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Estate of Maria Becklenberg v. Commissioner of Internal Revenue

December 30, 1959

ESTATE OF MARIA BECKLENBERG, DECEASED, FRED BECKLENBERG, JR., EXECUTOR, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.



Author: Knoch

Before SCHNACKENBERG, PARKINSON*fn1 and KNOCH, Circuit Judges.

KNOCH, Circuit Judge.

This matter comes to us on petition for review of a decision of the Tax Court of the United States, respecting the gross estate of Maria Becklenberg, deceased, for federal estate tax.*fn2

On March 17, 1934, decedent joined with her husband and son in establishing

Decedent $379,166.37 26.78%

Fred Becklenberg, Sr. 293,499.32 20.73%

Fred Becklenberg, Jr. 743,186.56 52.49%

No separate accounts were maintained. Several properties contributed by decedent were sold. No distribution was made. On August 12, 1938, the Trust was revoked and its assets transferred to a new Trust. This 1938 Trust provided for liquidation as expeditiously as possible and for purchase of annuities for specified members of the family, including one for decedent in the amount of $10,000 per year for life. Until purchase of the annuities, sums might be paid to the beneficiaries, not to exceed $10,000 annually in the case of decedent. No annuities were purchased during decedent's life. Certain payments were made to the beneficiaries, including payments not in excess of $10,000 annually to decedent.

The taxpayer argues that decedent retained no right to income; that she, in effect, bought a right to an annuity; that the payments actually made to her (out of income of the Trust, though not out of income of the specific assets she contributed to the Trust) could have been terminated at any time by purchase of an annuity for her. In any event, taxpayer concludes that decedent retained no right "[1] for [her] life; or [2] for any period not ascertainable without reference to [her] death; or [3] for such a period as to evidence [her] intention that it should extend at least for the duration of [her] life and [her] death occurs before the expiration of such period," in the words of Treasury Regulations 105, promulgated under the Internal Revenue Code of 1939, a Trust, to which each contributed assets then valued as follows: Section 81.18 (as amended byT.D. 6073, 1954-2 Cum. Bull. 280, 282.)

With respect to this argument the Tax Court held:

"The indisputable fact is that decedent received the right to annual payments of $10,000 from the 1938 trust until the trust purchased the annuity policy that would produce $10,000 annual payments from some insurance company. This is the way all of the donors construed the instrument and their interpretation was confirmed by the State Court. This is made abundantly clear by the claim for back payments made by decedent which was settled by the deed, the construction alleged in the interpretation suit, and the court decree, and the actual payment to decedent of $10,000 annually until she died. There is no merit in petitioner's argument that all decedent obtained under the 1938 trust was the right to compel the trustees to purchase an anuity that would give her annual payments of $10,000.00. The argument is foreclosed by the interpretation of the 1938 trust instrument by the donors and the Illinois Court."

The Superior Court of Cook County, Illinois, in Case Gen. No. 43-S-7734, construed the 1938 Trust in a suit brought in 1943 by Fred Becklenberg, Sr., as Trust Manager, and Fred Becklenberg, Jr., then sole Trustee. In their Complaint, they stated that, in their interpretation of the 1938 Trust, decedent was entitled to annual payments of $10,000 until the annuity was purchased.

The Superior Court approved the actions, accounts, and interpretation of Fred Becklenberg, Sr., and Fred Becklenberg, Jr., and decreed (inter alia) that wide discretion was vested in the Trustee and the Trust Manager as to when, or whether, the annuities should be purchased; that, in view of changed conditions and circumstances, distribution to certain named members of the Becklenberg family need not be restricted to the purchase of life insurance annuities, but that the 1938 Trust Agreement authorized distribution to them, of income, principal or proceeds, "having due regard, however, to the preservation of sufficient of the principal or corpus of said Trust Estate to assure annual payments provided for under said Trust Agreement" including the $10,000 annual payment to decedent.

The Superior Court further provided, in connection with such distribution for certification that "the remainder of the principal or corpus of said Trust Estate is amply sufficient to assure the payments provided * * * to be made" including that to decedent. During the years ...


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