Tillotson v. Commissioner

ESTATE OF FRANK F. TILLOTSON, ISABELLE I. TILLOTSON AND EUGENE SIEGEL, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Tillotson v. Commissioner Docket No. 100563. United States Board of Tax Appeals 44 B.T.A. 644; 1941 BTA LEXIS 1296; June 5, 1941, Promulgated *1296 1. Gifts by decedent to natural objects of his bounty within one year of death, held, on facts, not to be transfers in contemplation of death. 2. Attorneys' fees incurred in present proceeding held deductible from gross estate. Ralph W. Barbier, Esq., for the petitioner. Philip M. Clark, Esq., for the respondent. KERN *645 Respondent determined a deficiency of $12,202 in estate tax. The two questions presented in this proceeding are whether certain transfers of property were made by decedent in contemplation of death, and whether the estate is entitled to a deduction of $1,000 for attorneys' fees incurred in the present proceeding. Other issues raised by the pleadings have been abandoned by petitioners. FINDINGS OF FACT. Frank F. Tillotson (hereinafter referred to as decedent), died testate July 8, 1936, a resident of Michigan. He was 71 years of age when he died. Decedent was engaged in the banking business in Detroit until 1919, at which time he became president of the Federal Discount Corporation, with its offices in that city. His elder son became associated with the corporation in 1930, and in the early part*1297 of 1934, when decedent resigned as president to become chairman of the board of directors, the son was elevated to the position of president. The time that decedent devoted to the affairs of the corporation gradually diminished during 1934 until at the end of the year he had completely retired from the business. In the summer of 1933 decedent discussed with his elder son the future financial welfare of the family. Decedent was approaching the age of 70, and was desirous of providing a definite income for himself and wife for the remainder of their lives. While he owned considerable liquid assets, their future earning power, due to the effects of the depression, was regarded as questionable. He was carrying a considerable amount of insurance, the premiums on which were expensive. He discussed the situation with an insurance broker and counselor, and a program was worked out whereby decedent surrendered all the insurance on his life, some $70,000 in face value, for its cash value of approximately $35,000. With this cash decedent, on November 1 and December 2, 1933, purchased two annuities which would pay him $275 per month for the rest of his life. The annuities were of the*1298 installment refund type, which provided that if he should die before their face value had been refunded the monthly payments would be made to the designated beneficiary, in this instance decedent's wife, until the face value was exhausted. Decedent was advised by the insurance broker that the face value of the annuities would be refunded in 10 or 11 years, and, fearing that he might outlive that period and leave his wife surviving with no income from the annuities, decedent gave her funds with which to buy annuities in her own name. With the money he gave her the wife purchased three annuities, one on January 13, 1934, for $14,633.30, which would pay her $100 per month as long as she *646 lived, one on June 20, 1934, for $3,853.35, and the other on September 26, 1934, for $3,832.33, each of which would pay her $25 monthly. In the early part of 1934 decedent's wife and elder son first notice a slowing down of decedent's mental powers. He became forgetful and careless in the handling of money. He began to lose his ability to concentrate on business affairs, and he would lose interest, particularly if a problem was complicated. He became not exactly childish, but completely*1299 indifferent to things he had theretofore seemed concerned over. As time went on he enjoyed spending more and more of his time at home. Both the wife and the son consulted a Dr. Matthews, decedent's physician and personal friend, who stated that he had observed decedent's failing and was of the opinion that he was afflicted with a tumor on the brain. He advised the wife that this would ultimately prove fatal, but that such a tumor was slow growing and in some cases persons so afflicted lived for a number of years. She was led to believe that his mental powers would be destroyed. Neither she nor the son ever discussed this condition with decedent, and, so far as they know, decedent was never aware of the fact that he had a tumor on the brain. Knowing of his condition and feeling that he had worked hard all his life and was entitled to retire, and that he was well satisfied with the manner in which the corporate affairs were being conducted, they urged him to retire, as he did at the close of 1934. On June 20, 1934, decedent executed a power of attorney in favor of his wife at her suggestion. The attorney who prepared the instrument was informed that decedent was failing mentally. *1300 The wife was active and drove her own car, and inasmuch as decedent was spending more time at home she persuaded him to let her handle such matters as drawing checks, paying bills, depositing the annuity checks, and generally taking care of the family affairs, all of which necessitated trips to the city from their home 22 miles distant. She, however, had always had her own check book and had taken care of the household expenses. The power of attorney was very broad, specifically authorizing her to collect all income, execute deeds, mortgages, and leases, draw and accept bills of exchange, checks, etc., pay all debts, sell any and all securities, settle claims, hire assistants, and enter into and perform any contract that might be necessary and proper. It concluded with the following broad language: Without, in any wise, limiting the foregoing, generally to do, execute and perform any other act, deed, matter, or thing, whatsoever, that ought to be done, executed and performed, or that, in the opinion of my said attorney, ought to be done, executed, or performed, in and about the premises, of every nature and kind, whatsoever, as fully and effectually as I could do, if personally*1301 present. *647 The wife under this power of attorney performed no activities that she had not performed since the beginning of 1934. She was primarily concerned over decedent's carelessness in handling money, and she began giving him only so much money as she felt he needed. This he resented at first, but he later acquiesced in her handling of all his affairs. In May of 1935 the insurance company questioned the validity of the power of attorney and her endorsement of annuity checks thereunder, on the ground that information had been received that decedent might have been mentally incompetent when he executed it. A conference was had with the wife, the elder son, the attorney who prepared the power of attorney, and the insurance counselor and agent. The attorney, who had never seen decedent, advised that a guardian be appointed if he were incompetent. The wife and the son expressed regret and displeasure over the inconvenience of handling property through guardianship, as described by the attorney, but the attorney was instructed to prepare a petition for the oppointment of the wife as decedent's guardian. He prepared the petition and went to decedent's home to have*1302 the wife execute it. While there he met decedent for the first time and after talking with him was surprised that decedent was considered mentally incompetent. He nevertheless filed the petition, on June 20, 1935. He suggested to the son, however, that an alienist examine decedent to ascertain if he were incompetent. From what the son told the attorney concerning the tumor on decedent's brain, the attorney felt that insanity was inevitable and that the appointment of a guardian would some day be necessary. The attorney suggested that if decedent was mentally competent at that time, his liquid assets be given to his wife "so that she could handle that part of the estate and have the income from that without accountability to the Probate Court." On this occasion there was no discussion about transferring title to the home to the wife's name. The son requested Dr. Matthews to bring Dr. Clark, an alienist, to the house for an observation, but he stressed the point that it should appear as a friendly visit so decedent would not suspect his condition. Prior to that visit the son took to the attorney a rough inventory of decedent's liquid assets, consisting largely of securities. *1303 It was contemplated by the attorney and the son that decedent would be placed in a sanitarium, and that the wife would desire to sell the house - situated on a small farm of 25 acres some 22 miles from Detroit. It was decided therefore that the home, which had stood in the names of decedent and his wife since its purchase in 1914, and the securities should be placed in her name. The attorney believed that a transfer out of the joint names would be complicated if a guardian were appointed. *648 The son suggested to decedent that he transfer the home and the securities to his mother's name as an assistance to her in relieving him of the responsibility of handling the household affairs. Decedent stated that he wanted to do anything that would help his wife in handling the affairs. The son did not suggest the transfer of any property to himself, his brother, or their wives. The two doctors visited decedent's home on July 10, 1935, and on that date the son brought a deed prepared by the attorney, by which decedent and his wife transferred the home to the insurance counselor and his wife, who had become their personal friends. The deed was executed at the home, the two*1304 doctors acting as witnesses. On the following day the grantees reconveyed the property to decedent's wife. The alienist, after observing decedent, advised the wife that in his opinion decedent was perfectly capable of handling any business transaction. An affidavit was signed by both doctors and forwarded to the insurance company, as a result of which it recognized the validity of the power of attorney. The petition for the appointment of a guardian never went to hearing, but was withdrawn by the attorney. Shortly after the house was transferred to the wife, she suggested to decedent that he do something for their two sons. She thought such a course could relieve her of business complications and at the same time help them. She also suggested that gifts be made to their wives. She felt she had enough income to live on, and that they should be enjoying the property rather than waiting until the parents were both gone. Decedent seemed to be perfectly willing to do so if she thought best. He thereupon gave to his sons $33,440 face value debentures of the General Discount Corporation, 7,500 shares of the stock of that company and other securities of minor value. He also gave*1305 a $5,000 bond to each of his two daughters-in-law. These transfers were made on July 16, 1935, and August 10, 1935. The elder son had severed his connection with the Federal Discount Corporation in May 1935 and was going to Florida to enter the real estate business, but he was not in need of financial assistance at the time the gifts were made to him. The younger son, however, had suffered financial reverses and required capital to continue in the building business. On July 2, 1935, decedent fell and broke his wrist. A nurse was engaged to attend him, and, although the wrist healed in due course, the nurse continued on. Thereafter he had many falls, most of them at night. Because of the falls he was placed in a private sanitarium in March of 1936, so that he would receive better care than one nurse could give him. He died on July 8, 1936. The cause of death was reported on the estate tax return as tumor on the brain. *649 Prior to 1934 and throughout the years 1934 and 1935, decedent's visible physical condition was good. He had a hearty appetite and enjoyed his meals. He never displayed any signs of morbidness nor did he ever talk of his death. He was very*1306 proud of his health. He remained active, and until and including the summer of 1934 he worked about the house, taking care of the gardens, picking fruit and berries, and doing some of the work on the small farm. At the time he was placed in a sanitarium his health remained unchanged and he was active. Shortly thereafter he began to fail physically. The estate tax return reported $49,388.69 as the value of decedent's gross estate, of which $22,516.23 represented real estate that was returned as jointly owned by decedent and his wife and $20,836.84 was the value of the two annuities in decedent's name. The estate tax return, in listing certain of the property transferred by decedent, stated: Deceased retired from business in 1932 on advice of physician as tumor on brain made mental concentration harmful, affairs were handled by wife under power of attorney, condition was making steady progress towards insanity and to avoid red-tape delays of probate court in providing for family through guardianship, the following property was transferred in the summer of 1936 so as to give wife and sons full and free use and control: * * *. The estate tax return lists decedent's wife and*1307 two sons as his heirs, next of kin, devisees, and legatees. The Commissioner added $109,754.06 to the value of the gross estate, $24,250 representing the home which was transferred to the wife on July 10, 1935; $26,752 representing the General Discount Corporation debentures given to the two sons in July and August 1935; $28,125 representing the value of stock in that corporation and $759.70 representing the value of other securities given to the sons at the same time; $14,754.56 representing the value of the three annuities purchased during 1934 in the wife's name; and $8,063.30 representing the bonds given to the two daughters-in-law in 1935. The inclusion of the above items in decedent's gross estate was explained by respondent in the notice of deficiency as follows: The value of the following described property transferred by the decedent in 1935 is included in the gross estate, it being considered that the transfer of such property was in the nature of a testamentary disposition of a portion of his estate and, therefore, made in contemplation of death * * *. The gift by the decedent of the funds with which the wife purchased annuities was not made in contemplation of*1308 death; nor were the gifts of the house to the wife, of the debentures and other securities to the sons, and of the bonds to the daughters-in-law. In addition to the attorneys' fees deducted on the Federal estate tax return, the estate has become obligated to pay attorneys' fees of $1,000 in connection with this proceeding. *650 OPINION. KERN: Respondent relies upon article 16 of Regulations 80 1 in this proceeding as the basis for the inclusion of the various assets within decedent's taxable estate. This Board and the courts have accorded to that article of the regulations the force and effect of law, with the result that any transfers made by a decedent within two years of his death without adequate consideration therefor are presumed to have been made in contemplation of death, and, therefore, are includable within decedent's gross estate pursuant to section 302(c) of the Revenue Act of 1926. Therefore, respondent rests his case mainly on a legal presumption. There is, of course, another time-honored presumption working in the favor of the respondent, i.e., that the determination of the Commissioner is assumed to be correct. *1309 . Both of these presumptions must be overcome before the taxpayer may prevail in this proceeding. A showing of facts to this Board sufficient to establish that the presumption established by article 16 of Regulations 80 has no application to the present situation would also overcome the presumption in favor of the correctness of the Commissioner's determination. The respondent then would have the burden of coming forward with evidence sufficient to overcome any conclusions in petitioner's favor which might be formed from the evidence already of record. ; . Our first inquiry, therefore, is whether this petitioner has introduced evidence sufficient to overcome the presumption*1310 established by the regulations. We believe that the petitioner has done this. In the first place, the decedent had no knowledge of his ailment. This is nowhere contradicted in the evidence. On the contrary, the evidence discloses that the decedent was an active man, very proud of the health he enjoyed at the age of seventy, and fully expected to live for another decade. He was an elderly man who had devoted what may be termed the best part of his life to building up a business, raising a family, and providing for their economic security. In the early part of 1934 decedent resigned as president of the Federal Discount Corporation, a position which he had held since 1919. His son succeeded him and decedent became chairman of the board of directors. He resigned this latter position, however, before the close of the year and went home to his farm in the country to relax and enjoy the fruits of his *651 labors. There is nothing unusual about such conduct. Business men do not retire merely because they feel death is "just around the corner." The most usual reason is a desire to shed all financial cares and thus enjoy more fully the remaining years of life and make those*1311 remaining years more in number. This, we are convinced, was the decedent's reason for retiring. In the year prior to this retirement he had set the stage for such a move. In November 1933 he surrendered his life insurance policies and with the cash obtained purchased annuities, the total benefits from which amounted to far less than the beneficiary would have received on his death had he kept the life insurance in effect. This transaction points undeniably to the fact that decedent anticipated life, not death, and wanted security for his own protection so that he could live the rest of his life in comfort. His reason for buying additional annuities for his wife further bears out this conclusion. As we have indicated in our findings of fact, supra, the gift of these annuities to the wife was not in contemplation of death. On the contrary, it was in contemplation of his living at least ten years more and because of his concern that he might outlive his wife. The transaction whereby the wife acquired sole ownership of the realty formerly held by the decedent and his wife as tenants by the entirety was not carried out by him in contemplation of death. *1312 ; . At this stage of decedent's retirement he had manifested certain desires, the foremost being a desire to be freed from any financial worries and be left to enjoy life in peace and a second desire, almost a resignation, to conduct himself according to the wishes of his family. Perhaps this latter desire can be said to modify the former, the idea being to avoid arguments. If an issue arose, the decedent seems to have willingly ceded in favor of his family's wishes just to maintain harmony and quiet. Under the power of attorney, the wife gave decedent what amounted to subsistence money. Her motives in doing this probably were based on her notion that the decedent was not capable mentally of managing his financial affiairs. This notion was a mistaken one, according to the diagnosis of the alienist. But the decedent's motive in allowing himself to be put on an allowance was nothing more than we have shown above. The evidence discloses that he at first resented her action, but, when he saw that she was insistent, gave in. When the wife suggested*1313 that it would make her and the children happier if he made a present to the children so that they could have more security, he again ceded to her wishes. After all, he and his wife had their annuities and the farm, so it could not affect his retirement. *652 From the evidentiary facts present in the record and adduced by petitioner, we must conclude that the decedent, having arranged upon retirement for a competence for the rest of his life, made the transfers in question for the purpose of ridding himself of financial cares and worries, for the purpose of pleasing his family, and for the purpose of retaining domestic tranquility - all purposes connected with life, not death. We further conclude that the decedent, at the time of the transfers, did not contemplate death within the meaning of the revenue act. The respondent has introduced no direct evidence to overcome the conclusion thus reached, and we, therefore, find that any presumption in favor of the respondent has been successfully overcome. The attorneys' fees which will apparently have to be paid should be allowed as a deduction. *1314 . Reviewed by the Board. Decision will be entered for the petitioner. OPPER OPPER, dissenting: Although normally a question of fact, see United States v. Wells,283 U.S. 102, about which it would be difficult to disagree on a point of principle, here I am unable to reach the Board's conclusion that the gifts of the house, the debentures and other securities, and the bonds were not made in contemplation of death. Petitioners labor under a twofold burden of proof. They must show that the "impelling" motive of decedent himself was connected with aspects of life and not of death, ; and, of course, in order to do so they must disclose to our satisfaction what decedent's motive was. . I agree that decedent's motive for the transfers to his wife of the means to purchase annuities has been shown by petitioners; and I agree further that that motive indicates decedent's preoccupation with considerations having to do with life rather than death. But I can*1315 not reach the judgment that this record contains any evidence of decedent's own motive with respect to the other transfers, made a year later, nor that it can be supplied by the Board's unfounded speculations as to what that motive might have been. This seems to me reversible error, even though the issue is one of fact, and even though, were there evidence to support it, the Board's decision would be beyond overthrow on review. See The view that there is no evidence of decedent's own motive is, of course, founded upon the lack of any testimony, not only of what was in the decedent's mind, but of what was upon his lips so far as the reason for the transfers is concerned. And that, of course - "the *653 transferor's motive" - , is the only issue. We know why decedent's family suggested the transfers, but on their own version of the facts their true reasons were withheld from decedent. We know that the reasons they gave him were not the reasons upon which he could have acted, for he made the transfers differently than it is claimed they were suggested. *1316 Thus the family lawyer urged that decedent's securities, being liquid, should be transferred to the wife to make it easier for her to collect the family income. The son says he gave this to his father as a reason for the transfer. But the securities were not transferred to the wife. They were given to the sons and daughters-in-law. Although one of the sons testified that he was in no need of financial assistance, decedent's wife says she approached decedent with the question whether "it would not be well to make gifts to the boys * * * at the time when they needed it." She says that in answer "he made no particular objection. He seemed to be perfectly willing to do so if I thought best." And her reason for suggesting that gifts be made to the daughters-in-law was "just because I [sic ] wanted to help them. That was all." Everything given as a ground for the Board's assumption that decedent did not make the transfers as "substitutes for testamentary dispositions", , is at least equally cogent in the opposite direction. The arrangement of his affairs and retirement, culminating in a virtual abandonment of all his disposable*1317 assets, is very near to that process of "putting his house in order" described in ; certiorari denied, . Although he may not have been told expressly of the critical nature of his illness, it would be strange if a condition so evident to his family went unperceived by the decedent himself. Since the first of a series of bad falls apparently connected with the illness had already occurred, "while he might not have known that the disease would cause his death, he must have fully realized its seriousness." . It may even be that decedent's gifts were part of his plan for disposition of the entire estate, for we are not advised when, under what circumstances, or in what manner, his will was fashioned. Cf. . But we do know that the gifts went to the natural objects of his bounty. *1318 ; certiorari denied, ; ; certiorari denied, . And, finally, the "desire, almost a resignation, to conduct himself according to the wishes of his family" which the majority opinion finds to be decedent's motive is certainly, if a motive at all, and if justified by any affirmative evidence, at least as consistent with knowledge that death was near, "that the *654 donor is about to reach the moment of inevitable surrender of ownership", , as with plans for the future. While at times such evidence as the foregoing has been considered sufficient to warrant a conclusion that transfers were in contemplation of death, even with the burden upon respondent, e.g., , or where there was some actual evidence of other motives, e.g., , here it is found to perform the function of evidence favorable to petitioners; to sustain petitioners' *1319 burden; to demonstrate the decedent's impelling motive; and to justify the ultimate finding that that motive was not testamentary in nature. I am unable to concur. SMITH and TURNER agree with this dissent. Footnotes 1. * * * Any transfer without an adequate and full consideration in money or money's worth, made by the decedent within two years of his death, of a material part of his property in the nature of a final disposition or distribution thereof, is, unless shown to the contrary, deemed to have been made in contemplation of death. * * * ↩