Holt v. Commissioner , 14 B.T.A. 564 ( 1928 )

ESTATE OF ROBERT L. HOLT, JAMES H. HOLT, AND DAISIE HOLT GREEN, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Holt v. Commissioner

Docket No. 12636.

United States Board of Tax Appeals

14 B.T.A. 564; 1928 BTA LEXIS 2958;

December 5, 1928, Promulgated

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1. Value of certain corporate stocks determined.

2. Where a donor sets aside bonds for a donee, offers to hand or send them to her, but at her request retains possession of them, sending her the interest as paid, keeping the bonds separate and apart from donor's personal papers and securities, and for more than two and one-half years referring to the bonds as the donee's property, held, the donor was a voluntary trustee for the donee.

E. S. Parker, Jr., Esq., and Jesse I. Miller, Esq., for the petitioners.

Frank T. Horner, Esq., for the respondent.

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MARQUETTE

This proceeding is for the redetermination of a deficiency in estate taxes asserted by the respondent in the amount of $13,155.58. The deficiency arises from an increase in valuation of certain lands and corporate stocks and from the inclusion in the estate of bonds amounting to $165,000 which the petitioners allege had been given by the decedent during his lifetime to his sister.

FINDINGS OF FACT.

Robert L. Holt died testate in North Carolina on July 15, 1923. His brother, James H. Holt, and his sister, Daisie Holt Green, are the duly appointed, qualified and acting executors of his estate.

At the time of his death Robert L. Holt owned the following property: (1) a tract of 895.8 acres, known as the Fort Smug Tract; (2) a tract of 11 acres, known as the Dickey Tract, both in North Carolina; (3) 980 shares of the capital stock of the Glencoe Cotton Mills; and (4) a subscription for 100 shares of the capital stock of the Burlington (North Carolina) Hotel Co. In addition he had in a special safety deposit box in a bank, Liberty Loan bonds of the par value of $125,000, and Federal Farm Loan bonds of the par value of $40,000. There was other property, but it is not involved in this proceeding.

The decedent was practically the sole owner of the Glencoe Cotton Mills near Burlington, N.C. He dictated its affairs and business management and among other things caused the company to pay for the development and equipment of a water power on the Fort Smug Tract, which he owned. The amount so expended by the company was $49,894.19, and this amount was given as the value of that real estate by the petitioners in their return. The respondent increased the valuation to $60,000.

The Dickey Tract was valued by the petitioners in their return at $4,675. This amount was raised by the respondent to $11,000.

The Glencoe Mills stock was returned by the petitioners as worth $277,281.20. This valuation was increased by the respondent to $312,620, which includes as an asset the cost of developing the water power on the Fort Smug Tract. There is no evidence as to the value of other assets of Glencoe Mills, nor as to dividends, earnings, or profits.

After the decedent's death the petitioners paid the subscription he had made for 100 shares of Burlington Hotel stock. Nothing was done toward constructing the hotel until after Holt's death. The project had not been successful and at no time has there been any "market" for the stock, although there have been one or two occasional sales at 25 cents on the dollar. In the petitioners' return this hotel stock was listed as of no value. The respondent valued it at $6,600. The actual cash value of this stock at the time of Holt's death was $2,500.

The Liberty Loan and Federal Farm Loan bonds here in question had been acquired by the decedent and by him placed in a safety deposit box in the bank. This box was used by the decedent and his brother James for the keeping of papers, etc., relating to their father's estate, of which they were trustees. Each had a key to the box. The bonds in question were enclosed in an envelope marked:

This package contains

$125,000 4th 1 1/4 Liberty Bonds

25,000 Fed Land Bk Bonds

$150,000

and is the personal property of Mrs. Daisie Holt Green, Charles ton, S.C.

R. L. HOLT.

$15,000 Fed Land Bk Spokane.

This endorsement was in the handwriting of the decedent.

Mrs. Green was a sister of the decedent. On November 22, 1920, the decedent wrote her as follows:

THE GLENCOE MILLS

BURLINGTON, N.C., Nov. 22, 1920.

DEAR DAISIE: Enclosed please find the Fed Land Bank Ck for $275.00. I sent the old ck back and asked for a duplicate. New York banks are getting over cautious in some instances and this is a sample. In the future I will know just how to sign these cks I bought $75,000 Fourth 4 1/4 Liberty Loan Bonds and put them in with my other papers in the safe at the vault Almance Bk & Trust Co., Burlington, N.C. In the event of any accident to me they are in a sealed envelope marked as your property. It is always best for one to know of these things as life is always uncertain and there are lots of trains, automobiles, and other ways to get into accidents. I will enclose a list of the bonds in this letter. They have not yet been registered. I will keep these in care for you and in the event of my death you would not have to pay the inheritance tax which would be heavy. You now have $25,000 in Fed Land Bank bonds paying 5% - $1,250 per year. You get $1,000 from The Life Insurance Company and now 4 1/4% on these Liberty 4 1/4s will pay you $3,187.50. Total $5,437.50 net income which is a fixed income and you get this whether any of your other investments declare dividends or not.

From that time he wrote to his sister seventeen letters, in each one speaking of the bonds he had provided for her in order that she might have a fixed income; in each letter the language was substantially as that above quoted. From time to time he added to both classes of bonds, and advised his sister by letter of such additions. At the time of his death the decedent had $165,000 in bonds in the envelope marked as Mrs. Green's property. He sent her the interest on these bonds, as it was paid, during his life, and used none of it for himself. Decedent did not keep any of his own securities or papers in the safe box in which these bonds were kept. On at least one occasion he suggested turning over the bonds to his sister, but she declined, saying she wished him to keep them and look after them for her. To this he agreed.

The decedent frequently discussed these bonds with his brother James H. Holt, and in so doing always referred to them as being the property of their sister, Mrs. Green. In his safe in the private office at the Glencoe Mills the decedent kept a book of accounts. In that book was a list of the bonds in question, with a pencil notation in the decedent's handwriting and signed by him, stating that the bonds were the property of Mrs. W. R. Green. W. R. Green was the husband of Holt's sister Daisie.

The respondent included the bonds mentioned in the gross estate of the decedent, subject to the Federal estate tax.

OPINION.

MARQUETTE: This proceeding involves five items of property. As to four of thes items the question relates to valuation; as to the fifth we must decide whether certain purported gifts actually divested the property from the decedent.

As to the two tracts of land owned by Holt, the Fort Smug Tract and the Dickey Tract, there is no controversy. The petitioners admit, and there is no evidence to contradict, the propriety and resonableness of the figures determined by the respondent; and the valuations so determined of $60,000 and $11,000, respectively, will stand.

As for the 100 shares of stock of the Burlington Hotel Co., we are of opinion that the respondent was in error in valuing it at $6,600. At the time of Holt's death he held none of this stock, but was obligated to buy it by his subscription therefor. This obligation was fulfilled and his part of the agreement carried out after his death by his executors, the present petitioners. The stock, when purchased, had the same value as it has when Holt was living; it has retained the same value ever since; and the evidence shows that value to be little or nothing. There never has been any readily realizable market value for this stock. However, the petitioners seem hopeful that they may be able to obtain 25 per cent of its par value, namely, $2,500, and concede it was worth that amount at the time of Holt's death. The evidence certainly shows it was not worth more than that amount and we therefore find that its value should be fixed at $2,500 for estate-tax purposes.

There is no evidence before us from which we may draw any conclusion as to the real value of the 980 shares of Glencoe Mills stock held by Holt when he died. It does appear that one item of $49,894.19, which was the amount expended by the Mills Company to develop a water power on Holt's Fort Smug tract of land, was carried on the books of the company as an asset and may have been included in reaching a valuation of the stock. This sum has already been allowed as a part of the value of the Fort Smug tract of land, and if it were clear to us that the respondent, in placing the mills stock at a higher valuation than that returned by the petitioners, had simply added the amount of this item for water power development, we would be disposed to disallow the respondent's contention. But the record does not disclose such a state of facts. The difference between the petitioners' valuation of the stock and the respondent's determination is only $35,338.80, or $14,555.39 less than the amount of the water power item. The respondent's determination, therefore, was evidently based upon something other than the cost of the water power development. As the petitioners have failed to show wherein the respondent's determination was erroneous, that determination will be sustained.

This brings us to a consideration of the last question involved herein, namely, were the bonds, amounting to $165,000, which Holt had put aside for his sister as her property, gifts in praesenti; were they gifts to take effect in futuro, after his death; were they the corpus of a trust estate created by Holt for the present benefit of his sister; or were they properly a part of his estate?

There can be no question that the decedent desired and intended to provide for his sister and her family a definite and liberal income, through the medium of these bonds. There can be no question but that he regarded these bonds as her property, not his own, after he had placed them aside and marked them as hers. He repeatedly wrote her that the bonds were hers; he often told his brother James that the bonds belonged to his sister; in his account books he wrote and signed a memorandum to that effect; he suggested that she wrote and keep the bonds, and when she declined, he continued as before, sending her the interest and referring to them as her property. There was no actual physical delivery of the bonds to her; and upon that ground the respondent contends that no valid gift had been made. In support of his contention the respondent relies upon Sizer v.United States, decided April 16, 1928, by the Court of Claims. That decision is without doubt correct but the facts there are not the same as the facts before us. This is also true as to , cited by the respondent.

To constitute a valid gift inter vivos, there must be a delivery either actual or constructive. A mere intention to give is not sufficient. As there was no delivery of the bonds in question to the donee, we must find that no gift inter vivos was made. On the other hand we are convinced from the facts before us that this was not a gift in futuro, to take effect after Holt's death. Undoubtedly he intended to create a present income-producing estate for his sister, with respect to which she was to have the beneficial interest at once, rather than in prospect for the future. In so providing for his sister an adequate income, Holt dedicated certain bonds to that purpose. He separated them from his own securities; offered to turn them over to his sister, but retained possession of them at her express wish; treated them in every way as the property not of himself but of his sister, and accounted to her for the income from the bonds. We are also of opinion that he did create a present trust for his sister, becoming a voluntary trustee for the purposes of the trust.

It is well settled that one may create a trust in his own property by constituting himself trustee, provided his words or acts clearly and unequivocally denote an intention to hold henceforth as trustee for the benefit of another. As the nature and effect of a transaction of this character is that the legal title remains in the donor for the benefit of the donee, no transfer or assignment of legal title is necessary. 39 Cyc. 66, 67. And in such case no further delivery is necessary, 39 Cyc. 641. No formal, technical, or particular words are necessary to create such a trust, provided the circumstances show beyond a reasonable doubt that such a trust was intended. 39 Cyc. 57; ; ; . This trust, the evidence shows, gave to the sister an immediate beneficial interest. It was not intended to take effect after Holt's death. He contemplated that she should have, and she did have, the present enjoyment of the property. In our opinion the equitable title to said bonds was in Holt's sister both at the time of his death and continuously from some time prior to November 22, 1920. As Holt did not die until July, 1923, the two-year clause in section 402(c) of the Revenue Act of 1921 does not apply.

The estate tax should be recomputed, omitting the amount of these bonds; valuing the Burlington Hotel Co. stock at $2,500, and leaving the valuation of the two tracts of land and the Glencoe Cotton Mills stock at the amounts determined by the respondent.

Reviewed by the Board.

Judgment will be entered under Rule 50.

SMITH, PHILLIPS, MILLIKEN, and MURDOCK concur in the result.