Fidelity-Philadelphia Trust Co. v. Commissioner

FIDELITY-PHILADELPHIA TRUST CO., EXECUTOR, ESTATE OF JOHN W. STELWAGON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Fidelity-Philadelphia Trust Co. v. Commissioner Docket No. 28469. United States Board of Tax Appeals 17 B.T.A. 910; 1929 BTA LEXIS 2219; October 14, 1929, Promulgated *2219 Creation of a trust by decedent within two years prior to his death held not to be made in contemplation of death. mjesse I. Miller, Esq., for the petitioner. Harold Allen, Esq., for the respondent. VAN FOSSAN *910 This proceeding is for the redetermination of a deficiency in estate tax amounting to $5,534.01. The petitioner alleges (1) that the respondent erred in determining that a certain irrevocable trust deed by which the decedent transferred a material part of his property within two years prior to his death was executed and delivered in contemplation of death, and, in the alternative, (2) that even if such conveyance were made in contemplation of death, nevertheless the value of the corpus of the trust could not be included within the gross estate, for the reason that the trust was fully executed prior to the effective date of the Revenue Act of 1924, under the provisions of which the tax in question is asserted. FINDINGS OF FACT. John W. Stelwagon, a resident of Philadelphia, Pa., died on the 21st day of April, 1925, leaving a last will and testament, under the terms of which the Fidelity Trust Co. duly qualified as executor*2220 and is now the duly qualified and acting executor of the will of the said John W. Stelwagon, deceased. Thereafter, the corporate name of the executor was changed from Fidelity Trust Co. to Fidelity-Philadelphia Trust Co. John W. Stelwagon was about 63 years of age when he died. His death was the result of cerebral hemorrhage superinduced by arteriosclerosis. He left him surviving his widow, who was his second wife, and four adult children, namely, Joseph Stelwagon, Henry W. Stelwagon, Helen Stelwagon and Frederick Stelwagon. During his active business life the decedent had been connected with the Stelwagon Manufacturing Co., a corporation manufacturing roofing material, which was founded by his father. For years before his death he was successively president of the company and chairman of the board of directors, and owned a controlling interest in it. At the time of the transaction in question the decedent received a salary of $15,000 per year. He also received income from his father's estate, *911 from the estate of his first wife's mother, and from the property transferred by the trust deed in question. His sons, Joseph and Henry, were in business with their father*2221 and at the time of the latter's death Joseph was the president of the company, the decedent having become chairman of the board of directors. Frederick was the youngest son and up to a time shortly after the execution of the trust deed hereinafter referred to, Frederick and the decedent's daughter Helen were members of the decedent's household and were dependent upon him for support. The other two sons maintained their own homes. In 1917, about eight years prior to his death, the decedent was at Beach Haven, N.J. While sitting at the dinner table he started to rise but found that he could not walk because of trouble with his left leg. With some assistance he went into the lobby of the hotel, sat there about two hours, and then went upstairs. This attack was a slight "stroke" of some kind. Upon his return to his home in Philadelphia, the decedent consulted a physician and was told by the latter that he had the "best kind" of arteriosclerosis, and that if he did not get excited and took proper care of himself he would live for many years. Her husband's physicians never gave Mrs. Stelwagon any special instructions as to his care, except that they instructed her to keep him quiet*2222 and not to let him get excited. They told her that if she followed these instructions he would live a long time. The decedent thereafter had several attacks similar to that at Beach Haven, N.J., none of which, however, up to the time of his death, is shown to have been especially serious, except one which occurred in the fall of 1923, several months after the execution of the transfer of property hereinafter set forth. These attacks lasted variously from six hours to two days, and the number of attacks between the date of the first one, namely 1917, and the date of decedent's death was about eight, or one a year. After the first attack resulting from high blood pressure, the decedent continued to attend to the business of Stelwagon Manufacturing Co., going to his office when in the City of Philadelphia in the morning and usually remaining there until 5 o'clock in the afternoon. During the last years of his life, however, when he was chairman of the board of directors of the Stelwagon Manufacturing Co., he devoted himself mainly to the major policies of the business and when in town was at the plant every day, working usually from 10 o'clock in the morning until 3 o'clock in*2223 the afternoon. After the first attack in 1917, the decedent spent his leisure time in automobiling, playing bridge, and visiting his friends. Quite regularly, up to the time of his death, he engaged in light calisthenic exercises upon rising in the morning. *912 The decedent was an irritable, excitable man, and small things upset him. He was meticulously careful about money matters. His total annual expenditure for household expenses, including payments of the bills of his wife and his two dependent children, was from $10,000 to $13,000 per year. He had supported his son Frederick at college and after Frederick's return from college in December, 1921, and has subsequent entry into business at a salary of $15 per week, the decedent continued to support him, giving him a home, paying his bills, and furnishing him with cash to spend. Frederick received from the decedent in 1922 about $2,000 in cash for spending money. At this time Frederick was contemplating marriage and could not be married without financial assistance from his father. Frederick says that his father did not want him to ask for or talk to him about support. The daughter Helen also was mainly dependent*2224 upon her father for support, although she received a small salary and had an income derived from about $2,000 received from her mother's estate. She received from her father approximately $900 per year for additional spending money. The decedent paid the household bills and those of his wife in addition to those of his daughter Helen and of his son Frederick. He thought that his daughter Helen and son Frederick were extravagant. He did not like to spend money and when family bills were presented to him, or his son Frederick or his daughter Helen asked him for money, he often was annoyed and became greatly excited. He also disliked conducting his personal business affairs, such as managing his investments and cutting his coupons, and he was annoyed by the necessity of so doing. In 1913 the decedent adopted the practice of spending about three months each winter in Florida. In the early winter of 1923, however, he and his wife went to California. In February, 1923, while they were at Pasadena, Calif., his daughter Helen sent the decedent a household bill for payment, and not having heard from her father in response to her letter requesting a check in payment, wrote him a second*2225 time concerning the matter, urging compliance with her request for a check. The decedent thereupon became considerably excited and announced to his wife that upon his return to Philadelphia he proposed to create a trust whereby he would settle upon each of his children and his wife a certain specified income which he said would relieve him entirely from the annoyance and worry which their constant demands upon him created and that then he would not have to pay anybody's bills. He said to Mrs. Stelwagon that a Mr. McCann from Boston, whom he had met in California, had stated that he had made such a trust and if Mr. McCann could do so there was no reason why he, the decedent, should not do likewise. The decedent and his wife returned to Philadelphia from Pasadena, Calif., in March, 1923. On May 7, 1923, the decedent executed *913 and delivered an irrevocable deed of trust by which he transferred to the Fidelity Trust Co. of Philadelphia certain property, real and personal, of the fair value of approximately $275,000, in trust for the purposes expressed in the instrument. By the terms of this instrument the trustee was given full legal title to the property transferred thereby, *2226 was duly authorized to sell and assign the personal property, to sell and convey the realty, to invest and reinvest the principal of the trust, and was directed to pay out of the net annual income to Mrs. Helena W. Stelwagon, the settlor's wife, 40 per cent thereof; to Helen Stelwagon, the settlor's daughter, 26 per cent thereof; to Frederick Stelwagon, son, 26 per cent; to Joseph Stelwagon, son, 4 per cent; and to Henry W. Stelwagon, son, 4 per cent. The payments provided to be made to the children were for the term of their natural lives and that to the settlor's wife for her natural life, provided she did not remarry after the death of the settlor, in which latter event she was to receive 15 per cent of the net income. Provision was also made for the disposition of the property transferred and its income upon the respective deaths of either or all of the beneficiaries or upon the remarriage of the settlor's wife, after his death. The settlor reserved to himself no right or interest whatever in the property transferred or in the income thereof. Upon the execution of the irrevocable trust deed, the trustee began to execute the trust and from time to time paid over to the beneficiaries*2227 thereof their respective shares of the net income, which shares the beneficiaries received and applied to the payment of their living bills. Thereafter the decedent paid none of the household bills or the bills of his children, except the rent of the apartment occupied by himself, his wife and two children. Within a few months after the date of the execution of the trust the son Frederick and daughter Helen began to maintain their own respective apartments. Contemporaneously with the execution of the trust deed, the decedent told his son Frederick, his daughter Helen and his wife that he would no longer be responsible for their bills and support, that thereafter they would have to pay their own bills, and that they could come to him for nothing. He told his son Frederick that the constant worry and annoyance about family bills and about their requests for money was the cause of his attacks, and that the execution of the trust would relieve him from that cause. He explained to his son Joseph, who was then the president of the Stelwagon Manufacturing Co. that the reason why he, Joseph, and his brother Henry W. Stelwagon were to receive portions of the income from the trust estate*2228 so much smaller than the portions *914 to be received by their brother Frederick and sister Helen was that Joseph and Henry had the right to acquire the business of the Stelwagon Manufacturing Co. by purchase and that, therefore, ultimately their incomes would be larger than those of Helen and Frederick. At the date of the execution of the trust deed and prior thereto, the decedent's physical condition had not changed very much since 1917, the time of his first attack due to the hardening of the arteries. While in Philadelphia he was devoting his time and attention during the day to the major policies of the Stelwagon Manufacturing Co. He was not depressed by his physical condition. He had not expressed any thought that his death was near at hand nor shown any anxiety about his death. On the contrary then and at a still later date he was desirous of fully recovering his health so that he could go to China, where he had been before. At the time of the execution of the trust deed, May 7, 1923, the decedent was planning a trip to Germany. He actually went to Germany in June, 1923, about a month after the execution of the trust deed. It is stated in the respondent's*2229 letter attached to the petition that the decedent executed his will two days after the execution of the trust deed referred to. OPINION. VAN FOSSAN: The fundamental question for solution in this proceeding is whether or not the decedent transferred a material part of his property by an irrevocable deed of trust in contemplation of death within the intendment of section 302(c) of the Revenue Act of 1924. Section 302 of the Revenue Act of 1924 provides 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, except in case of a bona fide sale for a fair 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 a consideration, *2230 shall, unless shown to the ocntrary, be deemed to have been made in contemplation of death * * *. There is no contention on the part of the respondent that the trust deed in question was intended to take effect in possession or enjoyment after the death of the settlor. The transfer of the property was, however, in the nature of a final disposition or distribution thereof. Under the terms of the quoted section of the statute the *915 transfer, having been made within two years prior to the death of the decedent, is to be deemed to have been made in contemplation of death, unless the contrary is shown. This presumption shifts the burden of proof to the taxpayer, but rigorous rules as to the proof required to rebut the presumption are not to be applied. ; . If the preponderance of the evidence leads to the conclusion that a present apprehension that death was near at hand was not the animating and inducing cause of the transfer, then the presumption is rebutted and the value of the corpus of the estate should not be included in the gross estate. *2231 ; ; ;. In the present proceeding, the decedent was about 61 years of age when he made the transfer in question. He was suffering from a disease which ultimately might cause his death. As a matter of fact this disease was the inducing cause of the cerebral hemorrhage which resulted in decedent's death. The respondent maintains that because of the existence and character of the disease and because two days after the execution of the trust deed the decedent executed his will, therefore, it must be concluded that the transfer of property in question was, as a matter of fact, made in contemplation of death. The facts show, however, that at the time the trust deed was executed the decedent's physical condition was not markedly different from what it had been during the six years prior to the execution of the trust deed and that at that time the decedent was contemplating a trip to Germany. It may be inferred properly, therefore, that the execution of the will was*2232 merely the act of a prudent man who was putting his house in order before going abroad. The decedent had been told by his physicians that notwithstanding the fact that he had arteriosclerosis he would live many years if he took proper care of himself and did not become excited. He was a nervous, excitable man who was easily annoyed. It would be natural and prudent for him, therefore, to endeavor to rid himself of all possible causes of annoyance and excitement. Since his first attack in 1917 he had never expressed nor exhibited any fear that death was at hand. On the contrary, the evidence shows that he was looking forward into the future with the expectation of a continuance of life. He had a will to recover his health so that he could go to China and he actually planned and made a trip to Germany contemporaneously with the transfer in question. In our opinion the facts show that the decedent executed the trust deed as a means of promoting the recovery of his health, rather than because of any present apprehension that his death was immediately *916 imminent. We therefore reach the conclusion that the petitioner has rebutted the presumption that the irrevocable*2233 deed of trust was executed and delivered in contemplation of death. Decision will be entered under Rule 50.