Respondent has determined a deficiency of $160,761 in estate tax. The error assigned is upon respondent's action in including in the estate of the decedent the sum of $435,543.16, being the value upon the date of decedent's death of certain property conveyed by him in trust on or about January 23, 1924. The parties have filed a stipulation of facts, which we include herein by reference. Only such of the stipulated facts as are necessary to an understanding of the issue will be hereinafter set out. Certain additional facts not stipulated are found by us upon evidence introduced at the hearing.
FINDINGS OF FACT.
Petitioners' decedent, John C. Duncan, died November 21, 1942, a resident of the County of Saratoga, New York. On May 13, 1943, the petitioners, as the duly appointed executors of decedent's will, filed a Federal estate tax return for his estate with the collector of internal revenue for the fourteenth district of New York, at Albany, New York.
On January 23, 1924, the decedent and the Farmers' Loan Trust Co. (now known as City Bank Farmers Trust Co.) entered into a trust agreement in and by which the decedent transferred to said trust company certain property of a then value in excess of $200,000 which decedent had inherited from his late wife. It was provided by the trust agreement that the life of the trust was to be measured by the lives of decedent's son, John C. Duncan, Jr., and his grandson, John C. Duncan, III. The income of the trust property was to be paid to the grantor for the term of his life. Upon the death of the grantor of the trust the income of the trust estate was to be paid to John C. Duncan, Jr., for life, and, upon his death, to his sons in equal shares until each respectively became 35 years of age, at which time such beneficiary would receive distribution of his proportionate share of the trust estate. The trust instrument carried the following specific provision:
Upon the termination of said trust term by the death of the survivor of said John C. Duncan, Jr. and said John C. Duncan III, (if the trusts have not been previously terminated), the whole or any part of the principal of said trust fund shall remain in the hands of the trustee undistributed, such whole or part shall be transferred and paid over to the said Donor, if he then survive, or if he do not survive, shall be transferred and paid over to his issue then surviving, in equal shares, per stirpes and not per capita, and in default of such issue, in equal shares to and among the then survivors of the brother and sister of the said Donor, and the brother and sister of the deceased wife of said donor (the mother of said John C. Duncan, Jr.), the then surviving issue of any such brothers or sisters then deceased, to take per stirpes the share such deceased brother or sister would have taken if living.
The decedent's son, John C. Duncan, Jr., had two other sons born subsequent to the aforesaid transfer in trust who were living at the time of decedent's death. It was the decedent's purpose in establishing the trust to assure that the estate which he had inherited from his late wife would inure to her descendants undiminished by any rights accruing to others as a result of a second marriage on his part.
The decedent was survived by both John C. Duncan, Jr., and John C. Duncan, III. In the estate tax return filed for the estate of the decedent there was included no part of the corpus of the trust created on January 23, 1924. In determining the deficiency respondent has increased the reported estate by the sum of $435,543.16, the value of the trust estate as of the date of the death of the decedent.
LEECH, Judge:
The petitioners assign as error the action of respondent in including in the gross estate of the decedent any part of the value of the property conveyed in trust on January 23, 1924. However, upon the hearing of the proceeding, the petitioners based their attack upon the theory that only so much of the value of the trust estate was includible for estate tax purposes as was represented by the value at the time of the transfer in trust of the reversion retained by the decedent. Prior to the filing of briefs herein the cases of Commissioner v. Field, 324 U.S. 113, and Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108, were decided by the Supreme Court, which held that the value includible in the gross estate was not the value of the reversion retained, but the value of the property as of the date of death of the decedent. The petitioners have accordingly, upon brief, admitted that they are concluded on this issue by the above decisions. They now advance the broad contention raised by the petition that no part of the value of the trust estate is includible in the estate of the decedent under section 811 (c) of the Internal Revenue Code.
SEC. 811. GROSS ESTATE.
The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States —
* * * * * * *
(c) TRANSFERS IN CONTEMPLATION OF, OR TAKING EFFECT AT DEATH. — To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this subchapter.
Upon this question it appears clear beyond doubt that petitioners are concluded by the rule laid down in Helvering v. Hallock, 309 U.S. 106, as expanded and clarified by the decisions in Fidelity-Philadelphia Trust Co. v. Rothensies and Commissioner v. Field, supra. Here, by the terms of the trust instrument, the decedent has reserved a life interest in the transferred property and has specifically retained a reversion conditioned upon his surviving his son and grandson, whose lives measured the term of the trust. As the Court said in the Field case:
* * * It makes no difference how vested may be the remainder interests in the corpus or how remote or uncertain may be the decedent's reversionary interest. If the corpus does not shed the possibility of reversion until at or after the decedent's death, the value of the entire corpus on the date of death is taxable.
Petitioners cite our decision in Frances Biddle Trust, 3 T.C. 832. But this proceeding on its facts is clearly distinguishable from that case as well as from the facts in the later cases of Estate of Harris Fahnestock, 4 T.C. 1096, and Estate of Mary B. Hunnewell, 4 T.C. 1128. In those cases the grantor of the trust had done everything possible to cut all ties to a reversion of the property. The only condition under which such result could have occurred would have been upon a complete failure of the grantor's line of descent. Here, the grantor has, by a specific provision in the trust, retained a reversion upon the death of the survivor of his son and grandson, under which title to the property would revest in him irrespective of how many direct descendants he might have living at the time, and has further provided that "if he do not survive, [the trust estate] shall be transferred and paid over to his issue then surviving * * * and in default of such issue, in equal shares to and among the then survivors of the brothers and sisters of the said Donor * * *." (Italics supplied.) Thus it seems clear that the instant case is a survivorship case and comes within the rule of Helvering v. Hallock, supra, and not within the rule of the Biddle, Fahnestock, and Hunnewell cases, all supra.
We hold that the entire value of the corpus of the trust, determined by respondent as of the date of decedent's death, is includible in the gross estate.
A minor issue raised by petitioners, involving the right to an additional deduction of expense for administration of the estate, has been conceded by respondent, and such allowance will be made upon recomputation.
Decision will be entered under Rule 50.
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