Opinion
Docket No. 3882-67.
1969-05-21
ESTATE OF EMIL LINDERME, SR., DECEASED, EMIL M. LINDERME, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
William W. Falsgraf, for the petitioner. John P. Graham, for the respondent.
William W. Falsgraf, for the petitioner. John P. Graham, for the respondent.
In 1956, decedent executed a quitclaim deed of his residence in favor of his three sons. He continued his exclusive occupancy of the premises until he entered a nursing home in March 1963. The residence thereafter remained vacant until October 1964. Held, under all the facts and circumstances, decedent retained the ‘possession or enjoyment’ of the residence until his death and the property is includable in his gross estate under sec. 2036(a)(1), I.R.C. 1954. Estate of Allen D. Gutchess, 46 T.C. 554 (1966), distinguished.
TANNENWALD, Judge:
Respondent determined a deficiency in petitioner's estate tax in the amount of $11,075.89. The sole issue remaining for our determination is whether the decedent retained the possession or enjoyment of his residence within the meaning of section 2036
following the execution of a quitclaim deed in favor of his three sons.
All references, unless otherwise specified, are to the Internal Revenue Code of 1954, as amended.
FINDINGS OF FACT
Some of the facts are stipulated and are found accordingly.
Petitioner is the son of Emil Linderme, Sr., who died October 12, 1964, and the sole executor under his will. His legal residence at the time of filing the petition herein was Euclid, Ohio. The estate tax return was filed with the district director of internal revenue, Cleveland, Ohio.
Emil Linderme, Sr., resided at 16205 Shaker Boulevard, Shaker Heights, Ohio, from 1936 until March 1963, when he entered a nursing home, where he remained continuously until his death. The decedent's wife, Fredericka Linderme, died on March 22, 1955.
Emil Linderme, Sr., executed a quitclaim deed for his residence on September 7, 1956, in favor of his sons, Emil M. Linderme, Fred W. Linderme, and Edwin G. Linderme, which was recorded in the deed records of Cuyahoga County, Ohio, on September 10, 1956. The deed was then delivered by the decedent to Emil M. Linderme. Since he acted as custodian of his father's papers, he placed the deed in a file maintained in the decedent's name, where it remained until after the decedent's death. The decedent received no consideration for this transfer and no Federal gift tax return was filed. The other two brothers were not made aware of the deed until after the death of Emil Linderme, Sr.
The decedent continued to live alone in the house without paying rent until his removal. Each of the decedent's sons has a family and at all times pertinent maintained residences independently of the decedent.
Emil Linderme, Sr., continued to receive the bills for, and paid with his own funds, the real estate taxes, insurance premiums, maintenance expenses, and all other expenses relating to the property until he entered a nursing home in March 1963. Thereafter, the property remained vacant; all expenses incident to the property were paid by Emil M. Linderme from funds belonging to the decedent. The Linderme brothers never discussed the sale or rental of the property until after their father's death. About a year and one-half after the death of Emil Linderme, Sr., the property was sold and the proceeds were utilized to pay certain expenses of the estate, the remaining balance being then divided among the three sons.
In 1936, the decedent had transferred practically all his shares in the Linderme Tube Co., which he had founded, to his three sons.
The legatees under the decedent's will were Emil M. Linderme, Albina Rovniak, and the Emil M. Linderme Foundation.
Edwin G. Linderme died on July 20, 1965, and Fred W. Linderme died on October 16, 1965.
ULTIMATE FINDING OF FACT
From the time of the transfer in 1956 until his death in 1964, decedent had an understanding pursuant to which he retained the exclusive use of the property in question.
OPINION
The sole issue confronting us is whether the decedent retained the ‘possession or enjoyment’ of his residence so as to bring its value within his gross estate for purposes of the Federal estate tax pursuant to section 2036(a)(1).
SEC. 2036. TRANSFERS WITH RETAINED LIFE ESTATE.(a) GENERAL RULE.— The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at 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, 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.Respondent also based the notice of deficiency upon sec. 2033. During the course of opening statements at the trial, respondent's counsel, in response to a specific question by the Court, agreed that a lifetime gift had been made and that the only issue was whether that gift was of the entire property or of a lesser interest. Under these circumstances, we consider that respondent has conceded any issue under sec. 2033.
Petitioner insists that respondent's assertion of the applicability of section 2036(a)(1) constitutes an unwarranted attempt to create a statutory presumption of retention of ‘possession or enjoyment’ from the mere fact of occupancy of the residence by the decedent from the time of the quitclaim deed in favor of his three sons in 1956 until his removal to a nursing home. We do not thus interpret respondent's position. Rather, we understand respondent to argue that, based upon an evaluation of all the facts and circumstances herein, there are adequate grounds for inferring an agreement or understanding on the part of decedent and his three sons sufficient to bring the transfer within the sweep of section 2036(a)(1). We agree with respondent.
The facts involved herein are clear. Decedent executed a quitclaim deed to the residence to his three sons in 1956. At that time, he delivered the deed to his son Emil. While the other two sons were not made aware of the delivery until after the father's death, we think it a reasonable assumption that Emil's actions in accepting the deed and in dealing with the decedent in respect of subsequent treatment of the property coincided with their views. Although the deed had been recorded prior to delivery, it was put into a file with decedent's other papers— a factor perhaps of more significance if there were an issue as to whether any gift was made, but also having some bearing on the existence, of an understanding with respect to decedent's interest in the property. Decedent continued in exclusive possession of the residence until he entered the nursing home. The residence was unoccupied from that time until his death about a year and a half later. There was neither consideration of any sale or rental of, nor any effort to sell or rent, the residence during that interval, thus indicating that the property was being held available for decedent's possible return. From the date of the quitclaim deed until his death, decedent's funds were used to pay all the expenses relating to the property, including real estate taxes, insurance premiums, and costs of maintenance. Even after the property was sold, part of the proceeds of sale were used to pay the obligations of decedent's estate. While this factor also would have greater bearing on the ‘any gift’ issue (see fn. 2, supra), it is a further indication, when taken into account with the other elements involved herein, of a retained interest in decedent.
Petitioner claims that the application of section 2036(a)(1) under the foregoing circumstances would unjustifiably extend the frontiers of that section contrary to the mandate of the decided cases and particularly our decision in Estate of Allen D. Gutchess, 46 T.C. 554 (1966), acq. 1967-1 C.B. We disagree. Petitioner correctly concludes that it is neither necessary that the proscribed retained interest be expressed in the instrument of transfer nor necessary that the decedent have a legally enforceable right to possession or enjoyment. Petitioner, however, points out that, in all of the decided cases in which section 2036(a) was held applicable to situations similar to that involved herein, the property was income-producing (Estate of Daniel McNichol, 29 T.C. 1179 (1958), affd. 265 F.2d 667 (C.A. 3, 1959); Estate of G. W. Peck v. United States, an unreported case (M.D. Ga. 1965, 16 A.F.T.R.2d 6125, 65-2 U.S.T.C.par 12,333); Carpenter v. United States, 243 F.Supp. 993 (W.D. Okla. 1965); Estate of Harter v. United States, an unreported case (N.D. Okla. 1954, 48 A.F.T.R. 1964, 1965-1U.S.T.C.par. 11,503)
and that, in all of the decided cases which refused to apply that section, the property involved was non-income-producing. Union Planters National Bank v. United States, 361 F.2d 662 (C.A. 6, 1966); Estate of Binkley v. United States, 358 F.2d 639 (C.A. 3, 1966); Diehl v. United States, an unreported case (W.D. Tenn. 1967, 21 A.F.T.R.2d 1607, 68-1 U.S.T.C.par. 12,506); Stephenson v. United States, 238 F. Supp. 660 (W.D. Va. 1965); Estate of Allen D. Gutchess, supra; Estate of Robert W. Wier, 17 T.C. 409 (1951). Petitioner then seeks to parlay the foregoing decisions into the negative proposition that, unless income-producing property is involved, no agreement or understanding with respect to a decedent's retention of ‘possession or enjoyment’ can be inferred.
See also Estate of Ethel M. Bullock, T.C. Memo. 1960-204.
To be sure, the factual distinction emphasized by petitioner does exist in these cases. But a more significant element seems to have been the fact that there was no withholding of occupancy from the donee. In the absence of such withholding, the continued co-occupancy of the property by the donor with the donee was considered, in and of itself, an insufficient basis for inferring an agreement as to retained possession or enjoyment. See Estate of Allen D. Gutchess, 46 T.C.at 556-557. The presence of income from the property was simply a useful ancillary tool for decision rather than a limiting principle imposed as a matter of law. The retention of income was thus only an example, albeit a very clear one, of ‘possession or enjoyment.’ Moreover, most of the cases decided in favor of the taxpayer involved a husband-wife relationship where the crosscurrent of section 2040 was at work. See concurring opinion in Estate of Allen D. Gutchess, 46 T.C.at 558.
In the instant case, the decedent continued to occupy the residence to the exclusion of the donees or anyone else whose status stemmed from their rights to the property. Surely that occupancy was as much an ‘economic benefit’ as if decedent had rented the property and obtained the income therefrom. See Estate of Daniel McNichol, 29 T.C.at 1184. Additionally, such exclusive occupancy, while not necessarily determinative, should be accorded greater significance than co-occupancy in the process of evaluating the various facets of a particular situation in order to determine whether an understanding existed whereby a decedent would retain possession or enjoyment.
In Commissioner v. Estate of Church, 335 U.S. 632 (1949), the Supreme Court, in dealing with the predecessor of section 2036, in the context of transfers in trust, cut the shackles of earlier decisions and stated (355 U.S.at 645-646):
an estate tax cannot be avoided by any trust transfer except by a bona fide transfer in which the settlor, absolutely, unequivocally, irrevocably, and without possible reservations, parts with all of his title and all of his possession and all of his enjoyment of the transferred property. After such a transfer has been made, the settlor must be left with no present legal title in the property, no possible reversionary interest in that title, and no right to possess or to enjoy the property then or thereafter. In other words such a transfer must be immediate and out and out, and must be unaffected by whether the grantor lives or dies.
The long judicial and legislative history involved in the Church doctrine is set forth in detail in McNichol's Estate v. Commissioner, 265 F.2d 667, 670-673 (C.A. 3, 1959).
We take our cue from this mandate for a broad inclusion within the gross estate pursuant to section 2036(a)(1). The burden of proof is on the taxpayer and, in cases of this type, that burden may be a heavy one. Skinner's Estate v. United States, 316 F.2d 517, 520 (C.A. 3, 1963); cf. Estate of Henry Wilson, 2 T.C. 1059, 1091 (1943). But such difficulty does not justify exclusion from the operation of section 2036(a)(1). On the basis of the entire record herein, we are satisfied as our ultimate finding of fact reflects that, beyond the mere existence of the family relationship and the mere occupancy of the premises, decedent did have an understanding whereby he retained the exclusive use of the residence until his death. The property in question is thus includable in decedent's gross estate under section 2036(a)(1).
One final word. In the petition, petitioner expressly placed in issue the deductibility of additional legal fees incurred because of this proceeding. Obviously, until a final disposition is made, the amount of those fees cannot be determined. Under these circumstances, respondent's attempt to contend that petitioner conceded this issue by not producing any evidence at trial or not specifically reserving a position with respect thereto in the opening statement is in blatant disregard of Rule 51 of the Rules of Practice of this Court and of section 20.2053-3(c) of respondent's own regulations. The deductibility of this item will be determined at a later date within the limits of sections 2053(b), 6501, and 6503(a)(1). Estate of Charles C. Hanch, 19 T.C. 65 (1952).
In order to reflect other adjustments,
Decision will be entered under Rule 50.