Becklenberg v. Comm'r of Internal Revenue (In re Estate of Becklenberg)
| Citation | 31 T.C. 402 |
| Decision Date | 18 November 1958 |
| Docket Number | Docket No. 61951. |
| Parties | ESTATE OF MARIA BECKLENBERG, DECEASED, FRED BECKLENBERG, JR., EXECUTOR, PETITIONER, v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Arthur Abraham, Esq., for the petitioner.
Don S. Harnack, Esq., and David H. Nelson, Esq., for the respondent.
Held, that the portion of the property transferred by the decedent, in trust, necessary to give decedent an annual income of $10,000, which income was retained by the decedent under the terms of the trust, is includible in decedent's gross estate under section 811(c)(1)(B) of the Internal Revenue Code of 1939.
Respondent determined a deficiency in Federal estate taxes against the petitioner in the amount of $182,727.14. The issues are (1) whether certain property transferred to a trust created August 12, 1938, is includible, all or in part, in decedent's gross estate under section 811(c)(1)(B) of the Internal Revenue Code of 1939;1 and (2) the proper valuation of such interest so includible in the decedent's gross estate.
Some of the facts have been stipulated and they are hereby incorporated by this reference.
Maria Becklenberg, decedent, was born May 18, 1872, and died on December 3, 1951. Fred Becklenberg, Sr., her husband, died on March 11, 1948. An estate tax return was filed by the executor of the estate of Maria Becklenberg on February 27, 1953, with the district director of internal revenue for the first district of Illinois, at Chicago, Illinois. Fred Becklenberg, Jr., decedent's son, is the executor of decedent's estate.
On March 17, 1934, decedent, Fred Becklenberg, Sr., Fred Becklenberg, Jr., and Arthur J. Sporborg, as custodian of title, executed a revocable trust agreement hereinafter called the 1934 trust. Fred Becklenberg, Jr., was designated as trustee. The decedent, Fred Becklenberg, Sr., and Fred Becklenberg, Jr., were the only donors to the 1934 trust. No contributions were made to this trust after March 17, 1934. The trust instrument provided, inter alia, as follows:
Whereas the first three parties each own and control certain pieces of real estate, mortgages, shares of stock, choses in action and accounts receivable, all of which are set forth in Exhibit ‘A’ attached hereto and hereby made a part hereof; * * *
Exhibit A listed the contributions of the donors, and the totals of the contributions made by each are as follows:
+---------------------------------------------+
¦Donor ¦Value given ¦Per cent of¦
+--------------------+------------+-----------¦
¦ ¦in Exhibit A¦total value¦
+--------------------+------------+-----------¦
¦Fred Becklenberg, Sr¦$293,499.32 ¦20.73 ¦
+--------------------+------------+-----------¦
¦Maria Becklenberg ¦379,166.37 ¦26.78 ¦
+--------------------+------------+-----------¦
¦Fred Becklenberg, Jr¦743,186.56 ¦52.49 ¦
+--------------------+------------+-----------¦
¦Total ¦1,415,852.25¦100 ¦
+---------------------------------------------+
Among the items listed in Exhibit A under the decedent's contributions were several accounts receivable and mortgages receivable in relatively smaller amounts; the Ellis Avenue LaStrain Hotel, $10,776.17; the Farwell Avenue property, $10,725.97; equities in the Oak Street property, $141,775.39; the Wellington Apartment building, $151,048.88; in the Howard and Custer property, $3,387.49; and bonds in the Diversey Building Corporation, $57,452.95.
All the financial and business transactions of the 1934 trust were handled through the North Side Management Corporation, hereinafter called North Side, which was created as a fiscal agent for the trust. North Side handled all receipts and disbursements and the only bank account covering the trust operations was in its name. No segregated accounts were maintained. Prior to 1938 several of the properties contributed by decedent were sold.
There was no distribution made under the 1934 trust prior to its revocation. On August 12, 1938, decedent, Fred Becklenberg, Sr., Fred Becklenberg, Jr., Mary B. Murphy, and Johnson H. Pace executed a revocation of the 1934 trust and, on the same date, the decedent, Fred Becklenberg, Sr., Fred Becklenberg, Jr., and Mary B. Murphy executed an irrevocable trust agreement, hereinafter called the 1938 trust. The instrument of revocation executed by all of the settlors of the 1934 trust provided all of the property held by that trust be turned over to the trustees of the 1938 trust.
The preamble statements in the 1938 trust instrument set forth what the trust was to accomplish. These ‘WHEREAS' clauses related the ownership of the donors in numerous stores, apartments, and apartment hotels, which were encumbered by mortgages, and also their ownership of securities, all as shown in attached schedules, and the clauses related the existing financial conditions and the decline of real estate values and unfavorable conditions with respect to securities. It is stated in this preamble that their ownership of these real and personal properties under the conditions then existing ‘in the opinion of the Donors renders imperative the mingling of the property of the respective Donors in a single trust in order to procure the highest degree of unification in the operation, management and control thereof.’
The 1938 trust instrument designated Fred Becklenberg, Sr., as trust manager and Fred Becklenberg, Jr., and Mary B. Murphy as trustees and it provided that as long as the manager lived or until he resigned as manager the trustee could only act upon the manager's direction. The trustees, subject to the manager's control as long as he was active, and the manager, were given broad powers with respect to the trust property ‘and additions thereto and substitutions therefor.’ They were given ‘uncontrolled discretion and judgment’ with respect to continuing the operation of any business, with respect to registering securities in their names, with respect to uniting with other owners of property or securities in consolidation or foreclosure plans, with respect to leasing, and, in general, with respect to most any contingency that might arise affecting the trust property. They were given the right to determine ‘what is income and what is principal hereunder, and their decision with respect thereto shall be final.’ Paragraphs 3 and 5 of the trust instrument provided as follows:
3. The Trustees shall proceed as expeditiously as may be possible to liquidate the assets of the Trust Estate and to reduce the same to liquid form. From such of the assets from said Trust Estate as may be available from time to time, said Trustees shall purchase the following paid up annuities from responsible life insurance companies and associations doing business in the United States:
Upon the life of John Becklenberg, son of Fred Becklenberg, Sr., providing for the payment of Two Hundred Dollars ($200.00) per month during the life of John Becklenberg for his support, care and maintenance;
Upon the life of Maria Becklenberg, providing for the payment to Maria Becklenberg during her life time of the sum of Ten Thousand Dollars ($10,000.00) per year; Upon the life of Fred Becklenberg, Sr., providing for the payment to said Fred Becklenberg, Sr., during his life time of the sum of Fifteen Thousand Dollars ($15,000.00) per year;
Said Trustees shall expend the remainder of the net proceeds of said Trust Estate in the purchase of annuities payable to and upon the lives respectively of Fred Becklenberg, Jr. and Mary B.Murphy, the son and daughter respectively of Fred Becklenberg, Sr.
In the event of the death of John Becklenberg, Maria Becklenberg or Fred Becklenberg, Sr., prior to the purchase of the aggregate amount of annuities herein provided to be purchased for the benefit of the one so dying, that share of the Trust Estate herein provided to be expended for the purchase of such annuities shall go to enhance the annuities of Fred Becklenberg, Jr., and Mary B. Murphy. In the event of the death of Fred Becklenberg, Jr., on Mary B. Murphy prior to the disposition of the remainder of said Trust Estate and the purchase of annuities therewith, that share of the Trust Estate which would have been expended for the purchase of annuities upon the life of the one so dying, shall be expended for the purchase of annuities upon the lives of the heirs of the one so dying per stripes and not per capita.
During the life time of Fred Becklenberg, Sr., and prior to his resignation as Manager, the Trustees shall purchase the annuities above provided to be purchased only upon the direction in writing of Fred Becklenberg, Sr., and in such companies, at such times, in such chronological order and in such amounts (not exceeding, however, the aggregate amounts above provided to be purchased for the respective beneficiaries) as said Fred Becklenberg, Sr. shall by instrument in writing direct.
5. Until the purchase of the aggregate amount of annuities herein provided to be purchased for John Becklenberg, Maria Becklenberg and Fred Becklenberg, Sr., said Trustees shall from time to time, at the direction of the Manager, expend for the support of John Becklenberg, and pay to Maria Becklenberg and Fred Becklenberg, Sr., respectively, such sums not exceeding in the case of John Becklenberg, the sum of Twenty-four Hundred Dollars ($2,400.00) annually; not exceeding in the case of Maria Becklenberg, the sum of Ten Thousand Dollars ($10,000.00) annually; and not exceeding in the case of Fred Becklenberg, Sr., the sum of Fifteen Thousand Dollars ($15,000.00) annually, at such times and in such manner as said Manager may in his uncontrolled discretion believe may be so expended without endangering the financial structure and purpose of the Trust Estate and as he may duly direct.
Paragraph 12 of the trust instrument provided that in purchasing the annuities ‘said Trustees shall expend the...
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