Summary
In Griffith v. United States, 32 F. Supp. 884, 91 Ct.Cl. 240, the court found that the record disclosed that the paramount considerations in decedent's mind were the particular concern which he felt for his invalid daughter and the assurance of an adequate income for himself in later years, and that these were "the dominant motives which impelled the decedent to act, and any other considerations that might have occurred to him were purely incidental."
Summary of this case from Hoover v. United States, (1960)Opinion
Special Findings of Fact
1. Horace S. Griffith (hereinafter sometimes referred to as the "decedent"), a resident of Delaware County, Pa., died August 10, 1934, at the age of 79. The decedent left a will dated May 28, 1931, under which he appointed plaintiffs as executors.
2. June 25, 1935, plaintiffs filed an estate-tax return disclosing a gross estate of $58,623.12, a net estate of $4,497.32, and an estate-tax liability of $44.97, which was paid on the same day.
3. March 24, 1936, the Commissioner of Internal Revenue mailed to plaintiffs a notice of a proposed deficiency assessment of estate tax in the amount of $14,024.44 arising by reason of the inclusion in the decedent's gross estate of certain transfers made by him in his lifetime. As a basis of such inclusion the Commissioner stated that the transfers under four truss hereinafter referred to had been "made to take effect in possession and enjoyment at or after death" and were accordingly includable in the decedent's gross estate. On April 24, 1936, the Commissioner advised plaintiffs that the foregoing determination had become final, subject to an allowance of credit for state estate, inheritance, legacy, or succession taxes, and that payment of that deficiency should be made upon receipt of notice and demand from the collector.
4. July 2, 1936, the plaintiffs paid the sum of $12,330.56 on account of the deficiency referred to in the previous finding plus interest in the amount of $570.03. The balance of the assessment was eliminated by credit for state inheritance taxes paid.
Of the deficiency so paid $11,818.31 resulted from the inclusion by the Commissioner in the decedent's gross estate of the value at decedent's death of two trusts which had been established by the decedent by indentures dated April 20, 1928, and of the value of two trusts which had been established by indentures dated June 20, 1929. In other words, the exclusion of the value of those four trusts from decedent's gross estate would now result in an over assessment of estate taxes in the amount of $11,818.31. The exclusion from the gross estate of the decedent of the value at the date of his death of the two trusts established by the trust indentures dated April 20, 1928, would result in an over assessment of estate tax in the amount of $3,364.28.
5. April 7, 1938, plaintiffs filed a claim for refund of estate tax amounting to $11,764.95 with interest from date of payment. June 21, 1938, the Commissioner rejected the claim for refund in its entirety on the ground that the transfers under the four trusts which were included in the gross estate and which gave rise to the greater part of the additional assessment referred to above "were properly included in the decedent's gross estate as a testamentary disposition of property and therefore made in contemplation of death, and taxable under the provisions of section 302(c) of the Revenue Act of 1926 as amended, 26 U.S.C.A.Int.Rev.Acts, page 227."
6. Two of the four trusts involved in the Commissioner's determination and also in plaintiffs' claim for refund were established by the decedent April 20, 1928, and the other two June 20, 1929. Except for a small difference in amount and in the securities transferred, the two trusts set up April 20, 1928, differed from each other only in that in one trust The First National Bank of Media, Pa., was named as one of the two trustees, whereas in the other trust, in place of that trustee, The Media Title and Trust Company of Media, Pa., was named. The other two trusts differed from each other in a similar manner. Arthur B. Griffith, one of the decedent's sons, was the other trustee named in each of the four trusts.
The reason for establishing two of the trusts with one bank as a trustee and two with another bank as a trustee was because of prudence on the part of the decedent, with the thought that in the event of the failure of one bank there might still remain the property in the other trusts at the other bank.
7. The trust instruments established April 20, 1928, after setting out the securities which were transferred by the decedent to the trustees, stated that the securities were
" * * * to be held by them in trust and the net annual income thereof to be paid over unto my wife, Mary F. Griffith, for and during the term of her natural life. After her decease, if I should survive her, then to pay the net annual income thereof over unto me, the said Horace S. Griffith, for and during the term of my natural life. At my death, if my wife should have been deceased before me, then to pay the net annual income thereof toward the support and maintenance of my daughter, Mary F. Griffith, Jr., for and during the term of her natural life, without any power of anticipation or control on her part and the said income shall not e subject to any attachment or suit or engagement of any kind during her lifetime. If, in the discretion of my Trustees, it should be necessary to expend for the use and benefit of my said daughter, Mary F. Griffith, Jr., sums beyond the amount of this income, then I do authorize and empower them, in their discretion, to expend from the principal thereof sum or sums not exceeding Five Hundred Dollars in any one calendar year. I do further authorize and empower Arthur B. Griffith, one of my said Trustees, who is associated with The First National Bank of Media, Pennsylvania, as cotrustee, to nominate for himself a successor in office as such, by his last will and testament and if, at any time, he, the said Arthur B. Griffith, should not be satisfied with the management and control of my estate, himself being associated with The First National Bank of Media, Pennsylvania, he shall have the power to nominate and designate a successor to the said The First National Bank of Media, Pennsylvania, in the form of some other company incorporated for that purpose by the laws of the State of Pennsylvania. "If, at the death of my said daughter, Mary F. Griffith, Jr., she should leave surviving her lawful child, children and grandchildren, then my said Trustee shall reduce the said trust fund, or any remaining portion thereof, to cash and pay to the said child, children or grandchildren of my said daughter, Mary F. Griffith, Jr., 33 1/2% of the said fund and the other 66 2/3% to be paid over to such persons living at that time who would have been my heirs at law as of that date. If the said Mary F. Griffith, Jr., should die without leaving to survive her lawful child, children and grandchildren, then my said Trustee shall reduce the said trust fund, or any remaining portion thereof, to cash and pay the same over to such persons living at that time who would have been my heirs at law as of that date."
8. The situation which gave rise to the creation of the two trusts mentioned in the preceding finding was that at that time the decedent had an invalid daughter, then forty-five years of age, who was suffering from an incurable cancer, and the decedent was desirous that provision be made for her support and maintenance. Through the trusts an independent income was provided for the decedent's wife during the wife's lifetime and, in the event the wife predeceased the decedent, the income from the trusts would be payable to the decedent for his life. In the event both the decedent and his wife should predecease the daughter, the income was to be paid toward the support and maintenance of the daughter during the term of her natural life. As shown from the instrument set out above, provision was also made for other contingencies, including the distribution of the corpus of the trusts after the death of the decedent and his wife and daughter.
The invalid daughter died October 11, 1929, and decedent's wife died January 30, 1930.
The trusts were carried out by the respective trustees in accordance with their provisions, and upon the death of the decedent on August 10, 1934, the corpus of the trusts was distributed to the decedent's six surviving children. The total value of the property in the two trusts at decedent's death was $35,264.90.
9. One of the trusts created June 20, 1929, read as follows:
"This Agreement made the twentieth day of June 1929, by and between Horace S. Griffith, of the Township of Aston, County of Delaware, and State of Pennsylvania, party of the first part (hereinafter called the Grantor) and The First National Bank of Media and Arthur B. Griffith, parties of the second part (hereinafter called the Trustees) Witnesseth: "That the party of the first part has deposited with the parties of the second part certain securities, a list whereof is hereby attached and made a part hereof, and also the sum of One Thousand Dollars in Cash, in Trust to keep the same well invested in the same securities in which they are received, or any securities which may be issued by one or more of the companies issuing the same or a consolidation, merger, or successor of any such company, in exchange or substitution for such security, without any liability on the part of said Trustees for any loss or depreciation of value, or, in their discretion, to sell all or any part of said investments, provided that, in case of such sale, the proceeds thereof shall be invested and reinvested only in the class of securities known as legal investments for trust funds in Pennsylvania, and to pay the net income thereof, on the last day of each month, unto the said Horace S. Griffith, for the term of his life, and, upon the decease of the said Horace S. Griffith, to pay the said net income unto his wife, Mary F. Griffith, for the term of her life; and, upon the decease of the said Mary F. Griffith, to divide and pay the said net income in equal portions unto his children, Horace B. Griffith, William E. Griffith, Richard I. Griffith, Herbert H. Griffith, Arthur B. Griffith, and Rachel Griffith Smith. "Provided, however, that if any of said children shall be or become deceased, leaving wife or husband, the income of such deceased child's share shall be paid to such wife or husband for their life. "Provided, also, that no part of said trust fund, nor the interest or income arising therefrom, shall or may, at any time hereafter, be liable or subject in any manner whatever to the control, engagements, debts, or liabilities of any of the aforesaid beneficiaries, nor shall any part of said principal or income be subject to any assignment, alienation, anticipation, levy, execution, or attachment whatsoever. "Provided further, that, upon the death of any of said children who have issue, they shall have the power to bequeath their share of said principal to any of their own children, in such proportion and manner as they see fit, by any last will and testament, which they may execute, but in the case of my daughter, Rachel Griffith Smith, who has no issue, her share of the principal shall be paid over to any issue she may have who live to attain the age of twenty-one years, and if she shall not have issue to survive her or if such issue shall not live to attain the age of twenty-one years, then such share of the principal shall be divided equally among the other beneficiaries of the principal of the trust. In case any of said children should die without leaving a last will and testament, but leaving issue, their share shall be divided and paid over in equal shares unto such issue. "Provided, however, if any of said children shall die without leaving issue (or in case of the said Rachel Griffith Smith leaving issue who shall not attain the age of twenty-one years) then such share of principal, after the death of the surviving wife or husband, if any, shall remain a part of the said trust fund for the benefit of the surviving beneficiaries of said fund. "If at any time the said Arthur B. Griffith shall not be satisfied with The First National Bank of Media as Co-Trustee, he shall have the power to designate any other Trust Company or banking corporation authorized to do a trust business in Delaware County or Philadelphia as Co-Trustee in place and stead of The First National Bank of Media, and he shall also have the privilege of designating his own successor as Co-Trustee by last will and testament or otherwise."
The other trust established on the same date differed from the one just referred to only in the manner referred to in finding 6.
10. At the time the two trusts were set up on June 20, 1929, the decedent had seen the rise and fall of the Florida boom and had no confidence in the speculative boom in securities which was then at its height. In order to avoid the temptation of speculative risks in unsound investments or in his hazardous textile business, to assure an income to himself for life and also to leave a part of his estate intact for the benefit of his heirs, the decedent created the two trusts on June 20, 1929.
These two trusts have been administered by the trustees in accordance with their terms. The total value of the property in the two trusts at the time of decedent's death was $93.752.33.
11. At the time the four trusts referred to above were created the decedent was in excellent physical and mental health. Until a few days before his death which resulted from coronary thrombosis, he had never been seriously ill in his life and he remained actively engaged in his business until a few days before his death. These four trusts and the transfers therein involved were not made by the decedent in contemplation of death. [Copyrighted Material Omitted] [Copyrighted Material Omitted] J.H. Ward Hinkson, of Chester, Pa., for plaintiffs.
Joseph H. Sheppard, of Washington, D.C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for defendants.
Before WHALEY, Chief Judge, and WHITAKER, GREEN, and LITTLETON, Judges.
LITTLETON, Judge.
The Commissioner of Internal Revenue in an audit of the estate tax return first determined and held that the property involved in the transfers by the decedent, as disclosed and described in the findings, had been made to take effect in possession and enjoyment at or after death, but later, after the decision in Hassett v. Welch, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858, in which it was held that the Joint Resolution of Congress of March 3, 1931, and section 803(a) of the Revenue Act of 1932, 26 U.S.C.A.Int.Rev.Acts, page 641, could not be applied retroactively, the Commissioner rejected plaintiffs' claim for refund on the ground that the transfers constituted a testamentary disposition of property made in contemplation of death. We are of opinion from the facts established by the record, which so far as necessary to a proper determination of the question presented have been set forth in the findings and need not be repeated here, that the property transferred by the decedent on April 20, 1928, and June 20, 1929, were not transfers made in contemplation of death within the meaning of the applicable provisions of the revenue statute, and that plaintiffs are therefore entitled to recover the tax collected by reason of the inclusion of the value of such property in the gross estate. See findings 8, 10, and 11.
Counsel for defendant endeavor to sustain the action of the Commissioner in including the property in question in the gross estate on the ground that the transfers were testamentary in character and that, for that reason, the decedent must have made them in contemplation of death. In view of the facts disclosed by the record, this contention cannot e sustained. In United States v. Wells, 283 U.S. 102, 51 S.Ct. 446, 452, 75 L.Ed. 867, the court discussed at length the meaning of the term "in contemplation of death" and pointed out that the facts in each case must be carefully scrutinized to determine the dominant motive of the donor and that if the dominant motive is one that is associated with life, rather than with death, section 302(c) should not be held to be applicable. In this connection the court said: "The words 'in contemplation of death' mean that the thought of death is the impelling cause of the transfer * *. 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." And, further, the court said: " * * * age in itself cannot be regarded as furnishing a decisive test, for sound health and purposes associated with life, rather than with death, may motivate the transfer."
The record in the case at bar discloses that paramount to all other considerations in the decedent's mind was the particular concern which he felt for his invalid daughter so far as the 1928 transfers are concerned; and the assurance of an adequate income for himself in later years so far as the 1929 transfers are concerned. These were the dominant motives which impelled the decedent to act, and any other considerations that might have occurred to him were purely incidental. Only by an inference altogether unwarranted under all the evidence of record could it be said that the decedent intended to effect a testamentary disposition, and to us it is clear from a consideration of all the evidence submitted that it cannot be said that the decedent in making transfers did so in contemplation of death. Harris Trust & Savings Bank et al. v. United States, 90 Ct.Cl. 17, 29 F.Supp. 876.
Judgment will be entered in favor of plaintiff for $11,818.31 with interest as provided by law. It is so ordered.