Central Nat. Bank of Cleveland v. United States

• Decision Date: 06 October 1941
• Docket Number: No. 44660.,44660.
• Citation: 41 F. Supp. 239
• Parties: CENTRAL NAT. BANK OF CLEVELAND v. UNITED STATES.
• Court: U.S. Claims Court

41 F. Supp. 239

CENTRAL NAT. BANK OF CLEVELAND v. UNITED STATES.

No. 44660.

Court of Claims.

October 6, 1941.

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Ashley M. Van Duzer, of Cleveland, Ohio (William B. Stewart, Walker H. Nye, and McKeehan, Merrick, Arter & Stewart, all of Cleveland, Ohio, on the brief), for plaintiff.

Joseph H. Sheppard, of Washington, D. C., and Samuel O. Clark, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, Sp. Assts. to Atty. Gen., on the brief), for defendant.

Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.

WHITAKER, Judge.

During the years 1920 to 1928 the deceased created four trusts for the benefit of his wife and children, reserving the right to alter, amend, modify or revoke any one of them in any calendar year, if notice of such intention were given the trustee within the first 15 days of December of the preceding ing calendar year. Prior to the Revenue Act of 1934 it was held that the income from these trusts was not taxable to the settlor; however, that Act required the settlor to include the income from each of them in his own income. To avoid this, and also for the purpose of equalizing the income from them among his children, decedent in the middle of June 1934 amended them so as to surrender his right of revocation or amendment.

However, three of the trusts, after amendment, provided that if the deceased should be living at midnight on December 31, 1937, the trusts should terminate and their corpora should be paid over to the settlor. The amendment to the other trust directed the trustee to transfer its corpus to the grantor or his estate when the original beneficiary thereof, deceased's son Robert, arrived at the age of thirty-five years.

The plaintiff concedes that the remainder value of the last mentioned trust, known as the W. G. Wilson trust, should be included in decedent's gross estate; the controversy is over whether or not any part of the value of the corpora of the other three trusts should be included in his estate. The defendant says that the entire value of the trust property of each of these three trusts should be included in decedent's estate. The plaintiff says that no part of the value of the property covered by these trusts should be included, but that in no event no more than deceased's reversionary interest therein should be included.

1. The defendant says that the value of the trust property should be included in deceased's gross estate because the transfers of this property were made in contemplation of death, or that they were intended to take effect in possession and enjoyment at or after decedent's death, by reason of the provision that the trust property should be paid over to the decedent if he should be living at midnight on December 31, 1937.

There is no merit in defendant's contention that the trusts were made in contemplation of death. One was executed on December 31, 1920, another on January 3, 1921, another on February 22, 1927, and the last one on May 5, 1928. When the first trust was executed the deceased was 48 years old, and when the last one was executed he was 56 years old, and at all times he was in perfect health. There is nothing whatever to indicate that the trusts were originally created in contemplation of death. They were amended in the middle of June, 1934, when decedent was slightly over 63 years of age, and when he was in perfect, if not vigorous, health, and the record leaves no doubt of his purpose in amending the trusts. That purpose was to prevent the inclusion within his gross income of the income from the trusts, and, secondarily, to equalize among the beneficiaries the income from the four trusts. There is not the faintest suggestion that in so doing he was actuated by thoughts of death.

2. On the other hand, plaintiff apparently concedes that under the decision of the Supreme Court in Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A. L.R. 1368, all of the trusts except the W. G. Wilson trust were intended to take effect in possession and enjoyment at or after decedent's death, and that the value of his reversionary interest in the property should be included in his gross estate. It, however, says that notwithstanding this decision, no part of the value of the property should be included in decedent's estate, because when the trusts were amended they were amended in reliance upon and to conform with the decisions of the Supreme Court in May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826, 67 A.L.R. 1244, McCormick v. Burnet, 283 U.S. 784, 51 S.Ct. 343, 75 L.Ed. 1413, and Helvering v. Duke, 290 U.S. 591, 54 S. Ct. 95, 78 L.Ed. 521, under which no part of the value of the property was includable in decedent's estate. These decisions, it says, are in conflict with the decision in Helvering v. Hallock, supra, and that decision should not be applied retroactively.

The plaintiff further says, if incorrect in the foregoing, that the trusts were maintained for some two weeks after the decisions in Helvering v. St. Louis Trust Co., 296 U.S. 39, 56 S.Ct. 74, 80 L.Ed. 29, 100 A. L.R. 1239, and Becker v. St. Louis Trust Company, 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35, and that under these decisions no part of the value of the property would be includable in decedent's gross estate, and the trust having been maintained in reliance upon these decisions, the decision in Helvering v. Hallock, supra, should not be applied retroactively so as to include in his estate some part of the value of the property.

In May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L.Ed. 826, 67 A.L.R. 1244, the trust created a life estate in the settlor's husband and, after his death, if he predeceased her, a life estate in herself, with remainder in her children. The entire fee was disposed of by the instrument; the beneficiaries acquired no additional right by the settlor's death. At the grantor's death the beneficiaries came into the possession of the thing, title to which had already been given them. Hence, it was held there had been no transfer at death subject to the tax.

The next decision in point of time was Klein v. United States, 283 U.S. 231, 51 S. Ct. 398, 75 L.Ed. 996. In this case the grantor conveyed a life estate to his wife and also the entire fee, but the latter only in the event that she should survive him. If she died first her interest in the property ceased. It was held that since she would receive the remainder only on the contingency of the grantor's prior death, she did not acquire by the deed a vested remainder, but only a contingent one, and since the death of the grantor was necessary in order that the grantee's contingent remainder might become a vested remainder, the transfer was held subject to the tax.

In Burnet, Commissioner of Internal Revenue, v. McCormick, 7 Cir., 43 F.2d 277, the trust instrument provided for the payment to named beneficiaries of the income from the trust property after the grantor's death. It also provided for the termination of the trust instrument on the death of the last survivor or sooner if the grantor and one of the beneficiaries consented thereto. On termination of the trust the property was to be reconveyed to the grantor if she should then be living; otherwise it was to go in the way directed. This was held to be taxable by the Circuit Court of Appeals, but it was reversed by the Supreme Court in a per curiam opinion, 283 U.S. 784, 51 S.Ct. 343, 75 L.Ed. 1413, on the authority of May v. Heiner, 281 U.S. 238, 50 S.Ct. 286, 74 L. Ed. 826, 67 A.L.R. 1244.

In Helvering, Commissioner, v. Duke, supra, there was a provision in the trust instruments providing for the reversion to the grantor of the trust property in case the beneficiary predeceased him. J. B. Duke, the grantor, was designated as trustee to act during his lifetime. He was required under the instrument to pay to the beneficiary only such part of the income as he thought best; but after his death his successor trustee was required to pay a designated part of the income, and, under one of the trusts, a designated part of the principal at certain times. Both the Board of Tax Appeals, 23 B.T.A. 1103, and the Circuit Court of Appeals, 3 Cir., 62 F.2d 1057, held the transfer nontaxable. This was affirmed by the Supreme Court without opinion, the court being equally divided (290 U.S. 591, 54 S.Ct. 95, 78 L.Ed. 521).

These were the cases on which the deceased is said to have relied, or which he should have considered. The facts in none of them were the same as in the case at bar. In no one of them, unless in McCormick v. Burnet, supra, could the interest of the beneficiaries be divested out of them during their lifetimes and vested in the grantor, as is the case here. In this case the interest of the beneficiaries would have been defeated had the grantor lived until December 31, 1937; in none of the others, with the possible exception stated above, could they have been defeated by any contingency that might occur during their lives. The prior death of the grantor in this case ripened their defeasible interest into an indefeasible one. In May v. Heiner, supra, the interest of the beneficiaries was in no way affected by the grantor's death, but his death did have some effect on their rights in McCormick v. Burnet, supra. In the Duke case the interest of the beneficiary was affected by the death of the grantor, in that prior to his death her return from the trusts was uncertain, but after his death was definite and fixed, and also in that after his death she could dispose of the remainder. In the Klein case the life estate of the beneficiary was increased by the acquisition of the remainder into the full fee on the death of the grantor....