In re Uhl's Estate, 11790.

• Decision Date: 13 March 1957
• Docket Number: No. 11790.,11790.
• Citation: 241 F.2d 867
• Parties: In re ESTATE of Edgar M. UHL, Deceased. The NATIONAL CITY BANK OF EVANSVILLE, Administrator, With Will Attached, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

241 F.2d 867 (1957)

In re ESTATE of Edgar M. UHL, Deceased.

The NATIONAL CITY BANK OF EVANSVILLE, Administrator, With Will Attached, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 11790.

United States Court of Appeals Seventh Circuit.

March 13, 1957.

Henry B. Walker, Jr., Henry B. Walker, William D. Powell, Evansville, Ind., for petitioner-appellant.

Charles K. Rice, Asst. Atty. Gen., Arthur I. Gould, L. W. Post, Attys., Dept. of Justice, Washington, D. C., for respondent-appellee.

Before FINNEGAN and LINDLEY, Circuit Judges, and WHAM, District Judge.

LINDLEY, Circuit Judge.

The deceased, Edgar M. Uhl, died testate March 7, 1951. On March 2, 1938, he transferred, by an irrevocable trust indenture to an Indiana bank, personal property consisting principally of Government bonds but including also some stocks. Under this instrument, he reserved $100.00 monthly from the income from the corpus vested in the trustee, but retained no control over the property. Upon termination of the trust, by his death, the property was to be divided equally between a nephew and two nieces.

The controversy presented is whether the value of the entire trust estate, $84,217.42, is subject to a federal estate tax as a part of the decedent's gross estate. The Commissioner held in the affirmative and levied a deficiency which was approved by the Tax Court. The petitioner admitted then and admits now that that part of the estate necessary to produce the income of $100 a month was properly included in the settlor's gross estate. This amount was $50,218.85, or 59.63% of the corpus. Though agreeing that a federal estate tax was due upon this amount, he denies that the rest of the trust property could properly be included in the settlor's estate at the time of his death. The Tax Court held that the entire corpus should be included in the decedent's estate and approved a deficiency in the sum of $9,265.99 as the additional tax due as a result of inclusion of the questioned amount of 40.37%. In its decision the Tax Court relied upon a provision of the trust agreement that: "The trustee may in his discretion * * * pay a greater sum than $100.00 a month if it shall deem advisable."

The Tax Court did not find that the settlor had retained for his own use and in his own right more than $100.00 a month, but held that, in view of the fact that, as it thought, at the time the trust agreement was executed, the Indiana law was such that creditors of the settlor, if any there were, or if any had come into existence, might have successfully brought suit to reach all the income from the trust, saying: "As the decedent's creditors could have reached the income which was distributable to him in the trustee's discretion, the decedent could have obtained the enjoyment and economic benefit of such income by the simple expedient of borrowing money or otherwise becoming indebted, and then relegating the creditor to the trust income for reimbursement," and holding that, therefore, the trust contained sufficient retention of the settlor's right to all the income to satisfy the requirements of Sec. 811(c) (1) (B) and thereby make the entire corpus includable in the decedent's gross estate.

The pertinent sections of the Revenue Act, § 811(c) (1) (B), 26 U.S.C. 1952 Ed., Sec. 811, provide that, the value of the decedent's gross estate shall include any interest of which he has made a transfer, under which he has retained for his life or for any period not ascertainable with reference to his death, or for any period which does not in fact end before his death, "the possession or enjoyment of or the right to income from the property." It seems obvious that, under this section, by the retention of $100.00 a month the settlor reserved a right to the income from the property to that extent, and that, so far as retention of other interest by him was concerned, the balance of the trust estate was removed from his dominion or control, so that, in the absence of any other factors affecting the result, the only part of the trust estate which should have been included in his gross estate at the time of his death was that part which represented the income to the receipt of which he retained the right, and that the amount of the estate irrevocably conveyed to the trustee and eventually to beneficiaries was a completed gift which thereafter remained no part of his estate. While no cases under the federal estate tax law have dealt with this precise question, both parties seem to admit that the gift tax law is in pari materia with that governing estate taxes. The Supreme Court has so indicated in Sanford's Estate v. Commissioner, 308 U.S. 39, 60 S.Ct. 51, 84 L.Ed. 20. Consequently, we look to the precedents under the gift tax law.

In Herzog v. Commissioner, 2 Cir., 116 F.2d 591, 593, the grantor had executed an irrevocable trust which gave to the trustee the choice, in its discretion, of paying the income either to the settlor or his wife. The question presented was whether this discretionary power of the trustee amounted to a reversion in the settlor of the right to enjoyment of the income or whether the title had vested in the trustee exclusive of any such right. The court said: "It was only by virtue of the trustee's direction, which on this record must be regarded as entirely voluntary, that the donor received any of the income; and this direction might be terminated whenever the trustee deemed it proper that the wife should receive the income. Such a hope or passive expectancy is not a...