Craft v. Comm'r of Internal Revenue (In re Estate of Craft)

• Decision Date: 24 May 1977
• Docket Number: Docket No. 778—74.
• Citation: 68 T.C. 249
• Parties: ESTATE OF JAMES E. CRAFT, THOMAS J. CRAFT, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

68 T.C. 249

ESTATE OF JAMES E. CRAFT, THOMAS J. CRAFT, EXECUTOR, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 778—74.

United States Tax Court

Filed May 24, 1977.

Decedent transferred property in trust and retained, as grantor, the power to add new beneficiaries and to change the respective beneficial interests therein. Under the terms of decedent's will, the executor was to receive a fee of $5,000. After decedent's death, the executor's duties regarding the administration of the estate became quite substantial and time consuming, and he petitioned the Probate Court for, and later received, a fee of $63,722.66 in lieu of the $5,000 provided for in the will. Held, use of the parol evidence rule examined and such rule considered as a rule of substantive law and enforced under the circumstances of the instant case. Held, further, under the express terms of the trust instrument, decedent clearly retained powers sufficient to cause the trust's assets to be taxed to his estate under secs. 2036 and 2038, I.R.C. 1954. Held, further, petitioner may deduct the $63,722.66 executor's fees as an administration expense under sec. 2053(a)(2), I.R.C. 1954. Robert O. Rogers, for the petitioner.

William H. Newton III, for the respondent.

FORRESTER, Judge:

Respondent has determined a deficiency in estate tax of $237,383.78. Concessions having been made, the issues remaining for our decision are as follows:

(1) Whether certain property, which was transferred in trust by decedent during his lifetime, is includable in his gross estate under sections 2036¹ and 2038; and

(2) Whether petitioner is entitled to a deduction under section 2053 for executor's commissions in the amount of $63,722.66, or whether such deduction should be limited to $5,000.

FINDINGS OF FACT

James E. Craft (Craft or decedent) died testate on November 17, 1969. At the time of his death, Craft was a resident of Palm Beach, Fla. The executor of his estate, Thomas J. Craft (Thomas), resided in Florida at the time the petition herein was filed. Petitioner's Federal estate tax return (Form 706) was filed on February 19, 1971, with the District Director in Jacksonville, Fla.

Decedent was married to Helen Craft (Helen) on November 11, 1938. He had two children, Paul and James, by a prior marriage, and he had Helen had four children by their own marriage. Two of these four children, Jerry and Thomas, had been born at the time the indenture of trust (to be discussed infra) was executed, and the other two, Jack and John, were born subsequent to such execution.

On December 31, 1945, decedent, together with Helen and his two sons by the prior marriage, transferred certain property in trust. The indenture of trust, established under the laws of West Virginia, provided, in pertinent part, as follows:

THIS INDENTURE OF TRUST, made this 1st day of November 1944,² by and between J. E. Craft, Helen T. Craft, his wife, PAUL E. CRAFT and JAMES W. CRAFT, parties of the first part, hereinafter sometimes referred to as Grantors, and J. E. CRAFT, TRUSTEE, party of the second part, hereinafter sometimes referred to as the Trustee;

WITNESSETH:

That in consideration of the trust hereinafter set forth as well as the sum of One Dollar ($1.00) to each of the Grantors paid in cash, the receipt of which is hereby acknowledged, the Grantors have respectively given and granted any by these presents do assign, set over, grant, convey and deliver unto the Trustee for the uses and purposes hereinafter set forth all of the following property, to-wit:

FIRST: The said J. E. Craft and Helen T. Craft, his wife, do grant and convey unto J. E. Craft, Trustee, for the uses and purposes herein provided all of the following parcels of real estate:

SECOND: The said Helen T. Craft, for the consideration aforesaid as well as in consideration of the distributive share of the trust herein provided for her, the same being recognized and acknowledged as of value fully equivalent to the value of the shares by this paragraph transferred, does hereby sell, assign, set over, transfer and deliver unto the said Trustee for the uses and purposes herein provided, Two Hundred Twenty (220) shares of the capital stock of Consolidated Bus Lines, Inc., certificate therefor duly endorsed for transfer being delivered herewith;

THIRD: The said Paul E. Craft, for the consideration aforesaid as well as in consideration of the distributive share of the trust herein provided for him, the same being recognized and acknowledged as of value fully equivalent to the value of the shares by this paragraph transferred, does hereby sell, assign, set over, transfer and deliver unto the said Trustee for the uses and purposes herein provided, Two Hundred Fifty (250) shares of the capital stock of Consolidated Bus Lines, Inc., certificates for which duly endorsed for transfer are delivered herewith.

FOURTH: The said James W. Craft, for the consideration aforesaid as well as in consideration of the distributive share of the trust herein provided for him, the same being recognized and acknowledged as of value fully equivalent to the value of the shares by this paragraph transferred, does hereby sell, assign, set over, transfer and deliver unto the said Trustee for the uses and purposes herein provided, Two Hundred Fifty (250) shares of the capital stock of Consolidated Bus Lines, Inc., certificates for which duly endorsed for transfer are delivered herewith;

TO HAVE AND TO HOLD the aforesaid property and securities together with all rights and appurtenances thereunto belonging or in any wise appertaining, as well as its income and increment, unto the said Trustee, his successors and assigns, for the uses and purposes herein provided. The Grantors reserve the right to enlarge the corpus of this trust by granting, conveying, assigning, transferring and delivering to the Trustee hereafter other property for inclusion therein, and the right to add new and other beneficiaries of this trust, except that in no circumstances shall the said J. E. Craft be or become a beneficiary hereof, and to change the distributive shares or beneficial interests in said trust from those herein provided, except that no share of a Grantor herein shall be diminished without his or her consent; and the Grantors expressly confer upon the Trustee authority to accept such additional property as well as any other property which may come to or be received by the Trustee for inclusion herein from other persons or sources, and authority to include and incorporate the same into the corpus of the trust hereby created.

7. The Trustee shall periodically at convenient intervals throughout her life pay over to the said Helen T. Craft one-fourth of all the net income from the said trust, and if circumstances should arise making it in the discretion of the Trustee advisable and helpful so to do, the Trustee shall have authority to pay over to or for the benefit of the said Helen T. Craft any part of the principal of said trust up to a one-fourth part thereof, but after any invasion of the corpus of the trust for such purpose the portion of the net income distributed to the said Helen T. Craft thereafter shall be proportionately decreased. * * *

8. The Trustee shall hold one-fourth of the said trust and income arising therefrom for the use and benefit of the said Paul E. Craft and shall periodically at convenient intervals pay over to or for the benefit of the said Paul E. Craft such part of the net income from said trust up to one-fourth thereof as in the judgment of the Trustee shall be advantageous and for the best interest of the said Paul E. Craft, but the amount of income distributed to or for the benefit of the said Paul E. Craft shall not in any year be less than one-half of all that portion of the net income from said trust which is available for the said Paul E. Craft hereunder. * * *

9. The Trustee shall hold one-fourth of the said trust and income arising therefrom for the use and benefit of the said James W. Craft and shall periodically at convenient intervals pay over to or for the benefit of the said James W. Craft such part of the net income from said trust up to one-fourth thereof as in the judgment of the Trustee shall be advantageous and for the best interest of the said James W. Craft, but the amount of income distributed to or for the benefit of the said James W. Craft shall not in any year be less than one-half of all that portion of the net income from said trust which is available hereunder for the said James W. Craft. * * *

This trust instrument also made provision for the two children, Jerry and Tom, born to decedent and Helen at the time of execution, as well as all afterborn children, as follows:

10. The Trustee shall hold one-fourth of the said trust estate and the income arising therefrom for the use and benefit equally of Jerry Craft, Tom Craft and any other child or children of the said J. E. Craft and Helen T. Craft, and their issue per stirpes, the survivors or survivor of them, their, his or her heirs and distributees, as follows: the aforesaid one-fourth portion of said trust estate shall be divided into two equal parts, and if and whenever there should be born hereafter to the said J. E. Craft and Helen T. Craft another or other child or children, then redivided into as many equal parts as there are children of the said J. E. Craft and Helen T. Craft;

11. Subject only to the provisions of paragraph 10 hereof, the Trustee shall hold one-eighth of the said trust and the income arising therefrom for the use and benefit of the said Jerry Craft and shall accumulate, reinvest and hold for the benefit of the said Jerry Craft until he attains the age of twenty-one years, all of the income arising from said portion of said trust, plus its accretions and accumulations, but with discretionary authority in the Trustee to expend any part of such income for such things and at such times as in his judgment may promote the...