Illinois Merchants Trust Co. v. Commissioner

ILLINOIS MERCHANTS TRUST CO., EXECUTOR, ESTATE OF EDMUND D. HULBERT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Illinois Merchants Trust Co. v. Commissioner Docket No. 11204. United States Board of Tax Appeals 12 B.T.A. 818; 1928 BTA LEXIS 3451; June 25, 1928, Promulgated *3451 1. Compulsory contributions to a pension fund which do not create any vested or contractual right in the contributor to a pension, do not amount to an insurance whose present value would be subject to estate tax. 2. Transfers of stocks and land involved herein, under the evidence, held, not to have been made in contemplation of death. Hugh W. McCulloch, Esq., for the petitioner. Brice Toole, Esq., for the respondent. MARQUETTE *818 This is a proceeding for the redetermination of a deficiency in estate taxes, asserted by the respondent in the amount of $9,802.76. The deficiency arises from the respondent's inclusion as part of the gross estate of the following: (a) The value of certain real estate and stocks alleged to have been transferred by the decedent in contemplation of, or intended to take effect in possession or enjoyment at or after death; (b) the present value of a certain pension paid by the decedent's employer to the widow, and (c) the balance in the widow's checking account at the date of the decedent's death. FINDINGS OF FACT. The petitioner is the duly appointed and qualified executor under the last will and testament*3452 of Edmund D. Hulbert, deceased. The said Hulbert died on March 30, 1923, at the age of sixty-five years. In February 1920 and for some time prior thereto Hulbert was the president of the Merchants' Loan & Trust Co., the Illinois Trust & Savings Bank, and the Corn Exchange Bank, all of Chicago, Ill. It was his custom to walk from his home to the banks in the morning, a distance of about three miles. His business day began between 8.30 and 9 o'clock, and continued until late afternoon, frequently up to 6 o'clock. On February 11, 1920, Hulbert was advised by his surgeon, Dr. McArthur, to go to the hospital for an exploratory operation within a short time. On February 13, 1920, Hulbert deeded to his wife a piece of real estate which he had owned since 1912, and which he had frequently said was "her lot," and "her home"; he also transferred to his wife on the same date three certificates of stock aggregating 265 shares in the Merchants' Loan & Trust Co.; one day later he transferred to his wife 100 shares of Stover Manufacturing & Engine Co. stock and 90 shares of stock in the Illinois Trust & Savings Bank. On February 17, 1920, he transferred to her 100 shares of *819 *3453 Kelsey Wheel Co. stock. On February 14, 1920, he negotiated a loan from the Merchants' Loan & Trust Co. in the sum of $50,000, in Mrs. Hulbert's name. She was at the bank that day, signed the note for the loan, and also endorsed two certificates of stock aggregating 165 shares, which certificates were deposited with the bank as collateral security. The other stock certificates and the deed were placed by Mrs. Hulbert in her safe-deposit box, to which she alone had the key. In December, 1920, Hulbert transferred to his wife 100 shares of stock of the Chicago & Northwestern Railway Co., and in April, 1921, he transferred to her 168 shares of the stock of the Corn Exchange National Bank. The three banks mentioned were consolidated under the name of the Illinois Trust Co. in April, 1923. On February 18, 1920, Hulbert was operated on and a malignant mass at the junction of his small and large intestine was removed. He apparently made a good recovery and shortly thereafter resumed his work at the banks and his morning walks, as usual. Except for some pain in his left shoulder in 1922 Hulbert seemed in good health up to the time of his last illness in March, 1923. An X-ray of his*3454 shoulder was made in September, 1922, which discovered a bony growth. This growth may have been due to a cancerous condition, or it may have come from another cause. The proceeds of the $50,000 loan had been used by Hulbert in his own business. He curtailed the amount from time to time and at his death $25,000 remained unpaid. The dividends from Mrs. Hulbert's stock, which was used as collateral, were applied in payment of the interest and the curtailments on the note, and Hulbert made up the balance of such payments. Mrs. Hulbert had a separate account at the bank on which Hulbert did not draw. At the time of his death the balance in this account was $347.39. When he died Hulbert had paid in to the Illinois Merchants Trust Co. pension fund a total of $4,612.50, and upon that sum there was accrued interest amounting to $725.70. Contributions to this fund by all officers and employees of the bank were compulsory, being a fixed percentage of each one's salary, and deducted monthly. These contributions were made under and subject to certain rules and regulations of the bank relative to the pension fund, including the following: ARTICLE II. Section 2. Its creation*3455 constitutes no contract and confers no legal rights upon any of the officers or employees. ARTICLE IV. Section 2. * * * it must be distinctly understood that these rules and regulations confer no vested rights and that, as herein stated, every pension granted will be granted at the discretion of the Trustees and continue only during their pleasure. *820 The pension rules also provided that if a pension was refused, the contributor or his legal representatives would be entitled to a refund of the amount he had contributed, with interest. Mrs. Hulbert has received $3,000 a year from the pension fund since her husband's death. On the stocks given to his wife by Hulbert, dividends amounting to $1,700 were declared shortly before his death, and were paid two days after he died. The respondent has determined that the following items should be included in Hulbert's estate and an estate-tax paid thereon: (1) Stock, Merchants' Loan & Trust, 100 shares $40,500.00 (2) Stock, Corn Exchange Natl. Bank, 168 shares 68,040.00 (3) Stock, Illinois Trust & Savings Co., 90 shares 36,450.00 (4) Stock, Chicago & Northwestern Rwy. Co., 100 shares 8,250.00 (5) Stock, Kelsey Wheel Co., 100 shares 10,775.00 (6) Stock, Stover Mfg. & Engine Co., 100 shares 9,650.00 (7) Land on Oakdale Avenue 66,600.00 (8) Present worth of $3,000 pension 29,956.95 (9) Dividends on bank stock 1,700.00 (10) Balance Mrs. Hulbert's checking account 347.39 Total 272,269.34 *3456 OPINION. MARQUETTE: Two questions are raised by this proceeding, namely: (1) Is the pension received by the decedent's widow insurance, the present value of which should be included as part of the gross estate, and (2) were the transfers of land and stocks made by Hulbert to his wife, gifts made in contemplation of and to take effect after Hulbert's death? In our opinion the first question must be answered in the negative. The fund from which the pension to Mrs. Hulbert is derived was not an insurance. The contributions which Hulbert was compelled to make to this fund created no vested right in him or his beneficiaries to receive a pension, nor did it impose any contractual obligation upon the trustees of the fund to pay such pension. Whether or not such pension would be paid was entirely a matter of choice by the trustees. The only obligation arising from the decedent's contributions was, that if the pension should not be paid, then the total amount of the contributions, with compound interest, should be returned. The petitioner, as executor of Hulbert's estate, had a legal right, we think, to demand and receive the amount of his contributions, with interest. This total*3457 amount was $5,338.20 and should be included as part of the gross estate of Hulbert; but the respondent was in error in including as part of the estate the amount of $29,956.95 as the present value of the pension. *821 As to the second question, the portion of the Revenue Act of 1921 applicable here, is as follows: SEC. 402. That 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 - * * * (c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this Act), except in case of a bona fide sale for a fair consideration in money or money's worth. As the transfers here in question were made more than three years before the death of the transferor, the statutory presumption as to transfers within two years of the death is not operative. *3458 This Board, and the courts, have frequently had occasion to consider and interpret the clause, "made in contemplation of death." Thus, in , it was said: In determining whether a transfer is made in contemplation of death, the Board must look to the expressions of the decedent, to the outward visible acts and circumstances surrounding a transfer of property prior to death. * * * Webster's Unabridged Dictionary defines "contemplation" as the act of looking forward to an event as about to happen; expectation; act of intending, purposing, or considering, hence, intention; consideration; etc. An act may well be performed in contemplation of death at some time in the future and yet not be in contemplation of death within the meaning of that phrase as used in the statute. The intention of Congress in the enactment of section 402 of the Revenue Act of 1918 was to provide for the inclusion in the gross estate of the value of any property concerning which the decedent made a transfer, except for a fair consideration in money or money's worth, in contemplation of death within a reasonable time in the near future, as distinguished*3459 from the general expectation of death entertained by everyone. The same thought is expressed in ; ; . In order that a transfer of property by included within the purview of the statute, there must have been not only an expectation "that death was near at hand, but such fear must have been the direct and moving cause of the gifts." The same holding has been announced in ; ; ; ; . Upon careful consideration we are of the opinion that the transfers by the decedent were not made in contemplation of death within the meaning of the statute; that is, the proximate or prime moving cause of the transfers was not an expectation by Hulbert that his *822 dissolution was then impending. His surgeon, in advising an exploratory operation, *3460 did not indicate anything of the sort - did not even urge great haste. The decedent had often told his wife that the land in question was hers, that he intended it for her, that he must attend to deeding it to her. He had also spoken, prior to the transfers, of his desire to put some stocks in her name so that she would have some independent income. He carried on his business affairs as usual during the week intervening between the time his physician advised the operation, and its performance. He proceeded with plans looking far into the future; told some of his associates that he was going to the hospital for a short time. He did nothing, apparently, toward that setting his house in order which would be the usual and natural course for some one who believed himself suffering from a fatal malady and who thought his end was near. Regarding the $50,000 loan to Mrs. Hulbert, the proceeds of which were paid to and used by Hulbert in his business, the respondent suggests that the Board look with suspicion upon this transaction as being at least unsavory, if not actually fraudulent, and quotes from *3461 . We are not greatly impressed thereby. The sentence quoted was obiter and was followed by this: * * * But we can not disregard the separate legal existence of husband and wife as individuals, or their separate rights to hold property and to make separate income-tax returns under both the general law and the Revenue Acts. So long as avoidance is permitted in this matter we can not hold that the mere resort to it is a fraud. Granted that the loan was made for the benefit of Hulbert, although, for reasons of his own it was made in his wife's name, we are unable to see any suspicion of fraud therein; nor is it proof that the stocks were given to Mrs. Hulbert in contemplation of death. The stocks used as collateral for this loan stood in Mrs. Hulbert's name on the books of the company. They were her property. We see nothing sinister in the fact that she allowed her husband to utilize her name in making the loan, her property in collaterally securing it, her dividends for the purpose of curtailing it. In our opinion none of the property given to Mrs. Hulbert by her husband constituted a gift intended to take*3462 effect at or after the death of Hulbert. The transfers were complete when made and vested in Mrs. Hulbert the sole right and title thereto and interest therein. Thereafter, Hulbert's dominion over such property was ended. His legal right in and to its use and enjoyment ceased with the transfers. If Mrs. Hulbert chose to allow him the use of part or all of this property, it was her right and privilege to do so on any terms which suited her. That was her affair, and it concerns no one else. *823 The dividends on Mrs. Hulbert's holdings, declared before Hulbert's death but paid after that event, were no proper part of his estate and should not be included therein. The same is true of Mrs. Hulbert's checking account balance at the bank. It was her account, not that of the decedent, and in the circumstances we can not disregard the separate legal existence of husband and wife as individuals, or their separate rights to hold property and to use it as they see fit. Judgment will be entered under Rule 50.