Mitchell v. Comm'r of Internal Revenue (In re Estate of Mitchell)

• Decision Date: 22 December 1970
• Docket Number: Docket No. 941-68.
• Parties: ESTATE OF ABNER W. MITCHELL, DECEASED, ELLA K. MITCHELL, EXECUTRIX, PETITIONER V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

55 T.C. 576

ESTATE OF ABNER W. MITCHELL, DECEASED, ELLA K. MITCHELL, EXECUTRIX, PETITIONER V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 941-68.

United States Tax Court

Filed December 22, 1970.

A C. Williams, for the petitioner.

J. S. Hamelberg and Fred L. Baker, for the respondent.

The decedent established an inter vivos trust, appointing his son as trustee, and transferred property thereto with the direction that the trustee should pay over to the decedent's wife during her lifetime such amounts of the net income, and principal of the trust fund if required, as the trustee should in his unrestricted discretion determine to be necessary for the support and maintenance of the decedent's wife, taking into consideration her other sources of income. Held, that the decedent did not retain or reserve the possession or enjoyment of, or right to the income from, the property transferred inasmuch as the income or property was not to be applied toward the discharge of his legal obligation to support his wife, the use for such purpose being within the discretion of the trustee, and therefore the value of the trust property is not includable in the decedent's gross estate under sec. 2036(a)(1), I.R.C. of 1954.

ATKINS, Judge:

The respondent determined a deficiency in estate tax in the amount of $5,482.10. The only issue presented is whether the value of a trust created by the decedent is includable in his gross estate under the provisions of section 2036 of the Internal Revenue Code of 1954.

FINDINGS OF FACT

Some of the facts were stipulated and are incorporated herein by this reference.

The decedent Abner M. Mitchell died on February 11, 1964, and left surviving him his widow, Ella K. Mitchell, and his three adult children.

The legal residence of Ella K. Mitchell, executrix of the Estate of Abner W. Mitchell, deceased, at the time of filing of the petition was Fairfield, Conn.

The petitioner filed the estate tax return on May 5, 1965, with the district director of internal revenue at Hartford, Conn.

On and under date of February 10, 1959, the decedent created an irrevocable trust designated as the ‘Abner W. Mitchell Trust.’ At that time the decedent transferred to the trust a mortgage deed and note which had been executed in his favor by Howard F. Colvin in the amount of $20,000 payable in quarterly installments of principal and interest for a period of 20 years. At the time of transfer the principal amount of such note had been reduced to $19,853.06. Thereafter the decedent transferred to the trust $4,925 on March 26, 1959, $5,221.94 on March 31, 1959, and $1,000 in 1963, resulting in total transfers to the trust of $31,000. Aside from these transfers, the only additions to the trust were derived from accumulations of income.

In the trust instrument the decedent named his son, Elnathan Mitchell, as trustee, and he has at all times remained the trustee.

The trust instrument provided that the trustee should hold and manage the property of the trust and invest and reinvest the same and collect and receive the income from the fund. It was specifically provided as follows:

The Trustee shall pay over to my wife, ELLA K. MITCHELL, during the term of her natural life, such amounts of the net income, and principal of said trust fund if required, as said Trustee shall in his unrestricted discretion determine to be necessary for the comfortable support and maintenance of my wife, the said ELLA K. MITCHELL, taking into consideration her other sources of income, adding to the principal at the end of each year the income of said trust fund not so paid or used.

The instrument further provided that if Ella K. Mitchell should die, leaving the decedent surviving, the trustee should pay over during the life of decedent all the net income of the trust fund in equal shares to his three children. It was further provided that upon the death of the spouse surviving the other, the trustee should distribute the property constituting the principal of the trust to the three children and other beneficiaries.

When the trust was established decedent was 70 years of age and was retired from the Borden Co. At that time he was receiving retirement benefits of $3,360 per year, an annuity of about the same amount, income from appraisal work and a bank directorship in excess of $5,000 a year, dividends of about $2,600 per year, and social security benefits of about $1,920 per year.

At the time the trust was created the decedent and his wife resided together in their home in Fairfield. Their son, who also lived in Fairfield, visited them regularly. Decedent and his wife at all times lived conservatively and within their means. At the time of the creation of the trust decedent was able to support his wife, and throughout his lifetime he continued to pay all expenses of his home and all living expenses for himself and his wife.

The trust income was taxed to the trustee. At no time during the life of the decedent did the trustee make any payment of income or principal from the trust to or for the benefit of the decedent's wife. At no time during the life of the decedent did anyone ever request the trustee to make any such payment.

The decedent's gross taxable estate, as reported on the Federal estate tax return filed for his estate, amounted to $247,106.21 valued as of the date of his death. Therein there was not included any amount on account of the trust property. The fair market value of the trust property on the date of the decedent's death was reported as $37,985.21.

In the notice of deficiency, the respondent determined that the value of the trust, determined by him to be $37,985.21 on the date of the death of the decedent, should be included in the decedent's gross estate under the provisions of section 2036 of the Internal Revenue Code of 1954.

OPINION

The only issue for decision is whether the decedent retained the possession or enjoyment of, or the right to the income from, property transferred by him to an irrevocable trust. If so, the value of the trust property is properly includable in the decedent's gross estate under section 2036 of the Internal Revenue Code of 1954.¹ The resolution of this issue depends upon whether the trust income or property was to be applied toward the discharge of the decedent's legal obligation to support his wife during his lifetime within the meaning of section 20.2036-1(b)(2) of the Estate Tax Regulations.²

It is the respondent's position that under Connecticut law³ decedent was under a legal duty to support his wife; that decedent's primary purpose in establishing the trust was to retain at his disposal funds with which to discharge, at least in part, such obligation; that the decedent effectively retained the possession or enjoyment of the property or the right to the income therefrom since his son, as trustee, would have been likely to have done what the decedent asked with respect to the disbursement of income for the support of the decedent's wife; and that therefore the value of the trust property is includable in decedent's gross estate.

It is the petitioner's position that the use of the property or the income therefrom for the support and maintenance of decedent's wife was within the unrestricted discretion of the trustee; that under the law of Connecticut neither the decedent as settlor nor his wife as beneficiary retained...