Diamond's Estate v. Commr. of Internal Revenue

Full title: DIAMOND'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE

Court: Circuit Court of Appeals, Second Circuit

Date published: Feb 7, 1947

159 F.2d 672 (2d Cir. 1947)

Opinion

No. 106, Docket 20353.

February 7, 1947.

Appeal from an order of the Tax Court of the United States.

Petition by the estate of Louis Diamond, deceased, Guaranty Trust Company of New York, executor, to review an order of the Tax Court of the United States (redetermining a deficiency in estate taxes in the amount of $7,075.33, as assessed by the Commissioner of Internal Revenue).

Affirmed.

This appeal is from an order of the Tax Court assessing against the executors a deficiency in estate taxes. The facts as found by the Tax Court are substantially as follows: Decedent, Louis Diamond, died testate on July 8, 1942, at the age of 68. The record does not disclose the cause of his death and the length of his last illness.

In 1928, Diamond created a trust for the benefit of his only child, a daughter. The corpus of the trust consisted of several policies of insurance on his life. He retained certain incidents of ownership in the policies as well as the right to amend, revoke or modify the trust.

In the Spring of 1937, he became concerned about the condition of his financial affairs. The insurance policies were the only property that he controlled which could readily be reduced to cash, and there was testimony that, fearful that he might be induced to use the cash surrender value of the insurance policies to satisfy any judgments which might later be entered against him, thereby depriving his daughter of the benefits of the trust, he asked his lawyer how he could forestall any such eventuality. His lawyer advised him to amend the trust, relinquishing his powers over the policies.

A proposed amendment was prepared and was signed by Diamond over a year later, on August 22, 1938, but the final execution was delayed because the trustee was dissatisfied with the proposed commissions. These difficulties were overcome by November, 1938, but Diamond was then in a hospital suffering from a heart attack, and therefore was unable to execute the draft of the proposed amendment. It was executed in January, 1939. By the amended trust deed, Diamond relinquished all power over the trust. The deed made full provision for the manner in which the trustee was to administer the monies to be collected under the policies which formed the corpus of the trust. Diamond executed his will on the same day; that instrument left all his property in trust for his daughter, under provisions similar to those contained in the trust deed.

The Tax Court pointed out in its opinion that it did not appear that any of Diamond's creditors were pressing him in 1937, nor that his properties were so heavily mortgaged as to make it likely that they would do so. There was no evidence at all regarding his financial situation in January 1939.

The Commissioner treated the 1939 amendment as a transfer made in contemplation of death under § 811(c) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 811(c),¹ and assessed a deficiency in estate taxes based on the inclusion of the value of the corpus of the trust. The Tax Court determined the deficiency in the same amount, after finding that the transfer was made in contemplation of death.

1 It reads as follows:
"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. To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, * * *."

Robert L. Redfield, Jr., of New York City, (Milton A. Willment, Jr., of New York City, of counsel), for petitioner.

Sewall Key, Helen R. Carloss, and Carlton Fox, all of Washington, D.C., for respondent.

Before AUGUSTUS N. HAND, CHASE, and FRANK, Circuit Judges.

FRANK, Circuit Judge.

The only question for us to decide is whether there is "warrant in the record" for the Tax Court's finding. Dobson v. Commissioner, 320 U.S. 489, 501, 64 S.Ct. 239, 88 L.Ed. 248. There is no rule of general application involved in this case (Bingham v. Commissioner, 325 U.S. 365, 65 S.Ct. 1232, 89 L.Ed. 1670), but simply a finding of fact as to what constituted the impelling motivation for the transfer. Appellants argue that the Tax Court's finding lacks support in the evidence. They say that the decedent's desire to protect the trust from depletion during his lifetime was the sole motive for the amendment, and that this was clearly a "life-motive." We are not convinced of the correctness of that characterization; cf. McGrew's Estate v. Commissioner, 6 Cir., 135 F.2d 158, 148 A.L.R. 1045. In any event, the deed was finally executed some years after Diamond had originally expressed his fears regarding his finances, shortly after he had recovered from a serious illness, and on the same day that he executed his will. The amendment may therefore have been induced by a variety of motives. Such an amalgam of motives raises an issue of fact for the Tax Court to determine. As the finding that the transfer was made in contemplation of death is sufficiently supported by the record, our inquiry may go no further.

Affirmed.