20 T.C. 474">*475 Respondent has determined a deficiency in estate tax in the amount of $ 511,345. The issues presented are:

(1) Whether the value of the corpus of six irrevocable trusts created by decedent in 1922 and 1924 for the benefit of his five minor children and of his wife are includible in his gross estate as transfers made in contemplation of death within section 811 (c) of the Internal Revenue Code, and if so,

(2) Whether respondent erred in failing to eliminate from the value of such trusts proceeds of certain insurance policies on decedent's life which were included therein and which were taken out by him prior to the effective date of the Revenue Act of 1918.

(3) Whether respondent erred in failing to eliminate from the corpus of each trust such proportion of the proceeds of the insurance policies1953 U.S. Tax Ct. LEXIS 137">*140 on decedent's life as the amount of premiums paid through January 10, 1941, out of the income of the trusts bore to the total amount of premiums paid for the life insurance.

(4) Whether respondent erred in including in the taxable value of the corpus of the wife's trust, under section 811 (c) of the Internal Revenue Code, the value of the widow's life interest.

(5) Whether debts alleged to be owed by decedent to certain of his children and totaling $ 3,469.40 are deductible from the gross estate.

Other issues presented by the pleadings have been settled by stipulation or abandoned on brief. All stipulated facts are so found and included herein by reference. All such facts necessary to an understanding of the issues are set out hereinafter in our Findings of Fact.

FINDINGS OF FACT.

The petitioners are the duly qualified executors of the estate of Frank W. Thacher, who died testate on September 2, 1943, a resident of New Jersey. Decedent was born June 24, 1877, and his wife, Catharine L. Thacher, was born February 28, 1885. They remained married and were living together at the time of decedent's death.

The estate tax return in question was filed with the collector of internal revenue1953 U.S. Tax Ct. LEXIS 137">*141 for the first district of New Jersey, the property included in the gross estate being valued as of the date of decedent's death.

On May 10, 1922, the decedent created five trusts by five separate deeds designating in each instance the Provident Trust Company of Philadelphia as trustee. Four of these trusts were for the benefit of decedent's four minor children. The fifth trust was for the benefit of decedent's wife, Catharine L. Thacher.

20 T.C. 474">*476 Subsequent to May 10, 1922, another child was born, and on January 8, 1924, the decedent created a trust for that child similar to the four trusts created in 1922 for his other children.

The corpus of each trust consisted of $ 100,000 in insurance upon the life of the decedent which he had taken out in prior years and approximately $ 95,000 in railway, utility, and industrial bonds or other securities. Each trust was by its terms made irrevocable, and the trustee was granted specifically the right to sell and dispose of all or any part of the investments, securities, real estate, and property which may from time to time or at any time comprise the capital or principal of said trust. The decedent retained no right to participate in the1953 U.S. Tax Ct. LEXIS 137">*142 management of any one of the trusts or to direct the trustee in the exercise of the powers conferred upon it. Under the terms of each trust the trustee was directed to apply the income from the securities to the extent needed to pay premiums on policies of insurance held as part of the corpus, the balance of the income not so needed to be applied, if necessary, in the case of the trusts for the benefit of the children, for the support, maintenance, and education of the beneficiary, any excess not so used to be accumulated and paid over to the respective beneficiary when he or she reached 21 years of age; thereafter such income was to be paid to the beneficiary for life. At the death of the beneficiary in the case of each of the children's trusts, the corpus of the trust was to be paid to the issue of such beneficiary per stirpes, and if no issue the beneficiary was given the right to dispose of such corpus under a general power of appointment. In case such power was not exercised, the corpus of the trust in each instance was to be paid over to the beneficiaries of the four other children's trusts. In none of these five trusts for his children did petitioner retain a reversionary1953 U.S. Tax Ct. LEXIS 137">*143 interest and no incident of ownership in the policies of insurance included in each trust was retained by the decedent.

With respect to the trust for the benefit of decedent's wife, the provisions were the same with respect to the application of so much as was needed of the income of the securities to pay premiums upon insurance held as part of the corpus, and the powers granted the trustee were similar to those granted in respect of the trusts for the children. However, in this trust instrument the decedent retained a specific reversion by a provision that in case of divorce or legal separation or in case his wife predeceased him, the corpus of the trust was to be paid over to him by the trustee. This trust further provided that in case his wife survived him and remarried, the trust would terminate and the corpus be paid over to the trusts created in 1922 for his then four children.

The decedent, on May 10, 1922, and January 8, 1924, when the trusts were created, was 44 and 46 years of age, respectively, in excellent 20 T.C. 474">*477 health, and actively engaged in business. He was a golf and tennis player and fond of sailing. He was prosperous and at the height of his productive activity. 1953 U.S. Tax Ct. LEXIS 137">*144 After creation of the trusts decedent still had substantial assets and a large yearly income.

At that time the principal source of decedent's income was the Florence Thread Company, a family enterprise which had been organized by his father and which he directed. Practically since its organization and during the period when it was operated by the decedent, this company had pursued a policy of speculation on the cotton market, buying cotton largely in excess of the amount necessary for its own manufacturing operations and with the sole purpose of selling such cotton at a profit. Over the course of years the profits realized by this company from its speculations in cotton exceeded its profits from manufacturing operations. It had, however, at times, large losses in such speculations.

In addition to the speculations carried on by the decedent in the business of the Florence Thead Company he was accustomed to speculate on his own account, in which activities he at times made large profits and at others sustained substantial losses.

Shortly prior to the creation of the five original trusts the decedent approached a friend in the investment business with the request that he procure 1953 U.S. Tax Ct. LEXIS 137">*145 corporate and industrial bonds which would give an average 6 per cent return on investment. He stated that he wished these securities in connection with the creation of a trust for his wife and children as he had made a large amount of money and desired while he had it to place it beyond his reach or the hazard of his speculations and thus guarantee to the members of his family support and maintenance irrespective of what his personal fortunes might be.

In making the foregoing six transfers in trust for the benefit of his wife and children, decedent's dominating motives were connected with life, and such transfers were not made in contemplation of death.

Among the decedent's papers at the time of his death were certain records indicating that some years prior to his death, when his children were minors, he had established certain savings accounts in their names and that the institution holding these accounts had liquidated, the payments on such accounts in liquidation having been made directly to decedent. There were also records indicating the purchase of two $ 1,000 shares in a building and loan company in the name of two of his children, such shares having matured and been paid1953 U.S. Tax Ct. LEXIS 137">*146 directly to the decedent. These payments were indicated to have been made some 8 or 10 years prior to decedent's death. In the settlement of the decedent's estate the petitioners, as executors, have allowed these items as debts due by the decedent and have paid them to the respective children, together with interest for some 8 years, in a total amount of $ 3,469.40.

20 T.C. 474">*478 OPINION.

Respondent has included in the gross estate of the decedent the value of the corpora of all of the trusts here involved, including that for the benefit of the widow. This has been done upon the theory that all of the transfers were made in contemplation of death within the purview of section 811 (c), Internal Revenue Code. ¹

1953 U.S. Tax Ct. LEXIS 137">*147 The statute seeks to reach substitutes for testamentary dispositions and thus to prevent the evasion of an estate tax. United States v. Wells, 283 U.S. 102">283 U.S. 102. The question presented is factual. As the transfers may otherwise have all the indicia of valid gifts inter vivos, the 20 T.C. 474">*479 differentiating factor must be found in the transferor's motive. As the Court said in 283 U.S. 102">United States v. Wells, supra:

If it is the thought of death, as a controlling motive prompting the disposition of property, that affords the test, it follows that the statute does not embrace gifts inter vivos which spring from a different motive. * * * The purposes which may be served by gifts are of great variety. It is common knowledge that a frequent inducement is not only the desire to be relieved of responsibilities, but to have children, or others who may be the appropriate objects of the donor's bounty, independently established with competencies of their own, without being compelled to await the death of the donor and without particular consideration of that event. There may be the desire to recognize special needs or exigencies or1953 U.S. Tax Ct. LEXIS 137">*148 to discharge moral obligations. The gratification of such desires may be a more compelling motive than any thought of death.

The question goes to the state of mind of the donor and, in particular, to the controlling motives prompting the disposition. Our finding upon the record that none of the conveyances in trust was made in contemplation of death decides this issue. We have considered carefully the evidence as to the facts and conditions surrounding the transfers and have no doubt as to the correctness of our conclusion. The decedent was a man 44 years of age, in perfect health, and at the peak of his earning capacity. He was a man of great physical energy, taking part in active outdoor sports. The record shows that decedent was accustomed to indulge in speculative investments in which he at times had made large amounts and at others suffered substantial losses. At the time the trusts were created for his wife and four minor children these children were young; in fact another child was born later for whom a similar trust was then created.

At the time the trusts were created petitioner had made a great deal of money and in preparing for the transfers stated that he wished1953 U.S. Tax Ct. LEXIS 137">*149 the trusts so conditioned that they would place the transferred securities wholly beyond his control. It is quite evident to us that decedent's dominant motive in making the trusts was to safeguard his wife and children from the contingencies that might arise from unfortunate speculation by him in the future. He would thus free himself from anxiety as to the support, maintenance, and education of his children and the support of his wife and be free to engage in other business transactions he might be inclined to, even though they involved a chance of substantial loss. These motives were connected with life and not death, as the transfers were patently intended principally to meet conditions anticipated to arise during his long life expectancy.

We have taken into consideration the fact that a large part of each trust consisted of insurance upon the decedent's life, and that the nature of life insurance is to an extent testamentary. Anyone making a transfer of property of this character must necessarily have some thought of death in mind. Estate of Paul Garrett, 8 T.C. 492, affirmed 20 T.C. 474">*480 in part 180 F.2d 955. But 1953 U.S. Tax Ct. LEXIS 137">*150 this consideration appears to us to be far outweighed by his motive to secure safety for his family during his life and to remove the properties transferred from danger of appropriation by him for purposes of speculation and from claims by possible creditors arising as a result of such speculations. See Estate of Wilbur B. Ruthrauff, 9 T.C. 418, and authorities discussed therein; Estate of Verne C. Hunt, 14 T.C. 1182. Cf. Estate of George F. Hurd, 9 T.C. 681. In fact the character of the transfers as representing in large part insurance policies on decedent's life loses much of its significance in the light of proof made that the decedent had for years carried a large amount of life insurance and considered it one of the best investments that could be made. It is also noted that under each of the trust instruments the trustee was given power within his discretion to take at any time the proceeds of the insurance and reinvest them in some other type of security.

Respondent relies largely upon Estate of Paul Garrett, supra. There the decedent at the time of1953 U.S. Tax Ct. LEXIS 137">*151 the transfer was a man much older than the decedent here, and the facts in that case did not establish definite motives connected with life as predominating over the motive adduced from the character of the property placed in trust. In that case, in affirming our decision, Judge Learned Hand, speaking for a majority of the court, said:

A conveyance of property which the grantee can by no chance use until the grantor's death, will so commonly be in the main testamentary, that it is fair to infer that that was its preponderating, if not indeed its only, purpose, unless there be affirmative evidence of other contributory motives. * * * [Emphasis supplied.]

Here there was the chance that prior to the grantor's death the insurance might, by action of the trustee, disappear entirely from the corpora of the several trusts. However, the main and deciding factor here is that dominating motives connected with life and not death have been in our opinion affirmatively established.

Our decision that these conveyances in trust were not made in contemplation of death disposes of the issues in respect of the five trusts for the benefit of decedent's minor children, as the decedent retained1953 U.S. Tax Ct. LEXIS 137">*152 no interest in the transferred property and under the conveyances the beneficiaries' enjoyment thereof was in no way conditioned upon their surviving the decedent. The petitioners do not oppose the inclusion in gross estate, under section 811 (g), Internal Revenue Code, ²20 T.C. 474">*481 of the value of that portion of the insurance proceeds attributable to premiums paid by trust income subsequent to January 10, 1941. Such inclusion appears to have been made by the petitioners in the estate tax return filed.

1953 U.S. Tax Ct. LEXIS 137">*153 Our conclusion that the conveyances in trust were not made in contemplation of death disposes of issues two and three which were raised only in the event that it was held that the conveyances were made in contemplation of death.

This brings us to consideration of the trust created for decedent's wife. Our conclusion that the six transfers made by decedent in 1922 and 1924, including the one for the benefit of decedent's wife, were not made in contemplation of death disposes of the contention that the value of the trust created for decedent's wife is includible in decedent's estate, upon that ground. Petitioners concede that section 811 (g) applies to the amount receivable under the wife's trust as insurance at the time of decedent's death, and also that section 811 (c) (1) (C) applies to the remainder interest after the wife's estate. There remains for consideration the issue whether the respondent erred in including in the taxable value of the corpus of the wife's trust, under section 811 (c) of the Internal Revenue Code, the value of the wife's life interest.

With respect to this trust, it is noted that, in the trust instrument, the decedent retained a specific reversion by the1953 U.S. Tax Ct. LEXIS 137">*154 provision that in case of divorce or legal separation or in case his wife predeceased him, the corpus of the trust was to be paid over to him by the trustee. The contingency based upon the wife's prior death has not been discussed 20 T.C. 474">*482 by either of the parties and is not material since the reversion retained conditioned upon death of the wife was not a reversion with respect to the life estate of the wife but only with respect to the remainder interest after the wife's life estate. Insofar as this contingency is concerned, the wife's possession and enjoyment of her life interest did not depend upon her surviving the decedent and therefore was not an interest "intended to take effect in possession or enjoyment at or after his death," within the meaning of section 811 (c) (1) (C). See sec. 811 (c) (2)³1953 U.S. Tax Ct. LEXIS 137">*155 and Regs. 105, sec. 81.17. ⁴

With respect to the reversionary interest based upon "divorce or legal separation" petitioners argue that the value of the life estate of the wife may not be included in the gross estate under section 811 (c) inasmuch as the wife's possession and enjoyment of her life estate commenced as soon as the trust was created and did not take effect at or after decedent's death. They further argue that even though intended to1953 U.S. Tax Ct. LEXIS 137">*156 take effect in possession or enjoyment at or after decedent's death the wife's life interest, under section 811 (c) (2), may not be included because the value of the decedent's reversionary interest dependent upon divorce or legal separation cannot be determined and must therefore be deemed as having the value of zero and that, in the absence of the reversionary interest having a value in excess of 5 per centum of the corpus of the trust, the wife's life estate is not includible in the decedent's estate.

With respect to the latter contention the record contains no evidence that the reversionary interest based upon the contingency of divorce or legal separation cannot be valued. While this issue was not expressly raised in the pleadings it is believed to be covered by the respondent's notice of deficiency and the explanation of adjustments accompanying the same with respect to the taxable value of the corpus of the trust created for decedent's wife. It is also to be noted that in his opening statement at the time of the hearing herein, respondent called attention to the fact that "in the trust of the wife she was given the income from the corpus, * * * but in the event of a divorce1953 U.S. Tax Ct. LEXIS 137">*157 or legal separation between her and decedent, she lost her right to that income and the entire corpus went over to the decedent," and stated that "the question also arises as to what effect is to be given in this 20 T.C. 474">*483 case to the reversion which the decedent had, in the event that a divorce or legal separation took place." The burden was upon the petitioner to produce evidence that the value of such reversionary interest, immediately before the death of the decedent, could not be determined or that its value was not in excess of 5 per centum of the value of the corpus of the trust. The Court must assume, therefore, that the value did exceed the necessary 5 per centum. Estate of Francis Louis Slade, 15 T.C. 752, reversed upon another point, 190 F.2d 689. Accordingly, the value of the wife's life interest is not excludible by reason of the provisions of section 811 (c) (2).

It becomes necessary, therefore, to consider whether, in view of the reversionary interest retained by decedent based upon divorce or legal separation, in connection with the trust created for his wife, decedent made a transfer of an interest in property1953 U.S. Tax Ct. LEXIS 137">*158 "intended to take effect in possession or enjoyment at or after his death," within the meaning of section 811 (c) (1) (C).

Petitioners argue that the wife's possession and enjoyment of her life estate commenced as soon as the trust was created, that it was at all times completely beyond the control and dominion of the decedent who retained no power to terminate it by any act of his own, and that it rested entirely within the control of his wife as to whether or not there would ever be a divorce or legal separation. On the other hand respondent contends that the decedent's transfer in trust for the benefit of his wife did not create a life estate which may be excluded from the gross estate since the life estate was intended to take effect at decedent's death, that the wife's right to income during decedent's life was contingent upon the absence of a legal separation or divorce and only at the husband's death was the possibility of separation or divorce eliminated.

It cannot be questioned that the wife became entitled to income from the trust estate immediately upon the transfer in question and that this was a positive, substantial, and present beneficial interest which could have1953 U.S. Tax Ct. LEXIS 137">*159 been enforced against the trustee and could not have been cut off or diminished by action of the decedent. It likewise cannot be questioned, however, that by express terms of the trust instrument the decedent retained the right to have the entire corpus of the trust estate returned to him in the event they were divorced or legally separated. This was a condition which affected the life estate of the wife and might terminate it at any time while the parties were alive. Only upon the death of the decedent was this possible termination of the wife's life estate removed. Only then did the wife's interest in the income of the trust estate ripen into an absolute, unconditional life estate, subject only to termination in event of remarriage.

In the absence of any showing that the value of the retained reversion was not in excess of 5 per centum of that of the corpus of the trust 20 T.C. 474">*484 estate, in which event the Technical Changes Act would apply, the question whether the wife's life estate was intended to take effect in possession or enjoyment at or after decedent's death, is controlled by the Supreme Court's decision in Helvering v. Hallock, 309 U.S. 106">309 U.S. 106,1953 U.S. Tax Ct. LEXIS 137">*160 which held that any expressly reserved possibility of reverter would render the entire value of the transfer taxable. As stated in the Conference Report accompanying the Technical Changes Act, ⁵ "The existing rule that a transfer of a property interest is not intended to take effect in possession or enjoyment at or after the decedent's death unless the beneficiaries must survive the decedent to obtain possession or enjoyment is not disturbed."

Here, although the wife acquired an interest in the income from the trust estate, immediately upon its transfer, this interest was subject to being cut off in the event she and decedent were divorced or legally separated. She only acquired a life estate, absolute and unconditional, except in event of remarriage, upon her survival of decedent. We therefore hold that the wife's life estate was a transfer "intended to take effect in possession or enjoyment at or after the decedent's death," within1953 U.S. Tax Ct. LEXIS 137">*161 the meaning of section 811 (c) (1) (C), and that the value of such life estate is includible in the gross estate of the decedent. Cf. Commissioner v. Estate of C. D. Marshall, (C. A. 3) 203 F.2d 534, affirming 16 T.C. 918.

Estate of Merritt J. Corbett, 12 T.C. 163, though decided prior to the Technical Changes Act, supports this conclusion. DuCharme's Estate v. Commissioner, 164 F.2d 959, 169 F.2d 76, affirming in part and reversing in part 7 T.C. 705, which petitioners assert is contrary to this Court's decision in the Corbett case, turned primarily upon the application of sections 811 (d) (2) and 811 (f) of the Internal Revenue Code, and neither this Court nor the Circuit Court of Appeals discussed the applicability of section 811 (c).

Having determined that the wife's life estate is not to be excluded from the gross estate of the decedent, it becomes unnecessary to determine the value of such estate subject to termination upon remarriage of the widow. It may be observed, however, that such an estate1953 U.S. Tax Ct. LEXIS 137">*162 is possible of evaluation, Estate of Pompeo M. Maresi, 6 T.C. 582, affirmed 156 F.2d 929, DuCharme's Estate v. Commissioner, supra, and that the record contains facts from which such value could be ascertained.

The last issue is upon the allowance as deduction from the gross estate of $ 3,469.40 as a claim against the estate of certain amounts alleged to have been due and owing from the decedent to his children at the time of his death. The facts in connection with these items are set out in our Findings of Fact. The transactions under which 20 T.C. 474">*485 these so-called claims arose were ones long prior to decedent's death. What the circumstances were at the time these deposits were made by petitioner in the names of his minor children are not shown. The facts are insufficient for us to determine these items as representing legal claims against decedent's estate. The allowance of the claims by the executor does not appear to have been contested and is not binding in the determination of petitioners' tax liability. First Mechanics Bank of Trenton, Executor v. Commissioner, 117 F.2d 127,1953 U.S. Tax Ct. LEXIS 137">*163 affirming 40 B. T. A. 876; Falk v. Commissioner, 189 F.2d 806, affirming 15 T.C. 49. There is nothing to show that decedent, in the intervening years between the time when these funds were paid over to him and commingled with his personal funds, did not disburse them in some way for the benefit of the children. At the time of the hearing of this proceeding the children were grown but none of them was called as a witness with respect to these alleged items of indebtedness. Respondent is sustained in his disallowance of this item.

Certain issues raised by the pleadings have been abandoned and others involving valuations of properties included in the estate and in the several trusts have been stipulated. These stipulations appear to be of all facts necessary to a computation of the gross and net estate under the foregoing opinion.

Decision will be entered under Rule 50.