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

• Decision Date: 04 March 1960
• Docket Number: Docket No. 70260.
• Citation: 33 T.C. 1000
• Parties: ESTATE OF ELLIS BRANSON RIDGWAY, DECEASED, CRAIG SAWYER RIDGWAY AND ELLIS BRANSON RIDGWAY, JR., EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

33 T.C. 1000

ESTATE OF ELLIS BRANSON RIDGWAY, DECEASED, CRAIG SAWYER RIDGWAY AND ELLIS BRANSON RIDGWAY, JR., EXECUTORS, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 70260.

Tax Court of the United States.

Filed March 4, 1960.

James J. Cloran, Esq., for the petitioner.

Edward L. Newberger, Esq., for the respondent.

Decedent created a trust to which he conveyed property in 1930 retaining a secondary right to income and reserving a power to amend the trust. In 1944, decedent relinquished his right to amend the trust. Held, the ‘transfer’ within the meaning of section 811(c)(1)(B) of the Code of 1939, occurred in 1930, not in 1944, and is, therefore, not includible in decedent's gross estate since it occurred prior to March 4, 1931.

OPINION.

FISHER, Judge:

This case involves an estate tax deficiency of $104,017.55, resulting from the inclusion in decedent's gross estate of property transferred in trust having a value of $205,698.57, at the date of decedent's death. Inclusion of this property was based upon section 811(c)(1)(B) of the 1939 Code as amended by section 207(a) of the Technical Changes Act of 1953.

All of the facts are stipulated and are incorporated herein by reference.

Craig Sawyer Ridgway and Ellis Branson Ridgway, Jr., are the executors of the Estate of Ellis Branson Ridgway, Deceased, who died August 13, 1953, domiciled in Chester County, Pennsylvania. On November 15, 1954, petitioner filed with the director of internal revenue, Philadelphia, Pennsylvania, the Federal estate tax return for the Estate of Ellis Bronson Ridgway, Deceased, and paid the tax shown on said return of $243,874.22.

On September 25, 1930, Ellis Branson Ridgway (hereinafter referred to as decedent), executed a deed of trust in which he conveyed to the trustee certain property then having a value of $271,593.50. The income of the trust was payable to his wife, Louise Sawyer Ridgway, for her life and upon her death to decedent, if then living, for his life. Upon the death of both decedent and his wife, the trust income was payable to decedent's two sons during their lives and each son was given a testamentary general power of appointment over one-half of the trust principal, with a provision over in the event either son failed to exercise the power, or to the extent that such appointments were invalid.

Under the terms of the deed of trust, decedent reserved the following right:

at any time to make any change in the limitations herein contained with respect to the distributions of principal and income of this trust fund, provided that no such appointment as to principal shall be in favor of the Grantor himself or of his estate. * * *

The trust is irrevocable in all other respects.

On September 25, 1930, Louise Sawyer Ridgway, decedent's wife, executed a deed of trust simultaneous with the execution of the above-described trust of decedent. The wife conveyed property then having a value of $309,353 to her trustee. Her trust was similar in all respects to that created by decedent on the same date, except that decedent was the primary income beneficiary for his life, and the grantor-wife was the secondary income beneficiary.

On October 15, 1930, decedent and his wife simultaneously executed supplemental deeds of trust amending their respective deeds of trust to provide for the distribution of trust principal in the event that both of their sons died without exercising their powers of appointment, or to the extent that such appointments were invalid, and without leaving issue surviving.

On May 6, 1944, decedent and his wife simultaneously executed instruments under which each renounced, surrendered, released, and relinquished the power to make any change with respect to the distribution of principal and income of the trust created by each on September 25, 1930, as amended on October 15, 1930, thereby making each trust irrevocable in all respects.

Louise Sawyer Ridgway died on September 9, 1951, and the decedent was receiving the income from both trusts at the time of his death.

The value as of the date of decedent's death of the property constituting the trust which he created on September 25, 1930, is $205,698.57. The value as of the date of decedent's death of the property constituting the trust which his wife created on September 25, 1930, is $106,630.

Additional executors' commissions in the amount of $12,000 have been paid and will be allowed under the laws of the jurisdiction under which the decedent's estate is being administered.

Additional administration expenses in the amount of at least $2,479.12 have been paid and will be allowed under the laws of the jurisdiction under which the decedent's estate is being administered.

Respondent has included the sum of $205,698.57 in decedent's gross estate under section 811(c)(1)(B) of the Code of 1939, as amended by section 207(a) of the Technical Changes Act of 1953.¹ This section, as amended, is expressly inapplicable to transfers made before March 4, 1931. Respondent argues that within the intendment of section 811(c)(1)(B), as amended, an includible ‘transfer’ took place on May 6, 1944, when decedent relinquished his power to amend the trust. The crucial question at issue is whether the ‘transfer’ took place in 1930 or 1944.

The question presented is not novel. In Estate of Robert J. Cuddihy, 32 T.C. 1171 (1959), the decedent and his wife in 1926 set up simultaneous trusts, each in consideration of the other. Under the terms of decedent's trust, one-half the income was to be paid to his wife for life, and the other one-half was to be paid to his issue. Upon termination, the remainder was to paid to the decedent's surviving issue. The trust was to continue until the death of two designated grandchildren, but was terminable in favor of the decedent's issue by the trustee with the consent of a majority in interest of the income beneficiaries. Decedent's wife and three sons...