## Facts

- Frank W. Thacher created five irrevocable inter vivos trusts on May 10, 1922 (four for his minor children and one for his wife) and a sixth similar trust on January 8, 1924, for a child born after the first set of trusts.
- Each trust was funded with substantial life insurance on Thacher’s life and additional securities (bonds and similar investments), and each instrument made the trust irrevocable.
- The trustee (Provident Trust Company of Philadelphia) held management powers over the trust property; Thacher did not retain a right to manage the trust investments.
- In the children’s trusts, income was generally used to maintain insurance and, as needed, for the child’s support and education, with accumulation and later distribution provisions; Thacher did not retain incidents of ownership in the insurance policies placed in those trusts.
- The wife’s trust gave Thacher’s wife an income interest for life, but her interest could terminate if (1) Thacher and his wife divorced or legally separated, or (2) she remarried after Thacher’s death.
- If a divorce or legal separation occurred (or if the wife predeceased Thacher), the trust corpus would revert to Thacher if he was alive; if he was deceased, it would revert to his estate.
- It was undisputed that Thacher retained a reversionary interest in the wife’s trust valued at more than 5% of the trust’s value.
- Thacher was in his mid-40s and in excellent health when he established the trusts and was engaged in active, speculative business activity; the estate contended the trusts were driven by family and business concerns during life, not by testamentary intent.
- After Thacher’s death, the Commissioner determined an estate tax deficiency and asserted inclusion of trust property in the gross estate; the estate petitioned the Tax Court for redetermination.
- The estate also sought deductions for several small amounts paid to some children as alleged debts of the decedent, which the Commissioner disallowed.

## Issues

1. Whether the transfers to the six irrevocable trusts were made “in contemplation of death” under then-applicable estate tax inclusion rules (I.R.C. § 811(c)) and therefore includible in Thacher’s gross estate.
2. Whether, even if not made in contemplation of death, the wife’s trust interest was includible as a transfer intended to take effect in possession or enjoyment at or after death (then § 811(c)(1)(C)), given Thacher’s retained possibility of reverter on divorce or legal separation that could be eliminated only by his death (and the stipulated reversionary value exceeding 5%).
3. Whether the claimed payments to Thacher’s children were deductible as enforceable debts (claims) against the estate.

## Decision

- The Tax Court held the transfers creating the six trusts were not made in contemplation of death, so the trust corpora were not includible on that theory.
- The Tax Court held that, as to the wife’s trust, the wife’s life estate was intended to take effect in possession or enjoyment at or after Thacher’s death because Thacher’s possibility of reverter on divorce or legal separation persisted during his life and was cut off only by his death; the value of the wife’s life estate was therefore includible in the gross estate under § 811(c)(1)(C).
- The Tax Court sustained the Commissioner’s disallowance of the claimed deductions for alleged debts to the children because the estate did not establish them as legal, enforceable claims against the estate.

## Legal Principles

- “Contemplation of death” turns on the transferor’s dominant motive: whether the thought of death was the impelling cause of the transfer, as opposed to motives associated with life such as ongoing family support and business-related objectives.
- A trust transfer may be treated as taking effect in possession or enjoyment at or after death when the beneficiary’s enjoyment remains subject, during the decedent’s life, to a retained possibility of reverter that can be eliminated only by the decedent’s death; in that setting, the beneficiary’s interest is not fully secure until death occurs.
- The existence and value of a retained reversionary interest (stipulated here to exceed 5%) supports inclusion analysis associated with transfers conditioned on survivorship and retained reversion concepts (reflected in later statutory formulations such as § 2037), even where the trust is irrevocable and provides the beneficiary current income.
- Deductions for claims against an estate require proof that the claimed items are genuine, legal, and enforceable obligations; the estate bears the burden of establishing deductibility.

## Conclusion

The Tax Court rejected inclusion of the six inter vivos trusts as transfers in contemplation of death, but held that the value of the wife’s life estate in her trust was includible because Thacher’s retained possibility of reverter on divorce or legal separation could be terminated only by his death, making her enjoyment effectively dependent on that event; the court also denied deductions for alleged debts to the children for lack of proof of enforceable claims.


Estate of Thacher v. Commissioner, 20 T.C. 474 (1953)