*1222 Petitioner created a revocable trust with a life estate to her husband. Subsequently, she released her rights to revoke, revest in herself, or modify the trust in any way inimical to her husband's interest during his life. She later made gifts to the trust as modified and paid gift taxes only upon the value of the life estate of her husband. Held, upon authority of Estate of Sanford v. Commissioner,308 U.S. 39">308 U.S. 39, and Rasquin v. Humphreys,308 U.S. 54">308 U.S. 54, petitioner is liable for gift tax only upon the value of the life interest of her husband in each gift.
*179 This proceeding was brought for the redetermination of petitioner's gift tax liability in the following amounts:
| Year | Deficiency |
| 1932 | $30.94 |
| 1933 | 25.72 |
| 1934 | 56.24 |
| 1935 | 1,096.87 |
| Total | 1,209.77 |
The only question before the Board is whether transfers by petitioner in 1932, 1933, and 1934 to a trust, irrevocable without her husband's consent during his life, were subject to gift tax on the entire amount or only on the*1223 value of the life estate given to petitioner's husband.
FINDINGS OF FACT.
The facts were stipulated substantially as follows:
Petitioner is an individual and resides in Cleveland, Ohio.
Under date of September 15, 1923, the petitioner created a trust known as the Emery May Holden Norweb Trust No. 2, designating the Cleveland Trust Co. of Cleveland, Ohio, as trustee, and Ben P. Bole, petitioner's uncle, of Cleveland, Ohio, as cotrustee. Pursuant to the terms of the trust instrument, petitioner transferred and delivered to the Cleveland Trust Co., as trustee, certain securities. The aforesaid trust instrument was subsequently modified by a written instrument dated July 31, 1924, and was thereafter further modified by a written instrument dated September 19, 1935.
By the terms of the original trust instrument the securities transferred to the trustee were to be held and managed for the uses and *180 purposes stated therein, and the entire net income was to be paid quarterly, or oftener, to petitioner's husband, R. Henry Norweb, during his life, and if petitioner's husband should predecease her, then the income from the trust was to be paid to petitioner during the*1224 remainder of her life. The trust instrument further provided that after the death of the survivor of petitioner and her husband, the net income and principal of the trust should be paid to petitioner's children, under circumstances and upon the conditions set forth in the trust instrument.
By the terms of the original trust instrument petitioner reserved the right, at any time during her life, to revoke the settlement made, either in whole or in part, as well as the right to modify the trust in any respect. Thereafter, by the instrument dated July 31, 1924, the original trust instrument was modified as follows:
Having reserved the power to revoke the settlement evidenced by said Trust Agreement, as well as the right to modify in any respect the terms thereof, and desiring that my husband, R. Henry Norweb, be assured of the income derived from the trust estate during his life or so long as he may care to enjoy the same, I hereby release, relinquish and forego, during the life of my husband, any right to revoke or revest in myself any part of the trust estate, or to modify any terms thereof so as to defeat his life estate, unless his consent and approval in writing be first had*1225 and obtained thereto. Any such revocation or modification shall be evidenced as provided in said Trust Agreement and bear the written consent and approval of my husband.
During the calendar year 1932 petitioner transferred $10,895.36 in cash to the Cleveland Trust Co., trustee of the aforementioned Emery May Holden Norweb Trust No. 2. On the gift tax return filed by petitioner for the calendar year 1932 the petitioner computed the value of the gift at $6,770.03. Such sum was arrived at by including only the value of the life estate given to R. Henry Norweb, as the petitioner regarded only that amount of the transfer to be subject to the gift tax. The respondent has determined that the entire amount of the transfer is subject to gift tax and has accordingly asserted a deficiency of $30.94 for the year 1932.
During the calendar year 1933 petitioner transferred $8,855.81 in cash to the Cleveland Trust Co., trustee of the aforementioned Emery May Holden Norweb Trust No. 2. On the gift tax return filed by petitioner for the calendar year 1933 the petitioner computed the value of the gift at $5,425.86. Such sum was arrived at by including only the value of the life estate given*1226 to R. Henry Norweb as the petitioner regarded only that amount of the transfer to be subject to the gift tax. The respondent has determined that the entire amount of the transfer is subject to gift tax and has accordingly asserted a deficiency of $25.72 for the year 1933. This deficiency arises in part from the respondent's determination that the entire value of the transfer in 1933 was subject to gift tax and in part *181 because the total net gifts were increased by the respondent according to the deficiency asserted in 1932.
During the calendar year 1934 petitioner transferred $9,775.13 in cash to the Cleveland Trust Co., trustee of the aforementioned Emery May Holden Norweb Trust No. 2. On the gift tax return filed by petitioner for the calendar year 1934 the petitioner computed the value of the gift at $5,901.42. Such sum was arrived at by including only the value of the life estate given to R. Henry Norweb as the petitioner regarded only that amount of the transfer to be subject to the gift tax. The respondent has determined that the entire amount of the transfer is subject to gift tax and has accordingly asserted a deficiency of $56.24 for the year 1934. This*1227 deficiency arises in part from the respondent's determination that the entire value of the transfer in 1934 was subject to gift tax and in part because the total net gifts were increased by the respondent according to the deficiencies asserted in 1932 and 1933.
In the calendar year 1935 the petitioner transferred certain property to the Cleveland Trust Co. as trustee under agreements dated August 3, 1935, for the benefit of her three children, R. Henry Norweb, Jr., Jeanne K. Norweb, and Albert H. Norweb. The correct value of the property transferred to the trustee was $227,621.85. Petitioner reported this amount on her gift tax return for the calendar year 1935 and respondent has not challenged the correctness of the value assigned to these gifts, but has asserted a deficiency for that year in the amount of $1,096.87. The deficiency resulted from the total net gifts for 1935 being increased by the respondent's determination of the amount of net gifts for the years 1932, 1933, and 1934.
The original trust instrument, as modified by the instrument of July 31, 1924, was further modified by a written instrument dated September 19, 1935. The modification of 1935 inserted the following*1228 paragraph in the trust instrument:
In event any of my children shall predecease me, leaving issue surviving at the time of my death, such issue shall take the share intended for such child had such child survived me upon the same trusts and under the same terms and conditions hereinbefore set forth for the shares which my surviving children take under this trust.
OPINION.
VAN FOSSAN: The sole issue for our consideration is whether petitioner's transfers to a trust, irrevocable without his concurrence during the life of her husband, who was to receive the income for life, are subject to gift tax on their full value or only on the value of her husband's life interest therein. Petitioner concedes that the trust was irrevocable except with her husband's concurrence during his life, but contends she retained certain rights which are sufficient to *182 defeat a gift tax on the full value of transfers to the trust. Respondent contends that petitioner has only a contingent right of reverter in the trust estate and that gifts to the trust are subject to the gift tax at their full value.
The applicable sections of the law imposing gift tax are section 501 of the Revenue Act*1229 of 1932 1 and section 511 of the Revenue Act of 1934. 2
*1230 The trust, as originally constituted, was fully revocable and clearly no gift tax could have been imposed upon transfers to the trust estate. . The solution of the present issue, however, turns upon the effect of the modification instrument of July 31, 1924. Petitioner maintains that by the modification she merely relinquished the right to revoke, revest in herself, or modify the trust so as to defeat her husband's life estate, contending that other powers of dominion and control were retained. Respondent asserts that the modification transforms the original revocable trust into an irrevocable trust.
Upon examination of the modifying instrument of July 31, 1924, certain conclusions seem clear. The instrument indicated that it sprang solely from petitioner's desire that her husband "be assured of the income derived from the trust estate during his life" and she undertook to alter its provisions with this sole end in view. When this prefatory statement of purpose is coupled with the later qualifying and, in our judgment, controlling clauses "during the life of my husband" and "to modify any terms thereof so as to defeat*1231 his life estate" all doubt as to the proper interpretation of the instrument is removed. Petitioner released her right to revoke, revest, or modify only to the extent necessary to protect the life estate of her husband. On his death all such rights would be revived and revested in her. The renunciation was not all-embracing and the grantor retained valuable rights as to the disposition of the property.
*183 Respondent cites the cases of ; and , in support of his position. Those cases decide that mere possibility of reverter in the donor will not make a gift incomplete. In each case the grantor had no right in, or power over, the trust other than the possibility of reverter. This situation is not paralled to that presented by the instant case.
Although there is here a possibility of reverter conditioned on the death of petitioner's husband, petitioner, in addition, retained rights in the disposition of the remainder interests of the trust. In our opinion, so long as she does nothing to defeat the life interest of her husband, *1232 petitioner is free to modify the trust in any way. Petitioner still retains the right to vary the remainder interests so long as the estate of her husband is not harmed. In fact, petitioner exercised this right and modified the trust again in 1935 by the insertion of a clause relating to a per stirpes distribution to her children and their issue.
A gift to an irrevocable trust is not a completed gift subject to gift tax where the grantor reserves the power to change the beneficiaries. ; . See .
In , the Supreme Court said that the gift tax "is aimed at transfers that have the quality of a gift, and a gift is not consummate until placed beyond recall." Here only the life estate of petitioner's husband had been placed beyond recall.
Accordingly, we hold that the transfers to the trust in the years 1932 to 1934 were subject to gift tax only on the value of the life estate of petitioner's husband and that there are no deficiencies due.
Decision will be entered*1233 for the petitioner.
Footnotes
1. SEC. 501. IMPOSITION OF TAX.
(a) For the calendar year 1932 and each calendar year thereafter a tax, computed as provided in section 502, shall be imposed upon the transfer during such calendar year by any individual, resident or nonresident, of property by gift.
(b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible; but, in the case of a nonresident not a citizen of the United States, shall apply to a transfer only if the property is situated within the United States. The tax shall not apply to a transfer made on or before the date of the enactment of this Act.
(c) The tax shall not apply to a transfer of property in trust where the power to revest in the donor title to such property is vested in the donor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such property or the income therefrom, but the relinquishment or termination of such power (other than by the donor's death) shall be considered to be a transfer by the donor by gift of the property subject to such power, and any payment of the income therefrom to a beneficiary other than the donor shall be considered to be a transfer by the donor of such income by gift. ↩
2. SEC. 511. GIFTS OF PROPERTY SUBJECT TO POWER.
Subsection (c) of section 501 of the Revenue Act of 1932 (relating to the inapplicability of gift tax in the case of the transfer of property in trust subject to the power of the donor to revest title in himself) is repealed. ↩