Du Charme v. Commissioner

7 T.C. 705, 1946 U.S. Tax Ct. LEXIS 85
CourtUnited States Tax Court
DecidedSeptember 10, 1946
DocketDocket No. 7055
StatusPublished
Cited by1 cases

This text of 7 T.C. 705 (Du Charme v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Du Charme v. Commissioner, 7 T.C. 705, 1946 U.S. Tax Ct. LEXIS 85 (tax 1946).

Opinion

OPINION.

Hill, Judge:

Issue 1. — Respondent contends that the terms of the trust instrument in question empowered decedent to distribute income or corpus to any or all the beneficiaries in such proportions and at such times as he might determine in his uncontrolled discretion. Respondent’s principal argument, based on this construction of the trust instrument, is that such power constitutes “a power * * * to alter, amend, or revoke” within the meaning of section 811 (d) (2) of the Internal Revenue Code.1

Petitioner contends that the trust instrument did not authorize decedent to so distribute income and corpus to any or all the designated beneficiaries. Petitioner further argues that what powers decedent did have were exercisable only in his capacity as trustee.

Thus, the controversy between the parties essentially involves the proper construction of the trust instrument. In the view we take of this issue it is only necessary to consider the first sentence of paragraph 8 of the trust instrument, which provides:

While the Settlor lives and the Co-Trustee remains mentally competent, the Co-Trustee may direct portions of the principal to be paid or transferred to the Settlor’s wife, Isabel, during her lifetime, but to no other person, as long as she remains the wife of the Settlor. * * *

This power to distribute corpus to the life tenant is not qualified or limited elsewhere in the trust. This power, in our opinion, clearly authorized decedent, in his capacity as cotrustee, to distribute any or all the corpus to his wife and thus diminish or extinguish the remainder interests of his children. Thus, the enjoyment of the remainder interests was subject at decedent’s death to “change through the exercise of a power * * * to alter, amend or revoke” within the meaning of section 811 (d) (2). Commissioner v. Holmes' Estate, 326 U. S. 480; Estate of Albert E. Nettleton, 4 T. C. 987; Estate of Edward L. Hurd, 6 T. C. 819. That the power was exercisable in decedent’s capacity as trustee is immaterial. Welch v. Terhune, 126 Fed. (2d) 695; Union Trust Co. of Pittsburgh v. Driscoll, 138 Fed. (2d) 152; Estate of Albert E. Nettleton, supra; Estate of Edward L. Hurd, supra. See also Commissioner v. Holmes’ Estate, supra, footnote 13.

Petitioner, in the alternative, contends that, even if certain interests in the trust are includible in decedent’s estate, in any event the wife’s life estate should be excluded therefrom. Assuming, without deciding, that the principle of petitioner’s contention is sound, we are not furnished with sufficient information to determine the value of such life interest. Petitioner, on brief in its requested findings of fact, states in this connection :

* * * The factor for computing the value of a reversion subject to a life estate of a person born August 6, 1891, the date of birth of Isabel B. DuCharme, as of the date of decedent’s death on October 12, 1940, is .47088. (Table A Beg. 105, sec. 81.10). The reversionary interest in said trust subject to the widow’s life estate was $37,730.80.

Petitioner apparently fails to recognize that the possibility of the life estate being divested upon the condition of the wife’s remarrying must be considered in evaluating such life estate. See Commissioner v. State Street Trust Co., 128 Fed. (2d) 618. In Estate of Pompeo M. Maresi, 6 T. C. 582; affd., Commissioner v. Maresi, 156 Fed. (2d) 929, the Casualty Actuarial Society table on the probability of remarriage was introduced into evidence. This table was explained and the propriety of its use was supported by expert testimony. In the instant case no such effort has been made which might have afforded us a basis on which to evaluate the life estate. As was said in Robinette v. Helvering, 318 U. S. 184:

* * * The petitioner does not refer us to any recognized method by which it would be possible to determine the value of such a contingent reversionary remainder. * * *

See also Humes v. United States, 276 U. S. 487. Under these circumstances it is impossible for us to evaluate the life estate that petitioner would have us exclude from decedent’s estate. We are, therefore, unable to permit any exclusion and must hold that the entire value of the trust is includible in decedent’s estate under section 811 (d) (2). This disposition of the question makes it unnecessary to consider respondent’s further arguments based on the possibility of reverter and decedent’s power to approve amendments to the trust requested by his wife.

Issue %. — Respondent contends that the basis for evaluating the property to be included in decedent’s estate as having passed under the power of appointment is the property in trust at decedent’s death. Petitioner contends, on the other hand, that such basis should be the property in trust when the trust terminated. Under respondent’s method of computation the trust property which was sold after decedent’s death is included at the net sale price. Under petitioner’s computation the value of such property is excluded altogether, since it was not in the trust at its termination. Both parties give recognition to the estate intervening between- decedent’s death and the trust’s termination.

Petitioner, in justifying its computation, bases its argument on the meaning of the word “passing” as used in section 811 (f) of the code.2 This section provides, as here material, that:

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 * * *
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(f) * * * To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will * * *. [Emphasis supplied.]

Petitioner argues that, since decedent was given by his mother’s trust power to appoint one-half of the property constituting the trust at its termination, only such property can be considered as having passed within the meaning of the quoted section. We think this argument involves a misconception of the meaning of the statute.

Petitioner’s interpretation of “passing” assumes that that word refers to the event of passing into the possession and enjoyment of the appointees. Such an assumption would require that the process of evaluation for estate tax purposes be postponed until the appointed property ultimately passed into the possession of the designated appointee. Obviously, the statute has no such meaning. Petitioner’s construction also ignores the statutory language which marks decedent’s death as the time of evaluation.

Petitioner’s contention fails to recognize that the word “passing,” as used in the statute, refers to property passing at decedent’s death rather than to the property which actually may pass into the possession and enjoyment of the appointee as determined by subsequent events.

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Related

Du Charme v. Commissioner
7 T.C. 705 (U.S. Tax Court, 1946)

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Bluebook (online)
7 T.C. 705, 1946 U.S. Tax Ct. LEXIS 85, Counsel Stack Legal Research, https://law.counselstack.com/opinion/du-charme-v-commissioner-tax-1946.