## Facts

- Hiram Walker died survived by his widow and five children, including Elizabeth W. Vease.
- Walker had an executed 1918 will and an unexecuted 1919 will draft prepared by his attorney; he died before executing the 1919 instrument.
- The family unanimously executed a written settlement agreement, incorporated into the probate proceeding, to distribute Walker’s estate in accordance with the 1919 testamentary scheme.
- Under that settlement, residuary assets were placed into separate trusts for Walker’s daughters, including Elizabeth.
- Elizabeth received: (1) net income from two trusts for life; (2) a testamentary power to provide a surviving husband an annuity not exceeding one-half of trust net income in any year; and (3) a testamentary power to appoint the remainder among her children on terms she specified.
- Elizabeth died testate in 1952, a resident of Arizona.
- The Commissioner asserted a large estate tax deficiency, treating the trust corpus as includible in Elizabeth’s gross estate under § 811(c) of the Internal Revenue Code of 1939 on the theory that the trusts resulted from a lifetime transfer by Elizabeth with retained interests and powers.
- The Tax Court largely rejected the deficiency, concluding the trusts resulted from transfers from Walker’s estate by reason of Elizabeth’s status as an heir, not from any transfer by Elizabeth.
- The Commissioner sought appellate review.

## Issues

1. Whether the two trusts were the result of transfers by Elizabeth of her own property (triggering inclusion under IRC § 811(c) for retained interests/powers), or were transfers from Walker’s estate pursuant to a family settlement implementing his testamentary plan.
2. Whether, absent a transfer by Elizabeth, the trust corpus could be included in her gross estate under the Commissioner’s § 811(c) theory.

## Decision

- The Ninth Circuit affirmed the Tax Court.
- The court held the trusts resulted from transfers from Walker’s estate pursuant to the family settlement agreement, not from a lifetime transfer by Elizabeth.
- Because Elizabeth was not the transferor of the trust property, the Commissioner’s inclusion theory under § 811(c) failed, and the trust corpus was not includible in her gross estate on that basis.

## Legal Principles

- Inclusion under IRC § 811(c) (1939 Code) depends on an antecedent “transfer” by the decedent; retained income interests or certain powers matter only if the decedent transferred the property.
- Where a family settlement agreement, incorporated into probate, fixes distribution of a predeceased person’s estate and places assets directly into trust under that estate’s distribution plan, the trust property is treated as transferred from the original decedent’s estate rather than by the heir-beneficiary.
- An heir’s consent to a settlement that implements a decedent’s intended disposition does not, without more, convert the probate distribution into a taxable inter vivos transfer by the heir for retained-interest inclusion purposes.

## Conclusion

The court treated the trusts as part of the original distribution of Walker’s estate under a family settlement agreement, not as a lifetime transfer by Elizabeth; therefore, the trust corpus could not be included in Elizabeth’s gross estate under § 811(c) on a retained-interest theory requiring a transfer by her.


Comm’r v. Estate of Vease, 314 F.2d 79 (9th Cir. 1963)