Estate of Grossinger v. Commissioner
| Citation | 44 TCM (CCH) 443,1982 TC Memo 393 |
| Decision Date | 14 July 1982 |
| Docket Number | Docket No. 7422-76. |
| Parties | Estate of Selig Allen Grossinger, Deceased, Joseph G. Blum, Executor v. Commissioner. |
| Court | U.S. Tax Court |
Maurice H. Greenberger and Roy F. Hutton, 342 Madison Ave., New York, N.Y., for the petitioner. David M. Brandes, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency of $70,996.15 in the Federal estate tax of the Estate of Selig Allen Grossinger. After concessions and stipulations by the parties, the primary question is whether a mortgage note receivable which is concededly includible in decedent's gross estate should be included at its agreed value of $350,858.00 or whether said note receivable should be included at a reduced amount on the ground that decedent made a completed gift in his lifetime of a portion of his interest in the note in the form of an annuity payable to decedent's mother for her life.
As a secondary question, we must additionally consider the amount of any unpaid gift tax liability generated by such transactions for purposes of determining the estate's allowable deduction for estate tax purposes of gift taxes, additions and interest due.
The case was submitted on a fully stipulated basis. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference, and the facts deemed relevant are found as follows:
Petitioner is the Estate of Selig Allen Grossinger. Petitioner's executors filed a Federal estate tax return for petitioner on June 29, 1973, with the Manhattan, New York district office of the Internal Revenue Service and payment was made therewith of estate tax in the sum of $64,736.00. At the time of his death on September 30, 1972, Selig Allen Grossinger ("decedent" herein) was a legal resident of Yonkers, New York.
Decedent's paternal grandfather, Selig Grossinger, originally owned 50 percent of the outstanding capital stock of two New York corporations, namely: S & H Grossinger's, Inc. ("Grossinger's" herein) and the Grossinger Realty Corporation ("Realty" herein). The remaining 50 percent of the outstanding stock in these corporations was owned by Selig Grossinger's nephew, Harry Grossinger, Sr. From the outset in 1914 to the time of trial, Grossinger's has continuously been engaged in the business of operating a resort hotel, while Realty, the other corporate entity, has at all times relevant herein owned the real property upon which the Grossinger's resort business was conducted. Prior to the death of Selig Grossinger, the operations of Grossinger's were managed by Selig and his nephew, Harry Grossinger, Sr.
Selig Grossinger died on December 7, 1931, survived by his wife, Malke, his two daughters, Lottie and Jennie, and his son, Harry, Jr. Harry, Jr. was decedent's father and was so-called in order to distinguish him from his cousin, Harry Grossinger, Sr., who had by this time become Harry, Jr.'s brother-in-law by virtue of Harry, Sr.'s marriage to Jennie Grossinger. Harry, Jr. was married to Freda Grossinger (hereinafter "Freda") and subsequent to Selig Grossinger's death, Harry, Jr. and Freda had two children, decedent and Mary Ann Klein. Harry, Jr. was born on May 1, 1901, and Freda was born on June 6, 1906. Decedent was born on January 30, 1933, and Mary Ann Klein was born on December 10, 1937.
Pursuant to the provisions of Article SECOND of the last will and testament of Selig Grossinger, a testamentary trust was established and Selig Grossinger's 50 percent stock interest in Grossinger's and Realty was distributed to one Jacob Grumet as trustee of said trust. Article SECOND provided for the payment of the net income of this trust to Selig Grossinger's widow, Malke, during her lifetime. Upon her death, 25 percent of the then trust corpus was to be distributed outright to Selig Grossinger's daughter, Lottie, and the remaining 75 percent of the trust corpus was to remain in trust with the net income thereof to be paid to Selig's son, Harry, Jr. during his lifetime. Upon Harry Jr.'s death, the trust was to terminate and the then remaining corpus was to be distributed to the then living issue of Harry, Jr. in equal shares, per stirpes. Selig Grossinger's will expressed the testator's desire that the trustee appointed under such will hold the stock of Realty and Grossinger's as a permanent investment, but vested in said trustee sole discretion to sell the stock. This will made no provision for Harry, Jr.'s wife, Freda.
Malke Grossinger, the primary income beneficiary under the testamentary trust created pursuant to Selig Grossinger's will, died on August 16, 1952. Thereafter, pursuant to provisions of Article SECOND of Selig Grossinger's will as set out above, 25 percent of the trust corpus was distributed to the testator's daughter, Lottie. That distribution consisted of 12½ percent of the outstanding capital stock in Grossinger's and Realty. The remaining 37½ percent of those shares were retained in trust for the continuing benefit of Harry, Jr. as secondary income beneficiary.
During the period commencing with Selig Grossinger's death and ending on August, 27, 1963, no dividends were paid in respect of the outstanding stock of either Realty or Grossinger's. Early in 1962 a shareholder's derivative action was commenced against Harry, Sr., his wife, their children, and Grossinger's. Jacob Grumet, as trustee under Selig Grossinger's testamentary trust, entered the action as a shareholder-plaintiff on June 13, 1962. The plaintiffs sought, among other relief, a judgment directing the payment of dividends by Grossinger's.
In an attempt to settle the above controversy, the corporate defendant offered to purchase all of the shares of stock held by the plaintiffs in Grossinger's and Realty. In considering this purchase offer, Jacob Grumet, as trustee, consulted with Harry, Jr., Mary Ann Klein and decedent. Harry, Jr. and his two children determined that the trustee's acceptance of the purchase offer would be in the best interest of all concerned, including Freda. As a separate matter, they also determined that there should be an agreement on the part of decedent and Mary Ann Klein to provide for Freda's support after Harry, Jr.'s death, if Freda should survive him.
Pursuant to the above determinations and in anticipation of the sale of the shares of Grossinger's and Realty, on August 27, 1963, Harry, Jr., Freda Grossinger, Mary Ann Klein and decedent entered into an agreement which provided in pertinent part:
* * * It is hereby mutually agreed that in the event of the death of Harry, Jr. prior to the death of Freda, Mary Ann and decedent shall pay to Freda from the proceeds of their inheritance under the will of Selig Grossinger, deceased, the sum of Twenty-Five Thousand ($25,000) Dollars per year for her lifetime. Such payment of Twenty-Five Thousand ($25,000) Dollars a year shall be paid from the first proceeds of any amounts received in each year by Mary Ann and decedent from distributions received from the Estate of Selig Grossinger, Deceased. Mary Ann and decedent may in their discretion at any time purchase an annuity contract to provide for the payment to Freda of the said sum of Twenty-Five Thousand ($25,000) Dollars.
Neither decedent nor any other person at his request received any money or money's worth in consideration for decedent's entering into the above agreement.
The plaintiffs in the action against Realty and Grossinger's ultimately sold all of their shares to Grossinger's and Realty, and the litigation was therefore discontinued. Jacob Grumet, as trustee of the testamentary trust under Article SECOND of Selig Grossinger's will, received as part of the proceeds of the sale, a mortgage note receivable in the face amount of $1,345,000.
On April 9, 1965, Harry, Jr. died and was survived by his wife, Freda, and his two children, Mary Ann Klein and decedent. On April 8, 1965, the day just prior to and in anticipation of the death of his father, decedent, as settlor, entered into a trust agreement with Mary Ann Klein, Joseph G. Blum and Nathan Goldwasser, as trustees. Paragraph 1. of this trust agreement provided in pertinent part:
1. The Settlor does hereby transfer and deliver to the Trustees, in trust, the sum of One Thousand ($1,000) Dollars, the receipt of which is hereby acknowledged by the Trustees, and does hereby assign, transfer and set over unto the Trustees all of the right, title and interest of the Settlor in and to all property, interest and rights to which the Settlor now is or may at any time hereafter be entitled, absolutely and contingently, under the Last Will and Testament of Selig Grossinger, Deceased, grandfather of the Settlor, including, without limitation, the right, title and interest of the Settlor in and to any part of the principal of the trusts created under Articles SECOND and FOURTH of said Last Will and Testament of Selig Grossinger, deceased, upon the death of Harry Grossinger* * *.
Paragraph 2. of the trust agreement provided:
2. The Trustees do hereby agree that until the termination of the trust created herein all property held by them hereunder and income therefrom shall be held in trust for the uses and purposes and upon the terms and conditions set forth herein.
Subparagraph a. of paragraph 3. of the trust agreement directed the trustees to pay to, or apply for the benefit of the settlor, the net income of the trust quarter-annually or at more frequent intervals during the term of the trust. Subparagraph b. of paragraph 3. of this agreement provided:
b. The Trustees are authorized at any time and from time to time during the term of this trust to pay to, or apply for the use and benefit of, the Settlor such part of the principal of the trust as the Trustees shall, in their absolute discretion, deem necessary or advisable for the best interest of the Settlor, and the judgment of the Trustees as to...
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