Rickenberg v. Commissioner

OPINION.

Disney, Judge:

The respondent determined in the determination of deficiency that the property transferred by the decedent on December 2,1942, should be included in his gross estate under the provisions of section 811 (c) and 811 (d) (5) of the Internal Revenue Code.¹ Error in such determination must be shown by the petitioner. Welch v. Helvering, 290 U. S. 111. In our opinion, the petitioner has not so shown. The respondent, on brief, does not contend that the transfers were prompted by any apprehension or premonition on the part of the decedent of imminent death. The contention is that the sole motive inducing the decedent to make the transfers was associated with death rather than life, and more particularly that the decedent’s purpose was solely to avoid estate tax to which the property would otherwise be subject at his death. Considering this attitude on the part of the respondent, together with the fact that is obvious from the evidence that the petitioner had no reason, on December 2,1942, to apprehend the heart attack which took his life about eighteen months later, we examine only, in this respect, the question as to whether there was such motive and intent to escape estate taxes as to bring the transfer within the ban of the statute. The respective briefs, in effect, agree that such motive subjects the property to estate tax, for both parties cite several cases to that effect. See Updike v. Commissioner, 88 Fed. (2d) 807; Vanderlip v. Commissioner, 155 Fed. (2d) 152, affirming 3 T. C. 358; First Trust & Deposit Co. v. Shaughnessy, 134 Fed. (2d) 940. The contemplation of death is not necessarily that of imminent death. United States v. Wells, 283 U. S. 102. The petitioner contends, however, that there is no evidence to establish that the decedent’s dominant motive was to escape estate taxes. The question is one of fact. We have carefully considered what transpired in the autumn of 1942, ending with the transfers in question, and we think it is self-evident on the face of the record that the controlling and dominant purpose was to escape estate taxes. It is unnecessary to reiterate the facts which we have above set forth, and we shall here only note that it is obvious that the decedent was following the advice of Jones, the insurance agent; that Jones outlined a plan by which estate taxes could be escaped; that he had this in mind when on October 30, at the decedent’s request, he put the matters which he and the decedent had discussed into the form of a letter, for he therein mentioned substantial savings in tax and administration costs and arrangements of estates to effect such savings in tax and costs, and again twice mentioned estate expenses and estate costs. At that time Jones had not learned of the change in gift tax, so that the contention that gift tax saving was in mind is without foundation. This is indicated by the fact that on November 11 Jones inquired of the attorney, Toll, stating the Kickenberg case, whether gift tax would be payable. This letter too discloses the plan to save estate taxes, since it inquires whether the plan was practical in the light of the new estate tax and states that it would appear more economical than leaving the property in the husband’s name or in joint tenancy. Toll’s answer on November 13,1942, goes into detail as to saving of estate tax. When Jones and the decedent went to the attorney, Hickson, it was Jones who outlined what was to be done, telling Hickson they wanted an agreement drafted as suggested by Jones. Though it is true that the desire was that the instrument be signed before January 1,1943, this by no means demonstrates that the idea was to escape gift tax which would become effective on that date, but only that an early execution of the instruments was desired for that purpose. The idea that the object was escape of gift tax is rendered almost absurd by the fact that if no transfer had been made no gift tax would have been incurred. In Commonwealth Trust Co. of Pittsburgh v. Driscoll, 137 Fed. (2d) 653, the Circuit Court affirmed 50 Fed. Supp. 949, on the reasoning of the District Court and without further opinion. In that case the decedent, as in this one, was active in his business until long after the execution of the transfer in question, so that, as here, the element of contemplation of imminent death was not present. Five years before his death he made the transfer in question, transferring property which had been conveyed to himself and his wife as tenants by the entirety. The court, in effect, was able to see no reason for the transfer except to escape the payment of estate taxes thereon. Here there is much more positive indication that the controlling motive was to escape estate taxes. Though there is contention that escape of income taxes was also in the mind of Jones, the testimony in that regard is unsatisfactory and unconvincing, and it is clear to us that such was at most only the minor purpose. We conclude, and hold without further discussion of the facts above found, that the agreement of December 2, 1942, between the decedent and his wife was for the primary and dominant purpose of escaping estate taxes and was in contemplation of death within the purview of section 811 (c) of the Internal Revenue Code.

The petitioner contends, however, that the contract here in question comes within the exception stated in section 811 (c), that is, it was a bona fide sale for an adequate and full consideration in money or money’s worth. This we hold to be untenable for two reasons. First, in our view, there was no sale. In its ordinary sense the term means transfer for a fixed price in money or its equivalent. United States v. Benedict, 280 Fed. 76, 80, quoted in Hale v. Helvering, 85 Fed. (2d) 819; Estate of Frank K. Sullivan, 10 T. C. 961. The act does not include the word “exchange,” and the fact is significant. Second, under section 812 (b) (5) of the Internal Revenue Code, relinquishment of marital rights in the decedent’s property shall not be considered to any extent a consideration in money or money’s worth. We have found as a fact that the property had been held in community. Therefore, the agreement of division of property rights on the part of the wife was an agreement to relinquish “marital rights in the decedent’s property,” since the right to community property arises under California law because of the marital estate.

Though the wife’s community property interest is not acquired from the estate of her deceased husband, Estate of James F. Waters, 8 T. C. 407, her interest during the lifetime of herself and husband is a beneficial right extending to all the property, that is, to his interest as well as hers. For instance, he may not dispose of the community real estate, or encumber it (except to lease for less than a year) without her j oinder in the conveyance. Sec. 172 (a), California Civil Code. It was as to just this interest in his portion of the community estate that the relinquishment by the agreement here in question went; therefore, clearly there was relinquishment of marital rights in the husband’s property. Moreover, any community property acquired prior to July 29, 1927, belonged to the husband, the wife having only an expectancy, and was sub j ect to administration in his estate. Rosenberg v. Commissioner, 115 Fed. (2d) 910. The record here does not show that the property was not acquired prior to July 29, 1927, showing only that it was acquired during the period of marriage. Our reasons for holding that the property was community require no lengthy discussion ; for, since the entire property was acquired during marriage, and, so far as the record shows, in California — and certainly largely in California — and there is no contention or proof that any part of it was received by the wife as compensation for personal services actually rendered by her or derived originally from such compensation or from separate property of the surviving spouse, within the language of section 811 (e) (2) of the Internal Revenue Code (as added by section 402 (b) (2) of the Revenue Act of 1942), we find nothing in this record to indicate that the property was other than community. The agreement of December 2, 1942, calls it community property. The parties are not in disagreement that the mere fact that the title was formerly held in joint estate, the survivor to take, does not affect the real nature of the holding. There is some testimony that they considered that they held it “share and share alike” or “fifty-fifty,” but with other expressions that they owned it “together,” it is clear that there is no negation of community property, as we have concluded and find.

The third reason for our holding that the transfer on December 2, 1942, to the decedent’s wife was not a bona fide sale for adequate and full consideration in money or money’s worth is that such consideration has been held to be one which leaves intact the estate of the decedent. In short, the intent of the exception stated in section 811 (c) is that if the transfer of property from a decedent brought into his estate the equivalent thereof, the estate, of course, was not diminished. Latty v. Commissioner, 62 Fed. (2d) 952; Commissioner v. Porter, 92 Fed. (2d) 426; Phillips v. Gnichtel, 27 Fed. (2d) 662; Helvering v. Robinette, 129 Fed. (2d) 832; Estate of Frank K. Sullivan, supra. The petitioner’s estate here, had there been no transfer of December 2, 1942, would have included the community property. It would have included the property even though it was regarded as joint estate. After that transfer, decedent’s estate, except for the application of section 811 (c), consisted of one-half of the property transferred. The diminution of the estate and the lack of the necessary consideration in money or money’s worth can not be doubted. We, therefore, hold that the transfer does not come within the exception stated in section 811 (c).

The parties have agreed upon all values involved. We find, therefore, no error in the determination of the Commissioner. However, because of expenses incurred in connection with the administration of the estate and this appeal which are not yet determinable, and as to which the parties seem to be in no disagreement,

Decision will be entered under Rule 50.

Reviewed by the Court.

1 SEC. 811. GROSS ESTATE.

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—

(a) Decedent’s Interest. — To the extent of the Interest therein of the decedent at the time of his death.

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(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 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, Bhall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of thissubchapter:

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(d) (5) [As added by section 402 (a) of the Revenue Act of 1942, effective as of October 22, 1942.] Transfers of community property in contemplation of death, etc. — For the purposes of this subsection and subsection (c), a transfer of property held as community property by the decedent and surviving spouse under tbe law of any State, Territory, or possession of tbe United States, or any foreign country, shall be considered to bave been made by tbe decedent, except sucb part thereof as may be shown to bave been received as compensation for personal services actually rendered by the surviving spouse or derived originally from such compensation or from separate property of the surviving spouse.