internal Revenue (In re EState of Brooks), Docket No. 2624-66.

• Decision Date: 22 July 1968
• Docket Number: Docket No. 2624-66.
• Citation: 50 T.C. 585
• Parties: ESTATE OF HAROLD S. BROOKS, DECEASED, HARRIS TRUST AND SAVINGS BANK, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

50 T.C. 585

ESTATE OF HAROLD S. BROOKS, DECEASED, HARRIS TRUST AND SAVINGS BANK, EXECUTOR, PETITIONER
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 2624-66.

Tax Court of the United States.

Filed July 22, 1968.

[50 T.C. 586]

K. Raymond Clark, for the petitioner.

William J. Gerard, for the respondent.

Decedent had been a participant in his employer's qualified profit-sharing plan, payable in the discretion of the trustees in a lump sum or in installments during a period not exceeding 180 months. Upon his retirement, decedent requested but was denied a lump-sum payment of his interest. Thereafter, decedent's share in the plan was placed in a separate account at decedent's risk, and decedent was allowed to suggest investments. Decedent received no actual payments of his interest prior to his death. Held, no portion of decedent's interest in the plan is includable in his gross estate. Sec. 2039(c), I.R.C. 1954. Decedent did not constructively receive a portion of his interest in the plan prior to his death.

FEATHERSTON, Judge:

Respondent determined a deficiency in the Federal estate tax of petitioner, the Estate of Harold S. Brooks, in the amount of $81,792.41. One of the adjustments contained in the statutory notice of deficiency has been conceded by petitioner. The issue remaining for decision is whether any part of decedent's interest in the W. H. Miner Profit Sharing Trust is includable in his gross estate under section 2033 or section 2039(a) and (b), I.R.C. of 1954, ¹ or excludable under section 2039(c).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulations and exhibits thereto are incorporated herein by this reference.

Harris Trust & Savings Bank is an Illinois corporation with its principal place of business at Chicago, Ill., at the time of the filing of the petition herein. It is the duly appointed executor of the Estate of Harold S. Brooks, deceased, who died on January 4, 1963. The Federal estate tax return for his estate was filed with the district director of internal revenue at Chicago, Ill., on April 3, 1964.

Harold S. Brooks (hereinafter referred to as decedent) was employed by W. H. Miner, Inc. (hereinafter referred to as Miner), from 1923 until his retirement on December 31, 1955, at the age of 62 years. For many years prior to his retirement, decedent was sales manager for Miner.

Miner is a Delaware corporation with its principal office at Chicago, Ill. The corporation engineers, researches, sells, and services products to the railroad industry, its principal item being a draft gear. All of the outstanding shares of stock are owned by the William H. Miner Foundation, a charitable trust created by the founder of the corporation, William H. Miner.

In 1941, Miner created the W. H. Miner Profit Sharing Trust (hereinafter sometimes referred to as the plan). The plan, originally established as a tax-exempt employees profit-sharing plan and trust under section 165(a) of the 1939 Code, was evidenced by an amended and

[50 T.C. 587]

completely restated agreement dated September 2, 1947, ruled on favorably as to tax exemption by the Internal Revenue Service on September 8, 1947, and in effect at the decedent's death. Relative to the amount of benefits, the plan provided:

In case of a Participant's death, retirement at normal or optional retirement date, permanent disability or termination of employment, he shall be vested with one hundred per cent (100%) of the closing balance of his account * * * .

Concerning the payment of benefits, the plan provided:

The adjusted closing balance of a Participant's account on retirement at normal or optional retirement date, permanent disability or termination of employment shall be paid to such Participant, and the adjusted closing balance of a deceased Participant's account shall be paid to his beneficiary or beneficiaries, by the Corporate Trustee in one sum or in installments during a period not exceeding one hundred eighty (180) months thereafter, as directed by the Trustees. * * *

Explanatory material furnished by Miner to its employees in 1947 interpreted the provisions for payments to retirees as follows: ‘Payments may be made in one sum or in installments during a period not exceeding 180 months, as the individual trustees determine to be best suited to your needs and circumstances or those of your beneficiary or beneficiaries.’

The decedent was a participant in the plan from the date of its inception to the date of his retirement and thereafter an inactive participant to the date of his death. A ‘participant’ is defined by the plan as any employee who has qualified for participation in the trust; an ‘inactive participant’ is a former participant who is not entitled to share in company contributions for any fiscal year and whose account has not been completely distributed.

The sum of $591,410.48 standing to the decedent's credit in the plan at date of death was paid on February 18, 1963, by the corporate trustee thereof to the Harris Trust & Savings Bank, trustee, Harold S. Brooks Family Trust, which was a living trust created by the decedent during his lifetime and designated by him as beneficiary under the plan. The amount of the decedent's account at his retirement on December 31, 1955, was $373,620.29; the increase in value between his date of retirement and date of death was due to the accumulation of income, gains, and market value appreciation. No payments were made by the decedent to his account in the plan, the plan being noncontributory with Miner making all contributions.

The corporation also maintained a pension plan, known as W. H. Miner Pension Trust, qualified under sections 401 and

[50 T.C. 588]

501 of the Internal Revenue Code of 1954, in which the decedent was a participant. His account...