Estate of Hofheimer v. Comm'r of Internal Revenue

• Decision Date: 29 September 1943
• Docket Number: Docket No. 108330.
• Citation: 2 T.C. 773
• Parties: ESTATE OF LESTER HOFHEIMER, CORINNE HOFHEIMER, ET AL., EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

2 T.C. 773

ESTATE OF LESTER HOFHEIMER, CORINNE HOFHEIMER, ET AL., EXECUTORS, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 108330.

Tax Court of the United States.

Promulgated September 29, 1943.

1. Decedent, who died in 1936, and his brother created a trust in 1922, each contributing one-half of the corpus and designating their cousin beneficiary for life, the remainders over of their respective shares to be distributed to the surviving children of each of their issue, per stirpes. The settlors named themselves trustees, with full power of management. They reserved full power to terminate the trust or to amend it as to the life beneficiary. Held, that the value of the life estate, to the extent of the one-half interest contributed by decedent, is includable in decedent's gross estate.

2. In 1923 decedent made a gift in trust to his wife's parents for life (or the survivor), with remainder over of the principal to his daughter, Marion, or her issue surviving. He reserved a power, exercisable jointly with his wife, to revoke. In 1928 decedent and his wife, in exercise of the reserved power, amended the trust to give an estate to the parents for life or for decedent's life, whichever should sooner determine, leaving the remainders as before. A like power of joint revocation was reserved, but was limited to the parents' estate only. In 1936 and within four months of decedent's death, decedent and his wife made a second amendment of the trust, by which the parents were given a life estate or until the daughter, Marion, should come of age on October 18, 1939, whichever should determine sooner; remainders as before. The power of revocation was reserved to decedent's wife alone to terminate the trust and to vest the principal in any issue of her and the decedent's marriage, but in none others. The decedent was in good health when the second amendment, which was in force at his death, was made. Held, that the amendment of 1936 was made in contemplation of death, the presumption of the statute not having been rebutted; and the value of the estate of decedent's parents-in-law held at the moment after the amendment of 1936 was executed, to the extent above $5,000, is includible in decedent's gross estate. Held, further, that neither trust was intended to take effect in possession or enjoyment at decedent's death by reason of a possible reversion to decedent on failure of his issue. Helvering v. Hallock, 309 U.S. 106, distinguished. Wilbur H. Friedman, Esq., for the petitioners.

Henry C. Clark, Esq., for the respondent.

Respondent determined a deficiency of $82,459.98 in Federal estate tax. Respondent has made certain concessions, leaving two questions in issue: (1) Whether there is includable in decedent's gross estate a one-half interest, stipulated as having a value on November 30, 1937, of $18,206.27, of the corpus of the trust created by the decedent on October 5, 1922; and (2) whether there is also includable the value stipulated as being $143,975 of the corpus, of a trust created by the decedent on October 31, 1923, which was modified on March 17, 1928, and amended by agreement between decedent and his wife on July 27, 1936.

The facts, stipulated for the most part, are as follows:

FINDINGS OF FACT.

Lester Hofheimer, born on March 19, 1880, at Louisville, Kentucky, died testate on November 30, 1936, a resident of New York City. His will, duly probated, was put in evidence and is incorporated here by reference. The fifth article of the will made this provision:

FIFTH: In the event that I should die before my daughter, Marion shall arrive at her twenty-first birthday, I give and bequeath to her, if she survive me, a sum equal to the amount by which the value, at the time of my death, of the assets held as principal of any trust fund or trust funds, under which she is then the primary life beneficiary then entitled to the income thereof, is less than Eight Hundred Thousand Dollars ($800,000). I direct that in estimating the value of the assets constituting the principal of any such trust fund or trust funds the values attributed thereto by my Executors, in their sole discretion, shall be conclusive.

Without intending any condition to the foregoing legacy, I wish to state that I make this provision for my said daughter because it is my view that the value of the assets constituting the principal of the trust fund or trust funds whereunder she is the cestui que trust is less than the value of similar trusts under which my other children are cestuis que trustent, and I therefore desire to do something toward equalizing the situation.

He left surviving him his widow, three children, and a granddaughter as follows: Corinne Hofheimer, born August 2, 1892; Rhonie H. Klee, born November 16, 1914; Lester N. Hofheimer, born December 16, 1915; Marion Ruth, born October 18, 1918; and Nancy Klee (the granddaughter) born March 1, 1936. Decedent was in good health until shortly before his death, which resulted from a gas bacillus infection in the blood stream, discovered after an operation for acute appendicitis.

On May 27, 1938, a Federal estate tax return was filed for decedent's estate with the collector of internal revenue for the third district of New York, by the executors, in which they elected to have the gross estate of the decedent valued in accordance with the method authorized by subdivision (j), section 302 of the Revenue Act of 1926, as amended by section 202 of the Revenue Act of 1935.

The sum of $203,478.63 representing income received and accrued during the year following the decedent's death, which was included in the gross estate by petitioners in the Federal estate tax return which they filed for this estate, should be excluded from the gross estate.

The petitioners are entitled to the following deductions from the gross estate by concession of the respondent:

(a) for attorney's fees and disbursements in the sum of $78,133.51;

(b) for executors' commissions in the sum of $267,353.01;

(c) for an additional debt of the decedent in the sum of $57.39; and

(d) for charitable bequests in the total sum of $160,000.

Trust No. 1.— On or about October 5, 1922, Lester Hofheimer, decedent, and his brother, Arthur Hofheimer, as settlors, executed a trust instrument in favor of Clara Hofheimer, their cousin, the essential portions of which are hereafter set out. Arthur Hofheimer died in February 1927. Clara Hofheimer was born in December 1887 and was living at the time of trial, and the trust was in operation. The value of the total corpus of this trust on November 30, 1937, was $36,412.54. The half interest given on trust by the decedent then had a value of $18,206.27. No part of the corpus of this trust has been returned or heretofore included by the Commissioner in the gross estate.

By the trust of October 5, 1922, decedent and Arthur Hofheimer gave to themselves and the Empire Trust Co. of New York City on trust certain bonds, the net income to be paid to Clara Hofheimer of Alexandria, Virginia, for life, and upon her death, the principal to be divided into two equal shares, one share to be paid to the children then living, or their issue, per stirpes, of each of the settlors.

The trustees were given full power of management of the trust assets, including sale and reinvestment, and voting power in the stocks. The settlors reserved the right to remove any trustee (other than themselves) and to appoint another. The same article (fourth) concluded as follows:

The parties of the first part (the settlors) further expressly reserve to themselves during the lifetime of both or either of them, the right by instrument in writing executed and duly acknowledged by them, if both be living, or if only one be living, then by the survivor, of terminating this trust or from time to time amending its terms in respect to the payment of income to the beneficiary and of imposing any terms and conditions whatsoever in respect to the amount of income thereafter to be paid or the circumstances under which any income shall be payable; and upon the termination of the trust as aforesaid, the principal of said fund shall be distributed as hereinbefore provided.

Trust No. 2.— On October 31, 1923, decedent, as settlor, executed a trust instrument, naming as beneficiaries Aaron Kodziesen and Jane Kodziesen, the father and mother, respectively, of Corinne, his wife, and others. The pertinent provisions of this trust are set out below. This trust instrument was amended by an instrument in writing on March 17, 1928, the pertinent provisions of which are also given below. On July 27, 1936, the value of the corpus of this trust bore substantially the same ratio to the value of decedent's whole estate as on the date of death. On July 27, 1936, an agreement of amendment to the trust instrument was entered into without consideration in money or money's worth, the pertinent provisions of which are summarized hereafter.

(a) On October 31, 1923, decedent gave on trust to himself and his wife, Corinne, 5,000 shares of General Motors Corporation stock, the net income to be paid during life in equal shares to Aaron and Jane Kodziesen, the settlor's wife's parents, or the survivor, with remainder over to the settlor's daughter, Marion Ruth Hofheimer, and a contingent remainder over, if she were not then living, to her issue her surviving, and on failure of such issue, to the settlor's other children, per stirpes. The principal was to be distributed to the remainderman on the death of the last surviving life tenant. The principal of the corpus might be increased by the settlor from time to time.

Article fourth provided as follows in respect of revocation:

FOURTH: Anything herein contained to the contrary notwithstanding in this indenture, the trusts herein provided for, and the assets and interests and property hereby created, may from time to time, during the continuance of the said trust be modified or altered in...