Kelly v. Comm'r of Internal Revenue (In r Estate of Skifter)
| Decision Date | 26 August 1971 |
| Docket Number | Docket No. 5958-68. |
| Citation | 56 T.C. 1190 |
| Parties | ESTATE OF HECTOR R. SKIFTER, DECEASED, JANET SKIFTER KELLY AND THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), EXECUTORS, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Archibald H. Cashion, for the petitioners.
Marion L. Westen, for the respondent.
1. More than 3 years prior to his death decedent assigned all interest in nine insurance policies on his life to his wife. The wife died, and under her will the insurance policies were placed in a testamentary trust of which decedent was named trustee. Under the terms of the wife's will decedent, as trustee, was given broad powers in respect of the corpus of the trust, but none of these powers could be exercised for his own benefit. Held, at the time of his death decedent possessed no ‘incidents of ownership’ in the nine life insurance policies, and the proceeds were therefore not includable in his gross estate under section 2042(2), I.R.C. 1954.
2. Prior to his death decedent created substantially identical ‘accumulation’ trusts for each of his three grandchildren. Decedent contributed all of the principal of the trusts and served as sole trustee of each trust until his death. The trust instruments provided that the trustee in his discretion could distribute the income of the trusts or add the income to principal. Held, decedent retained the unrestricted power to distribute or accumulate the income of each of the three trusts, and the trusts were therefore includable in his gross estate pursuant to sec. 2036(a)(2), I.R.C. 1954.
The Commissioner determined a deficiency in the estate tax of the Estate of Hector R. Skifter in the amount of $53,776.77. Two issues remain for decision with respect to that deficiency: (1) Whether decedent possessed sufficient incidents of ownership in nine insurance policies on his life to render the amounts receivable by the beneficiaries under the policies includable in decedent's gross estate pursuant to section 2042(2), I.R.C. 1954; and, (2) whether the value of all the property in three trusts created by the decedent is includable in his gross estate under section 2036 or section 2038, I.R.C. 1954. The facts have been stipulated.
The decedent, Hector R. Skifter (Skifter), died testate on July 25, 1964. At the time of his death he was a resident of the Village of Flower Hill, Nassau County, N.Y. His daughter, Janet Skifter Kelley (Janet), and the Chase Manhattan Bank (now the Chase Manhattan Bank (National Association)) were appointed coexecutors of his will. When the petition herein was filed, Janet resided in Bethesda, Md., and the Chase Manhattan Bank had its principal office in New York, N.Y. Skifter's estate tax return (Form 706) was filed with the district director of internal revenue, Brooklyn, N.Y.
More than 3 years prior to his death Skifter assigned all interest in nine insurance policies on his life to his first wife, Naomi Skifter, and made her the owner of such policies. Of the nine policies, seven were fully paid and nonassessable at the time of the assignment and at the time of Skifter's death; there were no outstanding loans against any of these policies at either date. A copy of only one of these seven policies was made part of the record. Under the terms of this policy, Skifter as the owner of record originally possessed the power to assign the policy, to surrender the policy for its cash value, and to borrow against the policy. The record herein does not disclose the terms and conditions of the other six fully paid policies. With respect to the two policies which had not been fully paid, Skifter paid an annual premium in the amount of $163.20 on one policy until the date of his death, and the premiums on the other, which was a group insurance policy issued to Skifter's employer, were paid by the employer also until the date of Skifter's death. Copies of neither of these policies were included in the stipulated facts and the record does not disclose the terms and conditions of either. The parties have stipulated that copies of the eight policies not presented to the Court were ‘unavailable.’
Naomi Skifter died testate on December 6, 1961. Her will (dated January 13, 1956), after disposing of ‘all my tangible personal property except money and all my real property,‘ provided that her residuary estate be placed in trust. The nine insurance policies thus became part of that testamentary trust. Skifter was appointed both executor of the will and trustee of the trust set up thereunder, and he acted in both capacities under his death. The will named the Chase Manhattan Bank his successor as both executor and trustee. As executor Skifter filed a New York estate tax return for Naomi's estate in which he reported a gross estate of $45,088.76, including the nine insurance policies on his life valued at $20,620.32.
Naomi's will provided that the income from the residuary trust was to be paid to their daughter, Janet, for life. Upon Janet's death ‘the then remaining principal of the trust’ was to be paid to such persons as Janet should appoint by will. In case Janet failed to exercise her power of appointment by will (or in case Janet predeceased Naomi) a codicil (dated June 15, 1956) to Naomi's will provided that the principal (or the entire residuary estate in the event that Janet predeceased Naomi) should be distributed to Janet's issue then living, or, if there were no such issue, to Skifter. The codicil furthermore provided if Skifter ‘shall not be then living’ that the remaining principal (or the entire residuary estate, as the case may be) should be paid in shares to other named beneficiaries.
Other provisions of Naomi's will pertaining to the residuary trust and the powers of the trustee thereunder, were as follows:
* * * generally to exercise all such rights and powers and to do all such acts as I might do with respect to such property if I were living and the absolute owner thereof.
Pursuant to Naomi's will all nine insurance policies on Skifter's life, which he had previously assigned to her, were transferred of record into Skifter's name as trustee of the residuary trust. An account of his transactions as executor and as trustee was prepared by the executors of Skifter's will following his death. Such account revealed that his only act as trustee, aside from receipt of the nine insurance policies, was to receive dividends on one of the insurance policies in the total amount of $168.91. As trustee he made no distributions of either income or principal. After his death, the Chase Manhattan Bank in its capacity as successor trustee collected the aggregate proceeds of the nine insurance policies, totaling $121,923.52.
Prior to his death Skifter established substantially identical ‘accumulation’ trusts for each of his three grandchildren. Thus, on November 28, 1960, he created ‘accumulation’ trusts for the benefit of each of his grandsons, Karl Bryan Kelley and Peter Randolph Kelley. And on March 19, 1962, he created an ‘accumulation’ trust for the benefit of his granddaughter Lee Ann Kelley. Each of the grandchildren was under 21 years of age at the time his or her trust was created. According to the respective trust instruments, which were stipulated by the parties, Skifter funded each of the trusts for his grandsons with 100 shares of Cutler-Hammer, Inc., common stock, and the trust for his granddaughter with 200 shares of Cutler-Hammer, Inc., common stock. He named himself as the sole trustee of each of the three trusts, and named his daughter Janet and the Chase Manhattan Bank as his successors under the trusts for his grandsons, and Janet alone as his successor under the trust for his granddaughter with the Chase Manhattan Bank to succeed Janet.
Each of the three trust instruments contained provisions substantially as follows:
1. As trustee under this Declaration of Trust, I shall hold, manage, invest and reinvest the said property and such additional property as may be added thereto pursuant to the terms hereof and shall collect and receive the income therefrom and shall pay over the income and principal as follows:
(A) During the period that * * * (the named grandchild) is under the age of twenty-one (21) years, the income, in the discretion of the trustee (whether me or a successor trustee or trustees) may either be paid to, or applied to the use of, * * * (the named grandchild), or accumulated and added to principal. * * *
(B) When and if the said * * * (named grandchild) becomes twenty-one (21) years of age, the entire income (including the entire income for the fiscal year ending on or after * * * (the named grandchild's) twenty-first birthday) shall be paid to * * * (the named grandchild) in annual or more frequent installments.
2. This Trust shall terminate when * * * (the named grandchild) attains the age of twenty-five (25) years, or sooner dies.
3. At termination of this Trust all of the principal shall be paid to * * * (the named grandchild), if he is then living. If * * * (the...
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