Guenzel v. Comm'r of Internal Revenue (In re Estate of Guenzel)

• Decision Date: 17 April 1957
• Docket Number: Docket No. 59370.
• Citation: 28 T.C. 59
• Parties: ESTATE OF CARL J. GUENZEL, DECEASED, ERNEST USHER GUENZEL AND CARL STANLEY GUENZEL, EXECUTORS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

28 T.C. 59

ESTATE OF CARL J. GUENZEL, DECEASED, ERNEST USHER GUENZEL AND CARL STANLEY GUENZEL, EXECUTORS, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 59370.

Tax Court of the United States.

Filed April 17, 1957.

Robert C. Guenzel, Esq., and Philip G. Johnson, C.P.A., for the petitioner.

George E. Adams, Jr., Esq., for the respondent.

Held, the value of property transferred in trust where settlor retained a secondary life income, is properly includible in settlor's estate, under section 811(c), I.R.C. 1939, and the doctrine of crossed trusts will not be applied, even though it was applied with respect to a similar trust in the estate of the decedent's wife. Held, further, no deduction will be allowed under section 812(c) for property previously taxed in another estate within 5 years.

OPINION.

MULRONEY, Judge:

Respondent determined a deficiency in estate tax of the Estate of Carl J. Guenzel in the amount of $32,646.05. Carl J. Guenzel died on March 18, 1951, a resident of Lincoln, Nebraska. His estate was probated in Lincoln and the executors filed their estate tax return on June 16, 1952, with the district director of internal revenue for the district of Nebraska. Respondent determined that decedent had transferred properties having a value of $106,935.01 and this sum should be added to decedent's gross estate. The correctness of this determination is the question now presented. An alternative question is whether petitioner is entitled to a deduction of $100,000 on the ground that said property was previously taxed in Carl Guenzel's wife's estate. Most of the facts are stipulated and the record leaves no disputed fact questions to decide.

On March 14, 1936, Carl J. Guenzel executed an irrevocable trust, known as the Carl J. Guenzel Trust, and on the same date Letitia Guenzel, his wife, executed a similar irrevocable trust know as the Letitia Guenzel Trust. Carl transferred securities and property having a value of $85,068.75 to the trustee named in his trust, the First Trust Company of Lincoln, Nebraska. Letitia transferred securities and property to the same named trustee, having a value of $85,016.75. Both trust agreements are identical as to form, wording, provisions for the continuance thereof, and disposition of income to a primary life income beneficiary, and to the grantors as secondary life income beneficiaries, and to the same named ultimate beneficiaries.

The Carl J. Guenzel Trust provided, in part, as follows:

The Trustee shall dispose of the Trust Estate as follows:

A. The net income from all property constituting said Trust shall be paid to the Grantor's wife, Letitia Guenzel, during her lifetime, in such installments not less than quarterly that she desires.

B. Upon the death of Grantor's said wife, if the Grantor is then deceased, the trust estate shall be divided equally between and paid over OUTRIGHT to the Grantor's sons, C. Stanley Guenzel and Ernest U. Guenzel.

1. If either of the Grantor's said sons dies before becoming entitled to receive his share of the trust under the foregoing provisions, such share shall be divided equally among and vest in his surviving children, including by right of representation the issue of any deceased child of his. Each such share, however, shall be retained by the Trustee and the the principal thereof paid to the beneficiary when he or she attains the age of twenty-five (25) years, with net income to be paid in the meantime to such beneficiary.

C. Should the Grantor's wife, Letitia Guenzel, predecease the Grantor from and after her death the net income from the trust estate shall be paid to the Grantor during his lifetime in such installments, not less than quarterly, that he desires.

1. If paragraph ‘C’ becomes operative then upon the death of the Grantor (his said wife also being then deceased) the trust estate shall be disposed of as provided in paragraph ‘B’ and sub-paragraph ‘B-1’, whichever is applicable.

The Letitia Guenzel Trust contained the same provisions except that it named Carl J. Guenzel as the primary life income beneficiary and the corpus was to go to the sons on Letitia's death if she survived her husband. Gift tax returns for the calendar year 1936 were filed by both grantors covering the transfers in trust and the gift tax paid on the return filed by Carl Guenzel was $1,573.16.

Letitia Guenzel died February 8, 1947, and the executors of her estate filed the estate tax return. The return was audited by the Commissioner's agents, which resulted in the inclusion in her gross estate the sum of $99,278.43 with this explanation by the acting internal revenue agent in charge:

Value of C. J. Guenzel Trust created March 14, 1936 . .$99,278.43

The decedent and her husband on March 14, 1936 created reciprocal trusts and in effect the property of decedent was exchanged for that of the husband. It is our view that the decedent be regarded as the creator of the trust created by the husband and was the nominal grantor and the same included in the gross estate as a transfer under Section 811(c) the decedent had the right to the income.

The executors of Letitia's estate paid the tax with the $99,278.43 included as a part of the gross estate. After Letitia's death Carl received the income from the Carl Guenzel Trust and it was stipulated he was entitled to receive the same until his death.

On November 5, 1949, Carl executed a release, relinquishment, and renunciation of all of his right, title, power, and interest in and to the Letitia Guenzel Trust. No part of the corpus of that trust is sought to be included in the estate of the present decedent.

On March 18, 1951, Carl Guenzel died and the executors of his estate are the same parties who acted as executors of Letitia's estate. Respondent included in the gross estate the value of all of the property (a net of $106,935.01 at date of death) transferred to the trustee in the Carl J. Guenzel Trust, the audit attached to the 90-day letter stating:

The value of the above-described property, transferred by the decedent in his lifetime, is included in the gross estate, it being determined that the decedent reserved the income for his life and comes within the provisions of Section 811(c) of the Internal Revenue Code.

The transfer in trust involved in the instant case is clearly taxable in the estate of decedent under the provisions of section 811(c)(1)(B), which provides as follows:

SEC. 811. GROSS ESTATE.

The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States—

(a) DECEDENT'S INTEREST.— To the extent of the interest therein of the decedent at the time of his death;

(c) TRANSFERS...