Hambleton v. Comm'r of Internal Revenue

Decision Date16 July 1973
Docket NumberDocket No. 7260-71.
Citation60 T.C. 558
PartiesSALLIE B. HAMBLETON, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

L. E. Elliott, for the petitioner.

Bernard B. Nelson, for the respondent.

Petitioner and her husband executed a joint and contractual will whereby the share of the community property of the first to die was to pass to a testamentary trust, and at his (or her) death, in order to assure judicious management, the share of the survivor was to be placed in a separate trust. The survivor was to receive the income from the separate trust for life, distributions of corpus if needed for support and maintenance, and additional corpus with the consent of one P. Russell Hambleton and the beneficiaries of the testamentary trust. On the death of the survivor, her (or his) interest was to pass to the testamentary trust. Held, petitioner did not make a taxable gift, at the death of her husband, of a remainder interest in her share of the community property under secs. 2501(a) and 2511(a), I.R.C. 1954.

OPINION

FEATHERSTON, Judge:

Respondent determined a deficiency for 1967 in the gift tax of petitioner, Sallie B. Hambleton, in the amount of $150,880.61. The issue is whether petitioner, the surviving testator in a jointly executed will, made a gift at the time of her husband's death of a remainder interest in her one-half share of the community property.

The case was submitted pursuant to Rule 30 of the Rules of Practice of this Court, and all the facts are stipulated.

Petitioner's legal residence at the time the petition herein was filed was Dallas, Tex. She filed a gift tax return for 1967 with the district director of internal revenue in that city.

On February 8, 1960, petitioner and her husband, Clarence O. Hambleton (hereinafter Hambleton), who had been married since October 10, 1910, jointly executed a will, which was in effect at the date of his death on June 4, 1967. The will was admitted to probate as his last will and testament. Virtually the entire estate of.petitioner and Hambleton at his death consisted of community property under the laws of Texas.

The will contains a ‘General Statement’ which recites that it was included for a ‘better understanding’ of the testators' ‘purpose and intent.’ It briefly describes their family and their estates and states that it is considered that the income from the combined community estates ‘will be adequate for the support and maintenance of the survivor of us for and during his or her lifetime; and * * * if kept intact and managed judiciously can be passed at our respective deaths in accordance with this our mutual wills' to their children or their descendants. For these reasons, petitioner and Hambleton agreed that—

the first to die will bequeath his or her interest in our community estate to a trustee for the use of the survivor for life and upon the death of the survivor, for the use of our children and their descendants, as in our mutual wills hereinafter specifically provided; and, in consideration therefor, the survivor has agreed, and hereby does agree to bequeath all of the survivor's portion of the community estate to the same trustee and for the same uses and purposes; and, further:

In order to insure the judicious management and the preservation of the survivor's portion of the community estate for the purposes herein set forth, the survivor has agreed and does hereby agree to transfer and assign, and does, as of the date of the death of the first to die, hereby transfer and assign to First National Bank in Dallas (as trustee) all the survivor's portion of our community estate, * * * (with the exception of certain ‘special Bequests' set out in section one of the will), in trust, however, to pay to the survivor the income and such of the principal as may be necessary (in connection with other income the survivor may have), to maintain and support the survivor in the manner, in which accustomed during the lives of both of us, and to pay all expenses of illness or accident.

As respects the management of survivor's portion of the estate, the trustee shall have all the powers hereinafter given the trustee by the terms of the survivor's will.

In addition to the payment to the survivor as above provided, the trustee shall from time to time distribute to the survivor such amounts of principal as may be requested by an instrument of writing signed by the survivor, both our children and P. Russell Hambleton, or the survivor of our children and P. Russell Hambleton.

The survivor's portion of the community estate existing at the death of the survivor shall pass by the will of the survivor as hereinafter set forth, and not otherwise.

Following the ‘General Statement,‘ the will recites that Hambleton and petitioner ‘do make, publish and declare this our mutual’ wills, ‘intending hereby to make our said wills contractual and effective as of the date of our respective deaths.’

Section one of the will lists certain ‘Special Bequests' given by the first to die to the survivor for life, with provisions that such items or interests in property which the survivor possesses at death are to be given to the lineal descendants or in trust for their benefit. Insofar as here pertinent, the properties so bequeathed include clothing, jewelry, household furniture and fixtures, personal automobiles, and the home in which petitioner and Hambleton were living.

Section two of the will, entitled ‘Disposition of Residuary Estate,‘ provides in part that after the payment of all debts, funeral expenses, administration costs, and State inheritance and Federal estate taxes, ‘all the rest and residue’ of the estate shall pass as directed. One paragraph provides for the transmission of the residuary estate of the ‘first of us to die’ to the First National Bank in Dallas in trust. A second paragraph similarly disposes of the residuary estate of the survivor ‘as of the time of his or her death.’ Both transfers in trust are made ‘for the uses and purposes * * * set forth in this our mutual wills.’

Sections three and four of the will provide for the division of each spouse's estate into separate testamentary trusts with comprehensive terms providing for the payment of income during the lifetimes of the survivor, the primary beneficiaries (petitioner's and Hambleton's two children), and the second beneficiaries (descendants of the primary beneficiaries).1 Section four of the will specifically provides that the trustee shall pay to the survivor—

such of the income of the Trust Estate of the first to die as in the opinion of the Trustee is necessary, in connection with any other income the survivor may have, to support and maintain the survivor in the manner and with the degree of comfort and convenience to which we were accustomed during the lifetime of both of us, and to pay all expenses of illness or accident. * * * 2

The rest of the will contains sections defining the trustee's powers and the trust terms, appointing the First National Bank in Dallas as executor of the will of each of the testators, and providing for the payment of ‘All debts and taxes of every nature, * * * ratably from all the assets of the estate before distribution.’

On June 4, 1967, the date of Hambleton's death, the value of petitioner's one-half of the community property was $708,709.90, and the value of the remainder interest allegedly transferred by petitioner, computed under the applicable Treasury regulations, was $469,887.67.

At her husband's death, petitioner transferred her one-half of the community property into the trust described in the ‘General Statement’ (sometimes referred to herein as the General Statement trust) of the will. Between February 9, 1968, and October 29, 1970, she requested the trustee to disburse specified sums to her and to release certain stock from the principal of the inter vivos trust. Each of these requests described the trust as one which petitioner, as survivor, created ‘for her own benefit,‘ and bore the concurrence of petitioner's two children and P. Russell Hambleton.

The notice of deficiency issued to petitioner stated that: ‘It is determined that as of the date of your husband's death, June 4, 1967, you gave a $568,995.68 remainder interest in community property to a trust for the benefit of your children.'3

In support of this determination, respondent maintains that at the time of the transfer to the General Statement trust, petitioner relinquished all dominion and control over the remainder interest, reserving only an income interest for her lifetime, coupled with a power of invasion which was limited by a fixed and ascertainable standard.

Petitioner counter argues that, at the death of Hambleton, she did not transfer any beneficial interest in her share of the community property to anyone and that, pursuant to the will, her community share of the property will be transmitted to the testamentary trust only at her death and, then, pursuant to the will and not otherwise. She maintains that the transfer to the General Statement trust was not a taxable gift but was only a transfer of bare legal title which did not result in the relinquishment of her rights to the subject property. Therefore, she contends, she did not make a taxable gift at her husband's death.

We hold for petitioner.

Section 25014 imposes a tax on ‘the transfer of property by gift, ‘ and section 2511, in pertinent part, states that ‘ section 2501 shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.’ As used in section 2511, ‘The terms ‘property,’ ‘transfer,’ ‘gift,‘ and * * * (‘indirect’) are used in the broadest and most comprehensive sense; the term ‘property’ reaching every species of right or interest protected by law and having an exchangeable value. S. Rept. No. 665, 72d Cong., 1st Sess. (1932), 1939-1 C.B.(Part 2) 524; H. Rept. No....

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6 cases
  • Outwin v. Comm'r of Internal Revenue
    • United States
    • United States Tax Court
    • 28 d3 Janeiro d3 1981
    ...308 U.S. 39 (1939); Burnet v. Guggenheim 288 U.S. 280 (1933); Estate of Mandels v. Commissioner 64 T.C. 61 (1975); Hambleton v. Commissioner 60 T.C. 558 (1973); Estate of Holtz v. Commissioner 38 T.C. 37 (1962); sec. 25.2511-2(b), Gift Tax Regs. In the present cases, the discretionary trust......
  • Estate of Lidbury v. C.I.R.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 3 d3 Setembro d3 1986
    ...be eventually entitled was too uncertain and indefinite to impose a gift tax at the time of Rose's death in 1964. See Hambleton v. Commissioner, 60 T.C. 558 (1973). II. Estate Because we affirm the Tax Court ruling against the Commissioner in the gift tax case, there is no need to reach the......
  • Pyle by Straub v. U.S.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • 10 d3 Julho d3 1985
    ...obligated only to devise whatever happens to remain at death to certain designated beneficiaries. Br. at 5-6. Nor does Hambleton v. Commissioner, 60 T.C. 558 (1973), support plaintiff's position. Quite the contrary is true. Although a joint and mutual will was at issue in Hambleton, the cou......
  • Estate of Grimes v. Commissioner
    • United States
    • United States Tax Court
    • 3 d1 Agosto d1 1987
    ...in this Court, we recognized the potential gift taxability arising from the use of the joint and mutual will. In Hambleton v. Commissioner Dec. 32,052, 60 T.C. 558, 567 (1973), we stated that when, as a result of a "contractual promise, the survivor is held to have irrevocably parted with a......
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2 books & journal articles
  • Joint Revocable Living Trusts: the Good, the Bad, and the Ugly
    • United States
    • Colorado Bar Association Colorado Lawyer No. 39-1, January 2010
    • Invalid date
    ...Gifts, 845-2d T.M. §§ V.A., IV.B.2.a, IV.B.2.e, and IV.A.3 (Bureau of National Affairs, Inc., 2009). See also Hambleton v. Comm'r, 60 T.C. 558 (1973). 20. CRS § 14-2-305. 21. CRS § 14-2-306. 22. Treas. Reg. § 25.2512-8. 23. See Treas. Reg. § 25.2511-2(b). 24. See Lischer, supra note 19 at §......
  • The Contract to Will-a Proposed Solution
    • United States
    • Colorado Bar Association Colorado Lawyer No. 29-4, April 2000
    • Invalid date
    ...41 T.C. 226 (1963); see also Rev. Rul. 71-51, 1971-1 C.B. 274. 7. PLR 91-01-002 (TAM), Sept. 25, 1990. 8. Hambleton v. Commissioner, 60 T.C. 558 (July 16, 9. See instructions to IRS Form 706 (federal estate tax return). 10. The author welcomes comments on his proposed solution. Please send ......

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