Docket Nos. 54939 54940.
Charles C. MacLean, Jr., Esq., and Laurence F. Casey, Esq., for the petitioners. Norman A. Peil, Jr., Esq., for the respondent.
Decedent, in 1941, acquired from her husband's estate, in partial settlement of a claim against it, half the stock in a hotel company and garage company. The other half of the hotel company stock was owned by a trust under the will of her husband's brother. She at all times wished to make the transfers to carry out her husband's intent that such stock pass to his testamentary trust established under her husband's will for the benefit of her children, but for various reasons was advised by the children to postpone the transfer. She wished to make the transfers to carry out her husband's intent that such stock pass to his testamentary trust, to stabilize the family's position in the hotel company by providing unified voting control, and to assure harmony and cooperation among her children and between them and the family of her husband's brother. In 1951, her children advised her to transfer the stock to an inter vivos trust giving them, as beneficiaries, income for life and, if the testamentary trust of her husband's brother disposed of its hotel company stock, permitting a majority of the to terminate the trust and receive the principal. Decedent approved the final draft of her inter vivos trust on December 6, 1951. Copies thereof were completed for her signature on December 12, 1951. That same day she had a severe heart attack. She signed the trust instrument on December 13, 1951, and died on January 9, 1952. Held:
1. The present interests in income under decedent's inter vivos trust are incapable of evaluation because of the beneficiaries' qualified power to terminate the trust. Therefore, in computing decedent's gift tax, statutory exclusions under section 1003(b)(3) of the 1939 Code are not allowable. Sylvia H. Evans, 17 T.C. 206,affd. (C.A. 3) 198 F.2d 435, and Jennie Brody, 19 T.C. 126, followed.
2. Decedent's transfers in trust were not made in contemplation of death. Charles C. MacLean, Jr., Esq., and Laurence F. Casey, Esq., for the petitioners. Norman A. Peil, Jr., Esq., for the respondent.
The Commissioner determined in Docket No. 54940, a deficiency of $19,046.51 in the 1951 gift tax of petitioners' decedent and, in Docket No. 54949, a deficiency of $42,602.67 in decedent's estate tax.
Some of the Commissioner's adjustments were settled by agreement of the parties and will be reflected in the Rule 50 computation.
Petitioners, by appropriate assignments of error, contest the action of the Commissioner in his disallowance of the gift tax exclusions provided by section 1003(b)(3) of the 1939 Code. Petitioners also contest, by appropriate assignments of error, the Commissioner's determination that the gifts were made in contemplation of death.
The issues for decision, therefore, are:
1. Whether, in computing decedent's 1951 gift tax, annual exclusions are allowable under section 1003(b)(3) for gifts of 100 shares of Casey Garage, Inc., stock and 150 shares of Hotel Casey Company stock which decedent made in trust on December 13, 1951.
2. Whether, as regards decedent's estate tax, those gifts were made in contemplation of death.
Petitioners contend that there has been an overpayment of estate tax.
The parties have stipulated that, in the Rule 50 computation of the estate tax, appropriate deductions and credit be allowed for any gift tax deficiency determined in this proceeding and for petitioners' expenses in prosecuting this proceeding.
FINDINGS OF FACT.
Many of the facts have been stipulated and as stipulated are incorporated herein by reference.
The decedent, Brigid Angela Casey, a resident of Scranton, Pennsylvania, died testate at the age of 82 on January 9, 1952. Petitioners are children of decedent and are executrix under her will. Decedent's 1951 Federal gift tax return was filed by petitioners on March 17, 1952, and the $2,352.12 tax reported thereon was then paid. Petitioners filed decedent's estate tax return on April 1, 1953, and, on that date, paid the $38,412.39 tax reported therein. Respondent's deficiency notice in each docket was mailed on August 6, 1954.
Decedent was the widow of Patrick J. Casey (hereinafter referred to as Patrick). They had eight children who, on December 13, 1951, the date of the transfers here in question, were the following ages:
Marian Casey Klauberg 53
Cyril, deceased, but survived by four children aged 24, 22, 20, and 18
On December 31, 1931, Patrick and his brother, A. J. Casey, incorporated the Hotel Casey Company (hereinafter sometimes referred to as the Hotel Company) to lease from them and operate the Hotel Casey, which they had built in Scranton. The Hotel Company issued 300 shares of stock. Each brother owned, in substance, 150 of those shares. For varying periods since 1918, Patrick's sons Joseph, Eugene, Al, and Jerome have served as officers and directors of the Hotel Company and, in 1951, the first three named received substantial salaries for their services. In 1951, one of A. J. Casey's children also was an officer and director of the Hotel Company and an official of the Scranton Lackawanna Trust Company was a director of the Hotel Company.
On September 16, 1925, Patrick incorporated Casey Garage, Inc., (hereinafter sometimes referred to as the Garage Company) to lease from him and operate a garage which he had built about 100 years from Hotel Casey. For all practical purposes the 100 shares of stock issued by the Garage Company were owned by Patrick. The original officers and directors of the Garage Company were Patrick and his sons Joseph, Eugene, and Cyril.
A. J. Casey, Patrick's brother, died on March 16, 1928. His entire residuary estate, which included 150 shares in the Hotel Company was devised and bequeathed under his will to the following named trustees: his brother, Patrick, his children Mary Pauline Casey and Andrew J. Casey, Jr., and the Scranton Lackawanna Trust Company (hereinafter sometimes referred to as the Trust Company) as co-trustees in trust for certain specified purposes, the trust to terminate upon the death of his last surviving child. Paragraph k of that testamentary trust read, in material part, as follows:
k. I direct my Trustees, the survivor, survivors and successors of them, to hold the investments which I have jointly with my brother, P. J. (Patrick) Casey, for so long a time as my brother, P. J. Casey, and his estate, retain their interests in such joint investments, and to use the same in the manner that my said brother, and his estate, uses his or their interest in our joint investments, and in all things in connection with said joint investments to act in conjunction and harmony with my brother, the said P. J. Casey, and his estate; * * * provided, however, that my said Trustees, the survivors, survivor and successors of them, shall have the right to sell and dispose of any joint investments which I have with my said brother, and with his estate, to my brother, or his heirs, or to any of my heirs, and also the right to purchase from my brother, or his heirs, his or their interests in any of our joint investments.
Patrick died on November 13, 1934. His will devised and bequeathed the residue of his estate (which included his shares in the Hotel Company and the Garage Company) to the decedent, their sons Joseph and Eugene, and the Trust Company, as co-trustees for, inter alia, the following purposes:
1. The decedent herein (Patrick's wife) was to receive annually, for life, the greater of one-third of the income from the corpus or $15,000 (corpus to be invaded to the extent that income was not sufficient to pay the $15,000).
2. The remaining trust income was to go equally to Patrick's eight children, or per stirpes to the issue of a deceased child. The trust was to terminate 21 years after Patrick's death or upon the death of decedent, whichever last occurs, the corpus to be then distributed equally among Patrick's children, or their issue per stirpes.
Patrick's testamentary trust also contained a paragraph 1 which was identical in all material respects to the above-quoted paragraph k of the trust created under the will of his brother, A. J. Casey.
The final audit of the accounts of the executors under Patrick's will was set for November 7, 1939, on which date there yet remained for settlement from the personal property in Patrick's estate (a) decedent's claim of $86,500 arising from loans made to Patrick, which claim had been allowed as a deduction in determining Patrick's Federal estate tax, and (b) certain wage claims, aggregating about $50,000, against Patrick as a stockholder of a bankrupt corporation. Since decedent had not instituted suit on her claim within 1 year after Patrick's death it was, under Pennsylvania law, enforceable only against the estate's personal property and could then only be satisfied in her receiving almost all of the remaining personal property in the estate. When it was, therefore, pointed out to decedent that payment of her claim would mean that no personal property would pass to Patrick's testamentary trust, and that Patrick apparently wished that such property (which included his shares in the hotel and garage companies) pass to that trust, decedent was willing to release her claim. However, her son Laurence, an attorney versed in tax matters, counseled against such a release because it might result either in an income tax being imposed on Patrick's estate or in increased estate tax liability (since the claim had already been deducted for estate tax purposes).
At the November 7, 1939, audit the Orphans Court of Lackawanna County, Pennsylvania, ordered a continuance of the audit until the wage claims were determined. By March 10, 1941, the wage claims were determined and on that date a payment program therefor was discussed by decedent and her sons Joseph and Laurence. Joseph again stated that it was unfortunate, in particular, that Patrick's shares in the Hotel Company were to be diverted from the testamentary trust, contrary to Patrick's intent, to satisfy decedent's own claim. Decedent then reiterated that she was willing to release her claim, that she did not want the Hotel Company shares or any of the other personal property, and that she intended to give the Hotel Company shares to the trust whenever her sons agreed that it was time for her to do so.
On October 22, 1941, the final audit of Patrick's executors was admitted in the Orphans Court of Lackawanna County and decedent's claim was satisfied by awarding to her personal property from the estate, included in which were the 150 shares of the Hotel Company (appraised at $7,500) and the 100 shares of the Garage Company (appraised at $1,000). Laurence delivered the Hotel Company shares to her in December 1941, at which time she again stated that she wanted to return them to Patrick's testamentary trust whenever Laurence and Joseph said the Word. Laurence, however, felt that the same adverse income or estate tax consequences might result from an immediate return of those shares to the trust and, in any event, thought that there was no need for hurry in effectuating such a transfer.
From 1942 through 1946, three of decedent's sons were serving in the armed forces, principally overseas. This forestalled active consideration of a transfer of the shares of the hotel and garage companies since decedent wished all her children to have a voice in the matter. In 1944, Joseph and Laurence initiated an attempt to stabilize future voting control of the Hotel Company by establishing a voting trust for both the shares held by decedent and those held by the trustees under A. J. Casey's will, but, although decedent was apparently amenable to the idea, A. J. Casey's trustees declined.
In 1946, a dispute arose between two of decedent's sons, both of whom wished to be named to fill a vacancy as co-trustee of Patrick's testamentary trust. The family did not wish to air this matter in court so it remained unsettled, and the vacancy was unfilled, until subsequent to decedent's death in 1952. Laurance advised decedent that she should not give her shares in the hotel and garage companies to the testamentary trust until that dispute was settled.
On May 3, 1947, decedent suffered a partial paralytic stroke which, until her death, paralyzed her right side, confined her to bed and a wheelchair, required the attendance of three registered nurses (on a 24-hours basis), and resulted in at least weekly visits from her doctor. Her son Al, who had resided with her since his return from military service in 1946, was thereupon given by her a power of attorney to handle her finances. She had told Al, in 1946, of the circumstances under which she had acquired the Hotel Company shares and indicated that she was displeased at being owner of them, stating that they should be in the testamentary trust as was intended by her husband Patrick. Whenever she received dividends on the Hotel Company shares, and also when dividends were received on the Garage Company shares, she indicated that she was sorry they were not being distributed to her children since they were only adding to her income and would do more good if distributed to them.
The following were the dividends paid by the Hotel Company and Garage Company from the time decedent acquired their stock in 1941, until her death:
+-------------------------------------------+ ¦ ¦Casey Hotel Company¦Casey Garage, Inc.¦ +----+-------------------+------------------¦ ¦Year¦ ¦Total ¦ ¦Total ¦ +----+-----------+-------+----------+-------¦ ¦ ¦Per share ¦(on 150¦Per share ¦(on 100¦ +----+-----------+-------+----------+-------¦ ¦ ¦ ¦shares)¦ ¦shares)¦ +----+-----------+-------+----------+-------¦ ¦1947¦ ¦ ¦$25 ¦$2,500 ¦ +----+-----------+-------+----------+-------¦ ¦1948¦$30 ¦$4,500 ¦50 ¦5,000 ¦ +----+-----------+-------+----------+-------¦ ¦1949¦20 ¦3,000 ¦ ¦ ¦ +----+-----------+-------+----------+-------¦ ¦1950¦20 ¦3,000 ¦25 ¦2,500 ¦ +----+-----------+-------+----------+-------¦ ¦1951¦30 ¦4,500 ¦25 ¦2,500 ¦ +-------------------------------------------+
The average annual income earned by those shares from 1947-1952 was $5,500. For the period 1947-1950, decedent actually received dividends on only 146 of the 150 Hotel Company shares and 94 of the 100 Garage Company shares, the remaining shares of each company being issued in the names of some of her children (who were, in effect, her nominees). The 1951 dividends were paid after decedent transferred her shares to the trust established by her on December 13, 1951 (as hereinafter discussed), and were received by the trustees under that trust.
For the taxable years shown below decedent's gross income, exclusive of the foregoing dividends and capital losses, was as follows:
+----------------+ ¦1947¦$21,677.23 ¦ +----+-----------¦ ¦1948¦24,979.02 ¦ +----+-----------¦ ¦1949¦24,704.19 ¦ +----+-----------¦ ¦1950¦26,573.16 ¦ +----------------+
On January 5, 1951, there developed a slight strain of decedent's heart muscle and delay in conjunction of her heart beat. She was immediately relieved upon administration of a hypodermic.
During the winter of 1950-1951, decedent's sons, Joseph and Laurence had various discussions in which Joseph urged Laurence to formulate a program, for discussion with decedent, concerning the transfer of her Hotel Company shares to a trust with the Trust Company as trustee. In June 1951, Laurence moved to Detroit for business reasons. On July 1, 1951, he sent a written memorandum to Joseph proposing, in brief, that decedent's shares in both the hotel and garage companies either (a) be given outright to her children, then placed by them in a voting trust for a limited number of years, or (b) be placed in a trust by decedent for the use of her children. Although not always specifically mentioned, the family understood that the Garage Company shares would be disposed of in the same manner as the Hotel Company shares, since the garage depended upon the hotel for much of its patronage. This understanding was reached in 1946, when an offer to purchase the Hotel Company was being considered.
In mid-July 1951, Laurence went to Scranton and discussed the above proposals with decedent. Decedent favored the trust device as the best method of preserving unified voting control over any shares placed in the trust and thereby stabilizing the family's position in the Hotel Company. She was particularly concerned with assuring unity and cooperation among her children and wished them to follow the example of profitable cooperation set by Patrick and A. J. Casey. In example of profitable cooperation set by Patrick and A. J. Casey. In addition, she desired to carry out Patrick's wish that harmony and cooperation between their family and A. J. Casey's heirs be preserved. Stabilizing the family's position in the Hotel Company was an objective which Joseph always urged since his livelihood, as well as Eugene's and Al's, derived primarily from employment therein.
Since Laurence was busy in Detroit the proposed trust instrument was initially drafted by his brother Jerome, who was also an attorney, and by one of the officers of the Trust Company, which company was to be one of the co-trustees of the trust. The drafting was begun in August 1951, and completed about September 19, 1951. Thereafter, changes in the draft were discussed with other of decedent's sons. In November the draft was sent to Laureance, in Detroit, who reviewed it primarily from the standpoint of Federal income, gift, and estate tax consequences. About November 28, Laurence returned the draft to Jerome with suggested changes.
On December 6, 1951, the final draft of the trust instrument was discussed with decedent and most of its provisions were read to her. She approved that draft of the instrument. It was then reviewed and put in form for execution, those steps being completed on the afternoon of December 12.
At no time did decedent do anything to delay preparation or execution of the trust instrument and at no time did Jerome, who, in conjunction with the Trust Company, was preparing the trust indenture, discuss with her the possible estate tax savings resulting from establishment of the trust.
At about 6 p.m. on December 12 decedent had a severe heart attack. Her regular doctor was called, and her son Adrian, also a doctor, was summoned and stayed all night. They gave her sedatives and drugs. At about 7 p.m. a priest administered to decedent the last rites of the Catholic Church. Three of decedent's sons (in addition to Adrian) were present in her home that evening and her daughter was telephoned in Brooklyn, New York, and came to Scranton the following day. Decedent was fully conscious at all times during the evening of December 12 and was aware that members of her family had gathered and that the last rites of the Church were administered.
Decedent improved on December 13, but her heart was irregular and she was injected with a strong drug to strengthen it. At about 3 p.m. she was given an intravenous injection of glucose. At about 4 p.m. the trust instrument which she had approved on December 6 was brought to her and she executed it. She was in full possession of her mental faculties at that time. Decedent died 4 weeks later, on January 9, 1952, as a result of the heart attack.
Under the December 13, 1951, trust created by decedent her 150 shares of Hotel Company stock and 100 shares of Garage Company stock were transferred to the Trust Company and her two sons Joseph and Al, for a period terminating with the death of her last surviving child (except as hereinafter noted). The trust income and corpus were divided into 8 equal parts, one for each of decedent's 7 surviving children and one for the children of her deceased son Cyril. Those beneficiaries were to receive the income for life and were given a power of appointment by will over their portions of income and corpus, in default of which such portions were to to their heirs-at-law. The trustees were given uncontrolled discretion to retain, sell (and invest and reinvest the proceeds of sale), pledge, merge, exchange, and generally to deal with and manage the stock transferred to the trust. They were also empowered to vote such stock, in which connection the following was stated:
B. * * * It is the SETTLOR'S desire that through the creation of this trust, the unified voting power which exists in the present ownership of the Hotel Casey Corporation stock, shall be preserved as long as possible and that the same result may be assured with respect to other companies, the shares of which may subsequently be added to this trust by the SETTLOR.
The trust also provided:
H. Anything to the contrary herein notwithstanding, a majority in interest of the beneficiaries of this trust, then living, shall have the right at any time to terminate the trust hereby created upon giving thirty (30) days written notice thereof to the TRUSTEES, and upon the expiration of said period of thirty (30) days, the TRUSTEES shall as expeditiously as possible, proceed to assign, transfer and deliver the assets of the trust estate to and among the income beneficiaries of this trust as they shall then exist in the same proportions that they shall at that time be entitled to receive the income and thus close the trust. Provided however, that this trust shall not be terminated as long as a similar interest (in Hotel Company stock) shall be retained by the TRUSTEES of the Estate of A. J. Casey.
A 1951 gift tax return was filed after decedent's death, by her executors, in which the gifts in trust were reported. The value as of December 31, 1951, the date of gift, of the stock transferred was reported therein as $90,000, i.e., $70,000 for the Hotel Company shares and $20,000 for the Garage Company shares. Annual income from the stock was estimated at $3,600, was allocated to each beneficiary pursuant to the trust terms, and the value of each beneficiary's right to his or her allocated share was then computed under Regulations 108, section 86.19(g), Table A, column 2, which is headed ‘Annuity, or present value of $1 due at the end of each year during the life of a person of specified age.’ Gift tax exclusions aggregating $29,243.58 were claimed in the gift tax return in respect of the 11 beneficiaries.
Decedent's estate tax return, filed by petitioners, reported a gross estate of $271,100.46. The December 13, 1951, gifts in trust were not included in the reported gross estate.
It is stipulated that the fair market value, both as of the date of decedent's gifts in trust (December 13, 1951) and the date of her death (January 9, 1952), of the stock transferred to the trust was $100,000, i.e., $80,000 for the Hotel Company shares and $20,000 for the Garage Company shares.
Decedent had executed a will in 1934 which, in pertinent part, bequeathed and devised the residue of her estate to her daughter and two named sons as trustees in trust for 5 years. Each of her children (or the issue of a deceased child, per stirpes) was given an equal share in the income and corpus of that short-term trust. No special provisions for dealing with the Hotel Company or Garage Company stock were included in the trust or in any other part of the will. Except for changes in pecuniary legacies, decedent's last will which she executed on May 29, 1948, substantially reiterated the provisions of prior wills executed in 1934 and 1942.
Decedent's December 13, 1951, gifts in trust of her Hotel Company and Garage Company stock were not made in contemplation of death.
In computing decedent's gift tax on the December 13, 1951, transfers in trust of Hotel Company and Garage Company stock, petitioners calculated the value of each beneficiary's right to income from that trust on the basis of the life expectancy of such beneficiary (see Regs. 108, sec. 86.19(g), Table A, column 2), and applied the statutory annual exclusion to the figure thus arrived at for each beneficiary. Respondent disallowed the claimed exclusions.
SEC. 1003. NET. GIFTS.(b)EXCLUSIONS FROM GIFTS.—(3) GIFTS AFTER 1942.— In the case of gifts (other than gifts of future interests in property) made to any person by the donor during the calendar year 1948 and subsequent calendar years, the first $3,000 of such gifts to such person shall not, for the purposes of subsection (a), be included in the total amount of gifts made during such year.
Section 1003(b)(3) provides that gifts of present interests are excludible to the extent of $3,000 per donee in determining taxable gifts for any calendar year after 1942. Respondent concedes that the beneficiaries' rights to income from the trust constituted gifts of present interests. He contends, however, that the statutory exclusions are inapplicable because those present interests are incapable of valuation. The issue thus presented is whether our decisions in Sylvia H. Evans, 17 T.C. 206, affd. (C.A. 3) 198 F.2d 435, and Jennie Brody, 19 T.C. 126, are (as respondent maintains) applicable to the facts of the instant case. We think they are.
In Evans, supra, the settlor established a separate trust for each of her children, giving the beneficiary of each trust income therefrom for life and giving the trustees uncontrolled discretion to distribute corpus to the beneficiary for his (or his spouse's or children's) education, comfort, and support. In Brody, supra, the settlors established a separate trust for each child and grandchild giving the beneficiary of each trust income therefrom the life and corpus on a specified distribution date, but providing that the trustees may, in their uncontrolled discretion, distribute the corpus to the beneficiary prior to the specified distribution date. In both cases we held that the statutory exclusion for gifts of present interests was inapplicable because each beneficiary's right to income, although a present interest, was incapable of valuation since the trustees could, in their uncontrolled discretion, terminate that right at any time by accelerating the gift of corpus, and that this result must follow even though it was the income beneficiaries themselves who were the designated recipients of any accelerated corpus.
The issue here is one of valuation, i.e., whether petitioners have reasonably proved the value of the gifts of income— which they must do in order to establish the amount of the statutory exclusion to which the donor is entitled. As the Court of Appeals for the Eighth Circuit said in affirming our opinion in William Harry Kniep, 9 T.C. 943, affd. (C.A. 8) 172 F.2d 755, which case we relied on in Evans and Brody, both supra:
The taxpayer has the burden of proving not only his right to the claimed exclusion, but also the amount of it. * * * The insuperable difficulty with which the petitioner is confronted is that it is impossible for his to prove that the principal of the trust estate, and thus the income from it, will not be decreased by the exercise of the discretionary power of invasion granted to the trustees; or to prove the amount by which the principal, upon which the present worth of the right to receive income must be computed, may be reduced by the exercise of the trustees' power of invasion.
See also Willis D. Wood, 16 T.C. 962, 967.
In the instant case distribution of the corpus of decedent's December 13, 1951, inter vivos trust could be accelerated to the income beneficiaries (and their rights to income thus expunged) by termination of the trust upon motion of a majority in interest of those beneficiaries. The fact that the power of acceleration was in the beneficiaries, rather than the trustees, is a distinction from the above-cited cases which, if anything, strengthens respondent's conclusion. See Willis D. Wood, supra. However, petitioners argue that this case must be distinguished from those we have cited because here the beneficiaries' power of termination was not exercisable unless and until the trust under the will of A. J. Casey (Patrick's brother disposed of the shares it held in the Hotel Company.
It is true that the beneficiaries' power of termination here is conditioned upon precedent action by the A. J. Casey trust and, therefore, was not, as was the trustees' acceleration powers in Evans and Brody, both supra, absolute or uncontrolled at the date of the gifts. In fact, as petitioners point out, the beneficiaries might never be in a position to exercise their power of termination if the A. J. Casey trust chose not to dispose of its Hotel Company stock. Those circumstances, however, do not by themselves aid petitioners.
When decedent made her gifts in trust there was no restriction on the right of the A. J. Casey trust to dispose of the Hotel Company stock it held. It was free to do so at any time, either alone or in conjunction with a sale of the Hotel Company shares held in decedent's trust. Petitioners have not shown us, nor are we aware of, any recognized method of evaluating the chances that such a sale would not take place. Robinette v. Helvering, 318 U.S. 184. The instant case is not like Commissioner v. Maresi, (C.A. 2) 156 F.2d 929, affirming 6 T.C. 582, cited by petitioners, where it was held that the possibility of a divorced wife remarrying could be gauged by accredited actuarial tables. We are here referred to no such index of probabilities nor to any other evidence bearing on the chance of sale. For all we know the A. J. Casey trust could have, and might yet, sell its Hotel Company stock at any moment, and immediate termination of decedent's trust could follow on the heels of such a sale, thus canceling the income rights of the beneficiaries thereunder. We must hold, therefore, that although the income rights of the beneficiaries of decedent's trust were present interests, they were, just as in Evans and Brody, both supra, incapable of valuation and, consequently, the statutory exclusion is inapplicable to them.
We are aware, as petitioners point out, that section 2503(b) of the 1954 Code provides for a different result in cases such as this where the same persons are the beneficiaries of both the income and any accelerated corpus. But that section is applicable only to gifts made after 1954 and has no bearing upon the facts of the instant case.
The final issue for our determination is whether decedent's December 13, 1951, transfers in trust of the Hotel Company and Garage Company shares were made in contemplation of death, with the result that those shares are includible in her gross estate for Federal estate tax purposes. Sec. 811(c)(1)(A), (1), 1939 Code; Regs. 105, sec. 81.16.
SEC. 811. GROSS ESTATE.The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States—(c) TRANSFERS IN CONTEMPLATION OF, OR TAKING EFFECT AT, DEATH.—(1) GENERAL RULE.— To the extent of any interest therein of which the decedent has 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—(A) in contemplation of his death; * * *(1) CONTEMPLATION OF DEATH.— If the decedent within a period of three years ending with the date of his death (except in case of a bona fide sale for an adequate and full consideration in money or money's worth) transferred an interest in property, * * * such transfer * * * shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of subsections (c), (d) and (f); but not such transfer * * * made prior to such three-year period shall be deemed or held to have been made in contemplation of death.
The principles applicable to the resolution of this question are stated in United States v. Wells, 283 U.S. 102, as follows:
The words ‘in contemplation of death’ mean that the thought of death is the impelling cause of the transfer, and while the belief in the imminence of death may afford convincing evidence, the statute is not to be limited, and its purpose thwarted, by a rule of construction which in place of contemplation of death makes the final criterion to be an apprehension that death is ‘near at hand.’
If it is the thought of death, as a controlling motive that the statute does not embrace gifts inter vivos which spring from a different motive. * * *
* * * 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.
* * * (Transfers are not made in contemplation of death if) the motive for the transfers brought them within the category of those which, * * * are intended by the donor ‘to accomplish some purpose desirable to him if he continues to live.’ * *
Resort to decided cases is of little value since determining a decedent's ‘dominant, controlling or impelling motive is a question of fact in each case.’ Allen v. Trust Co. of Georgia, 326 U.S. 630.
We have found as a fact that the transfers here in issue were not made in contemplation of death. In our findings we have carefully set forth all of the pertinent data in evidence bearing upon that ultimate factual finding.
At first blush it would appear that the transfers were made in contemplation of death. Decedent suffered a severe heart attack on December 12, 1951, and the facts clearly indicate that she then knew death was not every far away. On December 13, she executed the trust instrument of transfer and 4 weeks later, on January 9, 1952, she died. But this is only part of the story.
Decedent acquired the subject of the gifts, i.e., the Hotel Company and Garage Company shares, in 1941 as partial settlement of a claim she held against her husband's estate for money which she had loaned him. Her husband actually intended those shares to pass to a trust established under his will and, realizing this, decedent wished to renounce her claim and give up her right to the shares. However, some of decedent's children, who in fact were beneficiaries of the testamentary trust established by her husband, advised her against either renouncing the claim or making an immediate gratuitous retransfer of the shares to the testamentary trust because of possible adverse income or estate tax consequences to her husband's estate.
At all times decedent stood ready and willing to transfer the shares to her husband's testamentary trust whenever her children said that such a transfer would be advisable. Her son Laurence felt that there was no particular need to rush such a transfer and, in fact, her children initially lost nothing by the failure of such a transfer since the shares produced no dividends until 1947. The transfers were also delayed by the fact that from 1942-1946 three of her sons were in military service and therefore could not partake in discussions regarding the disposition of the shares.
When dividends were paid on the shares, in 1947 and thereafter, decedent was even more concerned about her retention of the shares and wished her children to have the benefit of that income. The record certainly supports the conclusion that the dividend income was not needed by her at all; she was given a $15,000 a year annuity under her husband's testamentary trust and, in fact, her income from all sources other than those dividends exceeds $21,000 in each year 1947 through 1950. Life motives impelling her to transfer the testamentary intention and to give her children the benefit of the dividend income, the wish to stabilize her family's position in the Hotel Company by providing for unified voting control and the wish to assure unity and cooperation both among her children and between them and A. J. Casey's heirs. Continued harmony and cooperation between the Patrick and A. J. Casey families was also one of her husband's testamentary desires.
In 1947, decedent suffered a stroke which paralyzed her right side and compelled her to remain in a bed or wheelchair, with a registered nurse in constant attendance, until her death. We think it an important fact that this precipitated no rush to effectuate transfers of the shares.
During the winter of 1950-1951, decedent's son Joseph, who derived his income from executive employment in the Hotel Company and wished to stabilize the family's position therein, urged Laurence to formulate a plan for decedent to transfer the shares. This was done and decedent approved the suggestion that the shares be transferred to an inter vivos trust to be established by her rather than to the testamentary trust set up by her husband in his will. For various reasons, none of which relate at all to decedent, who never did anything to delay the preparation or execution of the inter vivos trust instrument, the final draft of that instrument was not ready until December 6, 1951. On that date decedent approved it. Preparation of the documents for her signature were completed on the afternoon of December 12, before she had her heart attack.
Were an analysis made at this point, we think the conclusion would be inescapable that the motives impelling decedent's transfers were those life motives which we have mentioned above. The question is, therefore, did the intervention of decedent's severe heart attack prior to her actually signing the trust instrument on December 13, and her knowledge that death was not very far away, result in a change of motives for the transfers so that, at the time of signature of the trust instrument, such motives were testamentary? We think not. As stated In United States v. Wells, supra, ‘apprehension that death is ‘near at hand“ does not by itself compel the conclusion that the transfer was in contemplation of death. For years decedent wished to make transfers of this nature solely for life motives and was prevented from doing so only by advice of her children, the intended donees. She was ready and willing to make the transfers whenever her children gave the word, and were she in perfect health on December 13, rather than severely ill, we have no doubt that she would have unhesitatingly completed the transfers, the substance of which was approved by her on December 6. Under these circumstances we are convinced, to paraphrase United States v. Wells, supra, that the transfers were intended by the donor to accomplish purposes desirable to her if she continued to live and, therefore, that they were not made in contemplation of death.
For reasons heretofore stated,
Decisions will be entered under Rule 50.