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KURZ v. UNITED STATES

October 25, 1957

Charles KURZ, Ruth G. Joseph and Thorkil Aschehoug, as Executors under the Last Will and Testament of Theodore H. Joseph, deceased, Plaintiffs,
v.
The UNITED STATES of America, Defendant



The opinion of the court was delivered by: PALMIERI

This is an action to recover estate taxes which are alleged to have been illegally assessed against the plaintiffs, as Executors under the Last Will and Testament of Theodore H. Joseph. *fn1" Both sides move for summary judgment. *fn2"

The assessment of the estate taxes sought to be recovered was based on the determination of the Director of Internal Revenue that the principal of an inter vivos trust, valued at the time of decedent's death at $ 353,846.22, was includible, for estate tax purposes, in the decedent's gross estate. This determination was based upon Section 811(d) of the Internal Revenue Code of 1939, 26 U.S.C. § 811(d), the trust being deemed a transfer which was subject to a power in the transferor to alter, amend or revoke, either alone or in conjunction with another. Plaintiffs concede the existence of a reservation of such power in paragraph eighteenth of the trust instrument, which was executed on December 4, 1931. However, they contend that the words which reserved such power were nugatory and ineffective, since prior rights had been created in the trust corpus, and these rights, they maintain, were beyond the decedent's power to divest.

The essential facts are not in dispute.

 The Separation Agreement

 On October 16, 1931, the decedent and his wife, Sylvia F. Joseph, entered into a marital separation agreement which provided, among other things, that the decedent create a trust, the payments under which were to be in full discharge of any liability on the part of the decedent for the support of his wife. The couple agreed that the corpus of the trust would consist of certain securities which were listed on an annexed schedule, that the trustee would be United States Trust Company of New York, and that the trust would contain the following dispositive provisions:

 (a) The trustee was to pay the entire income to the wife during her lifetime.

 (b) Upon the death of the wife, the principal was to be divided into three separate funds in stipulated proportions, a fund to be held during the life of each of the decedent's three daughters.

 (c) The income from the fund held for any daughter living at the death of the wife was to be paid as follows: two-thirds thereof to the said daughter and one-third thereof to the grantor. *fn3"

 (d) If any daughter predeceased the wife, the fund that would have been held for such daughter was to be distributed absolutely upon the wife's death as follows: two-thirds thereof to the lawful issue of such deceased daughter and one-third thereof to the grantor; *fn4" however, in the event that such deceased daughter had left no lawful issue living at the date to the wife's death, then the fund that would have been held for such daughter was to be added in equal parts to the funds held for the remaining daughters.

 (e) Upon the death of each daughter that survived the wife, one-third of the principal of the trust held during the life of that daughter was to be paid to the decedent, *fn5" and two-thirds thereof was to be paid to the daughter's lawful issue, or if there were none, then to the deceased daughter's sisters and their lawful issue, per stirpes.

 There followed a provision which would have been operative if the wife survived the husband. Since she predeceased him, however, by about fourteen years, no reference need be made to it.

 In addition, the separation agreement in paragraph nine thereof, provided as follows:

 'The trust agreement under which the foregoing trust specified in Paragraph 1 shall be established, shall be in such form as may be agreed upon between counsel representing the respective parties.'

 Nowhere in the separation agreement is there any indication of the parties' intention that the contemplated trust be ...


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