The opinion of the court was delivered by: BRENNAN
Plaintiffs seek a money judgment based upon the alleged illegal over-assessment of estate taxes in the Estate of Harvey D. Burrill, deceased. Brief reference to the facts is made to afford a background for this decision.
Harvey D. Burrill was a prominent business man of the City of Syracuse. He died on December 24, 1938, and the present plaintiffs are the executors of his last Will and Testament. The usual tax proceedings were taken and there appeared therein three items which are the subject of this controversy.
On August 3, 1935, the decedent made outright gifts of cash and securities of the total value of about $ 50,000.00 to his son, Louis D. Burrill, a similar gift to his daughter, Ester B. Picou, and upon the same date he executed a certain instrument which modified a prior trust agreement dated December 6, 1926, which will be referred to later, which modification in part purported to give to his wife for her lifetime the income of the corpus of a trust fund, the remainder to be divided between his son and daughter, or their issue; the value of such fund being something less than $ 100,000. The three items above referred to were included in the tax return filed by the plaintiffs in the Estate of the decedent, but were not included in the taxable estate as shown therein.
The defendant Commissioner found in substance that each of the three items above mentioned were in fact gifts made in contemplation of death, and therefore, should have been included in the taxable estate, under the provisions of Sec. 811(c) of the Internal Revenue Code, 26 U.S.C.A.Int.Rev.Code, § 811(c). He also 'recommended' that the corpus of the trust estate be included in the gross estate, under the provisions of Sec. 811(d) of the Internal Revenue Code, as a transfer where the decedent had retained rights of reversion or reverter. An additional tax, based upon the findings of the Commissioner was imposed and paid under protest by plaintiffs, and they now seek its refund.
The action came on to be tried before the late Judge Bryant. It was agreed that the issues as to whether any one or all of the three items above mentioned were gifts made by the decedent in contemplation of death would be submitted to a jury, and the remaining issues as to the taxability of the trust fund were to be decided by the Court in the event that the verdict of the jury was in favor of plaintiffs.
The jury found that none of the gifts were made in contemplation of death, and such finding is made the finding of this Court.
The defendant has withdrawn the contention that the decedent retained a right of reversion or reverter in the trust fund, so that there remains only the issue as to whether or not the corpus of the fund is properly taxable under the provisions of Section 811(c) of the Internal Revenue Code. This issue was re-tried, and the evidence was taken in the prior trial was stipulated or offered therein, so that the complete record and exhibits are before the Court at this time.
The record discloses that the decedent, Harvey D. Burrill, was a man sixty-eight years of age at the time of his death; that his surviving immediate family consisted of his wife, Mary Burrill, to whom he had been married for about forty-seven years, and his son and daughter, who are the plaintiffs in this action. He had been an active, intelligent business man and it is apparent that his relationship with the members of his immediate family had continued pleasantly without interruption.
By an instrument dated December 6, 1926, the decedent created a trust of about $ 100,000, in cash and securities, under the terms of which the trustee was to pay the income therefrom to the decedent during his life, and upon his death to divide the principal equally among his wife, Mary D. Burrill, his son, Louis D. Burrill and his daughter, Esther B. Picou. The right to change the beneficiary was reserved, and the right to withdraw all of the funds and to revoke the trust instrument was reserved to the decedent for a period of five years. The decedent also reserved the right to control under certain conditions the investment of the funds which were a part of the trust estate.
The trust indenture was modified by written instructions of the decedent, dated August 3, 1933, and January 20, 1934, which modifications are not material here.
It was further modified or amended by the writing dated August, 3, 1935, above referred to, and this modification is material and the source at least of part of the controversy which has arisen. The amendment or modification provides in substance that the income from the trust estate shall be payable to Mary D. Burrill, the wife of the decedent, during her lifetime, and upon her death the principal should be divided equally between his son, Louis D. Burrill, and his daughter, Esther B. Picou, or their issue. The trust indenture was declared irrevocable, and the decedent no longer had the power to change the beneficiary or in anyway to alter the trust indenture as amended or supplemented by the August, 1935, instrument.
In the supplemental indenture or modification of August, 1935, the decedent gave to his wife a limited power of appointment whereby she might direct by her last will that the income from the trust fund should be paid to the decedent during her lifetime. Such power appears in the following quotation, taken from the instrument referred to.
'Provided, However, that said Mary D. Burrill may by her last will and testament direct that in case Harvey D. Burrill, the grantor, shall survive her, then the income from said trust shall be paid to said Harvey D. Burrill during his life, and in case said Mary D. Burrill does exercise such limited power of appointment then the payment of the principal of said trust fund as hereinbefore directed shall be postponed and shall not take place until the death of said Harvey D. Burrill.'
Such power of appointment was in fact exercised by Mary D. Burrill by her execution of a will ...