1944 U.S. Tax Ct. LEXIS 10">*10 Decision will be entered under Rule 50.
1. On February 3, 1927, decedent executed an inter vivos trust of personal property for the benefit of his five brothers and his wife, reserving "the privilege of changing the relative interests of the different beneficiaries at any time by reducing the interest of some and adding to the interests of others." The trust instrument further provided that the trustee should "wind up and distribute the trust as speedily as possible" upon the decedent's death, and that "on the death of any of the beneficiaries the interest of the deceased shall lapse and go to the other beneficiaries in proportion to their respective interests * * *." On April 15, 1929, decedent instructed the trustee to make a "first and last distribution" of cash to his five brothers, "liquidating their entire interest in the trust," and the trustee complied with that instruction. Decedent died December 21, 1940, leaving his wife surviving him. Held:
(1) The corpus of the inter vivos trust is not includible in decedent's gross estate under section 811 (d) (2) of the Internal Revenue Code, as the single exercise by decedent of the right to change the relative interests1944 U.S. Tax Ct. LEXIS 10">*11 of the different beneficiaries exhausted it.
(2) The corpus of the inter vivos trust is not includible in decedent's gross estate under the rule of Helvering v. Hallock, 309 U.S. 106">309 U.S. 106.
2. Executors' commissions, otherwise allowable under applicable state statutes and under Federal estate tax law, are allowable without diminution, although a portion thereof is refused by one of three coexecutors.
3. Estimated additional attorneys' fees and executors' commissions to be incurred and paid before completion of the administration of the estate, held to be reasonable and therefore deductible.
4 T.C. 449">*450 The petition herein was filed for the purpose of contesting deficiencies determined by the Commissioner in the amount of $ 20,109.58 in Federal estate tax against the estate of I. H. Burney, deceased. Decedent died December 21, 1940, and the estate tax return was duly filed with the collector of internal revenue for the second district of Texas, 1944 U.S. Tax Ct. LEXIS 10">*12 at Dallas, Texas. Petitioners claim an overpayment in their amended petition.
Two issues are presented for determination. The first is whether the community one-half of the corpus of the trust created by the decedent on February 3, 1927, is includible in his estate under section 811 of the Internal Revenue Code. The second is whether, and in what amounts, attorneys' fees and executors' commissions which have been paid, and which it is anticipated will be paid before administration of the estate is concluded, are allowable deductions.
All other issues raised by the petition filed in these proceedings have been disposed of as follows:
Petitioners alleged that respondent erred "in including in the gross and net estate of I. H. Burney, Deceased * * * certain real estate located in Tarrant County, Texas, * * *" In connection with this assignment of error, it has been stipulated as follows:
In the said Federal Estate Tax return there was included as an asset of decedent's estate certain real estate described in detail at item 3 of Schedule A of the return which was valued in the return (as to decedent's community one-half) at $ 3,000.00. In his determination of the deficiency involved1944 U.S. Tax Ct. LEXIS 10">*13 in this proceeding, Respondent valued decedent's interest in the aforementioned real estate at $ 3,234.26. Both the return and Respondent's determination were made under the mistaken belief that the property in question consisted of 78.83 acres of land. It has subsequently developed that decedent never at any time had any ownership of or title to 15.03 acres of such lands. Because of this, Respondent's determination of the value of the net estate of decedent for both the basic and the additional estate tax is excessive by not less than $ 752.70.
Petitioners also alleged that respondent erred "in failing and refusing to take into account Federal Estate taxes in the amount of $ 2,514.53 paid by the Executors on or about March 22, 1943 * * * " In connection with this assignment of error, it has been stipulated as follows:
After the filing of the estate tax return for the Estate of I. H. Burney, Deceased, and after the payment of the tax liability in the amount of $ 32,122.51, disclosed thereby, but before the mailing of the deficiency notice, dated July 7, 1943, from which this appeal was taken, based on certain proposed adjustments to the reported Estate of the decedent, that were1944 U.S. Tax Ct. LEXIS 10">*14 thereafter incorporated in the deficiency notice, which adjustments are not here in controversy, Petitioners, on or about March 22, 1943, paid additional estate taxes in the amount of $ 2,514.53, together with interest thereon as provided by law. In the determinations of the deficiency set out in Exhibit "A" of the petition herein, no effect was given by Respondent to this payment of additional estate tax. The parties herewith agree that the estate taxes heretofore assessed against the Estate 4 T.C. 449">*451 of I. H. Burney, Deceased, and duly paid, total $ 34,637.04 instead of $ 32,122.51, as set out in the deficiency notice.
Finally, petitioners alleged that respondent erred "in failing and refusing to allow as a credit against the basic Federal Estate tax imposed by Section 810 of the Internal Revenue Code an adequate credit for the inheritance taxes due by the Estate of I. H. Burney, Deceased, to the State of Texas." In connection with this issue, petitioners stated on brief that "whether an estate tax will be due the State of Texas, under Article 7144a of the Revised Civil Statutes of Texas, will depend on the outcome of the present proceedings. Accordingly, the issue raised by 1944 U.S. Tax Ct. LEXIS 10">*15 * * * the Petition may be disposed of under section 813 (b) (1) of the Internal Revenue Code."
FINDINGS OF FACT.
We adopt the stipulation of facts filed in this proceeding as part of our findings herein. The stipulated facts, together with other evidence adduced at the trial, may be summarized as follows:
I. H. Burney (hereinafter called decedent) died on December 21, 1940. Henry P. Burney, Belle L. S. Burney, and Elmer Renfro, petitioners herein, are the duly appointed, qualified, and acting independent executors and trustees of the will and estate of the decedent. At the date of the latter's death all of the property owned or held by him constituted, under the laws of Texas, community property of decedent and his wife, Belle L. S. Burney, as to which decedent's interest was an undivided community one-half interest.On or about February 16, 1942, petitioners filed a Federal estate tax return for the estate of I. H. Burney, deceased. This return disclosed a net estate for the basic estate tax imposed by section 810 of the Internal Revenue Code of $ 167,058.51 and a net estate for the additional estate tax imposed by section 935 of the Internal Revenue Code of $ 227,058.51.
On February1944 U.S. Tax Ct. LEXIS 10">*16 3, 1927, decedent executed an instrument in writing declaring an express trust in certain shares of the capital stock of Maxwell-Clark Drug Co. and on the same date transferred to Henry P. Burney, in trust, to be held and disposed of under the terms of said trust, ten shares of the capital stock of Maxwell-Clark Drug Co. The trust was created for the benefit of the settlor's five brothers and his wife. The trust instrument reads as follows:
That I, the undersigned, desiring to be of assistance to those I love while we are all living and hoping to help others in a different manner and time, I here now create a trust in favor of the six beneficiaries hereinafter named and I hereby appoint my much loved and trustworthy nephew Henry P. Burney as trustee to administer this trust. I name the beneficiaries and recite their respective interests in this trust as follows:
4 T.C. 449">*452 W. D. Burney with a one tenth interest.
J. G. Burney with a one tenth interest.
William Burney with a one tenth interest.
Lee Burney with a one tenth interest.
John W. Burney with a one tenth interest.
Belle L. S. Burney with a five tenths interest.
The subject matter of this trust to begin with, is ten1944 U.S. Tax Ct. LEXIS 10">*17 shares of stock in the Maxwell-Clark Drug Company represented by certificate No. 305 issued on this date, which I have just purchased from May Whitsett paying par value therefor. I have had same issued to said trustee in connection with the creation of this trust but to facilitate his handling of the stock, I do not disclose on the face of said certificate his trusteeship. I hope to purchase and add to this trust other shares of said stock in like manner, or if not said stock then to add other stocks, bonds, or like assets in the future; and in adding other items of this trust it shall only be necessary to describe the same by memorandum or list attached hereto advising the trustee and turning same over to him to be administered hereunder.
The said Henry P. Burney accepts and agrees to administer this trust without commission fees or charges of any kind; but he shall in no wise be liable for any losses hereunder arising from want of care or even for negligence or erroneous judgment, nor in any way unless for willful misappropriation or intentional malfeasance; and he shall not be required to give any bond or security in the premises. He shall endeavor, however, to carefully administer1944 U.S. Tax Ct. LEXIS 10">*18 and conserve the subject matter of the trust, and he may sell, mortgage, pledge, handle, invest and reinvest the same or proceeds thereof as if same were his own, to the end of realizing as much income as possible therefrom while same is in his hands. He shall, however, give reasonable consideration to my suggestions as to reinvestments; and I reserve the privilege of changing the relative interests of the different beneficiaries at any time by reducing the interest of some and adding to the interests of others. I also reserve the privilege while living of requiring the trustee at any time to wind up and distribute the subject matter of the trust or to make partial distribution of the trust; and upon my death he shall wind up and distribute the trust as speedily as possible.
On the death, incapacity, or refusal to act of said trustee I may appoint a substitute trustee with the same powers, if I am living and capable of doing so, otherwise a majority in number of the beneficiaries may do so.
On the death of any of the beneficiaries the interest of the deceased shall lapse and go to the other beneficiaries in proportion to their respective interests as above recited.
On December 21, 1944 U.S. Tax Ct. LEXIS 10">*19 1940, the date of the death of decedent, the trust assets then on hand had a fair market value of $ 128,743.80. Each and every asset transferred by decedent to the trust was at the time of transfer the community property of decedent and his wife. Decedent, who was much older than his wife, was survived by his wife and by four of his five brothers who were named by him as beneficiaries of the trust.
On April 15, 1929, decedent addressed a letter to Henry P. Burney, trustee. This letter is incorporated herein in its entirety by reference. In it decedent directed the trustee to make certain distributions of 4 T.C. 449">*453 trust property to his five brothers. Those instructions were in the following terms:
* * * I have decided to ask you to distribute the whole of the cash you now have, to wit: $ 30,321.84, to the above named five brothers, beneficiaries, and let this be the first and last distribution to them, liquidating their entire interest in the trust; * * * Anyway, the above is my decision and you may attach this letter to the trust instrument to evidence the change in the interest in the beneficiaries, and as your authority to make said partial distribution of the trust, in accordance1944 U.S. Tax Ct. LEXIS 10">*20 with instructions herein contained. You understand, I am not seeking to revoke the trust in part at all. I have no such power. I am only changing the relative interests of the beneficiaries.
On April 16, 1929, the trustee handed to each of the five brothers of decedent a check in the amount of $ 6,064.37 and advised them at the same time by a letter, which is incorporated herein in its entirety by reference, that the payment thus made was "in complete settlement of your interest in the trust." The said five checks were tendered to and accepted by the payees thereof for the purposes and under the terms and conditions set out in the letter dated April 16, 1929.
On December 21, 1931, decedent addressed a letter, which is incorporated herein in its entirety by reference, to the trustee in which he advised the latter that he was thereby formally passing to him as trustee additional shares in Maxwell-Clark Drug Co., together with some shares in Tarrant County Building & Loan Association, to be added to the corpus of the trust created February 3, 1927, "in favor of my wife as the sole remaining beneficiary under said trust." And on February 23 and July 5, 1928, decedent transferred more1944 U.S. Tax Ct. LEXIS 10">*21 shares of Maxwell-Clark Drug Co. to the trust dated February 3, 1927.
In his last will and testament, bearing the date of April 24, 1940, decedent provided in part as follows:
3. Dispositions, Gifts, Bequests and Devises with comments and suggestions.
* * * *
(b) On February 3rd. 1927, I executed to Henry P. Burney, Trustee, a Trust Instrument on certain assets then assigned and entrusted to him as Trustee, and since then other assets under the terms of said Trust have been assigned and transferred to him as Trustee, as will be shown by the records of said Trust in the hands of said trustee. The beneficiaries named in said Trust at its date were my then living five brothers and my wife, said brothers having half interest and my wife having the other half. Some years later but many years ago the interests of my brothers in said Trust were paid off, satisfied and relinquished by them to my wife and she became and is now the sole owner of all the property in said Trust and while no authoritative appraisement of the assets of said Trust has been made, it is my estimate that said value in good and liquid assets, loans and real estate, and corporate stocks and bonds, exceeds $ 100,000.00. 1944 U.S. Tax Ct. LEXIS 10">*22 While I am sure that no reasonable construction of the facts nor interpretation of said Trust could be made that would show any interest in the property of said Trust in me or anything less than an absolute title to said Trust property in my wife, nevertheless 4 T.C. 449">*454 to eliminate the possibility of such contention, I now here give, devise and bequest to my wife if she survives me all interest in said Trust property which I might under any circumstances be held to have or own. I desire however, to note here that as hereinabove stated and recited my wife will doubtless make a will in accord with the mutual plan hereinabove mentioned whereby one-half of the residue of all our accumulations, including this Trust property, shall finally go to my relatives and the other half to her relatives, or as she may direct. Such being the spirit and desire of both of us, the survivor of the two of us, even if neither should make an early Will of any kind, would doubtless see to it that in the end and by the survivor's final Will, said desire and purpose should be honored. The fundamental meaning and purpose of said Trust was and is to contribute to the protection of my wife in the 1944 U.S. Tax Ct. LEXIS 10">*23 event of honest but unfortunate management or happenings to our estate, or more or less general property disaster during my life; and such design and purpose is entirely harmonious with the idea that finally half of the residue of our total accumulations, including said Trust Property, may go to my wife's relatives and the other half to my relatives. Of course this plan will not and must not affect my wife's spending and it is my desire that she shall always live well and comfortably and spend reasonably, and hence the guaranty to her of a twelve thousand dollar annual net income.
Under part 5 of his will, I. H. Burney further provided as follows:
5 -- IN CASE MY WIFE PREDECEASES ME
Being much older than my wife, and she being in excellent health, it is almost certain that she will survive me. But in the remote contingency that I should survive her or that we should die concurrently and in order that this Will shall be effective in either contingency, it is my Will that * * *.
No part of the corpus of the trust created February 3, 1927, was included in the Federal estate tax return of decedent.
Executors' fees and attorneys' fees over and above those claimed as a deduction in the1944 U.S. Tax Ct. LEXIS 10">*24 estate tax return of decedent have heretofore been incurred and paid as follows: Executors' fees, $ 4,502.44; attorneys' fees, $ 5,190. 1 In addition to the executors' fees of $ 4,502.44 paid in equal parts to Elmer Renfro and Henry P. Burney, as executors, further executors' fees in the sum of $ 2,251.22 have been incurred. These additional fees were endered to Belle L. S. Burney, the third executor of the estate of I. H. Burney, deceased, in the form of two checks both payable to her order, one dated December 14, 1942, in the amount of $ 1,378.72, and the other dated December 15, 1943, in the amount of $ 872.50. The checks so issued were refused by Belle L. S. Burney and they have been canceled. The funds represented thereby are being held by the estate for disposition under the terms of a series of identical written agreements, all dated on or about January 18, 1941, between each and every beneficiary under the will of decedent and the executors of the estate of decedent. One of these agreements is attached to the 4 T.C. 449">*455 stipulation filed in this proceeding and is incorporated herein in its entirety by reference. The particular provision relating to the intended disposition1944 U.S. Tax Ct. LEXIS 10">*25 of the executors' fees, amounting to $ 2,251.22, which were tendered to and refused by Belle L. S. Burney, is as follows:
All commissions that said Executor-Trustees are entitled to receive by virtue of the provisions hereof shall be divided between them in such proportion as may be agreed upon by them, or in the case of disagreement, by a majority of the then qualified and acting Executor-Trustees.
Under the above quoted provision, Henry P. Burney and Elmer Renfro, executors, have agreed to pay the $ 2,251.22 tendered to and refused by Belle L. S. Burney, the third executor, to themselves in equal shares.
For the period December 21, 1940, to November 30, 1942, the cash receipts from the community property of decedent and Belle L. S. Burney, his wife, within the purview 1944 U.S. Tax Ct. LEXIS 10">*26 of article 3689, Revised Civil Statutes of Texas, totaled $ 130,252.64, and the sums paid out in cash therefrom totaled $ 35,193.82. For the period December 1, 1942, to November 30, 1943, such cash receipts totaled $ 66,887.09 and such disbursements totaled $ 33,062.36. The full amount (i. e., 5 percent) of the executors' fees allowable by article 3689 of the Revised Civil Statutes of Texas with respect to such receipts and disbursements has not been claimed by the executors. The amount of executors' fees was computed in accordance with the agreements of January 18, 1941, which limited the amount of receipts and disbursements upon which such computation was to be made to that one-half of such receipts and disbursements to which decedent's four brothers, eight nieces, and eight nephews and Mamie N. Burney, the widowed sister-in-law of decedent, were entitled as devisees under the will of decedent. The commissions and fees allowed by law with respect to the receipts and payments attributable to the one-half interest of decedent's surviving wife in the community property of herself and her deceased husband have been waived by the executors. The agreements dated January 18, 1941, 1944 U.S. Tax Ct. LEXIS 10">*27 and the waiver were motivated in part by the fact that Belle L. S. Burney threatened to contest the will of her late husband, I. H. Burney.
As of the date of the hearing of this case, March 22, 1944, the administration of the estate of I. H. Burney, deceased, had not been completed. In addition to the final determination of the amount of the liability of the estate under Federal estate tax laws, the estate's liability for state inheritance taxes was yet to be determined. Also, some stocks and bonds of the Texas Co. and of a few other companies were yet to be transferred. In the opinion of Henry P. Burney, one of the executors of the estate, a modest estimate of the amount of further executors' commissions, computed in accordance with article 3689 of the Revised Civil Statutes of Texas and with the agreements dated January 18, 1941, and of additional attorneys' fees which would 4 T.C. 449">*456 be incurred subsequent to November 30, 1943, and paid before the administration of the estate would be terminated, is not less than $ 5,000.
OPINION.
The first question we must determine is whether the community one-half of the corpus of the trust created by the decedent on February 3, 1927, is includible1944 U.S. Tax Ct. LEXIS 10">*28 in his estate under section 811 (d) (2) of the Internal Revenue Code. 2 Expressed in terms of the statute quoted in the margin, the question is whether and to what extent the decedent had the power to alter, amend, or revoke the trust which he created on February 3, 1927, so that the enjoyment of the interests created by the trust was subject at the date of the decedent's death to any change through the exercise of that power. It is conceded by the petitioner that the decedent had such a power at the time of the creation of the trust. That power is to be found in that sentence of the trust instrument which reads as follows: "I reserve the privilege of changing the relative interests of the different beneficiaries at any time by reducing the interest of some and adding to the interests of others." However, the petitioner contends that the meaning of that provision in the trust instrument is such that, once having been exercised by the decedent, who directed the trustee to distribute to decedent's five brothers a pro rata share of the trust property as "the first and last distribution to them, liquidating their entire interest in the trust," the decedent at the time of his death1944 U.S. Tax Ct. LEXIS 10">*29 had no power to alter, amend, or revoke the trust. In other words, petitioner contends that the power reserved by the settlor in the trust instrument to change the proportional shares of the beneficiaries was exhausted by the single exercise thereof. Respondent, on the other hand, contends to the contrary, emphasizing that the language used in the trust instrument, particularly the words "at any time," did not restrict the decedent in exercising the powers granted to one time only or any particular number of times and that the decedent retained this privilege until the day of his death.
1944 U.S. Tax Ct. LEXIS 10">*30 4 T.C. 449">*457 The facts in the instant case establish that the decedent exercised the power which he reserved to himself "of changing the relative interests of the different beneficiaries at any time by reducing the interest of some and adding to the interests of others" by directing the trustee to distribute the sum of $ 30,321.84 to his five brothers, who, together with decedent's wife, comprised all of the beneficiaries of the trust. As part of that direction, the decedent stated to the trustee that such distribution to the five brothers was to be "the first and last distribution to them, liquidating their entire interest in the trust." In compliance with the decedent's instructions, the trustee delivered to each of the five brothers a check in the amount of $ 6,064.37, simultaneously therewith advising each of them that that payment was "in complete settlement of your interest in the trust," and the brothers accepted these checks on that condition. The expressions of the decedent contained in his last will and testament make clear that he believed that his action had liquidated his brothers' interests in the trust.
We are of the opinion that the manner in which the decedent exercised1944 U.S. Tax Ct. LEXIS 10">*31 the power was consistent with the terms of that power and that, as a result of the action taken by the decedent, all beneficial interest of the brothers in the trust was effectively and finally eliminated. Faulkner v. Irving Trust Co., 246 N. Y. S. 313; Meyer v. Bank of Manhattan Trust Co., 249 N. Y. S. 640; 65 Corpus Juris 344. With the elimination of all five of the brothers as beneficiaries, the decedent's wife remained the sole beneficiary, and the decedent's power "of changing the relative interests of the different beneficiaries at any time by reducing the interest of some and adding to the interests of others" became incapable of being exercised again for want of more than one beneficiary. We are, therefore, of the opinion that when the decedent exercised the power to change the proportional shares of the beneficiaries by requiring the trustee to make a first and last distribution to the five brothers, thus eliminating them as beneficiaries of the trust, the power was exhausted, because such a power, once having been exercised in the manner in which the decedent in the instant case exercised it, was, by1944 U.S. Tax Ct. LEXIS 10">*32 its very nature, incapable of being exercised again. Therein lies the similarity between the instant case and such cases as Lloyd's Estate v. Commissioner, 141 Fed. (2d) 758, and Day v. Commissioner, 92 Fed. (2d) 179, because the power in each of the latter cases, once having been exercised, was, by its very nature, incapable of being exercised again. It was also the case in Morton v. Commissioner, 109 Fed. (2d) 47, 3 although there is language by the court which has caused that case to be cited as holding to the 4 T.C. 449">*458 contrary. We, therefore, hold that the decedent in this respect did not have the power to alter, amend, or revoke the trust at the time of his death in the sense required by section 811 (d) (2) of the Internal Revenue Code. Cf. Estate of Flora W. Lasker, 47 B. T. A. 172; affd.; 141 Fed. (2d) 889.
1944 U.S. Tax Ct. LEXIS 10">*33 The respondent cites three cases -- Union Trust Co. of Pittsburgh v. Driscoll, 138 Fed. (2d) 152; certiorari denied, 321 U.S. 764">321 U.S. 764; Chickering v. Commissioner, 118 Fed. (2d) 254; certiorari denied, 314 U.S. 636">314 U.S. 636; and Guggenheim v. Helvering, 117 Fed. (2d) 469 -- which he asserts compel an opposite result. In all of these cases the expressed power may have been broad enough to permit the exercise thereof on more than one occasion. However, the cases are distinguishable from the instant case because in none of the cases cited by the respondent was there ever an exercise of the power during the lifetime of the settlor. The decisions in those cases turned, generally speaking, on the ground that the trusts therein involved contained a provision which rendered the enjoyment of the property subject to a power in the transferor to "alter, amend or revoke" within the purview of what is now section 811 (d) (2) of the Internal Revenue Code. They did not involve the question of whether a single exercise of the particular powers therein1944 U.S. Tax Ct. LEXIS 10">*34 involved would have exhausted those powers.
Mellon v. Driscoll, 117 Fed. (2d) 477; certiorari denied, 313 U.S. 579">313 U.S. 579, and Welch v. Terhune, 126 Fed. (2d) 695; certiorari denied, 317 U.S. 644">317 U.S. 644, are not authority to the contrary. The distinction between the holding in those cases and the instant one is pointed out in Estate of Harry Holmes, 3 T.C. 571, 577, as follows:
Thus in Mellon v. Driscoll the exercise of the power of revocation or termination meant a new conveyance of the corpus to the beneficiaries. In the instant case the remainder interests in the trust corpus, as well as the right to receive the income during the term of the trust, subject to the right of the trustee to either distribute or accumulate the income for the named beneficiaries, were irrevocably vested in the three beneficiaries by the trust indenture itself, and an exercise by the settlor of his power to terminate the trust meant only an acceleration of the time of enjoyment. The settlor reserved no power whatsoever to change the portions of the corpus1944 U.S. Tax Ct. LEXIS 10">*35 which each beneficiary was to receive.
* * * *
But in transfers made on or prior to June 22, 1936, where the settlor has retained only a power to terminate the trust and has retained no power to revest in himself or in his estate any part of the trust corpus or to change or alter the disposition of the trust corpus already given to the beneficiaries under the terms of the trust indenture, but only to accelerate the time of its enjoyment, we do not think the value of the trust corpus is includible under section 811 (d) (2), Internal Revenue Code, or any other provision of the Internal Revenue Code. * * *
Respondent further contends that the community one-half of the corpus is includible in decedent's estate "because of the possibility of reverter," arguing that:
4 T.C. 449">*459 "If the contentions of petitioner are correct, that is, that decedent's wife was the sole beneficiary at decedent's death, it would appear that if she had predeceased her husband, her interest in the trust would have lapsed for want of a beneficiary under the last paragraph of the trust instrument, which is as follows:
On the death of any of the beneficiaries the interest of the deceased shall lapse and go to the1944 U.S. Tax Ct. LEXIS 10">*36 other beneficiaries in proportion to their respective interests as above recited.
In such event such corpus would have reverted to the decedent.If the respondent's position in this respect were limited to the contention that the community one-half of the corpus is includible in decedent's estate solely because of the possibility of reverter, our recent decision in the case of Estate of Joseph K. Cass, 3 T.C. 562, wherein we stated at page 565 that "Notwithstanding the discussion found in Estate of Ellen Portia Conger Goodyear, 2 T.C. 885, and some of our other cases, of the probability of a reversion of the trust assets of the grantor, we do not think that the doctrine of the Hallock case 4 applies where there has been no express retention by the grantor of any reversionary rights in the trust assets," would require a decision against the respondent. And, were it not for the presence of the clause quoted above relating to the death of any of the beneficiaries, it seems clear that such case as Reinecke v. Northern Trust Co., 278 U.S. 339">278 U.S. 339, rather than either the Hallock1944 U.S. Tax Ct. LEXIS 10">*37 case or Klein v. United States, 283 U.S. 231">283 U.S. 231, would be controlling in the instant case. But, the respondent's position also involves the contention that, because of the presence of the clause quoted above relating to the death of any of the beneficiaries in the trust instrument, the settlor's wife had to survive the settlor before she or her estate would be entitled to receive anything under the trust, even though she was the sole remaining beneficiary. We can not agree with respondent's contention. We are of the opinion that upon the creation of the trust the settlor's wife had a vested interest in fee 5 in the corpus of the trust, subject to being divested only if she died at a time when some one of the other named 4 T.C. 449">*460 beneficiaries were living. That condition subsequent was wholly unrelated to the settlor's death. When all the other beneficiaries were eliminated and the settlor's wife became the sole beneficiary, her interest became indefeasible. The settlor did not intend the clause relating to the death of any of the beneficiaries to have any operation except in a case where a named beneficiary died leaving at least one other named1944 U.S. Tax Ct. LEXIS 10">*38 beneficiary living at the time. The purpose of requiring that the interest of a beneficiary should lapse upon his death was manifestly to cause his share to be divided among the remaining living beneficiaries and not either to have the share of the deceased beneficiary pass to his estate while other beneficiaries lived, or to enable the settlor to reacquire the whole interest in that which he had given away completely, as would be the case if the share of a sole surviving beneficiary were to lapse upon death prior to the settlor's death. The elimination of all the other beneficiaries can not be made the ground for holding that the wife's interest would lapse if she predeceased the settlor or for imposing a new condition, subsequent or precedent, on the wife's interest. The decision by the Supreme Court of Pennsylvania in the case of In re Haydon's Estate, 6 Atl. (2d) 581, fully supports this conclusion. There the testator made bequests of $ 50,000 to each of his two daughters. The gift to Mary read as follows: "I give my daughter, Mary * * * Fifty thousand dollars to be placed in trust * * * the interest to be paid her semi-annually during her life. 1944 U.S. Tax Ct. LEXIS 10">*39 If she dies without issue the said sum * * * will revert to her sister Bertha * * *." Immediately preceding this gift there was a like provision bequeathing $ 50,000 to the other daughter, Bertha, with a gift over to Mary in case Bertha should die without issue. Both daughters survived the testator. Bertha died intestate and without issue on March 14, 1925. Then Mary died without issue on October 17, 1937. The court did not hold that Mary's interest lapsed. On the contrary, it held Mary's interest was a fee and not a mere life estate and that Mary's interest passed to her estate and not under the residuary clause of her father's will. The court specifically rejected the contention that when one daughter had died and her share passed to the survivor, and the surviving daughter then died without issue, the second gift over would operate to divest the latter's interest and vest it in the estate of the daughter who had been dead for many years. The court in the Haydon case stated at page 584 of its opinion that "the sole purpose of the gifts over was to vest the entire estate in the survivor. Once this purpose had been accomplished he had no desire to further control the 1944 U.S. Tax Ct. LEXIS 10">*40 disposition of the property. The reason for applying the gifts over then ceased to exist * * *." So, in the instant case, with the elimination of all 4 T.C. 449">*461 the settlor's brothers as beneficiaries, the reason for applying the gifts over or for holding that the wife's interest would lapse upon her death prior to the settlor's death, ceased to exist. The death of the settlor's wife prior to the settlor's death would not, in the instant case, divest the wife of her interest in the trust. Tapp v. Baskin (Ky., 1932), 55 S. W. (2d) 29. We are, therefore, of the opinion on the first issue that the community one-half of the corpus of the trust created by the decedent on February 3, 1927, is not includible in his estate.
1944 U.S. Tax Ct. LEXIS 10">*41 We now turn to the second issue in this case, namely, whether, and in what amounts, attorneys' fees and executors' commissions which have been paid and which it is anticipated will be paid before the administration of the estate is concluded, are allowable deductions. This question is governed by section 812 (b) (2) of the Internal Revenue Code. 6
This issue is divided into two parts. The first of these concerns the deductibility of the sum of $ 2,251.22, which is equal to one-third of the executors' commissions allowable under articles 3689 and 3690 of the Revised Civil Statutes of1944 U.S. Tax Ct. LEXIS 10">*42 Texas. That much is admitted by both petitioner and respondent. The latter claims that, inasmuch as these fees in the amount of $ 2,251.22 were tendered to and waived by Belle L. S. Burney, as executrix, they became a part of the corpus of the estate for distribution to the beneficiaries under the will of the decedent. Petitioners claim that, inasmuch as Belle L. S. Burney declined to accept her share of the executors' commissions, Henry P. Burney and Elmer Renfro, as the two remaining executors under the will of I. H. Burney, deceased, have the right, under an agreement between them and the legatees and devisees under the will of I. H. Burney, deceased, providing that "All commissions that said Executor-Trustees are entitled to receive * * * shall be divided between them in such proportion as may be agreed upon by them, or in case of disagreement, by a majority of the then qualified and acting Executor-Trustees," to divide the $ 2,251.22 between themselves and that the amount so divided is deductible by the estate. In the case of Estate of John E. Cain, Sr., 43 B. T. A. 1133, the Board stated at page 1142: "The statute does not require that the 1944 U.S. Tax Ct. LEXIS 10">*43 counsel fees and expenses in question actually be 4 T.C. 449">*462 paid; it is sufficient that the amount of the counsel fees and expenses have been agreed upon and will be paid. William Rhinelander Stewart, Jr., et al., Executors, 31 B. T. A. 201." With respect to the $ 2,251.22, it is evident that the amount has been correctly computed in accordance with the applicable statutes of the State of Texas and it is not disputed that the $ 2,251.22 will be paid to Henry P. Burney and Elmer Renfro, executors. These facts are sufficient to permit its deduction.
The second part of this issue concerns the asserted right of the petitioners to deduct at least an additional amount of $ 5,000 which, in the opinion of Henry P. Burney, executor, is a reasonable estimate of the amount of executors' commissions and attorneys' fees which will be incurred and paid subsequent to November 30, 1943, and before the administration of the estate is completed. Respondent disagrees that $ 5,000 is a reasonable estimate.
The applicable provision of the Federal estate tax laws, section 812 (b) (2) of the Internal Revenue Code, permits the deduction of such administration expenses as 1944 U.S. Tax Ct. LEXIS 10">*44 are allowed by the laws of the State of Texas. 7
Section 81.29 of Regulations 105, relating to the estate tax under the Internal Revenue Code, allows the deduction of such items as these, "though the exact amount thereof is not then known, provided 1944 U.S. Tax Ct. LEXIS 10">*45 it is ascertainable with reasonable certainty, and will be paid."
We are of the opinion that additional attorneys' fees of a deductible nature, for example, those in connection with the present proceedings, and additional executors' commissions allowable under the Texas statutes, will be incurred and paid and that the sum of $ 5,000, under the facts in this case, represents a fair estimate of the amount of those additional attorneys' fees and executors' commissions. We, therefore, hold that the $ 5,000 claimed as a further deduction in this respect may be allowed. Estate of John E. Cain, Sr., 43 B. T. A. 1133.
Decision will be entered under Rule 50.
Footnotes
1. Paragraph 12 of the stipulation erroneously totaled the attorneys' fees paid over and above those claimed as a deduction in the estate of I. H. Burney, deceased, $ 5,690. The items listed in said stipulation total $ 5,190, rather than $ 5,690.↩
2. SEC. 811. GROSS ESTATE.
The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States --
* * * *
(d) Revocable Transfers. --
* * * *
(2) Transfers on or prior to June 22, 1936. -- To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was 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, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Except in the case of transfers made after June 22, 1936, no interest of the decedent of which he has made a transfer shall be included in the gross estate under paragraph (1) unless it is includible under this paragraph.↩
3. Noted in 18 Tex. L. Rev. 527">18 Tex. L. Rev. 527 (1940). Cf. State Street Trust Co. v. Crocker, 306 Mass. 257">306 Mass. 257; 28 N. E. (2d) 5; 128 A. L. R. 1166 (1940), noted in 20 Boston U. L. Rev. 736; 41 Col. L. Rev. 155; 35 Ill. L. Rev. 976">35 Ill. L. Rev. 976↩.
5. Words of inheritance are not necessary in an instrument creating a trust in order to pass an absolute interest in personalty. First & Amerian Nat. Bank of Duluth v. Higgins (Minn. 1940), 208 Minn. 295">208 Minn. 295; 293 N.W. 585; 1 Scott on Trusts § 128.1 and § 128.2. Cf. Matter of Forde, 286 N.Y. 125; 36 N. E. (2d) 79 (1941), and other cases collected in footnote #9, p. 668, vol. 1, Scott on Trusts. See also, Art. 1291 of the Revised Civil Statutes of Texas, which provides as follows:
Every estate in lands which shall thereafter [hereinafter] be granted, conveyed or devised to one although other words heretofore necessary at common law to transfer an estate in fee simple be not added, shall be deemed a fee simple, if a less estate be not limited by express words or do not appear to have been granted, conveyed or devised by construction or operation of law.
And the following Texas cases decided thereunder: City of Stamford v. King (Tex. 1940), 144 S. W. (2d) 923; Gulf Prod. Co. v. Continental Oil Co., 132 S. W. (2d) 553, 563; Laborde v. First State Bank & Trust Co., 101 S. W. (2d) 389; Rae v. Baker, 38 S. W. (2d) 366↩.6. SEC 812. NET ESTATE.
For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate --
* * * *
(b) Expenses, Losses, Indebtedness, and Taxes. -- Such amounts --
* * * *
(2) for administration expenses,
* * * *
as are allowed by the laws of the jurisdiction * * * under which the estate is being administered, * * *↩
7. Article 3689 of the Revised Civil Statutes of the State of Texas provides as follows:
"Executors and administrators shall be entitled to receive and may retain in their hands five per cent on all sums they may actually receive in cash, and the same per cent on all sums they may pay out in cash in the course of their administration."
Article 3690 provides for certain exceptions to the general rule stated by article 3689 and article 3691 covers reasonable attorney's fees by providing as follows:
"Executors and administrators shall be allowed all reasonable expenses necessarily incurred by them in the preservation, safe-keeping and management of the estate, and all reasonable attorney's fees, that may be necessarily incurred by them in the course of the administration."↩