and strained. To maintain continuity of management and control of Boar's Head and its sister corporations required the Bischoff and Brunckhorst families to retain at least a majority of the stock in the various corporations. Since that stock was held by F. B. Associates, it was necessary to provide for a buy-sell arrangement at the partnership level in order to maintain such ownership within the two families. We therefore conclude that the fact that F. B. Associates was merely a holding company is irrelevant. Moreover, the interposition of the partnership between the two families and the operating companies should not distract our focus from the primary question of whether the buysell arrangement was grounded on a bona fide business purpose. Having found such a purpose for both the F. B. Associates and Frank Brunckhorst Co. partnership buy-sell provisions and since the partnership provisions provided for enforceable lifetime and after-death transfer restrictions, we conclude that the value of decedents' interests in F. B. Associates and Frank Brunckhorst Co. is the amount provided for and paid under the buy-sell provisions of the partnership agreement.

Respondent also argues that "If events ran their normal course, the four parent-partners would die leaving their interests in F. B. Associates to the four partner-children." Respondent therefore concludes that the buy-sell provisions were merely a substitute for a testamentary disposition. Such a contention has been rejected by this Court and other courts, and we find no merit in it since the provisions were equally applicable to all the partners in F. B. Associates. See Brodrick v. Gore, 224 F.2d 892, 896 (10th Cir. 1955); Estate of Littick v. Commissioner, supra at 188.9

Further, in 1963 when the F. B. Associates partnership agreement was amended to provide for an absolute prohibition upon inter vivos transfers of partnership interests and a mandatory buy-out of a partner's interests upon death, the

*In situations involving a unilateral agreement to sell stock in a closely held corporation, we have looked to the adequacy of the consideration at the time the agreement is entered into, rather than at the date, for valuing the property to be included in the decedent's gross estate in determining whether the agreement operates as a substitute for a testamentary disposition for less than adequate consideration. Bensel v. Commissioner, 36 B.T.A. 246, 253 (1937). Appyling the same rationale to the facts herein we conclude that the consideration provided for in the F. B. Associates buy-sell provisions was adequate since the formula price to be paid for a partnership interest in F. B. Associates represented the fair market value of the assets of that partnership on the date those assets were transferred to the partnership, with adjustments reflecting subsequent partnership income and withdrawals.

partnership was owned equally by the Bischoff and Brunckhorst families. Subsequently, following the death of Bruno in 1967, the partnership interest held by the Bischoff family was reduced from one-half to three-sevenths. Thereafter, following the death of Bertha in 1969, the partnership interest held by the Bischoff family was again reduced to one-third. At the time of the trial herein, the interest of the Bischoff family had been reduced to one-fourth. In light of these facts, we find no basis for respondent's assertion that the F. B. Associates restrictive buysell provisions were merely a substitute for a testamentary disposition to the natural objects of each decedent's bounty.

The second issue for decision is whether the trust corpora of certain trusts created by Bertha and Bruno for the benefit of their grandchildren are includable in their gross estates under either section 2036(a)(2)11 or section 2038(a)(1).12

On December 31, 1957, Bruno created four trusts for the benefit of his and Bertha's grandchildren. He funded each trust with a 0.75-percent limited partnership interest in Frank Brunckhorst Co. and appointed Bertha trustee of each of the trusts. On January 1, 1958, Bertha created four identical trusts for the same beneficiaries and appointed Bruno trustee of these four trusts. In their respective roles as trustee, Bruno and Bertha

10

"Although Bertha Bischoff and Frank Brunckhorst were sister and brother, respondent does not contend that the Bischoff and Brunckhorst families were the natural objects of each other's bounty. Moreover, there is no evidence which would support such a contention.

Respondent also asserts that the partnership agreement could have been amended to circumvent the restrictive buy-sell provisions and that we should therefore ignore that provision. However, the facts have shown that the provisions were adhered to following the deaths of Bruno and Bertha Bischoff and Frank Brunckhorst and, more importantly, following the death of decedents' son, Herbert. "Sec. 2036(a)(2) provides:

(a) GENERAL RULE.-The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained 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—

(2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom.

12Sect. 2038(a)(1) provides:

(a) IN GENERAL.-The value of the gross estate shall include the value of all property

(1) TRANSFERS After June 22, 1936. To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished in contemplation of decedent's death.

had the power to accumulate trust income or to distribute trust income or corpus in their sole discretion for the benefit of the trust beneficiaries.

13

Sections 2036(a)(2) and 2038(a)(1) reach the value of property transferred by a decedent in which he died possessing the power to affect the enjoyment of its income. It is undisputed that the powers held by Bruno and Bertha are within both sections. Thus, the sole question we must decide is whether each decedent should be treated as the "transferor" of the respective properties covered by their powers so as to require inclusion of such property in their respective gross estates.

At the outset, we note that it is clear Bruno and Bertha each nominally were not the transferors of the corpora which they trusteed. Bruno's powers extended over the property placed into trust by Bertha, and vice versa.

Respondent seeks to "uncross" these trusts, thereby making each decedent, in reality, the settlor of the trusts which, in form, were created by the other. In support of his position, he, in essence, argues the reciprocal trust doctrine as enunciated in United States v. Estate of Grace, 395 U.S. 316 (1969), and Lehman v. Commissioner, 109 F.2d 99 (2d Cir. 1940), cert. denied 310 U.S. 637 (1940).

Petitioners, on the other hand, contend that the reciprocal trust doctrine as espoused by the Supreme Court in Grace requires, as a condition precedent to its application, a finding that a decedent died possessing an economic interest in the property he allegedly transferred. In the present case, petitioners maintain the powers held by each decedent could not be used for their economic benefit and that fact operates as a bar to invocation of the doctrine.

Despite the excellence of petitioners' brief, we are not persuaded that the Supreme Court in Grace intended to delimit the doctrine's role to situations where a decedent at his death possessed an economic interest in the property transferred.

The reciprocal trust doctrine, which dates back to 1940, was formulated to deal with estate tax abuse situations where grantors created trusts that, in form, accomplished completed transfers of their property, but under which they exchanged

13 Sec. 2036(a)(2), in addition, requires that the decedent have "retained” the power.

crossed gifts which might consist of a life income interest and a power to invade corpus, to change the beneficiaries, or to change the amount each would receive.14 In reality, therefore, each grantor had the same lifetime enjoyment of his property, albeit the property was in the other grantor's trust, that he would have enjoyed had he simply reserved the same entitlements in his own trust. The doctrine was developed to deal with this situation by "uncrossing" the trusts and treating each grantor as if he had created his own trust. As a result, a decedent was treated as the "transferor" of the property, which the other party had in form transferred, causing the trust corpus to be taxed in his estate at his death. The doctrine was first expounded in Lehman v. Commissioner, supra. In Lehman the Court uncrossed trusts created by two brothers for each other's benefit on the theory that they had been made in consideration of each other. Each brother had given the other a general power to withdraw corpus with respect to the trust created for his benefit. Once the trusts were uncrossed, the decedent was found to be the transferor of the corpus of his trust and, under the predecessor of section 2038, the amount of corpus subject to his power of withdrawal was included in his estate. Thereafter, in the majority of cases where the doctrine was litigated, the issue was whether the creation of one trust had been induced by, and represented a quid pro quo for, the creation of the other.15 Resolution of this issue produced two divergent points of view as to what set of circumstances was necessary to a finding of a quid pro quo. Both lines of cases made a factual determination as to whether the decedent had "paid for and brought about" the transfer. One line of cases decided the question by making a subjective inquiry into the decedent's motives for the transfer. See McLain v. Jarecki, 232 F.2d 211 (7th Cir. 1956); Newberry's Estate v. Commissioner, 201 F.2d 874 (3d Cir. 1953); Tobin v. Commissioner, 183 F.2d 919 (5th Cir. 1950), cert. denied 340 U.S. 904 (1950). The other line of cases resolved the issue of reciprocity basically by looking at the objective evidence. See Hanauer's Estate v. Commissioner, 149 F.2d 857 (2d Cir. 1945), cert. denied 326 U.S. 770 (1945); Cole's

14See S. Rept. 831, 81st Cong., 1st Sess. (1949), 1949-2 C.B. 289, 292.

15 See, for example, Moreno's Estate v. Commissioner, 260 F.2d 389 (8th Cir. 1958); McLain v. Jarecki, 232 F.2d 211 (7th Cir. 1956); Newberry's Estate v. Commissioner, 201 F.2d 874 (3d Cir. 1953); Orvis v. Higgins, 180 F.2d 537 (2d Cir. 1950); In re Lueders' Estate, 164 F.2d 128 (3d Cir. 1947); Hanauer's Estate v. Commissioner, 149 F.2d 857 (2d Cir. 1945); Cole's Estate v. Commissioner, 140 F.2d 636 (8th Cir. 1944); Estate of Lindsay v. Commissioner, 2 T.C. 174 (1943).

Estate v. Commissioner, 140 F.2d 636 (8th Cir. 1944). It is this backdrop of cases that set the stage for the Supreme Court's decision in United States v. Estate of Grace, supra.

In Grace the issue was whether the test of reciprocity between two trusts should be subjective, requiring proof of an actual bargaining between the grantors to show that the trusts were created "in consideration of" each other, or whether there should be an objective test of reciprocity not requiring such proof. The Court of Claims, with two judges dissenting, was unable to find the requisite consideration under either test, even though the two trusts involved were substantially identical in terms and created as part of a single transaction at approximately the same time.

The Supreme Court reversed and determined that in the area of intrafamily transfers, the traditional concept of "consideration" as a bargained-for exchange was unrealistic. As a basis for developing a different test of reciprocity, it found the subjective intent of the decedent difficult, if not impossible, to determine. Thus, it concluded:

For these reasons, we hold that application of the reciprocal trust doctrine is not dependent upon a finding that each trust was created as a quid pro quo for the other. Such a “consideration" requirement necessarily involves a difficult inquiry into the subjective intent of the settlors. Nor do we think it necessary to prove the existence of a tax-avoidance motive. As we have said above, standards of this sort, which rely on subjective factors, are rarely workable under the federal estate tax laws. Rather, we hold that application of the reciprocal trust doctrine requires only that the trusts be interrelated, and that the arrangement, to the extent of mutual value, leave the settlors in approximately the same economic position as they would have been in had they created trusts naming themselves as life beneficiaries. [United States v. Estate of Grace, 395 U.S. at 324. Fn. ref. ommitted.]

Petitioners contend that the Court in its usage of the words "leaves the settlors in approximately the same economic position as they would have been in had they created trusts naming themselves as life beneficiaries" meant to limit the application of the doctrine to situations where there exists the crossing of substantial economic interests and not where there are merely crossed powers. In support of their theory, petitioners make much of the fact that every one of the cases where the reciprocal arrangements were challenged involved the crossing between grantors of very substantial economic interest.

We simply cannot agree. First of all, petitioners' theory