Patterson v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 04 August 1937 |
| Docket Number | Docket No. 76580. |
| Parties | DAISY CHRISTINE PATTERSON, EXECUTRIX OF THE ESTATE OF FRANK H. PATTERSON, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
A. F. Hillix, Esq., and Elmer B. Hodges, Esq., for the petitioner.
C. C. Holmes, Esq., and E. L. Weber, Esq., for the respondent.
The respondent determined a deficiency in estate tax in the amount of $12,014.81. The petitioner brings this proceeding for a redetermination of the estate tax liability. Of the four questions raised by the petitioner's appeal, three have been conceded in whole or in part by the respondent and are disposed of by stipulation of agreed facts. The only remaining question for our consideration is whether certain property, the assets of the Frank H. Patterson trust, should be included in the gross estate of decedent. The record includes the stipulation of facts, testimony, and depositions of witnesses, and certain exhibits.
FINDINGS OF FACT.
Petitioner is the duly appointed, constituted, and acting executrix of the estate of Frank H. Patterson, deceased, and is a resident of Fredonia, Kansas.
The taxes in controversy are Federal estate taxes in the amount of $15,387.43, of which $3,372.62 has heretofore been paid and $12,014.81 is an unpaid proposed deficiency.
Frank H. Patterson, a resident of Fredonia, Kansas, died April 2, 1932, and a Federal estate tax return was duly filed by the petitioner within the time required by law with the collector of internal revenue for the district of Kansas, at Wichita.
The respondent has determined the gross tax estate of the decedent to be $574,089.44, has allowed deductions therefrom in the amount of $116,340.90, and has determined the net taxable estate to be $457,748.54.
The parties by stipulation have settled some of the issues involved. These adjustments will be made under Rule 50, in accordance with their stipulation.
On April 2, 1932, the date of decedent's death, there were living and accordingly survived the decedent the following named persons:
Prior to January 1926 Frank H. Patterson, Daisy Christine Patterson, Frances Patterson, and Margaret Chandler were the owners of a large number of investment securities, each party being the owner of one-fourth thereof. Under an agreement made and entered into by and between the four parties these securities were divided into four equal parts and Frank H. Patterson, the decedent, was made the agent or attorney in fact to exchange or sell such securities and reinvest the proceeds in other securities, and to collect the income therefrom and disburse the equal one-fourth part of it to each of the parties or reinvest the same in other securities. Any of the parties had the right, if they so desired, at any time to permanently withdraw their securities upon notification to the other parties of such intention.
In the latter part of 1928 Margaret Patterson Chandler made a demand for her portion of the securities held by her father. She consulted an attorney, who advised her that she had a cause of action to recover the securities, and her attorney prepared a petition to recover the property. The petition was, however, never filed because the matter was amicably settled by the establishing of the trusts referred to hereinafter.
Frank H. Patterson, the decedent, was opposed to transferring the property to his daughter. Some years before Mrs. Chandler and her husband had entered into an antenuptial agreement which gave Chandler an interest in any property that his wife might have and Patterson was afraid that if the property was turned over to his daughter, Chandler would get possession of it.
After some negotiation between the parties and their attorneys a compromise of the controversy was agreed upon and reduced to writing, under which the Frank H. Patterson trust was formed.
On January 10, 1929, a contract was executed by and between the decedent and Daisy Christine Patterson, Frances Patterson, Margaret Patterson Chandler, and Stephen S. Chandler. Pursuant to the aforesaid contract and concurrently therewith declarations of trust were made by each of the following persons: Frank H. Patterson, Daisy Christine Patterson, Frances Patterson, and Margaret Patterson Chandler. The contract provided, among other things, that in the event any one or more of the parties should attempt by legal process to set aside the trusts or any of them, or demand or seek to obtain any partition of the trust property except as provided under the terms of the declarations of trust or interfere with the operation of them, then the rights of such party or parties, their spouse, issue, heirs, and legal representatives should cease and determine, and be paid to the other beneficiaries. This contract further provided, among other things, that the parties should each convey by a bill of sale to trustees certain property which would form the corpus of four separate irrevocable trusts to be created according to the terms and manner prescribed in the contract.
The Frank H. Patterson trust, created January 10, 1929, pursuant to the provisions of the above mentioned contract provided for three trustees, the First National Bank, Wichita, Kansas, Daisy Christine Patterson, and Frank H. Patterson, and their successors in trust. On January 29, 1929, Frank H. Patterson executed a bill of sale of certain property, consisting of securities, to the trustees of the Frank H. Patterson trust, in accordance with the terms of the above mentioned contract. The fair market value of such assets at the date of decedent's death, as determined by the respondent, was $292,345.
The Frank H. Patterson trust provided, among other things, that "this trust shall be irrevocable and the terms of this declaration of trust shall not be changed by the creator, trustees or beneficiaries thereof;" that "under no circumstances shall this declaration of trust be construed to vest in any beneficiary thereof any absolute interest in the property of this trust prior to the time of the termination thereof, to-wit; five years after the death of Frank H. and Daisy Christine Patterson and the survivor of them"; that the net income be paid to the decedent for the period of his life and thereafter to his wife, Daisy Christine Patterson, and upon the death of the survivor of them to the two daughters of the decedent or their surviving issue, respectively. Upon the termination of the trust the principal is to be distributed to the daughters of the decedent or their issue or the survivors thereof, and in the event of the death of the daughters before the termination of the trust without leaving issue surviving them at the time of their death the net income is to be paid to those persons who shall be the heirs at law of Frank H. Patterson, and, in case of death of such daughters before the termination of the trust without leaving issue surviving them, the principal is to be paid to the heirs at law of Frank H. Patterson, the decedent.
The trust further provided as follows:
It is intended through the trust hereby created, to make ample provision for the comfortable maintenance, support and care of Frank H. Patterson throughout his lifetime. Accordingly, the trustees shall have the power and duty, if a majority of them deem it necessary or expedient or if requested by Frank H. Patterson, to use and disburse from time to time, principal of the trust estate, when the net income is insufficient therefor, for the support, maintenance and/or care of Frank H. Patterson, and after his death, for the support, maintenance and care of Daisy Christine Patterson. No portion of the principal shall be distributed for any other purpose prior to the termination of the trust herein provided. The decision of a majority of the trustees shall control and Frank H. Patterson shall be entitled to participate in such decision equally with any other trustee, in determining the necessity of...
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