*4114 Where the decedent, more than two years before her death, transferred, conveyed and delivered real and personal property to her daughter and son, who agreed to pay a stipulated annuity to her for the remainder of her life and to deposit a portion of the property as security for such payments, it is held that the transfer was complete and took effect in possession or enjoyment immediately, and that no part of the property should be included in the decedent's gross estate.
*411 The Commissioner has determined a deficiency of $1,855.02 in estate taxes against the estate of Sarah L. Johnson, deceased. The petitioners, executors of the estate, allege that the Commissioner erred in adding to the gross estate the value, or a part thereof, of certain property transferred by the decedent prior to her death.
*412 FINDINGS OF FACT.
The petitioners are residents of the City and State of New York, and are the duly authorized executors of the estate of Sarah L. Johnson, deceased. Sarah L. Johnson, a former resident of the City and State of New*4115 York, died on February 23, 1922.
By trust deed dated February 7, 1918, Sarah L. Johnson conveyed certain real and personal property to the Fulton Trust Co., upon the trusts and for the uses and purposes therein set forth, with remainders over to her son, Seymour Johnson, and her daughter, Edith Seymour Chisholm. The trust thus created failed to accomplish the purpose intended and shortly thereafter Mrs. Johnson determined to have the conveyance set aside. It was her purpose to divide the property equally between her son and her daughter.
On June 7, 1918, she entered into an agreement with the two children, by the terms of which she agreed to transfer and convey the property, real and personal, covered by the trust deed, in equal portions to the children, and the children each agreed to pay $300 per month to her for the remainder of her life. The children also agreed to deposit with a satisfactory trust company certain securities, or shares of stock, to be transferred to them, as security for the agreed payments. On June 11, 1918, suit was instituted for the purpose of abrogating the trust deed and thereafter the same was set aside and declared void by order of the court. *4116 The Fulton Trust Co. reconveyed and transferred to Mrs. Johnson all the property, real and personal, theretofore conveyed to it in trust by said trust deed. Thereupon Mrs. Johnson, pursuant to the agreement of June 7, 1918, conveyed and transferred the property to her son and daughter as follows:
(1) A promissory note made by Seymour Johnson, payable to Sarah L. Johnson, in the sum of $60,000 with interest at 6 per cent per annum, which was canceled and delivered to Seymour Johnson;
(2) Real property known as No. 11 East 63rd Street, New York City, which was conveyed to Edith Seymour Chisholm, and valued by the respondent at $60,000;
(3) A one-half interest in certain real estate situated on Long Island, New York, known as "Onadune," which was conveyed to Edith Seymour Chisholm and valued by the respondent at $27,500;
(4) Real property known and described as No. 34 East 63rd St., New York City, which was conveyed to Seymour Johnson and valued by the respondent at $55,000;
(5) Certain securities or shares of stock of the aggregate value of $57,679.17, which were transferred and delivered by Sarah L. Johnson to her daughter, Edith Seymour Chisholm, and her son, Seymour Johnson, *4117 in equal shares.
*413 All the foregoing property was conveyed and transferred by Mrs. Johnson to her two children in 1919 prior to June 12th. The note was canceled and surrendered to Seymour Johnson and thereafter no interest was paid thereon. The real estate was conveyed by good and sufficient warranty deeds executed by Sarah L. Johnson to her daughter and son, respectively, without reservation or qualification, and duly recorded. The securities or shares of stock were duly transferred upon the books of the issuing companies to the daughter and son, respectively. The total value of all the property so conveyed and transferred was $260,179.17, as determined by the respondent and agreed to by the petitioners.
Thereafter, pursuant to the agreement of June 7, 1918, and a further agreement dated June 12, 1919, Seymour Johnson and Edith Seymour Chisholm deposited the afore-mentioned securities or shares of stock with the Union Trust Co. of New York to secure the payment of $300 per month by each of them to Sarah L. Johnson during the remainder of her life. By the terms of the latter agreement, Seymour Johnson and Edith Seymour Chisholm reserved the right to substitute, *4118 at any time, for the securities or shares deposited other securities of equal value, and authorized the Trust Company, upon default by either party in the payments to be made, to sell so much of the securities deposited by the defaulting party as might be necessary to discharge the payments due and in default. All dividends and other income derived from the securities or shares so deposited were paid to Seymour Johnson and Edith Seymour Chisholm, respectively.
By deed dated April 16, 1920, Seymour Johnson conveyed, in fee simple, the real estate known and described as No. 34 East 63rd Street, New York City, to Henrietta Goodrige for good and valuable consideration.
Between the date of the transfer of said property to Seymour Johnson and Edith Seymour Chisholm, and the death of Sarah L. Johnson, the property produced income, as determined by the respondent, in the sum of $41,246.77, as follows:
| 1. Income on the real estate | $22,850.00 |
| 2. Income on the note | 9,600.00 |
| 3. Income on the securities | 8,796.77 |
| Total | 41,246.77 |
During the same period Seymour Johnson and Edith Seymour Chisholm paid to Sarah L. Johnson, under the terms of said agreements of June 7, 1918, and*4119 June 12, 1919, the sum of $19,200.
The respondent determined that the transfer by Mrs. Johnson to her children of that portion of the property necessary to produce income equal to the payments made to her was intended to take effect *414 in possession or enjoyment at or after her death. Since the total sum paid to Mrs. Johnson was 46 1/2 per cent of the income received from all the property, as determined by the respondent, he determined that 46 1/2 per cent of the total value of all the property, $260,179.17, represents the amount of property transferred which was necessary to produce the payments made to Mrs. Johnson. Accordingly, he determined that the transfer of property of the value of $120,983.31 was intended to take effect in possession or enjoyment at or after death, which amount he included in the gross estate of the decedent and determined the deficiency in controversy.
OPINION.
VAN FOSSAN: More than two years before her death, Sarah L. Johnson transferred to her daughter and son real and personal property of the value of $260,179.17. The children agreed to pay their mother a stipulated amount every month as long as she lived, and to secure such payments*4120 they deposited with a trust company a portion of the personal property transferred to them by their mother. Upon these facts the respondent contends that the transfer of that portion of the property necessary to produce the annuity paid to Mrs. Johnson was intended to take effect in possession or enjoyment at or after death and should be included in the gross estate of the decedent for estate-tax purposes. The petitioners contend that the transfer of all the property was absolute and unqualified, that no part thereof was intended to take effect in possession or enjoyment at or after death, and that no part thereof should properly be included in the gross estate of the decedent.
Section 402(c) of the Revenue Act of 1921 provides:
SEC. 402. That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated -
* * *
(c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at*4121 or after his death (whether such transfer or trust is made or created before or after the passage of this Act), except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title.
It is not contended that the transfer was made in contemplation of death or with intent to evade the tax, but it is urged that the transfer of a portion of the property was intended to take effect in possession or enjoyment at or after death.
*415 The evidence in this proceeding is clear, uncontradicted and conclusive. The note for $60,000 was canceled and delivered by Mrs. Johnson to Seymour Johnson, the maker, and thereupon all obligation on account thereof was discharged. The real estate was conveyed in fee simple under warranty deeds executed by Mrs. Johnson, without reservation, limitation or qualification. The deeds were duly recorded and absolute*4122 title passed immediately to the daughter and son, respectively. The securities or shares of stock were delivered to the daughter and son in equal proportions and title thereto was transferred upon the books of the issuing companies to their respective names. The title to all the property and the right of possession and enjoyment passed to the daughter and son and took effect immediately upon the transfer of the same.
The mere fact that the transferees of the property were obligated to pay a stipulated annuity to the transferor, the payment of which was secured by deposit of a portion of the property transferred, does not render the transfer any the less complete at the time it was made. Nor is such circumstance alone sufficient to indicate that the transfer of any part of the property was intended to take effect in possession or enjoyment at or after death. In this case there was no reservation by the transferor of any part of the property or the income therefrom. The transfer was absolute and complete when made. The securities put up as collateral were voluntarily deposited by the transferees and were at all times under their control, subject only to the limitations placed*4123 thereon by their voluntary agreement. They enjoyed, and had the exclusive right to enjoy, the profits and income produced by such property.
At the date of the death of the transferor, Mrs. Johnson, no part of this property was owned by her or her estate, and the title, possession and enjoyment of the transferees was in nowise enlarged or affected, except that their obligation for the annuity ceased and the collateral put up was released. It was error to include any part of the property transferred in the gross estate of this decedent (See ; ; ; . Cf. also .)
At the conclusion of the hearing the respondent, "for the purposes of the record," moved that the deficiency as determined by him be approved "in view of the record and upon the stipulation of facts set forth," and, in the alternative, moved that in any event the value of the securities transferred*4124 be included in the gross estate of the decedent. Both the primary and alternate motions are denied.
*416 The deficiency, if any, will be recomputed in accordance with this opinion.
Judgment will be entered on 15 days' notice, under Rule 50.