Donnelly v. Commissioner

*1238OPINION.

Murdock. :

This trust was not a revocable trust within the meaning of section 802 (d) of the Revenue Act of 1926, as amended by section 401 of the Revenue Act of 1934. That section, as amended, provides for the inclusion in the gross estate of property transferred in trust by the decedent, “where the enjoyment thereof is subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke.” The decedent reserved no power to alter or amend. He purported to reserve the power to revoke the trust with the consent of his wife. Those two, being the only interested parties, could have revoked the trust at any time in the absence of that reservation. Stephens v. Moore, 298 Mo. 215; 249 S. W. 601. It has been held that a reservation of that kind is not a power to revoke within the meaning of the words above quoted. Helvering v. Helmholz, 296 U. S. 93; White v. Poor, 75 Fed. (2d) 35; affd., 296 U. S. 98.

Section 803 of the Revenue Act of 1932, entitled “Future Interests,” provides in part as follows:

(a) Section 302(c) of the Revenue Act of 1926, as amended by the .Toini, Resolution of March 3, 1931, is amended to read as follows:
“(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise * ⅜ ⅜ intended to take effect in iDossession or enjoyment at or after his death, or of which he has at any time made a transfer, 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 * ⅜ ⅜.”

The property in question is the $100,000 which the wife was to receive and did receive under the trust instrument upon the death of her husband. Possession of that property from the time of the creation of the trust until the death of the decedent was in the trustees. *1239The enjoyment of the property likewise took effect immediately when the trust was created. Thus, the transfer which the decedent made took effect in possession or enjoyment immediately, rather than at or after his death, and the decedent did not retain the possession of the property for himself during any period. May v. Heiner, 281 U. S. 238; Burnet v. Northern Trust Co., 283 U. S. 782; McCormick v. Burnet, 283 U. S. 784; Morsman v. Burnet, 283 U. S. 783; Helvering v. St. Louis Tr. Co., 296 U. S. 39; Becker v. St. Louis Union Trust Co., 296 U. S. 48; Frederick Davis Van Sicklin et al., Executors, 35 B. T. A. 306. Klein v. United States, 283 U. S. 231, is not in point because here the decedent divested himself of the entire estate and the remainder could vest in him only upon the happening of a condition precedent.

The remaining question is, Did the decedent retain for his life or for a period which in fact did not end before his death, the enjoyment of the property or the right to the income from the property, within the meaning of section 302(c), as amended? The respondent argues that the rights which the decedent retained in regard to the use of the income, that is, the right to have it used for their family and joint living expenses and for the support and maintenance of the wife, were such that the income of the trust would be taxable to the grantor under a line of cases beginning with Douglas v. Willcuts, 296 U. S. 1. See also Helvering v. Schweitzer, 296 U. S. 551; Helvering v. Stokes, 296 U. S. 551; Hill v. Commissioner, 88 Fed. (2d) 941: Commissioner v. Grosvenor, 85 Fed. (2d) 2. Cf. Helvering v. Blumenthal, 296 U. S. 552. The courts in those cases held that income from trusts set up by a husband and father for the support and maintenance of his wife, or for the payment of family living expenses, is income to him under the general definition of income, since it is used to discharge his obligations, and in that way he has the enjoyment and benefit of it. This is an estate tax case, not an income tax case, and it must be decided under the specific provisions of section 302 (c), as amended, rather than upon any analogy from income tax cases. The language of the statute does not clearly indicate that it was intended to apply to a situation like this. This decedent did not retain the enjoyment of the property nor the right to the income from the property, as those phrases are ordinarily understood. He retained no right to receive the income, and any enjoyment of the property or right to the income from the property came to him in a very indirect manner, if at all. The use of the income was not limited to the discharge of his legal obligations. The legislative history of the amendments to section 302 (c) of the Revenue Act of 1926 indicates that Congress was trying to prevent the evasion of estate tax in cases where the decedent retained a life *1240interest in trust property for himself and conveyed the remainder to others.

The following language appears in the report of the Ways and Means Committee of the 72d Congress, Report No. 708, p. 46:

The purpose of this amendment to section 302(c) of the revenue act of 1926 is to clarify in certain respects the amendments made to that section by the joint resolution of March 3, 1931, which were adopted to render taxable a transfer under which the decedent reserved the income for his life. The joint resolution was designed to avoid the effect of decisions of the Supreme Court holding such a transfer not taxable if irrevocable and not made in contemplation of death. * * *
(2) The insertion of the words “or for any period which does not in fact end before his death,” which is to reach, for example, a transfer where decedent, 70 years old, reserves the income for an extended term of years and dies during the term, or where he is to have the income from and after the death of another person until his own death, and such other person predeceases him. This is a clarifying change and does not represent new matter.
(3) The insertion of the words, “the right to the income” in place of the words “the income” is designed to reach a case where decedent had the right to the income, though he did not actually receive it. This is also a clarifying change.

Similar statements are contained in the Finance Committee Report, Report 665, p. 49. The discussion of the Joint Resolution of March 3, 1931, contained in the Congressional Record of that date, volume 74, pp. 7078, 7079, indicates that the purpose of the Joint Resolution was to preclude the possibility of estate tax avoidance through trusts where the grantor reserved the income to himself for life, or the right to the disposition of the income, with remainder to others, which, under decisions of the Supreme Court handed down on the previous day in the cases of Burnet v. Northern Trust Co., 283 U. S. 782; McCormick v. Burnet, 283 U. S. 784; Morsman v. Burnet, 283 U. S. 783, following May v. Heiner, 281 U. S. 238, were held not a part of the decedent’s gross estate under section 302 (c) of the Revenue Act of 1926.

This was not the kind of a trust that the amendments to section 302 (c) were intended to catch. It is obvious that the present trust was designed neither to evade estate tax nor as a substitute for a testamentary disposition of the decedent’s property. The decedent did not reserve the income to himself for life and convey the remainder to others. He knew that he was given to the intemperate use of alcohol and that there would probably be times when he would not have sense enough to take care of his wife or himself. He wanted his wife to have income with which to take care of herself and also himself at such times, and he wanted her at other times to have a small independent income. The fact that the decedent retained the right to receive all income in excess of $417 a month seems unimportant. The property in question is not the entire *1241corpus of the trust which, was placed there to produce income of $417, but is only $100,000 thereof. It is unlikely that a fund of $100,000 would produce more than $417 a month and expenses, and, furthermore, the evidence does not indicate that there ever was any excess from the entire trust fund. The application of section 302 (c), as amended, to this trust is doubtful, to say the least, and doubts under such circumstances must be resolved in favor of the taxpayer. The $100,000 was not properly included in the decedent’s estate under section 302 (c), as amended.

Reviewed by the Board.

Decision will be entered under Bule 50.