Richards v. CIR, 8616.

• Decision Date: 13 April 1967
• Docket Number: No. 8616.,8616.
• Parties: Lynn S. RICHARDS, Executor of the Estate of Stephen L. Richards, deceased, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Tenth Circuit

375 F.2d 997 (1967)

Lynn S. RICHARDS, Executor of the Estate of Stephen L. Richards, deceased, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 8616.

United States Court of Appeals Tenth Circuit.

April 13, 1967.

Lon Rodney Kump, Salt Lake City, Utah (Harold H. Hart and Richard L. Bird, Jr., Salt Lake City, Utah, with him on brief), for petitioner.

William A. Friedlander, Atty., Dept. of Justice, Washington, D. C. (Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson and Gilbert E. Andrews, Attys., Dept. of Justice, Washington, D. C., with him on brief), for respondent.

Before LEWIS, BREITENSTEIN and HICKEY, Circuit Judges.

HICKEY, Circuit Judge.

This case presents the question whether or not the corpus of a trust created by the decedent during his life for the support of his wife is includable in his gross estate for tax purposes. The tax court held that the value of the trust is includable in the gross estate of the decedent. The executor filed a petition for review in this court.

On January 31, 1942, Stephen L. Richards, deceased, created the trust which named as trustees his three sons and his brother. The trust corpus consisted of 3800 of 4999 outstanding shares of the Wasatch Land and Improvement Company.¹ At a later date 1190 of the remaining 1199 shares were transferred to the trustees.²

The trust agreement contains the following pertinent language:

"Whereas the Trustor desires to create a trust respecting the property hereinafter described for the benefit of his wife, Irene Merrill Richards, his daughters naming them and his sons naming them * * *.

The Trustees shall collect and hold all income of every name and nature from the trust estate, together with the corpus thereof, in trust for Irene Merrill Richards, my wife, during her lifetime * * *.

My Trustees shall pay unto my wife Irene Merrill Richards for her maintenance and support the net income from my trust estate at such times as they in their sole discretion shall determine. In the event the net income of this trust shall not be sufficient to support and maintain my wife the said Trustees may in their uncontrolled discretion pay to my wife out of the sale of the corpus of said trust estate any additional sums as may be necessary for her comfort and support * * * The trust for the benefit of my said wife shall persist throughout her life-time. * * * The corpus of said trust estate shall not be distributed unto my children until after my death should I survive my wife. * * *

This is a trust for maintenance, and I direct that the payments to my said wife and children hereinbefore specified be made by my Trustees according to the foregoing terms and continuing until and including the time of the distribution of the trust estate by the Trustees."

Stephen L. Richards died on May 19, 1959. He was survived by his wife, Irene Merrill Richards, three sons and four daughters, all adult. The Wasatch Land and Improvement Company had never declared a dividend during the existence of the trust and the lifetime of the decedent. Therefore, the trustees had no income to distribute to the wife during this period.

In addition, decedent was financially able and did amply support his wife from his retained assets during his lifetime.

The date of decedent's death, May 19, 1959, controls the applicable statutes of the Internal Revenue Code.

Section 2036, Internal Revenue Code, 1954,³ Transfers with Retained Life Estate, provided: "(a) General rule. — The value of the gross estate shall include the value of all property (except real property situated outside of the United States) to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death — (1) the possession or enjoyment of, or the right to the income from, the property * * *."

Treasury Regulations on Estate Tax, 1954 Code, § 20.2036-1, Transfers with Retained Life Estate, provide "* * * (b) Meaning of Terms * * * (2) The `use, possession, right to the income, or other enjoyment of the transferred property' is considered as having been retained by or reserved to the decedent to the extent that the use, possession, right to the income, or other enjoyment is to be applied toward the discharge of a legal obligation of the decedent, or otherwise for his pecuniary benefit. The term `legal obligation' includes a legal obligation to support a dependent during the decedent's lifetime."

The decision of the tax court here for review concludes that the trust is includable in the gross estate because the decedent retained and enjoyed the right to have the trust income used to discharge his legal obligation to support his wife. This conclusion is based upon the existence of a provision in the Utah Code, 8 U.C.A. § 76-15-1, "Any person who, without just cause, deserts or willfully neglects or refuses to provide for the support and maintenance of his wife in destitute or necessitous circumstances * * * is guilty of a felony, and shall be punished by imprisonment in the state prison at hard labor for a period of not to exceed five years * * *."

Petitioner contends that any presumption that decedent retained an enforceable right to have the trust income used to support his wife is rebutted by the undisputed fact that the decedent amply supported his wife during...