Decision will be entered for the respondent.
Decedent-grantor established a trust on December 3, 1936, under the terms of which the income of seven-ninths of the trust estate was payable to his wife for life. Upon her death, such income was payable to grantor until his death. Upon his death, or the death of his wife if she survived him, the trust estate was to be delivered to grantor's son, if living, otherwise to his then living children per stirpes or their issue, the trust, however, to continue as to those under 21 years of age. If no children or issue, the estate was to be delivered to the son's spouse if living, otherwise to a designated hospital. Although the agreement expressly provided that the trust was not revocable by the decedent as grantor, it could be revoked or terminated by the written consent of "all of the then living beneficiaries" 21 years or more of age. Held, that the value of the trust estate is includible in the gross estate of decedent under section 811 (d) (1) of the Internal Revenue Code.
*810 The Commissioner determined a deficiency in estate *194 tax of $ 9,289.07. The only question involved is whether the value of a seven-ninths interest in the corpus of the trust created by the decedent, A. Frank *811 Seltzer, on December 3, 1936, is includible in his gross estate. In his answer, the Commissioner admitted that he failed to credit a payment of $ 3,630.40 and that, therefore, the deficiency should be reduced to $ 5,658.67.
FINDINGS OF FACT.
Most of the facts were stipulated. A summary of such facts is as follows:
Louise K. Seltzer is the executrix of the estate of A. Frank Seltzer, deceased, having been so appointed by order of the probate court filed in Cuyahoga County, Ohio.
As such executrix, she filed an estate tax return with the collector of internal revenue for the eighteenth district of Ohio. The return showed a Federal estate tax of $ 16,239.57, which amount was paid to the collector on April 2, 1943.
After review by the Commissioner of the return, petitioner admitted additional estate taxes of $ 10,630.40, which amount was paid to the collector as follows: $ 7,000 on January 4, 1945, and $ 3,630.40 on November 3, 1945. In addition, the required amount of interest on such additional assessment was paid.
On December 3, 1936, *195 decedent, A. Frank Seltzer, then 54 years of age, while in good health and not in contemplation of death, executed a written trust agreement, which provided, in part, as follows:
This Indenture, as of the 3rd day of December, 1936, is to evidence: That I, A. F. Seltzer, of Lakewood, Ohio, have as of this date sold, assigned, transferred, conveyed, delivered, and set over unto myself, A. F. Seltzer, and J. D. Seltzer, of South Euclid, Ohio, As Trustees, the property described in "Schedule A", which, initialed by me, is hereto attached and made a part hereof, to be held, managed and controlled by said A. F. Seltzer and J. D. Seltzer, as Trustees, upon the trusts and for the uses and purposes hereinafter set forth, to wit:
The Trustees Shall Have Power:
* * * *
2. During my lifetime, and so long as I am competent to act, the Trustees shall, whenever practicable, obtain my written consent to all sales, purchases, investments, reinvestments and discretionary distributions of principal or income which they propose to make hereunder.
Upon my death or disqualification the Trustees shall confine all investments of the trust funds, or any part thereof, to the following:
* * * *
This settlement is *196 made without any right of revocation or recall in me, but the right is reserved to me during my life, in case it is found or considered that this instrument is uncertain or incomplete in any respect, to from time to time modify the terms of this instrument, but only for the purpose of defining or enlarging the powers of the Trustees, to facilitate the administration of the trust estate. Any such modification shall be by written instrument signed by me and delivered to the Trustees.
* * * *
This settlement can only be revoked or terminated by a written consent executed *812 by all of the then living beneficiaries hereof who are twenty-one (21) years or more of age, which written consent shall provide for the disposition of the trust property.
The trust estate shall be treated as composed of three (3) unequal shares or portions -- one share of seven-ninths (7/9) shall be held for my wife, Louise K. Seltzer; one share of one-ninth (1/9) shall be held for my wife's sister, Helen K. Weiser, of Detroit, Michigan; and one share of one-ninth (1/9) shall be held for my wife's sister, Gertrude Knabenshue, of Detroit, Michigan.
The net income derived from each of such shares shall be paid to said persons *197 for whose benefit respectively each such share is held, as the same is received, in quarter-annual installments, or oftener, as may be convenient. In addition thereto, the Trustees are authorized and empowered to pay to my said wife, but only to her, from the principal of the share held for her benefit, such amounts thereof as the Trustees may deem necessary for her maintenance, support and comfort, if, in the opinion of the Trustees, my wife's income hereunder and income and means of support from other sources is insufficient for such purposes.
Upon the death of said Helen K. Weiser, the income from her said share shall be paid to her husband, Smith F. Weiser, as long as he lives. Upon his death, or upon the death of said Helen K. Weiser if he does not survive her, the income from her said share shall be paid to said Gertrude Knabenshue until her death if she is then living; otherwise, or upon the death of said Gertrude Knabenshue, the trust shall terminate as to said one-ninth share of said Helen K. Weiser.
Upon the death of said Gertrude Knabenshue, the trust shall terminate as to said one-ninth share of said Gertrude Knabenshue.
Upon the death of my said wife, Louise K. Seltzer, *198 if I, A. F. Seltzer, am still living, the income from her said seven-ninths share shall be paid to me, but upon my death, or upon the death of my said wife if I do not survive her, then the trust shall terminate as to said seven-ninths share of my said wife.
Upon the termination of the trust as to each of the said three shares in the manner hereinbefore set forth, the Trustees shall thereupon turn over and deliver to my son, J. D. Seltzer, if he is then living, the entire remaining balances of said three shares as each one terminates. In the event, however, upon the termination of the trust as to any of said three shares, my said son is not then living, such share or shares shall vest in his then living issue per stirpes; provided, however, that if any such issue shall then be under the age of twenty-one (21) years, the trust shall continue for the benefit of such issue under the age of twenty-one years, and the share of such issue shall be retained by the Trustees until he or she attains said age. In the meantime, the Trustees shall have power and authority to pay to or expend for the benefit of such one, from time to time, from the income and/or principal of his or her share, such *199 sum or sums as they may deem necessary or proper to provide for his or her suitable maintenance, support, comfort, education and enjoyment. Upon the death of any child of my son without issue, and before distribution to such one shall have been completed, the shares of the remaining children of my son, or the issue of any deceased child of my son, shall be accordingly increased proportionately, including the share of any child of my son who shall have reached the age of twenty-one (21) years and shall have received distribution of his or her then share. If, however, my son leaves no issue, but leaves a surviving spouse, the Trustees shall pay to such surviving spouse the entire balance of such share or shares as the trust thereof terminates. If, however, there is then no surviving spouse, the entire balance of such terminating share or shares shall be paid and distributed to The Lakewood City Hospital, of Lakewood, Ohio, or its successor or successors.
* * * *
*813 Following the execution of the trust agreement, decedent filed a gift tax return including all of the trust property and paid the full amount of the gift taxes thereon as determined by the Commissioner.
On December 3, 1941, the *200 decedent-grantor died. His death, due to a coronary thrombosis, was very sudden and entirely unexpected. Prior to the time of his death he had no symptoms referable to his heart and had no premonition of any serious illness. His wife, Louise K. Seltzer, survived him and is still living.
The entire corpus of the trust estate, consisting of 900 shares of the common stock of the Shelby Cycle Co., an Ohio corporation, of Shelby, Ohio, remained at the time of decedent's death, unchanged, and is the same today as it was when the trust was created on December 3, 1936.
No payment or distribution has ever been made from the corpus of the trust estate to the beneficiaries thereof.
The income of the decedent, as shown by his Federal income tax returns for the years 1936 to 1941, inclusive, was as follows:
| Total | |||
| Year | income | Deductions | Net income |
| 1936 | $ 13,517.84 | $ 1,832.17 | $ 11,685.67 |
| 1937 | 14,793.82 | 2,058.07 | 12,735.75 |
| 1938 | 9,620.94 | 2,813.85 | 6,807.09 |
| 1939 | 10,531.80 | 1,222.71 | 9,309.09 |
| 1940 | 13,623.46 | 878.67 | 12,744.79 |
| 1941 | 7,085.31 | 1*201 2,024.95 | 1 5,060.36 |
The record discloses additional facts, as follows:
The decedent, prior to and after the execution of the trust, provided for the maintenance, support, and comfort of his wife and at no time requested her to provide any funds for such purpose.
The living expenses of the grantor and his wife during five or six years prior to grantor's death were about $ 500 a month. From the time of the execution of the trust to the date of his death, the grantor had sufficient means to support and maintain his wife.
The grantor's wife received no part of the principal of the trust involved, either prior to or after the grantor's death. She never made any request for the payment to her of any part of the trust principal.
The grantor's wife had no income from property of her own.
Prior to the execution of the trust involved herein the decedent-grantor consulted his attorney. His attorney advised him that if grantor died before his wife, the seven-ninths interest in the trust estate would not be includible in his estate and subject to Federal estate tax. Upon being so advised the grantor executed the trust indenture.
*814 OPINION.
The Commissioner included in the *202 value of the gross estate of decedent the amount of $ 20,129.90. In explanation of the adjustment, it is stated in the statement attached to the deficiency notice, in part, as follows:
In Schedule G of your estate tax return you reported but did not include in the gross estate the corpus of a trust established by the decedent grantor on December 3, 1936. * * * It is held that the value of the assets in the trust at the date of decedent's death is includible in the gross estate under the provisions of Section 811 (c) and/or 811 (d) of the Internal Revenue Code.
It is the contention of the petitioner that such value is not includible in the gross estate of decedent under section 811 (d) (1) of the Internal Revenue Code because the trust was irrevocable as far as the decedent-grantor was concerned under the following provision of the trust:
This settlement is made without any right of revocation or recall in me, but the right is reserved to me during my life, in case it is found or considered that this instrument is uncertain or incomplete in any respect, to from time to time modify the terms of this instrument, but only for the purpose of defining or enlarging the powers of the Trustees, *203 to facilitate the administration of the trust estate. Any such modification shall be by written instrument signed by me and delivered to the Trustees.
The respondent argues that such provision has reference only to the right of revocation in the decedent in his capacity of grantor, for the reason that under another provision in the trust he retained the right of revocation and termination of the trust, in conjunction with other beneficiaries of the trust, in his capacity as beneficiary. Such provision is as follows:
This settlement can only be revoked or terminated by a written consent executed by all of the then living beneficiaries hereof who are twenty-one (21) years or more of age, which written consent shall provide for the disposition of the trust property.
In the granting clause of the trust agreement, the grantor, in referring to himself, uses the nominative and objective pronouns of the first person "I" and "me." After a statement of the powers granted to the trustees and certain rights reserved to the grantor, the clause upon which the petitioner relies follows. In it the objective pronoun of the first person is used, as follows: "This settlement is made without any right of *204 revocation or recall in me * * *." Immediately following is the clause:
I reserve the right to add other properties to the trust estate, by conveyance, transfer or delivery to the Trustees, but only with their consent, to be treated as part of the trust estate as herein provided.
Up to this point, it is clear that the agreement deals with the grant intended to be made, i. e., with the rights in the property transferred *815 to the trustees and with the powers and rights retained or reserved therein by the decedent as grantor. In the last quoted clause, the words "as grantor" are clearly implied, viz., "I [as grantor] reserve the right to add other properties to the trust estate." Just as clearly, the same words are implied in the preceding clause, viz., "This settlement is made without any right of revocation or recall in me [as grantor]."
After the clause in which the grantor reserves the right to add other properties to the trust estate follows the clause upon which the respondent relies. This is followed by the dispositive clauses. Thereunder the wife of grantor was to receive during her life the income from seven-ninths of the trust estate. Upon her death, such income was payable to *205 the grantor until his death. Upon his death, or upon the death of his wife if grantor had predeceased her, the trust estate was to be delivered to the grantor's son, J. D. Seltzer, if living, otherwise the son's interest was to vest in his then living issue, per stirpes, provided, however, that the trust was to continue as to any such issue under the age of 21 years. Upon the death of any child of grantor's son without issue and before distribution to him or her, the shares of the remaining children of grantor's son, or the issue of any deceased child of grantor's son, were to be increased proportionately, including the share of any child who had reached the age of 21 years and who had received distribution of his or her share. If the son left no issue but left a spouse, him surviving, the entire balance remaining was to be distributed to her, otherwise to the Lakewood City Hospital.
The argument of petitioner that the clause upon which respondent relies is not applicable to the decedent-grantor because he was not a beneficiary under the trust, is without merit. He was a beneficiary, although a contingent one.
Petitioner's further argument that the decedent had in mind as "beneficiaries" *206 only the three primary beneficiaries, i. e., his wife and her two sisters, who were each entitled to the income of one-ninth of the trust estate, is also without merit. It is refuted by the use of the qualifying phrase "who are twenty-one (21) years or more of age." Presumably grantor's wife and her two sisters were 21 years or more of age. The use of that phrase indicates thought of those beneficiaries who would take upon the death of the primary beneficiaries.
It is our opinion that the clause upon which the petitioner relies deals only with the power of revocation exercisable by the decedent in his capacity as grantor, whereas the clause upon which respondent relies deals with the power of revocation and termination exercisable by the decedent in his capacity as beneficiary in conjunction with other than living beneficiaries 21 years or more of age. The latter provision is not affected by the former. The agreement so construed is without ambiguity and gives proper effect to each clause.
*816 In the Revenue Act of 1936, section 302 (d) (1) of the Revenue Act of 1926, as amended, was further amended to provide that the value of the gross estate of a decedent shall be determined by including *207 the value at the time of his death of:
(d) Revocable Transfers. --
(1) Transfers after June 22, 1936. -- To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), 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 (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation of decedent's death. [Emphasis supplied.]
The trust agreement was executed December 3, 1936. Thus the transfer in trust was made after June 22, 1936, the effective date of the 1936 Act. Under the terms of the agreement the grantor reserved the right to terminate the trust and to dispose of the trust property in his capacity as beneficiary in conjunction with "all of the then living beneficiaries * * * who are twenty-one (21) years or more of age." The provision in the trust *208 upon which the respondent relies brings the trust within the express language of section 302 (d) (1) of the Revenue Act of 1926 as amended, now section 811 (d) (1) of the Internal Revenue Code. See Commissioner v. Holmes' Estate, 326 U.S. 480">326 U.S. 480; rehearing denied, 327 U.S. 813">327 U.S. 813; Estate of Charles M. Thorp, 7 T. C. 921; affd. (C. C. A., 3d Cir.), 164 Fed. (2d) 966; certiorari denied, 333 U.S. 843">333 U.S. 843; Estate of Lelia E. Coulter, 7 T. C. 1280. Although the grantor in Holmes' Estate, supra, retained no power to revest in himself or his estate any portion of the corpus or income, the Court nevertheless held that the power retained by the grantor to terminate any or all of the trusts and distribute the principal, with accumulated income, to the beneficiaries then entitled to receive it, was sufficient to make the transfers in trust includible in his gross estate under section 811 (d) (2) of the Internal Revenue Code, which section is applicable to transfers on or prior to June 22, 1936. That section contains the earlier phrasing, and the words "or terminate" and the parenthetical phrase "(in whatever capacity exercisable)" were not included therein in the Revenue Act of 1936. Herein the disposition *209 of the trust property was not limited to those then entitled to receive it, but upon termination of the trust the property thereof could have been disposed of as might have been agreed upon by the beneficiaries then living and 21 years of age or more.
Helvering v. Helmholz, 296 U.S. 93">296 U.S. 93, relied upon by petitioner, is distinguishable. It was therein held that a trust created in a state whose law permits all of the then beneficiaries to terminate the trust was not taxable as a transfer intended to take effect in possession or *817 enjoyment at the death of the settlor under section 203 (d) of the Revenue Act of 1926. The trust there involved was a Wisconsin trust. The trust herein was established in Ohio. Under the laws of Ohio a trust may be terminated by consent if "all the parties who are or may be interested in the trust property are in existence and sui juris." Where there are contingent interests which can not be determined and adjusted until the happening of certain events, the trust can not be terminated. Robbins v. Smith, 73 N. E. 1051; 72 Ohio St. 1">72 Ohio St. 1; Gillogly v. Campbell, 2 N. E. (2d) 620; 52 Ohio App. 43">52 Ohio App. 43. It can not be said here, as was stated in the Helmholz case, supra, that *210 "The clause in question added nothing to the rights [of beneficiaries] which the law conferred." Furthermore, the Helmholz case was decided November 11, 1935, prior to the amendment of section 302 (d) of the 1926 Act by section 805 of the Revenue Act of 1936. Although the decisions in the Helmholz case and White v. Poor, 296 U.S. 98">296 U.S. 98, raised a doubt whether Congress could or had included the power to terminate in the words "alter, amend, or revoke," as contained in section 302 (d) of the Revenue Act of 1926, as amended, it is stated in Holmes' Estate, supra, that "To clarify the matter Congress removed all doubt for the future by enacting § 811 (d) (1)" in the 1936 revision, and that the addition of "or terminate" in section 811 (d) (1) was declaratory of existing law and not a substantive change thereof.
Neither is the case of Estate of John W. Neal, 8 T.C. 237">8 T. C. 237, cited by petitioner, applicable. It was stated therein that a trust settlor can exercise no powers of amendment or control over the trust except as are reserved to him by the instrument creating the trust, and that amendments making a change greater than within his reserved power are ineffective. It was held that, even *211 though the settlor attempted to change the beneficial interests, it did not follow that he actually had the power to alter or amend within the meaning of section 811 (d) (2). The trust agreement herein provides for its revocation or termination by the consent of all the then living beneficiaries 21 years or more of age. The grantor was a beneficiary and thus under the trust agreement he actually had the power in conjunction with other beneficiaries of the same class to revoke or terminate the trust.
The fact that the grantor in his capacity as beneficiary could revoke or terminate the trust only in conjunction with other then living beneficiaries 21 years or more of age is not controlling, since, under the statute, the value of the transferred property is includible in the gross estate whether the right to revoke or terminate (in whatever capacity exercisable) is in the decedent alone or in the decedent in conjunction with any other person.
It is our conclusion that the Commissioner did not err in including in the value of the gross estate of decedent the amount of $ 20,129.90.
*818 In view of our holding that such amount is includible in the gross estate of decedent under section 811 (d) (1), *212 it is not necessary to determine whether or not such amount is includible in gross estate under section 811 (c).
Decision will be entered for the respondent.
Footnotes
1. Of the above deductions for the year 1941 in the amount of $ 2,024.95, $ 1,109.89 represents a bad debt deduction on money loaned prior to 1936, which if added to the net income for that year, would increase it to $ 6,170.25.