Denniston v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 01 November 1938 |
| Docket Number | Docket No. 86175,86579.,86573 |
| Parties | EDWARD E. DENNISTON, EXECUTOR OF THE ESTATE OF ELEANOR H. DENNISTON, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ANNA H. DENNISTON, TRANSFEREE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. THE PENNSYLVANIA COMPANY FOR INSURANCES ON LIVES AND GRANTING ANNUITIES AND JOSEPH S. CLARK, TRUSTEES AND TRANSFEREES, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Murray H. Spahr, Esq., and Joseph S. Clark, Esq., for the petitioners.
E. C. Algire, Esq., for the respondent.
These consolidated proceedings involve an estate tax deficiency in the amount of $25,005.02 assessed against petitioner in Docket No. 86175, and proposed transferee assessments against petitioners in Docket Nos. 86573 and 86579 for the same. The transferee petitioners concede liability if an estate tax is due from petitioner in Docket No. 86175.
The deficiency results from the Commissioner's inclusion in decedent's gross estate of (1) the value at her death of property which she had conveyed to trustees in 1915 with directions to pay the income to her for life, with remainder over to her children in equal parts, and as to which she had reserved a general power of appointment by will, which power was revoked slightly less than two years prior to decedent's death, and (2) the value at decedent's death of two parcels of real estate which she had conveyed by deed for the equal benefit of her children less than two years prior to her death. The petitioners contest this action of the Commissioner by appropriate assignments of error which will be discussed later in the opinion.
FINDINGS OF FACT.
Eleanor H. Denniston was born May 6, 1857, and died March 13, 1934, a resident of the Commonwealth of Pennsylvania.
Edward E. Denniston, husband of decedent, died September 13, 1893.
Eleanor H. Denniston, sometimes hereinafter referred to as the decedent, had five children, all of whom survived her. Their names are Edward E. Denniston, Margaret D. Kershaw, Anna H. Denniston, Leonora Denniston Booth, and Kathleen Denniston Kent.
By indenture dated and executed May 10, 1915, Eleanor H. Denniston, then a resident of the City and County of Philadelphia, assigned and transferred certain stocks, bonds, mortgages, other securities, and moneys to the Commercial Trust Co. and Joseph S. Clark, as trustees.
By the terms of the trust indenture, Eleanor H. Denniston reserved the income of the trust property to herself for life. In the trust indenture she reserved to herself a general power of appointment in the following language:
THIRD: From and after the death of the said Eleanor H. Denniston to hold the said trust estate and every part thereof to and for such parties and persons and for such uses, intents and purposes and estates therein as the said Eleanor H. Denniston at the time of her death may by any last will and testament or instrument in the nature thereof direct, provide, limit and appoint.
In the absence of the exercise of the foregoing general power of appointment by will, the remainder interest in the property which was conveyed in the trust indenture was to go to the above named children of Eleanor H. Denniston, in equal parts.
The Pennsylvania Co. for Insurances on Lives & Granting Annuities became succeeding trustee by merger with the Commercial Trust Co. on April 25, 1929.
Joseph S. Clark, one of the trustees named in the deed of trust dated May 10, 1915, resigned from his office as trustee and, by decree of the Orphans' Court of Philadelphia County entered the 5th day of November, 1936, was duly discharged from the duties of his office.
By a supplemental indenture dated and executed March 16, 1932, Eleanor H. Denniston relinquished the power of appointment contained in the deed of trust dated May 10, 1915. The relinquishment of the power of appointment, among other things, contains the following language:
NOW, THEREFORE, THIS INDENTURE WITNESSETH, That said ELEANOR H. DENNISTON, for and in consideration of the sum of One Dollar ($1.00) to her in hand paid at and before the sealing and delivery hereof, the receipt of which is hereby acknowledged, and in consideration of the continued execution and performance of the several trusts declared and appointed by the said Indenture of May 10, 1915, and of the love and affection she bears to her children, the beneficiaries under said Deed of Trust, and for divers other good and sufficient reasons and considerations, has relinquished and surrendered, and by these presents does relinquish and surrender, unto THE PENNSYLVANIA COMPANY FOR INSURANCES ON LIVES AND GRANTING ANNUITIES (successor by merger to said Commercial Trust Company) and to JOSEPH S. CLARK, their heirs, executors, administrators, successors and assigns, Trustees under said Trust Indenture dated May 10, 1915, all right and interest she may heretofore have had by virtue of her power to appoint by any last Will and Testament, or otherwise, under Article Third of said Trust Indenture of May 10, 1915.
Eleanor H. Denniston on May 19, 1932, by deeds duly executed by her, transferred to Anna H. Denniston, her daughter, absolutely and in fee, all her right, title, and interest in and to certain real estate located in the twenty-first ward of the city of Philadelphia, Pennsylvania, and to certain real estate located in the town of Steuben, Maine, all fully described in said deeds of conveyance.
The said Eleanor H. Denniston received the income from said trust estate in accordance with the terms of the deed of trust dated May 10, 1915, up until the time of her death.
The value of the properties covered by deeds dated May 19, 1932, to Anna H. Denniston, was in excess of the deficiency in estate tax asserted in this proceeding, plus interest thereon as imposed by statute, both at the date the deeds were executed and at the date of decedent's death. The properties covered by said deeds were received by Anna H. Denniston, transferee petitioner in the above entitled proceeding under Docket No. 86573, without consideration. The transfer of these properties left the decedent and her estate without funds or assets to pay the said deficiency and interest, no part of which has been paid.
The value of the property covered by the trust indenture dated May 10, 1915, over which the power of appointment by will was relinquished in the supplemental indenture dated March 16, 1932, was in excess of the deficiency in estate taxes asserted in this proceeding, plus interest thereon as imposed by statute, both at the respective dates such instruments were executed, and at the date of decedent's death. The properties received under said instrument by the trustees named as transferee petitioners in the above entitled proceeding under Docket No. 86579 were received without consideration. The transfer of said properties left the decedent at the date of the execution of said instruments without funds or assets to pay the said deficiency and interest, with the exception of the value of the properties transferred by deed to Anna H. Denniston as set forth above.
The properties covered by the indenture executed May 10, 1915, over which the power of appointment by will was relinquished in the supplemental indenture dated March 16, 1932, and the properties covered by deeds executed May 19, 1932, constituted all of the assets of the decedent.
On May 19, 1932, contemporaneous with the execution and delivery of the two deeds from Eleanor H. Denniston to her daughter, Anna H. Denniston, wherein was conveyed certain real estate located in Philadelphia, Pennsylvania, and in the town of Steuben, Maine, the said Anna H. Denniston executed two separate declarations of trust wherein and whereby she made known, admitted, and declared that she held said real estate in trust for Edward Evans Denniston. Margaret Denniston Kershaw, Anna H. Denniston, Leonora Denniston Booth, and Kathleen Denniston Kent, the five children of Eleanor H. Denniston and their heirs.
In 1931 the decedent had definitely made up her mind that she wanted her children to have all the remainder interest in certain property conveyed by her to trustees on May 10, 1915, and, as that was what would happen if she did not exercise the power of appointment, her attorneys advised her that the power of appointment should be relinquished in order that the transfer of 1915, made by the deed of trust, would become a completed gift inter vivos, and because if the power continued until her death the property would have to be included in her gross estate subject to Federal estate taxes. They also advised that the relinquishment should be done promptly because there was a discussion in Congress regarding the reenactment of the gift tax. They also advised her to transfer the real estate which was subsequently transferred to her daughter, Anna H. Denniston, because of the tax situation. Decedent Eleanor H. Denniston was in reasonably good health for one of her age at the time the conveyances in question were executed.
One of the dominant and controlling motives for the relinquishment by the decedent of the power of appointment by will reserved in the deed of trust dated May 10, 1915, on March 16, 1932, and the execution of the two deeds on May 19, 1932, transferring real estate owned by the decedent to her daughter, Anna H. Denniston, was to avoid estate taxes upon decedent's death.
Other substantial and important motives which influenced her to make the conveyances were to complete in her lifetime her gifts to her children of all the property which she owned, save and except the life estate which she had reserved in the property conveyed by the trust indenture of May 12, 1915, and to save gift taxes that would be payable if such conveyances were executed later on.
The relinquishment of the power of appointment and the two conveyances of real estate by the deeds...
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