Hanner v. Glenn

• Decision Date: 11 March 1953
• Docket Number: Civ. A. No. 1621.
• Citation: 111 F. Supp. 52
• Parties: HANNER v. GLENN, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Kentucky

111 F. Supp. 52

HANNER v. GLENN, Collector of Internal Revenue.

Civ. A. No. 1621.

United States District Court W. D. Kentucky, at Louisville.

March 11, 1953.

Middleton, Seelbach, Wolford, Willis & Cochran, Louisville, Ky., for plaintiff.

Ellis N. Slack, Acting Asst. Atty. Gen., Andrew D. Sharpe, Henry L. Spencer, Sp. Assts. to the Atty. Gen., David C. Walls, U. S. Atty., Chas. F. Wood, Asst. U. S. Atty., Louisville, Ky., for defendant.

SHELBOURNE, Chief Judge.

The plaintiff, Sue F. Hanner, is the surviving widow and beneficiary under the will of her deceased husband Robert A. Hanner. She filed this action March 11, 1949 seeking to recover $1,651.87 deficiency in estate taxes assessed by the Commissioner of Internal Revenue and interest thereon in the amount of $140.23.

The Commissioner had determined that an amount of $10,831.88, paid to the plaintiff in her individual capacity as beneficiary under a deed of trust between Brown & Williamson Tobacco Corporation and the Guaranty Trust Company of New York, should have been included in the gross estate of the decedent in accordance with the provisions of Section 811(a), Section 811(c) 811(d) or Section 811(f) of the Internal Revenue Code.

Including the sum of $10,831.88 in the estate, the Commissioner assessed a tax of $1,651.87 and interest thereon of $140.23, making $1,792.10, which was paid by plaintiff as executrix on September 19, 1946.

On November 21, 1946, Sue F. Hanner, as executrix, filed a claim for refund of the deficiency assessment and interest and that claim was on March 17, 1947, in the manner provided by Statute, rejected.

Sue F. Hanner instituted this action against the Collector of Internal Revenue for Kentucky, to whom the deficiency assessment was paid.

There is no dispute with respect to the facts and the parties have filed a written stipulation, which in substance provides—

The decedent, Robert A. Hanner, died January 21, 1944 testate. By the terms of his will, his wife, Sue F. Hanner was devised all of his estate remaining after the payment of his debts and funeral expenses. The will was duly probated and Sue F. Hanner qualified as executrix.

Robert A. Hanner was forty-six years of age at the time of his death and had been for some time, an employee of the Brown & Williamson Tobacco Corporation and was one of the employee-beneficiaries of a deed of trust between Brown & Williamson Tobacco Corporation and the Guaranty Trust Company of New York dated March 25, 1936 and amended January 13, 1939. The trust indenture, as amended, provided for a fund contributed entirely by the employer to which the employee-beneficiaries contributed nothing, the primary purpose of which was to provide additional compensation for the employee and the members of his immediate family, in the event of his death, for meritorious services acknowledged to have been rendered by a number of employees, including the decedent Hanner.

The benefits provided by the trust were made payable to the employee-beneficiary when he reached the age of sixty-one years or ceased to be an employee of the Brown & Williamson Tobacco Corporation, whichever occurred first. No part of the trust fund was payable to the employee-beneficiary unless and until one of the contingencies occurred—that is arriving at the age of sixty-one years or ceasing to be in the employ of the Company. When either of the events occurred, the trustee agreed to pay over to the employee his share in the trust fund and his portion of the accumulation in installment payments as provided in the deed of trust. It was further provided that in the event of the death of the employee-beneficiary prior to his having received the funds due him under the trust agreement, the remaining or undistributed principal or accumulated income shall be paid over and distributed to his widow and descendents at the time of his death in such portions as decedent-employee had by his will appointed — that provision of the trust indenture being as follows—

"* * * if any employee-beneficiary hereunder shall die prior to the time that all of the principal held for his particular benefit shall have been paid and distributed to him and his widow or any of his descendants shall survive him, then upon his death all rights of such employee hereunder shall cease and determine and thereupon such principal then held hereunder and the income therefrom shall from time to time be paid over, distributed and delivered to such of the widow and descendants of such deceased employee living at the time of his death and in such shares or parts to them respectively as he may by will appoint or in default of the exercise of this limited power then to those who would take from him under the Statute of Descent of the State of New York had he died intestate."

The death of Robert A. Hanner occurred fifteen years prior to his reaching the age of sixty-one years of age and while he was an employee of the Brown & Williamson Tobacco Corporation, and by his will he had exercised the limited power of appointment given to him by the terms of the trust indenture and had designated his wife, the plaintiff Sue F. Hanner, as the person to whom his share of the trust fund should be paid. The Trustee accordingly paid to Sue F. Hanner $10,831.88 and this amount paid to her individually was not included by her in her return of the gross estate of the deceased for tax purposes. This sum was determined by the Commissioner to be properly includable in the gross estate and his assessment was based thereon.

It is stipulated that the plaintiff complied with the requirements of the Internal Revenue Code with respect to the timely filing of her claim for refund.

Her contentions now are that the decedent had no interest at the time of his death in the trust property requiring its value to be includable in his gross estate within the meaning of Section 811(a) of the Internal Revenue Code because Section 811(a) brings within the gross estate the value of decedent's interest in property at the time of his death and excludes an interest in property which terminated at death and which was contingent upon events which had not occurred; that the interest of the decedent was a mere expectancy (as distinguished from a vested interest) contingent upon either of two events, neither of which had occurred at the time of his death — that is he had not attained the age of sixty-one years and had not ceased to be an employee of the Corporation.

She also contends that decedent possessed only a limited testamentary power of appointment under Section 811(f) of the Internal Revenue Code, — which limited power of appointment, — that is the power to appoint within the limited class of surviving widow and descendants, constituted an exception under the terms of the statute.

The third contention was that the decedent had made no inter vivos transfer of the trust property taxable at his death within the contemplation of Section 811(c) and Section 811(d) of the Internal Revenue Code.

Conclusions of Law

The pertinent sections of the Internal Revenue Code are as follows —

811. "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 —

* * * * * *

"(c) as amended by Sec. 7(a) of the Act of October 25, 1949, c. 720, 63 Stat. 891 Transfers in contemplation of, or taking effect at death.

"To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, * * * intended to take effect in possession or enjoyment at or after his death. * *

"(d) Revocable transfers

(1) Transfers After June 22, 1936.

"To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona-fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation of decedent's death;

* * * * * *

"(f) as amended by Act of June 28, 1951, c. 165, 65 Stat. 91, Sec. 2

"Powers of Appointment

"(1) Property with respect to which decedent exercises a general power of appointment created on or before October 21, 1942. To the extent of any property with respect to which a general power of appointment created on or before October 21, 1942, is exercised by the decedent (1) by will or (2) by a disposition which is of such nature that if it were a transfer of property owned by the decedent, such property would be includible in the decedent's gross estate under subsection (c) or (d); but the failure to exercise such a power or the complete release of such a power shall not be deemed an exercise thereof.

"If before November 1, 1951, or within the time limited by paragraph (2) of section 403(d) of the Revenue Act of 1942, as amended, in cases to which such paragraph is applicable, a general power of appointment created on or before October 21, 1942, shall have been partially released so that it is no longer a general power of appointment, the subsequent exercise of such power shall not be deemed to be the exercise of a general power of appointment.

"(2) Powers created after October 21, 1942.

"To the extent of any property with respect to which the decedent has at the time of his death a general power of appointment created after October, 21, 1942, or with respect to which the decedent has at any exercised or released such a power of

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