Robinette v. Commissioner

*701 The Commissioner determined gift tax deficiencies for 1936 of $3,155.57 as to Meta Biddle Robinette, and $25,044.94 as to Elise Biddle Paumgarten, by taxing certain remainder interests as gifts.

FINDINGS OF FACT.

Elise Biddle Paumgarten was, before her marriage, Elise Biddle Robinson. She is the daughter of Meta Biddle Robinette and the stepdaughter of Edward B. Robinette, all residents of Philadelphia, Pennsylvania. On January 6, 1936, when she was soon to be married, she and her mother and stepfather had a conference with the family attorney, looking to an assurance that her fortune would be kept within the family. It was agreed that if she would create a trust reserving life estates first in herself and*1290 then in her mother and stepfather, remainder over to her issue, her mother would make a similar trust and her stepfather would include similar provisions in his will. This was a concerted family arrangement for keeping their respective fortunes in the line of descent should there be issue of the daughter; or, should there be no issue, passing the family fortune under a power of appointment to be exercised by will by the last survivor of the three. Pursuant to this plan, the trust indentures were executed on January 14, 1936, by the mother and daughter in the presence of all three. The stepfather's will had been executed shortly before.

Petitioner Meta Biddle Robinette, who was then fifty-five years old, executed an irrevocable trust indenture, the Pennsylvania Co. for Insurances on Lives & Granting Annuities, Edward B. Robinette, and George Earle Robinette being the trustees. To the trustees she transferred property having a market value of $193,546. The trustees were to pay the entire income to the grantor during her *702 life, and on her death to her husband monthly, and on his death, to her daughter monthly for life. Upon the termination of the life estates, the*1291 trustees were to distribute the corpus to the issue of the daughter per stirpes, upon their reaching, respectively, the age of twenty-one, and, in default of such issue, then to such persons, in such proportions, and for such estates as the survivor of the three should by will appoint.

At the same time, this petitioner executed a revocable trust indenture the provisions of which were the same as those of the irrevocable trust, and she transferred to the trustees certain securities.

Petitioner Elise Biddle Robinson, who was then 30 years old, executed an irrevocable trust indenture, the Girard Trust Co., Edward B. Robinette, and George Earle Robinette being the trustees. To the trustees she transferred property having a market value of $680,928.68. The trustees were to pay the entire income from the trust to the grantor during her life, and on her death to her mother and her stepfather, share and share alike, and on the death of either, to the survivor. Upon termination of the life estates, the trustees were to distribute the corpus to the issue of the grantor per stirpes, upon their reaching, respectively, the age of twenty-one, and in default of such issue, then to*1292 such persons, and in such proportions, and for such estates as the survivor of the three should by will appoint. Elise Biddle Robinson was married in April of 1936 and now has issue.

At the same time, this petitioner executed an irrevocable trust indenture, the Pennsylvania Co. for Insurances on Lives & Granting Annuities, Edward B. Robinette, and George Earle Robinette being the trustees. The terms were identical with the Girard trust aforementioned, except as to the amount and classification of the properties. To the trustees she transferred property having a market value of $216,709.16. At the same time, she executed a revocable trust indenture to the same trustees, with the same provisions as the irrevocable trust, and transferred certain securities to the trustees.

The petitioners' gift tax returns for the calendar year 1936, filed on March 15, 1937, disclosed the irrevocable trust indentures of January 14, 1936, and claimed there was no gift tax liability.

The Commissioner determined that the life estates transferred to the husband and daughter were gifts by Meta Biddle Robinette, valued them at $57,958.40, and assessed a tax of $388.75 against her, which she paid*1293 about January 29, 1940. The Commissioner determined that the life estates transferred to the mother and stepfather were gifts by Elise Biddle Robinson, valued them at $48,635.52, and assessed a tax of $129.53 against her, which she paid about January 29, 1940.

*703 Thereafter, the respondent issued notices of deficiency, stating his determination that the remainder interests under each of the irrevocable trusts executed by them on January 14, 1936, were gifts, and determining an additional deficiency of $3,155.57 against Meta Biddle Robinette and $25,044.94 against Elise Biddle Robinson.

The value of the remainder in the Meta Biddle Robinette trust was fixed by respondent at $104,381.29, after applying the remainder factor, .53591 for age fifty-five, to the value of the property transferred, and the value of the remainder in Elise Biddle Robinson's trusts was fixed by respondent at $274,829.78, after applying the remainder factor, .30617 for age thirty, to the value of the property transferred.

OPINION.

STERNHAGEN: As to each petitioner, the Commissioner has determined a gift tax measured by the computed value of the remainder interest after the several life estates. *1294 The life estates succeeding that of the settlor have been treated and taxed as gifts, and that is not in issue. The remainder was to go to Elise's children upon their attaining the age of twenty-one, respectively; and, if no children, then to the appointee by will of the survivor of the three, the daughter, her mother, and her stepfather. Thus, as to each grantor, there was a possible power of testamentary disposition of the remainder - a power as substantial as a reversion would be. If, for example, Elise, being thirty and unmarried when her trust was created, should fail to have children and should survive her mother and stepfather, both of whom were substantially older, she would have a power of testamentary appointment. Because of this retained interest, whether vested or contingent, the trust property would be included in her gross estate subject to estate tax. She had not so completely disposed of the property by means of the trust as to avoid the estate tax. . Until children were born, as they were, the settlor still had a possible power of disposition of the remainder, which is one of the most important attributes*1295 of ownership. Upon her death, if there were no issue, her testamentary power of appointment would be exercised if she were the last survivor, or that power would be freed in the hands of her surviving mother or stepfather. So, when she created the trust she retained an interest in the property sufficient to warrant the expectation that it would be included in her gross estate upon her death.

According to , the gift tax is a supplement to the estate tax. A transfer is to be taxed as a gift when it becomes complete and not while the transferor retains substantial control of the property. ; ; Carl J.*704 ; . Since in the event of death of the settlor the trust property would be included within her gross estate and subjected to the estate tax, this is strong reason for denying a gift tax at the time of the transfer in trust. The creation of the life interests, it must be remembered, has been*1296 recognized as the occasion for the imposition of the gift tax upon the value of the secondary life interests; and it is only as to the remainder after the extinction of all the life interests that the present question is raised. Certainly if it could have been known that there would be no children and that the grantor would be the ultimate survivor of the three, she could not have been taxed upon the creation of the remainder, which was entirely subject to her testamentary power of disposition. The determination of the Commissioner is reversed.

The petitioners argue also that they may not be taxed upon the value of the remainders because there were no donees in existence, and that they may not be taxed as upon gifts because the creation of the trusts was a reciprocal arrangement each in consideration of the other. These questions do not require decision.

Decision will be entered under Rule 50.