Aaron's Estate v. Commissioner of Internal Revenue, 11548-11552.

• Decision Date: 13 July 1955
• Docket Number: No. 11548-11552.,11548-11552.
• Citation: 224 F.2d 314
• Parties: ESTATE of Charles I. AARON, Deceased, Marcus Lester Aaron, Sole Surviving Executor, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Marcus Lester AARON, Trustee for Maxie Goldmark Aaron, Jr., Trustee and Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Marcus Lester AARON, Trustee for Jean Louise Friedman, Trustee and Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Marcus Lester AARON, Trustee for Ruth Frances Friedman, Trustee and Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Marcus Lester AARON, Trustee for Marcus Aaron II, Trustee and Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Third Circuit

224 F.2d 314 (1955) ESTATE of Charles I. AARON, Deceased, Marcus Lester Aaron, Sole Surviving Executor, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Marcus Lester AARON, Trustee for Maxie Goldmark Aaron, Jr., Trustee and Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Marcus Lester AARON, Trustee for Jean Louise Friedman, Trustee and Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Marcus Lester AARON, Trustee for Ruth Frances Friedman, Trustee and Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Marcus Lester AARON, Trustee for Marcus Aaron II, Trustee and Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 11548-11552.

United States Court of Appeals Third Circuit.

Argued May 3, 1955.

Decided July 13, 1955.

Thomas J. McManus, Pittsburgh, Pa. (Carl E. Glock, Jr., Pittsburgh, Pa., Reed, Smith, Shaw & McClay, Pittsburgh, Pa., on the brief), for petitioners.

Grant W. Wiprud, Washington, D. C. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Sp. Assts. to Atty. Gen., on the brief), for respondent.

Before MARIS and HASTIE, Circuit Judges, and MILLER, District Judge.

HASTIE, Circuit Judge.

These petitions require review of a decision of the Tax Court that the value of certain property irrevocably and completely transferred in trust by Charles Aaron during his lifetime is includable upon his death in his gross estate as a transfer in contemplation of death within the meaning of Section 811(c) (1) (A) of the Internal Revenue Code of 1939, 26 U.S.C. § 811. Taxability under the special provisions of Section 811(g) covering the proceeds of life insurance was not adjudicated by the Tax Court and is not considered in this opinion.

In 1931, the settlor transferred to his nephew, Marcus Aaron, as trustee, certain policies of insurance upon the settlor's life together with valuable government and corporate bonds. The transactions involved the creation of four distinct trusts, differing somewhat in amount but with equivalent relevant provisions, for the settlor's grandnephew and three grandnieces, all of whom were small children at that time. In aggregate the policies insured the life of the settlor for about $450,000. The face value of the bonds was nearly $300,000. Because the relevant provisions of the policies are alike, the trusts have been considered together throughout this proceeding.

The trustee was directed to apply the income of each trust first to the payment of premiums on the insurance policies. Any income not required for that purpose was to be paid to the beneficiaries as they should come of age. However, during the infancy of the beneficiaries the trustee was also authorized, within his discretion, to apply any income not needed for premium payments toward their education and maintenance. He was also given discretionary power to sell any of the trusted property and to make appropriate reinvestments.

Each trust was to terminate by the transfer of the entire trust estate to the beneficiary upon the death of the settlor or on the thirtieth birthday of the beneficiary, whichever should be later. The settlor was 58 years of age when the trusts were executed in 1931. He died suddenly of a coronary occlusion in 1947 at the age of 74. At that time the oldest of the beneficiaries was aged 20.

For each year from 1931 to the settlor's death, the income from each trust was less than the premiums on the insurance policies which constituted part of its corpus. Accordingly, during this period the trustee sold a substantial part of the securities he held in trust and used the proceeds, some $107,000, to pay premiums in excess of the income yielded by the securities. At the same time he permitted very substantial dividends and interest earned by the insurance policies to accumulate. No income was paid to the beneficiaries during the settlor's life.

The settlor remained a bachelor throughout his life. Before he became 50, he had accumulated a substantial fortune, largely through participation in family business ventures. His father and later his elder brother Marcus, the grandfather of the present beneficiaries, had been generous in making available to him the economic opportunities which were to prove so profitable. He, in turn, from 1920 to 1935 made numerous gifts aggregating about $1,700,000 to the two children and several grandchildren of Marcus. All such gifts to infant beneficiaries were made in trust and so restricted that the beneficiaries would not receive the corpus until they should become 30 or 35 years of age. The settlor repeatedly expressed his belief and concern that children and young adults might lack judgment and discretion in the handling of large sums of money.

In these circumstances the Tax Court found one consideration decisive in proving that the transfer was made in contemplation of death. In the Tax Court's language, the settlor "knew and intended that the trusts would not provide any economic or other benefits for the children until his death would bring into the trusts the proceeds of the insurance on his life and relieve the trusts of the expense of the premiums. * * * That was what the decedent intended and that was the way in which the transfers were made by him in contemplation of his death." But as the Tax Court itself recently recognized in Estate of Charlotte A. Hopper, 1954, 22 T.C. 138, it is well settled that postponement of the beneficiary's enjoyment of a complete and irrevocable inter vivos transfer in trust until the settlor's death is not a sufficient basis for a finding that the transfer was made in contemplation of death. Cf. Colorado Nat. Bank v. Commissioner, 1938, 305 U.S. 23, 59 S.Ct. 48, 83 L.Ed. 20. We are concerned here with the applicability of that principle to cases where the corpus of the trust includes insurance upon the life of the settlor which...