*2948 Held, that the corpus of a revocable trust should be included in the gross estate for estate-tax purposes, but that the other trusts involved should be included.
*1372 This is a proceeding for the redetermination of a deficiency in estate tax of $31,856.71. The deficiency results in part from the action of the respondent in including in the gross estate of the decedent the value at the date of his death, May 31, 1923, of certain property transferred by him in three instruments executed on April 1, 1916, December 1, 1917, and January 8, 1920, respectively. Also involved in the proceeding is the question of whether the value of certain other property transferred by the decedent in an instrument executed on April 7, 1916, and which was reported in the estate-tax return as a part of the gross estate is properly a part of the gross estate.
FINDINGS OF FACT.
Richard Sykes was born May 11, 1839, and died a resident of California on May 31, 1923. The Pacific Southwest Trust & Savings Bank, which filed the petition in this proceeding and which*2949 since that time has been consolidated with the First National Bank of Los Angeles under the name of Los Angeles-First National Trust & Savings Bank, is the executor of the Will of Richard Sykes.
Under date of April 1, 1916, Sykes executed the following agreement with the Merchants Loan & Trust Co., which about April 7, 1923, was consolidated with the Illinois Merchants Trust Co., which in turn by consolidation succeeded to, took over and acted as trustee in all of the trusts in which the Merchants Loan & Trust Co. was acting as trustee:
THIS AGREEMENT, made and entered into this first day of April, A.D. 1916, by and between
RICHARD SYKES,
of Santa Barbara, in the County of Santa Barbara and State of California, party of the first part, and
*1373 THE MERCHANTS' LOAN AND TRUST COMPANY,
a corporation duly organized and existing under and by virtue of the laws of the State of Illinois, and
LEON L. LOEHR,
of the City of Chicago, County of Cook and State of Illinois, as Trustees, parties of the second part, WITNESSETH:
WHEREAS, said party of the first part is desirous of creating a trust fund for certain persons hereinafter mentioned;
NOW THEREFORE, said party*2950 of the first part, for and in consideration of the sum of One dollar ($1.00) to him in hand paid by said parties of the second part, the receipt whereof is hereby acknowledged, has sold, assigned, transferred, set-over and delivered, and by these presents does sell, assign, transfer, set over and deliver unto said parties of the second part, as Trustees, all the following described property, to-wit:
| Seventeen thousand five hundred and fifty (17,550) Fully Paid One Pound Sterling Shares of the Capital Stock of Alliance Mortgage & Investment Company, Limited, of Manchester, England. | |
| Anglo-California Trust Company Certificate for ninety-five (95) bonds of The Netherlands Farms Company, a corporation organized and existing under and by virtue of the laws of the State of California, of the denomination of One thousand dollars ($1,000) each, numbered respectively 494 to 498, inclusive, 731 to 733, inclusive, 796 to 799, inclusive, 810, 914 to 963, inclusive, 1225 to 1231, inclusive, 1233 to1236, inclusive and 1413 to 1433, inclusive | $95,000.00 |
| Note of the Miramar Company for Thirteen thousand dollars | $13,000.00 |
| dated January 22, 1916, due on or before five (5) years after date, bearing interest at the rate of seven per cent. (7%) per annum, payable semiannually, secured by mortgage on real estate. |
*2951 TO HAVE AND TO HOLD upon the following mentioned trusts, that is to say:
FIRST: To receive, hold, manage and control the same; to invest and reinvest the principal and proceeds thereof; to collect the same and the income therefrom, and to sell, assign, lease, exchange, encumber, mortgage, improve, partition, subdivide, dedicate and convey the said Trust property, and every part thereof, as to said Trustees shall seem proper, and to sell, alter and change the investments thereof, from time to time, in their discretion, and to collect and receive all dividends, rents, issues, profits, income and increase therefrom, until the final and complete distribution and payment thereof, as hereinafter provided; and in making and retaining investments, from time to time, said Trustees shall have as full and unlimited power and discretion as if said trust property were their own absolute and individual estate, and shall not be limited to such investments as Trustees are by law authorized to make, but shall have full power to make and to retain any other investments which they may deem desirable; and said Trustee shall have full power and authority to lease any of the real estate of said trust*2952 estate for any term or terms that said Trustees may deem proper, even if such term or terms extend beyond the period of the trust hereby created, terms of ninety-nine (99) years, and upwards, as well as terms of shorter duration and said Trustees shall have full power and authority to do and to perform any and all other acts which they may deem proper for the carrying out of the purposes of this trust.
*1374 SEDOND: To ay all costs, charges and expenses of said trust estate and of the management thereof, and all taxes, assessments and charges thereon, and to take out of the income from said trust estate reasonable compensation for their services as such Trustees.
THIRD: To accumulate all the net income from said trust estate, and add the same to the principal until the time of the death of said party of the first part, and from and after the time of the death of said party of the first part, to pay, use and expend so much of said trust estate as may be necessary or proper, in the discretion of said Trustees, for the support, maintenance and education of the children of said party of the first part until the end of the term of twenty (20) years from the date of his death, *2953 and then all the rest, residue and remainder of said trust estate shall be distributed in equal parts to the children of said party of the first part; and in case of the death of any of such children, leaving lawful issue surviving, such issue shall take the parent's share, in equal parts, per stirpes, and in case of the death of any of such children, leaving no lawful issue surviving, the share of the one so dying shall be distributed among the survivors or survivor of such children and the lawful issue of any of them who may have died leaving lawful issue surviving, in equal parts, per stirpes, and not per capita; and in case of the death of all such children before the end of said term of twenty (20) years, none of them leaving lawful issue surviving, then all said rest, residue and remainder of said trust estate shall be paid, delivered and conveyed to Fanny Eliza Sykes, wife of said party of the first part, if she be then living, and if not, then to the survivors of the nineteen (19) nephews of said party of the first part, children of his brother, Edmund Howard Sykes, William Sykes, Thomas Hardcastle Sykes, Arthur Henry Sykes, Walter Harry Sykes, and his sister, Eleanor*2954 Platt, all of whom were born in the parish of Cheadle, in the County of Chester, England, and in case none of such nephews shall be then living, then all the rest, residue and remainder of said trust estate shall be paid, delivered and conveyed to the heirs at law of said party of the first party, according to the Statutes of Descent of the State of Illinois, then in force, and the time for determining who are his heirs as that word is here used, shall be the time for making distribution to them, and not the time of the death of said party of the first part.
FOURTH: No money or property payable or distributable by said Trustees under the provisions of this instrument shall be pledged, assigned, transferred, sold or in any manner whatsoever anticipated, charged or encumbered by any of the beneficiaries hereunder, or be in any manner liable in the possession of said Trustees for the debts, contracts or engagements of any of the beneficiaries hereunder.
FIFTH: In making distribution of the principal or corpus of said trust estate, or of any part thereof, said Trustees may make distribution to all or any of the beneficiaries hereunder in money or other property of said trust estate, *2955 and the judgment of said Trustees as to what shall constitute a proper division among them, and their selection and valuation shall be binding and conclusive upon all parties.
SIXTH: It is expressly understood and agreed that said party of the first part shall, during his lifetime, have full power and authority to sell, assign, transfer, convey and dispose of all said trust property, or any portion thereof, for such price, upon such terms, to such person or persons, any in such manner as the said party of the first part may deem proper, fully released from all the trusts hereby created, and to invest and reinvest the proceeds thereof, and any part thereof, in such property as said party of the first part may *1375 deem best, and said property shall thereupon be conveyed and transferred to said parties of the second part, as Trustees hereunder, to be held and managed by them upon the uses and trusts and for the purposes mentioned herein.
SEVENTH: It is also expressly understood and agreed that said party of the first part may, at any time during his lifetime by a further or supplemental instrument, in writing by him signed and acknowledged, alter, change and amend this*2956 trust instrument, and the terms of the trust hereby created, and may, at any time during his lifetime, wholly and absolutely cancel and annul the same, and wholly revoke the covenants and provisions herein or hereby, or by any further or supplemental instrument made, and may recall, receive and recover to himself all the said trust estate and property, fully released from the trusts hereby created, and said parties of the second part, upon payment to them for their services and disbursements, as hereinbefore provided, and upon request of said party of the first part, shall at once execute and deliver all and every necessary instrument for the conveyance or reconveyance, assignment and transfer of any or all property, securities and contracts held by said parties of the second part hereunder, to said party of the first part, his assigns, or to such person or persons as he shall direct.
EIGHTH: Leon L. Loehr, one of the Trustees, has been joined as Trustee hereunder so that if by any present or future law in any jurisdiction in which it may be necessary to perform any act, in the execution of the trusts herein created, The Merchants' Loan and Trust Company, Trustee, or its successor*2957 or successors, may be incompetent or unqualified to act as such Trustee, then all the acts required to be performed in such jurisdiction, in the execution of the trusts hereby created, shall and will be performed by said Leon L. Loehr, as Trustee, or his successor or successors, acting alone. Except as it may be deemed necessary for said Leon L. Loehr solely to execute the trusts hereby created, The Merchants' Loan and Trust Company, Trustee, or its successor or successors, may solely have and exercise the powers and shall be solely charged with the performance of the duties hereinbefore declared on the part of the Trustees to be had and exercised, or to be performed. Any request in writing by The Merchants' Loan and Trust Company, Trustee, or by any trust company appointed in succession to it, to the individual Trustee hereunder or to any Trustee appointed in succession to him, shall be sufficient warrant for the individual Trustee or his successor taking such action as may be so requested. Such individual Trustee or any successor may delegate to The Merchants' Loan and Trust Company or to the trust company appointed in succession to it, the exercise of any power, discretionary*2958 or otherwise, conferred by any provision of this trust instrument.
NINTH: Said parties of the second part may resign or discharge themselves of and from the trusts hereby created, at any time during the lifetime of said party of the first part, by notice in writing to said party of the first part, given thirty (30) days before such resignation is to take effect, or such shorter time as said party of the first part may accept as sufficient notice, and said parties of the second part may resign or discharge themselves of and from the trusts hereby created at any time after the death of said party of the first part, by notice, in writing to such of the beneficiaries hereunder as may be then living, given thirty (30) days before such resignation is to take effect, and in case of a vacancy in the office of Trustee by resignation or otherwise, a successor or successors may be appointed by said party of the first part, during his lifetime, by an instrument in writing duly signed by him, or in case said party of the first part shall not appoint a new Trustee within thirty (30) days after a vacancy shall occur, or in case of a vacancy in the office of Trustee after the death of said party*2959 of the first part, then said parties of the second part, or any *1376 of the beneficiaries hereunder may apply to any court of original general jurisdiction in said County of Cook for the appointment of a new Trustee, upon such notice as shall be in accordance with the rules and practice of the court; and such Trustee or Trustees so appointed by said party of the first part or by said court shall, on the acceptance of such appointment, thereby and thereupon become and be vested with all the powers, rights, estates and interests granted to or conferred upon said parties of the second part by these presents, and charged with all the duties and obligations herein mentioned, without any further assurance or conveyance whatever.
TENTH: It is understood and agreed that said party of the first part may, from time to time, deliver other and additional property to said parties of the second part, which shall be taken and held upon the same trusts, and distributed in the same manner hereinbefore mentioned, and said parties of the second part shall have and retain such additional compensation for their services in the matter of such additional property as may be reasonable, or agreed*2960 upon from time to time.
IN WITNESS WHEREOF, said party of the first part has hereunto set his hand and seal, and said The Merchants' Loan and Trust Company to evidence its acceptance of the trusts hereby created, has caused these presents to be signed in its name by its Vice President, attested by its Secretary and its corporate seal to be hereunto affixed, and said Leon L. Loehr, to evidence his acceptance of the trusts hereby created has hereunto set his hand and seal the day and year first above written.
Under date of August 25, 1916, Sykes executed the following instrument in an amendment to the agreement of April 1, 1916:
THIS AGREEMENT, made and entered into this 25th day of August, A.D. 1916, by and between
RICHARD SYKES,
of Santa Barbara, in the County of Santa Barbara and State of California, party of the first part, and
THE MERCHANTS' LOAN AND TRUST COMPANY,
a corporation duly organized and existing under and by virtue of the laws of the State of Illinois, and
LEON L. LOEHR,
of the City of Chicago, County of Cook and State of Illinois, as Trustees, parties of the second part, WITNESSETH:
WHEREAS, the parties hereto have entered into an agreement dated*2961 April 1, 1916, but the said Richard Sykes has been unable to procure the consent of the Alliance Mortgage & Investment Company, Limited, of Manchester, England to the assignment and transfer to the said parties of the second part of the Seventeen thousand five hundred and fifty (17,550) shares of the capital stock of said Alliance Mortgage & Investment Company, Limited, of Manchester, England, and the said parties of the second part have never received certificates for such shares, and
WHEREAS, the certificate of Anglo-California Trust Company for Ninety-five (95) bonds of The Netherlands Farms Company mentioned in said agreement of April 1, 1916, is now exchangeable for Ninety-five (95) second mortgage Twenty-five (25) year gold bonds of Holland Land Company issued under a certain mortgage from Holland Land Company to Anglo-California Trust Company as Trustee dated July 1, 1916, and
*1377 WHEREAS, in and by the said trust agreement of April 1, 1916, the said Richard Sykes reserved to himself power and authority to alter, change and amend the said trust instrument and revoke the same and to recall, receive and recover to himself any or all of said trust estate property fully*2962 released from the trusts by said instrument of April 1, 1916, created, and
WHEREAS, it is the desire of the said Richard Sykes to revoke the said trust in so far as it relates to such stock of the Alliance Mortgage & Investment Company, Limited, of Manchester, England, which has never come into the possession of the said parties of the second part, and
WHEREAS, it is the desire of the said Richard Sykes to recall and recover to himself the said certificate of the Anglo-California Trust Company for the Ninety-five (95) bonds of The Netherlands Farms Company mentioned in said trust agreement and to substitute in place thereof Ninety-five (95) second mortgage bonds of Holland Land Company;
NOW, THEREFORE, the said Richard Sykes exercising the powers reserved to him in and by said trust agreement of April 1, 1916, revokes, cancels and annuls the said trust instrument in so far as it relates to the shares of the capital stock of the Alliance Mortgage & Investment Company, Limited, of Manchester, England, and
Said Richard Sykes recalls and recovers to himself and acknowledges receipt of the certificate of the Anglo-California Trust Company for the Ninety-five (95) bonds of The Netherlands*2963 Farms Company mentioned in said trust agreement of April 1, 1916, and
Said Richard Sykes hereby sells, assigns, transfers, sets over and delivers unto the said parties of the second part as Trustees, Ninety-five (95) second mortgage bonds of the Holland Land Company issued under a certain mortgage from Holland Land Company to Anglo-California Trust Company as Trustee dated July 1, 1916,
TO HAVE AND TO HOLD upon the trusts mentioned in said agreement of April 1, 1916,
IN WITNESS WHEREOF said party of the first part has hereunto set his hand and seal and the said The Merchants' Loan and Trust Company to evidence its acceptance of the trusts hereby created has caused these presents to be signed in its name by its Vice President and attested by its Secretary and its corporate seal to be hereunto affixed, and the said Leon L. Loehr, to evidence his acceptance of the trusts hereby created has hereunto set his hand and seal the day and year first above written.
The note of the Miramar Company mentioned in the agreement of April 1, 1916, was delivered to the Merchants' Loan & Trust Co. prior to August 31, 1916. While the Merchants' Loan & Trust Co. received the certificate of the*2964 Anglo-California Trust Co. for the 95 bonds of the Netherlands Farms Co., it was returned to Sykes pursuant to the agreement of August 25, 1916. Some time prior to September 6, 1916, the 95 second mortgage bonds of the Holland Land Co. referred to in the agreement of August 25, 1916, were received by the Merchant's Loan & Trust Co.
On July 12, 1920, Sykes executed the following instrument:
AMENDMENT OF TRUST AGREEMENT.
THIS INDENTURE, WITNESSETH: That I RICHARD SYKES, of Santa Barbara, California, exercising the power reserved to me in and by the Trust Agreement *1378 between myself and THE MERCHANTS' LOAN AND TRUST COMPANY and LEON L. LOEHR, Trustees, dated April 1, 1916, to alter change and amend the said Trust Instrument, do now hereby cancel and revoke Article Third of said Trust Agreement and substitute in place thereof, the following:
THIRD: Out of the net income from said trust estate to pay not to exceed the sum of Three thousand dollars ($3,000) per annum, for the support, maintenance and education of the two sons of said party of the first part, Richard Sykes Jr., and Edward Christopher Sykes, until the time of the death of said party of the first part, *2965 and to accumulate all the remainder of the net income from said trust estate and add the same to the principal until the time of the death of said party of the first part, and from and after the time of the death of said party of the first part, to pay, use and expend so much of said trust estate, - income and principal, - as may be necessary or proper, in the discretion of said Trustees, for the support, maintenance and education of the children of said party of the first part, until the end of the term of twenty (20) years from the date of his death, and then all the rest, residue and remainder of said trust estate shall be distributed in equal parts to the children of said party of the first part; and in case of the death of any of such children, leaving lawful issue surviving, such issue shall take the parent's share, in equal parts, per stirpes, and in case of the death of any of such children, leaving no lawful issue surviving, the share of the one so dying shall be distributed among the survivors or survior of such children and the lawful issue of any of them who may have died leaving lawful issue surviving, in equal parts, per stirpes, and not per capita; and in*2966 case of the death of all such children before the end of said term of twenty (20) years, none of them leaving lawful issue surviving, then all said rest, residue and remainder of said trust estate shall be paid, delivered and conveyed to Fanny Eliza Sykes, wife of said party of the first part, if she be then living, and if not, then to the survivors of the nineteen (19) nephews of said party of the first part, children of his brothers, Edmund Howard Sykes, William Sykes, Thomas Hardcastle Sykes, Arthur Henry Sykes, Walter Harry Sykes and his sister, Eleanor Platt, all of whom were born in the parish of Cheadle, in the County of Chester, England, and in case none of such nephews shall be then living, then all the rest, residue and remainder of said trust estate shall be paid, delivered and conveyed to the heirs at law of said party of the first part, according to the Statutes of Descent of the State of Illinois, then in force, and the time for determining who are his heirs as that word is here used, shall be the time for making distribution to them, and not the time of the death of said party of the first part.
Sykes did not change, alter or amend the agreement of April 1, 1916, in*2967 any manner other than by the instruments of August 25, 1916, and July 12, 1920. He held the certificate for the stock of the Alliance Mortgage & Investment Co., Ltd., which was originally in the trust, but withdrawn because it could not be transferred on the books of the company, until May, 1922, when the company was liquidated. As Sykes had never intended that this stock should be other than a part of the trust, he paid to the trust the proceeds from the stock, amounting to $77,947.27, when the company was liquidated. *1379 He made no other addition to the trust and the only other additions to the trust arise by reason of the accumulations of income from the investments already in the trust. The merchants Loan & Trust Co. held the note of the Miramar Company until it was paid in full, which was shortly before Sykes' death. The second mortgage bonds of the Holland Land Co. were held from the time received from Sykes until they were called and retired on June 1, 1923. With the exception of the changes heretofore mentioned, the trust was unrevoked at the time of Sykes' death.
At the date of the death of Sykes the total value of this trust, including the amounts transferred*2968 to it plus the accumulated income therefrom, was $202,012.76. In an audit of the estate-tax return the respondent determined the value of the trust property at the death of Sykes to be $202,008.60 and included that amount in the gross estate of the decedent.
Sykes transferred and conveyed certain parcels of real estate to the Security Trust & Savings Bank of Los Angeles, Calif., as trustee under the terms of a trust agreement dated April 7, 1916, and which is in part as follows:
DECLARATION OF TRUST.
KNOW ALL MEN BY THESE PRESENTS:
That SECURITY TRUST & SAVINGS BANK, a Corporation, hereinafter called "trustee", organized and existing under the laws of the State of California, and having its principal place of business at the City of Los Angeles, County of Los Angeles, State of California, does hereby certify, admit and declare that it has accepted and received from, and that there has been conveyed to it by, RICHARD SYKES, hereinafter called "trustor", now of the City of Santa Barbara, County of Santa Barbara, State of California, by a grant, bargain and sale deed, in its form and by its terms absolute, all those certain parcels of land lying, being and situated in the County*2969 of Santa Barbara, State of California, and more particularly described as follows, to-wit: [Here appears a description of the property].
That no consideration was paid by said trustee for the conveyance and transfer to it of the above described parcels of real property, but that the same were conveyed to said trustee and it has accepted and will hold the same in trust upon the following terms and conditions, to-wit:
First: Said trustee shall collect and receive all the rents, issues and profits of the above described real property during the term hereof, and shall pay all taxes thereon, and generally supervise, handle, manage and care for the same as an owner thereof, and in such ways and manner as to it may seem best.
Second: Said trustee shall sell and convey, or enter into contracts of sale covering such portion or parcel of the above described land, and to such person or persons, and upon such terms and conditions as shall or may be requested and designated to it in writing by said trustor; provided, however, that said trustee shall in no event or at all be required to lease, sell, convey or contract to lease, sell or convey any portion of said premises, or otherwise*2970 company with any written request of said trustor, unless and until it shall at the time of such request, have vested in it a title in fee to the land to be so leased, *1380 conveyed, or contracted to be conveyed and embraced within such written request to the trustor; and provided, further, that said trustee shall in no event be required to comply with any written instructions or requests of said trustor, which in the judgment of said trustee will impose upon it any obligations or liabilities which it at the time is not able as trustee hereunder to fully meet and comply with.
Third. Said trustee is hereby vested and given the full and absolute power to sell, convey, lease, subdivide, exchange, and generally handle and manage the whole or any portion of the trust estate in such ways and manner and upon such terms and conditions as to it may seem best.
* * *
Seventh. From the income, rents, issues, profits and proceeds of all sales and contracts of sales, said trustee shall fully pay and discharge all taxes, assessments, costs, charges and expenses, of every kind or nature, incurred in the care, management and protection of the trust estate, including a reasonable*2971 compensation for its own services as trustee.
The entire net income and net proceeds received by said trustee from all sales and contracts of sale of any portion of the above described premises, as received, shall go and be paid by said trustee to the said trustor for and during his life or until the expiration of fifteen (15) years from the date hereof, whichever event shall happen first.
In the event of the demise of said trustor at any time prior to the expiration of fifteen (15) years from the date hereof, then from and after his demise, to and until the termination of this trust, the said net income and net proceeds of sales and contracts of sales of the trust estate shall go and be paid, equally, share and share alike, to RICHARD SYKES, who was on September 7th, 1915 of the age of ten years, and EDWARD CHRISTOPHER, SYKES, who was on August 22nd, 1915 of the age of eight years (both sons of said trustor), or to their legally appointed guardian while they are minors, for and during their lives or until the final termination of this trust, whichever event shall happen first.
In the event that any one of said above named sons of said trustor, who are hereinafter called "beneficiaries, *2972 " shall die prior to the natural termination of this trust, the whole of the beneficial interest payable under the terms hereof shall go and be paid to the survivor of them, to and until the natural termination of this trust or until the death of such survivor, whichever event shall happen first.
In the event of the demise of both of said above-named sons of the trustor prior to the expiration of fifteen (15) years from the date hereof, the said trustor having previously died, this trust shall ipso facto cease and determine at the time of the demise of the last living of them, and the entire trust estate, in whatever form, properties or investments it may at that time be, together with all undistributed trust funds in the hands of said trustee, shall be subject to the testamentary disposition of said trustor, or in the event that he shall die intestate it shall go, vest in, and be transferred to the then living heirs at law of said trustor, according to the laws of succession of the State of California then in force.
Eighth. During the entire period of this trust, each and every beneficiary hereunder is hereby specifically restrained from alienating, selling hypothecating, *2973 pledging, or in any otherwise or manner or at all incumbering or disposing of his beneficial interests or estates under this trust; nor shall the beneficial interests or estates of any beneficiary hereunder be subject to the claims of any creditors of any beneficiary or any other person whomsoever, and all beneficial interest hereunder shall be paid, transferred and conveyed only, solely and *1381 exclusively to the designated beneficiary hereunder then entitled to take and receive the same, and to no other person whomsoever, and in the event that any beneficiary hereunder shall for any reason not be entitled to take or receive any beneficial or other interests under this trust, all his legal and equitable rights hereunder shall ipso facto cease and determine, and they shall immediately vest in, be transferred and be distributed to the other beneficiaries then entitled to take and participate under this trust.
* * *
Thirteenth. If, and in the event that at the time of the termination of this trust or the vesting of any title to any of the trust property in any beneficiary hereunder under the terms hereof, the said trustee shall then be obligated upon and have outstanding*2974 against it contracts of sale upon or covering any portion of the trust estate, the said trustee shall, in no event, be required to convey or transfer the same, excepting in compliance with such contracts, and the title to said property covered by such contracts of sale shall not vest in, go to, or in any event or at all pass to or be taken by any beneficiary or any person other than the persons entitled to a conveyance under such contracts, or be taken out from under this trust, excepting at the sole, absolute and uncontrolled discretion, option and election of said trustee; and the title, in fee, to such property covered by such contracts of sale shall remain in said trustee in trust hereunder, subject to such outstanding contracts of sale, unless it shall elect to convey the same to the beneficiary hereunder then entitled to take it, subject to such contracts as above mentioned. The trustee shall account to the beneficiaries entitled to the same for the proceeds of such sales as the same are collected.
The reservations in this paragraph shall control and prevail over any and all other provisions of this declaration of trust, anything to the contrary herein notwithstanding.
*2975 Fourteenth. Said trustor has, and does hereby, by the approval of this trust, specifically reserved to himself, and he and each and every beneficiary hereunder is hereby, generally and specifically, granted the right to convey, transfer, set-over, assign and deliver to said trustee any other real and/or personal property of any kind or nature and wheresoever situated, other than the real property above specifically described, to become a part of and subject to all of the terms and conditions of this trust; and upon the acceptance of any such property, so conveyed to it, by said trustee, such property shall ipso facto become a part of the trust estate hereunder, and the income therefrom and the principal thereof shall be subject to all of the terms, conditions, provisions, and shall go to, vest in, and be taken by all of the beneficiaries under this trust, in the same manner, conditions and events, and with like effect, as if it were a part of the original trust estate hereunder, without any new agreement or declaration of trust in relation thereto.
Fifteenth. Each and every covenant, agreement, stipulation and provision in this Declaration of Trust mentioned shall inure*2976 to the benefit of and bind the heirs, administrators, executors and successors of all the parties herein mentioned.
Time is the essence of this Declaration of Trust.
The value of the property transferred by Sykes and made subject to the terms of the foregoing trust agreement was reported as a part of the gross estate in the estate-tax return. The inclusion of the value of the property in the gross estate has been made the basis of a claim for refund filed on behalf of the estate.
*1382 Sykes transferred and conveyed certain personal property and real property situated in North Dakota to the Northern Trust Co. of Fargo, N. Dak., now Northern & Dakota Trust Co., as trustee under the terms of a trust agreement dated December 1, 1917, and which in part is as follows:
DECLARATION OF TRUST.
KNOW ALL MEN BY THESE PRESENTS:
That the Northern Trust Company, a corporation, organized and existing under the laws of the State of North Dakota, and having its principal place of business at Fargo, State of North Dakota, hereinafter called the Trustee, does hereby certify, admit and declare that it has accepted and received from and there has been conveyed to it by Richard Sykes, *2977 now of the City of Santa Barbara, County of Santa Barbara, State of California, hereinafter called the Trustor, by transfers and instruments of conveyance in their form and by their terms absolute, all that certain personal property, and all those certain parcels of land lying, being and situated in the State of North Dakota, and which are particularly described, the personal property in Exhibit "A" and the real property in Exhibit "B", both of which exhibits are attached to and made a part of this agreement. That no consideration was paid by said Trustee for the conveyance and transfer to it of the herein described real and personal property, but that the same were transferred and conveyed to said Trustee and it has accepted and will hold the same in trust upon the following terms and conditions, to-wit:
First. Said Trustee shall collect and receive all the rents, issues and profits of the above described real property during the term hereof, and shall pay all taxes thereon and generally supervise, handle, manage and care for the same as an owner thereof, and in such ways and manner as to it may seem best; it shall collect and reduce to cash as speedily as possible the said*2978 personal property.
Second. Said Trustee may sell and convey or enter into contracts of sale covering such portion or parcel of the real property, and to such person or persons and upon such terms and conditions as it shall deem to be best; provided, however, that said Trustee shall in no event or at all be required to lease, sell, convey or contract to lease, sell or convey any portion of said premises unless and until it shall have vested in it a title in fee to the land to be so leased, conveyed or contracted to be conveyed.
Third. Said Trustee is hereby vested and given the full and absolute power to sell, convey, lease subdivide, lay out into town sites, or into additions, to present town sites, exchange and generally handle and manage the whole or any portion of the Trust estate in such ways and manner and upon such terms and conditions as to it may seem best. Provided, however, that funds realized from the sales of properties covered by this trust shall not by the Trustee be reinvested in lands, but shall be kept invested in real estate farm mortgages which are first liens upon lands reasonably worth double the amount of the mortgage, also in federal, state and*2979 municipal bonds and warrants, and in such other classes of securities as may from time to time be prescribed by the laws of North Dakota as valid investments for Savings Banks to make.
* * *
Seventh. From the income, rents, issues, profits and proceeds of all sales and contracts of sales, said trustee shall fully pay and discharge all taxes, assessments, *1383 costs, charges and expenses of every kind or nature, incurred in the care, management and protection of the trust estate, including a reasonable compensation for its own services as trustee, which compensation shall be five per centum upon the gross cash income realized from year to year from sales, rentals and interest upon mortgages and other securities belonging to the Trust fund; but without any allowance to the Trustee of compensation for investment or reinvestment of cash which it shall have realized from sales or rentals; and without compensation for services rendered in connection with the making of disbursements in the handling and management of the estate, and without compensation for accounting for and turning over to beneficiaries the Trust fund and properties when the Trust is terminated. Provided, *2980 further, that the Trustee shall be allowed the necessary expenses and disbursements such as travelling expenses and the like incurred by it in the care, management and handling of the Trust estate. The entire net income and net proceeds received by said Trustee from all sales and contracts of sale of any portion of the Trust estate, as received, shall be held, invested and re-invested by said Trustee until the termination of this trust.
At the expiration of twelve years from date hereof this trust shall terminate; at the date of such termination all of the net income and net proceeds of sales and contracts of sales, and all of the trust property then remaining in the hands of the Trustee shall go and be paid equally share and share alike to Richard Sykes who was on Sept. 7th, 1917, of the age of twelve years, and Edward Christopher Sykes, who was on August 22nd, 1917, of the age of ten years (both being sons of said Trustor) or to their legally appointed guardian while they are minors, for and during their lives or until the final termination of this trust whichever event shall happen first. In the event that any one of the said above named sons of said Trustor, who are here after*2981 called beneficiaries, shall die prior to the natural termination of this trust, the whole of the beneficial interest payable under the terms hereof shall go and be paid to the survivor of them to and until the natural termination of this trust, or until the death of such survivor, whichever event shall happen first.
In the event of the demise of both of said above named sons of the trustor prior to the expiration of twelve (12) years from the date hereof, the said trustor having previously died, this trust shall ipso facto cease and determine at the time of the demise of the last living of them, and the entire trust estate, in whatever form, properties or investments it may at that time be, together with all undistributed trust funds in the hands of said trustee, shall be subject to the testamentary disposition of said trustor, or in the event that he shall die intestate it shall go, vest in, and be transferred to the then living heirs at law of said trustor, according to the laws of succession of the State of North Dakota then in force.
Eighth. During the entire period of this trust, each and every beneficiary hereunder is hereby specifically restrained from alienating, *2982 selling, hypothecating, pledging, or in any otherwise or manner or at all incumbering or disposing of his beneficial interests or estates under this trust; nor shall the beneficial interests or estates of any beneficiary hereunder be subject to the claims of any creditors of any beneficiary or any other person whomsoever, and all beneficial interests hereunder shall be paid, transferred and conveyed only, solely and exclusively to the designated beneficiary hereunder then entitled to take and receive the same, and to no other person whomsoever, and in the event that any beneficiary hereunder shall for any reason not be entitled to take or receive any beneficial or other interests under this trust, all his legal and equitable rights *1384 hereunder shall ipso facto cease and determine, and they shall immediately vest in, be transferred and distributed to the other beneficiaries then entitled to take and participate under this trust.
* * *
Thirteenth. If, and in the event that at the time of the termination of this trust or the vesting of any title to any of the trust property in any beneficiary hereunder under the terms hereof, the said trustee shall then be obligated*2983 upon and have outstanding against it contracts of sale upon or covering any portion of the trust estate, the said trustee shall, in no event, be required to convey or transfer the same, excepting in compliance with such contracts, and the title to said property covered by such contracts of sale shall not vest in, go to, or in any event or at all pass to or be taken by any beneficiary or any person other than the persons entitled to a conveyance under such contracts, or be taken out from under this trust, excepting at the sole, absolute and uncontrolled discretion, option and election of said trustee; and the title, in fee, to such property covered by such contracts of sale shall remain in said trustee in trust hereunder, subject to such outstanding contracts of sale, unless it shall elect to convey the same to the beneficiary hereunder then entitled to take it, subject to such contracts as above mentioned. The trustee shall account to the beneficiaries entitled to the same for the proceeds of such sales as the same are collected.
The reservations in this paragraph shall control and prevail over any and all other provisions of this declaration of trust, anything to the contrary*2984 herein notwithstanding.
Fourteenth. Said trustor has, and does hereby, by the approval of this trust, specifically reserved to himself, and he and each and every beneficiary hereunder is hereby, generally and specifically, granted the right to convey, transfer, set-over, assign and deliver to said trustee any other real and/or personal property, of any kind or nature and wheresoever situated, other than the real property above specifically described, to become a part of and subject to all of the terms and conditions of this trust; and upon the acceptance of any such property, so conveyed to it, by said trustee, such property shall, ipso facto, become a part of the trust estate hereunder, and the income therefrom and the principal thereof shall be subject to all of the terms, conditions, provisions, and shall go to, vest in, and be taken by all of the beneficiaries under this trust, in the same manner, conditions and events, and with like effect, as if it were a part of the original trust estate hereunder, without any new agreement or declaration of trust in relation thereto.
* * *
Seventeenth. Each and every covenant, agreement, stipulation and provision in this*2985 declaration of trust mentioned shall enure to the benefit of and bind the heirs, executors, administrators and successors of all the parties herein mentioned.
Time is the essence of this Declaration of Trust.
The foregoing agreement has never been changed, altered or amended in any manner whatever.
In an audit of the estate-tax return the respondent determined the value of the property of this trust to be $113,118.93 at the time of the death of Sykes, and included that amount in the gross estate of the decedent.
*1385 Under date of January 8, 1920, Sykes executed the following instrument:
THIS INDENTURE,
Made the 8th day of January, nineteen hundred and twenty, between RICHARD SYKES, party of the first part, and COMMERCIAL TRUST AND SAVINGS BANK, a corporation, with principal place of business in the city of Santa Barbara, California, party of the second part,
WITNESSES: - That,
Whereas, said party of the first part is desirous of creating a trust fund for certain beneficiaries hereinafter named;
NOW THEREFORE, said party of the first part hereby assigns, transfers and sets over unto the said party of the second part, its successors and assigns, the following*2986 described leases and the proceeds thereof and all property thereto appertaining and the following described personal property, viz: [Here appears a description of the property.]
TO HAVE AND TO HOLD all and singular the above described property and property rights unto the said party of the second part, its successors and assigns, in trust, nevertheless, for the following uses and purposes and upon the following terms and conditions, to-wit:
First: Said trustee shall collect and receive all the rents, income, issues and profits of the above described property and shall pay all the necessary expenses in connection with the management of said property and shall supervise, handle, manage and care for the same in such manner as to it shall seem best.
* * *
From the income rents, issues and profits of said property, said trustee shall fully pay and discharge all expenses of every kind and nature incurred or necessary in the case, management and protection of said trust property, including a reasonable compensation for its own services as trustee. The entire net income and net proceeds received by said trustee from the said trust property shall be held, invested and reinvested*2987 by said trustee until the termination of this trust.
At the termination of twenty years from the date hereof, this trust shall terminate and all the aforesaid trust property and the income and proceeds thereof then remaining in the hands of the trustee shall go to and be paid over to, share and share alike, Richard Sykes (who on September 7, 1919, was of the age of fourteen years), and Edward Christopher Sykes (who was upon August 22, 1919, of the age of twelve years); both of said persons being the sons of the trustor herein.
In the event that any of the above named sons of said trustor who are hereinafter called beneficiaries, shall die prior to the termination of this trust by its terms, leaving issue him surviving then upon the termination of this trust the share of the one so dying shall go to the issue of such deceased son in equal shares, and in the event of the death of one of said sons without issue him surviving, then the whole of said trust property and the proceeds thereof shall go to the survivor of said sons upon the termination of this trust.
In the event of the death of both of the said above named sons of the trustor prior to the expiration of twenty years*2988 from the date hereof leaving no issue him or them surviving, this trust shall ipso facto cease and determine at the time of the demise of the last living of said two sons and the entire trust property and the income and proceeds thereof, shall go to and be paid by my trustee in equal shares to the children then living of the nephew of said *1386 trustor, Sir Percy Molesworth Sykes, of Lyndhurst, county of Hampshire, England.
During the entire period of this trust, each and every beneficiary hereunder is specifically restrained from alienating, selling, hypothecating, pledging or in any manner or at all, encumbering or disposing of his beneficial interest under this trust, nor shall the beneficial interest or estate of any beneficiary hereunder be subject to the claims of any creditor or creditors, or beneficiary, or any other persons whomsoever, and all beneficial interest hereunder shall be paid, transferred and distributed solely and exclusively to the designated beneficiary hereunder then entitled to take or receive the same, and unto no other person.
* * *
Said trustor has, by the approval of said trustee, the right to assign and deliver to said trustee any other*2989 property of any kind or nature to become a part of and subject to all the terms and conditions of this trust, and any property so conveyed or assigned shall ipso facto become a part of the trust estate hereunder and the same shall be subject to all the terms, conditions and provisions and shall go to, vest in and be taken by the beneficiaries under this trust in the same manner, position and event and with like effect as if it were a part of the original trust property conveyed hereby, without any new agreement or declaration in trust in relation thereto.
Each and every covenant, agreement and stipulation and provision in this instrument mentioned shall inure to the benefit of and bind the heirs, executors, administrators and successors of the parties hereto.
The Commercial Trust & Savings Bank, trustees under the foregoing instrument, was through certain consolidations merged with the Pacific Southwest Trust & Savings Bank, which through another consolidation was merged into the Los Angeles-First National Trust & Savings Bank. The Los Angeles-First National Trust & Savings Bank succeeded to and is now acting under the foregoing trust agreement.
In an audit of the estate-tax*2990 return the respondent determined the value of the property of this trust to be $122,974.15 at the time of Syke's death and included that amount in the gross estate of the decedent.
Syke's reason for creating the trusts heretofore enumerated was that his boys should receive their money from time to time and not all at once. Also, he did not believe "in keeping all of his eggs in one basket." The trust with the Northern Trust Co. was also created for the better management of Sykes' real property in North Dakota of which he had a considerable amount.
In addition to the property transferred under the trust agreements heretofore mentioned, and which are here involved, Sykes owned substantial interests in other property. On or about June 17, 1918, he transferred certain property to the Santa Barbara Trust Co. of Santa Barbara, Calif., the trusts of which passed to the County National Bank & Trust Co. This property was reported in the estate-tax return as having a value of $243,223 at the time of Sykes' death. The *1387 present carrying value of the property is $278,812.41. Sykes also transferred to the Illinois Merchants' Trust Co. as trustee under the provisions of a trust*2991 agreement dated October 24, 1922, certain property which had a value of $353,505.39 at the time of his death.
From the time he was 40 odd years of age, Sykes suffered from periodic attacks of gout. These attacks affected the use of his hands and feet, and at the time of his marriage in June, 1904, it was necessary for him to use two sticks in order to walk. During the early period following his marriage the attacks were very painful and so affected him that he could not use his hands or feet and therefore made it impossible for him to get around. During the last five years of his life the suffering from the attacks was not so acute as in former years because of the regulation of his diet and the use of different kinds of medicines. From 1904 until his death, he required medical treatment for the gout condition about twice a year. Throughout this time Sykes was always able to attend to his business affairs, even during the periods of acute suffering from the gout.
About nine or ten years prior to his death, Sykes began to have difficulty in getting up and down the stairs in his home and had an elevator installed for his use. In September prior to his death. Sykes fell on*2992 his back into the elevator shaft in his home and landed on the top of the elevator, about 1 1/2 feet below. While no bones were broken and only slight bruises on the back resulted from the fall, he was confined to his bed from then until his death. Up until the date of his death he was able to look after his ordinary business affairs and on the day he died he dictated six letters.
Sykes was suffering from one of his periodic gout attacks the day before his death. His death was due to reptured heart. Apart from the gout and its primary and secondary effects, which included some heart and kidney involvement, Sykes had no other disease.
While Sykes had periodic attacks of gout during 1916 to 1920, inclusive, the years in which the transfers herein involved were made, he was otherwise strong and active. His mind was clear, keen and alert and he was exceptionally shrewd in the conduct of his business affairs. Except when suffering from the gout attacks, he was always cheerful and found great enjoyment in his business and his surroundings. At no time did he discuss the possibility of immediate or imminent death or express any apprehension, fear or contemplation of death in the*2993 near future. He never complained of any physical condition or mental attitude which he stated or indicated caused him to fear death.
The transfers of the property by the decedent to trustees on April 1, 1916, April 7, 1916, December 1, 1917, and January 8, 1920, were not made in contemplation of death.
*1388 OPINION.
TRAMMELL: The petitioner contends that the respondent erred in increasing the gross estate by the value at the time of the decedent's death of the property held by the trustees under the trust agreements of April 1, 1916, December 1, 1917, and January 8, 1920, and by not eliminating from the gross estate the value at the time of the decedent's death of the property held by the trustee under the trust agreement of April 7, 1916, and reported in the estate-tax return as a part of the gross estate.
In support of this, the petitioner urges that no one of the transfers was made by Sykes in contemplation of death or to take effect in possession or enjoyment at or after his death.
The respondent in his brief concedes that the transfers of April 1, 1916, and April 7, 1916, were not made in contemplation of death and it therefore becomes unnecessary to consider*2994 the question of whether they were made in contemplation of death.
With respect to the transfers of December 1, 1917, and January 8, 1920, the presumption of the statute that they were made in contemplation of death does not apply, since they were made more than 2 years prior to the death of Sykes on May 31, 1923. This leaves the petitioner in the position of having to overcome only the presumption of the correctness of the respondent's determination on this point.
The evidence shows that during the period from 1916 to 1920, Sykes was strong and active, except for the periodic attacks of gout, which he had had since he was between 40 and 50 years of age. These attacks, which occurred about twice a year, would keep him at home about a week or two each time and then he would go about his affairs as usual. These attacks, however, never disabled him so that he could not look after his business affairs and on the day of his death was attending to his correspondence. He had no other disease, and, except when suffering from the attacks of gout, he found much enjoyment in his business and his surroundings. His mind was always clear and alert. The testimony of Sykes' banker, his*2995 lawyer, his wife, a neighbor whom he saw often, and the doctor who attended him during the last few years of his life, shows that he did not discuss with them the possibility of an early or imminent death or express to them any fear or apprehension as to death in the near future. While Sykes was 78 years old when he made the transfer in 1917 and about 80 when he made the one in 1920, we do not think that this fact is conclusive or even indicative of contemplation of death within the meaning of the statute.
*1389 The evidence shows that Sykes' reason for creating the trusts was that the beneficiaries, his two sons, would not receive the trust corpus all at once but from time to time. By placing the property in different trusts he was diversifying the management and control of it. In addition to the foregoing, the evidence shows that in making the transfer of December 1, 1917, Sykes had in view the better management of his large real estate holdings in North Dakota.
From a consideration of all the evidence, we are of the opinion that the transfers of December 1, 1917, and January 8, 1920, were not made in contemplation of death as that phrase has been interpreted by the*2996 courts and by this Board. We think the evidence leads to the conclusion that the expectancy of death in the near future (and not merely in the usual course of events) was not present and was not the moving cause of the conveyances to the trustees.
As none of the four transfers here involved was made in contemplation of death, there remains only the question of whether they were made to take effect in possession or enjoyment at or after death. On the authority of the case of , it is our opinion that the trust dated April 1, 1916, in which the grantor reserved the power of revocation, did not take effect until at or after his death, and it is therefore to be included in the decedent's gross estate.
With respect to the other trusts, it is our opinion based on the reasoning of the Reinecke v. Northern Trust Co. case, supra, that they were completed trusts and did not take effect at or after death of the grantor and not having been made in contemplation of death, should not be included in the decedent's gross estate.
Judgment will be entered under Rule 50.