Wakefield v. Commissioner

*677 These proceedings challenge respondent's determination of deficiencies in estate tax against the estates of Cassius E. Wakefield and Josephine O. Wakefield in the amounts of $7,881.11 and $15,608.93, respectively. Respondent asserts the deficiencies in the alternative, conceding that if a deficiency is proper against one of the estates none will lie against the other.

In the estate of Josephine O. Wakefield the questions are whether a certain gift in trust was a gift in contemplation of death or made to take effect in possession and enjoyment at or after death. In the estate of Cassius E. Wakefield the question is whether, under Cassius' will, the same property passed by the exercise of a power of appointment by*1292 him.

FINDINGS OF FACT.

Charles C. Wakefield, husband of Josephine O. Wakefield and father of Cassius E. Wakefield, died testate on January 8, 1923, the Detroit Trust Co. being the executor of his will. From his estate Josephine O. Wakefield received, apart from the life use of certain Property, distributions of a total value of approximately $130,000, consisting chiefly of bank stocks. Her last distribution was received about April 18, 1925. On July 15, 1925, Josephine O. Wakefield created an irrevocable trust, with the Detroit Trust Co. trustee, to which she transferred $77,750 worth of the bank stock received from her husband's estate. She did not place in trust all of the bank stocks which she received from her husband, but retained some of them. Her estate at death, after deductions authorized by law, amounted to $66,634.83, exclusive of the property in trust.

*678 At the time of making the transfer in trust Josephine O. Wakefield was 79 years of age. She was in as good physical and mental condition as could be expected of a woman of that age.

After the settlement of her husband's estate, Julius H. Moeller, trust officer, assistant secretary, and assistant*1293 vice prisident of the Detroit Trust Co., called upon Josephine O. Wakefield at her home and suggested that since her husband was dead and she was getting along in years an ideal arrangement for her would be to enter into a trust agreement with the Detroit Trust Co. as trustee. He pointed out to her that if she did this it would relieve her of all the care of whatever estate she might have, and would leave her free to go and come as she pleased. He also pointed out that under the terms of the trust agreement she could provide not only for the custody and management of the trust property during her lifetime, but that she could also dispose of it by the terms of the same instrument.

During 1931, 1932, and 1933, Josephine O. Wakefield paid her son, Cassius, $2,000, $2,150.50, and $2,150, respectively, salary, indcated on Cassius' Federal income tax return for 1931 as "Fiscal Agent."

A will prior to Josephine's last will executed in 1928 was in existence prior to May 8, 1926.

The estate tax return for the estate of Josephine O. Wakefield, in reply to the question "Cause of death and length of last illness", stated: "Old age - ill about two months as a result of bruise to hip from*1294 fall."

By the terms of the trust created by Josephine on July 15, 1925, the income therefrom was reserved to her for the duration of her life. Paragraph IV of the trust provided for its termination and distribution upon her death as follows:

Upon the death of said Josephine O. Wakefield this trust shall terminate and said party of the second part shall assign, transfer and convey all moneys, properties and securities then held by it under the terms of this agreement unto her son, CASSIUS E. WAKEFIELD, of Toledo, Ohio.

If the said CASSIUS E. WAKEFIELD, shall predecease the aforesaid donor, then upon the termination of this trust the said TRUSTEE shall assign, transfer and convey all moneys, properties and securities then held by it to the legatees under the last will and testament of said CASSIUS E. WAKEFIELD, whose legacy may not have been paid in full in order to complete the payment thereof, legacies to be taken care of in the order in which they appear in said will and any trust estate remaining to pass under the residuary clause of the last will and testament of my son, the aforesaid CASSIUS E. WAKEFIELD.

Cassius was consulted and gave assistance in the drafting of the*1295 trust, and contemporaneously drew a will of his own.

By her last will and testament, executed March 27, 1928, Josephine O. Wakefield, after certain legacies, provided that the rest, residue, and remainder of her estate was to go to Cassius E. Wakefield. By codicil executed April 13, 1928, she provided that if Cassius E. Wakefield *679 predeceased her "all money, property and securities constituting the residue of" her estate were to go "to the legatees and to the TRUSTEE designated in his [Cassius'] Last Will and Testament, proportionately, to make up any deficiency, which may at the time of my death, exist, in respect to the legacies and trusts provided under his Will, and when such deficiencies have been made up in full, then whatever of my estate shall remain for distribution shall be disposed of as directed in the general residuary clause in his Will."

Cassius predeceased his mother. He died September 18, 1935, at the age of 63. His last will and testament, executed on September 12, 1933, provided for specific bequests of $102,500 and bequeathed the residue of his estate to his wife, son, and daughter. In 1933 the specific bequests totaling $102,500 were in excess*1296 of Cassius' assets. At the date of his death his net estate was valued at $50,459.58 and at this time the value of the trust assets was $109,338.15.

Cassius' will provided that in the event of his predeceasing his mother the payment of all but a few of his legacies should be suspended until her death, "but each and all of them shall be effective as of the date of her death"; and that in this event all of his property, except certain land in Louisiana, should be placed in trust and the income therefrom paid for the support and maintenance of his wife, mother, and daughter. It was also provided that individual beneficiaries under his will who might die without issue before the death of his mother should lose their legacies, lapsed legacies to go to charitable and religious organizations. If his estate was not sufficiently large to pay the cash legacies they were to be reduced pro tanto.

The heirs at law of Cassius were the same persons who were the residuary legatees under his will.

His mother died June 25, 1936, at the age of 90. The value of the trust assets at her death was $114,564.59. Her specific bequests amounted to $64,100 and the net value of her estate, as*1297 above indicated, was $66,634.83.

After the institution of the present proceedings and on November 13, 1938, a gift tax return covering the transfer in trust by Josephine O. Wakefield was filed by petitioner and a gift tax paid thereon.

After the death of both Cassisus and his mother the Detroit Trust Co., which was executor of both of their wills and trustee under the trust, as plaintiff petitioned the Wayne County Circuit Court for a construction of various provisions of the wills and the trust. All possible takers under the instruments were made defendants.

With reference to the above quoted provisions of the codicil to Josephine O. Wakefield's will the petition stated:

* * * The plaintiff [the Trust Co.] feels that said clause should be construed to express an intention of said testatrix that when the deficiencies in *680 legacies under Cassius E. Wakefield's Will have been made up from her estate, then that the balance of her estate shall pass as directed under the residuary clause of his Will, without, however, a limitation that said deficiencies must have been determined to exist at the time of the death of said testatrix. * * *

Paragraph 15 of the petition*1298 was as follows:

Plaintiff is informed and believes, and therefore charges, that the residuary legatees of Cassius E. Wakefield under his said Will are, share and share alike, his widow, Elizabeth Judson Wakefield, his son, Rogers Fairbanks Wakefield, and his adopted daughter (who is likewise his granddaughter and an only child of his deceased daughter), Elizabeth Josephine Wakefield, who is a minor, all of which persons are made defendants hereto for the purposes hereof. Plaintiff is further informed and believes that the residuum of the estate of Josephine O. Wakefield will, as matters now stand, pass through the estate of Cassius E. Wakefield to his three residuary legatees abovenamed. Plaintiff is further informed and believes that under the Declaration of Trust above-described, which is now terminated, the net corpus of said trust and all accumulated and undisbursed net income of said corpus since the date of her death will likewise pass through the estate of Cassius E. Wakefield to the residuary legatees of the said Cassius E. Wakefield aforedescribed except such part thereof as may be necessary to pay and discharge such legacies under the Last Will and Testament of Cassius*1299 E. Wakefield (other than his residuary legacy) as may not have been paid in full, in order to complete the payment thereof. Plaintiff believes that much time, trouble and expense will be saved and obviated and the settlement of these three trusts expedited, if this court will permit the plaintiff in all three of its trust capacities, to use all of the net funds in its hands in all three of said trust estates to carry out the provisions of all three instruments, to-wit, the Declaration of Trust and the Wills and Codicils of Josephine O. Wakefield and Cassius E. Wakefield. Plaintiff therefore asks the guidance, direction and authority of this court so to do.

On August 4, 1937, the court entered its final decree in the matter, construing the codicil as applying the residue of Josephine O. Wakefield's estate to make up deficiencies in the legacies and trusts provided in Cassius' will.

The decree recited that the defendants Wakefield filed answers to the bill of complaint, "adopting the construction suggested to the court by the plaintiff" and "urging upon the court the adoption of such construction."

The decree stated:

Construing the fourth paragraph of the Declaration of Trust*1300 of Josephine O. Wakefield, which provides that if Cassius E. Wakefield predeceases her (which he did) then upon the termination of the trust, the trustee shall assign all moneys, property and securities to the legatees under the Last Will and Testament of Cassius E. Wakefield, whose legacy may not have been paid in full in order to complete the payment thereof, legacies to be taken care of in the order in which they appear in the will and any trust estate remaining to pass under the residuary clause of said will, the court decrees, adjudges and determines that paragraph twenty-one of the will of Cassius E. Wakefield is the residuary clause to which paragraph four of the Declaration of Trust of Josephine O. Wakefield applies, and the trustee under *681 said Declaration of Trust is instructed and advised accordingly. Likewise construing the fourth paragraph of said Declaration of Trust, the court finds that the trustee under said Declaration shall proceed to pay from the corpus of said trust the legacies under the will of Cassius E. Wakefield, in the order in which said legacies appear in the will of Cassius E. Wakefield, any residue of the trust estate remaining to pass under*1301 the residuary clause of the will of Cassius E. Wakefield.

and

It appearing to the court that the defendants Elizabeth Judson Wakefield. Rogers Fairbanks Wakefield and Elizabeth Josephine Wakefield are the residuary legatees under the will of Cassius E. Wakefield, under the will of Josephine O. Wakefield and under the Declaration of Trust of Josephine O. Wakefield, the court finds, decrees and determines that much time, trouble and expense will be saved and obvated, and the prompt settlement of these three trust estates expedited, if the Detroit Trust Company, in all three of its said trust capacities, be permitted to use all of the net funds in its hands in all three of said trust estates to carry out the provisions of all three said instruments. The court therefore adjudges, decrees and directs that the Detroit Trust Company, in its capacity as Executor of the will of Cassius E. Wakefield, as Executor of the will of Josephine O. Wakefield, and as trustee under the Declaration of Trust of Josephine O. Wakefield, proceed, with all convenient expedition, to utilize all of the net funds in its hands in all three of said trust capacities and in all three of said trust estates, to*1302 carry out the provisions of all three instruments, as construed by this decree, namely, said Declaration of Trust and the respective wills and codicils of Josephine O. Wakefield and Cassius E. Wakefield; and this Decree is its authority for so doing. * * *

The trust, as originally created, was composed of only personal property. In the above mentioned petition to the court, petitioner alleged in support of jurisdiction that "the corpus of the trust under the Declaration of Trust of Josephine O. Wakefield contains amongst other things a parcel of real estate situated in the City of Detroit, Wayne County, Michigan, and a construction of said Declaration of Trust as herein prayed affects said real estate and the ultimate disposition thereof."

OPINION.

OPPER: If the trust property passed by virtue of the exercise of a testamentary general power of appointment in Cassius, the value thereof is includible in his estate. We think the decree of the State Chancery Court, to which the trustee and executor resorted for instructions, establishes that it did and that such an adjudication forecloses the question here. *1303 Estate of Mary Adele Morris,38 B.T.A. 408.

In a proceeding to which all those interested were apparently made parties, it was asserted:

* * * that under the Declaration of Trust above-described, which is now terminated, the net corpus of said trust and all accumulated and undisbursed net income of said corpus since the date of her death will likewise pass through*682 the estate of cassius E. Wakefield to the residuary legatees of the said Cassius E. Wakefield aforedescribed except such part thereof as may be necessary to pay and discharge such legacies under the Last Will and Testament of Cassius E. Wakefield (other than his residuary legacy) as may not have been paid in full, in order to complete the payment thereof. * * * and the court accordingly directed:

* * * that the trustee under the said Declaration shall proceed to pay from the corpus of said trust the legacies under the will of Cassius E. Wakefield in the order in which said legacies appear in the will of Cassius E. Wakefield, any residue of the trust estate remaining to pass under the residuary clause of the will of Cassius E. Wakefield.

*1304 This result was possible only on the assumption that a valid power was effectively exercised by Cassius' will; for otherwise the terms of the trust required that the property pass to his heirs at law, a totally different legal concept than his legatees, though by coincidence some might chance to be the same individuals. We think this disposition is conclusive. Sharp v. Commissioner,303 U.S. 624, reversing (C.C.A., 3d Cir.), 91 Fed.(2d) 802.

While this should suffice to dispose of the elaborate arguments advanced by petitioner to demonstrate that there was no power and that none was exercised, it might be well to add that no specific mention of the power was necessary in Cassius' will, since it is clear from the terms of the trust that any will would inevitably exercise it, as Cassius must have known, Title Guarantee & Trust Co. v. Ebaugh,184 N.Y.S. 351; Boyes v. Cook, 14 Ch.Div. 53; Osgood v. Bliss,141 Mass. 474; 6 N.E. 527; see *1305 Agnes Davis Exton et al., Executors,33 B.T.A. 215; that provisions of Michigan law confined to trusts of personalty, even if otherwise applicable, need not detain us since at the time of the request for judicial construction the trust covered realty as well; and see Hutton v. Benkard,92 N.Y. 295, 304, construing the New York Revised Statutes from which the Michigan law was admittedly derived; that authorities establishing that a power can not be exercised before the donor's death are, by their reasoning, confined to those cases where the power is given by a will, which of course is ambulatory and does not speak until death, and can not apply to a trust or other inter vivos estate completely and irrevocably created before the exercise of the power, Osgood v. Bliss, supra; Title Guarantee & Trust Co. v. Ebargh, supra; Agnes Davis Exton, supra; and finally, that the doctrine of Helvering v. Grinnell,294 U.S. 153, is inapplicable since here, by their answers to the bill of complaint in the chancery proceeding, the beneficiaries must be regarded as having elected to claim under*1306 the power, and thus to preclude the result that nothing passed thereunder. Mary Adele Morris, supra.

Since respondent has made it clear that if one of the petitioner estates is charged with the property the other should be released, *683 we need not consider the tax liability of the Josephine Wakefield estate, nor determine whether her apparent desire to relieve herself of the care of her property during life is not a sufficient motive to dispose of the charge that the gift was made in contemplation of death, Estate of Caroline Foerderer Artman,38 B.T.A. 1020, even though incidentally an ultimate disposition after death is also involved. See Thomas C. Boswell et al., Executors,37 B.T.A. 970.

Decision will be entered under Rule 50.