Estate of Yawkey v. Comm'r of Internal Revenue
| Decision Date | 29 June 1949 |
| Docket Number | Docket No. 16241. |
| Parties | ESTATE OF CYRUS C. YAWKEY, FIRST WISCONSIN TRUST COMPANY, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
1. Discretion of trustees, of which decedent-grantor was one, held not so limited by trust provisions that it be used for ‘best interest‘ of the beneficiary as to render section 811(c) and (d) inoperative.
2. Right to transfer principal to beneficiaries after they become 30 years of age, none of the beneficiaries having reached that age at the time of decedent's death, held not a power in decedent to alter or amend within Internal Revenue Code, section 811(d). Jennings v. Smith (C.C.A., 2d Cir.), 161 Fed.(2d) 74; Estate of Milton J. Budlong, 7 T.C. 756.
3. Grantor's power as trustee to withhold income from life beneficiary under 25 years of age, which might be paid to her subsequently, or added to corpus, held to constitute right to designate person who shall enjoy income under section 811(c). Louis Quarles, Esq., for the petitioner.
H. H. Hart, Esq., for the respondent.
By this proceeding petitioner challenges respondent's determination of a deficiency in estate tax in the amount of $310,483.32. Petitioner contests that part of the deficiency resulting from respondent's action in including in the gross estate the value of personal property conveyed in trust by decedent during his lifetime and accrued income thereon.
All of the facts have been stipulated.
FINDINGS OF FACT.
The stipulated facts are hereby found accordingly.
First Wisconsin Trust Co., a Wisconsin corporation acting as executor of the estate of Cyrus C. Yawkey, filed a Federal estate tax return with the collector of internal revenue for the district of Wisconsin.
Cyrus C. Yawkey, hereinafter called decedent, was born on August 29, 1862, and died on May 18, 1943. At the time of the transfers hereinafter described, decedent has a wife, Alice R. Yawkey, and a daughter, Leigh Yawkey Woodson. Their daughter and her husband, Aytch P. Woodson, were the parents of Nancy Leigh Woodson, born May 6, 1917, Alice R. Woodson, born July 28, 1918, and Margaret P. Woodson, born April 20, 1920.
On June 15, 1935, decedent and his wife together executed three separate trust indentures which named decedent, his wife and Aytch P. Woodson as trustees, and contained identical terms except for the names of the beneficiaries. Each trust indenture named as beneficiary one of decedent's granddaughters, Nancy, Alice and Margaret.
The term of each trust was for the life of the respective beneficiary.
Pertinent provisions of the trust are as follows:
7. INCOME
Until the beneficiary reaches twenty-five years of age, the Trustee shall pay for her benefit (or directly to her in their discretion) such portion of the income as they deem for her best interest, retaining any balance not so used as an accumulation of income.
After the beneficiary reaches twenty-five years of age, the income thereafter received shall be paid in quarterly payments so far as possible to her, after deducting or retaining such sums as are needed for expenses, fees, income taxes, other taxes for which Trustees are liable, and such other disbursements as the Trustees in their judgment deem reasonably necessary for protection of the trust assets.
Any accumulation of income then existing may be from time to time distributed to the beneficiary or added to the principal as the Trustee deem for the best interest of the beneficiary.
8. PRINCIPAL
The Trustees may also transfer to the beneficiary, after she becomes thirty years of age, such portion of the principal as in their judgment they deem for the best interest of the beneficiary. This power may be successively exercised. After both Cyrus C. Yawkey and Aytch P. Woodson cease to be trustees, this power shall not be exercised until after the appointment of a corporate Trustee, and only with the vote of the corporate Trustee in its favor.
Except as above provided, the principal shall be maintained intact, so far as within the power of the Trustees by legal, prudent acts to do so, until the termination of the Trust.
9. TERMINATION AND CLOSING OF TRUST
This trust shall continue during the life of the beneficiary and then terminate except as may be required under the provisions of the following paragraphs A and B as to a descendant under twenty-five years of age. On termination the Trustees (after discharging all expenses incurred, unpaid Trustees' fees, any taxes lawfully payable by the Trustees, the beneficiary or distributees of said assets) shall then pay or transfer the assets remaining in their possession as follows:
A. If the beneficiary shall leave any descendent surviving, then to her lineal descendant or descendants, except that if any such descendant be less than twenty-five years of age, this Trust as to the share of that descendant shall continue until such descendent dies or reaches the age of twenty-five years. On reaching that age, that descendant's portion shall then be paid to him or her. If that descendant does not reach that age, the interest of that descendant shall be transferred to the persons (including the next of kin of the blood of any who may then be deceased) who would have received it if such descendant had predeceased the beneficiary.
B. If the beneficiary leave no lineal descendant surviving, then such remaining assets shall be divided into two equal parts and distributed thus:
(1) On part shall be distributed
(a) To the Trustees of the Trust established by these Donors, dated this day, for the benefit or her sister, Alice * * * if she survive (the beneficiary) * * * to be administered as and with the other assets of that Trust;
(b) If Alice does not survive (the beneficiary * * * ) but leaves any lineal descendant surviving (the beneficiary) * * * then to Alice's next of kin of the blood, except that if any such descendant be less than twenty-five years of age, this Trust as to the share of that descendant shall continue until such descendant dies or reaches the age of twenty-five years. On reaching that age, that descendant's portion shall then be paid to him or her. If that descendant does not reach that age, the interest of that descendant shall be transferred to the persons (including the next of kin of the blood of any who may then be deceased) who would have received it if such descendant had predeceased the beneficiary.
(c) If Alice does not leave any such descendant but her sister, Margaret P. Woodson, survives (the beneficiary) * * * then to the Trustees of the Trust established by the Donors, dated this day, for the benefit of Margaret, to be administered as and with the other assets of that Trust;
(d) If none of the foregoing provisions apply, then to the next of kin of the blood of (the beneficiary) * * * .
(2) The other part shall be distributed (in similar manner to the other sister).
On May 18, 1943, the date of decedent's death, decedent and his wife were living at 403 McIndoe Street, Wausau, Wisconsin, and Aytch P. Woodson and his wife and their daughters, Alice and Margaret, were living at 410 McIndoe Street, Wausau, Wisconsin. Nancy Leigh Woodson, their older daughter, was on that date married to Lyman J. Spire, and was living with her husband in Stamford, Connecticut. She was at that time the mother of one child, Stephen, aged 9 months.
Decedent contributed 53.2 per cent of the total transfers made by him and his wife to each aforesaid trust.
From the date of execution of the trusts, June 15, 1935, to the date of death, May 18, 1943, the trustees received the net income and distributed the amounts to each of the beneficiaries, and retained as accumulations the amounts all as set forth in the table following:
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