Estate of Sheaffer v. Comm'r of Internal Revenue

• Decision Date: 13 June 1949
• Docket Number: Docket No. 18438.
• Citation: 12 T.C. 1047
• Parties: ESTATE OF CHARLES M. SHEAFFER, DANIEL M. SHEAFFER AND THEODORE C. SHEAFFER, EXECUTORS, PROVIDENT TRUST COMPANY OF PHILADELPHIA, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

12 T.C. 1047

ESTATE OF CHARLES M. SHEAFFER, DANIEL M. SHEAFFER AND THEODORE C. SHEAFFER, EXECUTORS, PROVIDENT TRUST COMPANY OF PHILADELPHIA, EXECUTOR, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 18438.

Tax Court of the United States.

Promulgated June 13, 1949.

ESTATE TAX— POWER OF APPOINTMENT— SECTION 811(f).— Decedent had created an inter vivos trust, with retained power to alter or revoke; his wife left her residuary estate to the trust; after her death he altered the terms of the trust, and the Orphans' Court of Pennsylvania ordered distribution of the wife's residuary estate to the trust to be administered in accordance with the trust as amended. Held, decedent had and exercised a general power of appointment over his wife's residuary estate within the meaning of section 811(f). Eugene Meacham, Esq., for the petitioner.

John A. Newton, Esq., for the respondent.

OPINION.

MURDOCK, Judge:

The Commissioner determined a deficiency in estate tax of $11,772.71. The issue for decision is whether the decedent had a power of appointment over property which the Commissioner included in the gross estate under section 811(f). The facts have been stipulated. The amount of the deduction for attorneys' fees is to be agreed to under Rule 50.

Charles M. Sheaffer, the decedent, died on December 3, 1943. An estate tax return for his estate was filed with the collector of internal revenue for the first district of Pennsylvania.

The decedent, while residing in Delaware County, Pennsylvania, executed a trust agreement dated December 10, 1936, and transferred to that trust policies of insurance on his own life. He stated therein that it was his intention to add other property to the principal of the trust and to permit other persons to add principal to the corpus of the trust. The trustees were directed to collect the amount of the policies and to pay the net income from that property and from any other property coming into their hands to Margaret C. Sheaffer, wife of the settlor, during her life; upon her death and until 21 years after the death of the settlor, to pay the net income from the trust in certain proportions to nine named beneficiaries and then to distribute the corpus to the nine beneficiaries in the same proportions in which they had received the income. Paragraph sixteenth of the trust agreement was as follows:

This Agreement and the trust hereby created shall be revocable by the Settlor in whole or in part at any time or times, and may be amended by the Settlor in any and all respects from time to time by writing executed by the Settlor and lodged with the Provident Trust Company of Philadelphia (the trustee).

The decedent and his wife executed wills on December 22, 1936. The will of Margaret C. Sheaffer provided that her residuary estate should be held in trust, the income paid to her husband during his life, ‘and upon his death I give, devise and bequeath the principal thereof to the trustees for the time being under a trust agreement between the said Charles M. Sheaffer and Provident Trust Company of Philadelphia, dated December 10, 1936 as an addition to the principal of the trust under the said agreement and subject to all the terms and provisions thereof as if originally a part of such agreement.‘

The decedent, by his will, left his residuary estate to the December 10, 1936, trust.

Margaret C. Sheaffer died on March 23, 1937.

The decedent amended the December 10, 1936, trust on January 24, 1942, by eliminating his deceased wife as income beneficiary and providing that the corpus of the trust shall be distributed to the nine beneficiaries 10 years after his death.

The trustees under the will of Margaret C. Sheaffer petitioned the Orphans' Court of Delaware County on May 1, 1944, for a distribution of the residuary estate, calling attention to the will of Margaret C. Sheaffer, to the trust created by Charles M. Sheaffer on December 10, 1936, together with the amendment thereto made on January 24, 1942, and to the death of Charles M. Sheaffer. The petition asked that the principal be awarded to the trustees under the December 10, 1936, trust and the January 24, 1942, amendment thereto. The court directed that the residuary estate of Margaret C. Sheaffer be turned over to the trustees under the trust for Charles M. Sheaffer dated December 10, 1936, and the amendment thereto dated January 24, 1942, ‘for the further administration thereof in accordance with the terms of said Deed of Trust and Amendment thereto.‘

The parties do not indicate any disagreement in regard to the applicable law. The Commissioner argues that the decedent had a general power of appointment and actually exercised the power. He says that the decedent, from the date of Margaret's death until his own death, had the power to alter or revoke the December 10, 1936, trust, including as a part of the corpus of that trust the property which would come into it at his death from the residuary estate of Margaret; he could revoke the trust or alter it in such a way that the residuary estate of Margaret would come into his own estate or go to any person whom he might...