Chemical Bank & Trust Co. v. Commissioner of Internal Revenue, Docket No. 79276.
| Decision Date | 29 March 1938 |
| Docket Number | Docket No. 79276. |
| Court | U.S. Board of Tax Appeals |
| Parties | CHEMICAL BANK & TRUST COMPANY AND JOHN G. SAXE, AS EXECUTORS OF THE ESTATE OF FRANK J. SAXE, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
Harry W. Forbes, Esq., for the petitioners.
J. R. Johnston, Esq., for the respondent.
In this proceeding the Commissioner determined a deficiency in estate tax of $22,014.29 against petitioners as the executors of the estate of Frank J. Saxe, deceased. The deficiency resulted from the addition by respondent to the gross estate reported in the estate tax return of the following items: (1) The value at decedent's death of two certain annuity contracts providing for fixed annuities payable quarterly to Frank J. Saxe as long as he should live and at his death to Mary L. Saxe as long as she should live, should she be then surviving. Petitioners included nothing for these contracts in the estate tax return; respondent included $7,690.78 for one contract and $7,468.63 for the other. (2) The value of a certain investment annuity contract by which an annuity was payable to decedent during his lifetime and at his death to his wife, Mary L. Saxe, if she survived him, interest was to be paid at the rate of 3 per centum per annum on the amount designated in the contract as "Death Refund" of $20,000, and at her death this principal sum of $20,000 and any accrued interest thereon was payable in a single sum to the executors or administrators of decedent. In this contract decedent reserved the right to change the beneficiary. Petitioners included in the estate tax return $14,815.40 for this item, alleging that was the present worth of the contract to the estate at the date of decedent's death. Respondent increased this item to $20,000, the full face value of the contract. (3) The corpus of a trust estate created by decedent August 10, 1928, which was by its terms irrevocable but by which decedent reserved to himself for life the income of the trust, with remainder over to others. Petitioners did not include anything for this trust property. The respondent included the full value of the trust property, to wit, $188,365.58, as a part of decedent's gross estate, on the ground that the decedent reserved to himself for life the income of the trust.
The petitioners by appropriate assignments of error contest the action of respondent in making the foregoing adjustments.
FINDINGS OF FACT.
Frank J. Saxe, the decedent, died on December 15, 1933, at the age of 79. His wife, Mary L. Saxe, then 72 years of age, survived him. Petitioners are the duly appointed and qualified executors of the estate of Frank J. Saxe, deceased.
Issue (1).—On February 9, 1918, and February 28, 1928, decedent, Frank J. Saxe, purchased by lump sum payments of $20,000 and $14,000, respectively, two certain joint and survivor annuity contracts from the Mutual Life Insurance Co. of New York. These contracts obligated the insurance company to pay to Frank J. Saxe, the decedent, annuities of $1,258.80 and $1,222.44 during his lifetime, and, after his death, to pay to Mary L. Saxe, if surviving, during her remaining lifetime, annuities in the same amounts, said annuities terminating with the last quarter-annual payment preceding the death of the last surviving annuitant. No right to change the beneficiary was reserved in these contracts. The present value of the annuity payable to Mary L. Saxe under the contract of February 9, 1918, was $7,690.78 at the date of decedent's death and the present value on the same date of the annuity payable to Mary L. Saxe under the contract of February 28, 1928, was $7,468.63.
Issue (2).—On July 1, 1929, decedent purchased from the Mutual Life Insurance Co. of New York, for a single premium of $21,000, a contract entitled "Investment Annuity." Under this contract the insurance company agreed to pay to Frank J. Saxe an annuity of $700 in quarterly payments of $175 each until the death of the annuitant, and to the annuitant's wife, Mary L. Saxe, upon receipt of proof of death of the annuitant, the death refund of $20,000. Cash surrender value and loan privileges were exercisable by the annuitant, who also had the express right to change the beneficiary. The contract, under "Mode of Settlement Endorsement" attached and forming a part thereof, provided:
If the payee hereunder, viz: Mary L. Saxe, wife of the annuitant, shall survive the annuitant, settlement shall be made by Mode of Settlement (1) interest payments being made quarterly to said payee, to continue during the lifetime of said payee. Upon the death of said payee, said Mode of Settlement (1) shall terminate and the principal sum, and any accrued interest thereon, shall be payable in a single sum to the executors or administrators of the annuitant.
If said payee shall not survive the Annuitant, the amount payable at the death of the Annuitant shall be payable in a single sum to the executors, administrators or assigns of the Annuitant.
Issue (3).—On August 10, 1928, decedent, Frank L. Saxe, executed and delivered to the Chemical National Bank & Trust Co. of New York, as trustee, certain property to be held in trust, to apply the income thereof to the use of the settlor during his life, and at his death the trustee was directed to divide the trust estate and make disposition of it to remaindermen named in the trust instrument and in the manner directed therein. The trust was irrevocable and was not executed in contemplation of death and was not intended to take effect in possession or enjoyment at or after his death. The value of the property included in this trust at decedent's death was $188,365.58.
In a statement attached to the deficiency notice respondent explained the adjustments which he had made in the estate tax return and the reasons therefor, as follows:
GROSS ESTATE
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Mortgages, Notes, Cash and Insurance | Returned | Tentatively | Determined
| | Determined |
--------------------------------------------------------|-------------|-------------|------------
Item 6 ________________________________________________ | $14,815.40 | $20,000.00 | $20,000.00
Value of annuity contract dated February 9, 1918, with | | |
the Mutual Life Insurance Company of New York, | | |
based on the beneficiary's age of 72 years, payable | | |
quarterly on the last day ___________________________ | 0.00 | 7,690.78 | 7,690.78
Value of annuity contract dated March 28, 1928, with | | |
the Mutual Life Insurance Company of New York, | | |
based on the beneficiary's age of 72 years, payable | | |
quarterly on the last day ___________________________ | 0.00 | 7,468.63 | 7,468.63
| | |
Transfers | | |
| | |
Value of the trust created by the decedent on August | | |
10, 1928 ______________________________________________ | 0.00 | 188,365.58 | 188,365.58
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With respect to item 6 under mortgages, notes, cash and insurance, it is contended that the tentative determination is illegal and erroneous because the value of the wife's interest is exempt pursuant to Section 302 (g) of the Revenue Act of 1926. As to the annuity contracts of February 9, 1918, and March 28, 1928, and the trust of August 10, 1928, it is contended that the decedent had no interest in the property which was transferable at his death and that his estate had no interest therein.
After careful consideration of the protest, it is the opinion of the Bureau that item 6 under mortgages, notes, cash and insurance was properly included for tax in the tentative determination for the reason that (1) the beneficiary other than the estate receives payments conditional upon surviving, and (2) the decedent retained the right to change the beneficiary.
The two annuity contracts of February 9, 1918, and March 28, 1928, provided that payment of an annuity be made to the decedent for his life and thereafter to his wife for life. In the trust of August 10, 1928, the decedent reserved income for life. Both the annuity contracts and the trust antedated the Joint Resolution of Congress on March 3, 1931. However, the decedent died subsequent to the passage of the Revenue Act of 1932, effective June 6, 1932. Accordingly, it is the opinion of the Bureau that the values of the annuity contracts and the trust, more particularly described in the attached copy of the Bureau Tentative findings of December 20, 1934, are includable as part of the decedent's gross estate pursuant to the provisions of Section 803 of the Revenue Act of 1932 and Articles 15 and 18 of Estate Tax Regulations 80, promulgated thereunder.
We shall take up and dispose of the issues in the order that we have stated them. Issue (1) relates to two annuity contracts which decedent had purchased in his lifetime from the Mutual Life Insurance Co. of New York for lump sum payments. These annuities were payable to decedent as long as he should live, and at his death if his wife survived him the annuities were payable to her as long as she should live. Decedent's wife did survive him, and respondent included in decedent's gross estate the amount which he determined to be the value, at the date of decedent's death, of the annuities which were payable to...
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