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Commissioner of Internal Revenue v. Estate of Ellie G. Canfield

June 25, 1962

COMMISSIONER OF INTERNAL REVENUE, PETITIONER,
v.
ESTATE OF ELLIE G. CANFIELD, DECEASED, KARL B. SMITH, JR., ADMINISTRATOR, C.T.A., RESPONDENT.



Author: Marshall

Before LUMBARD, Chief Judge, and KAUFMAN and MARSHALL, Circuit Judges.

MARSHALL, Circuit Judge.

This is a petition for review of a Tax Court decision upholding the respondent estate's challenge to certain estate tax deficiencies asserted by petitioner.*fn1

The material facts were stipulated and the Tax Court summarized them as follows:

"Ellie G. Canfield, deceased, herein referred to as decedent, was born on August 2, 1863, and died on January 24, 1955. At the time of her death and at all other times material to this case she was domiciled in and a resident of the State of New York.

"Decedent's husband, Francis D. Canfield, died on October 8, 1917. Decedent never remarried.

"On March 24, 1919, decedent, as grantor, and the Central Union Trust Company of New York and decedent, as trustees, executed a trust agreement whereby decedent transferred to the trustees certain securities described in a schedule attached to the trust instrument. The first clause of the trust instrument directed the trustee to invest and reinvest all corpus of the trust and to pay the income, after deducting proper charges incident to the execution of the trust, to decedent during her life.

"The second clause of the trust instrument gave to decedent a testamentary power of appointment of the corpus of the trust as follows:

"Upon the death of the party of the first part, to pay over the whole of the said trust fund to, or to hold the same in trust and for the benefit of, such person or persons and in such proportions and shares and upon such terms as the party of the first part, by her Last Will and Testament in writing, shall have appointed and directed.

"The third through the eighth clauses of the trust instrument provided for the disposition of the trust estate at decedent's death in the event she failed to exercise the power of appointment in her will. Generally, they provided for distribution of one-half of the trust estate outright to decedent's children surviving her and the issue of any deceased child, per stirpes, with the other one-half to be held in trust for the same beneficiaries during the lives of decedent's children surviving her. In the event decedent died without issue the trust estate was to be distributed to her brother and his issue.

"With the exception of the reserved testamentary power of appointment the instrument contained no provision authorizing or permitting decedent to alter or amend its terms in any manner and no provision authorized decedent or any other person to remove the trustees. The trust provided that upon the resignation, removal, or incapacity of the trustees, the beneficiaries at such time had the right to nominate and appoint a successor trustee.

"On December 15, 1942, decedent executed and delivered to the Central Hanover Bank and Trust Company, a New York corporation, which was the corporate successor trustee to the Central Union Trust Company of New York, a written release of the testamentary power of appointment. The release provided that decedent irrevocably released, surrendered, and renounced the power of appointment granted to her under the aforesaid trust deed of March 24, 1919, including 'all of my right, title and interest whatsoever in said power of appointment.'

"The executors filed an estate tax return for the estate of Ellie G. Canfield on January 10, 1956, with the district director of internal revenue for the Upper Manhattan District of New York. * * *

"It is stipulated that if State law is applicable in any respect in these cases, such State ...


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