9 T.C. 276">*276 The Commissioner determined deficiencies in gift tax and estate tax as follows:

1947 U.S. Tax Ct. LEXIS 117">*119 9 T.C. 276">*277 The following questions have been submitted for decision:

(1) What was the fair market value of the capital stock of Morewood Realty Corporation on December 31, 1941?

(2) Should accumulated distributions of Connellsville Central Coke Co. to a trust of which the decedent was life beneficiary be included in the gross estate of the decedent under the provisions of section 811 (a)?

(3) Were inter vivos transfers to grandchildren in 1935 and 1938 made in contemplation of death?

(4) Should accumulations of income of a trust of which the decedent was a cograntor be included in the gross estate of the decedent under the provisions of section 811 (a) or, in the alternative, under the provisions of section 811 (c)?

(5) Was a transfer in trust to a son-in-law made in contemplation of death?

FINDINGS OF FACT.

The petitioners filed their gift tax and estate tax returns for the taxable years with the collector of internal revenue for the twenty-third district of Pennsylvania.

The Morewood Realty Corporation (herein called Morewood) is a Delaware corporation, organized in 1924. Its stock was owned at all times by Herbert and Amy H. DuPuy or their descendants, spouses of descendants, 1947 U.S. Tax Ct. LEXIS 117">*120 or trustees for such persons. There were no sales at any times material hereto. The only shares outstanding on December 31, 1941, were 4,998 shares of its common stock.

The parties have stipulated as follows in regard to the value of its assets and the amount of its liabilities:

1947 U.S. Tax Ct. LEXIS 117">*121 9 T.C. 276">*278 Eleanor D. Merrick, a daughter of Herbert and Amy DuPuy, made gifts of Morewood shares as follows:

She reported the value of the 1940 gifts at $ 1,000 per share and those of 1941 at $ 750 per share.

Charles M. DuPuy, a grandson of Herbert and Amy, made a gift of 200 shares of Morewood stock in trust for his children on December 30, 1941, He reported the value of the gift at $ 775 per share.

Amy H. DuPuy (sometimes referred to as Amy) died on August 31, 1941, at the age of 83. She owned two shares of Morewood stock, which were reported for estate tax purposes at a value of $ 750 per share on the optional valuation date of August 31, 1942.

The Commissioner, in determining the deficiencies, held that the Morewood stock had a value of $ 2,100 per share on December 4, 1940, and a value of $ 2,500 per share on the other dates. He also included in 9 T.C. 276">*279 the estate of Amy an amount based upon a return of 4 per cent on property, including 1,611 shares of Morewood stock valued at $ 2,500 per share, held in trust for Amy DuPuy McHenry, an incompetent1947 U.S. Tax Ct. LEXIS 117">*122 granddaughter of the decedent, Amy H. DuPuy.

The parties have stipulated that the fair market value of the Morewood stock was the same on all dates material hereto as it was on December 31, 1941.

The fair market value of a share of Morewood stock on December 31, 1941, was $ 1,300.

Herbert DuPuy, who died January 10, 1930, created a testamentary trust, of which Amy H. DuPuy was the trustee and also the beneficiary for life. Herbert was the owner at the time of his death of 2,328 of the 5,000 outstanding shares of the capital stock of Connellsville Central Coke Co., a Pennsylvania coal mining corporation (hereinafter called Connellsville), of the par value of $ 100 per share. Those shares became part of the corpus of the trust.

Connellsville made distributions out of its current earnings or earned surplus (after allowances for depletion and depreciation) from March 1, 1913, to December 31, 1934, as follows:

1947 U.S. Tax Ct. LEXIS 117">*123 The shareholders of Connellsville, at a meeting on November 5, 1934, took appropriate action to effect the exchange of Connellsville's Herbert Mine, a coal mine then in unprofitable operation, and to sell all of its real estate and equipment remaining after that exchange. Connellsville exchanged the Herbert Mine for unmined coal at about the end of 1934. It executed an agreement on March 6, 1935, dated December 31, 1934, with Hillman Coal & Coke Co. (hereinafter called Hillman), granting Hillman a 10-year right to mine and remove all the unmined coal, Hillman to pay all real estate taxes and a royalty of 20 cents per ton for all coal mined and removed. The minimum annual tonnage to be paid for was 100,000 tons. Hillman was required to pay for all the unmined or unpaid for coal at 20 cents per ton if the coal was not mined prior to 10 years. Connellsville deposited a deed to all of the coal in escrow, to be delivered to Hillman upon payment in full for all of the coal.

9 T.C. 276">*280 Connellsville thereafter made the following cash distributions to its shareholders:

1947 U.S. Tax Ct. LEXIS 117">*124 The president of the corporation and the board of directors, in correspondence and at board meetings, stated that such distributions were not dividends, but were "liquidation distributions." The distributions were described on the Federal income tax returns of Connellsville for 1935 and 1936 as "Distribution in partial liquidation." The board directed, on June 27, 1938, that Connellsville's remaining assets be delivered to liquidating trustees and that a liquidation dividend of $ 14 per share be paid to each shareholder. The shareholders, on the same day, ratified the acts of the board of directors authorizing the method of dissolution and complete liquidation of the corporation. The liquidating trustees assumed their duties on September 30, 1938.

Connellsville filed with the Secretary of the Commonwealth of Pennsylvania, on July 21, 1938, its certificate of election to dissolve. A certificate of dissolution was issued on March 16, 1939.

The liquidating trustees made distributions to the former shareholders of Connellsville against liquidation certificates issued in exchange for their shares as follows:

The total received on the shares and certificates of the trust was $ 111,744.

Connellsville had an earned surplus of $ 195,054.08 at January 10, 1930. It had an aggregate net loss of $ 36,671.39 before allowance for depletion or depreciation for the period from January 10, 1930, to September 30, 1938. Each distribution made by Connellsville after December 31, 1934, was made at a time when there was a deficit in earned surplus.

9 T.C. 276">*281 The agreement between Connellsville and Hillman was completely performed in 1945 after a survey of the remaining unmined coal, Hillman paid the final amount due for the coal, and the deed was released from escrow by the liquidating trustees and was recorded. The liquidation of Connellsville had been completed at the date of the hearing and final distribution made on all liquidation certificates except perhaps three, which could not be located. The total distributions per share were about $ 80.

The executors of Amy H. DuPuy's estate filed an account of her trusteeship under the will of Herbert in the Orphans' Court of Allegheny County, Pennsylvania. All of the Connellsville distributions1947 U.S. Tax Ct. LEXIS 117">*126 made to her, aggregating $ 111,744, were accounted for as principal receipts and treated as corpus. Exceptions to that account were filed by and on behalf of the remaindermen on the ground that the estate was indebted to them for the value of the Connellsville shares at January 10, 1930, i. e., for the "intact value" of the shares, since Amy had been a legal life tenant. The orphans' court dismissed the exceptions and confirmed the account. Its decree was affirmed by the Supreme Court of Pennsylvania in In re DuPuy's Estate, 346 Pa. 143">346 Pa. 143; 29 Atl. (2d) 689. The executors of Amy's estate, acting for her in her capacity as trustee under the will of Herbert DuPuy, distributed the corpus of the trust, including the entire amount of the distributions received from Connellsville and its liquidating trustees, to the remaindermen under the will of Herbert DuPuy.

The Commissioner, in determining the deficiency in estate tax, included $ 111,744 in the gross estate and explained that it was income of the Herbert DuPuy residuary estate trust which, though undistributed, belonged to Amy as life beneficiary and was a part of her gross estate1947 U.S. Tax Ct. LEXIS 117">*127 under section 811 (a).

Amy H. DuPuy made the following gifts to her grandchildren on December 27, 1935: Charles, $ 83,810; Eunice, $ 100,000; Dorothy, $ 25,000; in trust for Herbert, $ 100,000; in trust for Marguerite, $ 50,000; and in trust for Rosetta, $ 50,000. The gifts in trust were to minors. The trusts took effect immediately and were irrevocable. The Commissioner, in determining the deficiency in estate tax, held that the transfers came within section 811 (c) of the Internal Revenue Code and included $ 408,810 in the gross estate.

The six gifts made on December 27, 1935, were not made in contemplation of death.

Amy H. DuPuy made gifts of $ 5,000 each to her six grandchildren to commemorate her eightieth birthday, which occurred on January 22, 1938. Those made on January 28, 1938, to the three who were minors were in trust and the Commissioner, holding that they came within section 811 (c), included $ 15,000 in the gross estate of Amy. Those transfers were not made in contemplation of death.

9 T.C. 276">*282 A daughter of Herbert and Amy married Junius H. McHenry and died in 1916 at the time of the birth of their only child. The child, Amy DuPuy McHenry, lived, but has always1947 U.S. Tax Ct. LEXIS 117">*128 been an incompetent, due to mental deficiency. Herbert executed a trust on June 15, 1917, for her benefit. He and Amy transferred property to the trust, consisting of cash and securities having a value of over $ 4,500,000, of which Amy contributed 32.51 per cent.

The deed of trust was in part as follows:

That I hold the securities above mentioned, together with all the income derived from the same in trust to pay and deliver same with the accumulations thereon to my said granddaughter, Amy DuPuy McHenry, at such times and in such ways as are hereinafter mentioned.

Reserving to myself and my successor or successors and at my and their discretion, the right to apply all or any proportion of the income arising from said securities to the education and maintenance of my said granddaughter during the life of this Trust.

And upon the further trust, upon the death of the said Amy DuPuy McHenry, to transfer and deliver the said securities or any such portion of the same as may then be in my hands or the hands of my successor or successors to such child or children or the lawful issue of such deceased child or children of the said Amy DuPuy McHenry as may be living at the time of her death, 1947 U.S. Tax Ct. LEXIS 117">*129 in equal shares, free and discharged of all trusts whatsoever.

And upon the further trust, in the event of the said Amy DuPuy McHenry dying without lawful issue living at the time of her death, to deliver the said securities and their accumulations, or such as may then be in my hands or the hands of my successor or successors in this trust, free and discharged of all trusts whatsoever, to my children, H. Wilfred DuPuy, Charles M. DuPuy and Eleanor DuPuy Merrick, in equal shares, and, in the case of the death of any of them, to his or her heirs and assigns.

Herbert acted as trustee until his death and was succeeded by another. Amy was never a trustee of that trust. Various amounts, never exceeding $ 30,000 annually, representing a part of the income of the trust were paid to McHenry, as guardian and conservator for his daughter. Income of the trust in the amount of $ 349,870.74 was accumulated up to the date of Herbert's death. Similar accumulations from that date to the date of Amy's death amounted to $ 154,494.12.

The trustee's account up to December 31, 1933, was confirmed. A second account up to April 22, 1937, when the life beneficiary became 21 years of age, was excepted1947 U.S. Tax Ct. LEXIS 117">*130 to by McHenry, who claimed the accumulated income on behalf of his daughter. This claim was resisted by and for those having adverse interests in the trust, and lengthy statements of the law and facts were filed on their behalf. Amy took no part in the proceeding, made no claim to any trust income, and did not believe that she had any right to any trust income, but felt that McHenry was right. The orphans' court dismissed the exceptions and confirmed the account on February 4, 1938.

There was real doubt as to whether the decree might be reversed upon appeal and the matter was settled by a compromise agreement entered 9 T.C. 276">*283 into on May 25, 1938, which Amy signed as one having a possibility of interest. The accumulations were to be added irrevocably to the corpus; at least $ 40,000 annually was to be paid to McHenry until December 31, 1948, or the death of Amy, whichever should occur later; thereafter he was to receive amounts not less than $ 25,000 annually, to be fixed by the court; excess income after the date mentioned was to be paid currently to the eight grandchildren of Herbert and Amy. It also provided:

Except as hereinafter provided, each of the parties hereto releases1947 U.S. Tax Ct. LEXIS 117">*131 any and all claims to the income accumulations now in the hands of the Trustee, as well as to any income hereafter accruing during the life of Amy DuPuy McHenry.

The compromise agreement was approved by the court, its earlier decree was vacated, and a new schedule of distribution was substituted.

The Commissioner, in determining the deficiency in estate tax, included $ 1,907,541.82 in the gross estate as a transfer of an interest under the trust of June 15, 1917. He explained as follows:

It is determined that certain income accumulations under a declaration of trust dated June 15, 1917, allegedly made by Herbert DuPuy, the decedent's husband, in the amount of $ 1,907,541.82, are includible in the gross estate within the meaning of sections 811 (a) (c) and (d) ( 1) of the Internal Revenue Code.

Amy did not sign the compromise agreement of May 25, 1938, in contemplation of death and did not thereby make a transfer in contemplation of death.

Amy was disappointed with the orphan's court decision of February 4, 1938. It had been her strong desire that all income from that trust should go to McHenry, for the benefit of his daughter and himself. That had been her original intent when1947 U.S. Tax Ct. LEXIS 117">*132 the trust was created, but, as the orphans' court construed the instrument, that intent was not properly expressed therein. She was also desirous that further litigation be avoided. Amy, without the knowledge of the members of her family and the other parties to the compromise, and in order to induce McHenry to join in the compromise agreement of May 25, 1938, agreed with McHenry that, as a part of the settlement of the litigation, she would create a trust for McHenry when an agreement of compromise had been approved by the court.

She executed a deed of trust dated June 17, 1938, and deposited securities thereunder, aggregating $ 199,096.25 in value, on the day she was notified of the approval of the compromise agreement. The trust provided that McHenry should have the income from the trust for life, so long as his daughter lived. If he survived his daughter, the corpus was payable outright to him immediately upon her death. If he predeceased her the corpus was payable to Amy's other grandchildren immediately upon his death. The trust was irrevocable and effective immediately. Amy retained no interest therein, in any of the 9 T.C. 276">*284 trust property or in any of the income therefrom; 1947 U.S. Tax Ct. LEXIS 117">*133 neither did she retain any right to designate or change the persons who should possess or enjoy any of the property or income therefrom.

The purpose of the creation of the trust for McHenry was to settle the litigation involving the interests of the remaindermen and life beneficiary under the 1917 trust, to effectuate during her life Amy's original intent in contributing to that trust, to increase the current income available to McHenry, and to provide him with approximately $ 200,000 of principal if his daughter should predecease him, upon which event the $ 40,000 annual payment under the compromise agreement would cease.

The value of the corpus of the trust at the optional valuation date was $ 189,450.34, which amount the Commissioner included in the gross estate as a transfer within the meaning of section 811 (c) of the Internal Revenue Code.

The creation of the trust did not constitute a transfer made in contemplation of death.

The stipulations of the parties are incorporated herein by this reference.

OPINION.

A finding must be made of the value of minority interests in closely held stock of Morewood Realty Corporation, unaided by evidence of actual sales. The Commissioner has1947 U.S. Tax Ct. LEXIS 117">*134 abandoned his determinations of higher values and now contends for a value of $ 2,056 per share on the valuation dates. That amount will result from dividing the stipulated fair market values of the underlying assets, less liabilities, by the number of shares outstanding. It is supported by the opinion of a witness called by the Commissioner. There is little, if any, other evidence to support it. The respondent and his witness unjustifiably minimize the importance of earnings and dividends to the point of elimination as factors in determining the value of this stock and place too much reliance upon the agreed values of the underlying assets.

There is some evidence of the history, management, earnings, dividends, finances, and prospects of Morewood and its subsidiaries, as well as other evidence. The petitioner called two witnesses, who expressed opinions that the value of the stock was not more than $ 775 or $ 800 per share. They indicated that they had considered all of the evidence and explained how they had arrived at their opinions and why they thought that asset value was not determinative or as important a factor as earnings in deciding the present question. Their testimony1947 U.S. Tax Ct. LEXIS 117">*135 is helpful.

The evidence does not lead irresistably to any amount as the obviously correct value, but, since a finding of a precise amount must be made, the Court has concluded, after considering all of the evidence 9 T.C. 276">*285 in the case, that the value of the stock on the valuation dates was $ 1,300 per share.

Herbert DuPuy died on January 10, 1930. It is conceded that he left his residuary estate in trust, naming his wife Amy as trustee and also as life beneficiary, although his will might have been more specific in creating a trust. Included in the trust were 2,328 shares of stock of Connellsville. Amy, as trustee, received distributions on that stock from August 1, 1935, to the date of her death on August 31, 1941, in the total amount of $ 111,744. The Commissioner has determined that the $ 111,744 should be included as a part of Amy's gross estate because it represented income of the trust to which she was entitled as life beneficiary. The petitioner contends, on the other hand, that the entire amount represents capital distributions which the trustee was required to hold for the remaindermen and which the life beneficiary was not entitled to receive. Both parties agree1947 U.S. Tax Ct. LEXIS 117">*136 that this issue must be decided under the law of Pennsylvania, and they cite numerous cases in support of the positions which they take. It should be remembered that the question is not how these payments were to be accounted for for Federal income tax, but rather the question is how the distributions made by Connellsville in the course of liquidating its assets and winding up its affairs are to be accounted for under the laws of Pennsylvania.

The primary rule for interpretation of a testamentary trust is to bring to fruition the intention of the testator in so far as his intention can be determined from the provisions of the will and from any surrounding circumstances which may properly assist the Court in determining what his intention probably was. The respondent says that the distributions in question were made out of depletion reserves and cites Pennsylvania cases for the proposition "that the income beneficiary is legally entitled to the income realized from wasting assets without deduction for depletion or the duty to maintain intact value of stock of corporations dealing in wasting assets." Knox's Estate, 328 Pa. 177">328 Pa. 177; 195 A. 28;1947 U.S. Tax Ct. LEXIS 117">*137 Crozer's Estate, 336 Pa. 266">336 Pa. 266; 9 Atl. (2d) 535. The testator in the Knox case owned stock of a wasting asset corporation. He had received dividends regularly over a period prior to his death. The Court, endeavoring to find and carry out his intention, held that he intended the life beneficiary "to have the benefit of all dividends paid out of profits from mines opened during his lifetime, whether from depletion reserves set up out of earnings or ordinary earnings above such reserves." It was not disputed that the dividends in that case came from profits made by the corporation in carrying on mining operations. The Crozer case is similar to the Knox case. The present case is distinguishable. Here the corporation was not paying dividends regularly at the time of the decedent's death. The distributions in question were not profits from mines opened during his lifetime; they were not 9 T.C. 276">*286 from depletion reserves set up out of earnings, or ordinary earnings above such reserves for the period after Herbert's death. The petitioners argue that where stock of a corporation, even stock of a wasting asset corporation, 1947 U.S. Tax Ct. LEXIS 117">*138 is placed in a trust of which one person is a life beneficiary and others are remaindermen, all extraordinary, liquidating distributions such as those involved in the present case must be retained by the trustee as a part of the corpus for the remaindermen and no part thereof may be distributed to the income beneficiary. ¹

1947 U.S. Tax Ct. LEXIS 117">*139 Amy never distributed to herself, as life beneficiary of the trust, any of the amounts which she had received as trustee from Connellsville. There was litigation in the courts of Pennsylvania, between her executors and the remaindermen of the trust, over the Connellsville distributions to the trust. The executors of Amy, acting for her as trustees under the will of Herbert, filed an account of the residue received by her under Herbert's will. Exceptions to this account were filed by or for the remaindermen under the Herbert trust, who claimed that Herbert had given Amy a legal life estate rather than an equitable one, and that she, having received a legal life estate, was indebted to them for the "intact value" of the Connellsville shares at the time of his death, and her executors, who were proposing by the account to turn over to the remaindermen the liquidating certificates, plus cash in the amount of $ 111,744, or property having a total value less than the value of the Connellsville shares at the time Herbert died, would have to make up the difference out of Amy's separate estate. The Pennsylvania courts held that Amy took an equitable life estate and was not liable to the1947 U.S. Tax Ct. LEXIS 117">*140 remaindermen for any more than that allocated to them in the account. In re DuPuy's Estate, 346 Pa. 143">346 Pa. 143; 29 Atl. (2d) 689. The court did not pass directly upon whether the distributions amounting to $ 111,744 belonged to the life tenant or to the remaindermen, but that amount was accounted for as trust corpus to which the remaindermen would be entitled. The parties in that litigation recognized that the $ 111,744 belonged to the remaindermen and not to the life beneficiary and the action of the court was consistent with that view.

There are a number of Pennsylvania cases which hold that extraordinary distributions made by a wasting asset corporation from contributed capital on stock held by a trust must be retained as part of the corpus and may not be distributed to the life beneficiary. Those 9 T.C. 276">*287 cases recognize that dividends paid by wasting asset corporations out of earnings before depletion may be distributable to the life beneficiary, but, where they represent a distribution of the proceeds of the sale in liquidation of capital assets or reserves accumulated during the lifetime of the testator, they are not distributable1947 U.S. Tax Ct. LEXIS 117">*141 to the life beneficiary as, for example, in the case of liquidating distributions. See Nirdlinger's Estate, 327 Pa. 160">327 Pa. 160; 193 A. 33; Mallory's Estate, 285 Pa. 186">285 Pa. 186; 131 A. 714; Wittmer's Estate, 283 Pa. 311">283 Pa. 311; 129 A. 85; Waterman's Estate, 279 Pa. 491">279 Pa. 491; 124 A. 166; McKeown's Estate, 263 Pa. 78">263 Pa. 78; 106 A. 189; Woolston's Estate, 36 D. & C. 574. "This equitable rule is based on the presumption that a testator or settlor intends exactly what he in effect says, namely, to give to the remaindermen, when the period for distribution arrives, all that which, at the time of his decease, legally or equitably appertains to the thing specified in the devise, bequest, or grant, and to the life tenants only that which is income thereon." 279 Pa. 491">Waterman's Estate, supra.It is not argued in this case that there was any occasion for apportionment of the distributions1947 U.S. Tax Ct. LEXIS 117">*142 in question between the life tenant and the remaindermen. The facts indicate that the distributions were in their entirety a partial return of contributed capital and a partial return of the value of the stock at the time the testator died. The court held in Sternbergh's Estate, 337 Pa. 342">337 Pa. 342; 10 Atl. (2d) 376, "Where all of the assets of the corporation are sold, it is only if the proceeds exceed the intact value of the stock that apportionment can be made"; otherwise the entire proceeds from the disposition of the assets go to the remaindermen. The agreement with Hillman was a sale of coal in place under Pennsylvania law. Hosack v. Crill, 18 Pa. Super. 90.

The evidence shows that all of the distributions here in question were made as a part of the process of selling the remaining assets and winding up the affairs of Connellsville. They were not regular dividends, but were liquidating dividends. Each distribution was made at a time when Connellsville had no earnings from operations even before depletion, but, on the contrary, had a deficit, as contrasted to the surplus which it had at1947 U.S. Tax Ct. LEXIS 117">*143 the time of Herbert's death. There were no earnings from operations during the period of the distributions. The total amount of the liquidating distributions was much less than the par value of the shares. The cases cited by the petitioners indicate that, if the courts of Pennsylvania had before them the precise question involved herein, they would hold that Herbert's intention as disclosed by his will and surrounding circumstances was that the distributions here in question were not to go to the life beneficiary. This question, as presented by the parties, is decided for the petitioners.

The Commissioner contends that the gifts made by Amy to her six grandchildren on December 27, 1935, and the gifts in trust to her three minor grandchildren on January 28, 1938, were made in contemplation 9 T.C. 276">*288 of death. He makes no argument that any of them were to take effect in possession or enjoyment at or after death, and there is no basis for such a contention. He points out that Amy had had a heart attack in 1930, had had a tumor removed in 1935, had failing eyesight, had swollen ankles, and was old when she made the gifts here in question. He argues from these and some additional1947 U.S. Tax Ct. LEXIS 117">*144 facts of no greater significance that the gifts were made in contemplation of death.

The evidence as a whole fairly preponderates in favor of the petitioners' contention that the gifts were not made in contemplation of death. Amy had completely recovered from the heart attack in a short time. The operation for the removal of a small benign tumor was not serious and was never regarded as serious. Amy was no longer young in years when she made the gifts, but she was still active, healthy, vigorous, and much interested in her family, in business, and in other affairs. She was not worried about her health. Her death, in August 1941, resulted from myocardial insufficiency following a fall two weeks earlier due to poor eyesight. She and her husband had both made many gifts aggregating over $ 20,000,000 to or for their children and grandchildren. They had thus made their children independently wealthy. The gifts made on December 27, 1935, were similar to previous gifts made to provide homes, education, and living comforts for her grandchildren so that she could see them living in the manner to which they were accustomed and in which she desired them to live. The 1935 gifts were 1947 U.S. Tax Ct. LEXIS 117">*145 prompted by her desire to provide Charles, who had been married in 1934, with money to build a home. She had previously given Eunice money for a like purpose. She checked on previous gifts to each grandchild and made the other gifts at that time to bring her gifts to each to a desired total. Amy was still a wealthy woman after they were completed. All of those gifts were made for purposes connected with life rather than in contemplation of death.

The birthday gifts, in much smaller amounts, were clearly not made in contemplation of death, but were merely to gratify her desire to give each grandchild something to commemorate the day. The respondent makes no argument in his brief specifically directed to those gifts. He seeks to include in Amy's gross estate only three of eight or nine gifts made on that occasion. He suggests no distinction between the three and the others. They were all in celebration of Amy's long enjoyed and continuing good health rather than in contemplation of death.

The respondent makes several contentions in regard to the accumulations of income from the Amy McHenry trust. All are based upon the proposition that trust income in excess of distributions1947 U.S. Tax Ct. LEXIS 117">*146 and expenses accumulated and to be accumulated during the life of the 9 T.C. 276">*289 beneficiary constitutes illegal accumulations under the law of Pennsylvania. ² He argues that 32.51 per cent of that income reverted and belonged to Amy H. DuPuy at the time of her death, since she was a grantor of the trust to that extent and would be entitled to those accumulations; the remaining accumulations from the date of Herbert's death to the date of Amy DuPuy's death fell into Herbert's residuary estate and were distributable to Amy as life beneficiary and formed a part of her estate at her death; and the value at Amy's death of her right to receive 32.51 per cent of future accumulations during the life of Amy McHenry should be included in her estate also as property belonging to her. The petitioners contend that none of the accumulations were in violation of the Pennsylvania law.

1947 U.S. Tax Ct. LEXIS 117">*147 This raises the question of the extent, if any, to which the accumulations of this trust were in violation of the Pennsylvania law. It provides that a direction to accumulate "shall be null and void in so far as it shall exceed the limits of this act" and the income directed to be accumulated contrary to the law shall go to those who would have been entitled to receive it if no such illegal accumulation had been directed. A direction to accumulate during the life of a grantor is not prohibited by the law. Therefore, the accumulations during the life of Amy H. DuPuy would not be made null and void by the act unless it means by implication that the accumulations must go immediately to some designated person at the end of that time and can not be held for later distribution to the remaindermen. The act does not mention any such requirement. The orphans' court which considered the trustee's account did not pass directly upon the question, but seems to have been of the opinion that all accumulations during the life of Amy DuPuy were valid. No contra authorities are cited. If Amy McHenry had died on or prior to August 31, 1941, when Amy DuPuy died, the accumulations would have gone1947 U.S. Tax Ct. LEXIS 117">*148 immediately to the remaindermen and there would have been no accumulations in violation of the law. Thus, it seems clear that Amy DuPuy was never entitled to any accumulations up to the date of 9 T.C. 276">*290 her death, either directly as a grantor or indirectly as life beneficiary of a trust made up of Herbert's residuary estate. ³

Amy McHenry survived Amy DuPuy. If excess income after the death of Amy DuPuy could have been accumulated during the life of Amy McHenry, who was not to receive that income, such accumulations might have been void under the law and 32.51 per cent might have reverted to Amy DuPuy's estate. But the compromise agreement and the order of the orphans' court provided for the disposition of all future income of the trust and provided in such a way that Amy DuPuy would never be entitled to receive any of it. All parties were bound1947 U.S. Tax Ct. LEXIS 117">*149 by that agreement and decree, In re McHenry, 352 Pa. 39">352 Pa. 39; 42 Atl. (2d) 52, and when Amy died neither she nor her estate had any right or interest in any income from the trust. Stoffel's Estate, 295 Pa. 248">295 Pa. 248; 145 A. 70, cited by the respondent to show that the agreement was not fully effective, involved different facts which easily distinguish it. The court there rejected an attempted rewriting of a will by an agreement of the interested parties.

The respondent also contends that Amy DuPuy, by entering into the agreement of May 25, 1938, made a transfer in contemplation of death. If she was not entitled to any accumulations up to the date of the agreement or up to the date of her death, of course, she could not transfer any interest in those amounts. If she had any rights, she disposed of them. Her rights, if any, to future accumulations were also terminated by that agreement and the decree which approved and adopted it. But she did not enter into the agreement in contemplation of death or transfer anything thereby in contemplation of death. Her chief concern was1947 U.S. Tax Ct. LEXIS 117">*150 for her grandchild, Amy McHenry, and next for the child's father, who was taking care of her. Amy's motive had to do with the present rather than after her death. She wanted the family litigation terminated promptly so that adequate funds for the care of the incompetent would continue to be furnished to McHenry from the trust which she had helped to set up many years previously. She wanted none of the income of the trust and had no thought of transferring any of it, past or future, in contemplation of death.

The respondent also argues that the transfer in trust for Junius H. McHenry dated June 17, 1938, was made in contemplation of death. It was made because she wanted him to have some income in addition to that which came to him from the trust for his daughter and to induce him to settle the family litigation. What has been said in regard to any possible transfer resulting from the compromise being in contemplation of death applies here also. The only additional circumstance worth mentioning is the fact that Amy, after setting up the trust, changed her will to eliminate a provision for the benefit of McHenry. 9 T.C. 276">*291 The record shows, however, that the trust was not a mere1947 U.S. Tax Ct. LEXIS 117">*151 substitute for a testamentary disposition. Her main purpose was to achieve immediate objectives desirable to her during her lifetime, i. e., additional aid to McHenry and settlement of family litigation which was distressing to her.

The above discussion covers all of the contentions urged by the respondent in his brief, but it might be well to state that there are no other provisions of section 811 under which any of the Amy McHenry trust income or the Junius McHenry trust could be included in Amy's gross estate. Amy retained no powers under either trust. The agreement of May 25, 1938, and the trust of June 17, 1938, took effect at once.

Decisions will be entered under Rule 50.