Opinion
No. 42712.
January 6, 1936.
Albert A. Jones, of Washington, D.C. (F.E. Scott, of Washington, D.C., of counsel), for plaintiff.
J.H. Sheppard, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Argued before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by Wallace E. Gregg, administrator de bonis non, with the will annexed, of the estate of John W. Gregg, deceased, against the United States.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
I. Plaintiff is a citizen of the United States and a resident of the state of Maryland. He is the only child of John W. Gregg and Charlotte A. Gregg, both deceased. John W. Gregg (hereinafter sometimes referred to as the "decedent") died February 18, 1929, at the age of 86 years, leaving a last will and testament dated July 15, 1920, wherein he left his entire estate, both real and personal, to his wife, Charlotte A. Gregg, and named the said wife as the executrix of his estate. Charlotte A. Gregg died February 12, 1933, and the plaintiff was duly appointed administrator, d.b.n., c.t.a., of the estate of John W. Gregg, deceased, on July 25, 1934.
II. February 15, 1930, Charlotte A. Gregg, as executrix of the estate of John W. Gregg, deceased, duly filed an estate tax return which showed a gross estate of $731,187.66, a net estate of $662,417.76, and a tax due of $20,504.09, which latter amount was paid February 15, 1930. Thereafter certain adjustments were made which resulted in a reduction of the tax liability to $19,912.06 and a refund of the difference between that amount and the amount paid when the return was filed. In schedule E of that return the executrix reported the transfer of the following property by the decedent within two years prior to his death:
Farm property — Chillum — Prince Georges County, Maryland:
131½ acres — negotiations at date of transfer — for sale at a net figure. Contract signed, but deal fell through . . $110,000
The explanation set forth on the schedule regarding the transfer was as follows: "Owing to serious illness and probable incapacity, decedent, on February 11, 1929, gave a deed to farm property, Prince Georges County, Maryland, to his only child, Wallace E. Gregg — a possibility of sale of same was pending. Conveyance would enable Wallace E. Gregg to make deed."
III. Thereafter the executrix duly filed a claim for the refund of $5,500 (or such greater amount as was legally refundable) of the amount paid as set out in finding II and assigned the following basis therefor:
"The Federal estate taxes paid included the amount of $5,500.00 representing the tax on $110,000.00 which was fixed as the value of a farm of 131 acres at Chillum, Md., which property the said decedent had by deed conveyed to his son, Wallace E. Gregg, on February 11, 1929.
"Said conveyance was a gift and not made in contemplation of death, but was included in the return under `Schedule E — transfers' because of the provisions of the Revenue Act of 1926 providing that all gifts of property made within two years prior to the donor's death shall be deemed transfers made in contemplation of death and included as a part of the estate subject to tax.
"That on March 21, 1932, the Supreme Court of the United States in the cases of Heiner v. Donnan et al., 285 U.S. 312, 52 S.Ct. 358, 76 L.Ed. 772, and Handy v. Delaware Trust Co., Ex'r, 285 U.S. 352, 52 S.Ct. 371, 76 L.Ed. 793, held that such provisions of the 1926 act were invalid."
The Commissioner of Internal Revenue rejected the foregoing claim November 8, 1932, on the ground that the property referred to therein was transferred by the decedent in contemplation of death.
IV. For many years prior to his death the decedent had been engaged in the dairy business in and about Washington, D.C. He started in business with one milk wagon which he drove himself. At the time of his death he owned a large dairy with approximately 50 employees and had amassed a substantial fortune through his own efforts. While not educated, he was a man endowed with practical common sense, shrewd, and alert. In addition he was very industrious and much of his success was due to hard work on his part.
Until his last illness (referred to in finding VII) the decedent was actively engaged in the management of his dairy and in daily attendance upon his duties. Shortly before that illness he had ordered some new machinery and equipment, and when he became ill he told his foreman to wait until he (the decedent) was back on the job before completing their installation.
The decedent often referred with pride to the long lives which members of his family had enjoyed, mentioned one brother who had lived to the age of ninety-seven, and stated that he was going to live to the age of one hundred years.
V. Some 30 years prior to his death the decedent acquired approximately 130 acres of land (the property involved in this suit) located at Chillum, Md., in the suburban area of Washington, D.C. The land was used for dairy and farm purposes, but it was also held by the decedent with the expectation of subdividing it and making a real estate development. There was a beautiful grove of trees on the brow of a hill on the tract of land, and the decedent often indicated a desire to build a house for himself at that place. He had expressed a willingness to transfer the tract of land to his son in the event the son became financially able to pay the taxes on the property, and about 1925 had also suggested the possibility of transferring the land to the son and having the son build a house for himself thereon.
The son was married and made his home with his father. He was employed by his father in the dairy at a salary of $25 per week until two or three years prior to the decedent's death when his salary was increased to $35 per week.
VI. About 1926 or 1927 the decedent gave up farming and dairying operations on the land in question, since operations were at a loss. About that time he made a deed of gift to the Commissioners of Prince Georges county, Md., of a strip of land for the construction of an improved road through the property, which, in the opinion of the decedent, enhanced its possibilities for a real estate development. At or about that time he authorized Col. Harry C. Allen, an accountant who handled much of his business affairs, to advertise the tract of land for sale and to that end Allen negotiated with various real estate men who were interested therein. Among others, Allen authorized H. Latane Lewis, a real estate operator, to offer the property for sale. As a result one H.H. Muma, of Cumberland, Md., became interested in the property for the purpose of locating a cemetery thereon. While Muma desired only a certain half of the property, he was offered the entire property. Throughout the negotiations with Muma, as well as in other negotiations for the sale of the property, Allen conferred with Wallace E. Gregg as to proposed sales, since the decedent had told Allen of his ultimate purpose of giving the land to Wallace and of his desire to have him satisfied with whatever was done.
The negotiations with Muma continued from about January 1929 until March 12, 1929, at which time Muma executed two option purchase agreements, one for the 65 acres which Muma desired to purchase immediately and the other for the balance of the 130 acres which Muma advised Lewis he had no doubt he would be able to handle. On or about March 15, 1929, Muma sent Lewis $500 as a payment under the option agreements which were executed March 25, 1929, by Wallace E. Gregg, to whom the entire tract had been transferred by the decedent February 5, 1929, as will hereinafter appear. The proposed sale of the land to Muma did not materialize and the deposit of $500 was forfeited.
VII. Prior to January 1929, the decedent had enjoyed good health, and during the last 30 or 40 years of his life he had had no illness except slight colds. In January, 1929, he contracted a cold which developed into a mastoid abscess. After treatment for two or three weeks, to which the ailment did not respond, acute mastoiditis developed. About February 3, 1929, the decedent's daughter-in-law, wife of plaintiff, discovered that pus was excreting from one of his ears, and accordingly suggested an X-ray examination. The attending physician concurred in the suggestion and February 4, 1929, the daughter-in-law took him to an X-ray physician where the X-ray pictures revealed an acute mastoid condition. An immediate operation was recommended.
The decedent, upon being told that an operation was necessary, and that he should go to the hospital for that purpose, readily agreed. Except for his then present ailment, he was in splendid physical condition at that time for a man of his advanced age. He was taken to the hospital February 5, 1929, where the operation was performed on the same day, February 5, 1929. He came through the operation "fairly good," but he died February 18, 1929, from exhaustion of the heart due to the shock of the operation and hypostatic pneumonia.
VIII. Mastoiditis is essentially a childhood disease and it is rarely encountered in adults of the age of decedent. The ailment develops from cold settling in the mastoid cavity, and with the formation of pus very severe pain results, due to the fact that the pus is confined in a hard unyielding cavity. An operation to relieve mastoiditis is always dangerous, since there is only a thin tissue between the mastoid cavity and the brain, and that is particularly true in a person of advanced years, not only because of the inherent nature of the operation, but also because any illness or confinement of an aged person may result in serious complications. The attending physician did not discuss with the decedent the character of the operation and its attendant danger, nor did the decedent express to him any apprehension as to its outcome.
IX. On, or shortly prior to, the day on which the decedent was taken to the hospital for the operation referred to in finding VII, Colonel Allen, decedent's representative, mentioned in finding VI, prepared a deed for the transfer of the 130 acres of land in question from the decedent and his wife to his son, Wallace E. Gregg, and on the day on which the decedent was taken to the hospital for the operation Allen presented the deed to the decedent and his wife for execution. When Allen presented the deed to the decedent, the former referred to the latter's illness and suggested that under such circumstances he should not be bothered with signing a deed in the event a sale for the property materialized, and that accordingly he should carry out what he had mentioned on previous occasions, namely, transfer the property to Wallace. The decedent assented to the suggestion, and he and his wife thereupon (February 5, 1929) executed the deed. Neither at that time nor at any other time did the decedent state or indicate to Allen or to his son, Wallace E. Gregg, that such transfer was being made in order to effect a reduction of the estate tax which would be due on his estate in the event of his death.
Allen was aware of the decedent's illness and that the decedent had been at home on account of the illness for four or five days. He also knew, prior to the presentation of the deed for execution, that the decedent was to be taken to the hospital for the operation on the day on which he presented the deed to the decedent for his signature. The decedent and his wife knew at that time of the prospective operation and readily signed the deed when presented. The decedent, however, did not express either to Allen or to his son, Wallace E. Gregg, any uneasiness over the outcome of the operation.
X. The transfer made by the decedent February 5, 1929, of 130 acres of land to his son without consideration in money or money's worth was in lieu of a testamentary disposition and such transfer was in contemplation of death.
Conclusion of Law.
Upon the foregoing special findings of fact, which are made a part of the judgment herein, the court decides as a conclusion of law that the plaintiff is not entitled to recover and the petition is therefore dismissed.
Judgment is rendered against the plaintiff for the cost of printing the record herein, the amount thereof to be entered by the clerk and collected by him according to law.
The decedent, John W. Gregg, on February 5, 1929, transferred to Wallace E. Gregg, his son and only child, 131½ acres of land in Prince Georges county, Md., of a value of $110,000. The transfer was made by deed of conveyance and was without consideration in money or money's worth, being a gift pure and simple. On February 18, 1929, two weeks after making the transfer, the donor died. The value of the land was included by the Commissioner of Internal Revenue as a part of decedent's estate upon which a Federal estate tax of $5,500 was imposed and collected.
Claim for refund was duly filed by the executrix of decedent's estate upon the ground that the conveyance was not made in contemplation of death. The claim was disallowed by the Commissioner of Internal Revenue and suit thereon has been timely instituted. The sole issue is whether the transfer of the land in question was made by the decedent in contemplation of death within the meaning of section 302 of the Revenue Act of 1926 ( 44 Stat. 9, 70):
"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 — * * *
"(c) 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, except in case of a bona fide sale for an adequate and full consideration in money or money's worth."
The determination of the Commissioner of Internal Revenue that the transfer in question was made in contemplation of death is presumptively correct. It must be sustained unless it has successfully been rebutted by the plaintiff. What constitutes "contemplation of death" within the meaning of the taxing statute is defined in United States v. Wells, 283 U.S. 102, 51 S.Ct. 446, 452, 75 L.Ed. 867. It was there stated that "the words `in contemplation of death' mean that the thought of death is the impelling cause of the transfer." It was further stated that "It is contemplation of death, not necessarily contemplation of imminent death, to which the statute refers. It is conceivable that the idea of death may possess the mind so as to furnish a controlling motive for the disposition of property, although death is not thought to be close at hand," and that, "The question, necessarily, is as to the state of mind of the donor." Whether the transfer in question was made in contemplation of death must be determined under the tests laid down by the Supreme Court.
The plaintiff at the time the transfer in question was made was 85 years of age. He came from a long-lived family and often expressed the belief that he would live to be a hundred years old. He had enjoyed robust health until a few days before his death, and was in close touch with the details of the large business enterprise which he had built up from a small beginning. He was in fact the actual, although not the nominal, manager of the business. Shortly before his last illness he had ordered some new machinery and equipment. Before going to the hospital he instructed his foreman to delay the installation of this machinery until he got back on the job. The plaintiff contends that these facts completely refute the idea that at the time the transfer was made the decedent had changed his characteristic attitude of optimism and hopefulness toward life and then believed or had reason to believe that he was in a precarious condition of health which might result fatally in the near future.
It does not follow that because the plaintiff in the days and years prior to his last illness, when he was in perfect health and in the full tide of his successful business career, thought life "eternal," as one of the witnesses stated, that his mental attitude remained unchanged at the time the transfer involved was made. He was then suffering the severe pains incident to acute mastoiditis and was on the eve of entering the hospital for an operation which an X-ray examination had disclosed was immediately necessary. He was, as shown by the record, a man of keen discernment and rugged common sense, and could not help but realize the seriousness of his condition and have apprehensions that this operation, always dangerous, might result fatally to a man of his advanced age. That the decedent's physician did not explain to him the nature of the operation, or its attendant danger, and that the decedent expressed no apprehension as to its outcome is an important fact to be considered with the other facts and circumstances shown, but it is not conclusive as to the decedent's state of mind at the time the transfer was made and of itself is insufficient to overcome the presumption that the transfer was made in contemplation of death. Unless all human experience be discarded, the inference, in the absence of most convincing proof to the contrary, is inescapable that a man 85 years of age stricken with a serious ailment requiring a delicate and dangerous operation must have grave apprehension as to its successful outcome. If in this situation he transfers a material part of his property without consideration, as the decedent in this case did, to one to whom the property would naturally go in the course of time, the conclusion manifestly must be that the transfer was in the nature of a final disposition or distribution thereof, and was made in contemplation of death.
The plaintiff has failed to show any motive for the transfer consistent with the purposes of life. The decedent had owned the tract of land involved for more than 30 years. It had never been profitable and some two or three years before the transfer its use in the decedent's business had been discontinued. The decedent had often indicated a desire to build a house for himself on the land but never did so. He had also from time to time during the last four or five years of his life expressed a willingness to transfer the tract to his son in the event he became financially able to pay the taxes on the property, with the possibility that the son might build a home for himself thereon. This was not done for the apparent reason that the son who was working for his father at $35 per week never became financially able to maintain the property. This was the situation on February 5, 1929, when the property was transferred. It cannot be said that the transfer when made was the carrying out of plans long made by the decedent, as his expressed willingness to transfer the property to his son was on the condition that the son became financially able to pay the taxes on the property. The son was no more able to pay the taxes on the property when the transfer was made than he had been before that time — he was still working for the decedent at $35 per week and so far as the record shows possessed no property whatever. Neither was the transfer made to the son in the expectation that he would build a home on the property as the decedent before the transfer was negotiating for the sale of the entire tract, which negotiations shortly after decedent's death terminated in the giving of options by the son to one Muma for the purchase of the entire tract.
The contention is made that in addition to the motives mentioned the decedent made the transfer in order to be relieved from the burden of the pending negotiations for the sale of the property and the signing of the deed in the event a sale of the property materialized. The facts do not sustain this contention. The decedent was at no time burdened with the negotiations looking to the sale of the property, as all these negotiations had been handled and were then being handled by his representative Allen. It does not appear that he at any time conferred with prospective purchasers or personally took part in any negotiations in respect to the proposed sale. Throughout the entire negotiations Allen, while he was the agent of the decedent, conferred with the son Wallace and not with the decedent in reference to proposed sales. The transfer of the property to the son therefore relieved the decedent of no burdens in respect to pending negotiations for the sale of the land, and obviously the execution of the deed to the purchaser in case the sale was consummated would have entailed no greater burden on the decedent than did the execution of the deed to his son.
The question as to whether the transfer involved was in contemplation of death is one of fact. The evidence adduced by the plaintiff in support of its contentions that the transfer was not in contemplation of death but was actuated by other motives consistent with the thought and purposes of life is not sufficient to outweigh the presumptive correctness of the Commissioner's determination that it was so made. We have therefore made an ultimate finding that it was made by the decedent in contemplation of death.
It follows that the petition must be dismissed. It is so ordered.