Johnstone v. Commissioner of Internal Revenue
| Decision Date | 04 March 1935 |
| Docket Number | No. 7560.,7560. |
| Citation | 76 F.2d 55 |
| Parties | JOHNSTONE v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Thomas R. Dempsey and A. Calder Mackay, both of Los Angeles, Cal. (Lloyd W. Brooke, of Pasadena, Cal., of counsel), for petitioner.
Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, Andrew D. Sharpe, and Joseph M. Jones, Sp. Assts. to Atty. Gen., for respondent.
Before WILBUR and GARRECHT, Circuit Judges, and CAVANAH, District Judge.
Petitioner seeks a review of the order of the Board of Tax Appeals sustaining the determination of the Commissioner of Internal Revenue of a deficiency of $12,881.81 in the federal estate tax on the estate of Allerton Johnstone, deceased, of which petitioner is executrix.
The facts are not disputed and can be summarized as follows:
The petitioner is the executrix of Allerton Johnstone, deceased, letters testamentary having been duly issued to her on August 19, 1929, by the superior court of the state of California in and for the county of Los Angeles.
Allerton Johnstone, the decedent, was a resident of Pasadena, Cal. On June 8, 1929, he was killed as the result of an accident. At the time of his death he was about twenty-eight years of age and unmarried. He left as his heirs at law Hugo R. Johnstone, his father, and Kate Allerton Johnstone, his mother, who is the petitioner herein. He also left a brother, Vanderburgh Johnstone.
The decedent left a will dated December 13, 1928, which was duly admitted to probate by the superior court of the state of California in and for the county of Los Angeles. By this will he gave and bequeathed all his property to his mother, Kate Allerton Johnstone, and nominated her as his executrix.
On or about September 11, 1923, the decedent, as donor, made, executed, and delivered a certain agreement to Robert Allerton, as trustee, whereby the decedent transferred and assigned to the trustee certain properties therein described to be held by the trustee for the benefit of the donor and for the purposes and with the powers and conditions therein set forth. The trust so created will be designated as trust A hereinafter. The trust instrument provided that the income arising from said trust fund, or such part thereof as the trustee deemed advisable, could be paid by the trustee to the donor as the beneficiary under the trust, in such amounts, and if, as, and when the trustee deemed it advisable to pay the same to the beneficiary. The trust instrument further provided as follows:
"Upon the death of the said beneficiary, Allerton Johnstone, all of the property then held pursuant to this trust shall go to the heirs of the body of the donor in equal parts, or if there be no heirs, then to such person or persons or corporation as the said donor may have directed by his last will and testament; or, in the absence of any heir or heirs of the body or the donor and of any such testamentary disposition, then to the heirs at law of the donor according to the laws of descent of the State of Illinois in effect at the time of the death of the donor."
On or about the 21st of January, 1926, the decedent made, executed, and delivered a certain other trust instrument whereby he transferred and conveyed to Robert Allerton and Michael Phalen certain property therein described to be held by them in trust for the benefit of the decedent upon the terms and conditions therein specified. The trust thereby created will be referred to hereinafter as trust B. The trust instrument provided, among other things, that the net income should be used, so far as in the judgment of said trustees seemed wise, in the improvement of the trust property and in the payment to the donor for and during his natural life of an annuity in quarterly installments. This trust instrument provided further that:
On the 13th day of March, 1926, Kate Allerton Johnstone, the decedent's mother, as grantor, made, executed, and delivered a certain trust instrument whereby she granted, assigned, and transferred to the First Trust & Savings Bank of Chicago, Ill., as trustee, certain property therein described to be held in trust for the benefit of the decedent upon the terms and conditions therein set forth. The trust created by this instrument will be referred to hereinafter as trust C. The trust instrument provided, among other things, that the sum of $300 should be paid each month to the decedent, and in the event that the net income for any one year, in the sole judgment of the trustee, should not be sufficient to provide for the payment, then the trustee was empowered to pay one-twelfth of the estimated net income for the year to said decedent each month. This trust agreement also provided as follows:
In the estate tax return, the petitioner reported for taxation the value of the corpus of trust B. She did not report for estate tax purposes the value of either of the other trusts. The Commissioner included in the gross estate the value of the corpus of each of three trusts and this action of the Commissioner was sustained by the Board of Tax Appeals. Petitioner contends that it was error to include in the gross estate the value of the corpus of any of the three trusts.
The tax upon trust C was determined by the Commissioner under section 302 (f) of the Revenue Act of 1926 (26 USCA § 1094 (f), which provides for the taxation of estates as follows:
If section 302 (f) is applicable to the corpus of trust C, it is equally applicable to the property...
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