Dulany v. Commissioner , 17 B.T.A. 486 ( 1929 )

GEORGE W. DULANY, Jr., ET AL., BENEFICIARIES OF THE ESTATE OF GEORGE W. DULANY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Dulany v. Commissioner

Docket No. 20169.

United States Board of Tax Appeals

17 B.T.A. 486; 1929 BTA LEXIS 2293;

September 25, 1929, Promulgated

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The decedent was the record owner of certain shares in a trust estate represented by three certificates for 4,000 shares each. On August 1, 1918, he assigned the certificates to his wife, daughter, and son, respectively, and delivered them to the assignees as gifts and they were accepted as such by them. The son, who was trustee of the trust estate, neglected to transfer the shares upon the books of the trust estate until after the death of the decedent (September 19, 1922) and in the meantime continued to credit and pay to the decedent the dividends declared upon the shares represented by the assigned certificates. Held that the gift was not one to take effect in possession or enjoyment at or after the death of the decedent.

John E. Hughes, Esq., for the petitioners.

Edward C. Lake, Esq., and W. L. Winship, Esq., for the respondent.

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SMITH

This is a proceeding for the redetermination of a deficiency in estate tax in the amount of $108,230.75. Errors alleged are that the respondent treated certain transfers by the decedent on January 3, 1916, and August 1, 1918, as in contemplation of death and intended to take effect in possession and enjoyment at or after death, respectively. It is also urged that the taxation of such transfers completed before the passage of the Revenue Act of 1921, is unconstitutional and void. The parties stipulated that the respondent's action was erroneous in including the transfer of January 3, 1916, in the amount of $894,833.20.

FINDINGS OF FACT.

The decedent, George W. Dulany, was born in 1856 and resided in Hannibal, Mo., from 1878 until the latter part of 1915, at which time he purchased a home, in, and removed his residence to Dallas, Tex. He was a man of many and varied business activities. In 1915, having reached his fifty-ninth year, he desired to unify and consolidate his varied interests and shift the burden of his financial affairs to his children and to enjoy life in comparative leisure. Therefore, on September 29, 1915, he incorporated the George W. Dunlay Co., a Delaware corporation, transferring his real and personal property to the corporation in consideration for the issuance of all of the corporation's authorized capital stock, 1,000 shares, to him and his nominees. On October 2, 1915, the corporation issued the stock as directed by the decedent to the following individuals:

	Shares
George W. Dulany (decedent)	988
Fanny W. Dulany (wife)	3
Clifton D. Lingo (daughter)	3
William Mac Lingo (son-in-law)	3
George W. Dulany, Jr. (son)	3

The above-named stockholders were also the officers and directors of the company.

On January 3, 1916, the decedent transferred 588 of the 988 shares owned by him to his wife and children, as follows:

	Shares
Fanny W. Dulany	197
Clifton D. Lingo	194
George W. Dulany, Jr.	197

These transfers were made by the decedent without pecuniary or other valuable consideration therefor. They were gifts inter vivos and were accepted by the donors as such. There transfers were valued by the respondent at $894,833.20 and added to the estate of the decedent by the respondent as transfers in contemplation of death. The respondent now concedes that such inclusion was erroneous.

Subsequent to the organization of the corporation it was learned that the corporation was prohibited by statute from holding title to certain stocks and real estate in Missouri. Upon advice of counsel, it was decided to dissolve the corporation and, in its stead, create the G. W. Dulany Trust to take over its assets.

The creation of the trust was delayed for about one and one-half years because of the absence of George W. Dulany, Jr., who was serving at that time in the United States Army. The trust agreement was drawn and dated June 1, 1918; it was signed and became effective on June 29, 1918; the business of the trust began and its books were opened on July 1, 1918. The corporation was dissolved August 2, 1918.

The principal of the trust was divided into 30,000 participating shares of beneficial interest. The trustees and the shares held by each on July 6, 1918, were as follows:

	Shares
George D. Dulany	12,000
Fanny W. Dulany	6,000
Clifton D. Lingo	5,910
William Mac Lingo	90
George W. Dulany, Jr	6,000

The decedent's 12,000 shares were, at his direction, in three certificates of 4,000 each.

On August 1, 1918, the decedent transferred his interest in the trust, consisting of 12,000 shares, as a gift to the following:

	Shares
Fanny W. Dulany	4,000
Clifton D. Lingo	4,000
George W. Dulany, Jr	4,000

The shares so given were delivered to and accepted by the donees. George W. Dulany, Jr., put his certificate in his safe-deposit box where it remained until it was transferred in 1923.

Fanny W. Dulany sent the certificate for 4,000 shares delivered to her by the decedent to her son, George W. Dulany, Jr., in Chicago. Clifton D. Lingo Kept her certificate in the vault in her husband's office in Texas.

The transfer clauses of the certificates representing the above 12,000 shares were written in full by the decedent in his own handwriting. The endorsements were witnessed by one John T. Williams.

The decedent was in California at the time the foregoing transfer took place. He had given the donors no notice of his intention to give them these shares. The certificates were not transferred of record on the books of the trust until February 14, 1923, about five months after the date of the decedent's death.

During the period from August 1, 1918, until September 19, 1922, the dividends upon the 12,000 shares were credited to the account of the owner of record, the decedent, on the books of the G. W. Dulany Trust. The total amount so credited is made up of dividends in the following amounts:

January 20, 1919	$18,000
February 9, 1920	20,000
March 14, 1921	25,200
January 24, 1922	30,000
	93,200

These amounts were deposited by the trust in a bank in Dallas, Tex., in an account in the decedent's name, on which account both the decedent and his wife, Fanny W. Dulany, could sign checks. Fanny W. Dulany signed most of the checks on the account.

The decedent used all dividends declared upon the certificates between the date of the transfer and the date of his death, and at the time of his death he had overdrawn the amounts credited to him as dividends.

On September 4, 1922, the decedent was threatened with and contracted bronchial Pneumonia. His condition showed improvement until September 17, 1922, when he suffered a relapse which ended in his death on September 19, 1922, at the age of 66 years.

The fair market value of the 12,000 shares of the G. W. Dulany Trust was $596,555.46 on September 19, 1922.

George W. Dulany, Jr., was the sole manager of the G. W. Dulany Trust. The 4,000 shares in the trust which he received from his father came in the mail from California. In the fall of 1918 he went to California to visit his father and while there mentioned the certificate that he had received and those which he learned had been received by his mother and sister. His father told him that he, the father, was on the retired list permanently, that he was satisfied with the way his affairs had been conducted for several years, that he realized he was through with active business, that he had taken care of them for years and he expected them to take care of him for the rest of his life.

The 12,000 certificates of the G. W. Dulany Trust constituted the entire property of the decedent.

The respondent, in determining the deficiency in question, included an amount of $596,555.46 in the estate of the decedent as a transfer taking effect in possession and enjoyment after the decedent's death.

OPINION.

SMITH: The question presented by this proceeding is whether the gift made by the decedent on August 1, 1918, of three certificates for 4,000 shares each of stock of the George W. Dulany Trust assigned to and delivered to the decedent's wife, daughter, and son, respectively, was a gift "intended to take effect in possession or enjoyment at or after" decedent's death within the meaning of section 402(c) of the Revenue Act of 1921. The stipulation signed by counsel for the petitioner and respondent upon this point reads:

On August 1, 1918, the decedent transferred his interest in the trust, consisting of 12,000 shares, as a gift to the following:

	Shares
Fanny W. Dulany (wife)	4,000
Clifton D. Lingo (daughter)	4,000
George W. Dulany, Jr. (son)	4,000
Total	12,000

The shares so given were delivered to and accepted by the donees.

The evidence is to the effect that the decedent on August 1, 1918, was on the retired list permanently; that he was satisfied with the way his affairs had been conducted for several years; that he realized he was through with active business; that he had taken care of the members of his family for many years and made fortunes for them and he expected them to take care of him for the rest of his life. His only property at the time, aside from a cash balance in the bank, consisted of the certificates of beneficial interest in question. In his own handwriting he assigned these certificates to his wife, daughter, and son, respectively, and delivered them to the assignees. They were delivered as a gift and accepted by the donees as such. All of the donees appear to have been surprised at the receipt of the certificates. The mother sent her certificate to her son, who attended to the business affairs of the family. The daughter offered to send on her certificate to her brother but was advised by him to keep it until he should determine what should be done. The son was in some quandary as to whether the shares of stock represented by the certificates should be transferred on the books of the trust. His father had no income except from the shares of stock. All three donees had large holdings in the George W. Dulany Trust from which they were receiving large incomes. He considered that the family must take care of the father and provide him with an income. He therefore continued to credit his father with the dividends which became payable upon the shares of stock represented by the assigned certificates. This was without any objection from his mother and sister.

The respondent contends that from the fact that the decedent continued to be credited with the dividends which were declared upon the shares represented by the assigned certificates until after his death, the gift was to take effect in possession and enjoyment after the death of the decedent. The stipulation is to the effect that the decedent transferred his interest on August 1, 1918, consisting of the 12,000 shares in question, as a gift to his wife, daughter, and son, respectively; that the shares so given were delivered to and accepted by the donees. The evidence amply supports the stipulation. The fact that the son was reluctant to transfer the shares upon the books of the trust does not in our opinion change the fact that the gift made by the decedent was an absolute gift of the shares and that his property in the shares was then transferred to the donees. The donees had the beneficial use in the property from the date of the transfer had they chosen to exercise it. The income from the shares was the donees' income just as much as though they had received the income in the first instance and paid it over to the decedent. Upon the stipulation filed in the case and upon the evidence of record the contention of the petitioner that the value of the assigned certificates was not a part of the gross estate of the decedent is sustained.

Reviewed by the Board.

Judgment will be entered under Rule 50.