Talbott v. Commissioner

ESTATE OF KATHARINE H. TALBOTT, DECEASED, HAROLD E. TALBOTT, JR., NELSON S. TALBOTT AND GEORGE H. MEAD, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Talbott v. Commissioner Docket No. 97128. United States Board of Tax Appeals 42 B.T.A. 1081; 1940 BTA LEXIS 906; October 29 1940, Promulgated *906 Decedent, who was 71 years of age at death, was an exceptionally energetic woman, actively interested in music, travel, and the welfare of her children. Her health was good down to within a few days before she died; death, which came suddenly October 2, 1935, was caused by cornary occlusion. Held, the gifts which decedent made to her children in April 1932, at a time when she was in good health and with no thought of approaching death in mind, were not transfers made in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926. W. W. Spalding, Esq., for the petitioners. Lewis S. Pendleton, Esq., for the respondent. BLACK *1081 The respondent has determined a deficiency in estate tax in the amount of $708,596.36. The deficiency is occasioned by the respondent's inclusion in decedent's gross estate of the value of certain property which decedent transferred to her children in April 1932 and the disallowance by the respondent of certain indebtedness of the estate which was claimed by the executors as deductions on the estate tax return which was filed by them. The Commissioner, in including in decedent's gross*907 estate the value of property transferred to her children in April 1932, determined that such transfers were made in contemplation of death. In disallowing the deductions for certain indebtednes claimed by the estate, the Commissioner did so upon the ground that such indebtedness was not incurred for money or money's worth. In view of the facts which have been stipulated and the further facts which were proved at the hearing concerning these items of indebtedness, the Commissioner now concedes that he erred in disallowing these deductions for indebtedness of the decedent. Effect will be given to this concession in a computation under Rule 50. This proceeding, therefore, presents only a single issue for decision: Whether certain gifts made by decedent to her children on April 22, 1932, in the total sum of $1,636,771.71 were transfers in contemplation of death. FINDINGS OF FACT. The decedent, Katharine H. Talbott, died on October 2, 1935, at the age of 71 years, a lifelong resident of Dayton, Ohio. She was survived by two sons and seven daughters. Decedent had been a widow since January 21, 1921, on which date Harry E. Talbott, her husband, had died suddenly from a heart ailment. *908 *1082 Harry E. Talbott was, at the time of his death, possessed of considerable wealth. He had organized in 1915 and in 1916, respectively, the Dayton Metal Products Co. and the Dayton-Wright Airplane Co., the former of which manufactured fuses and ordance materials and the latter, as its name indicates, airplanes. During the period of the war these concerns produced, pursuant to contract, large quantities of war material for the United States Government. In the year 1919 all of the assets of both of these companies were transferred to the Dayton Securities Co. in exchange for the issuance to them of its capital stock. The transferor corporations were thereupon dissolved, the transferee company assuming all of their liabilities. Shortly before his death in 1921, Harry E. Talbott made a sizeable gift to each of his nine children. His entire estate was left to his wife, the decedent, under the terms of a will executed by him in 1906, when his holdings were relatively small. The decedent, Katharine H. Talbott, considered that this disposition of her husband's estate, under a will executed when his affairs were totally dissimilar to those existing on his death, was not*909 in accord with his wishes. She felt that he would have left a large part of his estate to his children had he foreseen the time of his death and made a will in accordance with his desires at that time. Accordingly, she regarded herself as only a custodian of a large part of his estate and stated to various persons her purpose to be to make substantial gifts to her children during her lifetime. Administration of the estate of Harrry E. Talbott was completed in 1924 and distribution of his estate was thereupon made to decedent. At that time there was pending certain litigation in which the Dayton Securities Co. was involved, growing out of the claim of the United States Government of overpayment in excess of $2,500,000 under its contracts with the Dayton-Wright Airplane Co. Suit had been instituted prior thereto by the United States in the Federal District Court, resulting in a judgment of $500,000 in favor of the defendants, the transferees of the Dayton-Wright Airplane Co. Later, in 1927, on appeal to the United States Circuit Court of Appeals this judgment was reversed and the action dismissed. There was also pending at this time a claim of the United States for additional*910 taxes determined to be due from the Dayton-Wright Airplane Co. This dispute was before this Board and before the Circuit Court of Appeals throughout this period until it was settled in November 1931. The decedent, after receiving the estate of her husband in 1924, was advised that the Dayton Securities Co., in which she was a large stockholder, would be liable as a transferee for any judgment rendered *1083 against the Dayton-Wright Airplane Co., or for any taxes found to be due from that concern. She discussed with her children, her attorney, and her accountant, during this period, her desire to make substantial gifts to her children out of the property received from her husband and expressed impatience at the delay caused by the litigation described above. During this period the decedent made certain gifts to her children, including houses which she gave to her seven daughters and lesser gifts of money and personal belongings made to them as their needs arose. In 1926 she established a trust known as the "Seven Sisters Trust," of which her seven daughters were the beneficiaries. The corpus was valued at approximately $240,000. She made loans to her son, Nelson S. *911 Talbott, of approximately $207,000 during the years 1929-1931 to assist him in meeting financial reverses. She also advanced $100,000 to her daughter, Daisy Talbott Greene, for the purchase of a seat on the Stock Exchange. This latter amount, however, was by the decedent's will specifically made an advancement from decedent's estate. The Dayton Securities Co. was dissolved in the year 1930 and its assets distributed to its stockholders over the period 1930-1933. The decedent received as her share approximately $1,100,000 in 1930, $100,000 in July of 1932, and the remainder during the year 1933. In the year 1931 decedent discussed further with her attorney and accountant her desire to make a substantial disposition of her properties among her children. She suggested the establishment of a trust, but was persuaded because of the nature of the properties involved to set up a corporation to effectuate her plans. Accordingly, in September 1931 she caused the Talbott Realty Co. to be organized under the laws of Ohio. This concern, however, remained dormant until April 1932, when the first meeting of its board of directors was held. Decedent became its president and her sons*912 and son-in-law assumed directorships. The entire capital stock, 900 shares, of the Talbott Realty Co. was issued to decedent in return for her transfer to it of certain assets consisting of improved and unimproved real estate and certain stocks and other securities. The real estate holdings which were transferred were, with the exception of certain small parcels, received by decedent from the estate of her husband. The greater portion of the stock transferred was likewise received by decedent from her husband's estate. On April 22, 1932, decedent presented as a gift to each of her nine children one hundred shares of the Talbott Realty Co., expressing to each in a letter accompanying the gift her desire for her children to have a substantial share of their father's property and *1084 reiterating her feeling that her position with respect to the larger portion of the property was merely that of custodian. At the same time decedent forgave the indebtedness of N. S. Talbott in the amount of $207,000 incurred as described above. On this occasion she also made delivery to her daughter, Daisy Talbott Greene, of the deed to the property which had been presented by decedent*913 some years before to her daughter for a homeesite. The delivery of the deed had been delayed by certain difficulties encountered in clearing up title to the plot. At least one of the donees of the Talbott Co. stock, Daisy Greene, was in need of the gift and made immediate use of it as collateral for certain indebtedness. The decedent was an exceptionally active and energetic woman and continued so down to the time of her last illness and death. She rode horseback regularly during at least a part of this period and exercised additionally through swimming. In these respects she resembled her mother and her grandmother, who both continued active after reaching the age of 80 years. During the last five years of her life she traveled extensively to all parts of the United States and also in Canada. She was strong physically and, with the exception of a stiffness in her knee which kept her in bed for a short period, and slight kidney trouble, was not ill at any time during the later years of her life prior to the attack of coronary occlusion which caused her death. This attack occurred on September 27, 1935, in the early morning when she had arisen to drive several miles to meet*914 her daughter who was arriving by train from the east. She was confined to her bed for several days under the care of her doctor and showed signs of improvement. She dictated several letters during this period, the last on the day of her death, in which she expressed her expectation to be well and active again within a short time. She was at this time planning to build a house in Princeton, New Jersey, where she expected to live a portion of each year, closer to the musical organization in which she was interested. The decedent had an optimistic, cheerful outlook in all matters which she shared with her family and friends. She was greatly interested in the lives of her children and kept in close and frequent touch with them through correspondence and visits. She had a large number of friends, whom she frequently entertained. During the summer of 1933 she leased a large apartment in Chicago and entertained there over one hundred of her friends who had come for the World's Fair. Her greatest interest, perhaps, lay in the Westminster Choir and in music generally. She supported actively with her time and money the former institution which had originated at Dayton. When it*915 was transferred to the Ithaca (New York) Conservatory of Music and later to Princeton, New Jersey, she continued her support, *1085 arranging trips for it and traveling with the choir on its tours. In 1934 she toured Russia and other parts of Europe with the choir and at the time of her death was planning a similar tour of Australia during the year 1937. The gifts which decedent made to her children during the year 1932 were not transfers in contemplation of death. OPINION. BLACK: We are asked here to say whether the gifts which decedent made to her children on April 22, 1932, were transfers made in contemplation of death within section 302(c) of the Revenue Act of 1926 and are therefore includible in her estate in computing the tax due thereon. Since the gifts in question were consummated more than two years before decedent's death, there is no presumption under that section favoring the respondent's determination that they come within that provision of the statute. See . We think, moreover, that the generally operative presumption which places on the petitioner the burden of showing that respondent's*916 determination is incorrect has, in this case, been overcome by the evidence presented by the petitioners. It is seldom that we find evidence which so clearly establishes that the transferor-decedent herself did not have a presentiment of approaching death. See . She enjoyed health which was exceptionally good for a woman her age. Her energy and vigor were a source of remark apparently to all who knew her. She had well cultivated interests, which she pursued actively. She was by nature optimistic and had an exceptionally hopeful outlook. We find nothing in decedent's mental or physical condition which would support a finding that the gifts which she made constituted transfers in contemplation of death. Respondent does not contend that at the time the decedent made the transfers in question she was in any fear of imminent death. His main argument resolves itself into the contention that the circumstances of the death of decedent's husband and the disposition of his estate together with the decedent's often expressed desire to share that estate with her children spell out a dominant motive on her part to dispose of the*917 greater portion of her property prior to and in anticipation of her death. See . We do not think respondent's argument is well taken, in view of the evidence in the record. In the view which we take of the evidence, it has been shown that decedent's husband prior to his death had fostered in his nine children the feeling that they with their parents formed a closely knit unit in which each shared with the others all of his or her material goods; that the decedent when she received the whole of *1086 her husband's estate felt that this disposition under a will executed fifteen years previously did not accurately reflect her husband's desires; that, therefore, decedent's plans during all of the period following his death down to 1932 were to make some division of his estate among his children as she believed he would have desired. See . Accordingly, decedent as early as 1924, when she first received the estate, discussed with her advisers the means of effectuating these designs. She was advised that pending litigation against the Dayton Securities Co., in which*918 she was heavily interested, made it inadvisable to attempt any disposition then. She accordingly waited for a more opportune moment; her impatience at the delay is reflected in her conversations with her counsel and her children. The latter, indeed, were well informed of their mother's plans to make a substantial disposition of their father's estate among them. In the meantime she partially effectuated her desires by setting up in 1926 a trust for her seven daughters and by making gifts from time to time to the children, including the present of a home for each of the daughters. It seems reasonable to us, viewing the whole evidence, that the decedent should conclude that 1932 was an opportune time for carrying out the plans which she had made several years before. In 1930-1931 the litigation in which she was vitally interested was finally concluded and a considerable amount of liquid assets came to her through the dissolution and liquidation of the Dayton Securities Co. The decedent instructed her attorney to form a corporation, which he did late in the year 1931 and shortly after the beginning of 1932 the assets intended to form the substance of the gifts were transferred to*919 the corporation, and the stock of the corporation was given in equal proportions to her children. We find the evidence persuasive that decedent in all this procedure was merely effectuating plans long held for the division of her husband's estate, without thought of her own demise. She retained for herself a very considerable amount of property, as the estate tax return in evidence shows. The value of decedent's gross estate as reported by the executors on the estate tax return which they filed was $1,510,255.21, and the amount of the net estate was $1,043,617.59 after deductions and the specific exemption of $100,000. Thus we do not have a case where a decedent a few years prior to her death gives away all of her property to her children, thus indicating a testamentary disposition. The gifts in addition to the Talbott Realty Co. stock which decedent made on April 22, 1932, do not by their coincidence in time add to the respondent's position. The presentation on that day of the deed to Daisy Greene's home site was, we think, purely mechanical. It seems clear that the actual gift of the realty was made at an earlier time and that the delivery of the deed was delayed only in*920 order to clear up *1087 title to the land. In this guise this gift takes its place along with the gifts of houses to each of the other children made over an extended period of time. The forgiveness of the debt of Nelson S. Talbott on this date likewise, it seems to us, does not lend any additional support to the respondent's view that decedent was attempting a general disposal of her properties in contemplation of death. Her practice through the years prior to 1932 had been to give to her children property or money as they might have need of them. We think the cancelation of the indebtedness was in line with this habit. The evidence shows that the N. S. Talbott Co., which was operated by Nelson Talbott, was engaged in 1932 in extensive underwritings, a business in which its financial position as reflected by its statement counted for a great deal. Its financial condition was not good and it had suffered heavy losses. It was thought that by canceling the indebtedness the personal statement of N. S. Talbott would be greatly improved and that this would be reflected favorably in the company's financial status. Moreover, it was the purpose of the decedent by her gifts in*921 1932 to give to each of her children an independent competence, and this in the case of Nelson Talbott might not be accomplished except through the gift of the Talbott Realty Co. stock and at the same time cancelation of the debt which he owed decedent. We think therefore that no special significance may be attached to the forgiveness of Nelson Talbott's debt in 1932. Rather we see in it only a further elaboration of the purpose which we have concluded above might most properly be assigned to the gifts made by decedent in 1932. The claim made by the petitioners for a credit for state estate or inheritance tax has been recognized by respondent on brief as a possible credit upon a proper showing. Under section 802 of the Revenue Act of 1932 the credit should be allowed on proper showing made within the allotted time. Decision will be entered under Rule 50.