Seligmann v. Comm'r of Internal Revenue

• Decision Date: 15 August 1947
• Docket Number: Docket No. 8403.
• Citation: 9 T.C. 191
• Parties: GRACE R. SELIGMANN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

9 T.C. 191

GRACE R. SELIGMANN, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 8403.

Tax Court of the United States.

Promulgated August 15, 1947.

The taxpayer, beneficiary of a trust to which her husband had transferred insurance policies on his life, paid the premiums on the policies and interest on loans against the policies. Such payments, held, not subject to tax as gifts under section 1000, Internal Revenue Code, being made to protect the taxpayer's own interest. Henry Grun, Esq., for the petitioner.

J. Marvin Kelley, Esq., for the respondent.

The Commissioner determined a deficiency of $1,803.18 in petitioner's gift tax for 1941 by adding to gifts reported amounts paid as premiums on insurance policies transferred by her husband to a trust of which she was beneficiary and as interest on loans secured by the policies. Petitioner contends that such payments were not made as gifts, but to protect her interest as beneficiary of the trust.

OPINION.

JOHNSON, Judge:

This case was submitted upon a stipulation and exhibits, which we hereby adopt as findings of fact and from which it appears that:

Petitioner, a resident of San Antonio, Texas, filed a gift tax return for 1941 with the collector of internal revenue for the first district of Texas. She is the wife of Julius Seligmann, and was designated as beneficiary under three policies of insurance which he took out on his life in 1923 and under six policies which he took out in 1928. The face amount of the nine policies aggregated $185,000. On December 20, 1935, Seligmann, with the consent of the three insurance companies which had severally issued the policies, designated the Frost National Bank of San Antonio, Texas, as the beneficiary under each, and assigned and delivered the policies to the bank as trustee under the terms of a trust instrument which the bank accepted. At that time loans against the policies aggregated $25,493.50.

By the trust's terms the trustee was ‘vested with all right, title and interest in and to the policies,‘ with authority to exercise all options, benefits, rights and privileges; to collect, invest, and reinvest the proceeds, and generally to perform all acts incidental and necessary to the accomplishment of trust purposes; to leave all or part of the proceeds on deposit with the company issuing the policy under a settlement option or on deposit with another company; and to incur and pay expenses of management, including attorneys' fees if deemed necessary. The settlor expressly renounced all his right, title, and interest in and to the policies and their proceeds, reserving, however, the right to change the trustee by designating another to act as substitute trustee with the consent of all beneficiaries, ‘but in all other respects this trust in its entirety is irrevocable.‘

Paragraph III of the trust provides:

If and when the policies hereunder shall be matured as death claims, the Settlor directs the Trustee to disburse the income and principal of the trust estate in the manner hereinafter set forth.

(a) The Trustee shall pay to Grace R. Seligmann, wife of the Settlor, out of income, or out of income and principal as may be necessary, the sum of One Thousand Dollars ($1000.00) per month until her death, or until the principal sum shall have become exhausted, whichever event shall have prior occurrence.

(b) Should the said Grace R. Seligmann predecease the Settlor, or survive the Settlor and die before the principal sum has been exhausted, the remaining balance shall be divided into two equal portions and held for the benefit of the Settlor's two children, Julius Seligmann, Junior, and Mrs. Lee W. Strauss, should both be living, or the whole sum to the survivor thereof, provided however, that in the event either of these children should predecease the said Grace R. Seligmann, or survive her and die leaving surviving children, said children shall receive per stirpes the portion provided for herein for the deceased parent.

(c) Should the said Julius Seligmann, Jr., become a beneficiary hereunder, he shall be paid the sum of Five Hundred Dollars ($500.00) monthly until his portion of the fund shall have become exhausted, or until his death, whichever event shall have prior occurrence, and should he predecease the said Grace R. Seligmann, or survive her, and die leaving surviving children, said payments of Five Hundred Dollars ($500.00) per month shall be distributed in equal shares to such surviving children, until the principal sum shall have become exhausted, and should the said Julius Seligmann, Jr., die without issue, all benefits accruing to him hereunder shall accrue to his sister, the said Mrs. Lee W. Strauss, or her surviving children, if any, otherwise to the estate of the said Julius Seligmann, Jr.

(d) Should the said Mrs. Lee W. Strauss become a beneficiary hereunder, she shall be paid the sum of Five Hundred Dollars ($500.00) monthly until his (her) portion of the fund shall have become exhausted, or until her death, whichever event shall have prior occurrence, and should she predecease the said Grace R. Seligmann, or survive her, and die leaving surviving children, said payments of Five Hundred Dollars ($500.00) per month shall be distributed in equal shares to such surviving children, until the principal sum shall become exhausted, and should the said Mrs. Lee W. Strauss die without issue, all benefits accruing to her hereunder shall accrue to her brother, the said Julius...