The opinion of the court was delivered by: FORMAN
This action is brought by the plaintiff, James C. B. Millard, as executor of the estate of Jay Gould II, deceased, against the defendant, Harry L. Maloney, Collector of Internal Revenue for the First District of New Jersey, to recover excess payment of federal estate taxes.
The decedent's grandfather, Jay Gould I, died on December 2, 1892, and devised the residue of his estate in trust to be divided into six equal shares for the benefit of his six surviving children, George, Helen, Edwin, Howard, Anna and Frank. George, Helen, Edwin and Howard were designated trustees thereunder to hold one of such equal shares for each of the six children and pay the income to him or her for life, and upon his or her death to pay over the remainder to his or her issue in such proportions as the life tenant should by will appoint, and in default of appointment to the issue per stirpes, and if any one of the life tenants died without issue then his or her share to go to his or her surviving brothers and sisters or the issue of any surviving brother and sister who had died leaving issue.
George Gould, one of the life tenants and trustees of Jay Gould I, had, among other children, a son, Jay Gould II, who became financially indebted to his father. The father feared that this son would dissipate all of his wealth and prevailed upon him to execute a deed of trust to S. N. Rice and the Commercial Trust Company of New Jersey as Trustees, conveying his expectancy in the estate of his grandfather, Jay Gould I. This indenture was executed on October 19, 1922. It provided that the trustees should pay the income of the trust funds to Jay Gould II during his life and upon his death should "pay over, convey, transfer and deliver the principal of the trust fund * * * to the lawful descendants of the party of the first part in such proportions as the party of the first part shall, in and by his last Will and Testament appoint, and in case of failure to make such testamentary appointment, then to such descendants absolutely, in equal shares, per stirpes and not per capita, * * *. It is understood and agreed, however, anything herein contained to the contrary, notwithstanding, that the party of the first part may be will charge the trust fund with the payment of the income of said fund or any part thereof, to the use, and for the benefit of the wife of the party of the first part, during her life or for any shorter period."
This indenture was amended November 10, 1922 to provide that the trustees thereunder should repay to the estate of George Gould the amount of Money Jay Gould II owed his father.
On May 16, 1923 George Gould died and his seven surviving children, including Jay Gould II, became entitled to the principal of the trust fund established by Jay Gould I, and the share therein of Jay Gould II passed to his trustees under his trust agreement of 1922.
On May 21, 1927 judgment was entered in that action approving the compromise settlement which provided that "* * * Jay Gould * * * and their [his] respective executors and administrators" should receive from Edwin Gould, Helen G. Shepard and Howard Gould a definite sum "annually until the death of either Howard Gould or Helen G. Shepard and thereafter and until the death of the survivor of said Howard Gould and Helen G. Shepard" a certain reduced amount.
Jay Gould II received his share of the annual payments under the above settlement until his death on January 26, 1935. Helen G. Shepard and Howard Gould survived Jay Gould II, and since his death these annual payments have been made to the plaintiff, his executor.
Jay Gould II left a will in which he charged the principal of the trust fund created by him in 1922 with the payment of the entire income accruing after his death to his wife. It also provided that the residue of the estate with certain limitations should go to his wife.
Neither the amount of tax levied upon the estate derived through the deed of trust nor by reason of the compromise judgment in the New York Supreme Court is questioned. Only the following issues are before us: (1) Was the value of the corpus of the trust created by Jay Gould II in 1922 properly included in the gross estate for federal tax purposes under Section 302 (d) of the Revenue Act of 1926, as amended? (2) Was the value of decedent's interest in the trust estate of his deceased grandfather, Jay Gould I, as determined by a consent decree entered by the Supreme Court of New York on May 31, 1927 (or as termed by plaintiff, "the commuted value of certain payments payable to the plaintiff as executor") properly included in decedent's gross estate for federal estate tax purposes?
Counsels' argument with relation to the first issue resolves itself into the application of the proper estate tax statute. Since the decedent's trust was created in 1922, plaintiff insists that the Revenue Act of 1921, which was in effect at the time of the execution of the trust, is controlling. The material parts of that Act provide as follows:
"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, real or personal, ...