Opinion · United States Tax Court
Estate of Lindsay v. Commissioner
2 T.C. 174
- Type
- Opinion
- Court
- United States Tax Court
- Jurisdiction
- Federal
- Date
- 1943-06-22
- Topic
- estate-planning
OPINION. Van Fossan, Judge: The notices of deficiency give no hint of respondent’s theory in adding the trust corpus to the taxable estate of the life income beneficiary. The statement in the case of Samual S. Lindsay was as follows: “The transfer by Helen P. Lindsay on December 28, 1934, is considered to form a part of the decedent’s gross estate under section 302 of the Revenue Act of 1926, as amended.” The statement in the companion case is identical except for change of name.
Citator
UpLaw has not yet analyzed Estate of Lindsay v. Commissioner. The absence of a flag is not a finding that it is good law.
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ESTATE OF LINDSAY v. COMMISSIONER OF INTERNAL REVENUE,2 T.C. 174(1943)
THE ESTATE OF SAMUEL S. LINDSAY, DECEASED, ALEXANDER P. LINDSAY, EXECUTOR,
PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
THE ESTATE OF HELEN P. LINDSAY, DECEASED, ALEXANDER P. LINDSAY, EXECUTOR,
PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Docket Nos. 109981, 109982.
United States Tax Court.
Promulgated June 22, 1943.
Docket No. 109981, estate of Samuel S. Lindsay ... $27,963.61 Docket No. 100982, estate of Helen P. Lindsay .... 30,278.95
The deficiency in Docket No. 109981 resulted from the inclusion in the decedent's estate of an item of $116,100 representing the value of the corpus of a trust created in December 1934 by Helen P. Lindsay, then wife of the decedent, wherein decedent was a life beneficiary of the income.
The deficiency in Docket No. 109982 resulted from the inclusion in the decedent's estate of an item of $171,000 representing the value of the corpus of a trust created in December 1934 by Samuel S. Lindsay, then husband of the decedent, wherein decedent was a life beneficiary of the income.
FINDINGS OF FACT.
The facts, part of which were stipulated, are as follows:
Samuel S. Lindsay died testate, a resident of Pittsburgh, Pennsylvania, on December 18, 1938, at the age of 82 years, leaving to survive him his widow, Helen P. Lindsay, and six sons, the children of himself and Helen P. Lindsay, all of whom were adults and married on the date of his death. His son, Alexander P. Lindsay, a practicing attorney of Pittsburgh, Pennsylvania, was duly appointed and qualified as the executor of his estate.
Helen P. Lindsay died testate on January 24, 1940, at the age of 75 years, leaving to survive her her six sons above mentioned. Her son Alexander P. Lindsay was duly appointed and qualified as the executor of her estate.
About the year 1917 Samuel S. Lindsay began to discuss with his son Alexander P. Lindsay the creation of a trust for the benefit ofPage 175Samuel S. Lindsay's six children. The matter was taken up from time to time thereafter until 1928, when Alexander P. Lindsay prepared a rough draft of a trust agreement and submitted it to his father for examination. This draft contained no provision for a life estate for Helen P. Lindsay.
About the end of the year 1932, another rough draft of an agreement was prepared, at which time Alexander P. Lindsay suggested to his father that a provision be inserted giving a life estate to Helen P. Lindsay. This suggestion was first opposed by Samuel S. Lindsay but later acquiesced in by him. The trust agreement prepared at this time was not executed by Samuel S. Lindsay.
In October or early November of the year 1934 Alexander P. Lindsay prepared another agreement which was identical with the agreement as finally executed by Samuel S. Lindsay, except for certain amendments thereafter attached and the omission of the description and the value of the securities comprising the corpus of the trust thereafter inserted.
The agreement provided in general that Samuel S. Lindsay had transferred to the Peoples-Pittsburgh Trust Co., a Pennsylvania corporation, and Alexander P. Lindsay, as trustees, the property set forth in an attached exhibit, in trust to pay over and distribute the net income therefrom to the donor's wife, Helen P. Lindsay, for her life in such installments as she might from time to time designate; upon her death to divide the corpus into six equal parts and to pay over the net income from one of said equal parts to each of the donor's sons for life, and upon the death of each son to such son's wife, if living, for life; upon the death of each son and his wife to pay over the income to such son's issue until they should severally attain the age of 30 years, when the corpus of such part should be divided equally among such issue, with provision for payment over in default of issue.
Early in November 1934, after this trust agreement had been read by Samuel S. Lindsay, it was submitted by Alexander P. Lindsay to a vice president in charge of trusts of the Peoples-Pittsburgh Trust Co., for suggestions. While the agreement appeared to the vice president to be satisfactory, and he so advised Alexander P. Lindsay, he in turn submitted it to a trust officer of the Peoples-Pittsburgh Trust Co. for his views.
Shortly after the middle of November 1934, not having heard from the trust officer and assuming that the agreement as drafted was satisfactory, Alexander P. Lindsay had his secretary prepare a final copy of the trust agreement.
Thereafter during the first week of December 1934, Alexander P. Lindsay discussed the trust agreement with the trust officer and, pursuant to the latter's suggestion, prepared and attached an amendmentPage 176substituting the word "children" for the word "issue" in a number of places in the agreement.
The trust agreement was signed by Samuel S. Lindsay at the office of his son Alexander P. Lindsay between the 4th and 10th of December 1934, and the securities comprising the corpus of the trust were delivered by Samuel S. Lindsay to his son, one of the trustees thereunder, either at the time of signing the agreement or within a day or two thereafter. Helen P. Lindsay was not present when the agreement was signed.
The agreement was dated December 28, 1934, in accordance with Samuel S. Lindsay's wish to retain for himself the year end dividends on the stock comprising the trust corpus and yet to complete the transaction before the first of the following year in order to avoid increased gift tax rates.
The securities constituting the corpus of the trust, consisting of 1,900 shares of stock of the Pittsburgh Plate Glass Co. of a value at that time of $104,500, were delivered by Alexander P. Lindsay to the Peoples-Pittsburgh Trust Co., cotrustee, on or about December 28, 1934, and the trust was accepted by the Peoples-Pittsburgh Trust Co. on December 28, 1934.
Sometime during the third week of November 1934, after Samuel S. Lindsay's trust agreement had been written in its final form and a copy had been delivered to the Peoples-Pittsburgh Trust Co., Helen P. Lindsay asked her son Alexander P. Lindsay to come to her house for the purpose of discussing a proposed trust to be created by her. In this discussion Helen P. Lindsay stated that her husband had shown her a copy of his trust agreement and that she would like to do the same thing, but stated that she did not want her husband to know anything about it until the matter was done.
At the time the conversation just mentioned took place, no schedule of securities had been attached to Samuel S. Lindsay's trust agreement and no amount had been inserted representing the value of the securities he intended to place in his trust. Alexander P. Lindsay had no discussion with his mother concerning the amount of securities to be placed in his father's trust.
Thereafter, in the last week of November 1934, Alexander P. Lindsay prepared a trust agreement for Helen P. Lindsay, transferring to himself and the Peoples-Pittsburgh Trust Co., as trustees, 4,300 shares of stock of the Westinghouse Airbrake Co. owned by Helen P. Lindsay and having a value at the time of $108,575. The suggestion as to the amount of securities to be placed in this trust came from Alexander P. Lindsay.
The trust agreement prepared for Helen P. Lindsay was similar to the agreement of Samuel S. Lindsay except that it provided for a life estate for Samuel S. Lindsay before any payments should be made toPage 177the issue of Helen P. Lindsay. This provision was suggested to the mother by the son.
Helen P. Lindsay signed her trust agreement at her home on December 27, 1934. Samuel S. Lindsay was not present when the agreement was signed.
Alexander P. Lindsay never told his father of Helen P. Lindsay's agreement prior to the time it was signed by her and prior to such time Samuel S. Lindsay never mentioned any such agreement to his son. While Samuel S. Lindsay discussed his own trust agreement with his son's partner and with the vice president of the Peoples-Pittsburgh Trust Co., he never mentioned anything to either of them concerning a trust agreement of his wife.
Alexander P. Lindsay received from his mother the securities comprising her trust on December 27 or December 28, 1934, and delivered them and the trust agreement to the Peoples-Pittsburgh Trust Co. on December 28, 1934. The acceptance on behalf of the Peoples-Pittsburgh Trust Co. was signed on that date.
Alexander P. Lindsay, as executor, filed with the collector of internal revenue for the twenty-third collection district of Pennsylvania, on March 16, 1940, a Federal estate tax return for the estate of Samuel S. Lindsay, and on March 6, 1941, a Federal estate tax return for the estate of Helen P. Lindsay. On each return he elected to value the property included in the gross estate as of the date one year after decedent's death.
In determining the deficiency in Federal estate tax of the estate of Samuel S. Lindsay the respondent included in the gross estate the amount of $116,100 representing the value on December 18, 1939 (one year after Samuel S. Lindsay's death), of the corpus of the trust created by Helen P. Lindsay.
In determining the deficiency in Federal estate tax of the estate of Helen P. Lindsay the respondent included in the gross estate the amount of $171,000 representing the value on January 24, 1941 (one year after Helen P. Lindsay's death), of the corpus of the trust created by Samuel S. Lindsay.
Neither of the aforesaid trusts was created in contemplation of death.
OPINION.
At the hearing respondent's counsel shied away from the suggestion that the determination was based on the theory that the trusts were reciprocal or cross trusts, stating that the respondent was not depending on the theory that each trust was made in consideration of the other. On brief, however, counsel for the respondent sums up his argument thus:
The trusts created by petitioners were what is sometimes designated as reciprocal trusts and sometimes as cross trusts. It is immaterial whether each was created in consideration of the other. Petitioners have failed to establish that they were not so created.
He concludes his brief by stating:
It is submitted that petitioners have failed to sustain the burden of proving that these transfers in trust were separate, independent and unconnected transactions.
It might be sufficient for the purpose of decision to state merely that respondent erred in the above conclusion; that petitioners have successfully carried their burden and have established that the transfers were "separate, independent and unconnected transactions." Such is the record.
The parties have stipulated that the transfers were not made in contemplation of death. We conclude similarly that they were not made to take effect in possession or enjoyment at or after death.
This leaves for consideration respondent's argument that the trusts are reciprocal and that each decedent should be, for the purposes of estate tax, regarded as the real owner of the property of which he was the life income beneficiary and the corpus of the property accordingly included in the gross estate.
We are satisfied, on the record, that there was neither agreement nor tacit understanding between the two grantors that the trusts should be created. The facts show that the idea of making the wife his life income beneficiary was first suggested to the husband by his son and that the father demurred but finally yielded to the suggestion. When the husband was about to consummate the transfer by execution of the trust he showed the instrument to his wife. She thereupon also consulted her son, who had drawn up the husband's agreement, and told him substantially that she wished to make a similar trust, but she did not want her husband to know anything about it. This plan was carried out and she executed her agreement, so far as the record shows, without the knowledge of her husband. The son testified that he suggested to his mother that his father be made the life income beneficiary in her trust. He also suggested to his mother the amount to be placed in the trust, which action accounts for the fact that the trusts were of practically equal value when created. But the facts that the trusts were executed about the same time, were in substantially equal amounts, and had similar provisions are not conclusive thatPage 179the trusts were interdependent and were executed in consideration of each other. SeeMarrs McLean,41 B. T. A. 1266, and the opinion of the Circuit Court of Appeals affirming that case on this point,127 F.2d 942,943.
The clear inference from the testimony of the son, who, as lawyer for both grantors, drew the trust agreements and suggested the life income provisions, is that there was no concert of action or prearranged agreement between the parties.
Respondent urges that we should apply what he terms the theory of theCliffordcase (Helveringv.Clifford,309 U.S. 331), but we are unable to follow his reasoning. The holding in theCliffordcase, which involved income taxes and the interpretation of the broad language of section 22 (a) of the revenue act, was dependent on the retention of rights by the grantor. Here there is no such picture. The trusts were irrevocable and the grantors retained no rights, either in income or corpus. The mere fact that these cases involve husband and wife is not alone sufficient for applying the doctrine ofHelveringv.Clifford,supra.
We are likewise satisfied that this is not a case for the application of the doctrine of cases such asLehmanv.Commissioner,109 F.2d 99, andEstate ofFrederick S. Fish,45 B. T. A. 120. The facts, lacking in those cases, to show the actual independence of the two transfers are proven in the instant cases. We hold that the trusts were not reciprocal, were not made each in consideration of the other, and that respondent erred in adding the corpus of each trust to the taxable estate of the life income beneficiary. Section 302 of the Revenue Act of 1926, as amended, does not cover transfers such as those here presented.
It was stipulated that the respective petitioners may claim credit in the computation consequent hereon for state estate, inheritance, legacy, or succession taxes paid.Decisions will be entered under Rule 50.