*1592 1. During her lifetime decedent created an irrevocable trust in real estate, with a provision for reversion to herself in case she survived two grandchildren named in the instrument. She did not survive them. Held, the property involved was not subject to Federal estate tax under section 302(c) of the Revenue Act of 1924.
2. The petitioner created a revocable trust in 1918, and in 1924 amended the trust instrument, disposing of her interest and making the trust irrevocable. These instruments were not made in contemplation of death. Held, the value of the trust corpus was not a part of the gross estate.
*788 This proceeding is for the redetermination of a deficiency in estate tax, asserted by the respondent in the amount of $44,713.01, and a claim of overpayment amounting to $24,213.07. The errors assigned are: (1) Including as taxable estate the value of real property conveyed in trust by decedent on July 6, 1920; (2) including as taxable estate the value of personal property held in trust under*1593 instruments executed by decedent on June 1, 1918, and on February 14, 1924; (3) failing to find that the petitioners have overpaid the amount of estate tax properly due.
FINDINGS OF FACT.
The petitioners are the executors under the will of Cornelia Haven Peabody, who died on February 16, 1926. Hereinafter she will be referred to as the decedent.
In 1903 decedent's husband purchased a dwelling house at No. 30 East 54th Street, New York City, and in 1918 he purchased the adjoining dwelling at No. 28 East 54th Street. In each instance title was taken in the name of an attorney, who later, at the request of the purchaser, conveyed the property to the decedent. On July 6, 1920, the decedent conveyed both parcels of real estate by deed of trust, the pertinent provisions of which read as follows:
WHEREAS, the Grantor is the owner of the premises hereinafter described and desires to create a trust of said property for her use and benefit during her life and thereafter for the use and benefit of others;
Now, THEREFORE, in consideration of the premises and of the sum of One Dollar ($1.00) lawful money of the United States, by each of the trustees paid to the Grantor at or before*1594 the ensealing and delivery of these presents, the Grantor does hereby bargain, sell, grant, remise, release, convey and confirm unto the trustees and their successor or successors in trust, ALL that certain piece or parcel of land known as No. 28 and No. 30 East 54th Street, in the Borough of Manhattan, City, County and State of New York, bounded and described as follows, to-wit:
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TOGETHER with the buildings, improvements, easements and appurtenances thereon or thereto appertaining, and all the rights of the Grantor in and to said premises, TO HAVE AND TO HOLD the premises herein granted unto the Trustees, their successor or successors, IN TRUST for the following uses and purposes:
FIRST: To hold and manage said premises and receive the rents, issues and profits thereof during the life of the survivor of the two following-named persons, viz: Stephen Peabody, 3rd and John Alden Talbot, Junior, grandsons of the Grantor.
SECOND: To pay the rents, issues and profits of the said premises, less the Trustees' expenses and commissions during the period of the trust hereby created, as follows:
(a) So long as the Grantor shall be living, to the Grantor;
(b) After the*1595 death of the Grantor and if Stephen Peabody, husband of the Grantor, shall be living, then to the said Stephen Peabody, so long as he shall live;
*789 (c) After the death of both the Grantor and the said Stephen Peabody, to the children of the Grantor then living and the issue then living of any deceased child of the Grantor, per stirpes.
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THIRD: Upon the death of the survivor of the said Stephen Peabody, 3rd, and the said John Alden Talbot, Junior, the Trustees shall convey the said premises, unless then or theretofore sold as hereinafter provided, to the descendants of the Grantor then living, per stirpes: * * *.
At the termination of the trust the proceeds of any such sale, or the principal of the trust in whatever form it may be, shall be distributed among the descendants of the Grantor living at the time of such termination, per stirpes.
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ELEVENTH: Anything herein contained to the contrary notwithstanding, if both the said Stephen Peabody, 3rd, and the said John Alden Talbot, Junior, upon the life of the survivor of whom this trust depends, should die before the Grantor, the Trustees shall reconvey the above-described premises to the*1596 Grantor or her nominee or nominees or, if such premises shall have been sold, shall pay and deliver the proceeds of sale thereof in whatever form such proceeds may then be invested to the Grantor or her nominee or nominees, it being the express intent and purpose of the parties hereto that the disposition of the corpus of the trust upon its termination above prescribed shall be modified to the extent and in the manner herein provided, in case neither the said Stephen Peabody, 3rd, nor the said John Alden Talbot, Junior, shall survive the Grantor.
The trustees named in the deed accepted the trust, and administered it continuously thereafter up to the time of decedent's death. The grandchildren named in the trust deed survived the decedent. At the date of her death the value of the above trust property amounted to $488,734. The real estate in question was included in the return for Federal estate tax, at a value of $400,000, and the tax was paid upon the basis of that valuation. The respondent determined the value of such real estate to be $488,834, and asserted a deficiency accordingly.
Decedent's husband acquired shares of stock in the Syracuse Lighting Company, which shares*1597 he afterward exchanged for 325 bonds, of the par value of $1,000 each, issued by the Syracuse Light and Power Company. On June 1, 1918, those bonds were delivered to decedent by her husband, and on that same day, at his request, she executed a deed of trust whereby she named her husband as trustee of the said bonds, and named her children and her grandchildren as beneficiaries of the trust. Decedent's husband delivered the bonds to her solely for the purpose of having the property placed in trust for their children, in accordance with a previous understanding. The pertinent provisions of the instrument read as follows:
Whereas the party of the first part is possessed of certain personal property hereinafter described which by reason of ill health and inability to give attention *790 to the business of caring for the same, she desires to convey to the party of the second part in Trust, nevertheless, subject to the provisions and conditions herein contained, so that the income of said personal property may be applied by the party of the second part as such trustee to the maintenance and support of the children and grandchildren of the party of the first part hereinafter named*1598 and in the manner and amounts hereinafter provided, and that said personal property may be applied, paid over and disposed of in the manner, and for the purposes hereinafter provided, and directed:
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The said Trustee is hereby authorized and empowered to apply such portion of the income of said Trust Fund as to him shall seem proper, in monthly or other payments, to the maintenance and support of any other grandchild of mine which I now have or may have at any time during the continuance of the trust hereby created.
The Trustee may from time to time and at any time in his discretion, diminish or increase the amount to be paid monthly to each of said beneficiaries or may in his discretion entirely discontinue all payments to any one or more of said beneficiaries and may apply the amounts remaining in his hands, by reason of such reduced or discontinued payments, to the use of, and pay the same to, such of the other beneficiaries and in such sums, as said Trustee shall from time to time fix and determine.
In case there shall be in the hands of the Trustee on the 31st day of December in any year, any sum of money over and above the sums of money paid by him under the provisions*1599 of this instrument, and the discretionary powers herein contained, such surplus income shall be applied and paid over by said Trustee to the beneficiaries above named or some of them, in such shares and proportions as said Trustee shall annually fix and determine.
Said Trustee shall have absolute and unrestricted power to fix from time to time, and to vary and change from time to time, in his discretion, the amount of the income to be paid to each of said beneficiaries, and like power to withhold all income from any one or more of said beneficiaries, and to apply and distribute the same to others of them.
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Upon the death of both of my grandchildren, Cornelia Haven King and Stephen Peabody, 3rd, in case the Trust hereby created shall not have been previously terminated under some of the other terms and conditions herein contained, said Trustee shall pay and make over the whole of said personal property to the party of the first part hereto. In case, however, the party of the first part shall not survive both the said Cornelia Haven King and Stephen Peabody, 3rd, then upon the death of the survivor of them, said Trustee shall pay and make over the whole of said personal*1600 property to the Executor or Executors of the Last Will and Testament of the party of the first part hereto, to be applied by said Executors as a part of the estate of theparty of the first part hereto, and in the manner in said last Will and Testament provided and directed.
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This deed is made subject to the right and privilege of the party of the first part hereto at any time in her discretion, by written instrument signed by her, to revoke and cancel this deed of trust and to revoke and terminate, absolutely, the Trust hereby created, and to require said Trustee to re-convey all of said personal property to the party of the first part hereto, or her appointee.
This Trust deed is also made subject to the right and privilege of the party of the first part hereto at any time in her discretion, by written instrument *791 signed by her to change the shares and proportions of the income of said Trust property which shall be paid to each of the beneficiaries hereinbefore named, and also to revoke the provisions herein contained for any hereinbefore named beneficiary or beneficiaries under this Trust Deed, or any person who may be hereafter named as such beneficiary, or*1601 may become such beneficiary under the terms of the Trust hereby created, * * * and the party of the first part shall have full power at any time and in like manner to change, modify, curtail or amplify the terms and conditions of the Trust hereby created.
* * *
On February 14, 1924, the decedent executed an instrument with respect to the deed of trust of the bonds, the pertinent provisions of which are:
WHEREAS the party of the first part heretofore under date of June 1, 1918, executed an agreement with the party of the second part wherein she delivered to the party of the second part, to be held by him as Trustee for the purposes therein stated, certain securities and now desires expressly to make the same irrevocable and also to modify the terms thereof among others with respect to the disposition of the principal and the appointment of a trust company as co-trustee.
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THIRD: In the place and stead of the said Trustees paying over the whole of the said trust estate to the party of the first part or to the executors of her Last Will and Testament upon the death of both her grandchildren, Cornelia Haven King and Stephen Peabody, 3rd, the party of the first part hereby*1602 substitutes Emma Marie Ransom for Cornelia Haven King and does hereby direct said Trustees upon the death of said Emma Maria Ransom and Stephen Peabody, 3rd, to pay over and deliver the whole of asid trust estate to four of her children and to the three children of her fifth child, absolutely and forever, in the following named proportions, to-wit: To Emma Peabody Ransom, Pricilla Peabody Talbot, George Peabody and Stephen Peabody, Jr., twenty per cent, each; and twenty per cent shall be divided among the children of Cornelia Peabody Romilly in the following proportions: To Cornelia Haven King ten per cent, George Romilly, Jr., five per cent, and Joseph Haven Romilly, five per cent.
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SEVENTH: The party of the first part does hereby declare that the trust created by the aforesaid agreement of June 1, 1918, shall be irrevocable.
EIGHTH: Except as hereinbefore changed the said Trust agreement of June 1, 1918, shall continue unchanged and be administered as heretofore. Unless by the express terms of this supplemental agreement or by necessary implication a different intention is expressed or implied, the rights, powers, duties and liabilities of the Corporate Trustee shall*1603 be the same as in the said trust agreement is provided with respect to the trustees therein named.
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The trustee named in the original instrument accepted the trust and administered it. At the time of decedent's death the value of the property held in trust under the instruments of June 1, 1918, and February 14, 1924, amounted to $385,778.33. It was not included in the return for Federal estate tax. The respondent has *792 included such amount in the gross estate subject to tax under the Revenue Act of 1924.
Neither the transfer of the real estate, nor that of the bonds, was made by the decedent in contemplation of her death, and the deeds of trust above described were not executed in contemplation of death.
Both the real estate and the bonds were acquired by decedent's husband through his own resources and the decedent made no contribution from her own funds toward the purchases.
OPINION.
MARQUETTE: One issue here presented is whether the value of the real estate transferred by Cornelia Haven Peabody by deed of trust July 6, 1920, should be included in her gross estate subject to Federal estate tax. The respondent admits that the transfer was not made*1604 in contemplation of death, but he contends that the property should be taxed under section 302(c) of the Revenue Act of 1924, as a transfer intended to take effect in possession or enjoyment after the death of the grantor. The petitioners contend that by the trust deed the decedent made an absolute and immediate transfer of the property, irrevocable, and not taxable as part of her estate. On this issue our decision is in favor of the petitioners.
With respect to the bonds transferred by the decedent under the written instruments of June 1, 1918, and February 14, 1924, the respondent admits that the transfer was not made in contemplation of death, but he contends that the value should be included in the gross estate under section 302(d) of the Revenue Act of 1924. Whether the decedent had any actual or beneficial ownership in the bonds constituting the corpus of the trust we do not deem it necessary to decide, for, assuming that she had, we think the corpus of the trust was not a part of her gross estate. The trust instrument was *793 not made in contemplation of death, and at the date of decedent's death the trust was not subject to change through the exercise of a power either by the decedent alone or in conjunction with any other person. When the event occurred, no insterest in the property held under the trust passed from decedent to the*1606 beneficiaries, she having conveyed her entire estate therein. The principles announced in
Judgment will be entered under Rule 50.