Keinath v. Comm'r of Internal Revenue , Docket Nos. 4646-49— 4650-69.
| Citation | 58 T.C. 352 |
| Decision Date | 22 May 1972 |
| Docket Number | Docket Nos. 4646-49— 4650-69. |
| Parties | PAULINE KEINATH, TRANSFEREE OF ASSETS OF CARGILL MACMILLAN, TRANSFEROR, ET AL., 1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
John W. Windhorst and Phillip H. Martin, for the petitioners.
Jay B. Kelly, for the respondent.
John's will provided that most of his estate was to be placed in trust with the income paid to his widow for her life. At the death of the life beneficiary the assets of the trust were to be divided equally between his two sons John, Jr., and Cargill; but in the event that one (or both) of the sons predeceased his mother his share was to be divided among his lineal descendants per stirpes. John died in 1944. John, Jr., and Cargill acted as trustees of the testamentary trust until the death of John, Jr., in 1960 after which time Cargill acted as sole trustee. In 1963 John's widow died, and shortly after her death Cargill executed an instrument purporting to disclaim his remainder interest in the trust. Cargill as trustee filed with the local court requesting instructions. The court held his disclaimer to be valid and ordered distribution of his half of the trust assets to his children. Held, Cargill's purported disclaimer was a gift by him to his children of one-half of the assets of the trust that is taxable under sec. 2511(a).
Respondent determined the following deficiencies in the gift taxes of petitioners:
+-------------------------------------------------+
¦Docket No. ¦Petitioner ¦Deficiency ¦
+------------+-----------------------+------------¦
¦ ¦ ¦ ¦
+------------+-----------------------+------------¦
¦4646-69 ¦Pauline Keinath ¦$152,344.90 ¦
+------------+-----------------------+------------¦
¦4647-69 ¦Cargill MacMillan, Jr ¦152,344.90 ¦
+------------+-----------------------+------------¦
¦4648-69 ¦Whitney MacMillan ¦152,344.90 ¦
+------------+-----------------------+------------¦
¦4649-69 ¦Pauline W. MacMillan ¦152,344.90 ¦
+------------+-----------------------+------------¦
¦4650-69 ¦Cargill MacMillan Trust¦152,344.90 ¦
+-------------------------------------------------+
After settlement of another issue the single issue remaining is whether a purported disclaimer of a testamentary bequest by Cargill MacMillan in 1963 was a gratuitous transfer of property under section 2511(a) of the Internal Revenue Code of 1954.
All of the facts have been stipulated and are found accordingly.
Petitioners Pauline Keinath (Pauline), Cargill MacMillan, Jr. (Cargill, Jr.), and Whitney MacMillan (Whitney) are individuals whose address at the time the petitions herein were filed was c/o 1200 Cargill Building, Minneapolis, Minn. Respondent would make these petitioners responsible for payment of the deficiency by virtue of being transferees of the alleged gift made by Cargill MacMillan. At the time the petitions herein were filed Cargill, Jr., and Whitney were residents of Minneapolis, Minn., while Pauline was a resident of St. Louis, Mo.
Petitioner Cargill MacMillan 1967 Trust had its situs in Minneapolis, Minn., and respondent alleges it is responsible for payment of the deficiency by virtue of being a transferee of Cargill MacMillan.
Pauline W. MacMillan was the spouse of Cargill MacMillan, and at the time the petitions herein were filed her address and residence were in Minneapolis, Minn. The alleged deficiency of Pauline W. MacMillan stems from the mutual consents that she and her husband filed to treat gifts made by one spouse to third parties as made one-half by each spouse.
John H. MacMillan, who was the father of Cargill MacMillan and John H. MacMillan, Jr., died testate on October 20, 1944. On November 20, 1944, his will was admitted to probate by the Probate Court of Hennepin County, Minn. Most of the Estate of John H. MacMillan was devised and bequeathed to a trust created by Article III of the will, the terms of which are the following:
ARTICLE III. All the rest, residue, and remainder of my estate of whatsoever nature and wheresoever situate, together with the principal and income of any property over which I may have the power of appointment, I give, devise, and bequeath to my sons John H. MacMillan, Jr. and Cargill MacMillan, as trustees, in trust for the following uses and purposes:
(a) To pay the net income therefrom in convenient installments to my said wife for the term of her natural life.
(b) Upon the death of my said wife the trust hereby created shall thereupon terminate and the principal thereof, together with any income therefrom subsequent to the death of my said wife, shall be distributed, share and share alike, between my said two sons; should either of my said sons die prior to the termination of this trust the share which such son would have received if then living shall be distributed per stirpes and not per capita among his children and among the lawful issue of a deceased child or children of his, if any, and if there shall then be no such child or children or lawful issue of a deceased child or children of such deceased son, such share shall be distributed to my remaining son if then living, and if not so living then per stirpes and not per capita to his children and to the lawful issue of any deceased child or children of his; and if there should be then living neither of my sons nor any child or children of either of them nor any lawful issue of any deceased child or children of either of them, then to my heirs at law determined according to the intestate laws of the State of Minnesota then in force.
(c) If either of my sons should die, become incapacitated, or refuse to act as trustee hereunder, prior to the termination of this trust, the remaining son shall be the sole trustee hereunder, and in the event of such death, incapacity, or refusal to act as such trustees by both of my said sons then a trustee shall be appointed hereunder by a court of competent jurisdiction.
The trust established by the will became qualified in the District Court of Hennepin County, Minn., and John H. MacMillan, Jr. (John, Jr.), and Cargill MacMillan (Cargill) became the original trustees. John, Jr., died in 1960 survived by three children. After John, Jr.‘s death Cargill served as sole trustee. At no time did Cargill receive or accept any income or principal from the trust. The parties agree that as a result of his father's will Cargill had a vested remainder in one-half of the trust subject to divestiture only if he should predecease the life beneficiary of the trust.
On March 28, 1963, Edna MacMillan, widow of the testator and life beneficiary of the trust, died survived by her son Cargill, his three children, Pauline, Cargill, Jr., and Whitney, and the three children of her son John, Jr. Neither Cargill nor John, Jr., had any children who were deceased but who left issue surviving Edna MacMillan.
On May 20, 1963, Cargill executed an instrument entitled ‘Disclaimer’ which contained the following provisions in part:
WHEREAS, under the terms of Article III of said trust instrument, the undersigned would, after his mother's death, except for this Disclaimer, have succeeded to a one-half (1/2) beneficial interest in the remainder of said trust, but in the event of his death prior to that of his mother, said one-half (1/2) beneficial interest in the trust or trust property would have passed to the issue of the undersigned who survive said Edna C. MacMillan, per stirpes, free and clear of trust, and
NOW, THEREFORE, in consideration of the premises, the undersigned does hereby finally and irrevocably disclaim, renounce, remise and refuse to accept any beneficial interest in said trust or trust assets of any nature, real, personal or otherwise, including both principal and accrued or accruing income thereof, which now or hereafter would be effectively vested in him under the provisions of Article III of said last will and testament of John H. MacMillan, were it not for the execution of this Disclaimer, with the understanding that all right, title and interest in said one-half (1/2) interest in the trust or trust property will pass to his issue who survive said Edna C. MacMillan, per stirpes, this Disclaimer to become effective immediately upon, but not before, its filing with the District Court for the Fourth Judicial District, Hennepin County, Minnesota, in the proceeding entitled: ‘In the Matter of the Trusteeship under the Last Will and Testament of John H. MacMillan, Deceased,’ therein and maintained under District Court File No. T-2078.
On August 15, 1963, Cargill as trustee of the trust filed a petition with the District Court of Hennepin County for an order. The petition generally recited the history of the testamentary trust of John H. MacMillan. In particular, it stated that Cargill was considering filing a disclaimer of his beneficial interest in the remainder of the trust and that Cargill believed that such disclaimer would result in the devolution of his share of the trust to his three children as if he had predeceased the life beneficiary. The petition then asked the court to examine the applicable law and construe the trust instrument taking into consideration the disclaimer and give orders for the distribution of the assets of the trust.
On September 6, 1963, Cargill executed a certain document in his capacities as both a trustee and an individual. The document was designated ‘Power and Authorization by Trustee,‘ and was filed with the court on September 11, 1963. This document appointed A. J. James as Cargill's personal attorney and authorized James to file or decline to file with the District Court of Hennepin County the disclaimer of his personal beneficial interest in said trust. The disclaimer was also filed with the Hennepin County District Court on September 6, 1963.
On September 6, 1963, the District Court entered an order which,...
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