decided: June 12, 1945.
ELDREDGE ET AL.
ROTHENSIES, COLLECTOR OF INTERNAL REVENUE.
Before DOBIE, GOODRICH, and McLAUGHLIN, Circuit Judges.
DOBIE, Circuit Judge.
This is a civil suit brought to recover $44,901.70, alleged to be an illegal exaction by way of an estate tax, and interest paid by plaintiffs to the defendant. The salient facts may be briefly summarized.
The decedent, Constance Gardner Taylor, in 1930, prior to her divorce from her second husband, and in accordance with a demand by her husband as a condition to her securing an uncontested divorce, created an irrevocable inter vivos trust with respect to certain shares of stock then owned by her. At the time of the transfer, the settlor was 35 years old, and the mother of three children who were then 13, 10 and 4 years of age. The settlor died in 1941,
"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."
Plaintiffs speak of a possibility of reverter always existing. We are not concerned with the refinements of conveyancing and feudal concepts of property, Helvering v. Hallock, supra. True it is that even where the settlor divests himself entirely of all interest, there is always the possibility, remote though it may be, that by extinction or failure of all possible beneficiaries, the property will revert to the settlor or his estate by reason of failure of the trusts.
Certainly this is not the same situation as where the settlor, in the trust instrument, expressly reserves the right to dispose of the property following the occurrence of certain contingencies. This retention of power has been called a "string," Fidelity-Philadelphia Trust Co. v. Rothensies, supra; Lloyd's Estate v. Commissioner, 3 Cir., 141 F.2d 758; but, call it what we may, it is the reservation of a positive power, not passive, and under it, the settlor would possess the power, certain contingencies occurring, of ultimately disposing of her estate in a manner entirely foreign to the ordinary legal devolution under the statutes of descent and distribution. The possibility of the settlor exercising this power ceases only at her death. Where, as here, the power exists until the death of the settlor, any ultimate distribution under the power of appointment follows from a positive act in the exercise of the power retained. As the Supreme Court said in the Stinson Trust case, supra, 65 S. Ct. at page 510: "The ultimate disposition of all the trust property was suspended during the life of the decedent. Only at or after her death was it certain whether the property would be distributed under the power of appointment or as provided in the trust instrument." We think, in the instant case, it is equally true that the remaindermen's interest became absolute and complete only upon the death of the settlor. Should they have predeceased the settlor, the property would have reverted to her to be disposed of as she might by will elect. It is not insignificant that the remaindermen, to whom the settlor supposedly transferred all her rights, were to have no control, either by will, or operation of law, should they predecease the settlor. It appears crystal clear that the settlor wished to exercise control over the property, should she survive the remaindermen. Compare Mr. Justice Stone's dissent in Helvering v. St. Louis Union Trust Co., 296 U.S. 39, 47, 56 S. Ct. 74, 80 L. Ed. 29, 100 A.L.R. 1239.
It has been said that "the true test is whether under the terms of the conveyance full and complete dominion over the property by the transferee in a practical sense is established by the transferor's death." Mullikin et al. v. Magruder, 4 Cir., 149 F.2d 593. Under the terms of the instant trust, it is our view that at the settlor's death, and only then, absolute and complete dominion over the property was acquired by the remaindermen.
Other cases, such as Commissioner v. Irving Trust Co., 2 Cir., 147 F.2d 946, relied on by plaintiffs, are clearly not controlling.
The judgment of the District Court is affirmed.
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