Hunt v. Commissioner

ESTATE OF WARNER D. HUNT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hunt v. Commissioner Docket No. 31968. United States Board of Tax Appeals 19 B.T.A. 624; 1930 BTA LEXIS 2370; April 16, 1930, Promulgated *2370 Transfer of stock held not to have been made in contemplation of death or to take effect in possession and enjoyment after death. Charles K. Arter, Esq., and Walker H. Nye, Esq., for the petitioner. Harry Leroy Jones, Esq., for the respondent. VAN FOSSAN *624 This proceeding is brought to redetermine a deficiency in the estate tax of the estate of Warner D. Hunt in the amount of $9,951.39. The petitioner alleges that the respondent erred in that (1) he included as a part of the gross estate of the decedent 1,200 shares of the common stock of the Western Reserve Condensed Milk Co. belonging to Florence W. Hunt, widow of the decedent, upon the ground that the transfer of the said stock by the decedent to his wife on January 13, 1922, was made in contemplation of death or was intended to take effect in possession and enjoyment at or after death, and (2) the valuation at $200 per share of the said 1,200 shares of the common stock of the Western Reserve Condensed Milk Co., together with 1,200 other shares of such stock, all included by the respondent in the gross estate of the decedent, is in excess of the true and actual value of the said*2371 stock. At the hearing the petitioner abandoned the second allegation of error. FINDINGS OF FACT. The following facts were stipulated: 1. The 1,200 shares of stock of the Western Reserve Condensed Milk Co., the certificates for which were endorsed by the decedent to Florence W. Hunt on January 13, 1922, were never transferred on the books of the Western Reserve Condensed Milk Co. until some time subsequent to the decedent's death. 2. On or about December 30, 1922, a 100 per cent stock dividend was declared by the Western Reserve Condensed Milk Co., and 1,200 shares of stock were issued in the name of Warner D. Hunt on account of this dividend. 3. Up to the time of the death of Warner D. Hunt all dividends on the 1,200 wshares of stock of the Western Reserve Condensed Milk Co. which were endorsed over to his wife on January 13, 1922, and on the 1,200 shares subsequently issued as a stock dividend, were paid by the company's checks made payable to Warner D. Hunt and mailed to him by the company. *625 4. The minute book of the Western Reserve Condensed Milk Co. shows that at the annual meeting held January 0, 1922, the proxy of Warner D. Hunt for 1,200 shares*2372 of the company's stock was voted by P. L. Haynes; that at the company's annual meeting held January 9, 1923, the 2,400 shares of stock which then stood in the name of Warner D. Hunt on the company's books were not represented; that at the annual meeting of the company held January 8, 1924, said 2,400 shares were voted by C. L. Bartshe under proxy given by Warner D. Hunt. The original proxies here mentioned were destroyed, together with all other proxies given at those meetings. 6. During each of the years 1922, 1923, and 1924, the Western Reserve Condensed Milk Co. paid dividends of $8 a share. We find the following additional facts: Warner D. Hunt died of Bright's disease in Hollywood, Calif., on September 5, 1924, at the age of fifty-six. The deceased was graduated from Amherst College in 1893. After engaging in various occupations he became a salesmen for the Ohio Rubber Co., of Cleveland, and was so employed at the time of his marriage to Florence Wuest in 1901. Decedent's father-in-law, John Wuest, a man of some wealth, was engaged in the wholesale candy business in Cleveland. In 1903, the decedent became a business associate of Wuest and the corporate name of*2373 the firm was changed to The Wuest-Bauman-Hunt Co. Wuest died in 1907 and the petitioner inherited approximately $75,000 from his estate. The decedent and Bauman continued in the candy business for several years but the latter became dissatisfied with the decedent's management thereof and sold his interest in the company for $30,000, which was paid by the petitioner. The decedent continued to conduct the business at a continuing loss. Mrs. Hunt often advanced money to the decedent to be used in the business. In about 1916, the company was practically insolvent but a quick sale of its assets, together with the real estate and factory building owned by Mrs. Hunt and her sister, was effected by C. L. Bartshe, the active head of the Western Reserve Condensed Milk Co. and a close personal friend of the decedent. From that sale Mrs. Hunt received about $40,000 for her interest in the real estate. Thereupon the decedent became president of the Western Reserve Condensed Milk Co. as the nominal and "social" head of that corporation. The decedent was an excellent salesman but an extremely poor executive and manager of a business. He was in continual need of financial assistance in*2374 both his business and personal affairs. Mrs. Hunt contributed a large amount of money toward her husband's *626 business needs, the support of the family and the education of their two sons. She also paid for her husband certain obligations incurred by him. The total advancements from 1907 to September, 1924, so made by her aggregated more than $60,000. In addition Mrs. Hunt contributed many thousands of dollars, the expenditure of which was not evidenced by documents submitted at the hearing. Decedent and his wife maintained a joint bank account in which they both deposited as they were able. In these accounts they deposited all money received by each from any source. Mrs. Hunt drew most of the checks on the account and used the money largely for household expenses and education of their children. At times the decedent was unable to collect the full amount of his salary from the candy company because of the precarious financial condition of that concern. The decedent was a very generous man and seemed unable to accumulate money or property. He was a poor investor and a consistent loser. Yet he was a man of keen sensitiveness and was greatly grieved that he had*2375 used his wife's money, in some instances had lost it and was unable to repay her. Frequently prior to January, 1922, he stated that he planned to reimburse her for the amounts advanced by her but outlined no method of repayment. In the year 1914 the decedent borrowed $42,500 from the Citizens Savings & Trust Co., of Cleveland, and pledged as collateral security therefor 575 shares of the Western Reserve Condensed Milk Co. Later the loan was increased to $55,000 and, due to several stock dividends, the number of shares of the Western Reserve Condensed Milk Co. stock was increased to 1,200 and held by the bank as such collateral security on January 13, 1922. On January 13, 1922, the decedent and Mrs. Hunt went down town together and the decedent asked his wife to step into the bank with him as he wished to get those stock certificates (referring to the stock of the Western Reserve Condensed Milk Co.) and have her endorse them so that he could turn the stock over to her. At that time he stated, "That, I am sure, will repay you for all that you have done for me." Thereupon the decedent secured the certificates, transferred them to her by endorsing them on the back and signing the*2376 printed transfer clause. The certificates so endorsed were three: No. 24 for 575 shares, No. 50 for 25 shares, and No. 73 for 600 shares. At the same time Mrs. Hunt signed a document purporting to be a power of hypothecation or authority directing the bank to retain the stock as collateral security for the decedent's notes. No new notes were executed. Neither at the time of the transfer of the stock nor later was any agreement made by the decedent and his wife as to receiving the dividends or voting the stock. No new stock certificates were *627 issued to Florence W. Hunt, the stock remaining in the decedent's name on the books of the Western Reserve Condensed Milk Co. On or about December 30, 1922, a stock dividend of 1,200 shares was declared by the Western Reserve Condensed Milk Co. and a certificate therefor was issued to the decedent. It was deposited at the Union Trust Co. as collateral security for the said note of $55,000 and so remained at the time of the decedent's death. The said stock dividend was returned as a part of the gross estate of the decedent in the estate-tax return. All dividends on the 2,400 shares were paid to the decedent and deposited, usually*2377 by Mrs. Hunt, in the joint account maintained by her and the decedent. The decedent usually took charge of the income-tax returns of himself and wife. For the calendar year 1922 decedent returned the sum of $9,600 as dividends. The income-tax return of Florence W. Hunt for the year 1922 contained no item identifiable as dividends from the stock of the Western Reserve Condensed Milk Co. The same situation obtained in the year 1923. For the period prior to his death in 1924 dividends on the stock of domestic corporations in the sum of $4,800 were returned as income of the decedent. For the year 1924 Florence W. Hunt included in her income-tax return the sum of $12,150 as dividends on stock of domestic corporations but such amount was not itemized. While in college the decedent was an athlete and one of the best amateur baseball players in the country. He was approximately six feet in height and of powerful build. In January, 1922, he weighed about 240 pounds. Prior to the year 1921 his health had always been excellent, with the exception of an attack of kidney trouble in about 1915, but through diet and treatment he was relieved of that ailment entirely. At about Christmas*2378 time in 1920 he visited his mother in Norwich, N.Y. While there he was taken ill, due to overeating, and showed evidences of having suffered a slight stroke of partial paralysis. He remained in Norwich a short time but after returning to Cleveland he was confined to the house for a week or so and later resumed his duties as president of the Western Reserve Condensed Milk Co. With the exception of an attack of indigestion a few weeks later his health during the remainder of 1921 was uniformly good. The decedent and his family spent the summer of that year at their cottage in Brecksville. On January 13, 1922, he appeared to be unusually well. In July, 1922, the decedent visited friends in Toledo, Ohio. With those friends he and Mrs. Hunt drove by motor to California, camping out on the way. The decedent was perfectly well all the way. At Los Angeles the decedent and his wife rented an apartment and remained in that city almost two years. During that period he was *628 not ill at all and his health remained consistently good until shortly prior to September, 1924, when he was suddenly stricken with some disease of the kidneys. The decedent died on December 5, 1924. *2379 Both decedent and his wife were Christian Scientists, although decedent was not a particularly enthusiastic one. He had formerly belonged to the Methodist Church. He received medical attention at Norwich and would have employed a physician whenever he felt that he needed one. He did not realize the character or seriousness of his last illness and did not have the services of a physician. OPINION. VAN FOSSAN: Section 302(c) of the Revenue Act of 1924 provides: 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*2380 a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of Part I of this title; * * * Section 402(c) of the Revenue Act of 1921 contains the same language. Although the brief of counsel for the respondent states that he "does not concede that the transfer was not in contemplation of death," he directs his argument solely to the contention that the "enjoyment" of the transferred shares was postponed until death. Under the facts set forth above, we are of the opinion that the transfer of 1,200 shares of the capital stock of the Western Reserve Condensed Milk Co. from the decedent to his wife, Florence W. Hunt, the present petitioner, on January 13, 1922, was not made in contemplation of death within the purview of the statute. ; ; (see cases therein cited); . On that date the decedent was in good general health and excellant spirits. *2381 There is no indication that he had any thought or suspicion of impending death. He was a man of 54 years of age, athletically inclined, and, with the exception of the slight stroke in 1921 and occasional attacks of indigestion, due to overeating, was in good physical condition. Furthermore, he possessed *629 a cheerful, hopeful and optimistic disposition. His mental attitude was not consonant with the idea of impending death. The transfer of stock by Warner D. Hunt to his wife on January 13, 1922, was based on tangible considerations. It was more than a mere voluntary donation. It was an attempt on the part of the decedent to reimburse his wife for the large amount of money which she had advanced to him over a long period of years to aid him in his business ventures and to assist in the financial burdens of the home. His action was motivated by a recognition of his moral obligation to repay her contributions and by a desire to fulfill that obligation. At the time of the transfer there was no stipulation or even a suggestion that it was intended to take effect at or after death. On the contrary it was the expression of a long cherished purpose and plan of the decedent*2382 to compensate his wife, partially at least, for her loyal support and to relieve his own mind of the fancied stigma of having been dependent on her money. The transfer was considered and accepted as an absolute transfer by the decedent and his wife. Likewise, it was so regarded by the bank officers, who required Mrs. Hunt to sign a "power of hypothecation" authorizing the retention of the stock certificates as collateral security for the preexisting loan of the decedent. If Mrs. Hunt had not been the new owner such a requirement would have been unnecessary. The Uniform Stock Transfer Law, section 8671-1, Ohio G.C., contains the following provision: Title to a certificate and to the shares represented thereby can be transferred only (a) By the delivery of the certificate endorsed over in blank, or to a specified person by the person appearing by the certificate to be the owner of the shares represented thereby. Under the laws of Ohio, therefore, the title to the stock passed to Mrs. Hunt on January 13, 1922. We have held that where a transfer is absolute there is involved no question of whether it was intended to take effect in possession or enjoyment at or after death. *2383 . The fact that the assignment made by the decedent to his wife on January 13, 1922, constituted a complete and unequivocal transfer of title to the stock is fully supported by the evidence. It is none the less absolute because the donor retained or exercised some of the rights and privileges usually incident to stock ownership. . Nor does the failure to have such stock transferred on the books of the company impair the validity of the transfer. ;. See also ; . *630 Moreover, the decedent and his wife used and enjoyed jointly the dividends accruing from the stock of the Western Reserve Condensed Milk Co. for their joint needs. They placed all their income from whatever source in their joint bank accounts and withdrew from those accounts in accordance with their individual and community requirements. We are of the opinion that the*2384 transfer of stock made by the decedent to his wife on January 13, 1922, was not made with the intention that it should take effect in possession or enjoyment at or after death. Reviewed by the Board. Judgment will be entered under Rule 50.