*2742 Transfer made before the enactment of the Revenue Act of 1921 not in contemplation of death, but subject to an absolute power of revocation in the transferor, terminable at his death, is not complete until his death and under section 402 of the Revenue Act which is not retroactive where his death follows the passage of the statute, the value at the time of his death of the property transferred is properly included in the gross estate of the transferor.
*1026 Estate taxes in the amount of $223,565 are in controversy. The first error alleged by the petitioners was later waived. In regard to the petitioners' second allegation of error, the parties agreed at the time of the hearing that the value of the decedent's interest in certain claims against the Ferguson Contracting Co. was $63,907.53, and that in the recomputation of the estate tax this amount should be used instead of the larger amount used by the Commissioner in his determination of the deficiency, and, further, that in connection with this item the estate should be allowed an additional*2743 deduction as executors' fees in the amount of $3,834.45. This agreement disposes of the petitioners' second allegation of error and there remains for our consideration only the third and fourth allegations of error which are as follows:
III. The item "Cash on hand " of $1733 is tentatively determined without taking into consideration the expense of winding up the copartnership of James Talcott. IV. The two items of alleged transfers, by reason of the making of the trust agreements of February 14, 1917, and March 15, 1918, determined at $1,254,834.99, were improperly included in decedent's gross estate as such transfers were not made to take effect in possession and enjoyment at and after decedent's death within the meaning of the Federal Act in force at the date of decedent's death.FINDINGS OF FACT.
The petitioners are the executors of the last will and testament of Henrietta E. Talcott, who died December 14, 1921. Their principal office is in the Borough of Manhattan, New York City.
James Talcott was the husband of Henrietta E. Talcott. For many years prior to his death, which occurred about the year 1916, he was engaged in business as a factor, lending money to*2744 mills and corporations, taking goods for sale on commission and advancing money upon the goods. About 30 years prior to his death he had formed a partnership with his wife for the conduct of his business, and about 1916, just prior to his death, this business was incorporated under the name of James Talcott, Inc. The former partnership has never been wound up. At the time of the death of Henrietta E. Talcott, the surviving partner, there remained $1,733 in cash, which belonged to the copartnership, which amount the Commissioner included in the decedent's gross estate. The expenses which would be necessary in winding up the affairs of the copartnership and which would have to be paid from this fund, would far exceed the amount of $1,733. *1027 This item of cash had no value to the decedent at the time of her death.
On February 14, 1917, Henrietta E. Talcott, as party of the first part and Grace Talcott Van Norden, Edith Talcott Bates and David F. Butcher, as parties of the second part, entered into a written agreement which was in part as follows:
WHEREAS, the party of the first part desires to create a trust of certain personal property hereinafter specified, for the*2745 uses, services and benefits hereinafter named, during the lives of Grace Talcott Van Norden and Edith Talcott Bates, and the lifetime of the survivor of them unless terminated sooner by the party of the first part or the parties of the second part.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
That the party of the first part, in consideration of the premises and the sum of One dollar, lawful money of the United States, to her in hand paid by the parties of the second part, the receipt whereof is hereby acknowledged, the party of the first part has sold, transferred, assigned and set over, and by these presents does sell, transfer, assign and set over unto the parties of the second part, the survivor or survivors of them, their successors or successor, the following securities and assets, viz:
| Company | Number of shares | Par value each |
| James Talcott (Inc.) | 8,450 | $100 |
| Chicago & North Western Ry. Co | 500 | 100 |
| Pennsylvania R.R. Co | 420 | 50 |
| Northern Pacific Ry. Co | 300 | 100 |
| Lehigh Valley R.R. Co | 420 | 50 |
| Chicago, Burlington & Quincy R.R. Co | 231 | 100 |
| Anaconda Copper Mining Co | 734 | 50 |
| Delaware, Lackawanna & Western Coal Co | 100 | 50 |
| Delaware, Lackawanna & Western R.R. Co | 405 | 50 |
| Union Pacific R.R. Co. (common) | 250 | 100 |
*2746 TO HAVE AND TO HOLD unto the parties of the second part, the survivor or survivors of them, their successors or successor, IN TRUST NEVERTHELESS, for the following uses and purposes, viz:
FIRST: To hold, manage, sell, invest and reinvest the same, collect and receive the interest, income and profits thereof and after deducting all proper charges, taxes and expenses of whatever nature in connection with the said trust, to pay the net income thereof, subject to the conditions hereinafter specified, as follows:
(A) the income from said eight thousand four hundred and fifty (8450) shares of James Talcott, Inc., shall be divided as follows:
To Grace Talcott Van Norden, the income of Two thousand (2000) shares:
To Edith Talcott Bates, the income of Two thousand (2000) shares:
To J. Frederick Talcott, the income of Two thousand (2000) shares:
To Francis E. Talcott, the income of One thousand (1000) shares:
To James Talcott, the income of Two hundred and fifty (250) shares:
To Charles E. Mathewson, the income of Five hundred (500) shares:
To Thomas J. McGann, the income of Three hundred and fifty (350) shares:
To James L. Cox, the income of Three hundred and fifty (350) *2747 shares: during the life of Grace Talcott Van Norden and Edith Talcott Bates, and the lifetime of the survivor of them, unless this trust is sooner terminated as hereinafter provided.
*1028 (B) From the income of the remainder of said property, to pay the following named persons, from the date hereof until the termination of this trust, an amount equal to interest at the rate of four per cent. per annum upon the amount set opposite their respective names, said amounts to be paid in semiannual instalments:
Grace Talcott Van Norden, Fifty thousand dollars ($50,000.);
Edith Talcott Bates, Fifty thousand dollars ($50,000);
J. Frederick Talcott, Fifty thousand dollars ($50,000);Francis E. Talcott, Fifty thousand dollars ($50,000);
Arthur Whiting Talcott, grandchild of party of the first part, sixteen thousand, six hundred and sixty-six dollars and sixty-six cents ($16,666.66);
Eloise T. Newson, grandchild of party of the first part, sixteen thousand, six hundred sixty-six dollars and sixty-seven cents ($16,666.67);
Henrietta Talcott, grandchild of party of the first part, sixteen thousand, six hundred sixty-six dollars and sixty-seven cents ($16,666.67);
Alice*2748 T. Bulkeley, Fifty thousand Dollars ($50,000);
Louise R. Harris, Fifty thousand Dollars ($50,000);
Susan D. Mallett, Twenty thousand dollars ($20,000);
(C) All the rest, residue and remainder of said income shall then be paid over to the party of the first part, her heirs, executors, administrators or assigns.
SECOND: That in the event that the said trust is not terminated as provided herein that it shall continue during the lives of Grace Talcott Van Norden and Edith Talcott Bates, and the lifetime of the survivor of them, and that upon the death of the survivor of them, subject to the conditions hereinafter named, or if directed in writing by the party of the first part during her lifetime, said trustees herein shall assign and deliver to the following named persons certificates of stock of James Talcott, Inc., the number of shares following their respective names, discharged of any trust whatsoever:
Grace Talcott Van Norden, Two thousand (2000) shares;
Edith Talcott Bates, Two thousand (2000) shares;
J. Frederick Talcott, Two thousand (2000) shares;Francis E. Talcott, One thousand (1000) shares;
James Talcott, Two hundred and fifty (250) shares;
Charles E. *2749 Mathewson, Five hundred (500) shares;
Thomas J. McGann, Three hundred and fifty (350) shares.
James L. Cox, Three hundred and fifty (350) shares; and pay to the following named persons the amounts set opposite their respective names:
Grace Talcott Van Norden, Fifty thousand dollars ($50,000);
Edith Talcott Bates, Fifty thousand dollars ($50,000);
J. Frederick Talcott, Fifty thousand dollars ($50,000);Francis E. Talcott, Fifty thousand dollars ($50,000);
Arthur Whiting Talcott, grandchild of the party of the first part, Sixteen thousand six hundred sixty-six dollars and sixty-six cents ($16,666.66);
Eloise T. Newson, grandchild of party of the first part, Sixteen thousand, six hundred sixty-six dollars and sixty-seven cents ($16,666.67);
Henrietta Talcott, grandchild of party of the first part, Sixteen thousand, six hundred sixty-six dollars and sixty-seven cents ($16,666.67);
Alice T. Bulkeley, Fifty thousand dollars ($50,000);
Louise R. Harris, Fifty thousand dollars ($50,000);
Susan D. Mallett, Twenty thousand dollars ($20,000);
All the rest, residue and remainder of said trust fund, including profits thereof and unexpended net income shall then be paid*2750 over to the party of the *1029 first part, her heirs, executors, administrators or assigns, after deducting all further taxes, charges or expenses of whatever nature in connection with this trust, including a reasonable charge for work in connection with the administration of said trust by David F. Butcher.
THIRD: That the party of the first part shall have the absolute and unrestricted right to direct the payment or delivery and assignment of said stock specified in paragraph FIRST, subdivisions (A) and (B) and paragraph SECOND, to any or all of said parties, and also the absolute and unrestricted right to direct the withholding of said payments or delivery and assignment of said stock to any or all of said parties, by notice in writing to said trustees, with or without any cause whatsoever, but in the event that such direction is not made by the party of the first part, then the payment of said amounts or any of them, as well as the assignment and delivery of said stock mentioned in paragraph FIRST, subdivisions (a) and (b) and paragraph SECOND, shall be in the absolute discretion of said trustees, and the said trustees may, in their absolute discretion, withhold the payment*2751 of the amounts above specified, as well as the assignment and delivery of said stock, either before or after the death of the said Henrietta E. Talcott to any or all of said parties if the majority of them elect so to do, whether with or without any reason for so doing. In no event, however, except pursuant to direction of the party of the first part, as herein provided, shall the payments above specified be made, or said stock be delivered, to any of said parties in case in the judgment of a majority of the said trustees the said party or parties have failed in their duties or have been disloyal in any respect to the interest of said James Talcott, Inc., or acted in any way detrimental to said business, or to the party of the first part. A majority of the said trustees shall be the sole judges as to whether said party or parties have failed in his or their duty, or have been disloyal to the business interests, or acted in any way detrimental to said business, as above provided. If any of said payments are not made, or any of said shares of stock are not delivered, as provided herein, then the amount so withheld and the shares of stock so withheld by said trustees shall immediately*2752 be turned over to the party of the first part, or her legal representatives or assigns.
FOURTH: That the party of the first part reserves the right to revoke and cancel this deed of trust at any time during her lifetime, and either before or after any payment or payments, instalment or instalments thereof have been made, with or without any cause whatsoever, by notice in writing to the parties of the second part and that thereupon the parties of the second part will re-deliver, re-assign and transfer all of the shares of stock, funds and assets being or remaining in this trust to the party of the first part, and all the provisions herein thereupon shall become void.
* * *
ELEVENTH: IT IS FURTHER UNDERSTOOD AND AGREED that in the event that the principal of this trust should become insufficient to pay to the parties enumerated in paragraph FIRST, subdivision (B), of this instrument, at any time when the said sum or sums become payable in accordance with the terms of this agreement, then the principal of this trust remaining shall be divided among said parties in proportion to the amounts set opposite their respective names.
* * *
This agreement also provided that the parties*2753 of the second part if at any time they deemed it advisable for any reason, could pay over *1030 to the party of the first part or her heirs, executors, administrators or personal representatives, the whole or any part of the principal above mentioned in full discharge of the trusts insofar as the part so paid was concerned; during the continuance of the trust the investment of the trust funds should be wholly within the discretion of the trustees, who should have the sole and absolute control of the property without being answerable or liable to anyone and no beneficiary should have the right to sue the parties to the agreement without forfeiting the benefits which they might otherwise derive from the trust instrument; the trustees should file no bond; the survivor should continue to act; in order to avoid transferring the property to the trustees as trustees, it should be transferred to them as individuals and they should execute a declaration of trust declaring that they held the same pursuant to the trust agreement and the trustees should deposit the property in the safe-deposit vault, the maintenance of which should be a charge on the trust funds.
On March 15, 1918, the*2754 same parties entered into another agreement. This agreement was substantially similar to the first except that:
1. It transferred the following securities instead of the ones transferred by the former instrument:
Twenty (20) $1000 bonds of the Interborough Rapid Transit Company, being First and Refunding Mortgage Coupon Gold 5% Bonds, due January 1st, 1966, interest payable January 1st and July 1st with July 1st, 1918, and subsequent coupons attached.
Ten (10) $1000 4 1/2% Corporate stock of The City of New York for the construction of rapid transit railroads. Issue of July 12, 1917: principal due July 1st, 1967, with July 1st, 1918, and subsequent coupons attached.
2. Under "First" "A" it provided for the division of the income from the said $30,000 worth of bonds and corporate stock equally between Louise R. Harris and Henrietta Talcott, (granddaughter) during the life of Grace Talcott Van Norden and Edith Bates and the lifetime survivor of them unless sooner terminated as thereinafter provided.
3. Under "second" it provided:
That in the event the said trust is not terminated as provided herein it shall continue during the lives of Grace Talcott Van Norden and*2755 Edith Talcott Bates, and the lifetime of the survivor of them, subject to the conditions hereinafter named, or if directed in writing by the party of the first part during her lifetime, said trustees herein shall assign and deliver to said Louise R. Harris ten (10) of the said bonds and five (5) of the said corporate stock certificates, or the proceeds thereof, or the reinvestments representing the same and ten (10) of said bonds and five (5) of the said corporate stock certificates, or the proceeds thereof, or the reinvestments representing the same to said Henrietta Talcott, discharged of any trust whatever, it being the intention of the party of the first part that if for any reason the said bonds or corporate stock, or any part thereof, are disposed of and other securities purchased in lieu thereof, that *1031 such new securities shall be distributed in the same manner as if said parties of the second part had held the Interborough Rapid Transit Bonds and the corporate stock of the City of New York, as above described.
4. And under "Sixth" it provided:
If at the time of the death of the survivor of Grace Talcott Van Norden and Edith Talcott Bates, and Henrietta E. *2756 Talcott, the party of the first part, any of said trust fund still remains in the hands of the Trustees, the same shall be turned over to Louise R. Harris and Henrietta Talcott, share and share alike, discharged of any trust whatsoever. In case Henrietta Talcott, beneficiary hereunder, is not alive at said time, her share is to be turned over to her issue share and share alike, if any. In case Louise T. Harris is not alive at said time, all of the remaining trust fund shall be turned over to Henrietta Talcott, beneficiary hereunder, or to her issue, share and share alike, discharged of any trust whatsoever.
If Henrietta E. Talcott, the party of the first part, is still alive at the death of the survivor of Grace Talcott Van Norden and Edith Talcott Bates, said trust shall revert to Henrietta E. Talcott, the party of the first part, or be distributed pursuant to the direction of Henrietta E. Talcott.
After the execution of each of these two trust agreements, Henrietta E. Talcott transferred and delivered the various stocks and bonds described in the agreements to the trustees, who thereupon had new stock certificates for the shares of stock involved issued in their three*2757 individual names and deposited all the property mentioned in the agreements in a safe-deposit box which they rented and to which they alone had access. They also opened bank accounts in their three names, opened their own books of account, and at once entered upon the performance of the trusts and performed the same in accordance with the terms of the respective agreements except as hereinafter noted. At the time of the decedent's death the trusts were still being thus performed.
The decedent never exercised any power over the trustees or the trust property and never gave any direction to the trustees in connection with either of the trusts except that she directed them not to pay her any amounts due and at the request of the trustees she executed a paper on November 7, 1921, directing the trustees "To withhold from Alice T. Bulkeley from the date hereof, the payment to her of any income from any part of the trust fund, as provided in subdivision "B" of paragraph First of the said deed of trust," and also directing them to withhold the payment to her of any part of the principal of said trust fund as provided by paragraph "Second" of the trust agreement and to immediately thereafter*2758 pay the income and principal to Henrietta E. Talcott or her legal representatives or assigns. Thereafter, Alice T. Bulkeley's share of the income was left with the trustees, together with any other amounts due the decedent, at her direction, to meet any possible deficit because of failure of the income of the trust funds to provide 4 per cent for payment to the beneficiaries.
*1032 This change in regard to Alice T. Bulkeley was due to the fact that she became mentally unbalanced and her condition grew steadily worse until finally she has to be removed to a sanitarium. Her expenses became greater than the amount which she was receiving under the trust agreement and, therefore, Henrietta E. Talcott gave the aforesaid direction to the trustees and from her own personal funds paid the expenses of Alice T. Bulkeley.
The only payment to the decedent out of the excess income over the 4 per cent referred to in the trust agreement of February 14, 1917, was $15,000 withdrawn by her on the advice of one of the trustees in order to meet certain tax payments then due. This sum was the only money or other property received by or delivered to the decedent out of either the income*2759 or the principal of the trust funds.
The relationship of all parties taking under the two trust agreements to the decedent or to the business of James Talcott, Inc., was as follows:
| Grace Talcott Van Norden | Daughter. |
| Edith Talcott Bates | Daughter. |
| J. Frederick Talcott | Son. |
| Francis E. Talcott | Son. |
| James Talcott | Grandson. |
| Charles E. Mathewson | Vice president and general manager. |
| Thomas J. McGann | Assistant secretary. |
| James L. Cox | Assistant secretary. |
| Arthur Whiting Talcott | Grandson. |
| Eloise T. Newson | Granddaughter. |
| Henrietta Talcott Curry | Granddaughter. |
| Alice T. Bulkeley | Niece of decedent's husband. |
| Louise R. Harris | Her first husband was decedent's son. |
| Susan D. Mallett | Her first husband was in the employ of the copartnership of James Talcott. |
On August 1, 1922, pursuant to an agreement entered into on February 3, 1922, the trustees revoked the trusts and assigned, transferred and delivered the securities and income therefrom to the various parties entitled thereto. One reason why this was done was that thereby the decedent's son and grandson were enabled to purchase and continue the business of James Talcott, Inc.
The petitioners in their*2760 estate-tax return included the amount of $73,285.38 in the gross estate representing the value of the 1917 trust to which the decedent was entitled at the time of her death, being the excess over 4 per cent on certain of the trust property. The Commissioner in his determination included in the gross estate, the value of the entire trust property at the time of the decedent's death, to wit, $1,254,834.99. The parties have agreed that if the contention of the respondent is correct, the entire trust properties, representing transfers made to take effect in possession and enjoyment at or after death within the meaning of the revenue act, are therefore within the gross *1033 estate and the value used by the Commissioner is correct and, on the other hand, if the entire trust properties should not be included in the gross estate, then the value used by the Commissioner in his determination should be reduced to the value returned by the petitioners, namely, $73,285.38.
OPINION.
MURDOCK: We are satisfied that the petitioner is correct in regard to its third allegation of error and that the item of $1,733 was improperly included in the decedent's gross estate by the Commissioner. *2761 From the testimony we are convinced that the decedent at the time of her death had no chance to get any of this money, for before she could get it affairs of the copartnership of which she had been a member would have had to have been wound up and the expenses of such a winding up would have exceeded this amount of money, which was the only money available for the purpose. Under these circumstances it seems foolish to say that any amount should be included as a part of her gross estate on account of this item.
The question of whether or not the entire value of the two trust estates should be included in the decedent's gross estate in view of the recent decisions of the Supreme Court of the United States in Reinecke v. Northern Trust Co.,278 U.S. 339">278 U.S. 339, and Chase National Bank v. United States,278 U.S. 327">278 U.S. 327, must be decided for the respondent. There can be no doubt that Henrietta E. Talcott, the decedent, could have revoked these trusts in accordance with their terms at any time up to death. In the above cited cases the Supreme Court rested its decision on the ground, earlier suggested with respect to the Fourteenth Amendment in *2762 Saltonstall v. Saltonstall,276 U.S. 260">276 U.S. 260, 271, that a transfer made before the enactment of the statute in question and subject to an absolute power of revocation in a transferor, terminable at his death, is not complete until his death and hence section 402 as applied to it is not retroactive where his death follows the passage of the statute.
Under the provisions of the two trust instruments here in question certain of the beneficiaries might have come into full possession of their respective shares of the trust property prior to the death of Henrietta E. Talcott, and under one of the trust instruments Henrietta E. Talcott reserved none of the income from the trust property to herself. However, in our opinion the principles laid down by the Supreme Court of the United States in its two recent decisions above cited are controlling here and we therefore hold that the Commissioner's determination in imposing the tax on the transfer of the entire corpus of each of these two trusts was correct.
Judgment will be entered under Rule 50.