DocketNumber： Docket No. 13372
Citation Numbers： 10 T.C. 1209, 1948 U.S. Tax Ct. LEXIS 145
Judges： Fossan
Filed Date： 6/28/1948
Status： Precedential
Modified Date： 11/21/2020
*145
The trust instrument executed by decedent on December 8, 1941, was not made in contemplation of death.
*1209 The respondent determined a deficiency of $ 75,304.60 in the estate tax of the estate of Augusta D. Moyse Schmucker. Various adjustments were made by stipulation, leaving in issue the item of $ 101,255.30 representing the value of the corpus of a trust created by the decedent on December 8, 1941, for the benefit of her granddaughter.
The single issue is whether or not the trust of December 8, 1941, was made in contemplation of death.
FINDINGS OF FACT.
Certain facts were stipulated and, in so far as they are material*146 to the issue, they are as follows:
Augusta D. Moyse Schmucker, the decedent, died at Poland Springs, Maine, on August 19, 1943. She was born on February 12, 1878, at Jackson, Mississippi. She died testate and her will was proved and admitted for administration in the Surrogate's Court of New York County on September 21, 1944. The petitioners, Isidore Dreyfus and Jerome Lewine, were appointed executors under the last will and testament of the decedent, qualified as such, and have since September 25, 1944, been acting as such executors. The Federal estate tax return for the estate of the decedent was filed with the collector of internal revenue for the second district of New York on November 18, 1944.
The decedent was survived by a son, S. Dickson Moyse, presently residing in London, England, a granddaughter, Susan Ann Moyse, also now residing in London, England, and a brother, now residing in Jackson, Mississippi.
On April 17, 1941, Charles Eldredge, vice president of the Bank of New York, wrote to the decedent a long letter in which he discussed her financial position and her place of residence, and reviewed her present will. He then offered detailed suggestions covering the *147 revamping of her will in order to avoid excessive "death duties" in England and estate taxes in the United States, and relating to the happening of certain contingencies outlined by him.
In the spring of 1941 Julius B. Baer, a New York attorney, prepared for and delivered to the decedent a comparison of the tax laws of *1210 California, Connecticut, Florida, Mississippi, and New York, and his conclusion with respect to the most favorable state in which to establish a residence. On June 2, 1941, Charles Eldredge wrote to the decedent that he had examined the Baer memorandum and agreed with it, stating "it is my understanding that you do not care too much about the property which you leave, but would rather make sure of a good income while you are living."
On November 17, 1941, Charles Eldredge informed the decedent by letter of the cost of creating a trust and approved of the decedent's proposed action, stating:
It seems wise for you to establish a trust for your granddaughter, as it is quite apparent that your fortune is more than ample to take care of all of your wants and in years to come the young lady will undoubtedly thank you for being so far sighted. If the present tendency*148 to conscript wealth continues in England where your son and his family reside he may not be in a position to provide for his daughter as adequately as he could today.
On December 8, 1941, the decedent created an irrevocable trust, with Jerome Lewine and the Bank of New York as trustees. The trust agreement provided that the income from the corpus should be accumulated until Susan Ann Moyse, the decedent's granddaughter, should attain the age of 21 years, and then be paid to her; between the ages of 21 and 30 years the trustees were to pay to her the income of the trust estate, and when she should become 30 years of age the trustees were to transfer the corpus of the trust to her and the trust was to be terminated. In the event of an emergency, the trustees might invade the corpus or income for the granddaughter's benefit. Other provisions related to her death before the distribution of the corpus.
The decedent's will, probated on September 21, 1944, was dated June 7, 1941. After certain directions for the administration of the estate and various specific bequests, the decedent exercised her power of appointment under the will of her husband, Leon Moyse, establishing a trust for*149 her benefit, and provided that her son, S. Dickson Moyse, should receive the income therefrom during his life and at his death, it was to be paid to his lawful issue. If he should leave no such issue, the corpus would pass to other of the decedent's relatives. The decedent then directed that the residue of her own property should be added to the Leon Moyse trust fund and administered similarly. The decedent's will of June 7, 1941, superseded and altered, in several respects, her will executed June 3, 1940.
On January 2, 1943, the decedent and Ralph Schmucker executed a prenuptial agreement, providing that each should preserve his and her own property interests and should not share in each other's estates.
The decedent and Ralph Schmucker were married on January 4, 1943.
*1211 In the files of Dr. C. M. Guion, New York City, appears a memorandum dated February 3, 1938, relating to the medical examination of the decedent. The memorandum related to a suspected cyst from which the decedent appeared to have suffered theretofore. A doctor at Vitel, France, advised treatment and the decedent suffered no pain thereafter from the condition. The trouble seemed to be caused by nerves. *150 The decedent planned to go on a cruise and wanted to be sure she was in good condition before starting.
The decedent did not want to tell her age. She was very careful of her diet, eating only chicken, white fish, vegetables, etc. She used tobacco moderately and no alcohol. The doctor prescribed liver pills. On April 17, 1945, Dr. Guion wrote to James Lewine as follows:
Mrs. Augusta Moyse visited me annually for a routine health examination on the following dates: February 3, 1938; January 16, 1939; April 27, 1940; May 2, 1940; May 21, 1940; December 3, 1940; October 16, 1941; November 1, 1941; April 22, 1942; May 20, 1943; June 3, 1943.
On these dates she reported that she had been in excellent health. I gave her a complete physical examination, did an examination of the blood and urine and an electrocardiogram on her fist [
I found her to be in very good physical condition. In 1938 and 1939 the Blood pressure was 150/100 but on all other visits it was 120/70.
I considered and so informed the patient on every visit that she was in good condition.
A clinical abstract from the Mount Sinai Hospital in New York City shows that the decedent was admitted to the hospital*151 on March 8, 1936, and discharged therefrom March 11, 1936. She complained of pelvic pains and was under observation. During her stay in the hospital the X-rays were negative and other tests showed a normal condition. The pain disappeared and she was sent home.
On April 3, 1946, the decedent's estate paid the sum of $ 34,343.56 to the Department of Revenue of the State of North Carolina, pursuant to the inheritance tax laws of that state.
On February 19, 1945, the decedent's estate paid to the Department of Taxation and Finance of the State of New York the sum of $ 22,895.70, pursuant to the estate tax laws of the State of New York.
The record discloses the following additional facts:
On December 8, 1941, the decedent's assets were worth about $ 1,000,000 and the value of the corpus of the testamentary trust from which she received the income was about $ 350,000. Her annual income at the time and thereafter was about $ 40,000. The Bank of New York held both her own custodian account and the trust account and transmitted to her the income from both sources. On December 8, 1941, and prior thereto, her custodian account included over $ 200,000 in cash which was lying idle in the*152 bank.
*1212 The decedent's only child, a son, married the daughter of one of the wealthiest men in England, lived in England, and had become a British subject. His only child, Susan Ann Moyse, was 8 or 10 years of age at December 1941. Due to social reasons and her son's refusal to return to the United States to live, the decedent exhibited bitter antagonism and resentment toward her son, who wanted her to live in France and not in England. During the war she insisted that her son and his family, or at least her granddaughter and her nurse, come to the United States, but the son refused to do so. In a former will she excluded him entirely as a beneficiary. Prior to executing her last will she was strongly advised by her financial adviser, her attorney, and her banker to alter her attitude toward her son. She did so in the will probated at her death. Such changes were made in view of the uncertainties caused by the war and because of her desire to create a life estate for her son, with the remainder for the benefit of her granddaughter. She desired to insure her granddaughter's adequate care and education if the wealth of British subjects should be conscripted.
The decedent*153 created the trust of December 8, 1941, chiefly because of her great apprehension and fear that the Germans would defeat Russia and then invade and destroy England. She had insisted that her son and his family leave England, but without avail. She wanted to insure her granddaughter's protection through a trust fund in the United States, where it would not be confiscated or impaired by either the Germans or the British. She was advised and persuaded by her banker, her attorney, and her financial adviser, all personal friends, to establish such a trust. She had about $ 200,000 in idle funds, the income from which would be taxed to her in the higher brackets, but would produce much more income for her granddaughter through taxation at lower rates. She devoted only one-half of this fund to such purpose, saying that $ 100,000 was enough. Her income was larger than her expenditures. The decedent was extremely fond of her granddaughter, but apparently of no one else. Furthermore, she wanted to make her granddaughter more eligible for marriage by providing her with independent means -- something that she had long contemplated.
The broad powers granted to the trustees were so fashioned*154 in order that they might meet any contingencies that would arise from an invasion of England by the Germans and the consequent loss of her son's income and capital.
The decedent was advised by her banker and her lawyer to establish a definite residence in a state whose laws were most favorable in the imposition of inheritance and estate taxes. However, she ignored their advice because she was concerned only with income, personal property, and other current taxes. She gave no consideration to estate *1213 and inheritance taxes in the creation of the trust of December 8, 1941, or in the execution of her various wills. Consequently, upon her death the States of New York and North Carolina both asserted inheritance taxes against her estate. She had no interest in providing for her collateral relatives, but was wrapped up in her own life. Although she was repeatedly urged to contribute to charities and other eleemosynary enterprises, she constantly refused to do so. She was anxious to preserve her status as a millionaire. The creation of the trust of December 8, 1941, and the execution of her last will bore no relation to each other.
The decedent's first husband, Leon Moyse, *155 died in 1932. Thereafter the decedent lived in London and Paris much of the time. She stayed in New York City for weeks at a time and often visited her brother in Jackson, Mississippi. She traveled extensively and spent considerable time in Palm Beach, Miami, Blowing Rock, Nassau, Washington, PolandSprings, California, and elsewhere in the United States. She planned to return to England to live and also to acquire a home in California.
The decedent was a selfish and vain woman. She was devoted to the pursuit of pleasure, entertainment, and diversion. She used cosmetics lavishly, patronized beauty shops and masseuses constantly, and took great care to preserve her health and youthful figure. She boasted that she was the best dancer in the country. She took regular exercises and calisthenics and ate carefully. She was an inveterate and excellent walker. She had the appearance of a woman of 45 or 50.
The decedent had no serious complaints and never spoke of needing a physician. She seemed to have no worries. She had no illness of any moment except perhaps a cold and one attack of "lumbago," for which she was treated by an osteopath. She apparently had no apprehension of*156 death and never discussed it. She consulted her physician for routine examinations and check-ups. The physician gave her complete examinations and found her health to be excellent. Such examinations were made periodically from February 3, 1938, to June 30, 1943. The decedent sought medical advice because she was extremely vain, was concerned chiefly with life, and was anxious to preserve her appearance and be in the very best possible health. She had no disease or functional disorders except one rash, due to dyeing her hair. After each examination her physician reported decedent to be in good health and the decedent told her maid of such report.
The decedent talked of and planned remarriage. She was advised by her physician that she could remarry. She liked companionship and would not go to the theatre or night clubs without an escort. On occasion she hired a gigolo to accompany her.
About five weeks before decedent died she went to Poland Springs, Maine, for her usual round of pleasure, consisting of dancing, walking, *1214 dinners, etc. On Tuesday, August 17, 1943, she had a dancing lesson before lunch, ate lunch, had a dress fitted by her maid, and went out for a*157 walk, returning about 4 o'clock. While taking a drink of water she stated to her maid that she was not well and the hotel physician, Dr. Bolster, was called. He diagnosed her trouble as indigestion, prescribed some pills, and treated her otherwise. He stated "it is nothing to be afraid of. She will be all right." On the next day she was attended by Dr. Bolster and Dr. Porges, a friend and a guest at the hotel. (Both of the physicians died before the hearing in this case.) Both physicians stated that the decedent would "be all right but that it would take a little time." On Thursday morning she was in and out of bed, read the newspapers, and applied her cosmetics. The doctor assured the maid that the decedent "would be all right," but cautioned the decedent to remain quiet. Shortly thereafter decedent died in the arms of her maid, who had been her constant companion over eight years.
The trust agreement of December 8, 1941, was not made in contemplation of death.
The respondent included in the decedent's estate the value of the trust established on December 8, 1941, with the following explanation:
It is held that the transfer by the decedent of $ 100,000 to a trust created on*158 December 8, 1941, is a part of her gross estate for estate tax purposes under the provisions of the Federal estate tax laws and the regulations pertaining thereto.
OPINION.
The sole issue before us is whether or not the decedent made the trust of December 8, 1941, in contemplation of death and thus rendered its corpus includible in her estate, as provided in
*159 *1215 This Court and others have considered countless cases of this character. It is sufficient to state that the issue is a factual one, based here on stipulated facts, exhibits, and the testimony adduced at the hearing, and that the fundamental test is whether the actions of the decedent prompting the disposition of her property were associated with life or with the thought of death.
A study of the record readily demonstrates that the decedent's actions, attitude, disposition, and temperament all show her to have been a wealthy, selfish, vain, and arbitrary woman; that she was extraordinarily avid in the pursuit of pleasure and self-gratification; that she exacted the keenest enjoyment from the diversions of the moment; that her principal ambition seemed to be to keep herself in the best possible physical condition and to present an attractive appearance in order that she might be able to engage in many kinds of amusement, diversion, and entertainment. We note also that whatever altruistic impulses she may have had were concentrated in her affection for her granddaughter.
The respondent argues, first, *160 that the decedent's will dated June 7, 1941, and the transfer of December 8, 1941, were both parts of a comprehensive scheme for the final distribution of her estate. We find no factual basis for this assumption and argument. The will of June 7, 1941, sets up a complete plan in itself for the devolution of her property. The trust of December 8, 1941, did not supplement that plan. In fact, it can not be related at all to the plan. Cf.
The respondent further argues that the decedent's granddaughter was the natural object of her bounty, that she was interested principally in Susan's securing a portion of her assets after her death, and that the trust was the means of accomplishing that purpose. Again the record does not support respondent's contention. It is reasonable to conclude that the decedent could have made a testamentary disposition of her property entirely to Susan if she had so desired. The chief motive *161 for creating the trust was the decedent's fear that the Germans would defeat the Russians and then invade England, in which country her son and granddaughter were then living. She wanted to assure to Susan adequate care and protection if her son's assets should be destroyed, conscripted, or seized by the enemy.
That desire in itself furnishes an ample motive for establishing the trust. But the decedent had another cogent reason -- she wanted Susan to become more eligible for marriage by supplying her with independent means. The trust provided for the accumulation of income *1216 until Susan should reach 21 years of age. However, it also empowered the trustees to use the income and even to invade the corpus, to meet any emergency, illness or misfortune, and to pay out for Susan's benefit the entire income and corpus, if necessary. These provisions clearly demonstrate that the decedent was concerned with Susan's welfare from the moment the trust was created and that she wanted her granddaughter to enjoy the benefits of the trust at any time, regardless of the contingency of her death.
The respondent further contends that the decedent was "estate conscious" in relation to state, *162 inheritance, and estate taxes. This conclusion is not borne out by the record. The decedent's advisers attempted to impress on her the advisability of selecting her residence in a state whose tax laws were most favorable to estates, but she ignored their suggestion. She wanted only to be assured that she had ample income to supply her own requirements and that she was still a "millionaire." In fact, she showed far less than a normal interest in the future of either herself or her property. She lived in the present, with apparently the sole thought of gratifying her momentary fancies and of planning for further pleasures in the immediate future. We have no doubt that the motives of the decedent in creating the trust in controversy were associated solely with life. Her entire conduct leads unmistakably to that conclusion.
It will serve no useful purpose to cite and compare the many "contemplation of death" cases with the one at bar. All vary in detail of fact and in degree and kind of motive. The textbook on the subject is
If it is the thought*163 of death, as a controlling motive prompting the disposition of property, that affords the test, it follows that the statute does not embrace gifts inter vivos which spring from a different motive. Such transfers were made the subject of a distinct gift tax, since repealed. * * * The purposes which may be served by gifts are of great variety. It is common knowledge that a frequent inducement is not only the desire to be relieved of responsibilities, but to have children, or others who may be the appropriate objects of the donor's bounty, independently established with competencies of their own, without being compelled to await the death of the donor and without particular consideration of that event. There may be the desire to recognize special needs or exigencies or to discharge moral obligations. The gratification of such desires may be a more compelling motive than any thought of death.
The principles there stated are particularly applicable to the case before us. In addition to the basic facts heretofore set forth, we have considered the age of the decedent at death; her excellent health prior thereto; the ratio of the value of the trust gift to her entire estate; her refusal*164 to transfer $ 200,000 instead of $ 100,000 as the principal of the trust; the character of the witnesses and their confidential relationship *1217 to the decedent; and the picture of her last days, during which, until the moment of her death, she not only did not contemplate death, but gave no thought whatever to the fact that it would ensue.
All of these factors lead inescapably to the view that the trust of December 8, 1941, was not made in contemplation of death, and we so hold. Further adjustments of the petitioner's taxes will be made as stipulated.
1.
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, except real property situated outside of the United States --
* * * *
(c) Transfers in Contemplation of, or Taking Effect at Death. -- 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 subchapter;
* * * *↩