The opinion
Hill, J., concurring: I agree that the deficiency redetermined by the majority is correct, but I think the result is based on the wrong ground. Two determinative questions were presented and decided in this case, namely: (1) Whether the transfers in trust were made in contemplation of death, and (2) whether in such transfers there was an expressed retention of possibility of reverter. The majority answered (1) in the negative and (2) in the affirmative. I disagree with the holding as to both questions.
Considering question (1), the face amount of the policies transferred to the trust on August 14,1935, aggregated $246,000. This trust gave the total income of the trust, payable annually, to the donor’s wife for the period of her survivorship of the donor and assured her during such period annual payments of at least $12,000.
Under provisions of the trust for the payments to her during the donor’s life of all dividends on the policies, disability benefits, and cash surrender values which might accrue, donor’s wife received from August 1935 to the date of donor’s death only $3,500 in dividends, which averages less than $700 a year. The maximum possible disability benefits she might have received under such provision of the trust was $2,150.50. The maturity of such disability benefits was, of course, contingent and the maturing contingency did not occur. Donor’s wife had no power to effectuate the surrender of policies for cash.
It is true that under the August 14 trust the noncorporate trustee could, in the event of Abbie’s death during decedent’s lifetime, surrender the policies for cash and distribute the proceeds to those entitled thereto under paragraph sixth. It is also true that under the August 26 trust the trustee was required to surrender the policies for cash on receipt of notice of a 20-day premium default. On the basis of these provisions it might be argued that there was the possibility of possession and enjoyment during decedent-donor’s lifetime and that therefore the transfers were not testamentary in the sense that donor’s death was the sine qua non to beneficial enjoyment. However, the mere possibility of possession or enjoyment during decedent-donor’s lifetime does not alter the faót that the general plan, overriding purpose and predominant intention, in making the transfers was to establish a fund to care for decedent-donor’s family in the event of his death. This being the predominant purpose of the transfers, the mere possibility of enjoyment during decedent-donor’s lifetime does not, in my opinion, alter the testamentary nature of the transfers. As was said in First Trust & Deposit Co. v. Shaughnessy, 134 Fed. (2d) 940:
* * * There is not a syllable of evidence to show that the enlarged powers reserved to the settlor in the 1935 trust were put there because she was expected to exercise them so as to make use of the policies during her life. That he [husband] expected that she might do so, does not help to show that he regarded that power as of greater importance than his testamentary dispositions. Until the plaintiffs showed some reason for supposing that he was actuated more by the first, than by the second, purpose, they made no step towards a verdict, and they had the burden of proof. * * *
Under the circumstances detailed it appears obvious that the principal economic benefits provided by the trust for donor’s wife were intended to, and could, be attained only through the collection and investment of the proceeds of the insurance policies upon the death of the donor. In comparison with such benefits, the other potential benefits were exceedingly minor in importance.
Aside from these minor benefits provided by the trusts for enjoyment during the life of the donor, all benefits under both trusts herein involved were available to the beneficiaries for use and enjoyment only at or after the death of the donor.
The income from the trust to donor’s wife came only from investments of proceeds of the insurance policies after donor’s death. The distribution to remaindermen of the principal of the trust could be made only after the donor’s death.
The remaindermen, first in order to take, were the donor’s issue. In the event none survived him he could provide by will residuary legatees of his estate who would be next in order as remaindermen. If he made no will or did not provide by will for residuary legatees, the next in order as remaindermen were the same persons who would inherit undevised or unbequeathed property, if any, of the donor upon his death.
The death of the donor was the event which made the proceeds of insurance policies available for the production of the trust income payable to his' wife. His death determined whether he would be survived by issue and, if so, who of such issue survived him. It was the donor’s death that ended his power to make, change, or revoke wills, and thus only at his death could it be determined whether he had constituted any residuary legatees of his estate and if so, who they were. Residuary legatees were the second in order of designated remaindermen under the trust. Only at donor’s death could it be known or ascertained who were entitled to receive property of his estate if, as to which, he had died intestate. This class of persons was the third in order of such designated remaindermen. In short, until the death of the donor it could not be known or ascertained who were the remaindermen under the trust.
It occurs to me that where, as is illustrated by the above analysis of facts, the death of a donor of a trust initiates the enjoyment of substantially all benefits under the trust and marks the time as of which the ascertainment of who such beneficiaries are, it may logically be held that the whole trust arrangement was made in contemplation of death. I think it would not require a strained evaluation of such evidence to find and hold that such trust arrangement was testamentary in character.
Does the conclusion that enjoyment was intended to be postponed until decedent’s death indicate a transfer in contemplation of death? An affirmative answer is indicated by the following excerpt from First Trust & Deposit Co., supra:
* * * Had his wife not reserved the powers which she did to break the trust, there could not have been the least question that her intent in creating it— and therefore Ballard’s intent — would have brought the gift within the statute, for it would have been in every particular a substitute for a testamentary disposition. This would have been equally true, if Ballard had lived for fifteen years; it would have been equally true, if he had not intended to avoid the estate tax. Be would have given her property which he intended to he unavailable for any beneficial purpose until after his death and to become the equivalent of a bequest thereafter. * * * [Italics supplied.]
In Estate of Arthur D. Cronin, 7 T. C. 1403 , we held that complete transfers of insurance policies on decedent’s life to his wife were made in contemplation of death within the meaning of section 811 (c), Internal Revenue Code, on facts found that it was the intention of the parties that the policies of insurance should be kept in effect with the objective that his wife should receive the proceeds of the policies upon Cronin’s death, notwithstanding the fact that the wife received dividends on some of the policies during the transferor’s life. It was apparent in that case that it was the intention that the wife should receive the largest possible economic benefit from the transfers by collecting the full face value of the policies upon her husband’s death. This being the main purpose of the transfers, we held that the fact that she did not come into enjoyment and possession of the greater benefits of the transfers until after her husband’s death was a supporting circumstance in establishing “contemplation of death.”
In Estate of Paul Garrett, 8 T. C. 492 , we held that transfers in trust by decedent to his wife of life insurance policies and of income-producing securities, the income from which was to be used in part for the maintenance of the insurance policies, were, to the extent of the insurance and the proportion of capital necessary to sustain it, transfers made in contemplation of death.
The language of Vanderlip v. Commissioner, 155 Fed. (2d) 152; certiorari denied, 329 U. S. 728 , is replete with the idea that, where an inter vivos transfer is so designed as to postpone beneficial enjoyment until the transferor’s death, the transfer is one in contemplation of death. In Thomas v. Graham, 158 Fed. (2d) 561, it was said:
The trust merely kept in force decedent’s life insurance policies during his life and economic benefits were intentionally and effectually withheld until after his death. Although the trial judge found that the transfers were not made in contemplation of death, we are of opinion that a construction of the trust instrument demands a contrary finding.
As evidenced by the cited cases, I think it clear that the transfers in the instant case were made in contemplation of death. Also, it appears to me that transfers are inherently in contemplation of death when the identities of the transferees are ascertainable only at the death of the transferor and the use and enjoyment of the property rights transferred begin only at or after the transferor’s death.
Question 2 in this case has to do with the subject of possibility of reverter. The donor designated as last in line to take the trust property after his death the same persons who would be entitled to receive the property constituting the trust corpus had that property devolved as intestate property. This latter provision is the one upon which the majority holding of possibility of reverter is based. To hold that this provision introduces a possibility of reverter of the trust property necessarily implies, it seems to me, that this last designated group of deferred remaindermen, if they receive the trust property, will receive it from the estate of the donor and not from the trust. In other words, such holding implies that the trust corpus would first revert to donor’s estate and descend therefrom to such designated group of remaindermen. The trust instrument designates this group as remaindermen contingent upon there being neither surviving issue nor residuary legatees. The group so designated as contingent re-maindermen is made ascertainable and identifiable by reason of their inheritable relationship under law to the trust donor, but when so ascertained and identified they take as remaindermen and not by inheritance. If the contingency should arise that would make them remaindermen under the trust, it appears to me that they would take direct from the trust and not from or through the donor’s estate. Therefore, I think that the provisions of the trust instrument afford no basis for a claim of reverter, possible or at all, of the trust property to the donor’s estate.