*206 Decision will be entered under Rule 50.
1. Stipulated value of trust reserving income for life established by decedent on January 26, 1932, and to which she transferred all her rights in prior trust in which she owned everything except a specified annuity for the life of another, held includible in her gross estate under Joint Resolution of March 3, 1931.
2. Commissions computed and paid in accordance with Alabama law to the executor of decedent's estate partly on income received and distributed after decedent's death held, on the facts, deductible from gross estate.
*184 Respondent determined a deficiency in estate tax of petitioner of $ 58,920.97. The two issues still in controversy are:
(1) Whether the value of an interest transferred in trust by decedent on January 26, 1932, is includible in her gross estate, and
(2) Whether executor's commissions on income received and distributed after decedent's death are an allowable deduction from decedent's gross estate.
Other issues raised by the pleadings have been settled by the parties and will be given effect in a Rule 50 computation.
FINDINGS OF FACT.
Some of the facts are stipulated and are incorporated herein by this reference.
Petitioner is the duly qualified executor of the estate of Debe*208 W. Hubbard, who died on September 23, 1949. The estate tax return of the decedent was filed with the collector of internal revenue for the district of Alabama.
Decedent's husband, Ashbel Hubbard, hereinafter sometimes referred to as Ashbel, died testate March 29, 1929, leaving surviving him, in addition to the decedent, Emma Price Williams Hubbard, his first wife, sometimes herein referred to as Emma, from whom he was divorced by a decree entered in December 1919.
Ashbel agreed on November 3, 1919, in connection with the entry of the decree of divorce, to pay to Emma $ 750 a month for life, and to secure the payments he transferred to the Merchants National Bank of Mobile, Alabama, hereinafter referred to as the bank, United States Government bonds of the face amount of $ 100,000 with directions to deliver to him, his personal representatives, or assigns, upon the death of Emma, such of the bonds as were then in its possession. Provisions in the trust instrument empowered the trustee to sell securities to make good any default of Ashbel in his payments to Emma. In the event that Ashbel predeceased Emma, the trust was to continue during the lifetime of Emma to secure payment of *209 the amount due Emma by Ashbel's personal representatives or assigns.
The will of Ashbel left his residual estate in trust with directions, among other things, to pay to Emma for life the amount of $ 750 a month in full payment and satisfaction of a like obligation he assumed under the agreement of November 3, 1919.
*185 In 1929 and 1930 decedent, petitioner, and Emma each instituted proceedings in regard to the will of Ashbel. Decedent filed a dissent to the will and Emma asked the court to protect her right to the monthly payment of $ 750 for life by proper orders and decrees. The court held that the dissent of the decedent had the effect of entitling her to take that portion of Ashbel's estate to which she would have been entitled had he died intestate, and that a decree would be entered accordingly. After the opinion of the court was affirmed by the Supreme Court of Alabama, the court entered a decree on May 28, 1931, in which it found that Ashbel was obligated to pay Emma $ 750 a month for life, secured by bonds of a face amount of $ 100,000 and market value of $ 106,000, and directed the executor to purchase with funds of the estate additional securities of a market value*210 of $ 94,000; that all of the securities be held by the bank as trustee to secure the payments to Emma for life, the decedent to be entitled to all other benefits from the trust, and that the trust pay Emma for life $ 750 a month, using corpus if the income was not sufficient to make the payments. The decree provided also that any excess of income over the amount payable to Emma be paid to the decedent; that upon the termination of the trust at the time of the death of Emma, the trust property should be distributed to the decedent, her heirs, and assigns; that the trustee not sell any of the securities in the trust, nor purchase any securities without first receiving the approval of the decedent in writing, and that the administration of the trust would remain under the control of the court.
The creation of the trust by the court under the terms set forth in the decree had been agreed to, subject to the approval of the court, in an agreement entered into on May 26, 1931, between the decedent and the bank.
On July 11, 1931, the bank accepted the trusteeship for the purposes set forth in the court decree.
On January 26, 1932, the decedent irrevocably transferred to the bank in trust*211 her present and future interest in the trust created by the court, subject to the prior right of Emma to be paid therefrom the sum of $ 750 a month for life, and with the provision that during the lifetime of Emma the trust fund should be administered under the trust created by the court decree of May 28, 1931.
The instrument provided further that upon the death of Emma the bank was to hold, administer, and distribute the trust fund as trustee in accordance with the terms thereof, which directed that during the lifetime of the decedent all of the income of the trust should be paid to her "less such payments as the said Emma Price Williams Hubbard may be entitled to as long as she survives." If the daughter of the decedent survived her, all of the income was to be paid to the daughter *186 until the termination of the trust, less any amounts required to be paid to Emma. Other terms of the instrument provided for disposition of the corpus upon the termination of the trust.
The property placed in trust by the court has not, during any year since July 1, 1931, earned income in excess of the amounts necessary to make the payments to Emma.
The trustee of the trust created by decedent*212 on January 26, 1932, never received any assets for administration under the transfer, for which reason it did not open an account for the trust.
The transfer made by the decedent on January 26, 1932, was reported in the estate tax return but was not included in the gross estate of the decedent. The respondent included the transfer in gross estate at a value of $ 132,461.86, which amount the parties have stipulated is the value of the property in the event the transfer is includible in gross estate.
Emma survived decedent.
On May 7, 1954, the Probate Court of Mobile County, Alabama, issued a "Decree on Partial Settlement" of decedent's estate, and this decree of the court set forth that the executor had received --
the sum of $ 661,353.63 in monies and assets other than cash, and that it has justly expended, in and about the costs and charges necessary and incident to said administration, in payment of all just debts of decedent's estate, in investments purchased, and in partial distribution, the sum of $ 507,953.03, leaving an unexpended cash balance of $ 7,682.94 and other assets on hand of $ 145,717.66 * * *
In this decree the court stated that the "Executor is entitled to commissions*213 in the sum of $ 26,355.17 for its services as Executor in the administration of" decedent's estate.
The calculation of the executor's commissions was made by taking an aggregate of 2 1/2 per cent of the cash received by the executor, 2 1/2 per cent of the cash disbursed by the executor, and 2 1/2 per cent of the value of personal property and other assets (exclusive of real property) distributed by the executor, or on hand for distribution or disbursement prior to final settlement of the estate.
Included in the receipts of the executor, upon which the computation of the executor's commissions was made, was the amount of $ 90,970.98 of income earned by the estate after decedent's death. Included in the disbursements by the executor upon which the executor's commissions were calculated were the amounts of $ 80,955.53 distributed from income and $ 5,660.11 of expenses paid from income.
Executor's commissions in the amount of $ 26,355.17 were actually paid on June 26, 1954. No final decree had been entered in decedent's estate proceedings at the time of the hearing.
*187 OPINION.
Both factually and legally this proceeding arises against a complicated background. Decedent did not*214 create the original trust out of which the deficiency arises. It was imposed, presumably with her consent, by the probate court upon property left by her deceased husband. The husband's former wife was life beneficiary to the extent of $ 9,000 a year. At that point, the present decedent owned everything else. 1 Had she died without any further transfer, the value of her interest in the trust would obviously have been includible in decedent's estate when she died. Sec. 811 (a), I. R. C. 1939; Security-First Nat. Bank of Los Angeles, Executor, 35 B. T. A. 815.
Between March 3, 1931, and June 7, 1932, however, decedent took*215 a further step. She transferred to another trust her entire beneficial interest in the trust which had already been established for the life of Emma, the former wife. It is this transfer which respondent seeks to include in decedent's estate under section 811 (c).
Petitioner then owned -- and retained after the transfer into trust -- two income interests. She had an immediate right to all income over $ 9,000 a year and a reversionary estate for her life in all the income after Emma's death. One interest was uncertain and the other postponed, but both were capable of valuation; and they have been valued. We take it that when the parties stipulate that, if any amount is to be included in decedent's estate on account of the transfer it is $ 132,461.86, they are agreeing on what that value is.
The significance of the date when this transfer took place is that it occurred between the passage of the Joint Resolution, 2 which supposedly repealed 3 the effect of cases relying upon May v. Heiner, 281 U.S. 238">281 U.S. 238, and the more extensively worded amendments passed the following year. By the terms of the Technical Changes Act, 4 the transfer is taxable*216 only if under the Joint Resolution, and without reference to the subsequent amendments, the transfer would have been taxable.
The conclusion that a reversionary life estate was not encompassed in the phrase "intended to take effect * * * at * * * death," May v. Heiner, supra, was struck down by the Church case, 5 which in turn *188 was overruled in this respect by the Technical Changes Act. But the 1926 Act was not the only legislation applicable to this transfer. By the time the trust was set up there were also included under the Joint Resolution transfers with reservation for life or for any period not ending before death of the possession, enjoyment, or income of the property. At first blush, decedent would appear to have accomplished just that.
*217 The language of the Joint Resolution included in a decedent's estate transferred property as to which
the transferor has retained for his life or any period not ending before his death (1) the possession or enjoyment of, or the income from, the property * * *
By the 1932 amendments, this language was changed to read as follows, the additional words being underscored:
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 * * * [Rev. Act 1932, sec. 803.]
If the only retained income interest had been the reversionary life estate, it might be that the property would not be includible. Cases 6 reaching a contrary result as to transfers after June 7, 1932, rely partly upon the language "for any period not ascertainable without reference to his death" which was added by the 1932 amendments and explicitly termed a change of substance in the Committee Report. This, as petitioner points out, is not as astonishing as might first appear. There is no evidence that the Joint Resolution*218 was directed against the case of May v. Heiner, supra, and its immediate occasion was the decision of three cases 7 by the Supreme Court dealing not with reversionary but with immediate life estates. Cf. Bittker, "The Church and Spiegel Cases," 58 Yale L. J. 825, 829, 869 (1949). In fact, in one of the opinions to which we have referred where the added language is relied upon, the court suggests:
As, however, Congress deemed the addition of this second phrase a substantial change, it may well be that it was intended to eradicate any part of the May v. Heiner interpretation which the Joint Resolution of 1931 * * * may conceivably have left intact. [Marks v. Higgins, (C. A. 2) 213 F.2d 884">213 F. 2d 884.]
Unlike Estate of Herman Hohensee, Sr., 25 T. C. 1258, the retroactive provisions of the Technical Changes Act do not by express congressional language include this interest. And it is equally unnecessary to pass here upon the still unresolved question whether it was intended, in the Technical Changes Act, to make any real *189 distinction between transfers*219 taking place before and after June 7, 1932. See Estate of Myron Selznick, 15 T. C. 716, 726, affirmed per curiam (C. A. 9) 195 F.2d 735">195 F. 2d 735.
However that may be, this decedent did not retain only the reversionary life estate. As we have said, she retained all that she ever had as long as she lived. Only at her death did her interests terminate. These interests included the right each year during her life to receive the excess income over $ 9,000 a year. Since *220 the corpus of the trust was $ 200,000, this interest could not have been without some value. What that value was, 8 how it is to be arrived at, and how it compares with the value of the reversionary life estate, we need not consider. The parties, as we have said, have agreed upon the valuation of all of decedent's combined interests. Since, in addition to the reversionary life estate, decedent retained a valuable right to excess income for a period which did not end before her death, we think the stipulated value of the transfer is directly encompassed within the language of the Joint Resolution and is to be included in the gross estate.
Petitioner appears to labor under the impression that the amendment to section 811(c) (2) made by section 7 of the Technical Changes Act 9 is somehow effective to eliminate this situation from includible transfers. That provision required a reversionary interest to be worth at least 5 per cent of the transferred*221 property for it to be subject to inclusion. To that rule the section makes an explicit exception where the reversionary interest is itself a life estate. It obviously was not intended to eliminate reversionary life estates in their entirety. And in any event there is no showing here that the interest retained by decedent did not amount to more than 5 per cent and the available arithmetic indicates the contrary.
*222 *190 The present result is directly contrary to that reached in Estate of Charles Curie, 4 T. C. 1175, where the same types of interests were retained by decedent. Inclusion on account of the right to excess income was denied because of a supposed ruling in T. D. 4868, 1938-2 C. B. 355, 356. We think the Curie case misconstrued the scope of that ruling 10 which by its terms applies to parts only and not to excess amounts, the value of which, while perhaps uncertain, cannot nevertheless be entirely eliminated. To the extent that it is in conflict with the present conclusion, the Curie case will no longer be followed. On this issue the deficiency will be sustained.
The second issue*223 involves a part of the executor's commissions paid and allowed by the local probate court. Respondent concedes "that the executor's fees paid * * * representing the application of the rate prescribed by Alabama law for executor's fees to the receipts and disbursements of property owned by the decedent at death and included in the gross estate, are properly deductible. This amount is $ 21,915.51." The balance of the executor's fees, or $ 4,439.66, is disallowed because computed upon income received by the estate after decedent's death and upon the distribution of that income.
In George W. Oldham et al, Executors, 36 B. T. A. 523, where the question involved was the deductibility of executor's fees from income tax, we said at page 533:
the services rendered * * * were the usual and ordinary duties performed by executors in preparing an estate for distribution. * * *
at page 529:
Ordinarily the fees and commissions of executors * * * and other representatives of estates are regarded as administration expenses and are applied against the gross estate in determining the estate tax. * * *
and at page 530:
If the process of administration goes forward*224 in normal course, and distribution and settlement are completed within a usual and reasonable time, the expenses of the representatives of the estate are regarded as administration expenses. * * *
In the present case the amount of the executor's commissions was established by the probate court. The computation of the commissions was made in accordance with Alabama statutes. Ala. Code 1940, tit. 61, secs. 377 and 378. It is clear in this case that the estate or the executor for the estate was not engaged in a trade or business, and that the activities of the executor were directed toward the distribution of estate assets. The administration of the estate has continued for an extended length of time, but considering the litigation, *191 the problems involved, and the sums to be distributed, the length of time is not excessive. On this second issue petitioner is sustained.
Decision will be entered under Rule 50.
Johnson, J., dissenting: I dissent on the first issue, believing that Estate of Charles Curie, 4 T. C. 1175, correctly states the law here applicable and should be followed.
Footnotes
1. Decedent referred to her rights as follows: "Whereas, under the said arrangement the said Debe Hubbard Vogeler now is the ultimate owner and sole beneficiary of the said trust fund both as to income and corpus, subject only to the prior right of the said Emma Price Williams Hubbard to receive therefrom $ 750.00 per month so long as she survives * * *" (Exh. 18.)↩
2. Pub. Res. No. 131, 71st Cong., 3d Sess. (1931), ch. 454, 46 Stat. 1516.↩
3. 74 Cong. Rec. 7078 et seq., 7198 et seq↩. (Mar. 3, 1931).
4. Pub. L. No. 378, 81st Cong., 1st Sess. (1949), ch. 720, 63 Stat. 891.↩
5. Commissioner v. Church's Estate, 335 U.S. 632↩.
6. Commissioner v. Nathan's Estate, (C. A. 7) 159 F.2d 546">159 F. 2d 546, certiorari denied 334 U.S. 843">334 U.S. 843, reversing 6 T.C. 604">6 T. C. 604; Marks v. Higgins, (C. A. 2) 213 F. 2d 884↩.
7. Burnet v. Northern Trust Co., 283 U.S. 782">283 U.S. 782; Morsman v. Burnet, 283 U.S. 783">283 U.S. 783; McCormick v. Burnet, 283 U.S. 784↩.
8. $ 9,000 represented an income of only 4 1/2 per cent on the corpus.↩
9. SEC. 7. TRANSFERS TAKING EFFECT AT DEATH.
(a) Section 811 (c) of the Internal Revenue Code (relating to transfers in contemplation of or taking effect at death) is hereby amended to read as follows:
"(c) Transfers in Contemplation of, or Taking Effect at Death. --
"(1) General Rule. -- 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 --
* * * *
"(C) intended to take effect in possession or enjoyment at or after his death.
"(2) Transfers Taking Effect at Death -- Transfers Prior to October 8, 1949. -- An interest in property of which the decedent made a transfer, on or before October 7, 1949, intended to take effect in possession or enjoyment at or after his death shall not be included in his gross estate under paragraph (1) (C) of this subsection unless the decedent has retained a reversionary interest in the property, arising by the express terms of the instrument of transfer and not by operation of law, and the value of such reversionary interest immediately before the death of the decedent exceeds 5 per centum of the value of such property. For the purposes of this paragraph↩, the term 'reversionary interest' includes a possibility that property transferred by the decedent (A) may return to him or his estate, or (B) may be subject to a power of disposition by him, but such term does not include a possibility that the income alone from such property may return to him or become subject to a power of disposition by him. * * *" [Emphasis added.]
10. If such retention or reservation is of a part only of the use, possession, income, or other enjoyment of the property, then only a corresponding proportion of the value of the property should be included in determining the value of the gross estate.↩