11 T.C. 314">*314 The Commissioner has determined a deficiency in the estate tax of the estate of Ernest Hinds, deceased, in the amount of $ 2,454.73. The 11 T.C. 314">*315 deficiency results from several adjustments made by the Commissioner to the estate tax return filed by the executrix of the estate. Only1948 U.S. Tax Ct. LEXIS 87">*89 two of these adjustments are contested, namely, the increase by the Commissioner of the value of the homestead occupied by decedent and his wife at the time of his death and the addition to decedent's gross estate of $ 71,086.93 as his community one-half interest in certain securities conveyed to an irrevocable trust December 31, 1940. This last adjustment was explained in the deficiency notice as follows:

It is held that the above assets constituted the corpus as of the valuation date of a trust created by decedent and wife as of December 31, 1940, and that the values determined above represented the fair market values of decedent's community one-half interest as of the valuation date. It is further held that the transfer in trust made by the decedent on December 31, 1940, was made in contemplation of death and further was a transfer under which the decedent retained the possession or enjoyment of, or the right to the income from the property so transferred. The value as of the optional valuation date of June 17, 1942, of the decedent's interest in the transferred property has therefore been included in the gross estate pursuant to Section 811 (c) of the Internal Revenue Code.

1948 U.S. Tax Ct. LEXIS 87">*90 FINDINGS OF FACT.

Petitioner is the estate of Ernest Hinds, deceased, who was a resident of Bexar County, Texas, and died on June 17, 1941, and Minnie H. M. Hinds, his wife, is the executrix appointed by the will of decedent, which has been probated in the Probate Court of Bexar County, Texas, where she has duly qualified as executrix. The estate tax return was filed with the collector for the first district of Texas, September 15, 1942.

The decedent, Ernest Hinds, at the time of his death at the age of 76 years was a retired Major General in the United States Army. In his youth he received his first military training at the United States Military Academy at West Point, and immediately after graduation and receipt of his commission in the United States Army he chose the Artillery as his special branch and continued his training in that branch of the service. Immediately upon the outbreak of the Spanish-American War he left the Army training school in which he was then studying and arrived in Cuba and entered the front line combat at once. From then on until the end of his Army career, he continuously served in active combat front line duty in all of the wars and military expeditions1948 U.S. Tax Ct. LEXIS 87">*91 in which the United States engaged from time to time, including service as Chief of Artillery in the American Expeditionary Forces in Europe in the First World War, to which he was transferred from the Philippine Islands immediately upon the outbreak of the war. After the end of that war he served in various capacities and was Chief of the Eighth Corps Area at the time of his retirement in 1928. That occurred about six months before the retirement age, when he was requested by brother officers to assume the 11 T.C. 314">*316 active management of the United Services Automobile Association, which is a mutual insurance association for the exclusive insurance of members of the Army, Navy, Marine, Coast Guard, and Geodetic Survey. He continued in the management of that business until the time of his death.

For the first year and a half decedent received an annual salary of $ 10,000 from the auto association, and thereafter until his death an annual salary of $ 12,000. In addition to this salary, decedent also received retirement pay of $ 6,000 a year as a retired Major General. Both the salary and retirement pay terminated upon the death of decedent. The widow thereafter had as her only 1948 U.S. Tax Ct. LEXIS 87">*92 source of income dividends and interest from stocks and bonds, most of which were placed in trust, and a widow's pension of $ 50 (now $ 60) a month as the widow of a Spanish-American War veteran. The funds and securities which General Hinds owned at the time of his death and those which he had placed in trust, as hereinafter mentioned, were accumulated by him in the period of time following his retirement from the Army.

When he was 24 years of age he married Minnie H. M. Hinds, who was then 18 years of age. There were two children born to them: A son, John H. Hinds, who also chose a military career, and a daughter, Marjorie Cruse, wife of Colonel Fred T. Cruse, United States Army, retired.

In 1932 General Hinds went to New York for the purpose of creating an irrevocable trust, principally for the benefit of his wife. She accompanied him and, after some negotiations with the Lawyers Trust Co., with whom he was placing the trust, he informed her of his intention to make it an irrevocable gift. She objected to this and insisted that if he made the trust he should not make it irrevocable. Yielding to her objections, he provided in the trust which he then created with the Lawyers Trust1948 U.S. Tax Ct. LEXIS 87">*93 Co. of New York as trustee that it could be revoked by him at any time. Thereafter, from time to time during the following years, he sought to obtain her consent to waive the right to revoke the trust so as to make the gift complete, but she steadily refused to permit it or accept it. Finally, in the summer of 1940 she fell and broke her collarbone, which was followed by a sort of nervous collapse, so that General Hinds was worried about her condition. He took her on a trip to Atlantic City in September of that year, and again proposed the matter of making the trust irrevocable. He persuaded her to consent to the making of the trust irrevocable by assuring her that it was not for her benefit alone, but also for the benefit of the children. He went immediately with her to New York City and gave directions to the Lawyers Trust Co., still acting as trustee under the original trust, for making the trust irrevocable. The trust of 1932 was revoked by General Hinds. 11 T.C. 314">*317 The same securities that were in the original trust were placed in the irrevocable trust, except that some insurance on his life and 100 shares of Union Pacific Railroad Co. stock were withdrawn. He instructed1948 U.S. Tax Ct. LEXIS 87">*94 the Lawyers Trust Co. to prepare the trust indenture for execution on December 31, 1940, although all the details were being settled in October of 1940, and stated that his reason was to simplify his bookkeeping, which was kept on a calendar year basis, so that the transfer would be made as of the end of the calendar year.

All securities transferred to the new trust were community property, with the decedent's community one-half having a total value of $ 71,086.93 (as of June 17, 1942). No property was acquired by the decedent and his wife between the date of the execution of the trust on December 31, 1940, and the date of death on June 17, 1941. The only property retained by the decedent, not conveyed to the trust, was his community interest in the home, furniture, automobiles, cash, note, and stocks, with a total aggregate value considerably less than his community interest in the property which was conveyed to the trust. The $ 71,086.93 of stocks and bonds representing his community one-half interest transferred by the decedent on December 31, 1940, constituted about two-thirds of the decedent's gross estate. On or about December 31, 1940, the decedent changed the beneficiary1948 U.S. Tax Ct. LEXIS 87">*95 of his four life insurance policies excluded from the new trust from being made payable to the trust by making them payable to his wife. The Federal estate tax return which was filed after decedent's death was filed on the basis of the $ 20,335.88 insurance payable to the wife being exempt insurance, the transfer of December 31, 1940, being excludible, and the balance of the estate reported at $ 25,260.21 being less than the estate exemption.

The trust agreement executed by the decedent and his wife on December 31, 1940, stated that all the securities transferred were the community property of the settlors. After itemizing the bonds and stocks transferred, it provided for the trustee to pay the net income therefrom as follows:

* * * to pay the net income from the 1st day of January, 1941, together with any and all accumulations of income, to the said Minnie H. M. Hinds, during her life, in equal quarterly payments, as nearly as may be; and after the death of the said Minnie H. M. Hinds, and the said Marjorie Hamilton Hinds Cruse shall be living, to pay the said net income of the trust, together with any and all accumulations of income, to the said Marjorie Hamilton Hinds Cruse and1948 U.S. Tax Ct. LEXIS 87">*96 John Hamilton Hinds, son of the Settlors, in equal shares, and in equal quarterly payments as nearly as may be; * * *

In the event of the death of John Hamilton Hinds, extensive provisions were made for his issue to take his share per stirpes, much the same as in the 1932 trust. Provisions similar to the 1932 trust were also made regarding the share of the daughter Marjorie. This trust, as the former trust, was to terminate upon the death of Minnie H. M. 11 T.C. 314">*318 Hinds and Marjorie Hamilton Hinds Cruse. Similar wording was also used on the failure of issue, the trust providing:

* * * in case, however, that at the termination of the trust there shall be no such issue of the settlors living, then the trust estate shall be transferred and paid over and distributed, one-half in equal shares to the next of kin of the settlor, Ernest Hinds, and one-half in equal shares to the next of kin of the said Minnie H. M. Hinds.

While the 1932 trust made provision for either the decedent or his wife to add properties to the trust, the 1940 trust made such provision only for the wife. Paragraph second of the 1940 trust covers the matter of additions and states as follows:

Second: The Trustee, 1948 U.S. Tax Ct. LEXIS 87">*97 or its successor, in its discretion, may receive for the purpose of the trust hereby created, any and all other property devised, bequeathed, granted, conveyed, assigned or made payable to it by Minnie H. M. Hinds, or such part or parts thereof as it may in its discretion, deem proper.

The trust indenture provided that it should be governed and construed by the laws of the State of New York.

The last will and testament of the decedent, made in 1937, was changed by the decedent to conform to the December 31, 1940, trust in the following ways:

(a) In paragraph 4 of the will the date of the new trust, namely, "Dec. 31, 1940," was inserted in lieu of the date of the former trust "January 11, 1932" so that the paragraph, as thus amended, read:

4. Having established for the benefit of my wife, Minnie H. M. Hinds, and our children, a Trust Estate with Lawyers Trust Company of New York, N. Y., as Trustee under a Trust Agreement, dated Dec. 31, 1940, I hereby give, bequeath and devise to her outright, if she be living at the time of my death, all real and personal property of whatever kind which I may have, subject to the provisions of paragraphs 2 and 3 above.

(b) Opposite paragraph 7 of 1948 U.S. Tax Ct. LEXIS 87">*98 the will the following words were inserted: "This paragraph is hereby modified to conform to a trust agreement entered into with the Lawyers Trust Co. of New York dated 12/31/40 -- E. H."

The only other insertions were at paragraph 8 of the will, where the decedent twice inserted the word "Independent," so that the first and second sentences of this paragraph read as follows:

8. I hereby appoint my wife, Minnie Hatton Miller Hinds, and my son, John Hamilton Hinds, as Independent Executors of this, my last Will and Testament. In case either my wife, or my son John should die before the will is finally executed, I appoint my daughter, Marjorie Hamilton Hinds Cruse, as Independent Executrix in her or his stead. * * *

The changes in the will were witnessed and signed by two parties and were made soon after the execution of the trust indenture.

Up to the time of the execution of this trust on December 31, 1940, General Hinds, on the whole, had enjoyed good health. From August 8 to September 11, 1939, the decedent was quite seriously ill with acute 11 T.C. 314">*319 upper respiratory infection, complicated by a virus pneumonia. Following this illness, examinations of his blood count revealed1948 U.S. Tax Ct. LEXIS 87">*99 what was suspected to be a mild chronic lympathic leukemia. No active treatment was given or considered necessary for this condition, as it was not considered serious. General Hinds was merely advised that his blood count should be checked at two-month intervals. He was a man of commanding stature and physique and led an active life, managing successfully not only his own affairs, but also with great success the affairs of the large insurance association.

In January 1941 he had an attack of influenza and was confined for several months at the United States Army Brooke General Hospital near San Antonio. During the course of that attack he developed an acute exacerbation of a chronic mild lymphatic leukemia. He was under the care of General George C. Beech, the Commanding General at the Brooke General Hospital, now Commanding General of the Walter Reed General Hospital in Washington. It was not until about the middle of March 1941 that his illness was thought to be serious. His physician came to that conclusion about the middle of March 1941 and informed his family, but by mutual agreement they did not inform General Hinds, but assured him that he was on the road to recovery. 1948 U.S. Tax Ct. LEXIS 87">*100 He believed that and as late as June 10, 1941, wrote to the insurance association with which he had a contract to pay him a salary of $ 12,000 per year, requesting them to reduce his salary to $ 10,000 per year and add the $ 2,000 to the salaries of his assistants, stating that he was sure of his recovery but thought that he would reduce his activities with the business in the future to the extent of that reduction, and therefore thought it just to pay the difference to his assistants, whose work would be enlarged proportionately. He did not make the gifts evidenced by the trust instrument of December 31, 1940, in contemplation of death.

Among the assets owned by General and Mrs. Hinds at the time of his death was a home situated at 777 Terrell Road, San Antonio, Texas, which was acquired by them during marriage and was community property under the laws of Texas. It was their homestead until his death, and it is still her homestead. It had a fair market value of $ 10,000 as of the elected optional date of valuation one year after General Hinds' death. It was valued by the Commissioner at $ 15,000 as of that date and one-half thereof was taxed as part of General Hinds' estate. 1948 U.S. Tax Ct. LEXIS 87">*101 From the date of its acquisition to the date of his death the surviving wife had, and still has, a life homestead interest in General Hinds' one-half in addition to her community one-half of the property. No deduction was made in the calculation of the estate tax return by the Commissioner for her life interest in his half of the property.

11 T.C. 314">*320 OPINION.

Issue 1. -- The Commissioner in his determination of the deficiency determined that the transfer which decedent made on December 31, 1940, of his one-half interest in certain community property owned by him and his wife was made to the trust in contemplation of death. This transfer was made less than two years prior to decedent's death and, therefore, the statutory presumption applies. The applicable statute is printed in the margin. ¹

1948 U.S. Tax Ct. LEXIS 87">*102 Decedent having died within less than two years after the transfer in question was made, the burden of proof is clearly on petitioner to show that the transfer was not made in contemplation of death. The leading case in the interpretation of the meaning of "in contemplation of death" is United States v. Wells, 283 U.S. 102">283 U.S. 102, in which the Supreme Court, among other things, said:

* * * The words "in contemplation of death" mean that the thought of death is the impelling cause of the transfer * * *.

* * * *

* * * There is no escape from the necessity of carefully scrutinizing the circumstances of each case to detect the dominant motive of the donor in the light of his bodily and mental condition, and thus to give effect to the manifest purpose of the statute.

In the later case of Allen v. Trust Co. of Georgia, 326 U.S. 630">326 U.S. 630, the Supreme Court said:

* * * The transfer may be so motivated even though the decedent had no idea that he was about to die. 283 U.S. 102">United States v. Wells, supra, * * * On the other hand, every man making a gift knows that what he gives away today will not be included1948 U.S. Tax Ct. LEXIS 87">*103 in his estate when he dies. All such gifts plainly are not made in contemplation of death in the statutory sense. Many gifts, even to those who are the natural and appropriate objects of the donor's bounty, are motivated by "purposes associated with life, rather than with the distribution of property in anticipation of death." 283 U.S. 102">United States v. Wells, supra, * * * Those motives cover a wide range. See 1 Paul, Federal Estate & Gift Taxation (1942) §§ 6.09 et seq. "There may be the desire to recognize special needs or exigencies or to discharge moral obligations. The gratification of such desires may be a more compelling motive than any thought of death." 283 U.S. 102">United States v. Wells, 11 T.C. 314">*321 supra, * * * Whether such a desire was the dominant, controlling or impelling motive is a question of fact in each case. * * *

What was the impelling motive of the decedent for making the transfers here in question? The main evidentiary facts are set out in our findings. We are convinced that these facts show that the impelling motive was associated with life rather than death. Petitioner was in good health for one of his1948 U.S. Tax Ct. LEXIS 87">*104 years when he made the transfer. General Beech, who for a good many years had been decedent's personal physician, testified that he was an exceptionally active and vigorous man for one of his years. He concluded his testimony by saying: "There was nothing in General Hinds' physical condition prior to January 1, 1941 which would lead any physician to anticipate his death at any time within the near future."

We are well convinced that when decedent, together with his wife, executed the irrevocable trust of December 31, 1940, he did not do so "in contemplation of death" as that phrase has been defined in 283 U.S. 102">United States v. Wells, supra, and other Supreme Court decisions. We think the motives which actuated him in making the transfer were associated with life, rather than death. He had executed a similar trust in 1932, but at Mrs. Hinds' urgent request he had made that trust revocable. In 1940 Mrs. Hinds suffered a serious illness from an accident from which she was slow in recovering. Decedent felt that he should make the trust irrevocable so that if she should by any chance become an invalid his wife would be provided with a sure and certain income1948 U.S. Tax Ct. LEXIS 87">*105 to meet her needs. It was Mrs. Hinds' illness and not any illness of his own which motivated General Hinds in making the change. The situation was talked over with Mrs. Hinds and she finally consented that the trust should be made irrevocable. General Hinds and his wife communicated their desires to the Lawyers Trust Co., the trustee in the original trust. The Lawyers Trust Co. drew up the irrevocable trust according to instructions from General Hinds and it was signed by General and Mrs. Hinds December 31, 1940.

Respondent contends that this Court should find that, even though the decedent when he executed the trust had no idea that he was to die within the next few months, nevertheless he executed it "in contemplation of death" because the transfer was testamentary in character. One of the reasons which respondent urges in support of this contention is that soon after decedent executed the trust of December 31, 1940, he changed his will in certain respects so as to make recognition of the trust of December 31, 1940. Decedent had executed his will in 1937 and in that will he had made mention of the revocable trust of 1932 and the property which had been conveyed thereto. When1948 U.S. Tax Ct. LEXIS 87">*106 the irrevocable trust of December 31, 1940, was executed, paragraph 4 of decedent's will was changed so as to insert the date of the new trust, namely, "December 31, 1940" in lieu of the date of the 11 T.C. 314">*322 former trust, "January 11, 1932." Other changes, unimportant to the question we have here to decide, were made in decedent's will shortly after the execution of the trust of December 31, 1940. We do not think, however, that these changes in decedent's will of 1937 were of the kind which would characterize the transfer which decedent made to the trust December 31, 1940, as testamentary in character. We think that when all the facts are taken together they show that the impelling motives which caused the execution of the trust of December 31, 1940, were associated with life, rather than with death, and, therefore, the trust property is not includible in decedent's estate as having been transferred "in contemplation of death." Cf. 326 U.S. 630">Allen v. Trust Co. of Georgia, supra.

Respondent next contends that, even though we should hold that the transfer in question was not made in contemplation of death, nevertheless it was a transfer "under which decedent1948 U.S. Tax Ct. LEXIS 87">*107 has retained, for a period which does not in fact end before his death, the right to the income from the property." The Commissioner therefore contends that decedent's one-half interest in the community property which was transferred should be included in his gross estate under section 811 (c) of the code.

It is manifest that petitioner did not specifically reserve any interest in the income from the property to himself. He and his wife in executing the trust specifically directed that all the income from the property, after the deduction of necessary expenses, should be paid to his wife, Minnie H. M. Hinds, in quarterly installments. While this is true, it seems also clear that the trust income when received would be the community income of General Hinds and his wife. The petitioner in its brief contends that in Texas conveyances or transfers either to a husband or wife are presumed to be community, except where the transfer is from the husband to the wife. In that case it constitutes a gift to her and is her separate property, and cites Lewis v. Simon, 72 Tex. 470">72 Tex. 470. This latter case holds that a voluntary conveyance by a husband to his wife 1948 U.S. Tax Ct. LEXIS 87">*108 of community property vests the property in the wife separately.

We certainly have no disposition to question the law as thus laid down by the Supreme Court of Texas in the Lewis v. Simon case, but the law as decided in that case does not at all answer the question which we have here. We have no doubt that whatever beneficial interest Mrs. Hinds owned in the corpus of the trust was her separate estate because the trust was irrevocable, but what about the income from the trust estate which was payable to her? Under Texas law the rents, dividends, interest, and increase from the wife's separate property fall into the community. See Arnold v. Leonard, 114 Tex. 535">114 Tex. 535; 273 S.W. 799. That is the leading Texas case on the subject. It may well be that decedent could have used language in the trust 11 T.C. 314">*323 indenture which would have made clear that the income from the community property which he was conveying to the trustee should be paid over to Mrs. Hinds for her sole and separate use and not as community property, but he did not do so. The Circuit Court of Appeals for the Fifth Circuit, in speaking upon a similar1948 U.S. Tax Ct. LEXIS 87">*109 point made in Commissioner v. Porter, 148 Fed. (2d) 566, said:

* * * It is true * * * that the courts of Texas are distinctly committed to the doctrine that a grantor may do with his property by way of gift what he will, and that he enjoys great freedom here in drawing the donative instrument to give effect to his intent. * * * But in view of the generally prevailing rule in Texas, that income from separate property falls when received into the community, it is certainly true that if by the use of a trust instrument this general rule can be departed from, the instrument must, in the most precise and definite way, and by the use of language of unmistakable intent, make that desire and intention clear. There is not a line in the trust instruments in question here to even suggest that the settlor of these trusts intended to change, as to the income his daughters should receive, the ordinary results flowing from the marriage state. * * *

Likewise, in the instant case decedent, in conveying his one-half interest in certain stocks and bonds to the trust with direction to the trustee to pay the income to his wife for life, used no language which indicated1948 U.S. Tax Ct. LEXIS 87">*110 an intent to change the ordinary rule which prevails in Texas as to community ownership of income from trust property, even though it is the separate property of the wife. The language of the trust with reference to the payment of income to Mrs. Hinds is as follows: "* * * to pay the net income from the 1st day of January, 1941, together with any and all accumulations of income, to the said Minnie H. M. Hinds, during her life, in equal quarterly payments as nearly as may be; * * *" This being the language of the trust indenture and Texas law being what it is, we hold that the income of the trust property as long as the community existed was the community property of the spouses. It only became Mrs. Hinds' separate income after General Hinds' death. 114 Tex. 535">Arnold v. Leonard, supra;Commissioner v. Porter, supra;Commissioner v. Snowden, 148 Fed. (2d) 569; Commissioner v. Sims, 148 Fed. (2d) 574.

The petitioner also argues on his brief that whether the income was the separate property of Mrs. Hinds would be determined under the laws of the State of New York1948 U.S. Tax Ct. LEXIS 87">*111 because of the following provision in the trust indenture: "This indenture and all of its provisions shall be construed, and the trust hereby created shall be administered, according to the laws of the State of New York, * * *." The precise point which petitioner makes in this respect was made by the Commissioner in Commissioner v. Porter, supra, and was decided adversely to the Commissioner. So it seems clear that, despite the fact that decedent, when he jointly executed the trust of December 31, 1940, with his wife, irrevocably transferred his community interest in the property to the trustee for the benefit of his wife and the remaindermen 11 T.C. 314">*324 named in the trust, nevertheless, the income payable to his wife would be the community income of the spouses so long as the community should exist. The question, therefore, which we have to decide with respect to this issue is whether decedent's continued ownership of one-half of the trust income under Texas law, after the irrevocable trust was executed, brings the transfer within the provisions of section 811 (c) which reads: "* * * a transfer, by trust or otherwise, under which he has retained1948 U.S. Tax Ct. LEXIS 87">*112 * * * for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from the property * * *." (Emphasis supplied.)

Section 81.18 of Treasury Regulations 105 deals with "Transfers with possession or enjoyment retained" and reads in pertinent part as follows:

Except in the case of a bona fide sale for an adequate and full consideration in money or money's worth, the gross estate embraces (section 811 (c)) all property transferred by the decedent, whether in trust or otherwise, if he retained or reserved the use, possession, right to the income, or other enjoyment of the transferred property * * *.

* * * *

The use, possession, right to the income, or other enjoyment of the property will be considered as having been retained by or reserved to the decedent to the extent that during any such period it is to be applied towards the discharge of a legal obligation of the decedent, or otherwise for his pecuniary benefit.

If such retention or reservation is of a part only of the use, possession, income, or other enjoyment of the property, then only a corresponding proportion of the value of the property should be included in determining1948 U.S. Tax Ct. LEXIS 87">*113 the value of the gross estate.

As we have already pointed out, the decedent did not specifically retain or reserve any income from his part of the community property which was transferred to the trust; yet, under the laws of Texas, he was clearly the owner of one-half of the income from the property which he conveyed to the trust so long as he should live. This being the case, we think decedent "retained" the right to one-half of the income from the property which he conveyed to the trust within the meaning of the language used in section 811 (c) above quoted.

The Commissioner in his determination of the deficiency has included the entire value of decedent's one-half interest in the community property which was transferred to the trust. We think this was error. It must be remembered that one-half the property which was conveyed to the trust was conveyed by Mrs. Hinds out of her community one-half interest in the property. It is true that General Hinds was entitled to his one-half community interest in the income from this one-half conveyed by Mrs. Hinds, but it would not be "retained" income from any property which he was conveying. Likewise Mrs. Hinds had a community one-half1948 U.S. Tax Ct. LEXIS 87">*114 interest in the income from the property which General Hinds conveyed to the trust. Therefore, we 11 T.C. 314">*325 think that General Hinds "retained" within the meaning of the statute only one-half of the income from the property which he conveyed to the trust. Treasury Regulations 105, section 81.18, above quoted contains this provision:

If such retention or reservation is of a part only of the use, possession, income, or other enjoyment of the property, then only a corresponding proportion of the value of the property should be included in determining the value of the gross estate. [Emphasis supplied.]

The Commissioner in his determination of the deficiency has included $ 71,086.93 as the value of the property which decedent conveyed to the trust. Inasmuch as decedent retained within the meaning of the applicable statute only one-half the income from this $ 71,086.93 stocks and bonds, we hold that only one-half of such amount of $ 71,086.93 should be included in decedent's gross estate under the language of section 811 (c) of the code, which we are now discussing.

Issue 2. -- Was the Commissioner correct in his determination of the decedent's interest in the homestead property1948 U.S. Tax Ct. LEXIS 87">*115 that was includible in the gross estate and of the value of such interest? We think the Commissioner was correct in determining that decedent owned a one-half community interest in this homestead property. We do not think he was correct in increasing the value of such property from $ 10,000, as reported in the estate tax return, to $ 15,000, as determined in the deficiency notice. A well qualified real estate expert living in San Antonio, where the property was situated, testified that he was familiar with the property and its location and that its value on the basic date was $ 10,000. There was no evidence to the contrary. Upon the strength of this testimony we have found that the value of the property was $ 10,000.

Petitioner contends, however, that in calculating the gross estate there should be deducted from decedent's community half interest the life homestead interest of his wife, Minnie H. M. Hinds, the said homestead interest being a vested life interest which was a burden upon the decedent's community interest prior to and at the time of his death. We think this contention is without merit. The Federal estate tax laws do not contemplate any such deduction. There is1948 U.S. Tax Ct. LEXIS 87">*116 nothing particularly unusual about the laws of Texas with respect to the surviving spouse having the right of life occupancy to the homestead property. Many states have laws of a similar nature. The regulations specifically provide that property subject to homestead or other exemptions under local law is includible as a part of the gross estate. See Regulations 105, sec. 81.13. Here the decedent had a vested community one-half interest in the homestead property, which interest was terminated by his death. This community one-half interest is, therefore, includible in the decedent's estate.

Decision will be entered under Rule 50.

11 T.C. 314">*326 Arnold, J., dissenting: In my opinion, by the use in the trust instrument of the language directing the trustee:

* * * to pay the net income from the 1st day of January, 1941, together with any and all accumulations of income, to the said Minnie H. M. Hinds, during her life, in equal quarterly payments, as nearly as may be; and after the death of the said Minnie H. M. Hinds, and the said Marjorie Hamilton Hinds Cruse shall be living, to pay the said net income of the trust, together with any and all accumulations of income, to 1948 U.S. Tax Ct. LEXIS 87">*117 the said Marjorie Hamilton Hinds Cruse and John Hamilton Hinds, son of the Settlors, in equal shares, and in equal quarterly payments as nearly as may be; * * *

decedent intended to and did thereby make the trust income the separate property of his wife during her life. That such was his intention is further borne out by the fact that he specifically provided in the trust instrument that it should be governed and construed by the laws of the State of New York. This, in my opinion, clearly shows he completely divested himself of all interest in the trust income under the community property laws of the State of Texas, and that the income of the trust property during the lifetime of the wife was her separate property.