Kinney's Estate v. Commissioner of Internal Revenue

• Decision Date: 16 December 1935
• Docket Number: No. 7639.,7639.
• Citation: 80 F.2d 568
• Parties: KINNEY'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

80 F.2d 568 (1935)

KINNEY'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE.

No. 7639.

Circuit Court of Appeals, Ninth Circuit.

December 16, 1935.

R. C. Gortner, of Beverly Hills, Cal., for petitioner Sherwood Kinney.

Harold J. Cashin, of Los Angeles, Cal., for petitioner Helen Gerety, etc.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and Ellis N. Slack, Sp. Assts. to the Atty. Gen., for respondent.

Before WILBUR, GARRECHT, and DENMAN, Circuit Judges.

GARRECHT, Circuit Judge.

During his lifetime one Abbot Kinney, a resident of the state of Californa, created a trust in certain property owned by him, whereby he was to be the trustee and whereby each of four children by a previous marriage was to receive one-sixth of the profits and rents of the trust estate, and his wife, for her support and maintenance and the support and maintenance of their two children, one-third. The trust was to continue during his lifetime, subject to revocation by him, and, following his death, was to continue to operate for twelve years, when the trust estate was to be distributed.

Abbot Kinney died in November, 1920. His wife, Winifred Kinney, then domiciled in California, died December 6, 1927, while the trust had yet five years to run. She left a will and codicil, whereby she bequeathed her beneficial interest in the trust to her two children.

It was claimed that in filing the estate tax return the executor of the estate of Winifred Kinney neglected to include in the gross estate the value of the decedent's interest in the Abbot Kinney trust. The Commissioner held that the value of such interest was a part of the decedent's gross estate; determined the value to be one-ninth (one-third of one-third) of the fair market value of the assets of the Abbot Kinney trust as of December 6, 1927, or $201,567.10, and determined a deficiency in the amount of $3,968.07. The Commissioner's determination was affirmed by the Board of Tax Appeals. 30 B.T.A. 604. The case is before us upon petition of the taxpayer to review the order of the Board of Tax Appeals.

There are two questions involved in this petition to review: (1) Whether the decedent, at the time of her death, had any taxable vested interest in the corpus of the trust estate; and, if it be determined that the interest of the deceased was vested (2) whether the value fixed by the Commissioner was supported by any evidence.

Petitioner contends that the trust instrument did not create a vested interest in the corpus of the trust estate in Winifred Kinney, the deceased. It is plain that if the interest of Winifred Kinney was vested, it should be included in her gross estate; if contingent, not. Commissioner of Internal Revenue v. Rosser (C.C.A.) 64 F.(2d) 631. The interest of the decedent is to be determined by the laws of the state in which the decedent was domiciled at the time of death. Pennsylvania Co. for Insurance on Lives, etc., v. Lederer, Collector, 292 F. 629 (D.C.Pa.); Wardell, Collector, v. Blum et al., 276 F. 226 (C.C.A.9); Hibbard v. Crooks, Collector, 25 F.(2d) 896 (D.C.Mo.).

The important provisions of the trust indenture are as follows:

"(4) That said trustee shall have the power * * * to pay and apply said rents and profits for the support and maintenance of the following named persons in the proportions hereinafter stated, to-wit:

"(5) * * * provided, however that during the life of Abbot Kinney, trustee above named, he shall act as the sole trustee under the declaration of trust, and he being the sole trustor and maker of this trust shall have the power to revoke this trust at any time during his life time, and during his life time he reserves and shall have the right to receive and to apply one-half of all the rents, income and profits from the property above described for his sole use as he may determine. * * *

"(6) * * * This trust shall endure for the period of twelve (12) years after the death of said Abbot Kinney, provided that in case of the death of all of the natural persons in being named in this instrument prior to said time, then this trust shall terminate upon said deaths, but shall be effective from the date hereof.

"(7) Upon the termination of this trust, unless revoked, the title to the whole of said property, so held in trust, shall immediately vest in the above named beneficiaries by title absolute in the same proportions above named for rents and profits and the said one-third (1/3) above set forth for the support of Winifred H. Kinney, Helen Kinney and Clan Kinney, will pass to them in equal shares by absolute title."

The California Civil Code, § 693, provides that: "A future interest is either: 1. Vested; or, 2. Contingent." The next section (694) of the Civil Code says: "A future interest is vested when there is a person in being who would have a right, defeasible or indefeasible, to the immediate possession of the property, upon the ceasing of the intermediate or precedent interest." And the following section (695) deals with contingent interests, and reads as follows: "A future interest is contingent, whilst the person in whom, or the event upon which, it is limited to take effect remains uncertain."

"Remainders are either vested or contingent. A remainder is vested if, at every moment during its continuance, it is ready to come into possession, whenever and however the preceding estates determine, a remainder is contingent if, in order for it to come into possession, the fulfillment of some condition precedent, other than the determination of the preceding estates, is necessary. If an estate is given to A. for life, remainder to his eldest born son in fee, the remainder is contingent until the birth of A.'s first-born son, and then vests." Gray's "The Rule Against Perpetuities," (2d Ed.) § 9, p. 5.

"The broad distinction between vested and contingent remainders is this: In the first, there is some person in esse, known and ascertained, who, by the will or deed creating the estate, is to take and enjoy the estate upon the expiration of the existing particular estate, and whose right to such remainder no contingency can defeat. In the second, it depends upon the happening of a contingent event whether the estate limited as a remainder shall ever take effect at all. It may never happen, or it may not happen until after the particular estate upon which it depends shall have been terminated, so that the estate in remainder will never take effect." Estate of Washburn, 11 Cal.App. 735, 740, 106 P. 415, 417.

"The policy of the law is favorable to the vesting of estates, and so remainders are held to be vested rather than contingent." 10 R.C.L. § 3, p. 648. In Williams v. Williams, 73 Cal. 99, 14 P. 394, 396, the Supreme Court of the state of California said: "The law favors the vesting of interests, and every interest will be presumed to be vested unless a contrary intention is clearly manifest."

In re De Vries, 17 Cal.App. 184, 188, 119 P. 109, 111, has this to say: "It is, of course, to be conceded that great difficulty often arises in determining whether a vested or contingent remainder was intended by the language of an instrument whose manifest purpose is to carve out of the same estate two or more separate and distinct interests — the one the right to the possession of which is to be enjoyed in præsenti and the others in futuro. Indeed, it is manifestly a much more simple task to formulate, as the law writers and the Legislature have done, a general distinction between vested and contingent future interests than to apply, in many instances, a distinction to concrete cases. The general definitions of vested and contingent remainders, as given by the law writers and our Code, are sufficiently clear and explicit, yet, after all, the real point of decision in all cases where the question is whether a future interest created by devise or otherwise is vested or contingent is as to the intention of the testator or grantor in that regard, and such intention, as before stated and as is obviously true, must, in cases where construction is necessary, be gathered from the language of the instrument viewed by the light of established and accepted canons of construction."

In Doe, Lessee of Poor, v. Considine, 6 Wall. (73 U.S.) 458, at page 476, 18 L.Ed. 869, the Supreme Court of the United States said:

"The law does not favor the abeyance of estates, and never allows it to arise by construction or implication....