Glaser v. Commissioner

JULIUS GLASER AND AARON WALDHEIM, EXECUTORS OF THE ESTATE OF DAVID SOMMERS, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Glaser v. Commissioner Docket No. 38381. United States Board of Tax Appeals 27 B.T.A. 313; 1932 BTA LEXIS 1087; December 14, 1932, Promulgated *1087 1. In 1916 decedent made a will bequeathing $35,000 to a childrens' home. Later he stated frequently to friends his desire and intention of changing the will and enlarging the bequest, but he died without so doing. Held, there was no valid bequest in excess of $35,000. 2. In 1923 decedent agreed with a federation of charities that he would assume all the running expenses of the childrens' home in lieu of his annual subscription to the work of the federation. That arrangement continued for several years until decedent's death. In 1924 and 1925 decedent frequently told friends that he would provide adequately for the expenses of the home after his death, but he did not do so. Held, neither the federation of charities nor the home thereby acquired a claim against decedent's estate under section 303(a)(1) of the Revenue Act of 1924. 3. In 1923 decedent secured a new matron for the childrens' home. In order to induce her to take the position he promised her that he would take care of all the running expenses of the home while he lived, and after his death as well. He died without adequately providing for such expenses after his death. Held, neither the matron*1088 nor the home thereby acquired any claim against decedent's estate for a fund for the home, under section 303(a)(1) of the Revenue Act of 1924. 4. Petitioners held entitled to a deduction of $21,014.49 with respect to income taxes for years prior to decedent's death. Stanley S. Waite, Esq., for the petitioners. C. H. Curl, Esq., for the respondent. MARQUETTE *314 This proceeding is for the redetermination of a deficiency in estate tax asserted by the respondent in the amount of $15,645.36. The errors alleged are (1) failure to allow as a deduction $215,000 paid to a charitable institution and claimed to have been an indebtedness of the estate; (2) failure to allow as deductions $2,210.80 and $22,320.59, which amounts were asserted by respondent as deficiencies in decedent's income taxes for the years 1924 and 1925, respectively; (3) including in the gross estate $45,000 and $8,845, which amounts represent the value of certain real estate owned by decedent at the time of his death, and which was located in Missouri and Florida, respectively. At the hearing respondent conceded that the amount of $45,000 should be excluded. Petitioners*1089 now concede that the amount of $8,845 was properly included. FINDINGS OF FACT. David Sommers was a resident of St. Louis, Missouri. He was interested in, and contributed to the support of the Jewish Federation, which is an association of all the Jewish charities of St. Louis, including an incorporated institution, a Shelter Home for children. In 1916 the wife and two young daughters of David Sommers were killed in an accident. Soon after their death, and at Sommers' request, the name of the Shelter Home was changed to The Dorothy Drey Sommers Shelter Home, in memory of his older daughter. On July 22, 1916, David Sommers made a will, article 2 of which provided a bequest of $35,000 to the Shelter Home. At that time Sommers was a man of comparatively small means, but by 1924 his wealth had largely increased. His contributions to the Jewish Federation for some time prior to 1924 had been $5,000 per year. At a mass meeting in behalf of the Jewish Federation held in 1923, David Sommers promised that he would assume all the expenses of *315 the Shelter Home in lieu of his usual annual subscription of $5,000 to the work of the Jewish Federation. The expenses of the*1090 Shelter Home were approximately $10,000 per year. Sommers' proposition was accepted, his subscription to the Federation canceled, and the Shelter Home was thereafter omitted from the budget of the Federation. Thereafter, Sommers made several statements to his friends and relatives, and to directors of the Federation, that he would support the Shelter Home and would provide for its support after his death. In 1923 he was president of the Shelter Home. He secured a new matron for it, and, to induce her to give up the position she then held, Sommers promised her that he would take care of the Shelter Home financially while he lived and after his death as well. In 1925 Sommers told his attorney that he wished to change his will and to leave $250,000 or more to the Shelter Home. That was never done, however, and Sommers died suddenly in December, 1925. After his death there was found in an envelope containing his will of July 22, 1916, a memorandum in David Sommers' handwriting, but not dated or signed, which contained the following: "Article 2. Change to $250,000.00 - $50,000 for a building balance. The income on this 50 m to be reinvested and not spent. $200,000 a trust fund*1091 to furnish permanent income." On June 17, 1926, the probate court in St. Louis, acting upon a petition filed by the executors of David Sommers' will and upon written request of all the "sisters and brothers of the deceased who are the only ones interested in the estate," found that it was the intention of the deceased to leave $250,000 to The Dorothy Drey Sommers Shelter Home and authorized David Sommers' executors to pay that amount to the proper officers of the home, which was done. Respondent has allowed $35,000 of that amount and has disallowed the balance as a deduction from the amount of the gross estate. On October 10, 1929, respondent mailed a deficiency notice to the executors of David Sommers' estate asserting deficiencies in income tax against David Sommers for the years 1924 and 1925 in the amounts of $2,210.80 and $22,320.59, respectively. The executors have since then paid to respondent the sums of $2,210.80 and $18,803.69, with accrued interest on both amounts, to cover the deficiencies for 1924 and 1925. It has been stipulated that petitioners are entitled to a deduction from the gross estate in the amount of $21,014.49. At the time of his death David Sommers*1092 owned real estate situated in Missouri of the value of $45,000. He also owned real estate situated in Florida of the value of $8,845. Respondent has included both amounts as part of the gross estate of the decedent for Federal estate tax purposes. *316 OPINION. MARQUETTE: There is little doubt that it was the wish and intention of David Sommers in 1925 to make a new will and to bequeath at least $250,000 to The Dorothy Drey Sommers Shelter Home. He died before doing so, but did leave a memorandum indicating his wishes in the matter, and those wishes were carried out by the executors and heirs at law. Under the Revised Statutes of Missouri, every will must be in writing, signed by the testator, or at his direction, and attested to by two or more witnesses subscribing their names in the testator's presence; and a written will may be revoked only by a subsequent will in writing, or by burning, canceling, tearing or obliterating by the testator, or in his presence and by his consent and direction. It is further provided that a nuncupative will, if the estate bequeathed exceeds $200 in value, is not valid. It is clear, therefore, that the full amount of $250,000 can*1093 not be considered a valid bequest or transfer legally chargeable as such against the estate of David Sommers. Only the sum of $35,000 was bequeathed to the home by decedent's will and only that amount is deductible under the provisions of section 303(a)(3) of the Revenue Act of 1924. Respondent has already allowed that deduction. As an alternative, petitioners contend that the full amount of $250,000 is deductible as an enforceable claim against the estate of David Sommers. The Revenue Act of 1924, in paragraph (1) of section 303(a), allows as deductions: (1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property * * * to the extent that such claims, mortgages, or indebtedness were incurred or contracted bona fide and for a fair consideration in money or money's worth * * *. In order to sustain their contention, petitioners must prove (1) that the claim arose from a bona fide contract made by David Sommers, and (2) a fair consideration in money or money's worth as a basis for the contract. Upon the record the beneficiary, The Dorothy Drey Sommers Shelter Home, was not*1094 a party to any contract with the decedent, nor was there any direct pledge to the home by David Sommers that he would support it or provide by will for its support after his death. It does appear, that in 1923, at a mass meeting to raise funds for the Jewish charities in St. Louis, decedent stated that in lieu of his annual subscription of $5,000 he would pay the running expenses of the home. Thereupon his proposition was accepted by the Federation of Jewish Charities, and his subscription was recorded not as a fixed amount, but as whatever would be sufficient to take care of the home. *317 About a year later decedent stated to various friends that he would provide for the home after his death. Even if we assume that these facts disclose a binding agreement with the Federation during Sommers' life, they do not disclose any contractual obligation to be fulfilled after his death. His statements about providing for the Shelter Home in his will were made long after his agreement with the Federation of Jewish Charities, and formed no part of the consideration, if any, for that agreement. There was no legal consideration given by reason of which Sommers' statements concerning*1095 provision for the home after his death could ripen into a contract binding upon him or his estate. Clearly, therefore, the Federation of Jewish Charities had no enforceable claim against the Sommers estate. The decedent in 1923 made another agreement affecting the home. In that agreement he promised one Ida Waldman that, if she would give up her then position and serve as matron of the home, he would provide for all the running expenses of the institution both during his life and after his death. Relying upon that promise, Mrs. Waldman became matron of the home. Assuming the binding force of Sommers' promise to her, Mrs. Waldman thereby acquired a right to recover any damages which she might suffer if Sommers broke the agreement. Having thus an adequate remedy at law for any loss sustained, Mrs. Waldman was precluded from an action for specific performance of Sommers' agreement. The extent of any enforceable claim which might have accrued to Mrs. Waldman and against the Sommers estate would have been measured solely by the amount necessary to compensate her loss caused by a breach of contract. Petitioners claim, however, that David Sommers' agreements respecting the maintenance*1096 of The Dorothy Drey Sommers Shelter Home constituted contracts for the benefit of the home which it could enforce in its own behalf. Granting the legal principle, the facts do not sustain the contention. The record discloses only two agreements by David Sommers concerning maintenance of the home which could be considered contracts giving rise to enforceable claims against his estate. As already pointed out above, the agreement with the Federation of Jewish Charities did not extend to, nor include provision for maintaining the home after Sommers' death. Respecting the agreement with Mrs. Waldman, it is very apparent from the evidence that Sommers' promise to provide for the home after his death was not made for the benefit of charity. It is quite evident that Mrs. Waldman was not at that time particularly interested in the Shelter Home. She was interested in knowing whether, if she became matron of the home, her position would be permanent, her salary paid regularly, and the home enabled to continue. *318 The promises by David Sommers were made solely to induce her to accept the position of matron. In so assuring her there was apparently no thought in David Sommers' mind*1097 of benefit to the home, except possibly the incidental benefit to be derived from Mrs. Waldman's services as matron. The fact that a person may derive large benefits from performance of a contract to which he was not a party, and which was made for the benefit of the principals, does not give such third party any right of enforcement of the contract. ; . In that case the city contracted with the company for the improvement of certain streets. The company having breached its contract, suit was brought by the city upon the company's bond. The city could recover only on the theory that the contract was made for the benefit of abutting property owners. It was held that the contract was not so made, although such owner would be benefited by the improvements, the court saying: There is a broad distinction between the principle involved where a contract is entered into between two parties for their own use and benefit, and where they make a similar contract for the benefit of a third party. A breach of the first would create no cause of action in favor of a third party even though he*1098 was thereby deprived of large benefits which would have flown to him had the contract been performed. The above decision is directly applicable to the present proceeding. In our opinion the sum of $215,000 is not deductible from the gross estate of David Sommers as a claim against the estate within the meaning of the statute. The next question is whether there may be deducted from the gross estate the amounts of $2,210.80 and $22,320.59, which were asserted as deficiencies for the years 1924 and 1925, respectively. The parties have agreed that there should be a deduction in the amount of $21,014.49 in respect of those deficiencies. That amount, therefore, is to be deducted in the recomputation of the tax. Reviewed by the Board. Decision will be entered under Rule 50.