Moir v. Commissioner , 47 B.T.A. 765 ( 1942 )

ESTATE OF JOHN MOIR, DECEASED, JOHN A. MOIR, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Moir v. Commissioner

Docket No. 109115.

United States Board of Tax Appeals

47 B.T.A. 765; 1942 BTA LEXIS 649;

September 24, 1942, Promulgated

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">*649 1. Gifts to decedent's children made more than two years prior to death, held, upon the evidence, not to have been made in contemplation of death.

2. The value of decedent's proportionate interest in a trust fund created by him and several others, in which he had power in conjunction with two other trustees in their discretion to take action which would terminate the trust, whereupon the trust property was to be redistributed proportionately to the contributors, held within the gross estate under Revenue Act of 1926, section 302(d).

Robert G. Dodge, Esq., for the petitioner.

J. T. Haslam, Esq., for the respondent.

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STERNHAGEN

">*766 The Commissioner determined a deficiency of $1,490,630.13 in estate tax. He (1) included in gross estate property determined to have been transferred in contemplation of death; (2) increased the valuation of the decedent's reversionary interest in a pension fund; and (3) disallowed a deduction for attorney fees.

FINDINGS OF FACT.

John Moir was born October 13, 1857, and died September 20, 1938, a resident of Newton, Massachusetts. The estate tax return was filed in the district of Massachusetts.

">*650 1. The decedent and his wife had two children, a daughter, Edith, born 1885, and a son, John A. Moir, born 1887. The wife died in 1933. The daughter never married and always lived at home with decedent. She died in 1937. The son was married in 1916. He, his wife, and their four children are living.

The decedent accumulated a fortune of several million dollars, primarily from the business of Chase & Sanborn, of which firm he was a senior partner from 1912 until 1929, when the business was sold to Standard Brands, Inc. After the sale of the business he retired, but, until his death, maintained an office in Boston where he took care of his personal affairs and investments.

Decedent was a very generous man. Beginning in 1906, he made frequent gifts to his son and daughter. He made more than twenty gifts prior to 1934, when the first of the gifts here in controversy was made, the total value of which was $2,206,825.

In 1922 decedent created a trust fund of the income from a building in Chicago which had cost $475,000 and was leased to Chase & Sanborn. The wife was to receive three-fifths of the income for her life and the son and daughter were each to receive one-fifth. ">*651 Upon the death of the wife, the son and daughter were each to receive one-half the income. The value of this trust property was not reported in the estate tax return filed by the petitioner, and was included by the Commissioner at a value of $173,739.78. This is not contested.

In 1929 decedent gave the son stock of Standard Brands, Inc., valued at about one million dollars, received as part of the consideration in the sale of Chase & Sanborn. The decedent made this gift in lieu of a partnership in Chase & Sanborn which he had promised him.

The decedent contributed to the support of his four brothers and sisters and gave money to others.

The decedent had enjoyed good health until November 1933, with the exception of an intestinal operation in 1922. In November 1933, at the age of seventy-six, he had a fainting spell caused by cerebral thrombosis. His attending physician did not consider the illness ">*767 serious and did not inform decedent that he had had a stroke. He was confined to his bed for a week or so. He was in good health in early 1934, when he resumed regular work at his office five days a week. He took a long motor trip with his daughter in May 1934. ">*652 The only apparent result of this illness was a slight speech defect, aphasia, which continued for the rest of his life and was worse when he was tired. Prior to his illness in 1933 the decedent had not sought medical advice at regular intervals. He consulted his physician almost every week in 1934, twenty times in 1935, ten times in 1936, and twice in 1937. The frequency of these visits was partially due to his affection for the physician and the fact that his son had asked the physician to keep an eye on him. In 1937, decedent had an operation for hemorrhoids, from which he fully recovered. He appeared to be in excellent physical condition from the time of his recovery from the 1933 illness until 1938. The decedent suffered his first attack of coronary thrombosis in February 1938. Prior to that date there had been no suggestion of the disease other than the illness of 1933. He suffered his second and fatal attack of coronary thrombosis in September 1938.

The estate tax return filed by the petitioner reported the decedent's gross estate as $3,527,754.64. The Commissioner increased this to $6,773,008.27, by including the following transfers, aggregating $2,924,541.37, as">*653 transfers made in contemplation of or intended to take effect in possession or enjoyment at or after death:

Feb. 8, 1934, to son, parcel of vacant land in Chicago, Ill	$75,000.00
May 22, 1934, to wife of son, securities	239,150.00
May 22, 1934, to trustees for daughter, securities
May 22, 1934, to trustees for four children of son, securities	2,169,200.11
Dec. 23, 1935, to trustee for son, securities	441,191.26

The Chicago land had been purchased as a site for a proposed office building for Chase & Sanborn. The land was not so used and no income was ever derived from it. The decedent repeatedly sought to sell it and finally transferred it to his son because he was tired of carrying it and thought that possibly the son could sell it. The son was also unable to sell it. On May 22, 1934, the decedent made three transfers. The first was a gift in trust of certain securities, worth about $1,000,000 at the time, from which the income was to be paid to the daughter. The decedent reserved no power to amend, modify or revoke. The trust instrument provided that if the daughter should die without issue, the principal and income of the trust were to be transferred">*654 in four equal divisions to four trusts which the decedent was creating for the benefit of the four children of the son. Between 1929 and the date of the trust for the daughter, the decedent had several times expressed to his son a desire to make a gift to ">*768 the daughter which would correspond to the million dollar gift he had made to the son in 1929. The decedent knew that the daughter had disposed of all the securities he had given her previously, and that she was receiving no income from the 1922 trust of the Chicago building because a new tenant could not be secured after the Standard Brands lease expired on December 31, 1933. The daughter was very extravagant and the decedent wanted her to be able to live as she wanted and have a separate home. The $3,000 monthly income of this trust proved inadequate to satisfy her.

On May 22, 1934, decedent made an outright gift to his daughter-in-law of securities worth $200,000, and created a trust for each of his four grandchildren of securities worth $800,000. He reserved no power to alter, modify, or revoke these trusts. Upon the death of the daughter, without issue, in 1937, the subject matter of her trust was divided">*655 among these four trusts. The values of the two transfers were therefore combined by the Commissioner.

The transfer made on December 23, 1935, for the benefit of the son included securities then worth $559,415. Decedent reserved no power to alter, modify, or revoke this transfer. In his gift tax return for 1935 the decedent stated:

Securities given to my son, John A. Moir, 105 Woodland Road, Chestnut Hill, Mass., in trust, for his family to compensate for shrinkage in value of, and to replace in part income which has ceased on property given him by me from time to time in the past, income which I had intended that he should have for the use of his family.

In talking with his son at the time, decedent gave the same reason for making the gift as was stated in the tax return. Certain of the securities given to the son by the decedent and securities bought by the son had decreased in market value at December 23, 1935, to the extent of $324,328. In addition, dividends on Standard Brands stock had fallen, the trust of Chicago real estate had ceased to yield any return, and stock in S.K.Ames, Inc., given to the son in 1929, with the expectation that it would yield from $20,000">*656 to $30,000 yearly income, had paid no dividends since the time of the gift.

The decedent's fortune was worth about $6,000,000 when he made the gifts of May 1934 which amounted in value to about $2,000,000. His annual income between 1931 and 1937 was never less then $187,000, but he spent only $30,000 for his living expenses. He continued to live in the same way and to spend the same amount after he made the gifts in 1934 as he had before. The decedent never made a will until March 1936, when he executed the one admitted to probate. By the terms thereof, all of his property was left to his son and daughter, except for minor bequests. He had constantly stated over a period of years that he would make a will some day. ">*769 Decedent apparently never spoke of death or intimated that he was contemplating it. The decedent apparently did not consult any one concerning estate taxes.

2. Decedent, William Rich, and six others had been associated together as copartners doing business as Chase & Sanborn. They sold the business to Standard Brands, Inc., and on July 16, 1929, transferred 6,858 preferred shares of Standard Brands, Inc., to decedent, Rich, and the Day Trust Co. ">*657 , as trustees, to create a pension fund for the benefit of faithful employees of the partnership. Decedent's contribution to the fund was 2,512 shares, which had a value of $293,066 at the time of the transfer. The value of the principal of the fund was $670,280.85 at the time of decedent's death. By the trust agreement, the trustees were given ample powers of management and were directed to pay from trust income specified amounts monthly to employees listed in an attached schedule B and to pay to such of those listed in an attached schedule C specified amounts or "as the TRUSTEES shall from time to time determine." Income which the trustees should deem not required for trust purposes was to be distributed to the contributors in proportion to their contributions. If income should be insufficient, the trustees could apply principal in paying the pensions. Principal no longer required for trust purposes could also be distributed proportionately to the contributors. Upon the death of the survivor of the beneficiaries the trust was to terminate and principal with any accrued income was to be distributed to the contributors or their legal representatives. The Day Trust Co. was designated">*658 as managing trustee "unless and until the TRUSTEES shall otherwise determine"; upon a trustee's resignation the vacancy was to be filled from among the contributors, either by the remaining trustees or by vote of a majority in interest of the contributors.

13. The persons who shall receive the benefits of the pensions hereunder shall have no right, title or interest of any kind or nature in and to said trust or the income thereof or any portion of the same until such sums as may be paid to them actually come into their hands. The TRUSTEES at any time may temporarily or permanently discontinue payments to any BENEFICIARY or BENEFICIARIES, provided however that any periodical payment once determined to be paid to any BENEFICIARY shall he continued without change during the life of such BENEFICIARY, unless the then TRUSTEES shall by unanimous vote otherwise determine. The interest of any BENEFICIARY hereunder, either as to income or principal, shall not be anticipated, alienated or in any other manner assigned by such BENEFICIARY, and shall not be subject to any legal process, bankruptcy proceedings, or the interference or control of creditors or others.

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15. This agreement">*659 may be modified or amended at any time by the unanimous vote of the TRUSTEES for the time being, signified by their written signatures to such amendment, except that they shall have no power to modify ">*770 the provisions herein made for distribution of the principal. Additional persons who will receive benefits hereunder may be added at any time or times within three years from the date hereof by unanimous vote of the TRUSTEES, provided that such additional persons shall have been employees of Chase & Sanborn prior to the date hereof.

Additional persons have been added, and, by amendment, the three-year limitation was eliminated.

In the estate tax return petitioner included in gross estate $142,451.56 intended to represent the value of decedent's interest in the pension fund. The Commissioner included in gross estate $245,515.53 representing the value, at decedent's death, of the portion of the fund contributed by decedent.

OPINION.

STERNHAGEN: 1. The Commissioner having determined that the gifts of February 1934, May 1934, and December 1935 were made in contemplation of death and therefore properly within the gross estate, the petitioner has undertaken to prove">*660 the contrary. The gifts were not made within two years prior to the death, so the statute does not require that they shall be deemed to have been made in contemplation of death. The Commissioner, however, has determined that to be the fact, and we are to say from the evidence whether the fact is shown to be otherwise.

The decedent did not discuss death, and upon the subjective fact as to whether, when he made these gifts, death was in his mind, the evidence is neutral. He never spoke of death, and, so far as anything he said discloses, it can not be known directly whether he thought of it when he made the gifts. The finding must be bases upon circumstance and inference.

Were it not for the decedent's advanced age and the cerebral hemorrhage of November 1933, with the resulting aphasia, there would be nothing to suggest contemplation of death as the reason for the gifts. Each of them is explained upon its own grounds, without relation to death or taxes. The decedent had been making substantial gifts from time to time for many years, and they had not been in contemplation of death. Except for the hemorrhage of 1933, there is no special circumstance to stamp these gifts differently">*661 from the earlier ones. The aphasia was not serious, and otherwise the decedent's health was good.

The first of the gifts in question was made to the son in February 1934, when, because decedent got tired of holding and trying to sell the vacant and unproductive property in Chicago, he gave it to his son. It was worth $75,000, a comparatively small amount in his large fortune, and the explanation shown for the gift is plausible enough ">*771 to leave no reason to inquire for another, such as the thought of making a testamentary disposition or minimizing death taxes.

The gift to the daughter in May 1934 had been under consideration by the decedent ever since 1929, when he made the gift of Standard Brands shares to the son. The decedent wanted to equalize gifts to the two children, and he was stimulated to complete this plan by the fall in the daughter's income, her dissatisfaction with her financial condition, and his desire to end recurring quarrels with her about money. This is an adequate explanation of the gift and it is not necessary to supplement it by a reference to its testamentary tax effect.

The gifts in May 1934 to the daughter-in-law and grandchildren are">*662 only explained as spontaneous acts of sentiment attributable to his affection for the son's wife. He had wanted to make such a gift and had been dissuaded first by his wife and then by the son. There is no circumstance which explains these gifts other than a desire to give; but on the other hand there is nothing to suggest that they were prompted or hastened by the decedent's thought of death.

The gift to the son in December 1935 was explained by the decedent himself, in the gift tax return and also in conversation, as actuated by the desire to make up for a shrinkage in the son's income. There is no reason to find any other explanation than this, and nothing to suggest that the thought of death was present.

It must be remembered that the decedent was not giving away all or the larger part of his fortune when he made these gifts. He still had some $4,000,000 which would pass at his death. He was aware of the necessity of making a will, but he was in good health and refrained from doing so until March 1936, an indication that in 1934 and 1935 he was not engaged in making a testamentary disposition of his estate.

We are of opinion from the evidence as to the decedent's">*663 health, habits, and motives, and the surrounding circumstances, that the gifts in question have been shown not to have been made in contemplation of death.

2. The Commissioner determined that the entire value of the dededent's proportionate interest in the Chase & Sanborn employee trust was within his gross estate. The petitioner challenges this as a matter of law and argues that only so much may be included as is represented by the present value at the time of death of the future right to receive the distributive share of the trust upon its termination.

Section 302(d) of the Revenue Act of 1926 requires the inclusion in the gross estate of any interest "of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment ">*772 thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke." As to the decedent's interest proportionate to his contribution, he had made a transfer by trust, and the enjoyment thereof was subject at the date of his death to a power exercisable by him in conjunction unanimously with the other trustees">*664 to alter, amend, or, indeed, revoke. By the express terms of the trust instrument, the trustees were given unlimited discretion and control of the choice of persons beneficiary. In their discretion they could entirely discontinue distributions at any time. Although paragraph 13, which gives such control, limist it by the proviso that a periodic payment once determined should be continued, this proviso is emasculated by the succeeding clause, "unless the then trustees shall by unanimous vote otherwise determine." Therefore, if the trustees determine that all of the periodical payments should be discontinued, the income would all be distributable proportionately to the contributors. Thus the corpus would itself become unnecessary to carry out the functions of the trust and the entire amount would by the unanimous determination of the trustees be proportionately distributable to the contributors. As to the decedent, he thus had the power, in conjunction with another person, to alter, amend, or revoke the trust and take back his contribution thereto.

There is no significance in the fact that this power was reposed in him as a trustee, ">*665 , or that it affected the entire trust res - the contributions of the others as well as his own. As to his own contribution, the power to retake it was just as complete as if it were the entire trust property.

The Commissioner's inclusion of the entire value ($245,515.53) of the property (2,512 shares) contributed to the trust by the decedent is sustanined.

Decision will be entered under Rule 50.