Opinion
Docket No. 8998.
1947-08-27
ESTATE OF CORNELIA B. SCHWARTZ (ALSO KNOWN AS CORNELIA B. SCHWARZ), H. LIVINGSTON SCHWARTZ, ADMINISTRATOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
George R. Sheriff, Esq., and William Schroeder, Esq., for the petitioner. Thomas R. Wickersham, Esq., for the respondent.
1. Decedent died intestate in 1944 at the age of 98. Decedent of June 4, 1932, transferred substantially all of her property tolher children in return for their promise to pay her the amount of $7,000 each year for the remainder of her natural life. The amount of $7,000 was the estimated annual income that the property would yield. The decedent was 86 years old at the time of the transfer, but was in good health at the time the transfer was made. The children at the same time transferred the property to a trust company under a trust indenture which provided that the income up to $7,000 a year was to be paid to the mother for life and any excess over the sum of $7,000 was to be paid to her daughter. Upon the death of the mother the principal of the trust was to be paid to the three children equally. The net income from the property did not average $7,000 per annum and the children made no attempt to make up the difference so that decedent would receive the annual income of $7,000. Held, the transfer made on June 4, 1932, constituted a transfer made in contemplation of death and should be included in decedent's gross estate under the provisions of section 811(c) of the Internal Revenue Code; held, further, that decedent should be considered as the settlor of the trust of June 4, 1932, and in this trust she retained the ‘possession or enjoyment of, or right to the income from the property‘ and its value should, therefore, be included in her gross estate on that account, under section 811(c), I.R.C.
2. The decedent made a transfer by written bill of sale on December 5, 1935, to her daughter of certain personal property valued at $3,000 at the date of decedent's death. The Commissioner has included this property in decedent's gross estate, but makes no contention that the transfer of December 5, 1935, was made in contemplation of death. Held, that at time of decedent's death in 1944 this property was not owned by decedent and it should not be included as a part of her gross estate. George R. Sheriff, Esq., and William Schroeder, Esq., for the petitioner. Thomas R. Wickersham, Esq., for the respondent.
This proceeding is for a redetermination of a deficiency of $19,442.46 in estate tax. The deficiency is the result of four adjustments to the decedent's net estate as disclosed by the return, which respondent, in a statement attached to the deficiency notice, explained as follows:
+-----------------------------------------------------------------------------+ ¦Adjustments to Net Estate ¦ ¦ +-----------------------------------------------------------------+-----------¦ ¦ ¦ ¦ ¦ +------------------------------------------------------+----------+-----------¦ ¦Net estate for basic tax as disclosed by return ¦ ¦$ ¦ ¦ ¦ ¦(95,138.80)¦ +------------------------------------------------------+----------+-----------¦ ¦Additions to value of net estate and decreases in ¦ ¦ ¦ ¦deductions: ¦ ¦ ¦ +------------------------------------------------------+----------+-----------¦ ¦Mortgages, notes and cash ¦$171.37 ¦ ¦ +------------------------------------------------------+----------+-----------¦ ¦Other miscellaneous property ¦3,000.00 ¦ ¦ +------------------------------------------------------+----------+-----------¦ ¦Transfers during decedent's life ¦147,366.33¦ ¦ +------------------------------------------------------+----------+-----------¦ ¦Debts of decedent ¦259.87 ¦150,797.57 ¦ +------------------------------------------------------+----------+-----------¦ ¦ ¦_ ¦_ ¦ +------------------------------------------------------+----------+-----------¦ ¦Total ¦ ¦$55,658.77 ¦ +------------------------------------------------------+----------+-----------¦ ¦Reductions in value of net estate and increases in ¦ ¦ ¦ ¦deductions: ¦ ¦ ¦ +------------------------------------------------------+----------+-----------¦ ¦Funeral and administration expenses ¦ ¦150.00 ¦ +------------------------------------------------------+----------+-----------¦ ¦ ¦ ¦_ ¦ +------------------------------------------------------+----------+-----------¦ ¦Net estate for basic tax as adjusted ¦ ¦$55,508.77 ¦ +------------------------------------------------------+----------+-----------¦ ¦Net estate for additional tax as adjusted ¦ ¦$95,508.77 ¦ +-----------------------------------------------------------------------------+
By appropriate assignments of error petitioner contests these adjustments. At the hearing of this proceeding petitioner's counsel stated that the assignment of error as to the inclusion in the gross estate of the bank balance of $171.37 and the failure to allow as a deduction as indebtedness of $259.87 were waived. At the hearing petitioner also amended its petition by adding the following paragraphs:
5(e) Failure to allow as a deduction all attorneys' fees paid and incurred.
6(e) The respondent has allowed only the sum of $500 as attorneys' fees. The necessary attorneys' fess already paid have exceeded that amount. Total attorneys' fees will amount to not less than $2,500 and may greatly exceed that sum.
FINDINGS OF FACT.
Petitioner is the administrator of the estate of Cornelia B. Schwartz, the decedent herein, who died intestate on February 13, 1944, a resident of Cherry Valley, New York. She was born on February 8, 1846, and was 98 years of age when she died. The estate tax return was duly filed with the collector of internal revenue for the twenty-first district of New York on June 28, 1944.
Decedent had three children, Cornelia Beekman Schwartz, hereinafter referred to as the daughter, and two sons, Herman L. Schwartz and David Louis Schwartz. Decedent and her daughter had lived at Lakewood, New Jersey, until 1941, when they moved to Cherry Valley, New York, where they continued to live until the mother's death.
Decedent's husband died in 1901, leaving her a substantial estate, and her investments were in an account with Brown Bros. & Co. of New York. The daughter had a power of attorney to carry out transactions in decedent's account with Brown Bros. & Co., but she always consulted decedent before taking any action with regard to the investments. Due to economic conditions during and prior to 1932, there had been difficulty with some of the investments and there were defaults in income on some of the securities, all of which made the outlook for income very uncertain. The market value of the various securities was also declining. It was agreed between decedent and her children that her securities should be transferred to the three children, in return for which the children would pay her the amount of $7,000 a year for the remainder of her life. The children consulted an attorney with respect to the proposed transfer. It was agreed among the children that a trust should be set up to secure the income to the mother and the mother was told that this was to be done. The attorney prepared the transfer agreement and the trust agreement, and the Girard Trust Co., hereinafter referred to as the trust company, was selected as trustee by the children. A meeting was held at the office of the trust company on June 4, 1932, and there were present the decedent, her three children, the attorney, and officers of the trust company. The transfer agreement and the trust agreement were executed in their respective order by the parties at that time. At this time the securities were transferred by the decedent to the children, and after the execution of the trust agreement they were delivered by the children to the trust company, as trustee.
The transfer agreement provided in part as follows:
WHEREAS the Purchasers are the children of the Seller, and the Seller is the owner of certain mortgages, stocks, bonds, notes and other property, a list whereof is hereto annexed marked Schedule ‘A‘; and
WHEREAS the Seller because of the uncertainty surrounding the payments of interest and dividends resulting from defaults in and the passing or reduction of the same from time to time and from the difficulties incident to the collection of such income, is desirous of relieving herself from the burden of collecting such income and of the management of investments and of assuring to herself for the full term of her natural life the receipt of a certain fixed annual income; and
WHEREAS the Seller is willing to bargain, sell, transfer, set over and assign to the Purchasers all of the investments and property set forth in Schedule ‘A‘ hereunto annexed, provided that the Purchasers will agree to pay to the Seller the sum of Seven Thousand Dollars (7,000.00) per annum for the full term of her life, regardless of the value from time to time of the investments and property so sold and transferred and regardless of the amount of the income therefrom received from time to time by the Purchasers; and
WHEREAS the Purchasers are willing so to do.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
1. The Seller hereby bargains, sells, transfers, sets over and assigns absolutely to the Purchasers in equal proportions, share and share alike, All Those Certain Mortgages, Stocks, Bonds, Notes and Other Property set forth in Schedule ‘A‘ hereunto annexed.
2. The Purchasers in consideration of the sale, transfer, assignment and delivery to them of said property, the receipt whereof is hereby acknowledged, hereby jointly and severally agree to pay or cause to be paid to the Seller for and during the full term of her natural life, the sum of Seven Thousand Dollars ($7,000.00) per annum, which said sum shall be paid periodically but not less frequently than quarterly.
The trust agreement provided in part as follows:
To pay the net annual income up to but not exceeding the sum of Seven Thousand Dollars ($7,000.00) periodically, but not less frequently than quarterly, to MRS. CORNELIA BEEKMAN SCHWARTZ of Lakewood, New Jersey, mother of the Grantors, for and during the term of her natural life; and to pay all excess of said annual net income above said sum of $7,000.00, annually to Miss Cornelia Beekman Schwartz, one of the Grantors, during the lifetime of her mother, the said Mrs. Cornelia Beekman Schwartz.
Upon the death of the said Mrs. Cornelia Beekman Schwartz the trust hereby created shall immediately cease and terminate, and the Trustee shall divide, transfer, pay over and deliver the principal of the trust estate and net income accrued and unpaid to the three Grantors in equal shares, or to the personal representatives of any of said Grantors who shall not survive their mother, the said Mrs. Cornelia Beekman Schwartz.
The fair market value of the securities transferred from decedent to her children on June 4, 1932, was $147,366.33 at the date of her death and comprised about 95 per cent of her property and estate. The only other property owned by here thereafter was some real property located at Albany, New York, having a value of approximately $6,000, and articles of personal property consisting of furniture, jewelry, and personal effects, valued at $3,000. This latter property decedent gave to her daughter in December 1935 and did not own it at the time of her death. The real property located at Albany, New York, was owned by decedent at the time of her death and was returned in the estate tax return at a value of $6,000, and it is not in controversy in this proceeding. The return showed no miscellaneous property.
The trust company, as trustee, rendered quarterly accountings of the trust to the three children, as grantors. No accountings were made to decedent. When the trustee sold securities it obtained the children's consent, but not that of the mother.
The gross income and the net income of the trust created under the trust indenture of June 4, 1932, and the amount received by the decedent on a calendar year and fiscal year basis were as follows:
+-----------------------------------------------------------------------------+ ¦ ¦Gross income before ¦ ¦ ¦ ¦ ¦ ¦deduction of ¦Net income after ¦Amount ¦Net amounts paid out¦ ¦ ¦Pennsylvania ¦deduction of ¦distributed¦by Girard Trust Co. ¦ ¦ ¦personal and real ¦Pennsylvania ¦to Cornelia¦(but not necessarily¦ ¦Year ¦property taxes, ¦personal and real¦B. Schwartz¦earned) on a fiscal ¦ ¦ ¦trustee's ¦property taxes, ¦on a ¦year basis, ¦ ¦ ¦commissions, and ¦commissions, and ¦calendar ¦beginning year ended¦ ¦ ¦other expenses of ¦other expenses ¦year basis ¦June 4, 1933 ¦ ¦ ¦the trust ¦ ¦ ¦ ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1932 ¦$4,275.32 ¦$3,499.98 ¦$3,499.98 ¦ ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1933 ¦6,464.00 ¦5,927.24 ¦6,825.01 ¦$7,000.00 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1934 ¦7,091.97 ¦6,512.42 ¦5,953.00 ¦6,427.99 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1935 ¦7,459.94 ¦7,126.94 ¦6,005.00 ¦5,705.50 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1936 ¦8,577.34 ¦7,449.85 ¦7,455.50 ¦6,405.50 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1937 ¦8,449.84 ¦6,973.51 ¦7,355.50 ¦7,205.50 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1938 ¦5,690.60 ¦4,874.88 ¦6,167.96 ¦7,409.65 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1939 ¦7,254.40 ¦6,591.88 ¦5,928.83 ¦5,244.65 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1940 ¦7,323.77 ¦6,726.27 ¦6,204.34 ¦5,972.70 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1941 ¦7,657.80 ¦7,128.19 ¦6,529.83 ¦7,281.77 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1942 ¦6,981.68 ¦6,454.90 ¦6,923.42 ¦5,078.95 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1943 ¦7,881.19 ¦7,431.89 ¦6,026.13 ¦6,741.25 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦1944 ¦955.91 ¦944.04 ¦1,031.99 ¦1 3,108.20 ¦ +-----+--------------------+-----------------+-----------+--------------------¦ ¦Total¦86,063.76 ¦77,641.99 ¦75,906.49 ¦73,581.66 ¦ +-----------------------------------------------------------------------------+
In addition to the amount paid decedent during 1933 and 1941 on a fiscal year basis, the trustee paid to decedent's daughter in 1933 and 1941 the respective amounts of $300 and $637.12, making total payments by the trustee on a fiscal year basis in 1933 and 1941 of $7,300 and $7,918.89, respectively.
Except for the sums received from the trust company, the decedent received no payments from the children under the transfer agreement of June 4, 1932.
The daughter lived with her mother, the decedent, continuously until the mother's death and at all times received most of her support and maintenance from her mother. The daughter had an income in 1932 of approximately $600, which increased to about $1,000 annually during most of the years. She commingled her independent income with the income of the mother and they received their mutual maintenance and support from the combined fund at all times up to the death of the mother.
The medical history of decedent shows that in 1920 she complained of a weak heart and took to her bed as a result of this condition. About the same time she suffered an attack of influenza. About 1922 she had a cataract on one eye that necessitated an operation and three or four years later she had a similar operation on her other eye. Both operations were successful. In 1925 or 1926 she had a fall and broke her hip, from which she fully recovered. Just prior to 1932 she suffered another fall, which produced lameness. She died on February 13, 1944, as a result of a fall. She was 98 years old when she died and 86 years old on June 4, 1932, when the above transfer and trust agreement were made. The decedent's activities about 1932 were the usual activities of a person of her age. She would take walks and go riding with her daughter, went to church regularly, and received visitors at their home. In 1936, on her ninetieth birthday, she had a birthday party which was attended by members of her family, neighbors, and friends. Decedent was always cheerful and never spoke of death except in a general way, and at the time of the transfers in question she was in good health for one of her age.
Neither the decedent nor the Girard Trust Co., which prepared her returns, made any attempt to treat the sums received from the trust company under the trust indenture of June 4, 1932, as payments from an annuity. In the estate tax returns of decedent petitioner lists no indebtedness due from Herman L. Schwartz, David L. Schwartz, or Cornelia Beekman Schwartz under the transfer agreement of June 4, 1932.
Prior to 1932 decedent had made gifts to her children. About 1911 she made a gift of a house to each of her sons, which houses were valued at from $11,000 to $14,000 each. In 1920 she gave her children securities of the value of approximately $100,000. In 1927 she gave the house at Lakewood, New Jersey, which was valued at approximately $40,000, to her daughter.
On or about December 5, 1935, decedent executed in the presence of her daughter a bill of sale to her daughter covering the decedent's household furniture and general household effects, and her personal belongings, including jewelry but excepting articles of clothing. These items had a value of $3,000 at the date of decedent's death. This bill of sale is endorsed, ‘Signed, Sealed and Delivered in the presence of Albert S. Larrabee,‘ a master in chancery of New Jersey. The decedent did not own these articles at the time of her death, but they were owned by her daughter, Cornelia Beekman Schwartz.
In 1932, at the age of 86 years, decedent could have purchased from an insurance company an annuity of $7,000 at a cost of $36,519.96, if payable monthly, or at a cost of $33,206.60 if payable annually.
The transfer made by the decedent on June 4, 1932, to her three children, Cornelia Beekman Schwartz, Herman L. Schwartz, and David Louis Schwartz, was made in contemplation of death. Decedent was in substance the settlor of the trust which was executed by her three children simultaneously with the transfer of the property to them.
OPINION.
BLACK, Judge:
The issues presented in this proceeding are (1) Whether the transfer by decedent on June 4, 1932, of property of the value of $147,366.33 is includible in decedent's gross estate under section 811(c) of the Internal Revenue Code, and (2) whether decedent made a valid transfer in 1935 of furniture, jewelry, and other personal property of the value of $3,000 to her daughter.
Issue No. 1.— Respondent contends that the transfer was made in contemplation of death within the meaning of the statute and the value of the transferred assets is includible in decedent's gross estate. He argues, in the alternative, that the decedent retained for life the right to the income from the property transferred and it is, therefore, includible under section 811(c) on that account. The applicable section of the Internal Revenue Code is set out in the margin.
Decision will be entered under Rule 50. 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, or of which he has at any time made a transfer, 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 (1) the possession or enjoyment of, or the right to the income from, the property, or (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; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this subchapter. -------- Notes:
Year ended Dec. 31, 1943.
We first consider whether or not the transfer was made in contemplation of death as that phrase is used in the applicable statute. Petitioner contends that the transfer was not made in contemplation of death and should not be included in the decedent's gross estate. Petitioner does not question the correctness of the respondent's determination that $147,366.33 was the fair market value of the securities transferred as of the date of the decedent's death on February 13, 1944.
The transfer was made approximately twelve years before the decedent's death, which makes inapplicable the presumption mentioned in 811(c) relative to transfers made within two years prior to death.
The ‘dominant purpose‘ of the statute ‘is to reach substitutes for testamentary dispostion, and thus prevent evasion of the estate tax. ‘ United States v. Wells, 283 U.S. 102, 116. The words ‘in contemplation of death‘ as used in the statute require the application of a subjective test and an attempt to ascertain from the facts the state of mind of the donor at the time of the transfer. United States v. Wells, supra; Allen v. Trust Co. of Georgia, 326 U.S. 630. ‘As the transfer may otherwise have all the indicia of a valid gift inter vivos, the differentiating factor must be found in the transferor's motive. Death must be 'contemplated’, that is, the motive which induces the transfer must be of the sort which leads to testamentary dispostion.‘ United States v. Wells, supra. Many gifts, however, are motivated by ‘purposes associated with life, rather than with the distribution of property in anticipation of death.‘ United States v. Wells, supra. These motives cover a wide range. ‘Where may be a desire to recognize special needs or exigencies or to discharge moral obligations. The gratification of such desires may be a more compelling motive than any though of death.‘ United States v. Wells, supra. It is, therefore, necessary to examine the facts and circumstances of each case to ascertain the ‘dominant motive of the donor in the light of his bodily and mental condition, and thus give effect to the manifest purpose of the statute.‘ United States v. Wells, supra.
What was the dominant motive of the decedent in making the transfer of substantially all of her property to her children when she was 86 years of age? Petitioner argues that because of decedent's advanced age she wished to be relieved of the responsibility of the management of her property and the collection of income; that in place of fluctuating and uncertain income she wanted a specified annuity, regardless of the amount from the securities. He maintains that all the circumstances indicate thoughts of life rather than death; that decedent continued to live in reasonably good health for approximately 12 years after the transfer and died from an accidental fall and not from any illness. Respondent argues that decedent's dominant purpose was to distribute her estate to her children, the natural objects of her bounty, while she lived and in lieu of disposition by will after death. Since she depended for her support upon the securities to be transferred, it was necessary in some way to retain the income for her maintenance and support, hence the reason for the sale device and the provision for the payment of $7,000 annually by the children. We think respondent's view is supported by the evidence, when viewed all together.
The evidence shows that on June 4, 1932, the decedent transferred to her children securities having a value of $147,366.33 as of the date or her death, divesting herself of all of her property save some real property in Albany, New York, valued at $6,000, and personal effects valued at $3,000. At the time of the transfer she was 86 years of age. She was mentally alert and physically active for her age.
However, it is reasonable to assume that decedent, being a practical woman, took into consideration the fact that she was 86 years of age, that the sands of life were running out, and that her life expectancy was short. It would be closing our eyes to the obvious to assume that thoughts of these matters did not enter into the decedent's mind and motivate the transfer. Age alone does not furnish a decisive test as to whether a transfer is motivated by considerations associated with death, United States v. Wells, supra; Flack v. Holtegel, 93 Fed.(2d) 512, but where, as here, other facts point to testamentary disposition, old age may tip the scales.
Decedent transferred the securities to the children in return for their promise to pay her $7,000 per annum for the term of her natural life. At the same time the children transferred the securities to the Girard Trust Co. of Philadelphia, as trustee, and provided that the trustee was to pay the net annual income of the trust, up to but not exceeding $7,000, to the decedent for life, and any excess over $7,000 was to be paid to the daughter. Upon the decedent's death the principal was to be paid to the three children equally. Petitioner claims that the reason for the transfer was that decedent wished to exchange the fluctuating income of the securities for an assured income of $7,000 per annum. But in practice she did not do this. She continued to receive the fluctuating income from the securities set up in the trust and the amount that she received averaged somewhat less than $7,000 per year, and the children never at any time attempted to make up the difference in order that she would have the fixed annual income of $7,000. Thus we think it is fair to hold that all decedent received as a consideration for the transfer was an amount equal to the net income from the securities transferred. The same result could have been accomplished by the decedent setting up the trust directly.
Moreover, the evidence does not convince us that the dominant motive of decedent in making the transfer was primarily associated with life. United States v. Wells, supra. The purpose of the transfer herein was not to aid her children or to have them enjoy the benefits of the property during her lifetime. The children received no benefit during her lifetime from the property transferred, since they were required to pay the decedent the annual amount of $7,000 during her life, which was the estimated amount, conservatively made, of annual income that the property transferred would yield. Moreover, the children immediately transferred the property in trust to secure this payment, as set out above.
We think the facts herein, when taken all together as they should be, point to motives of the sort which lead to testamentary disposition. The property transferred constituted substantially all of decedent's estate. By this act she put her house in order against the time of her demise. Decedent did not make a will thereafter and died intestate.
Petitioner maintains, however, that the transfer was a bona fide sale for an adequate and full consideration in money or money's worth and comes within the exception mentioned in 811(c) of the code, and for that reason it would not be subject to the estate tax. He maintains that the decedent made the transfer of the securities in consideration of the promise of the children to pay her an annuity of $7,000 a year.
The transfer agreement recited that, in consideration of the sale, transfer, assignment, and delivery of the property to the children, they agreed to pay decedent the sum of $7,000 per year during the term of her life. As we have pointed out above, the decedent die not receive the amount of $7,000 per annum, as provided in the transfer agreement, but continued to receive only the income from the securities transferred, which averaged less than $7,000 per year, and the children made no attempt to make up the difference. The substance of the transaction, therefore, is that all decedent received as a consideration for the transfer was the income from the securities transferred. As we have pointed out above, the same result could have been accomplished by the decedent setting up the trust directly. The whole arrangement, considered in respect of what was accomplished, was more of a testamentary disposition than a sale for an adequate and full consideration such as the statute contemplates in relieving a decedent's estate from taxation. Phillips v. Gnichtel, 27 Fed.(2d) 662.
The facts, in our judgment, support respondent's determination that the transfer made by decedent was made in contemplation of death, was a substitute for a testamentary disposition, and that the value of the transferred assets in the amount determined by the respondent is includible in decedent's gross estate. Smails v. O'Malley, 127 Fed.(2d) 410; Updike v. Commissioner, 88 Fed.(2d) 807; Oliver v. Bell, 103 Fed.(2d) 760; Purvin v. Commissioner, 96 Fed.(2d) 929; Worcester County Trust Co. v. United States, 35 Fed.Supp. 970; In re Kroger's Estate, 145 Fed.(2d) 901; certiorari denied, 324 U.S. 866. But even if we are wrong in holding that the transfer in question was made ‘in contemplation of or intended to take effect in possession or enjoyment at or after death,‘ as those words are used in section 811(c) of the code and as interpreted by the Supreme Court in United States v. Wells, supra, nevertheless, we would have to decide against petitioner by sustaining respondent's alternative contention, which is that ‘the transfer of June 4, 1932 by decedent was a transfer whereby possession and enjoyment of the income was retained by decedent.‘ Section 811(c) of the code, as amended, provides that there shall be included in a decedent's gross estate the value of property ‘of which he has at any time made a transfer 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 (1) the possession or enjoyment of or the right to the income from, the property * * *‘
It is petitioner's contention that decedent should not be regarded as the grantor of the trust of June 4, 1932; that the transfer of the securities on that date from decedent to her three children should be treated as a purchase by her from them of an annuity of $7,000; and that the creation of the trust on the same date by the three children in their mother's favor should be treated as an entirely separate transaction and one which was made for the protection of the children, to secure the payment of the annuity, without having to fall back on the children for its payment. If we should sustain petitioner's contention that the two transactions should be considered separate and apart from each other it would naturally follow that we would hold, in petitioner's favor, that decedent was not the settlor of the trust. However, we do not think the facts would warrant us in treating these two transactions separately, but that they must be considered as parts of the same transaction, and, when this is done, we think we must hold that decedent was the real settlor of the trust of June 4, 1932, for it was she who on the very day that it was created furnished the securities which comprised the corpus of the trust, and before the transactions were concluded she was to receive its entire income, annually and payable quarterly, up to $7,000 in any one year.
In the case of Estate of George W. Hall, 6 T.C. 933, the decedent in his lifetime in 1929 and 1930 had turned over to his two children certain securities for the purpose of having the children create two trusts. The income of these two trusts was to be paid to decedent for life. Upon decedent's death in 1941, the Commissioner included the value of these securities in decedent's estate under section 811(c) of the code, as amended. The taxpayer contested the Commissioner's determination on two grounds: (1) That the decedent was not the grantor of the two trusts and should not be so considered; (2) that even if decedent were considered as the grantor of the two trusts, they were created prior to March 1, 1931, and May v. Heiner, 281 U.S. 238, had not been overruled, but was still the law as to trusts created prior to March 3, 1931, and under May v. Heiner the corpora of the trusts would not be included in decedent's estate. In passing upon these contentions we overruled taxpayer's first contention and held that decedent must be regarded as the settlor of the two trusts, notwithstanding that they were actually executed by his two children. However, we sustained taxpayer's second contention and held that the value of the corpora of the two trusts should not be included in decedent's gross estate because the trusts were created prior to the amendment of March 3, 1931, and May v. Heiner, supra, had not been overruled. It is, of course, true that in the Hall case the parties had stipulated ‘that the securities which the decedent's two children conveyed to the respective trusts had been received by them for that purpose from the decedent immediately prior to the creation of the respective trusts and in the case of each trust the two transfers were simultaneous.‘ We have no such stipulation here. On the contrary, it is petitioner's contention that on June 4, 1932, the children received these securities from their mother with no strings whatever attached to them, that the matter of creating the trust was one entirely of their own volition, and that their mother had nothing whatever to do with it. However, as we have already stated, we think that, from all the evidence, we must consider the two transactions together, that the mother fully understood what was going on, and that she knew that contemporaneously with the transfer of the securities the children were to create a trust making her the income beneficiary of the trust to the extent of $7,000 a year. This was a part of the general agreement to which we think she was a party. When so considered, we do not think the facts on this point are distinguishable from those in the Hall case, except that in the Hall case the trust were created prior to the amendment of March 3, 1931, and in the instant case the trust was created after the date of such amendment. It is this latter difference which makes the difference in tax consequence.
The petitioner strongly urges the case of Estate of Sarah A. Bergan, 1 T.C. 543, as a case which supports his contention that the value of the property which decedent conveyed to her children on June 4, 1932, should not be included in her gross estate. We think the two cases are distinguishable. In the Bergan case the decedent and a sister, Mrs. Goggin, were the only heirs at law of a third sister, Mrs. Johnson, who died leaving a gross estate of approximately half a million dollars. Decedent orally agreed that she would convey to Mrs. Goggin the greater part of her share in her sister's estate in consideration of Mrs. Goggin's promise to support her in Mrs. Goggin's home for the balance of her life. Both parties carried out their agreement and thereafter decedent lived with and was supported by Mrs. Goggin for more than six years and until her death. This Court held that the agreement was not a transfer in contemplation of death and was not intended to take effect in possession or enjoyment at or after death, but was a sale for an inadequate consideration; that the part of the property transferred to purchase an annuity was a sale and the balance was a gift inter vivos upon wich the gift tax should be imposed. There are two vital factual differences, we think, between the Bergan case and the instant case, namely (1) In the Bergan case the agreement was actually carried out by Mrs. Goggin and she delivered the full consideration she had agreed upon by supporting Miss Bergan for the remainder ofher life, and (2) the transfer was effective immediately and at all times thereafter Mrs. Goggin was free to use the property in any way she saw fit. In our opinion in the Bergan case, among other things, we said:
From this the respondent argues that the result of the agreement between the two sisters was in substance the same as if Miss Bergan had transferred the property in trust with instructions to pay her the income therefrom for life and upon her death to deliver the principal to Mrs. Goggin, citing Tips v. Bass and Updike v. Commissioner, supra. We think these cases are distinguishable from the instant estate tax proceeding. In both these cases relied upon by the respondent actual trusts were created to secure the annuities, whereas no trust was created in the instant proceeding. Mrs. Goggin was free to use the property transferred to her in any way that she pleased. The title vested in Mrs. Goggin and not in any trustee. Miss Bergan did not reserve to herself the income from the property transferred. She had entered into a contract with her sister for support and transferred the property in question as consideration for the contract.
Because of the foregoing stated reasons, we think it is obvious that Estate of Sarah A. Bergan, supra, is distinguishable on its facts from the instant case.
Issue No. 2.— The deficiency notice includes in gross estate an item of $3,000 covering furniture, jewelry, and other personal property. The grounds of the inclusion are not stated, other than a reference to section 811 of the Internal Revenue Code. The only issue as to this particular property under the pleadings is whether this furniture, jewelry, and personal property was the property of the decedent at the time of her death. Petitioner alleged that during her lifetime the decedent made transfers of said property to her daughter. Respondent's answer denies this. The burden of proof is therefore upon petitioner. Petitioner meets this burden of proof by introducing in evidence a bill of sale, duly executed and delivered by decedent December 5, 1935, by which she conveyed to her daughter, Cornelia Beekman Schwartz, ‘All the goods and chattels in #435 Second Street, Lakewood, N.J., consisting of household furniture and general household effects, my personal belongings including my jewelry and excepting my articles of clothing.‘ There is nothing in the record which causes us to doubt the authenticity of this bill of sale or that by reason of it the daughter became the owner of these household effects and personal belongings of decedent, except her articles of clothing. Decedent had in 1927 conveyed to her daughter the residence at 435 Second Street, Lakewood, New Jersey, and there is nothing strange or unusual in her making a gift to her daughter of these household furnishings which were situated in the Lakewood residence.
Respondent does not contend that the gift, if any, of these articles by the mother to her daughter was made in contemplation of death. The issue is only one of ownership at time of decedent's death. On this issue, we sustain petitioner.
As we have heretofore stated, at the hearing petitioner amended his pleadings to ask for the allowance of larger attorney's fees. No evidence was offered on this issue, but both parties seem to agree that it is a question which will be properly settled by agreement underRule 50. The issue will be so treated.