Robinson v. Comm'r of Internal Revenue , Docket No. 2384-79.

• Citation: 75 T.C. 346
• Decision Date: 08 December 1980
• Docket Number: Docket No. 2384-79.
• Parties: MYRA B. ROBINSON, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: United States Tax Court

75 T.C. 346

MYRA B. ROBINSON, PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 2384-79.

United States Tax Court

Filed December 8, 1980.

In 1972, petitioner elected to let her husband's will direct the disposition of her community property share. As a result, petitioner's community share became the corpus of the W trust. Petitioner is the trustee and income beneficiary of the W trust and held the limited powers to appoint its corpus which she released in 1976. Held, petitioner's 1976 release of her limited powers to appoint W trust corpus is a taxable gift of the remainder interest in her community share. Held, further, the value of the gift is not reduced under sec. 2512(b), I.R.C. 1954, by the interest petitioner received in her husband's property in 1972. Held, further, the powers held by petitioner as trustee of the W trust do not give her dominion and control sufficient to render the gift incomplete. Edward R. Smith, for the petitioner.

Glenn D. Wilkinson, for the respondent.

OPINION

FAY, Judge:

Judge: Respondent determined a deficiency of $58,676.97 in petitioner's Federal gift tax for the calendar quarter ending March 31, 1976. The issues for decision are whether petitioner made a taxable gift when she released certain powers held by her over a trust, and, if a gift was made, what was its value.

All of the facts have been stipulated and are so found.

Petitioner, Myra B. Robinson, resided in Big Spring, Tex., when she filed her petition herein. Petitioner was married to G. R. Robinson (hereinafter husband) who died testate on February 27, 1972. His will gave petitioner a choice—-she could elect to let her husband's will direct the disposition of her share of their community property and take fully under the will or she could retain her right to freely dispose of her community property share and take only a specific bequest of personal effects under the will. On August 22, 1972, petitioner filed an election with the County Court of Howard County, Tex., to accept the will's direction of the disposition of her community share. Neither party contests the validity or the binding effect of such election.

Pursuant to her election and her husband's will, petitioner's community property share became the corpus of the “Myra B. Robinson Trust” (hereinafter wife's trust) while her husband's interest in the community and any separate property he may have owned which was not specifically bequeathed were placed in the “G. R. Robinson Estate Trust” (hereinafter husband's trust). The terms of the wife's trust provide petitioner with a right to all the net income of that trust for life, while under the husband's trust she has a right to an annual amount from that trust equal to 4 percent of the initial corpus. Upon petitioner's death, the corpora of the two trusts are to be combined and then divided into equal shares for certain descendants of petitioner and her deceased husband. Petitioner is trustee of both trusts.¹

As trustee of both trusts, petitioner has broad powers of management including powers to sell, exchange, pledge, or encumber the trusts; to invest in any property whatsoever, including wasting assets; and to make oil, gas, or mineral leases. Generally she can deal with the trusts as if she were the fee simple owner, and the terms of both trusts provide that they are to be construed in favor of the validity of any act or omission by petitioner as trustee. Petitioner, as trustee, also has the power in her discretion to allocate revenues, receipts, proceeds, disbursements, expenses, deductions, accruals, and losses of each trust between corpus and income. Her allocation need not be in accord with the Texas Trust Act, Tex. Civ. Code Ann. tit. 125A, art. 7425b-1 et seq. (Vernon 1960), which controls only if she does not exercise her power. In addition, she may distribute from either trust (looking to the wife's trust first) amounts necessary to maintain her standard of living if the mandatory distributions are not sufficient to do so.

Apart from her powers as trustee, petitioner had the following powers over the wife's trust:

During the life of my wife, she shall have the power, by recordable instrument delivered to the Trustee, to appoint any part or all of my wife's Trust free from such Trust to any one or more of our issue (or to the surviving spouse of any of our then deceased children) in such shares, manner and proportions as she shall see fit. In addition, my wife shall have the power, by recordable instrument delivered to the Trustee or by Will, to appoint any part or all of my wife's Trust free from such Trust to any one or more charities in such shares, manner and proportions as she shall see fit. Any such power described in this paragraph may be exercised only in a gratuitous way and not in a way which imposes any condition upon the recipient thereof. * * *

Thus, petitioner could appoint any part of the wife's trust to designated appointees or to qualifying charities. On March 26, 1976, petitioner executed a valid release of these appointment powers.

When the wife's trust was created, its value was $731,741.94, and when petitioner released her powers to appoint corpus, its value was $881,601.38. The husband's trust had a value of $483,962.02 when it was created.² Petitioner was born on December 20, 1919.

In his statutory notice of deficiency, respondent asserted a gift tax deficiency of $58,676.97 based on his determination that, when petitioner released her powers to appoint, she made a taxable gift of the remainder in the wife's trust corpus (her community property share).

The issue presented is whether petitioner's release of certain powers in a testamentary trust, created under her husband's will but funded with her share of community property, constituted a taxable gift under section 2512(a). ³ Respondent contends a gift was made and computes its value as follows: $881,601.38 (value of wife's trust on date of the release) x 0.31388 (factor for remainder interest per sec. 25.2512-9(f), Table A(2), Gift Tax Regs.) = $276,717.04. Petitioner contends the release did not constitute a taxable gift because she was neither the donor of the trust nor the creator of the powers. Alternatively, petitioner argues that if she is treated as the transferor to the wife's trust, she received adequate and full consideration in money or money's worth in the form of her interest in the husband's trust. We find for respondent.

Petitioner first contends that she is the donee of special powers of appointment under her husband's will citing Self v. United States, 135 Ct. Cl. 371, 142 F. Supp. 939 (1956), and Commissioner v. Walston, 168 F.2d 211 (4th Cir. 1948), affg. 8 T.C. 72 (1947), for the proposition that exercise of powers of appointment by the donee of the powers is not a gift. However, in this case petitioner is not the donee of her powers, rather she retained the powers when she transferred her community share to the wife's trust.

In Siegel v. Commissioner, 26 T.C. 743 (1956), affd. 250 F.2d 339 (9th Cir. 1957), a surviving widow elected to accept the disposition of her interest in community property according to her husband's will and received a life estate in the entire community. We held that the electing widow made a taxable gift of the remainder interest in her community share to the extent (if any) its value exceeded the value of the interest she received in her husband's community share. In other words, she was treated as transferring the remainder in her community share in exchange for a life estate in her deceased husband's community share.⁴ In this case, petitioner, like the surviving widow in Siegel, received an interest in her husband's property in exchange for transferring her community share into the wife's trust. Thus, we have no problem concluding that petitioner was the transferor of her community share. See also Lehman v. Commissioner, 109 F.2d 99 (2d Cir. 1940), affg. 39 B.T.A. 17 (1939), cert. denied 310 U.S. 637 (1940).

Nor do we have any problem concluding that the limited powers to appoint corpus are interests petitioner retained when she made the transfer. Such is clear from an analysis of the widow's election cases arising under section 2036. See Estate of Christ v. Commissioner, 480 F.2d 171 (9th Cir. 1973), affg. 54 T.C. 493 (1970); Vardell's Estate v. Commissioner, 307 F.2d 688 (5th Cir. 1962), revg. 35 T.C. 50 (1960). Vardell involved the estate of a widow who elected to accept the disposition of her community property share according to her husband's will and received a life estate in the entire community. We held that, upon her death, the entire date of death value of her community share was included in her gross estate under section 2036 since she had transferred her share but retained a life interest. The Fifth Circuit Court of Appeals reversed only to the extent that the included value should be reduced under section 2043(a) by the date of transfer value of her life interest in her husband's community share since it was consideration in money or money's worth for the transfer. The value of the widow's life interest in her own community share was not consideration because that was an interest she retained, not one that was transferred to her. The above analysis applies to petitioner's limited powers of appointment as well. They are powers she retained when the trust was created. In summary, we find that petitioner transferred her community share to the wife's trust but retained limited powers to appoint that trust's corpus.

Petitioner's second contention is that even if she was the transferor of her community share, she received adequate and full consideration in money or money's worth since the interest she received in the husband's trust was greater in value than the remainder interest in her community property when she elected to accept her husband's will. In Turman v. Commissioner, 35 T.C. 1123 (1961), we held that, if the interest...