Boston Safe Deposit & Trust Co. v. Comm'r of Internal Revenue, Docket No. 95318.
| Decision Date | 18 September 1963 |
| Docket Number | Docket No. 95318. |
| Citation | 40 T.C. 970 |
| Parties | ESTATE OF JOHN J. ROUND, DECEASED, BOSTON SAFE DEPOSIT AND TRUST COMPANY, JOHN J. ROUND, JR., COEXECUTORS, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
James Charles Roy, for the petitioner.
John R. Berman, for the respondent.
Inter vivos trusts created by decedent under which he retained powers of invasion of corpus and accumulation of income held, on the facts, includable in gross estate, Lober v. United States, 346 U.S. 335 (1953); Estate of Milton C. Budlong, 7 T.C. 756 (1946), followed, notwithstanding that upon decedent's petition a conservator had been appointed, Estate of Edward L. Hurd, 6 T.C. 819 (1946), followed; undistributed trust income accumulated and added to principal, held, further, to be includable, Estate of E. A. Showers, 14 T.C. 902 (1950); Estate of Myrtle H. Newberry, 17 T.C. 597 (1951), followed.
Respondent determined a deficiency in Federal estate tax of $162,072.88. The issues remaining for decision are: (1) Whether, in respect of the three trusts, the enjoyment thereof was subject at the date of decedent's death to any change through the exercise of a power by decedent to alter, amend, or revoke under section 2038 of the 1954 Code; or the right existed in decedent at a time not ascertainable without reference to his death to designate the persons who shall possess or enjoy the property or the income therefrom under section 2036 of the 1954 Code; and, if so, (2) whether the value of the trust property should include amounts of undistributed income added to principal. Respondent concedes that any relinquishment of decedent's powers as cotrustee was not in contemplation of death and accordingly that section 2035 is inapplicable.
The stipulated facts are hereby found accordingly.
The petitioner is the estate of John J. Round, Sr., deceased, late of Wakefield, Mass. (hereinafter called decedent), of which Boston Safe Deposit & Trust Co. (hereinafter called Boston), a banking corporation of Boston, Mass., and John J. Round, Jr., of Lynnfield Center, Mass. (hereinafter called Junior), are coexecutors.
Decedent was born on April 8, 1872, and died on April 4, 1958. The U.S. Estate Tax Return (Form 706) for the estate of decedent was filed with the district director of internal revenue, Boxton, Mass.
In 1934 and 1935 decedent established three ‘spendthrift’ trusts for his children. On September 14, 1934, decedent and Old Colony Trust Co. (hereinafter called Colony) entered into an agreement of trust (hereinafter called the September trust). On August 21, 1935, decedent and State Street Trust Co. of Boston (hereinafter called State) entered into an agreement of trust (hereinafter called the August trust). On December 31, 1935, an agreement of trust was entered into between decedent and State (hereinafter called the December trust).
With the exception of differences in the names of the corporate trustees, all three trust instruments provided, in part, as follows:
WHEREAS said (decedent) desires that the said securities shall beheld in trust for the benefit of his children by said (Colony) and himself, hereinafter called Trustees * * *
The said Trustees shall divide the trust property into give equal shares and hold one of said shares in trust for each of the following children of the Donor, to wit:—
John Jay Round, Jr.— born July 22, 1923
David H. Round— born November 14, 1924
Janet B. Round— born May 23, 1926
William H. Round— born August 14, 1927
Katherine M. Round— born November 18, 1929
upon the following terms and conditions:
The September trust and the December trust both contained the following paragraphs 1 and 2:
1. The said shares shall be held, managed, invested and reinvested for the benefit of said children until they shall respectively arrive at the age of twenty-five (25) years * * * and as they shall arrive at said age, the Trustees shall pay over to said children, free and discharged of all trusts, one-half of the share held for his or her benefit. The remainder of said share shall be held in trust by said Trustees and managed and invested and reinvested for the benefit of said children until they shall respectively arrive at the age of thirty (30) years, and as they shall arrive at said age, the Trustees shall pay over and deliver to said children the remainder of said trust share, together with all accumulations, free and discharged of all trusts, PROVIDED, HOWEVER, in the event that in the sole discretion of the Trustees they shall be of the opinion that it would be injudicious to pay over to said children the principal of his or her share for any reason upon any one of them arriving at the respective ages of twenty-five and thirty years, then said Trustees may, in their sole discretion, withhold the distribution of principal for a period not exceeding ten years from the date on which said principal is first withheld. If, in the opinion of the Trustees, it is desirable to make distribution of said trust property to any of said children before the expiration of said ten year period, but after said child whose share or part thereof has been withheld has arrived at the age of said twenty-five or thirty years, then distribution of said share may be made during said period, and in such amounts as the Trustees shall, in their sold discretion, determine, PROVIDED, HOWEVER, that at the expiration of said ten year period, said trust share shall be paid over and conveyed, together with all of its accumulations, free and discharged of all trusts.
2. In the event of the death of any of said children leaving no issue surviving, before receiving any part or all of his or her share, then such part thereof or all, together with all accumulations thereon, shall be added equally to and become a part of the shares held for the benefit of his or her then surviving brothers and sisters, and such brothers and sisters as may have deceased leaving issue surviving, said issue then living taking in equal shares their parent's share by right of representation. In the event of the death of any of said children leaving issue surviving, before receiving any part or all of his or her share of the trust property, then such part or all of said share as shall remain, together with all accumulations thereon, shall be paid over and delivered, free and discharged of all trusts, to such issue, in equal shares.
The December trust added the following sentence to paragraph 2:
In the event of the death of all of said children before receiving any part or all of their respective shares, leaving no issue surviving, then said trust property shall be paid over, free and discharged of all trusts, to the then surviving heirs-at-law of the Donor, per stirpes and not per capita.
The August trust contained the following paragraphs 1 and 2:
1. The said shares shall be held, managed, invested and reinvested by said Trustees for the benefit of said children so long as they shall live, paying to said children all of the income from their respective shares held in trust.
The Trustees may in their sole discretion pay over to any of said children any part or all of the share held for his or her benefit if at any time in their sole discretion they shall deem such a distribution desirable.
2. In the event of the death of any of said children before reaching the age of twenty-one years leaving no issue surviving and before receiving all of his share, then such part thereof or all shall be added equally to and become a part of the shares held for the benefit of his or her then surviving brothers and sisters, and such brothers and sisters as may have deceased leaving issue surviving, said issue then living taking in equal shares their parent's share by right of representation. In the event of the death of any of said children before attaining the age of twenty-one years and leaving issue surviving, and before receiving all of his or her share of the trust property, then such part or all of said share as shall remain shall be paid over and delivered free and discharged of all trusts to such issue in equal shares. In the event of the death of any of said children after attaining the age of twenty-one years and before such estate or interests, in trust or otherwise, and in such proportions as any such deceased child may by his or her last will and testament appoint, provided, however, that said power of appointment shall be limited to the surviving husband or wife of such child, the issue of such child, including issue by adoption, brothers and sisters of such child or their issue, including issue by adoption. In the event that any such child shall fail to exercise the power of appointment herein given, then said share, or so much thereof as shall remain, shall be paid over and delivered free and discharged of all trusts to his issue surviving, if any, including issue by adoption; if there be no issue, then to his brothers and sisters in equal shares, issue of deceased brothers and sisters taking their parent's share by right of representation, and in the event that there be no issue surviving, including issue by adoption, and no brothers or sisters or issue of deceased brothers and sisters then living, then to the then surviving heirs at law of the Donor per stirpes and not per capita.
Paragraph 3 of the three trust instruments dealt with income and principal payments, and provided, in part, as follows:
3. During the period while any part or all of said shares and any additions thereto are held in trust for the benefit of any of said children, all of the income therefrom shall be paid to said children in quarterly installments or oftener, as shall be convenient for the Trustees, * * * .
The September and August trusts contained the following proviso to the first sentence of paragraph 3:
PROVIDED, HOWEVER, that during the lifetime of said (decedent) the Trustees may, if the guardian or...
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