Porter v. Commissioner of Internal Revenue, Docket No. 42815.

Decision Date30 June 1931
Docket NumberDocket No. 42815.
PartiesESTHER JACKSON PORTER, AS EXECUTRIX, AND RICHARD L. DAVISSON, AS SURVIVING EXECUTOR OF THE ESTATE OF WILLIAM H. PORTER, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtU.S. Board of Tax Appeals

Richard L. Davisson, Esq., Henry Mannix, Esq., and E. J. Corcoran, Esq., for the petitioners.

Lewis S. Pendleton, Esq., for the respondent.

The respondent determined a deficiency of $103,768.22 in estate tax due from the estate of William H. Porter, who died a resident of the State of New York on November 30, 1926.

The errors assigned are: (a) The inclusion in the gross estate by respondent of the value of certain property alleged to have been transferred in trust on November 27, 1926, amounting (less the $5,000 exemption) to $211,125; (b) the refusal of the respondent to allow as proper deductions as debts of the decedent certain amounts paid by the executors on account of pledges signed and obligations incurred by the decedent in favor of certain charitable and educational institutions; (c) the refusal of the respondent to allow full credit for taxes actually paid as State inheritance taxes; and (d) the refusal of the respondent to allow as a credit against the Federal estate tax the amount of the New York estate tax, paid and to be paid by said estate, within three years from the date of the filing of the Federal estate-tax return.

FINDINGS OF FACT.

The petitioners are the duly qualified and acting executors of the estate of William H. Porter, who died a resident of New York, November 30, 1926.

William H. Porter did, on or about October 18, 1918, transfer to the Bankers Trust Company, a corporation, as trustee under a trust agreement of that date, $100,000, principal amount, City of New York 4½ per cent bonds. This trust, hereinafter referred to as "Trust No. 1," in part provided for the payment of the trust income to the decedent's daughter, Helen Porter Davisson, until she should reach the age of thirty years and, upon her reaching such age, the principal was to be paid to her. In the event of her death before attaining the age of thirty years, the principal was to be held in trust for the benefit of her son, Richard L. Davisson, Jr., until he reached the age of thirty years, at which time the principal was to be paid to him. Other provisions of this trust, effective on various contingencies, are unimportant in the instant case.

On or about February 1, 1919, the decedent transferred to said Bankers Trust Company, as trustee, under an agreement of that date, $100,000, principal amount, City of New York 4½ per cent corporate stock. This trust instrument, hereinafter referred to as "Trust No. 2," provided for the payment of the trust income to decedent's daughter, Helen Porter Davisson, until she should reach the age of forty years, and upon her attaining such age, the principal was to be paid to her. In the event of her death before reaching the age of forty years, the principal was to be held in trust for the benefit of her said child, Richard L. Davisson, Jr., until he should reach the age of thirty years, at which time the principal was to be paid to him. Other provisions of this trust are not material in the instant case.

Both said trusts contained the following provision:

TENTH: Notwithstanding anything to the contrary herein contained, the Donor at any time during the continuance of the trust herein provided for may, by instrument in writing executed and acknowledged or proved by him in the manner required for a deed of real estate (so as to enable such deed to be recorded in the State of New York) delivered to the Trustee, or its successor, modify or alter in any manner this indenture, and any or all of the trusts then existing and the limitations and estates and interest in property hereby created and provided for subsequent to such trusts; and in case of such modification or alteration said instrument shall direct the revised disposition to be made of the trust fund or the income thereof, or that part of the trust fund or the income thereof affected by such modification or alteration, and upon the delivery of such instrument to the Trustee or its successor said instrument shall take effect according to its provisions, and the Trustee or its successors shall make and execute all such instruments, if any, and make such conveyance, transfers or deliveries of property as may be necessary or proper in order to carry the same into effect, and no one, born or unborn, shall have any right, interest, or estate under this indenture except subject to the proper modification or alteration thereof; but this power to modify or alter is not intended and shall not be construed to include the right to the Donor to make such modification or alteration in his own favor or in favor of his estate, but shall apply only so far as the interests of third parties may be concerned.

The trusts were not created in contemplation of death.

At the time of the creation of both the trusts, the decedent's daughter, Helen Porter Davisson, had only one child, Richard L. Davisson, Jr. Between the dates of the creation of the said trusts and November 27, 1926, two more children, Joan Davisson and William Porter Davisson, were born to said Helen Porter Davisson.

In order to provide for the newly born grandchildren, the decedent determined to exercise the power reserved to him in paragraph "Tenth" of the said two trust deeds and, with this purpose in view, he wrote two letters to the Bankers Trust Company the latter part of October, 1926, indicating his desire and determination.

On November 27, 1926, three days prior to his death, William H. Porter executed and delivered to the Bankers Trust Company simultaneously three instruments, one of which, addressed to the Bankers Trust Company as trustee, relative to Trust No. 1, provided:

Pursuant to the power reserved by me in the Tenth Article of the above described Deed of Trust, I hereby revoke said Deed and terminate the interests of all persons therein, and I hereby direct you to deliver the principal thereof, all income on such principal accrued but not actually received, and all income thereon received but not yet distributed to the beneficiary, to yourselves as Trustee under a new Deed of Trust dated the same date as this letter and executed by me in favor of said Helen Porter Davisson and other beneficiaries, such principal to be held by you as principal of the new trust and such income, whether accrued or received, to be treated by you as you would have treated that income under the trust which I now revoke.

Very truly yours (Signed) WM. H. PORTER. (Seal) STATE OF NEW YORK COUNTY OF NEW YORK, ss:

On this 27th day of November, 1926, before me personally came WILLIAM H. PORTER, to me known to be the individual described in and who executed the foregoing Revocation and acknowledged to me that he executed the same.

(Signed) JAMES J. McDERMOTT.

Another instrument of the same character, so executed and delivered, related to Trust No. 2.

Thereupon the said William H. Porter executed a new trust agreement conveying to the Banker's Trust Company as trustee the same securities as had theretofore been conveyed to the Banker's Trust Company as trustee in Trusts Nos. 1 and 2, already described in our findings of fact. This new trust agreement, executed November 27, 1926, contained similar minute instructions to the trustee as to the management of the funds entrusted to its care, disposition of income, investing and reinvesting the principal, and other like instructions, as was contained in Trusts Nos. 1 and 2. This trust agreement provided in part that Helen Porter Davisson should receive the income therefrom until she attained the age of forty years, at which time she was to receive the principal. In the event of her death before reaching that age, the principal was to be held in trust for the benefit of her surviving children and the issue of any deceased child per stirpes and not per capita, upon terms and conditions stated in the trust indenture.

This new trust agreement contained the same paragraph ten as was contained in Trusts Nos. 1 and 2, which has already been set out in full in these findings of fact.

The respondent included in decedent's gross estate the sum of $211,125 as representing the value, on the date of decedent's death, of the securities described in Trust No. 3 of November 27, 1926.

It was alleged in the petition and admitted by respondent in his answer that at the date decedent executed Trust No. 3, to wit, November 27, 1926, neither the decedent nor his physicians nor his family had any anticipation or expectation that his death would occur soon thereafter, and there was no reason to believe or anticipate that the decedent did not have many years of life ahead of him. From this we find that the decedent did not execute Trust No. 3 in contemplation of death.

On or about October 18, 1918, decedent transferred to Bankers Trust Company, as trustee, under trust indenture of that date, $100,000, principal amount, City of New York 4½ per cent bonds. Under the terms of the trust, hereinafter referred to as Jamie Porter Trust No. 1, the income was directed to be paid to the decedent's son, James J. Porter, until he reached the age of thirty years, and thereupon to pay over the principal to him. In the event of the death of James J. Porter before attaining the age of thirty years, the trust was to continue for the benefit of his daughter, the decedent's grandchild, Jane Hetherington Porter, also known as Jamie Porter.

On or about June 27, 1919, the decedent transferred to the Bankers Trust Company, as trustee, under trust indenture of such date, $100,000, principal amount, City of New York 4½ per cent corporate stock. Under the terms of the trust, hereinafter referred to as Jamie Porter Trust No. 2, the income was to be accumulated during the minority of the decedent's...

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