*715 Petitioner's decedent created an irrevocable trust with income to himself for life with remainder over to named beneficiaries. The instrument provided that the trustees should have the power, in the event that the net income should be insufficient for his support and maintenance, to use and disburse from time to time the principal of the trust estate for such purposes, if the majority of them deemed it necessary or expedient, or if requested by the decedent. The net income was never insufficient during decedent's lifetime and no part of the principal was so used. Held, under the facts the transfer was not in contemplation of death nor intended to take effect in possession or enjoyment at or after death. Held, further, the use of the principal, being contingent upon the insufficiency of the income for decedent's support and maintenance and such contingency not having arisen during his lifetime, the trust property may not be included in decedent's gross estate.
*407 The respondent determined*716 a deficiency in estate tax in the amount of $12,014.81. The petitioner brings this proceeding for a redetermination of the estate tax liability. Of the four questions raised by the petitioner's appeal, three have been conceded in whole or in part by the respondent and are disposed of by stipulation of agreed facts. The only remaining question for our consideration is whether certain property, the assets of the Frank H. Patterson trust, should be included in the gross estate of decedent. The record includes the stipulation of facts, testimony, and depositions of witnesses, and certain exhibits.
*408 FINDINGS OF FACT.
Petitioner is the duly appointed, constituted, and acting executrix of the estate of Frank H. Patterson, deceased, and is a resident of Fredonia, Kansas.
The taxes in controversy are Federal estate taxes in the amount of $15,387.43, of which $3,372.62 has heretofore been paid and $12,014.81 is an unpaid proposed deficiency.
Frank H. Patterson, a resident of Fredonia, Kansas, died April 2, 1932, and a Federal estate tax return was duly filed by the petitioner within the time required by law with the collector of internal revenue for the district of*717 Kansas, at Wichita.
The respondent has determined the gross tax estate of the decedent to be $574,089.44, has allowed deductions therefrom in the amount of $116,340.90, and has determined the net taxable estate to be $457,748.54.
The parties by stipulation have settled some of the issues involved. These adjustments will be made under Rule 50, in accordance with their stipulation.
On April 2, 1932, the date of decedent's death, there were living and accordingly survived the decedent the following named persons:
Daisy Christine Patterson, wife of deceased
Frances Patterson, daughter of deceased, born June 4, 1905
Margaret Patterson Chandler, daughter of deceased, born November 12, 1902
Frances Patterson Chandler, born June 5, 1926, daughter of Margaret Patterson Chandler, and Stephen Chandler, born October 19, 1929, son of Margaret Patterson Chandler, both grandchildren of the deceased.
Prior to January 1926 Frank H. Patterson, Daisy Christine Patterson, Frances Patterson, and Margaret Chandler were the owners of a large number of investment securities, each party being the owner of one-fourth thoreof. Under an agreement made and entered into by and between the*718 four parties these securities were divided into four equal parts and Frank H. Patterson, the decedent, was made the agent or attorney in fact to exchange or sell such securities and reinvest the proceeds in other securities, and to collect the income therefrom and disburse the equal one-fourth part of it to each of the parties or reinvest the same in other securities. Any of the parties had the right, if they so desired, at any time to permanently withdraw their securities upon notification to the other parties of such intention.
In the latter part of 1928 Margaret Patterson Chandler made a demand for her portion of the securities held by her father. She consulted an attorney, who advised her that she had a cause of action to recover the securities, and her attorney prepared a petition to recover the property. The petition was, however, never filed because *409 the matter was amicably settled by the establishing of the trusts referred to hereinafter.
Frank H. Patterson, the decedent, was opposed to transferring the property to his daughter. Some years before Mrs. Chandler and her husband had entered into an antenuptial agreement which gave Chandler an interest in any*719 property that his wife might have and Patterson was afraid that if the property was turned over to his daughter, Chandler would get possession of it.
After some negotiation between the parties and their attorneys a compromise of the controversy was agreed upon and reduced to writing, under which the Frank H. Patterson trust was formed.
On January 10, 1929, a contract was executed by and between the decedent and Daisy Christine Patterson, Frances Patterson, Margaret Patterson Chandler, and Stephen S. Chandler. Pursuant to the aforesaid contract and concurrently therewith declarations of trust were made by each of the following persons: Frank H. Patterson, Daisy Christine Patterson, Frances Patterson, and Margaret Patterson Chandler. The contract provided, among other things, that in the event any one or more of the parties should attempt by legal process to set aside the trusts or any of them, or demand or seek to obtain any partition of the trust property except as provided under the terms of the declarations of trust or interfere with the operation of them, then the rights of such party or parties, their spouse, issue, heirs, and legal representatives should cease and determine, *720 and be paid to the other beneficiaries. This contract further provided, among other things, that the parties should each convey by a bill sale to trustees certain property which would form the corpus of four separate irrevocable trusts to be created according to the terms and manner prescribed in the contract.
The Frank H. Patterson trust, created January 10, 1929, pursuant to the provisions of the above mentioned contract provided for three trustees, the First National Bank, Wichita, Kansas, Daisy Christine Patterson, and Frank H. Patterson, and their successors in trust. On January 29, 1929, Frank H. Patterson executed a bill of sale of certain property, consisting of securities, to the trustees of the Frank H. Patterson trust, in accordance with the terms of the above mentioned contract. The fair market value of such assets at the date of decedent's death, as determined by the respondent, was $292,345.
The Frank H. Patterson trust provided, among other things, that "this trust shall be irrevocable and the terms of this declaration of trust shall not be changed by the creator, trustees or beneficiaries thereof;" that "under no circumstances shall this declaration of trust*721 be construed to vest in any beneficiary thereof any absolute interest in the property of this trust prior to the time of the termination thereof, to-wit; five years after the death of Frank H. and *410 Daisy Christine Patterson and the survivor of them"; that the net income be paid to the decedent for the period of his life and thereafter to his wife, Daisy Christine Patterson, and upon the death of the survivor of them to the two daughters of the decedent or their surviving issue, respectively. Upon the termination of the trust the principal is to be distributed to the daughters of the decedent or their issue or the survivors thereof, and in the event of the death of the daughters before the termination of the trust without leaving issue surviving them at the time of their death the net income is to be paid to those persons who shall be the heirs at law of Frank H. Patterson, and, in case of death of such daughters before the termination of the trust without leaving issue surviving them, the principal is to be paid to the heirs at law of Frank H. Patterson, the decedent.
The trust further provided as follows:
It is intended through the trust hereby created, to make ample*722 provision for the comfortable maintenance, support and care of Frank H. Patterson throughout his lifetime. Accordingly, the trustees shall have the power and duty, if a majority of them deem it necessary or expedient or if requested by Frank H. Patterson, to use and disburse from time to time, principal of the trust estate, when the net income is insufficient therefor, for the support, maintenance and/or care of Frank H. Patterson, and after his death, for the support, maintenance and care of Daisy Christine Patterson. No portion of the principal shall be distributed for any other purpose prior to the termination of the trust herein provided. The decision of a majority of the trustees shall control and Frank H. Patterson shall be entitled to participate in such decision equally with any other trustee, in determining the necessity of using principal for his maintenance, support and care.
At no time was the income from the trust insufficient for the support and maintenance of Frank H. Patterson.
There was never any request made to the trustees for such use of the principal and there was never any diminution of the principal or corpus of the trust estate. Frank H. Patterson*723 never made a request addressed to the trustee for a distribution of the principal nor any representation that the income was insufficient to maintain and support him. He always had a substantial balance in the bank, running from $10,000 upward. It was not necessary at the time of his death for the trustees to use any of the trust corpus for his support, maintenance, or care.
The motive of decedent in creating this trust was a settlement of the family controversy and to prevent so much of the property of his daughter Margaret Patterson Chandler as was included in her trust of January 10, 1929, from coming into the hands of her husband, Stephen Chandler.
The property in trust was not transferred by Frank H. Patterson in contemplation of death. At the time the trust was created Patterson had reasonably good health and was actively engaged in the *411 development of a new business enterprise which required some time to develop.
The respondent increased the gross estate of decedent, and accordingly the taxable net estate, by including therein the fair market value of the assets of the Frank H. Patterson trust.
OPINION.
ARNOLD: The respondent contends (1) that the*724 transfer was made in contemplation of death, and/or intended to take effect in possession and enjoyment at or after the death of the transferor; (2) that the beneficial use and enjoyment of the property was subject at the date of the transferor's death to the exercise of a power to alter, amend, and change and the property was therefore taxable under section 302(d) of the Revenue Act of 1926.
From the evidence in the record we have found as a fact that the transfer was not made in contemplation of death. In fact it appears that the decedent did not want to create the trust and that the motivating cause was to prevent his son-in-law, Stephen S. Chandler, whom he disliked and distrusted, from getting hold of the securities belonging to his daughter, Margaret Patterson Chandler. To accomplish this the plan to create trusts by each of the parties in interest was worked out by his attorney, and the decedent, according to the agreement, established the Frank H. Patterson trust and transferred to it the property here in question. This, we think, bears no relation to a transfer in contemplation of death or intended to take effect in possession or enjoyment at or after death within the*725 meaning of the revenue act.
The respondent argues that, because of the provision in the trust instrument that it was not to be construed to vest in any beneficiary an absolute interest in the trust property prior to the termination of the trust (five years after the death of himself and wife or the survivor of them), that it must be included in the gross estate as intended to take effect in possession and enjoyment at or after death, citing . The Reinecke case is not authority for respondent's contention. As to the "two trusts" there considered it was held that the tax was rightfully imposed because the donor had reserved the power of revocation and the transfers were not completed until the death of the donor. But as to the other five trusts where the donor alone did not have an absolute power of revocation or change it was held that the corpus was not subject to the estate tax upon the donor's death. As to these trusts the Court in its opinion said:
* * * One may freely give his property to another by absolute gift without subjecting himself or his estate to a tax, but we are asked to say that this *412 *726 statute means that he may not make a gift inter vivos, equally absolute and complete, without subjecting it to a tax if the gift takes the form of a life estate in one with remainder over to another at or after the donor's death. It would require plain and compelling language to justify so incongruous a result and we think it is wanting in the present statute.
* * *
* * * In the light of the general purpose of the statute and the language of section 401 explicitly imposing the tax on net estates of decedents, we think it at least doubtful whether the trusts or interests in a trust intended to be reached by the phrase in section 402(c) "to take effect in possession or enjoyment at or after his death," include any others than those passing from the possession, enjoyment or control of the donor at his death and so taxable as transfers at death under section 401. That doubt must be resolved in favor of the taxpayer. ; .
In *727 , a gift of a remainder interest which did not vest in possession and enjoyment until after the donor's death, was held not to be a transfer intended to take effect in possession or enjoyment at or after the donor's death and for that reason not subject to the tax.
Here the decedent had irrevocably transferred to the trustee the property in question. As to him the transfer had been completed when the property was transferred to the trust, and at the time of his death no interest in the trust property remained in him which could be passed on to the living and on which the Federal estate tax could accrue. Cf. ; The rights of the beneficiaries became fixed at the time the trust was executed and could not thereafter be changed, cf. ; . The death of petitioner did not affect these rights.
The respondent further argues that, because of the provision in the trust that the trustees shall*728 have the power, "when the net income is insufficient therefor", to use and disburse from time to time, principal of the trust estate "for the support, maintenance and/or care of Frank H. Patterson", the corpus of the trust should be included in the gross estate under section 302(d), Revenue Act of 1926, which provides that in determining the gross estate of the decedent there shall be included therein the value at the time of his death of all property "to the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke * * *."
*413 The fallacy of respondent's argument lies in the fact that at the date of his death the decedent had no power to use any of the principal of the trust and never had possessed that power. The power of the trustees to use any part of the trust corpus for the support and maintenance of Frank H. Patterson was contingent upon a state of facts which never arose, i.e., when the net income of the trust was*729 insufficient for the comfortable support, maintenance, and care of the transferor. This limitation on their power was recognized both by the trustees and the transferor, and the trustees never used nor were they asked to use any of the principal for that purpose.
The action of the trustees upon any request of Frank H. Patterson to use and disburse principal of the trust was likewise contingent upon the insufficiency of the income for his comfortable support, maintenance, and care, which we have found did not exist during the lifetime of decedent.
Under the terms of the trust it was not only necessary that the income of the trust be insufficient for the support and maintenance of the transferor before the trustees had the power to make any disbursement from the corpus, but it was necessary that a majority of the trustees decide that it was insufficient before such disbursement could be made.
True, the transferor was a trustee and entitled to participate in any such decision equally with the other trustees, but we can not assume from this fact that he would connive with the other trustees to dissipate the trust corpus in violation of the trust instruments by making a decision*730 contrary to the known facts. This would be sheer speculation, unjustified by the record. We must rather assume that the trustees will act, as they did, within the power conferred upon them by the trust instrument.
Since the power granted the trustees to disburse any part of the trust corpus of the Frank H. Patterson trust was not absolute, but conditional upon a certain contingency which did not happen during the decedent's lifetime and which he did not control, we hold that at the time of his death the decedent did not have the power, either alone or in conjunction with any other person, to change or alter the trust by diverting the property to himself. .
There was here no absolute power in the transferor alone to revoke as in , nor in the transferor in conjunction with other persons as in . There was here nothing more than a remote possibility that the contingency might occur which would *414 give the trustees power to disburse trust corpus. Cf. *731 Upon the facts in the record we think the Commissioner erred in including the value of the trust property in the gross estate of the decedent.
Reviewed by the Board.
Decision will be entered under Rule 50.
MELLOTT and DISNEY dissent.