Summary
In United States Trust Co. v. United States, 23 F. Supp. 476, 87 Ct.Cl. 721, decedent at the age of 67 made her will at the same time as she declared in writing her intention to create the trust in question.
Summary of this case from Hoover v. United States, (1960)Opinion
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:
1. Plaintiff is executor and trustee of the estate of Sarah Postlethwaite Barber, who departed this life August 6, 1917. Her last will and testament was signed December 31, 1915, and after making certain specific bequests and setting up certain trusts for the benefit of her descendants, named plaintiff executor of the will and trustee of the trusts. A copy of the last will and testament is filed in the case as plaintiff's exhibit No. 1 and is made part hereof by reference.
At the time the decedent signed her last will and testament, December 31, 1915, she also signed an instrument whereby she declared it to be her intention, as soon as she was in receipt of property to which she was entitled form the estate of her late husband, Herbert Barber, to create a trust for beneficiaries named in her will, substantially similar to the trust described and set forth in the will reserving to herself a life estate in the trust property. A copy of the declaration of intention to create a trust is filed in the case as plaintiff's exhibit No. 44 and is made part hereof by reference.
The plaintiff received from the decedent the will and the declaration simultaneously, January 6, 1916.
2. On December 27, 1916, the decedent executed a deed of trust, whereby she assigned and conveyed to the plaintiff company property and securities described therein, in trust for certain purposes, in general, to hold and manage the same, to pay over net income derived therefrom to the decedent during her life, thereafter to designated beneficiaries, the decedent reserving the right to add to the trust fund from time to time and the right to direct the trustee in writing to sell any or all of the shares of Barber & Company upon such terms as she might direct, the trustee retaining the entire proceeds as a part of the trust fund.
A copy of the deed of trust is filed in the case as plaintiff's exhibit No. 2, and is made part hereof by reference.
3. Plaintiff, as executor and trustee under the will, made returns for estate tax to the Internal Revenue Bureau on Form 706 as follows:
"(1) On July 30, 1918, net estate $1,922,623.97, tax thereon $144,536.16, listed as 'gifts and transfers,' being the trust property embraced in the deed of trust dated December 27, 1916. "(2) On July 30, 1918, net estate $718,864.26, tax thereon $40,414.82, being property not included in the deed of trust. "(3) On August 5, 1918, a revised return, combining the returns of July 30, 1918, indicating a net estate of $2,641,488.23, and tax thereon of $218,856.26, which was assessed, an increase of $33,905.28 in tax over an aggregate tax of $184,950.98 theretofore indicated. "(4) On December 31,1919, a supplemental return, indicating an increased net estate of $2,652,923.23 and additional tax of $150.68, which was assessed."
On these returns the plaintiff paid $218,856.26 August 6, 1918, and $150.68 January 2, 1920, a total of $219,006.94.
4. On August 5, 1918, plaintiff filed with the collector a claim for refund of $33,905.28 for the following reasons, stated therein:
"The Collector of Internal Revenue has compelled deponent to pay the estate tax on the property passing under the will of decedent and on the property constituting the trust created by deed as a single estate whereas the property passing under the will should be taxed separately as one estate and the property constituting the trust created by deed should be taxed separately as a different and independent estate."
This claim was denied by the Commissioner January 31, 1919.
5. Thereafter, the plaintiff filed a claim for refund or $4,304.14 on the ground that State Inheritance Taxes should be allowed as a deduction. This claim was allowed by the Commissioner in the sum of $3,229.60, with interest of $1,594.71. Certificate of overassessment was issued accordingly May 27, 1929, and the refundable amount was paid on that date.
6. Upon audit of the estate returns the commissioner of Internal Revenue on February 9, 1921, notified plaintiff of an increase in net estate from $2,642,923.23 to $2,700,527.71 and increase in tax from $219,006.94 to $225,055.41, an additional tax of $6,048.47, which was assessed February 4, 1921, and paid March 14, 1921.
7. On May 15, 1922, the plaintiff filed with the collector a claim for refund of $219,006.68 of the estate tax theretofore assessed and paid, stating therein:
"Other than the grounds alleged in the original claim a refund is specifically claimed for so much of the tax as was imposed on the property which was in the hands of the United States Trust Company as Trustee under a deed of trust dated December 27, 1916."
This claim was rejected by the Commissioner June 30, 1922.
On June 8, 1927, the plaintiff applied for a reopening and reconsideration of the claim "under the decision of the Supreme Court of the United States in the case of Nichols, Collector of Internal Revenue, v. Coolidge et al., 274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184, 52 A.L.R. 1081."
Thereafter, from time to time, the plaintiff applied for a reopening and reconsideration of the case, citing numerous court decisions, and the Commissioner consistently refused to reopen the case as it was affected by the deed of trust, but did make the allowance with respect to State Inheritance Taxes as recited in Finding 5, and no refund has been allowed or made with respect to the deed of trust.
8. The decedent, Sarah Postlethwaite Barber, was the sole legatee under the will of her late husband, Herbert Barber, who died in the fall of 1915. Shortly following his death and on December 31, 1915, Mrs. Barber signed the will hereinbefore mentioned. After making several cash bequests the will bequeathed the remainder of her estate to the plaintiff herein in trust, to be divided into designated allotments for her children and their descendants per stirpes, income therefrom to be paid according to the division thus made.
The declaration of intention to create a trust was made simultaneously with the will, viz., December 31, 1915. The declaration recited the fact that the declarant had not yet received the property to which she was entitled under the will of her late husband, the said Herbert Barber, and that when she did receive it, or any substantial portion thereof, she would execute and deliver a formal indenture creating a trust substantially similar to the trust created by the will. This declaration was delivered to the plaintiff along with the will.
About a year thereafter, December 27, 1916, Mrs. Barber executed the deed of trust hereinabove referred to. This deed of trust created a trust substantially similar to that set up on the will. The deed of trust reserved (1) to the trustor the net income of the trust for the term of her natural life, (2) the right to direct the trustee to sell and assign shares of Barber & Company, Inc., upon such terms as she should determine, the entire proceeds from the sale to be retained by the trustee as part of the capital of the trust, and (3) the right to increase the principal of the trust fund from time to time. The reason for the reservation of the right of direction as to disposition of the Barber & Company stock was that the company was a closely-held corporation, there was no determinable market value of its stock and the trustee did not wish to take upon itself the responsibility of determining what the sale price should be.
9. The deed of trust was executed upon the advice of Mrs. Barber's son-in-law, Seward Prosser, who was a banker and had been attending to her business affairs. On of her sons, Robert Barber, who worked with Barber & Company along with others of her sons, endeavored to have his mother transfer to him and his brother Arthur voting rights in the stock held by her in order that they might know what was going on in the company and acquire greater influence in its affairs. This situation gave concern to Seward Prosser and he advised Mrs. Barber to create the trust in order that all the children should be protected and in consultation with Mrs. Barber he drew up or caused to be drawn up the formal deed of trust.
10. At the time the deed of trust was under consideration, and at the time it was executed, Mrs. Barber was in normal health. December 27, 1916, she was about 67 years and 9 months of age. She was comparatively small of stature, slightly built, and active. She had twelve children, eight daughters and four sons, all being married except two daughters. Her interest lay primarily in her family, she seldom engaged in social affairs, was not versed in business matters, and spent her time largely in the direction of domestic routine. She had servants, who did the actual household work. She was planning improvements in the grounds surrounding her house, and looking to the future without apprehension of any demise sooner than one might normally expect at her age. Four or five years before her death she had received treatment for more or less minor ailments, none of which had been disclosed by her physician as seated in organic troubles.
Her health began to fail perceptibly in February of 1917, at which time her son Robert died. Her illness became critical in June of 1917, and she died August 6, 1917, the principal cause of her death being attributed to cirrhosis of the liver and chololithiasis.
11. The deed of trust executed December 27, 1916, was not made in the place and stead of that portion of her last will and testament setting up a substantially similar trust and was not in contemplation of death. [Copyrighted Material Omitted] Lyon & Lyon, of Washington, D.C., for plaintiff.
Joseph H. Sheppard, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
BOOTH, Chief Justice.
The first issue discussed in the briefs of counsel in this tax case is: Was the transfer, evidenced by the deed of trust executed by plaintiff's decedent on December 27, 1916, made in contemplation of death? Revenue Act 1916, § 202(b), 39 Stat. 777. If it was, the plaintiff concedes inability to recover the taxes paid. The solution of this issue depends upon the facts. United States v. Wells, 283 U.S. 102, 51 S.Ct. 446, 75 L.Ed. 867.
The plaintiff contends for a judgment in the sum of $183,143.32, and the right to recover the same is based upon a timely claim for refund alleged to have been reopened and reconsidered subsequent to denial, and the fact that the trust created by Mrs. Barber was not one executed in contemplation of death.
No substantial dispute arises from the record. Mrs. Barber was the widow of Herbert Barber, who died in the fall of 1915. Herbert Barber was a man of affairs, and during the course of his life amassed an estate of unusual proportions. Soon after the death of her husband Mrs. Barber duly executed her last will and testament disposing in this instrument of her individual property. This was accomplished on December 31, 1915. By the terms of her will a trust was created and the property involved was to be conserved and distributed as the terms of the trust provided, the trustor reserving an income from it for life, and a right to direct the sale of certain property, the proceeds of the same to become part of the corpus of the trust estate.
Contemporaneously with the execution of her will, Mrs. Barber executed another instrument which may be designated an intention to execute a deed of trust. On this date Mrs. Barber had not received her share of her deceased husband's estate and obviously was not then in a position to dispose of it by will. She did however anticipate its receipt by declaring in a written instrument that when she did receive it she would execute and deliver a formal instrument creating a trust on substantially the same terms as the trust created in her will.
December 27, 1916, Mrs. Barber executed the deed of trust mentioned above, and it does in its provisions substantially comply with the terms of the trust created in her will. Mrs. Barber died August 6, 1917. The defendant argues that the deed of trust executed December 27, 1916, was executed in contemplation of death. The facts of the case must determine the issue.
Mrs. Barber was the wife of a very astute and competent businessman. She was the mother of twelve children and obviously neither informed nor capable of continuing her husband's important business affairs. According to the record, her paramount desire was to conserve this valuable estate, provide for her own necessities, and distribute it equitably among her heirs. That she then contemplated her demise immediately or within the reasonably distant future is not established by the record.
On the contrary, the record discloses that she was a woman of domestic habits, without knowledge of any existing organic disease, and that the impelling motive for creating a trust was to conserve the large estate coming to her for the benefit of her heirs, an estate which she was clearly incapable of managing and one which might suffer serious diminution if she gave heed to the importunities of two of her four sons.
Aside from all these facts, it is manifest from what Mrs. Barber did that her primary concern was to reserve to herself during her lifetime a sufficient income to take care of her and to immediately place the corpus in trust beyond recall for the use and benefit of others. She had no intent or desire to reduce the total value of the estate either of herself or her husband. She was alone concerned with the devolution of the estate accumulated by her husband and herself to their heirs at law.
Mrs. Barber did not contemplate immediate death when she executed the instruments referred to. She was approaching sixty-eight years of age and had no reason to suspect the acute illness which subsequently caused her demise, and there is no evidence in the case disclosing any information was imparted to her or to her children by a physician or one competent to ascertain the fact that she was afflicted with a fatal disease. The defendant relies solely upon the contemporaneous execution of the two documents mentioned above.
Whatever implications may be indulged from the fact that Mrs. Barber made her will and at the same time declared an intention in writing to create a trust estate when she received her share of her deceased husband's property, it is impossible, we think, to hold that the act relied upon absolutely precludes any other inference than the one defendant asserts.
May 15, 1922, the plaintiff filed a refund claim seeking a refund of $219,006.08, upon the ground that the estate held in trust by the plaintiff under the deed of trust dated December 27, 1916, was exempt from estate taxes. This claim was rejected by the Commissioner June 30, 1922. The plaintiff in making the tax return for 1918 as executor and trustee under the will returned the combined estate in its possession, and paid in due course the full amount of the tax in accord with the return, the last payment being made January 2, 1920, a total of $219,006.94. Following the rejection of the above refund claim the plaintiff filed numerous requests with the Commissioner to reopen and reconsider the same. We will not review them in detail--too many ire involved. It is sufficient to observe that the findings show that the requests were denied, and the claim was not reopened or reconsidered. The Commissioner did give attention to some of the requests but it is indisputable that he did not reopen or reconsider the claim, and in our view it would not inure, in the circumstances of this case, to the advantage of the plaintiff had he done so.
Giving attention again to the date of the refund claim involved, i.e., May 15, 1922, and the date of its rejection, June 30, 1922, under Section 3226 Revised Statutes (44 Stat. 116, § 1113(a), 26 U.S.C.A. §§ 1672-1673), the plaintiff had two years in which to institute suit, and suit was not filed until December 7, 1934, over twelve years later. The plaintiff seeks to avoid Section 3226 through its repeated requests for a reopening and reconsideration of its refund claim. The argument advanced is untenable, both from a factual and legal standpoint.
A contention similar to the above was made in the case of Ford Motor Co. v. United States, 3 F.Supp. 423, 426, 77 Ct.Cl. 581, 589, certiorari denied 291 U.S. 683, 54 S.Ct. 560, 78 L.Ed. 1070, and this court in the opinion said:
"The rule established by the decisions is that, when the Commissioner, upon application made after a decision disallowing a claim, again enters upon a consideration of the merits of the case, and later renders his final decision thereon, the taxpayer has two years thereafter under section 3226 of the Revised Statutes (as amended 26 U.S.C.A. § 156) within which to bring suit. It must appear, however, that the Commissioner has in fact reopened the case and reconsidered it upon the merits. Where, however, the Commissioner after the receipt of a request from a taxpayer to have his case reopened and reconsidered, merely re-examines the files of his own office and reviews the papers in the case for the purpose of determining whether there is any basis for the taxpayer's request to have his case reopened, and later notifies the taxpayer of his refusal to reopen the case for further consideration, it cannot be said he reconsidered the case upon the merits. Hickman v. United States (D.C.) 47 F. (2d) 328. This seems to be what the Commissioner did, and all he did in the instant case."
If effect is to be given to the final action of the Commissioner on plaintiff's claims for refund the date is May 27, 1929, on which date the Commissioner refunded certain sums upon a claim filed December 31, 1921. These refund claims did not prefer rights to refunds based upon the same subject matter as the refund claim of May 15, 1922, herein considered, and they were allowed a claimed deductions. It is obvious from the facts found that a suit instituted in 1934 is too late to recover any sum covered by said claims.
The plaintiff's first request for a reopening and reconsideration of the refund claim in suit was made on June 8, 1927, nearly five years after its rejection. Hence the Commissioner was without authority to revive the statute of limitation on suit even if he had reopened and reconsidered the claim. Moreover, Section 3226 precludes the right of the Commissioner to reopen and reconsider a claim when on the date of the request a suit thereon is barred by the statute of limitations. In the Ford Case, to which we have alluded, this court said:
"The plaintiff, as we have seen, had the right at any time within the two-year period following disallowance of the claim within which suit could be instituted to request the Commissioner to reopen the case and reconsider his action." Page 591, 3 F.Supp. page 427.
If the Commissioner possessed the right to reopen and reconsider a refund claim when suit to recover, because of a rejection of the same, is barred by limitation, he could, as said in the case of United States v. Garbutt Oil Co., 302 U.S. 528, 534, 58 S.Ct. 320, 323, 82 L.Ed. 405, "defeat the only purpose of the statute and impose a liability upon the United States which otherwise would not exist." In our opinion the plaintiff signally failed to avail itself of established remedies within the time limited by law, and the petition will be dismissed. It is so ordered.