Estate of Ballard v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 01 October 1942 |
| Docket Number | Docket No. 105033. |
| Citation | 47 BTA 784 |
| Parties | ESTATE OF EDWARD LATHROP BALLARD, DECEASED, ALDEN C. NOBLE AND ELIZABETH BIGLOW BALLARD, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Edward S. Bentley, Esq., for the petitioners.
Charles P. Reilly, Esq., for the respondent.
The Commissioner determined a deficiency in estate tax in the sum of $447,707.55. The primary issue is whether the possibility that decedent might, upon the happening of certain contingencies, obtain the power to alter, amend, or revoke a trust of which he was the grantor requires the trust corpus to be included in decedent's estate under section 302 (c) of the Revenue Act of 1926, as amended, or under section 302 (d) of the Revenue Act of 1926, as amended. The second issue is whether or not the value of a life interest in a trust is includible in decedent's gross estate by virtue of decedent's reserved power to designate others than himself as recipients of the life interest.
Most of the facts were stipulated. Only those of the stipulated facts material to the issues will be set forth in our findings.
FINDINGS OF FACT.
Petitioners are the executors of the last will and testament of Edward Lathrop Ballard, hereinafter referred to as the "decedent," who died on December 31, 1937. The estate tax return was filed with the collector of internal revenue at Hartford, Connecticut.
On April 26, 1923, decedent created a trust, hereinafter known as the children's trust, and conveyed to himself and his wife, Elizabeth B. Ballard, as trustees under that trust, 600 shares of common stock of the Merchants Fire Assurance Corporation of New York having a par value of $100 a share. Decedent was the founder of the Merchants Fire Assurance Corporation of New York and was at all times from the creation of the children's trust to the date of his death the principal officer and a large stockholder of that corporation.
The children's trust instrument provided that the net income of the trust should, in the discretion of the trustees, be applied to the support, maintenance, and education of the testator's three children then living, Horatio, Elizabeth, and Anna, all of whom at that time were under 21 years of age. The trust was to terminate upon the death of the survivor of decedent and his wife and the principal was then to be distributed to decedent's three children and their issue.
The trust instrument as executed April 26, 1923, contained the following paragraph:
SECOND: The Grantor reserves full power to alter, amend and revoke in whole or in part the trust created by this instrument at such times and in such manner as he in his uncontrolled discretion shall see fit, anything herein contained to the contrary notwithstanding, such powers to be exercised by an instrument in writing executed and acknowledged by the Grantor in the form of a deed to be recorded in the State of New York and filed with the Trustees. In the event of a revocation of the trust, all cash, securities and other property of the trust fund shall thereupon be paid and delivered by the Trustees to the Grantor and the title to such property shall vest in the Grantor absolutely, and the Trustees shall execute such instruments of assignment and other papers as may be necessary to effect such vesting of title. No one shall have any right, interest or estate under this indenture except subject to the powers hereinabove reserved by the Grantor.
The Grantor also reserves the right to remove any Trustee hereby appointed, and in the event of a vacancy occurring in the office of trustee by such removal, or otherwise, the Grantor shall have the power to appoint any other person, individual or corporate, as successor trustee, and to remove such successor trustee and again appoint and remove, as often as he may see fit, such removal or appointment by the Grantor to be made by an instrument in writing executed and acknowledged in the form of a deed to be recorded in the State of New York, and such successor trustee, upon written acceptance of the trust, shall thereupon be vested with all of the property of the trust estate without any further conveyance or transfer of title.
Under date of January 31, 1924, decedent amended the children's trust so that the trust would continue to exist during the lives of decedent's daughters, Elizabeth and Anna, and upon the death of both Elizabeth and Anna would terminate and the corpus would be distributed among the surviving child, if any, and the issue of the three children. The amendment of January 31, 1924, further provided:
2. I hereby revoke paragraph "FOURTH" of said trust agreement, dated April 26th, 1923, and substitute in place thereof the following:
I hereby give and grant unto my said wife, Elizabeth B. Ballard full power and authority to withdraw from time to time and as often as she may see fit all or any part of the securities in the trust fund and to substitute other securities in place thereof, of whatever character and value she may select, and whether such substitution increases or decreases the value of the principal of the trust, and any securities so substituted shall be held upon the same trusts as herein provided in the case of the securities transferred to the trustees upon the execution of this instrument, and such securities as may be withdrawn by her shall become her own separate and private property free from any trust whatsoever.
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5. I hereby revoke paragraph "EIGHTH" of said trust agreement, dated April 26th, 1923, and substitute in place thereof the following:
I do hereby give and grant unto my wife, Elizabeth B. Ballard full power and authority to alter, amend and revoke in whole or in part the trust created by said trust agreement of April 26th, 1923 at such times and in such manner as she in her sole and uncontrolled discretion shall see fit, anything herein contained to the contrary notwithstanding, such powers to be exercised by her by an instrument in writing executed and acknowledged in the form of a deed to be recorded in the State of New York and filed with the trustees. In the event of the revocation of this trust in whole or in part, all cash, securities and other property of the trust fund thus revoked shall thereupon be paid and delivered by the trustees to said Elizabeth B. Ballard, and the title to such property shall vest in her and be her sole and own property, free and clear from all trusts and conditions whatsoever and the trustees shall execute such instruments of assignment and other papers as may be necessary to effect such vesting of title. No one shall have any right, interest or estate under this indenture, except subject to the powers herein granted to said Elizabeth B. Ballard. Said Elizabeth B. Ballard shall have the right at any time to remove any trustee, except the grantor hereof so long as he remains a trustee and to appoint any other person, individual or corporation as successor trustee, and to remove such successor trustee and again appoint, and remove as often as she may see fit other trustees to fill their vacancies, such removal or appointment by said Elizabeth B. Ballard to be made by an instrument in writing, executed and acknowledged in the form of a deed to be recorded in the State of New York and such successor trustee upon written acceptance of the trust shall thereupon be vested with all of the property of the trust estate without any further conveyance or transfer of title. * * *
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7. I hereby revoke paragraph "SECOND" of said trust agreement dated April 26th, 1923, and do hereby cancel and surrender my right from this time on to revoke, amend or modify said trust agreement of April 26th, 1923 as modified by this agreement during the lifetime of my wife, Elizabeth B. Ballard, reserving, however, to myself from and after the death of my wife, Elizabeth B. Ballard all the rights and privileges reserved to me under the terms of said paragraph "SECOND" of said trust agreement, and do hereby republish and redeclare the rights reserved for me under said paragraph "SECOND" of said trust agreement as if said paragraph were introduced by the words "from and after the death of the wife of the grantor, Elizabeth B. Ballard," the grantor reserves to himself the rights mentioned therein, it being my intention to make this trust from this time on and during the lifetime of my wife, Elizabeth B. Ballard irrevocable by me and to surrender absolutely all my rights in regard to the principal of said trust and to the management and disposition thereof to my wife during her lifetime, leaving the management and disposition of said trust both as to principal and income to my wife, Elizabeth B. Ballard and the trustees under the terms of said trust agreement of April 26th, 1923 as modified by this agreement during the lifetime of my said wife, Elizabeth B. Ballard.
Between January 31, 1924, and May 24, 1935, certain instruments were executed with respect to the children's trust effecting substitution and withdrawal of securities. One of these instruments, by which shares of stock were withdrawn from the trust and other shares substituted therein, was erroneously executed under date of December 8, 1925, by decedent instead of decedent's wife. On December 1, 1931, decedent's wife executed an instrument ratifying the withdrawal of securities by decedent on December 8, 1925, and stated that such withdrawal and substitution by decedent was erroneous.
On May 24, 1935, decedent's wife further amended the children's trust so that the provisions of the trust required the payment of the net income to decedent's two daughters, they having attained the age of 21 years and decedent's son having died.
On June 1, 1936, decedent's wife executed a further amendment to the children's trust. This amendment provided for the division of the principal of the trust into two parts, one part to be held by the trustees...
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