Opinion
No. 45178.
October 5, 1942.
John C. Taylor, of Cincinnati, Ohio (Evert L. Bono, of Washington, D.C., on the brief), for plaintiffs.
Joseph H. Sheppard, of Washington, D.C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for defendant.
Before WHALEY, Chief Justice and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
Action by Ethan B. Stanley and Taylor Stanley, executors of the estate of Blanche T. Stanley, deceased, against the United States, to recover estate tax and interest levied against plaintiff.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following
Special Findings of Fact.
1. Plaintiffs are the duly appointed and acting executors of the Estate of Blanche T. Stanley, who died December 21, 1935, at the age of seventy years. Plaintiffs Ethan B. Stanley and Taylor Stanley are, respectively, the widower and the son of the decedent.
2. December 15, 1936, plaintiffs filed an estate tax return for the Estate of Blanche T. Stanley reporting a gross estate of $492,707.77, deductions of $67,041.15, and a net estate of $425,666.62, on which an estate tax was shown in the amount of $63,601.99. That tax was paid December 17, 1936.
3. February 23, 1938, the Commissioner of Internal Revenue advised plaintiffs of a proposed increase in the decedent's gross estate and a proposed deficiency on account thereof. Among the increases in the gross estate was an item of $200,000 which had not been included in the return as filed by plaintiffs. That item was described by the Commissioner as follows:
Tentatively Determined Returned
The value of the following described property, transferred by the decedent, is included in the gross estate pursuant to the provisions of Section 302(c) of the Revenue Act of 1926, as amended, as a transfer made in contemplation of death:
10,000 shares, The American Laundry Machinery Company 0.00 $200,000.00
Later, the Commissioner made further adjustments in the return which resulted in a further deficiency. Thereafter, the Commissioner assessed the deficiencies referred to above and plaintiffs paid them as follows:
March 21, 1938 ...................... $38,723.50 March 21, 1938 (interest) ........... 2,323.41 August 25, 1938 ..................... 6,686.21 August 25, 1938 (interest) .......... 573.79 September 28, 1938 (interest) ....... 3.33
4. April 21, 1939, plaintiffs filed a claim for refund in the amount of $48,306.91 and assigned the following grounds therefor:
"(1) The payment of tax in the sum of $38,723.50 plus interest thereon in the sum of $2,323.41 is a result of the determination of the Commissioner that a gift of 10,000 shares of The American Laundry Machinery Company stock made by the decedent to her husband was in contemplation of death. The taxpayer contends that this is not a fact and that the decedent did not make the gift in contemplation of death but made it solely because her husband had formerly given the stock to her and asked her to return it to him because the Government had begun publishing the holdings of officials of various corporations and that in his position as President of The American Laundry Machinery Company he felt that it was extremely desirable to be able to report larger holdings than he then had.
"(2) The tax of $6,686.21 with interest thereon in the sum of $573.79 was paid because of the determination of the Commissioner, concluding that the sum of $30,000.00 was a part of the gross estate while the taxpayer contends that this $30,000.00 constituted the proceeds of insurance within the meaning of Section 302(G) of the Revenue Act of 1936."
January 9, 1940, the Commissioner rejected the above claim for refund and assigned as a basis for his action with respect to the first item in the claim the following:
"(1) Review of all available evidence indicates that the transfer of 10,000 shares of American Laundry Machinery Company stock was made by decedent in contemplation of death, in view of her age, state of health preceding and at the time of transfer, and proximity of the transfer to her death. It is therefore included in her gross estate as taxable under the provisions of section 302(c) of the Revenue Act of 1932 as amended."
After this suit was instituted a stipulation was filed by the parties under which the second item referred to in the above claim was waived by plaintiffs, thus leaving as the only issue in the case the question of whether the transfer of the stock in the American Laundry Machinery Company was a gift in contemplation of death. It was further stipulated that the amount involved on account of this issue is $36,820.47 and, if recoverable, should bear interest as follows:
"On $3.33 from September 28, 1938; On $7,260 from August 25, 1938; On $29,557.14 from March 21, 1938."
5. Plaintiff, Ethan B. Stanley, husband of the decedent, was one of the founders of the American Laundry Machinery Company which was organized in 1907, and was chairman of its executive committee for many years. He has been president of the company since 1925. On each of the following dates, August 24, 1917, March 5, 1918, and March 26, 1918, he made a gift to the decedent of 1,000 shares of stock in the American Laundry Machinery Company. That stock had a par value of $100 a share and the 3,000 shares which he thus gave to his wife constituted approximately half of his holdings. As a result of stock dividends and readjustments in the par value of the stock, the shares received by the decedent from her husband had increased to 16,000 by August 1935. Her husband held approximately the same number of shares at that time. At that time the husband was the largest stockholder of the active officers, but the total outstanding stock of 587,024 shares was widely held. It was listed on both the Cincinnati Stock Exchange and the New York Curb Exchange and there were approximately 5,000 stockholders.
6. About April 1935, the interest of Ethan B. Stanley was aroused in the requirement of the Securities and Exchange Commission that corporations whose stock was listed on exchanges must make public the salaries of their officers with their respective stockholdings, and newspaper items were appearing showing the salaries and stockholdings of various officers in various companies. During the next month or two, the husband indicated to the decedent that in the event of the publication of that type of information with respect to the American Laundry Machinery Company he would like to show ownership of a larger number of shares of stock of the company and suggested to her the transfer to him of some of her stock. The decedent acquiesced in the proposal. The husband discussed the matter with his lawyer who advised him that in view of the importance of the matter, there should, in the event that transfer was made, be present at that time persons in addition to the members of the family. As will hereinafter appear, the decedent was then an invalid. Acting on the lawyer's advice, a discussion was had with the decedent on August 12, 1935, as to the transfer of stock which was to be made by her to her husband. There were present, in addition to the decedent and her husband, the decedent's physician, her son, and her nurse. The husband explained to the decedent his desire to have her transfer to him 10,000 shares of stock in the American Laundry Machinery Company for the reasons heretofore given and the decedent indicated that she had no objection to making the transfer. At that time the decedent's physician discussed various matters with the decedent from which he assured himself that she was mentally capable of making the transfer and that she was aware of the act which she was performing. At neither of these meetings nor at any other time in discussions between the decedent and her husband of this transfer was any mention made of the decedent's expectation or contemplation of death, nor of any tax savings which might result to her estate because of the gift.
August 16, 1935, in the presence of her son, Taylor Stanley, her husband, Ethan B. Stanley, a notary public, and a nurse, the decedent executed a power of attorney in favor of her son empowering him to transfer 10,000 shares of her stock in the company to her husband. The decedent was in bed at the time she signed the power of attorney, and because of her position in bed and the unsteadiness of her hand due to her physical condition, her son held her hand while she executed the instrument.
7. August 17, 1935, Taylor Stanley, the son, acting under the power of attorney referred to in the preceding finding, executed the necessary assignments on the reverse side of the stock certificates transferring the 10,000 shares of stock to his father, Ethan B. Stanley. At that time and for many years prior thereto the husband, Ethan B. Stanley, had had a general power of attorney to act for the decedent, and he and the decedent also maintained a joint bank account in which dividends from stock, proceeds of the sale of stock, and other funds were deposited. The husband had a substantial income and this stock was not required by him because of any financial need of the income therefrom.
As hereinbefore found, decedent died December 21, 1935, about four months after the gift.
On or about March 12, 1936, plaintiffs filed a gift tax return on behalf of the decedent on account of the above transfer showing a gift tax due of $6,562.52. Plaintiffs paid that tax March 12, 1936, and the Commissioner in the determination of the estate tax deficiencies referred to above made an appropriate adjustment for that gift tax payment.
8. June 4, 1933, decedent had executed a will under which she provided for the creation of a trust fund of $50,000, the income and principal of which were to be disposed of as follows:
"The net income of said trust shall be paid by the said trustees quarterly to my husband, Ethan B. Stanley, during his life. Upon the death of my said husband the said income shall be paid to my grandson, Taylor Stanley, Jr., if he be living, until he shall reach the age of thirty-five (35) when the principal shall be turned over to him and the trust terminated, but should he die within the age of thirty-five (35) years then (my husband being dead), the principal shall go at once to my son, Taylor Stanley."
The remainder of her property was by this will left to her husband.
March 12, 1935, the decedent executed a codicil to her will which read as follows:
"This is a codicil to my will. Instead of leaving all the residue of my estate to my husband, Ethan B. Stanley, outright, as I have done by Item II, I revoke that item and give my said husband, Ethan B. Stanley, my half in our homestead property outright and leave all the balance of the residue of my estate in trust and direct that Ethan B. Stanley shall have all the income of it during his life, and then my son, Taylor Stanley, shall have all the income of it during his life, and then it shall all go outright to Taylor's children. My husband, Ethan B. Stanley, is to be the Trustee as long as he lives and have complete power to buy and to sell, borrow or do anything else with regard to my estate that I might do if living, and all without any bond or order of court or legal restriction whatever and after the death of my said husband, Ethan B. Stanley, the trustee is to be whoever he may name in his will, with the same powers and without bond. In all other respects my Will is to stand as written."
9. September 26, 1935, the decedent took out a life insurance policy in the amount of $30,000 and purchased an annuity contract, both being effective October 1, 1935. Each was a single premium policy, the premium on the annuity contract being $6,642.49, and the premium on the life insurance policy $25,966.20. The insurance company would not have issued the life insurance policy without the annuity contract, and both were entered on the company's books as a single combination contract. The application for the policies was signed by Ethan B. Stanley for the decedent, who took no medical examination.
What part, if any, the decedent took in arranging for the policy and the annuity contract does not appear.
10. In August 1935, when the decedent made the transfer of the 10,000 shares of stock of the American Laundry Machinery Company referred to in finding 7, she had been an invalid for some years on account of a spinal ailment. This condition began about 1928 or in the early part of 1929. As a result thereof in the early summer of 1929, a local physician was consulted who recommended that she obtain treatment therefor in New York City. On that recommendation decedent was taken by her husband to Dr. Ellsberg's Neurological Hospital where she received X-ray treatments from August to December 1929. At that time she had a deformation at the third lumbar vertebra which was caused by a giant cell sarcoma or tumor growth slightly to the left of the vertebra. Dr. Ellsberg told the decedent and her husband that there was no malignancy in the tumor; that the only difficulty was that there was a small cavity in her spine where a part of a vertebra had disappeared but that it would fill up with calcium deposit, and that she would completely recover. On her return to her home from New York City in December 1929, she was confined to her bed for several weeks and had a nurse in attendance. Thereafter she was able to be up and lead a normal life, going shopping, looking after her household, and taking trips.
11. In the early part of 1933 the condition in her back again began giving her trouble. X-ray treatments were at first given in Cincinnati by one physician, but satisfactory results were not obtained and another physician was called in about September or October 1934. The latter, after consultation with still another physician, decided upon the use of radium treatments. As a result of that decision a physician from Chicago, who specialized in radium treatments, came to Cincinnati and gave her such treatments beginning late in 1934 or in January 1935. In addition to radium, she was given some diathermic treatments. The illness was diagnosed as the same as that for which she was treated in New York City in 1929 and was described as a benign giant cell sarcoma about the size of a golf ball. Satisfactory results were obtained from the radium treatments.
In addition to the trouble with her back, the decedent had a gall bladder attack in March 1933 and an attack of pyelitis in 1934, the latter recurring from time to time as long as she lived. She was never able to walk from about March 1933 to the time of her death, having to move about in a wheel chair. Two nurses were in constant attendance from the spring of 1933 until the time of her death. Because of her long confinement and her illness both of the decedent's legs had atrophied and there was very little muscular tissue on them.
12. The decedent was of a cheerful disposition and took an active interest in her household until a short time prior to her death. She was a Christian Scientist and at no time did she discuss death or in any way indicate that she expected to die from her illness. Until shortly before her death she was planning for the future, contemplating the education of her grandson, and making plans for Christmas.
13. On December 20, 1935, the decedent had a sudden heart attack and died a few hours later. The attending physician's death certificate described the cause of her death as "Acute cardiac dilitation, result of coronary sclerosis and occlusion which was part of generalized vascular sclerosis," with contributory or secondary causes of "sarcoma of the spine" and "generalized vascular sclerosis."
14. The 10,000 shares of stock of the American Laundry Machinery Company transferred by the decedent to her husband within two years of her death without consideration in money or money's worth, as shown in findings 6 and 7, constituted a material part of the decedent's property. The evidence is insufficient to justify a finding that the decedent did not make the transfer here in question in contemplation of death.
The question here is whether a gift was one made "in contemplation of death" so that the property given was required to be included in the donor's estate for purposes of taxation, or was, on the other hand, an ordinary gift inter vivos which separated the given property from the rest of the estate and subjected the given property only to the applicable gift tax. The amount of the difference in the taxes is $36,820.47.
The facts relating to the condition of the donor's health and state of mind, and the events preceding and accompanying the gift, are related in findings 5 to 14. We have, then, a case in which the decedent on August 16, 1935, made a gift of stock of a value of $200,000.00 and died on December 21, 1935, leaving a gross estate of a little less than $500,000.00.
The Revenue Act of 1926, c. 27, 44 Stat. 9, Sec. 302, as amended by Section 803 of the Revenue Act of 1932, c. 209, 47 Stat. 169, 26 U.S.C.A. Int.Rev. Acts, page 228, provided:
"Sec. 302. 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, 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 title."
The presumption stated in the last sentence of the section is applicable. The Commissioner of Internal Revenue concluded, after consideration of plaintiffs' claim for a refund of the estate taxes paid, that the gift had been made in contemplation of death.
Our problem is whether plaintiffs have proved that the gift was not made in contemplation of death. The advanced age of the decedent, her helpless condition, and the several serious maladies which had afflicted her for some two years prior to the making of the gift point in the same direction as the statutory presumption. Plaintiffs urge, however, that the reason for the gift was that decedent's husband asked for it, for the purpose of being able to show a larger holding of the stock if the Securities and Exchange Commission should obtain and publish information as to his holdings.
The decedent had, by a will executed in 1933, left substantially all of her property to her husband. On March 12, 1935, not long before he requested the gift from her, she had made a codicil to her will in which she gave him outright only her half of the homestead, placing the rest of her property in trust for him for life, then for their son for life, then for the son's children absolutely. The husband's request, in these circumstances, tends to show that he was seeking to obtain by gift a considerable part of what the codicil had denied him. But he did not act with such haste as might have been expected if he had anticipated her early death. There seems to have been some delay, though the proof does not show how much, between the time he obtained her assent and the time he consulted his lawyer about the conveyancing. That consultation took place in June, yet he did not have the transaction completed until August.
On the other hand, his deliberation in bringing about the transfer makes one doubtful as to whether his real reason for wanting the stock was the one he expressed. If the Securities and Exchange Commission was already publishing the holdings of officers of some companies, he could hardly have had any assurance that his company would not be reached during the months that intervened between his request and the receipt of the stock. The evidence does not satisfy us that the husband's real reason for asking for the gift was that he wished to make to the Securities and Exchange Commission a showing of larger holdings of the stock.
Perhaps the husband's real reason is immaterial. Perhaps the reason which he expressed to the decedent and she believed is all that is material. We are, however, persuaded from all the circumstances of the case that the decedent would not have given away almost one-third of a large fortune, apparently without hesitation or deliberation, and contrary to the arrangements of her recently revised will, in response to a request based upon a reason which it seems to us would have carried very little weight in the opinion of a normal person. We think it probable that the reason that she did acquiesce was that she was ill and helpless and for that reason fairly indifferent as to the disposition of her property so long as it was kept within her family. We think that such a gift of property is made, not in contemplation of life, but of death.
That the husband at least was conscious of the problem of estate taxes is shown by the fact that within a month after the gift, he used the general power of attorney which he held from the decedent to purchase, with her money, single premium life and annuity policies for a combined purchase price larger than the face of the life policy. This move could hardly have had any other motive than that of minimizing estate taxes. That it would be ineffective for that purpose was not known at that time. See Helvering v. Le Gierse, 312 U.S. 531, 61 S.Ct. 646, 85 L.Ed. 996.
Plaintiffs have not produced evidence which has persuaded us that the gift was not in contemplation of death. Their petition will, therefore, be dismissed.