1928 BTA LEXIS 3976">*3976 1. Where the property of a decedent who died within five years prior to the death of decedent was acquired by decedent by conveyance from the heirs of the prior decedent, held, that the value of such property was not deductible from the gross estate of the decedent for the purpose of computing his net estate.
2. Where a decedent acquired by conveyance from his children their interest in their deceased mother's estate, upon the condition that he would devise and bequeath to them his estate, including the property so conveyed, in certain proportions, held, no trust was created as to the property which was conveyed to him by his children.
10 B.T.A. 1062">*1063 This proceeding involves the redetermination of a deficiency in estate tax of $19,415.67. Petitioner, executor of the estate of Thomas Selden Reed, alleges that respondent ered (1) in refusing to deduct from the gross estate of decedent the aggregate value of the estate of decedent's deceased wife, who died within five years prior to the death of her husband and on whose estate an estate tax had been paid; 1928 BTA LEXIS 3976">*3977 (2) in determining that the estate of such deceased wife was a part of the gross estate of said decedent; and (3) that if it be held that the estate of said deceased wife was a part of decedent's estate, then there should be deducted from such gross estate the unpaid purchase price thereof.
FINDINGS OF FACT.
Thomas Selden Reed, hereafter referred to as decedent, died testate on February 20, 1924, a resident of and domiciled in the State of Taxas. Decedent had been married twice. His first wife, Dora Reed, died intestate in the year 1886. By her decedent had five children, all of whom are now living. They are, Lula Reed Owers, Malcolm H. Reed, David C. Reed, Birdie Reed McCammon, and Thomas Selden Reed, Jr. Dora Reed, at the time of her death, possessed a share in the community estate of herself and husband. The value of her share is not shown but it was comparatively small. Her share was never segregated from the community and was managed and controlled by decedent as though it was his own property. Decedent's second wife, Ida Reed, died intestate June 26, 1919. By her decedent had four children, who are now living. They are Alma Reed Chastain, Emma Reed Johns, Irene1928 BTA LEXIS 3976">*3978 Reed Hunt, and Grace Reed, who subsequently married D. E. Steinman. Ida Reed, at the date of her death, was the owner in a community with her husband of a large estate. Her husband returned her estate for tax purposes. The return disclosed that her gross estate consisted of the following items:
| Real estate | $5,875 |
| Stocks and bonds | 213,260 |
| Mortgage notes | 1,750 |
| Other miscellaneous property | 750 |
| Total gross estate | 221,635 |
10 B.T.A. 1062">*1064 There were deducted in the return from said gross estate the following amounts:
| Funeral expenses | $950 |
| Executor's fee | 5,229 |
| Attorney's fee | 50 |
| Debts of decedent | 11,525 |
| Specific exemption | 50,000 |
| Total deductions | 67,754 |
| Net estate for tax | 153,881 |
Ida Reed's estate was not administered. Prior to October, 1919, decedent and his children had several consultations, the result of which was an oral agreement between all the parties to the effect that the children would convey to decedent their interests in their respective mothers' estates, and that he would devise and bequeath to them the whole of the estate (including the property he was to receive from the children by the proposed deed) of which he might1928 BTA LEXIS 3976">*3979 be possessed at the date of his death in the respective shares and subject to the conditions and reservations disclosed by his last will and testament hereafter referred to. Pursuant to this agreement, all of the said children executed and delivered to decedent the following conveyance:
KNOW ALL MEN BY THESE PRESENTS: -
That we, Lula Reed Owers, joined pro forma by her husband, Edward Owers, Malcolm H. Reed and David C. Reed, of Travis County, Texas, Thomas S. Reed, Jr., of Jefferson County, Texas, and Birdie Reed McCammon, joined pro forma by her husband, W. F. McCammon, of Beauregard Parish, Louisiana, being children of T. S. Reed, of Jefferson County, Texas, and his first wife, Dora Reed, who departed this life in the year 1886; and Alma Reed Chastain, joined pro forma by her husband R. D. Chastain, and Grace Reed, a feme sole, of Jefferson County, Texas, Emma Reed Johns, joined pro forma by her husband, J. J. Johns, of Bexar County, Texas, and Irene Reed Hunt, joined pro forma by her husband, W. C. Hunt, of Newcastle County, Delaware, being the children of T. S. Reed and his second wife, Ida Reed, who departed this life in the year 1919, for and in consideration of the sum1928 BTA LEXIS 3976">*3980 of Ten Thousand Dollars ($10,000.00) cash in hand paid to each of us respectively by the said T. S. Reed, and for other valuable and sufficient considerations to us moving, we, and each of us, do hereby GRANT, BARGAIN, SELL and CONVEY, and by these presents have GRANTED, BARGAINED, SOLD and CONVEYED, unto the said T. S. Reed all and singular our right, title interest, estate and demand in and to all of the property, whether real, personal or mixed, of which we may be seized and possessed, or in which we or either or any of us may own and have an interest as children and heirs at law of our respective mothers, namely, the said Dora Reed - the mother of said Lula Reed Owers, Malcolm H. Reed, David C. Reed, Thomas S. Reed, Jr., and Birdie Reed McCammon - and the said Ida Reed - the mother of said Alma Reed Chastain, Grace Reed, Emma Reed Johns and Irene Reed Hunt; it being the intention of this instrument to convey all of our interest in said estates, stocks, bonds, notes, chooses in action and real estate, and every character of property and wheresoever the same may be situated.
10 B.T.A. 1062">*1065 TO HAVE AND TO HOLD the above described property, together will all and singular the rights1928 BTA LEXIS 3976">*3981 and appurtenances thereto in anywise belonging, unto the said T. S. Reed, his heirs and assigns, forever, and we and each of us do hereby bind ourselves, our heirs, executors and administrators, to WARRANT AND FOREVER DEFEND all and singular the said property and premises unto the said T. S. Reed, his heirs and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof.
WITNESS our hands at Beaumont, Texas, on this 24th day of December A.D. 1919.
No part of the consideration recited by the above deed was paid nor intended to be paid to the grantors.
On December 24, 1919, decedent executed and published his last will and testament, which reads:
Last Will and Testament of T. S. Reed,
BEAUMONT, TEXAS, December 24th, 1919.
I, T. S. Reed being now in good health and sound in mind but feeling the importance of properly arranging my business affairs before my death do hereby make this my last will and testament.
1st. All of my just debts are to be paid,
2nd. After paying the bequests that I may now or hereafter make if any, to others than my own children or to Charity, Education or benevolences, I hereby give and bequeath1928 BTA LEXIS 3976">*3982 $5000.00 Five thousand dollars to my son M. H. Reed and $5000.00 Five Thousand dollars to my son D. C. Reed both amounts to be used for the benefit of their children or benevolences or for any use they may see fit to make of it. The remainder of my estate at death is to be divided into (9) nine equal portions and one portion, or (1/9) one ninth of the estate I hereby give and bequeath to each of the following of my children to-wit: Lula Reed Owers, Birdie Reed McCammon, Alma Reed Chastain, Irene Reed Hunt, Emma Reed Johns and Miss Grace Reed, making (6/9) six ninths in all. The remaining (3/9) three ninths of my estate at death I hereby give and bequeath to my son Thomas Seldon Reed, Jr. This larger portion is given to T. S. Reed, Jr. in recognition of his valuable services to the estate, he having remained with me and shared with me the heavy burden of work and of responsibility in conducting the affairs of the T. S. Reed Grocery Co., which through his successful management has been a source of great profit to us all. This larger bequest to T. S. Reed, Jr. is further brought about by the fact that Malcolm H. Reed and David C. Reed have now each accumulated a comfortable fortune, 1928 BTA LEXIS 3976">*3983 aided and assisted thereunto to some extent in their earlier days by my credit and the opportunities which I was fortunately able to open up to them, and they have each expressed a willingness and desire to accept the nominal sum above mentioned ($5000.00 each) and let the remainder of their portions go to T. S. Reed, Jr. in recognition of his great services to me and to the estate. However should misfortune come to either or both of them before my death causing them to lose their fortune or a large part of it before my death I would by codicil or by new will protect them and those dependent upon them as I do not want it to appear that I feel any preference among my children, but that I have the same love and affection for them all, and it will be a source of the greatest comfort and satisfaction to me, when I reach the end of life's long journey to know that all my children feel this to be a fact and that they have an abiding confidence in my desire to deal justly with them as God gives me to see it. If in addition to my wealth I may also bequeath to my children a good name and the esteem of my fellow men, I feel it should be valued even more than riches.
10 B.T.A. 1062">*1066 3rd. It1928 BTA LEXIS 3976">*3984 is my will that no other action shall be had in Court in the matter of my estate than to prove and record this will and to return an inventory and appraisement and list of claims.
4th. I hereby constitute and appoint my son T. S. Reed, Jr., executor of this my last will and testament and direct that no bond or security be required of him as executor. While the stocks, bonds, etc., of my estate can be readily divided into 1/9 portions I hope it can be so arranged that T. S. Reed, Jr., may receive on his portion as much of Reed Grocery Co. stock as possible, and thus perpetuate in him the large holdings which I have always had. I also earnestly hope that everything may be settled amicably among my children by agreement without suits, or bitterness or hard feeling on the part of any one. I also advise my executor to consult freely with my oldest son Malcolm with a view of making the most equitable division of the estate possible. And now as I have always loved peace here on earth I hope I may find it in the world beyond, and commending my soul to the mercy of God I subscribe my name to this will written in my own hand and in the presence of the two (2) witnesses below this the1928 BTA LEXIS 3976">*3985 24th day of December, A.D. 1919.
T. S. REEDOn April 7, 1924, said will of decedent was filed in the office of the county clerk of Jefferson County, Texas.
The property conveyed by the deed dated September 24, 1919, had at the death of decedent a value of $294,970.97, and such property was included by respondent in the gross estate of decedent.
OPINION. MILLIKEN: Petitioner's first contention is that since Ida Reed died within five years prior to decedent's death and since her estate was returned for estate tax and, as petitioner asserts in his brief, her estate tax was paid, all of her estate should be deducted from decedent's gross estate. We are concerned with the property which the children deeded to decedent. Section 403(a)(2) of the Revenue Act of 1921 provides:
SEC. 403. That for the purpose of the tax the value of the net estate shall be determined -
(a) In the case of a resident, by deducting from the value of the gross estate -
* * *
(2) An amount equal to the value of any property forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent where such property can be identified1928 BTA LEXIS 3976">*3986 as having been received by the decedent from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received: Provided, That this deduction shall be allowed only where an estate tax under this or any prior Act of Congress was paid by or on behalf of the estate of such prior decedent, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraphs (1) or (3) of subdivision (a) of 10 B.T.A. 1062">*1067 this section. This deduction shall be made in case of the estates of all decedents who have died since September 8, 1916.
There is no evidence in the record to the effect that the estate tax on Ida Reed's estate has been paid nor as to what value was eventually placed upon the estate for estate-tax purposes. The vital objection, however, is that decedent did not receive the estate of Ida Reed "from such prior decedent by gift, bequest, devise or inheritance * * *." The children conveyed their1928 BTA LEXIS 3976">*3987 interest in such estate to him by their deed of December 24, 1919. The action of respondent in this respect is approved.
Petitioner next asserts that Ida Reed's estate was not the property of decedent but that by virtue of an oral agreement between him and his children he held it in trust to manage for the benefit of the children and at his death to devise and bequeath it to them. It is to be observed that it is not contended that by such agreement a trust was imposed upon the property of decedent. The trust asserted is confined to the estate of his deceased wife. That a trust can be engrafted by parol evidence upon a deed, such as the one here involved, is recognized by the courts of Texas. See , and cases cited. It is there stated that the burden rests heavily upon those who attempt to prove such a trust. We have no doubt that there was an agreement between decedent and his children, an agreement which is replete with perfect confidence and filial devotion, but the vital issue is, What was the agreement?
The deed from the children to decedent and decedent's will were executed on the same day. They constituted parts of the1928 BTA LEXIS 3976">*3988 same transaction and are the most persuasive evidence of what the agreement was. The deed is an out-and-out conveyance of the legal title. It contains no restrictions or reservations. It shows an intention on the part of the children to vest in decedent an unfettered fee simple title to their undivided interests. The property conveyed to decedent was to be his to do with as he saw fit. There is some oral testimony in the record, which, if taken by itself, might tend to show that decedent agreed to use such property for the benefit of his children, but the record contains no evidence indicating that he managed the property in any way different from that which he possessed prior to the date of the conveyance. He appears, so far as the record shows, to have controlled and used the property conveyed as though it was absolutely his own.
That the children conveyed and intended to convey the legal title to their shares of the deceased wife's estate, without restriction, is also evidenced by the terms and wording of the will. In that instrument, which was written in his own hand, the testator makes no reference to the estate of either deceased wife, much less to the interest of Ida, 1928 BTA LEXIS 3976">*3989 as to whose share alone it is now sought to create 10 B.T.A. 1062">*1068 a trust. He speaks of "my wealth" and "the remainder of my estate at my death." He makes an elaborate explanation of the reason why the two eldest sons, who had no interest in the estate of Ida Reed, were almost wholly excluded from participation in his estate. He announces his intention to make provision for these sons "should misfortune come to either or both of them before my death causing them to lose their fortune or a large part of it before my death * * *," and in case he saw fit to make bequests to others than his children and to charity. This is not the will of one who is attempting to dispose of property held in trust but is the will of one who is disposing of property which he, the testator, might own and possess at the time of his death. It is the property which decedent might own at the time of his death which is disposed of by his will and not property which he owned at the date of its publication.
The question recurs, What, then, was the agreement between the father and his children? Looking to the deed and will and the parol evidence in the record, we are convinced that the agreement was as we have1928 BTA LEXIS 3976">*3990 found in the findings of fact - it was to the effect that the children were to convey to decedent not the control of but the unrestricted legal title to their shares and that he in turn was to make precisely the will he did make and which has been probated. It is not claimed that decedent in any way or to the least extent failed to perform his part of the agreement. Decedent was faithful in this as it appears he was in all his dealings. While there is evidence in the record, in the shape of answers to suggestive questions, which indicates that the alleged trust related solely to the estate of Ida Reed, there is also evidence which clearly supports our conception of the agreement. Thomas S. Reed, the son who was referred to in the will, who had no interest in the estate of Ida Reed, and who has been in constant business association with his father, testified:
Q. Do you know anything about any agreement between the children of Mr. Thomas Selden Reed with reference to the estate of your mother and of your stepmother?
A. All of the children agreed to an equal distribution of it. Q. I did not hear that. A. All of the children agreed to an equal distribution.Q. What1928 BTA LEXIS 3976">*3991 do you mean by an equal distribution?
A. There were nine heirs to the joint estate of the husband and two wives. The agreement among the children was that there would be no differentiation between the first set of children and the second set of children, but the property would be divided equally among all.
Q. The effect of that would be, then, to divide the entire community property of Mrs. Ida Reed and of Mrs. Dora Reed into nine parts?
A Yes, sir.
10 B.T.A. 1062">*1069 Again, he testified:
Q. What was the agreement, again?A. That the estate should be divided on an equal basis among all of the heirs, one-ninth to each heir, with the further provision that I was to receive the portion which would have gone to the two older sons, M.H. and D. C. Reed.
The controlling thought in this testimony is that no difference was to be made between the two sets of children except as to the two eldest sons, and that at the death of decedent the estate then owned by him was to be divided between the children in the proportions shown. Reading the parol testimony in connection with the deed, we are convinced that no trust was created or intended to be created as to Ida Reed's community1928 BTA LEXIS 3976">*3992 property; that upon the execution of the deed Ida Reed's share in the community as well as the share of Dora became the absolute property of decedent; that the agreement related to neither of these shares but was to the effect that the estate of decedent in existence at the time of his death was to be divided between the children in the proportions shown by the will; that the agreement as made was carried out by the deed and the will, and that the whole estate devised and bequeathed was the absolute property of decedent at the time of his death. The estate so devised and bequested falls squarely within the provisions of section 402(a), which provides:
SEC. 402. That 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 -
(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate.
There is no merit in petitioner's last contention. Decedent did1928 BTA LEXIS 3976">*3993 not owe his children anything on account of their conveyance, except to make the will, which he did make. This constituted full satisfaction of the consideration for the agreement.
Reviewed by the Board.
Judgment will be entered for the respondent.