1933 BTA LEXIS 1127">*1127 1. Where a widow entitled to survivor's share of community property elects to relinquish her right therein and take under the will, she becomes a beneficiary under the will and may take after administration, only that part of the estate which was devised to her.
2. Where facts show that estate was in process of administration by independent executors up to time of distribution, the value of property as of date of distribution is the basis for determining gain upon subsequent sale thereof by beneficiaries.
28 B.T.A. 472">*472 In these proceedings, which upon motion were consolidated, petitioners assail determinations of the following deficiencies in income tax for the year 1928:
| Lillian McDonald Brinton | $21,175.42 |
| Irene Stromeyer | 10,608.42 |
| William A. Stromeyer | 10,559.76 |
The controversy relates to the proper basis to be used in determining the amount of gain arising from the sale in 1928 of certain shares of stock of the West Texas Telephone Co. acquired by petitioners as beneficiaries under the will of William T. Stromeyer, deceased.
1933 BTA LEXIS 1127">*1128 28 B.T.A. 472">*473 FINDINGS OF FACT.
Petitioners reside at West Chester, Pennsylvania. William T. Stromeyer, a resident of Brownwood, Texas, died November 15, 1911, leaving to survive him his widow (now Lillian McDonald Brinton) and two minor children, William A. and Irene Stromeyer. He left a will wherein he disposed of all his separate property and all the community property of himself and wife. His widow chose to waive her rights as survivor of the community and take as devisee under the will.
The estate disposed of by the will consisted of life insurance, real estate, an interest in the undistributed estate of decedent's father, and 180 shares of stock in the West Texas Telephone Co., of which decedent had been an officer.
By the will, which is included herein by reference, the widow was given "the equal undivided one-half of the property and estate, whether real, personal or mixed, community or separate" of which the testator died seized or possessed, together with the use of the homestead and certain appurtenances thereto. All the rest and residue of the estate of every character was, "subject to the trusts and powers hereinafter conferred upon those named as executrix, 1933 BTA LEXIS 1127">*1129 executors and trustees herein" to go to the two children "share and share alike", and to the survivor of them should either die single and unmarried, but if either or both died leaving a child or children, then its, or their share to such child or children as may survive. The widow, her father, and another were named as executors of the will and trustees of the estate to serve without bond, and it was provided that no action should be had in the county court in connection with the administration except the proof of the will, the filing of the necessary inventories, and similar formal acts. The executors-trustees were directed to control and invested the estate property and proceeds thereof devised to the children until they attained the age of 21, or, in the case of the daughter, until her marriage, and then to make distribution. The general power granted by the will is illustrated by the following excerpt:
It is my will that the executors and trustees herein named shall have full power under this will to collect, preserve, sell, or otherwise dispose of, all property upon which this will is operative; and all three concurring, to divide and partition the same between my beloved1933 BTA LEXIS 1127">*1130 wife and children: to re-invest the proceeds of sales and collections, and to re-sell and to mortgage, or otherwise encumber, any and all such property, it being my desire to facilitate the handling of said estate, and my purpose to confer upon the executors and trustees, herein named, such power and authority as will enable them to handle and dispose of the property, and handle and re-invest proceeds, as if it were their own, they being liable, however, at all times, to the proper beneficiaries, 28 B.T.A. 472">*474 and for the faithful exercise of all the powers herein vested in them, and for the exercise of good faith in the performance of the trusts herein reposed in them.
The will provided for appointment of a substitute executor-trustee in event of death of one of those originally named, and also permitted the application of the corpus of the estate toward the education of the children if necessary.
A copy of the inventory and appraisement (which is stipulated and included herein by reference) was filed by the executors February 3, 1912. It showed certain properties, in which the decedent had an undivided one-fifth interest, held by trustees under the will of the decedent's father, 1933 BTA LEXIS 1127">*1131 probated in New York City, and not subject to the possession and control of the executors and trustees here named for several years to come, and community property valued at approximately $60,000, including 180 shares of the capital stock of the West Texas Telephone Co., valued at $36,000. It also showed debts of approximately $34,000.
The shares of stock of the West Texas Telephone Co. were transferred into the name of the estate in 1916, when a 300 percent stock dividend was declared. Another stock dividend was issued in 1924. At the time of distribution in 1928 the number of shares had been increased by stock dividends to 870. The book value of this stock at March 1, 1913, was $299.82 per share. No final account was filed with the probate court as authorized by the will. The law of Texas did not require such account. In 1928, however, on instructions of the executors an audit and report was made from the records of the executors, such as receipts, checks, etc., and, on the basis of this audit, distribution of the estate was made by the executors-trustees. The receipts and disbursements as set out in this report are stipulated and included herein by reference. The receipts1933 BTA LEXIS 1127">*1132 were deposited in the Brownwood National Bank to the credit of the executors of the estate and disbursements were made by checks signed by them as executors of W. T. Stromeyer, deceased.
In 1925 upon petition made to the County Court of Brown County, Texas, in probate, A. N. Rodgers was appointed coexecutor and cotrustee of the will and estate of William T. Stromeyer to succeed McDonald, who died in 1925, and letters testamentary were issued to him.
The executors-trustees continued to hold and manage the estate from the death of the decedent until 1928, when distribution was made. Disbursements during this time were made on account of debts, expenses, and to the beneficiaries. The greater part of the debts was paid by the end of 1917, but the indebtedness was not completely discharged until ten years later. The income of the 28 B.T.A. 472">*475 estate during this whole period consisted largely of dividends from the stock of the West Texas Telephone Co., which began paying dividends in 1912. A piece of real estate was sold in 1921 and the homestead in 1922.
William A. Stromeyer became of age April 7, 1928, and under the terms of the will one fourth of the decedent's stock of the1933 BTA LEXIS 1127">*1133 West Texas Telephone Co. (amounting to 217 shares) was transferred to him. At this time also 435 shares were transferred to Lillian McDonald Brinton, and 218 shares were placed in the names of Lillian Brinton and A. N. Rodgers, independent trustees for Irene Stromeyer. The certificates representing the stock so transferred were endorsed by "Lillian S. Brinton and A. N. Rodgers, Executors."
On July 2, 1928, William A. Stromeyer, Lillian Brinton and the trustees for Irene Stromeyer deposited their stock with the secretary of the West Texas Telephone Co., to be held pending the acceptance or rejection of the offer to purchase on September 18, 1928. A committee of the Telephone Co., authorized by the stockholders to act for them, consummated the sale. The amount received by the three petitioners for their 870 shares was $373,491, which was distributed as follows:
| Lillian McDonald Brinton | $186,745.50 |
| William A. Stromeyer | 93,372.75 |
| Lillian McDonald Brinton and A. N. | 93,372.75 |
| Rodgers, independent trustees | |
| for Irene Stromeyer | |
| Total | 373,491.00 |
In finding the deficiencies here in question the Commissioner determined the basis for computing gain or loss to1933 BTA LEXIS 1127">*1134 be $40 per share as at March 1, 1913, for all the shares of stock distributed and later sold.
OPINION.
GOODRICH: Petitioners contend that the basis for determining the profit on the sale of the stock is the fair market value at the date of its distribution to them in 1928. Respondent has determined and maintains that the basis is the fair market value of the stock on March 1, 1913. In the case of the decedent's widow, now Lillian McDonald Brinton, he argues that she acquired the stock in question as her share of the community property, and that her election to take under the will was a nullity. We cannot agree with this argument.
Clearly by his will the decedent disposed of his separate estate, consisting of an undivided interest in his father's estate, and all the community property. By her election to take under the will decedent's 28 B.T.A. 472">*476 widow relinquished her statutory interest in the community property in exchange for the rights accruing to her under the terms of the will. Thereafter her rights in all the property disposed of by the will, including all the property of the marital community, were limited and determined by the will, 1933 BTA LEXIS 1127">*1135 Smith v. Butler,19 S.W. 1083">19 S.W. 1083; Prior v. Pendleton,47 S.W. 706">47 S.W. 706; 49 S.W. 212">49 S.W. 212. She became a beneficiary of the will and could not thereafter claim any interest in the community property as the survivor of the community. Cf. Farmer v. Zinn,261 S.W. 1073">261 S.W. 1073; Heller v. Heller,233 S.W. 870">233 S.W. 870; Scaggs v. Deskin,66 S.W. 793">66 S.W. 793; 19 S.W. 1083">Smith v. Butler, supra.Thereafter her survivor's share of the community property undoubtedly became liable for the debts of the estate, including the personal debts of the decedent. Cf. Shiner v. Shiner,40 S.W. 439">40 S.W. 439. While it may be suggested that her rights under the will were acquired by purchase, cf. Allen v. Brandeis, 29 Fed.(2d) 363; Irwin v. Gavit,268 U.S. 161">268 U.S. 161; Mary W. B. Curtis,26 B.T.A. 1103">26 B.T.A. 1103, nevertheless this did not change her character as a beneficiary of the will. She was subject to the same administration as other beneficiaries in accordance with the terms of the will. Cf. 1933 BTA LEXIS 1127">*1136 Butterworth v. Commissioner, 63 Fed.(2d) 944.
The interest which she acquired was not that of a beneficiary of a trust or a life tenant, but was a one-half interest in all the net estate disposed of by the will, which, after the payment of debts and the expenses of administration, would be subject to distribution by the executors under the terms of the will. Just what property would be so distributed or whether or not there would be any property to distribute could not be determined before the debts and expenses were paid.
The respondent urges that administration ended when the executors filed an inventory and appraisal of the estate on February 22, 1912, and that distribution was then made to trustees for the beneficiaries. Under the laws of Texas (art. 3436, Vernon's Ann. Texas Stats.) where, as here, a testator has provided in his will that no other action may be had in the county court than the probating and recording of his will and the filing of an inventory and appraisement and list of claims of his estate, the executors of the will are in legal phraseology termed independent executors, cf. 1933 BTA LEXIS 1127">*1137 Ellis v. Mabry,60 S.W. 572">60 S.W. 572. Such independent executors have much broader powers in the management and control of the estate than ordinary executors or administrators. And where power is given them by the will to control, sell, invest and reinvest the property coming into their hands such power may be exercised by them as independent executors and not as trustees. Cf. Beckham v. Beckham,227 S.W. 940">227 S.W. 940; Yeager v. Bradley,246 S.W. 688">246 S.W. 688. This management of the estate by the 28 B.T.A. 472">*477 independent executors is an administration under the law. They may manage the estate and pay the debts as though they were their own. Cf. Ewing v. Schultz,220 S.W. 625">220 S.W. 625; Fernandez v. Holland-Texas Hypoteck Bank of Amsterdam, Holland,221 S.W. 1004">221 S.W. 1004; Todd v. Willis, 66 T. 704; 1 S.W. 803">1 S.W. 803.
It appears that at the time of decedent's death he was deeply in debt and practically all of his property was mortgaged or hypothecated. Shortly thereafter the telephone stock began paying dividends. The executors managed the estate so as to provide a living for the widow and children and to1933 BTA LEXIS 1127">*1138 pay off the debts which were largely liquidated by 1917, but not finally paid before ten years later. The real estate was not finally disposed of until 1922 and distribution was not made until the oldest child became of age in 1928. Moreover, the moneys belonging to the estate were deposited in the bank to the credit of the "executors" and disbursements made upon checks signed by the "executors" and upon the death of one of the executors the probate court appointed a successor to him in 1925. Under such circumstances we think that the independent executors continued to administer the estate until it was distributed in 1928. But even if respondent's theory were correct and the independent executors became testamentary trustees at some point in their administration prior to the distribution in 1928, that fact would not be controlling.
In Ralph W. Harbison,26 B.T.A. 896">26 B.T.A. 896, the Board considered a question substantially the same as that here raised by respondent - whether distribution to the trustee (when there is a substantial equitable interest in the beneficiary) is distribution to the beneficiary - and held that distribution to the beneficiary does not occur until1933 BTA LEXIS 1127">*1139 the termination of the trust. The Commissioner acquiesced in this decision. See G.C.M. 11309, XII-12-6080, p. 5 (modifying G.C.M. 6195, cited by respondent in his brief), holding that the value at the date of distribution to the taxpayer is the basis for determining gain upon the sale of personal property received from a testamentary trust.
The property here in question is personal property, acquired by will but not by specific bequest, and the case falls within section 113(a)(5), Revenue Act of 1928, which provides that "the basis shall be the fair market value of the property at the time of the distribution to the taxpayer." Cf. Finance Committee Report No. 960, p. 28, 70th Cong., 1st Sess. Since there was no increase in value of the stock between the date of distribution to petitioners and the date of its sale by them, no profit arose therefrom.
Judgment will be entered for the petitioners.