12 T.C. 1164">*1164 By this proceeding petitioner challenges respondent's determination of a deficiency in estate tax in the amount of $ 310,483.32. Petitioner contests that part of the deficiency resulting from respondent's action in including in the gross estate the value of personal property conveyed in trust by decedent during his lifetime and accrued income thereon.

All of the facts have been stipulated.

12 T.C. 1164">*1165 FINDINGS OF FACT.

The stipulated facts are hereby found accordingly.

First Wisconsin Trust Co., a Wisconsin corporation acting as executor of the estate of Cyrus C. Yawkey, filed a Federal estate tax return with the collector of internal1949 U.S. Tax Ct. LEXIS 145">*147 revenue for the district of Wisconsin.

Cyrus C. Yawkey, hereinafter called decedent, was born on August 29, 1862, and died on May 18, 1943. At the time of the transfers hereinafter described, decedent had a wife, Alice R. Yawkey, and a daughter, Leigh Yawkey Woodson. Their daughter and her husband, Aytch P. Woodson, were the parents of Nancy Leigh Woodson, born May 6, 1917, Alice R. Woodson, born July 28, 1918, and Margaret P. Woodson, born April 20, 1920.

On June 15, 1935, decedent and his wife together executed three separate trust indentures which named decedent, his wife and Aytch P. Woodson, as trustees, and contained identical terms except for the names of the beneficiaries. Each trust indenture named as beneficiary one of decedent's granddaughters, Nancy, Alice and Margaret.

The term of each trust was for the life of the respective beneficiary.

Pertinent provisions of the trust are as follows:

7. INCOME

Until the beneficiary reaches twenty-five years of age, the Trustees shall pay for her benefit (or directly to her in their discretion) such portion of the income as they deem for her best interest, retaining any balance1949 U.S. Tax Ct. LEXIS 145">*148 not so used as an accumulation of income.

After the beneficiary reaches twenty-five years of age, the income thereafter received shall be paid in quarterly payments so far as possible to her, after deducting or retaining such sums as are needed for expenses, fees, income taxes, other taxes for which Trustees are liable, and such other disbursements as the Trustees in their judgment deem reasonably necessary for protection of the trust assets.

Any accumulation of income then existing may be from time to time distributed to the beneficiary or added to the principal as the Trustees deem for the best interests of the beneficiary.

8. PRINCIPAL

* * * ^*

The Trustees may also transfer to the beneficiary, after she becomes thirty years of age, such portion of the principal as in their judgment they deem for the best interest of the beneficiary. This power may be successively exercised. After both Cyrus C. Yawkey and Aytch P. Woodson cease to be Trustees, this power shall not be exercised until after the appointment of a corporate Trustee, and only with the vote of the corporate Trustee in its favor.

Except as above provided, the principal1949 U.S. Tax Ct. LEXIS 145">*149 shall be maintained intact, so far as within the power of the Trustees by legal, prudent acts to do so, until the termination of the Trust.

12 T.C. 1164">*1166 9. TERMINATION AND CLOSING OF TRUST

This trust shall continue during the life of the beneficiary and then terminate except as may be required under the provisions of the following paragraphs A and B as to a descendant under twenty-five years of age. On termination the Trustees (after discharging all expenses incurred, unpaid Trustees' fees, any taxes lawfully payable by the Trustees, the beneficiary or distributees of said assets) shall then pay or transfer the assets remaining in their possession as follows:

A. If the beneficiary shall leave any descendant surviving, then to her lineal descendant or descendants, except that if any such descendant be less than twenty-five years of age, this Trust as to the share of that descendant shall continue until such descendant dies or reaches the age of twenty-five years. On reaching that age, that descendant's portion shall then be paid to him or her. If that descendant does not reach that age, the interest of that descendant shall be transferred to the persons (including the next of kin 1949 U.S. Tax Ct. LEXIS 145">*150 of the blood of any who may then be deceased) who would have received it if such descendant had predeceased the beneficiary.

B. If the beneficiary leave no lineal descendant surviving, then such remaining assets shall be divided into two equal parts and distributed thus:

(1) One part shall be distributed

(a) To the Trustees of the Trust established by these Donors, dated this day, for the benefit of her sister, Alice * * * if she survive [the beneficiary] * * * to be administered as and with the other assets of that Trust;

(b) If Alice does not survive [the beneficiary * * *] but leaves any lineal descendant surviving [the beneficiary] * * * then to Alice's next of kin of the blood, except that if any such descendant be less than twenty-five years of age, this Trust as to the share of that descendant shall continue until such descendant dies or reaches the age of twenty-five years. On reaching that age, that descendant's portion shall then be paid to him or her. If that descendant does not reach that age, the interest of that descendant shall be transferred to the persons (including the next of kin of the blood of any who may then be deceased) who would have received it if such descendant1949 U.S. Tax Ct. LEXIS 145">*151 had predeceased the beneficiary.

(c) If Alice does not leave any such descendant but her sister, Margaret P. Woodson, survives [the beneficiary] * * * then to the Trustees of the Trust established by the Donors, dated this day, for the benefit of Margaret, to be administered as and with the other assets of that Trust;

(d) If none of the foregoing provisions apply, then to the next of kin of the blood of [the benficiary] * * *.

(2) The other part shall be distributed [in similar manner to the other sister].

On May 18, 1943, the date of decedent's death, decedent and his wife were living at 403 McIndoe Street, Wausau, Wisconsin, and Aytch P. Woodson and his wife and their daughters, Alice and Margaret, were living at 410 McIndoe Street, Wausau, Wisconsin. Nancy Leigh Woodson, their other daughter, was on that date married to Lyman J. Spire, and was living with her husband in Stamford, Connecticut. She was at that time the mother of one child, Stephen, aged 9 months.

Decedent contributed 53.2 per cent of the total transfers made by him and his wife to each aforesaid trust.

12 T.C. 1164">*1167 From the date of execution of the trusts, June 15, 1935, to the date of death, May 18, 1943, the trustees1949 U.S. Tax Ct. LEXIS 145">*152 received the net income and distributed the amounts to each of the beneficiaries, and retained as accumulations the amounts all as set forth in the table following:

When Nancy Leigh Woodson became 25 years of age on May 6, 1942, the accumulated income in the Yawkey-Nancy Leigh Woodson Trust was $ 74,005.70. No part of that accumulation had been distributed to her at the time of decedent's death on May 18, 1943. The May 18, 1943, 12 T.C. 1164">*1168 basic value of $ 260,545.17, stated in the notice of deficiency, includes $ 39,371.03 of that amount (i. e., 53.2 per cent) as representing the1949 U.S. Tax Ct. LEXIS 145">*154 accumulated income on the decedent's contributions to the trust, and the $ 222,715.05 proposed to be included in gross estate in that notice includes $ 33,654.51 on that account (i. e., .854804 x $ 39,371.03). The foregoing discount factor of .854804 was used for the four-year period which had to elapse between the date of death and the day on which she would reach 30 years of age.

The $ 270,230.15 which is the value as of the date of death, May 18, 1943, of the assets proposed to be included in the gross estate on account of the Margaret P. Woodson trust, similarly includes $ 47,613.08 of accumulated and undistributed income attributable to the decedent's contributions. This amount is 53.2 per cent of $ 89,498.28, the latter amount being the total accumulation of income in the trust.

The $ 268,685.85 which is the value as of the date of death, May 18, 1943, of the assets proposed to be included in the gross estate on account of the Alice R. Woodson trust, similarly includes $ 46,172.50 of accumulated and undistributed income attributable to decedent's contributions. This amount is 53.2 per cent of $ 86,790.41, the latter amount being the total accumulation of income in the trust.

1949 U.S. Tax Ct. LEXIS 145">*155 Each of the primary beneficiaries of each of the trusts was alive on the date of death of Cyrus C. Yawkey, May 18, 1943.

The corpora of the three trusts here in question consisted originally and at the time of decedent's death solely of personal property, to wit, stocks and bonds, or other similar securities.

With respect to the trusts in question, respondent stated in his notice of deficiency:

The following transfers aggregating $ 761,631.05 have been determined as a part of decedent's gross estate and are included therein pursuant to sections 811 (c) and 811(d)(2) of the Internal Revenue Code.

* * * *

It is determined that this right [to pay principal after beneficiary reaches 30 years] amounts to a power to terminate the trust and thus brings the same within the provisions of section 811 (d) (2) of the Internal Revenue Code. However, as this power could not have been exercised by the trustees until the beneficiary had reached the age of thirty years, the amount thereof has been discounted for the period required to elapse between the date of decedent's death and the date on which she would reach thirty years of age or for a period of four years. In accordance with Reg. 105, Sec. 1949 U.S. Tax Ct. LEXIS 145">*156 81.10(i) and Table B the value of decedent's contributions of $ 260,545.17 has been discounted by the factor .854804 to $ 222,715.05 at which amount it has been included therein.

The contributions of decedent towards the Margaret P. Woodson Trust are shown at $ 270,230.15 and towards the Alice R. Woodson Trust in the amount of $ 268,685.85. As neither of these beneficiaries had reached the age of twenty-five 12 T.C. 1164">*1169 years at time of decedent's death, the entire amount of these contributions are determined a part of the gross estate as under the terms of the trusts the decedent together with the other named trustees had the power to distribute the income or accumulate it until the beneficiaries attained the age of 25 years as well as having power over the corpus. It is determined that these powers bring the trusts within the provisions of section 811(c) as well as section 811(d)(2).

OPINION.

Whether any part of decedent's inter vivos transfers is to be included in the gross estate depends, as the case is presented and as we view the issues, on the answer to three questions. 1949 U.S. Tax Ct. LEXIS 145">*157 Respondent proposed the inclusion of the value at decedent's death of three trusts established by him for the benefit of his three granddaughters on two theories: First, that decedent, being a trustee, had a power alone or in conjunction with one of the two other trustees to alter, amend, or revoke the trusts, as envisaged by section 811 (d) (2), Internal Revenue Code; ¹1949 U.S. Tax Ct. LEXIS 145">*158 and, second, that in the same manner decedent had the right to designate the persons who should enjoy the income from the property within the meaning of section 811 (c), of the code. ² Under the latter determination a smaller amount was proposed for inclusion, apparently because one of the three granddaughter beneficiaries had arrived at the age of 25 years when decedent died, and the trusts required the payment of all of the income to the respective beneficiaries upon their reaching that age.

1949 U.S. Tax Ct. LEXIS 145">*159 Petitioner insists in the first place that decedent had no power or right in the premises because there was an adequate external standard by which the conduct of the trustees was to be measured and this so 12 T.C. 1164">*1170 circumscribed their actions that neither provision applies. This is the first question, and, if the contention prevailed, it would dispose of the entire controversy. But we can not sustain it.

The only limitation on the use of the trustees' discretion was that what they decided on was to be for the "best interest" of the beneficiary. In the absence of fraud, bad faith, or a mischievously erroneous act, courts of equity will not interfere when the trustees are acting within the scope of their designated discretion. "It is quite true that where the manner of executing a trust is left to the discretion of trustees, and they are willing to act, and there is no mala fides, the court will not ordinarily control their discretion as to the way in which they excercise the power * * *. But the court will interfere wherever the exercise of discretion by the trustees is infected with fraud or misbehavior, or they decline to undertake the duty of exercising the discretion, or1949 U.S. Tax Ct. LEXIS 145">*160 generally where the discretion is mischievously and erroneously exercised * * *." Colton v. Colton, 127 U.S. 300">127 U.S. 300. We can not regard the language involved as limiting the usual scope of a trustee's discretion. It must always be anticipated that trustees will act for the best interests of a trust beneficiary, and an exhortation to act "in the interests and for the welfare" of the beneficiary does not establish an external standard. Estate of Albert E. Nettleton, 4 T.C. 987, 992; Estate of Milton J. Budlong, 7 T.C. 756, 763; modified sub nom. Industrial Trust Co. v. Commissioner (C. C. A., 1st Cir.), 165 Fed. (2d) 142. Those words would be implied if they were not expressed, and they add no further limitation than would exist in any trust for that reason. See Helvering v. Helmholz, 296 U.S. 93">296 U.S. 93. We accordingly concur in respondent's view that under Estate of Milton J. Budlong, supra, petitioner's power to designate the income beneficiary is not sufficiently restricted to limit the application1949 U.S. Tax Ct. LEXIS 145">*161 of section 811 (c) and (d).

For an additional reason, it is contended that section 811 (d) is inapplicable. This presents the second question. The clause upon which respondent relies for his conclusion that the enjoyment of the property was subject to alteration or termination through the exercise of a power by decedent is the provision permitting the trustees to transfer any part of the principal to a beneficiary after she becomes 30 years of age. At decedent's death all of the beneficiaries were under 30. The condition for the exercise of the power had accordingly not yet been fulfilled. Under authorities now too firmly established to question, a power based on such a future contingency does not suffice to bring the situation within section 811 (d). Jennings v. Smith (C. C. A., 2d Cir.), 161 Fed. (2d) 74; Estate of Milton J. Budlong, supra.And we find nothing in the language or result of the two cases recently decided by the Supreme Court to warrant a departure from the rule thus decisively settled. Commissioner v. Estate 12 T.C. 1164">*1171 , 335 U.S. 632">335 U.S. 632; Estate of Spiegel v. Commissioner, 335 U.S. 701">335 U.S. 701.1949 U.S. Tax Ct. LEXIS 145">*162 The phraseology in these opinions most heavily relied upon by respondent ³1949 U.S. Tax Ct. LEXIS 145">*163 deals exclusively with title, possession, and enjoyment. This decedent could under no circumstances and in no contingency retain or recapture any of these attributes. The most that he could ever do and the most that respondent suggests that he could do was to change the title, possession, or enjoyment of the principal from the remaindermen to the life beneficiary. That would be an aspect of the transfers rendering them taxable, if the power existed currently, not under the survivorship theory of the Hallock case, ⁴ nor as intended to take effect at death, nor by retention of an interest in the income, cf. May v. Heiner, 281 U.S. 238">281 U.S. 238, but under the express language of section 811 (d), which covers a power to alter or terminate. It thus resembles such cases as Jennings v. Smith, supra.But there is no assertion or implication of a reversionary interest in income or principal to assimilate the situation to that in the Church and Spiegel cases.

Most important, these cases dealt with section 811 (c), while the provision we are now considering is section 811 (d) (2). The difference in the statutory language seems to us, especially in the light of the decided cases, to carry decisive significance with respect to the time of the existence of decedent's retention. Section 811 (c) uses the language "for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death," whereas, section 811 (d) (2) employs the simple concept "at the date of his death." While it is true section 811 (d) (3)⁵12 T.C. 1164">*1172 lists some legislative tests by which this approach may be considered as modified, it does not reach the present situation. Decedent's power did not exist at his death under cases like Jennings v. Smith, supra, and Estate of Milton J. Budlong, supra, and its absence was not due to any such mere formality as the giving of notice or expiration1949 U.S. Tax Ct. LEXIS 145">*164 of a formal waiting period. Cf. Estate of Paul Loughridge, 11 T.C. 968, 978. The inapplicability of the Church and Spiegel cases, dealing as they did with the entirely different language of section 811 (c), thus seems to us confirmed. Inclusion under section 811 (d) must accordingly be rejected.

1949 U.S. Tax Ct. LEXIS 145">*165 The final proposition advanced by petitioner, presenting the third question, is that section 811 (c) is equally inapplicable both because decedent could not "designate" the persons who should enjoy the income, and, second, because he did not have "the right" to exercise it. The first statement is drawn from the provisions of the trust which, while permitting the trustees to withhold income from a life beneficiary under 25, require that it either be paid to her subsequently, or added to corpus. It is insisted that a complete designation of the ultimate taker is thus withheld from the trustees. The effect, however, of an addition to principal which was within the province of decedent and his cotrustees would be to shift the enjoyment from the life beneficiary to the ultimate taker of the principal, a remainderman whose identity might be indeterminate at the time but whose rights would thereby be tentatively fixed. Estate of Milton J. Budlong, supra.The "right" of decedent in the premises is questioned because decedent's two cotrustees could by their combined action frustrate any decision on his part under the majority rule established in the trust1949 U.S. Tax Ct. LEXIS 145">*166 instrument. But if decedent joined with either of the other trustees, his action became effective. In our view that is what is meant by the statutory phrase "the right either alone or in conjunction with any person." Granted that decedent did not possess the right alone, it seems to us he clearly retained it in conjunction with the cotrustees. Estate of John Moir, 47 B. T. A. 765. We conclude that respondent's determination under section 811 (c), which, as we have said, affects only a portion of the transfers, was proper and must be sustained.

A further issue is suggested, but only briefly discussed. It has to do with the valuation employed by respondent, which included accumulations of income constituting a part of the trust corpus on the date of death. If the matter is in issue, it must be decided in respondent's favor, on authority of Estate of Daniel Guggenheim, 40 B. T. A. 181; modified and affirmed (C. C. A., 2d Cir.), 117 Fed. (2d) 469; certiorari denied, 314 U.S. 621">314 U.S. 621; cf. Commissioner v. Estate of Hager (C. A., 3d Cir.), 173 Fed. (2d) 613;1949 U.S. Tax Ct. LEXIS 145">*167 see also 335 U.S. 701">Estate of Spiegel v. Commissioner, supra, where the accumulated trust income was likewise included in the 12 T.C. 1164">*1173 estate, and that inclusion was approved. If decedent's retention and possession at his death of rights to designate the enjoyment of the income from the property were, as we have held, the statutory ground for inclusion, those rights extended as effectively to the income from the accumulated income as they did to the original principal. Cf. Estate of Daniel Guggenheim, supra.In this respect the deficiency must be sustained.

Decision will be entered under Rule 50.