IN RE LUEDERS'ESTATE
| Decision Date | 16 October 1947 |
| Docket Number | No. 9261.,9261. |
| Citation | 164 F.2d 128 |
| Parties | In re LUEDERS' ESTATE. CITY BANK FARMERS TRUST CO. et al. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Third Circuit |
Arthur T. Vanderbilt, of Newark, N. J. (Walter E. Cooper, of Newark, N. J., on the brief), for petitioners.
Melva M. Graney, of Washington, D. C. (Sewall Key, Acting Asst. Atty. Gen., and Robert N. Anderson, Sp. Asst. to the Atty. Gen., on the brief), for respondent.
Before O'CONNELL and KALODNER, Circuit Judges, and FOLLMER, District Judge.
This appeal is taken from the decision of the Tax Court.
The principal question presented is whether the facts concerning the creation, 15 months apart, or reciprocal irrevocable inter vivos trusts by decedent and her husband with power, in each instance, to terminate the trusts and acquire the trust property, support the Tax Court's conclusion that decedent's estate is liable for estate tax under § 811(d)1 of the I.R.C., 26 U.S.C.A. Int.Rev.Code, § 811, on the theory that she may be regarded as the settlor of the trust created by her husband, under the doctrine of Lehman v. Commissioner, 2 Cir., 1940, 109 F.2d 99, certiorari denied 310 U.S. 637, 60 S.Ct. 1080, 84 L.Ed. 1406.
A secondary question is whether, assuming the Lehman doctrine applies, the trust in question is taxable at its full value at the time of decedent's death, or only in proportion to the values of the two trusts at the time of their respective creations.
The findings of fact of the Tax Court,2 taken from a stipulation of facts and exhibits offered in evidence, may be summarized as follows:
Clothilde K. Lueders, the decedent, died testate, at the age of 75 years, on March 29, 1942, a resident of Summit, New Jersey. Frederick J. Lueders and the City Bank Farmers Trust Company (hereinafter called "taxpayers") are the duly appointed, qualified and acting executors under her will.
The Commissioner determined an estate tax deficiency of $123,053.33 based upon the inclusion of $363,988.55 in decedent's gross estate as representing the value at her death of a trust created by her husband. The deficiency determination was predicated upon Section 811(a) of the I. R.C. and an alternative position that $349,200 was includible in decedent's gross estate under Sections 811(c) and (d). At the hearing before the Tax Court the Commissioner contended that $363,988.55 was the amount to be included under both positions. The Tax Court's decision rests upon Section 811(d).
From February, 1930, until his death on May 4, 1933, at the age of 76 years, Frederick G. Lueders, decedent's husband, was chairman of the board of directors of George Lueders & Company, a New York corporation engaged in the business of distilling, manufacturing, and dealing in essential oils and aromatic chemicals. He owned 1,200 of the 2,000 outstanding shares of the common stock and was in control of the company. Prior to being chairman of the board of directors, he had been president of the company for many years.
Decedent owned 450 of the 900 outstanding shares of preferred stock of the company, which carried no voting rights. She did not own any of the common stock.
On July 2, 1930, when he was 73 years of age, Frederick G. Lueders executed an irrevocable trust indenture under which he created a trust, naming himself and the City Bank Farmers Trust Company as trustees. Under the terms of the trust, the trustees were to pay the income to Clothilde K. Lueders, decedent, during her lifetime. Upon her death the trustees were to divide the principal and to hold it in three separate trusts, one for each of the children of Frederick G. Lueders. All of the provisions of the trust relating to the disposition of the income and principal of the trust fund, covered by Article 1, were made subject to Articles 2 and 3 of the trust indenture. Article 2 provided as follows: "At any time and from time to time so long as my wife, Clothilde K. Lueders, shall be living, she shall have the right, by any instrument in writing, signed and acknowledged by her like a conveyance of real property entitled to record in New York, and delivered to my said Trustees during her life, to amend this trust in any respect whatsoever and to terminate the same as to the whole or any part thereof, and in the event of any such termination my said Trustees shall transfer, pay over and deliver to my said wife such part, or the whole, as the case may be, of the principal of the trust fund, as to which the trust is so terminated."
Article 3 provides in part as follows:
The trust indenture provided, further, that if at any time during the life of Clothilde K. Lueders there should be no individual co-trustee acting with the trust company, then she should have the power to appoint, by a written instrument, an individual to act as co-trustee with the trust company.
The corpus of this trust consisted of stocks of various corporations and bonds which had a fair market value of $640,000 on July 2, 1930, the date of the creation of the trust.
As a result of his creation of the trust, Frederick G. Lueders was left without any assets except (his stock in George Lueders & Company and) his salary, which was $9,250 in 1930 and $8,025 in 1931.
From the time of the creation of the above trust until his death in 1933, Frederick G. Lueders continued to reside with his wife, the decedent, in their home at Summit, New Jersey. During this period their mode of living continued on the same standard as existed prior to the creation of the trust.
On October 21, 1931, about 15 months after her husband had created the trust for her benefit, Clothilde K. Lueders, the decedent, created a trust for the benefit of her husband, naming him and the City Bank Farmers Trust Company as trustees. Coincident therewith, she irrevocably transferred to the trustees stocks of various corporations which belonged to her in her own right. None of these securities had at any time been a part of the securities comprising the corpus of the trust created by her husband. The fair market value of the securities she transferred to the trust was approximately $349,200 on October 21, 1931, the date of the creation of the trust. On that date, the value of the securities comprising the corpus of the trust created by her husband was approximately $373,000.
The creation of the trust by decedent did not result in her impoverishment.
This trust indenture and the one previously executed by decedent's husband were both drafted by the same firm of attorneys, and were cast substantially in the same pattern. Under the trust created by decedent, her husband was to receive the trust income during his life and upon his death the principal was to be held in trust for the children in the same manner as was specified in the trust created by her husband. Also, her husband was given the right to amend and to terminate the trust in whole or in part, and in the event of such termination the trustees were to pay the principal of the trust fund to him. He was given the right to direct the trustees, by a written instrument, to retain the principal of the trust for a limited number of years after his death.
Decedent's transfer in trust was not made in contemplation of death.
On July 2, 1930, and October 21, 1931, the dates the two trusts were created, the Lueders' three children were living, as were also two grandchildren.
On November 17, 1931, less than a month after the creation of the trust by decedent, her husband terminated the trust and the principal of the trust was paid over to him forthwith. The property which he acquired from the trustees was part of his general estate at the time of his death in 1933.
For many years prior to October 21, 1931, George Lueders & Company had been borrowing substantial sums of money from banks in New York and that practice was continued in the months of August, September and October of 1931. As his reason for terminating the trust created by his wife, Frederick G. Lueders stated that it had become necessary for George Lueders & Company to make arrangements for additional lines of credit in connection with its business and in order that the company might secure credit he had to guarantee, personally, the bank loans of the company and give the lending banks a satisfactory statement of his own financial condition, which he was unable to do without terminating the trust.
Although decedent had the power to terminate the trust created by her husband and take over the trust property in her own...
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