Opinion
Docket No. 35478.
1953-07-30
ESTATE OF CAROLYN PECK BOARDMAN, NEW BRITAIN TRUST COMPANY, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Philip J. Woodward, Esq., for the petitioner. James R. McGowan, Esq., for the respondent.
1. ESTATE TAX— GROSS ESTATE— RETENTION OF INCOME— SECTION 811(c)(1)(B).—Where a trust reserved such income to the grantor ‘as the Trustees deem necessary for her comfort, support and/or happiness,‘ all of the income was paid to the grantor during her life, and, although the trust was amendable by sons of the grantor, it was not in fact amended during her life, the grantor has retained the right to income from the property for a period which did not in fact end before her death and the trust property is includible in her gross estate under section 811(c)(1)(B) of the Internal Revenue Code.
2. 1D.— RECIPROCAL TRUSTS.— Portion of reciprocal trust to be included in gross estate determined. Philip J. Woodward, Esq., for the petitioner. James R. McGowan, Esq., for the respondent.
The Commissioner determined a deficiency of $35,515.30 in estate tax. The only issues for decision are whether any part of the corpus of an inter vivos trust is includible in the gross estate and, if so, how much.
FINDINGS OF FACT.
The return for the estate was filed with the collector of internal revenue for the district of Connecticut.
Carolyn, the decedent, and Henry B. Boardman were husband and wife. Their children were William E. B. and Ronald P. Boardman. Henry was born on August 7 and Carolyn on September 13, 1869.
Henry, for many years president of a bank in Schenectady, New York, suffered a nervous breakdown in 1932 and was in a sanatorium in Wellesley, Massachusetts, in June 1935 while Carolyn resided nearby. William, employed by a bank in Boston, was consulted by his parents because his father was worried about their investments, and his mother, inexperienced in such matters, wanted relief from managing and keeping account of those investments. It was decided to create two trusts to which the parents would convey some of their smaller investments and thus relieve Carolyn and obtain the services of a corporate trustee. The Old Colony Trust Company drew up the two similar trusts and they were executed by Henry and Carolyn.
Carolyn made a transfer in trust of 16 securities on June 18, 1935. Their then value was $62,953.76. She named her son William and Old Colony Trust Company trustees. Henry, on the next day, made a similar transfer of 13 securities then worth $65,963.76. He added additional securities on June 29, 1935, then worth $2,262.50. Carolyn, on December 29, 1939, added securities worth $5,000 to the trust created by her. The property transferred to each trust by the grantor represented about one-third of the property of that grantor.
The petitioner ‘concedes that the trust created nominally on June 18, 1935, by Carolyn P. Boardman and the trust created nominally on June 19, 1935, by Henry B. Boardman are reciprocal, to the extent of the smaller of the two amounts originally contributed, and that Carolyn P. Boardman may be regarded as the grantor of the trust extent.‘ The trust of which Carolyn is thus to be regarded as the grantor was not made in contemplation of death. It will be referred to hereafter as the trust.
The first purpose of the trust was to make such distributions from income and principal to Carolyn ‘during her life, as the Trustees deem necessary for her comfort, support and/or happiness.‘ Any income not so disbursed was to be added to the principal fund and invested. The sons and their families were to become equal beneficiaries after Carolyn's death.
William, with the consent of Ronald, and, after the death of William, Ronald, with the consent of the trustees, was given ‘the right at any time or times to amend this trust in whole or in part by an instrument in writing delivered to the Trustees‘ and consented to by the trustees. No amendment could affect the equality of the snares of the brothers and their families. Those powers of amendment were not exercised during the life of Carolyn. The purpose of including such powers is not explained in the record.
The trustees were to render each year an account ‘to the person or persons of full age entitled to the time to receive the income thereof: and the written approval of the account by that person was to be final and binding for the future.
Henry died in 1940. Carolyn died on March 19, 1947.
Practically all of the income of the trust after expenses for the years up to the death of Carolyn was either distributed to her or accumulated and later distributed. None was distributed to any other person during that period. The following table shows the income of the trust before expenses, the distributions to Carolyn, and the balance in the hands of the trustees for that period:
+--------------------------------------------------------+ ¦Year ended June 30¦Income ¦Distributed to¦Balance ¦ +------------------+---------+--------------+------------¦ ¦ ¦ ¦Carolyn ¦ ¦ +------------------+---------+--------------+------------¦ ¦1936 ¦$2,318.15¦$1,875.00 ¦$183.27 ¦ +------------------+---------+--------------+------------¦ ¦1937 ¦3,217.98 ¦2,700.00 ¦446.75 ¦ +------------------+---------+--------------+------------¦ ¦1938 ¦3,464.95 ¦2,700.00 ¦944.15 ¦ +------------------+---------+--------------+------------¦ ¦1939 ¦2,785.95 ¦2,700.00 ¦727.51 ¦ +------------------+---------+--------------+------------¦ ¦1940 ¦3,192.26 ¦ ¦3,547.67 ¦ +------------------+---------+--------------+------------¦ ¦1941 ¦3,522.36 ¦ ¦6,600.10 ¦ +------------------+---------+--------------+------------¦ ¦1942 ¦3,906.74 ¦ ¦9,790.95 ¦ +------------------+---------+--------------+------------¦ ¦1943 ¦4,185.50 ¦ ¦ 2,704.18¦ +------------------+---------+--------------+------------¦ ¦1944 ¦3,918.96 ¦2,449.64 ¦ FN1 $10,500 transferred to principal account Oct. 22, 1942.FN2 $3,000 transferred to principal account Sept. 30, 1943.
816.04 ¦ +------------------+---------+--------------+------------¦ ¦1945 ¦4,026.00 ¦4,420.00 ¦191.98 ¦ +------------------+---------+--------------+------------¦ ¦1946 ¦4,484.15 ¦4,060.00 ¦273.21 ¦ +------------------+---------+--------------+------------¦ ¦1947 ¦not shown¦3,395.00 ¦not shown ¦ +--------------------------------------------------------+
There was distributed to Carolyn out of the principal account $2,900 on December 1, 1943, and $10,000 on March 11, 1947.
No part of the trust corpus was shown in the gross estate on the estate tax return. The Commissioner, in determining the deficiency, included the trust corpus in the gross estate of Carolyn at $121,490.20 as a transfer within section 811(c) and (d).
All stipulated facts are incorporated herein by this reference.
OPINION.
MURDOCK, Judge:
The Commissioner does not contend that the transfer in question was made in contemplation of death or that section 811(d) applies. He relies only upon section 811(c)(1)(B) and (C). Section 811(c)(1)(B) includes in the gross estate the decedent's interest in property transferred in trust if the decedent retained the right to the income from the property for her life or for any period which in fact does not end before her death. The petitioner argues that the decedent did not retain the right to the income for any period since she gave William the right, with the consent of Ronald and the trustee, to amend the trust and he could have changed it so that she would not receive the income, since she was to receive the income not as her absolute right but only as the trustees might deem it ‘necessary for her comfort, support and/or happiness‘ and since she had ample other income so that the income of the trust was not necessary for her comfort, support, or happiness.
It was not intended that anyone else should have the income from the trust so long as Carolyn lived. The petitioner, in its brief, states:
The Trust clearly contemplated payments of income or principal to the decedent ‘as the Trustees deem necessary for her comfort, support and/or happiness.‘ Moreover, she did in fact receive payments from either the income or principal accounts which more or less approximated the amount of the net income of the Trust.
The petitioner further states in its brief:
The Trustees were also directed to consider her ‘happiness‘ as a basis for distributions and this was presumably the basis on which actual distributions were made, However, the word ‘happiness‘ offers no ascertainable standard to permit a court of equity to act. Commissioner v. Merchants National Bank of Boston, 320 U.S. 256.
Obviously, the word ‘happiness‘ offered no basis upon which the trustees could have withheld any income of the trust which the decedent might have desired during her life. This case, in which the grantor reserved and actually received the trust income, in the discretion of the trustees, for her own ‘comfort, support and/or happiness‘ is much stronger for the Commissioner than Estate of Payson Stone Douglass, 2 T.C. 487, affd. 143 F.2d 961, in which the grantor reserved the trust income subject to the discretion of the trustee for the ‘maintenance, education and support‘ of a minor child. It has been held that a remainder interest to charity has no ascertainable value where the corpus could be used at the discretion of the trustee for the ‘comfort, support, maintenance and/or happiness‘ of the life tenant. Merchants National Bank of Boston v. Commissioner, 320 U.S. 256. See also Henslee v. Union Planters National Bank, 335 U.S. 595. Those two cases are not in point here but they do indicate that the word ‘happiness‘ gives the life tenant rights far greater than those given by the words ‘comfort,‘ ‘support‘ and ‘maintenance.‘ Cf. Estate of Ida Rosenwasser, 5 T.C. 1043; Estate of Margaret P. Gallois, 4 T.C. 840, affd. 152 F.2d 81, certiorari denied, 327 U.S. 798; Blunt v. Kelly, 131 F.2d 632. The decedent, as grantor, effectively and intentionally retained the right to the income for her life or for a period which in fact did not end before her death. The trustees had to account to her and could not resist her demand for the income, as necessary to her happiness, under the provisions of the trust even though it was not all necessary for her comfort and support.
Here the power of amendment was never exercised and the decedent effectively retained the right to the income at least for a period which in fact did not end before her death. The transfer thus comes within section 811(c)(1)(B), section 811(c)(2) has no application, and the Commissioner properly included trust property in the gross estate.
The remaining question is what portion of the total value of the trust should be included in the gross estate. The petitioner argues that the decedent was the grantor to the extent of 6,295,376/6,822,626ths only because Carolyn contributed only $62,953.76 while Harry contributed $68,226.26 in June 1935. Carolyn contributed an additional $5,000 four and one-half years later which, the petitioner argues, can not be regarded as a reciprocal transfer to match the 1935 transfers by Henry. The Commissioner's position as stated in his brief is that Carolyn should be treated as the grantor of the trust (created by Henry) ‘at least to the extent of the percentage that results from dividing $67,953.76, the total amount originating with her, by $68,226.26, the total amount originating with her husband.‘ That is a fair solution of this point. The reason for the delay or for the second transfer by Carolyn was not explained. The petitioner concedes that Carolyn may be regarded as the grantor to the extent of her original contribution. Her second contribution, although made later, was to the same reciprocal trust. It made the two trusts approximately equal. It is not distinguishable for present purposes from her original transfer and the petitioner has not shown that the Commissioner erred by recognizing Carolyn as the grantor of the trust here in controversy to the extent of $67,953.76. Cf. Hanauer's Estate, 149 F.2d 857, certiorari denied 326 U.S. 770; Allan S. Lehman et al., Executors, 39 B.T.A. 17, affd. 109 F.2d 99, certiorari denied 310 U.S. 637.
The value of Series ‘G‘ bonds has been settled by the stipulation.
Decision will be entered under Rule 50.