Estate of Nettleton v. Comm'r of Internal Revenue
| Decision Date | 19 March 1945 |
| Docket Number | Docket No. 4371. |
| Citation | 4 T.C. 987 |
| Parties | ESTATE OF ALBERT E. NETTLETON, THE SYRACUSE TRUST COMPANY, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
The decedent created two irrevocable trusts and named himself as one of the three trustees of each trust. The income of each trust was to be paid to decedent's daughter during her lifetime and at her death the corpus was to be divided into as many shares as she had children living at the date of the creation of the trust and at her death, and the income of each share was to be paid to each child for life, and on the death of such child, the corpus so held in trust for each child was to be distributed to the child's issue. Each trust provided that the trustees in their uncontrolled discretion might pay ‘such part of the principal of the trust estate held for any beneficiary as they may consider suitable and necessary in the interests and for the welfare of such beneficiary.‘ Decedent was a trustee of each trust at the date of his death. Held, that the value of the remainder interests following the life estate is includible in decedent's gross estate under section 811(d)(2) of the Internal Revenue Code. George H. Bond, Esq., and Lyle Hornbeck, Esq., for the petitioner.
Sidney B. Gambill, Esq., for the respondent.
The respondent has determined a deficiency in estate tax in the amount of $201,185.30. The major portion of the deficiency is attributable to the inclusion by respondent in decedent's gross estate of the corpora of four trusts created by decedent in his lifetime. At the hearing, respondent conceded that he erred in including the corpora of two of these trusts in decedent's gross estate. Effect will be given to this concession in the recomputation under Rule 50. The only question remaining is whether all or any part of the corpora of the two trusts created by petitioner on February 18, 1932, and November 19, 1935, respectively, is properly includible in the gross estate of petitioner's decedent under section 811(d)(2) or section 811(c) of the Internal Revenue Code.
Petitioner filed its estate tax return with the collector for the 21st district of New York.
The facts have been stipulated and are hereby found accordingly. Only those stipulated facts material to the issues are set forth herein.
Petitioner's decedent, Albert E. Nettleton, died on November 2, 1939, a resident of Syracuse, New York. The Syracuse Trust Co. was appointed executor of his last will and testament on November 8, 1939, and is still acting in that capacity.
On February 18, 1932, decedent created a trust, hereinafter called the 1932 trust, under which decedent, his daughter Alice N. Edwards, and the Syracuse Trust Co. were named as trustees. The trust indenture provided that the entire net income from the corpus was to be paid to Alice N. Edwards in quarter-annual installments during her lifetime, together with one-half of the corpus when she attained the age of 45 years. Upon her death, the trust corpus then on hand was to be divided for her children living at the creation of the trust and living at her death and the descendants of any of her children who might have predeceased her. It was further provided that the ‘Trustees shall convey, transfer, deliver and set over absolutely to the descendants of each such child of said Alice N. Edwards so dying one of said shares to be divided among such descendants per stirpes and not per capita; and the Trustees shall hold one of each such shares upon a separate trust for each of such children now living and living at the death of said Alice N. Edwards and shall pay the entire net income from each of such shares to the child for whom such share is so held in trust in quarter-annual installments‘ until the death of each child. Upon the death of each child the corpus of the share so held in trust was to be paid to the child's descendants then living or, in default thereof, to the descendants of Alice N. Edwards then living.
Paragraph second of the trust indenture contained the following provision:
The Grantor expressly surrenders all right and power to amend, modify, or revoke this instrument, provided, however, that, if all the beneficiaries herein designated should predecease the Grantor, then the Grantor shall have the power of appointing other beneficiaries of specifying the terms and conditions under which either income or principal may be paid to them, which power shall be exercised by the Grantor by written instrument deposited with the persons then Trustees.
Paragraph seventh of the trust indenture contained the following provision:
The Trustees shall have the power in their uncontrolled discretion to use and apply from time to time such part of the principal of the trust estate held for any beneficiary as they may consider suitable and necessary in the interest and for the welfare of such beneficiary.
On November 19, 1935, the decedent created another trust, hereinafter called the 1935 trust, under which the decedent, Alice N. Edwards, and the Syracuse Trust Co. were named trustees. The dispositive provisions of this trust were substantially the same as the 1932 trust except that Alice N. Edwards did not become entitled to any payment of corpus during her lifetime.
Paragraph second of the 1935 trust indenture provided as follows:
The Grantor expressly surrenders all right and power to amend, modify, or revoke this instrument, provided, however, that, if all the beneficiaries herein designated should predecease the Grantor, then the Grantor shall have the power of appointing other beneficiaries or specifying the terms and conditions under which either income or principal may be paid to them, which power shall be exercised by the Grantor by written instrument deposited with the persons then Trustees, but in no event shall the Grantor have the right to designate himself as a beneficiary of the Trust, or to receive any part of the principal or income thereof.
Paragraph eighth of the 1935 trust indenture provided as follows:
The Trustees shall have the power in their uncontrolled discretion to use and apply from time to time such part of the principal of the trust estate held for any beneficiary as they may consider suitable and necessary in the interests and for the welfare of such beneficiary.
Alice N. Edwards was born September 26, 1897, and is still alive. She was married to Oliver M. Edwards, Jr., on December 17, 1918, and has four children, whose names and dates of birth are as follows:
+------------------------------------+
¦ ¦Date of birth¦
+----------------------+-------------¦
¦Nancy Edwards ¦Jan. 26, 1920¦
+----------------------+-------------¦
¦Alice Edwards Nolan ¦July 8, 1921 ¦
+----------------------+-------------¦
¦Sally Edwards ¦Mar. 20, 1925¦
+----------------------+-------------¦
¦Oliver M. Edwards, III¦May 28, 1927 ¦
+------------------------------------+
All of the children of Alice N. Edwards are still alive. Alice Edwards Nolan was married on August 12, 1944.
During decedent's lifetime the trustees did not exercise the power given to them under both trusts to invade the corpora of the trusts. The ordinary living expenses of Alice N. Edwards and her family from 1936 to 1939 inclusive were less than the trust income received by her.
The value of the corpus of the trust dated February 18, 1932, on the date of decedent's death was $353,171.74, and the value on the optional valuation date was $385,821.17. The value of the corpus of the trust dated November 19, 1935, on the date of decedent's death was $164,331.11, and the value on the optional valuation date was $148,834.07.
The total income from the trust created February 18, 1932, from the date of its creation to November 2, 1939, the date of decedent's death, was $112,321.58. Of this amount, $3,197.88 was used for disbursements and fees of the Syracuse Trust Co. and $108,537.24 was paid to Alice N. Edwards.
The total income from the trust created November 19, 1935, from the date of its creation to November 2, 1939, was $21,822.93. Of this amount, $629.69 was used for disbursements and fees of the Syracuse Trust Co. and $20,957.93 was paid to Alice N. Edwards.
In the estate tax return petitioner did not include any of the corpus of the trusts in decedent's gross estate. In the notice of deficiency respondent determined that the full value of the corpus of both trusts, as of the optional valuation date, was includible in decedent's gross estate. The explanation of the adjustment was as follows:
It is held that the trusts of February 18, 1932, and November 19, 1935, are to be included as part of the gross estate under the provisions of section 811(d)(2) of the Internal Revenue Code. It is held further with respect to the trust of February 18, 1932, that the value of the remainder interest therein is includible in the gross estate as a transfer to take effect in possession or enjoyment at or after decedent's death under section 811(c) of the Internal Revenue Code.
Section 811(d)(2) of the Internal Revenue Code provides that the gross estate of a decedent shall include the value of property transferred in trust by the decedent ‘where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke * * * . ‘ The respondent takes the position that the power granted to the trustees by paragraph seventh of the 1932 trust and paragraph eighth of the 1935 trust amounts to a power reserved by the decedent to alter, amend, or revoke the trusts. Paragraph seventh of the 1932 trust and paragraph eighth of the 1935 trust are identical. They provide that the ‘Trustees shall have the power, in their uncontrolled discretion, to use and apply from time to time such part of the principal of the...
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