Estate of Schmucker v. Comm'r of Internal Revenue, Docket No. 13372.

• Citation: 10 T.C. 1209
• Decision Date: 28 June 1948
• Docket Number: Docket No. 13372.
• Parties: ESTATE OF AUGUSTA D. MOYSE SCHMUCKER, ISIDORE DREYFUS AND JEROME LEWINE, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: United States Tax Court

10 T.C. 1209

ESTATE OF AUGUSTA D. MOYSE SCHMUCKER, ISIDORE DREYFUS AND JEROME LEWINE, EXECUTORS, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 13372.

Tax Court of the United States.

Promulgated June 28, 1948.

The trust instrument executed by decedent on December 8, 1941, was not made in contemplation of death. David Stock, Esq., for the petitioners.

Frost Walker, Esq., for the respondent.

The respondent determined a deficiency of $75,304.60 in the estate tax of the estate of Augusta D. Moyse Schmucker. Various adjustments were made by stipulation, leaving in issue the item of $101,255.30 representing the value of the corpus of a trust created by the decedent on December 8, 1941, for the Benefit of her granddaughter.

The single issue is whether or not the trust of December 8, 1941, was made in contemplation of death.

FINDINGS OF FACT.

Certain facts were stipulated and, in so far as they are material to the issue, they are as follows:

Augusta D. Moyse Schmucker, the decedent, died at Poland Springs, Maine, on August 19, 1943. She was born on February 12, 1878, at Jackson, Mississippi. She died testate and her will was proved and admitted for administration in the Surrogate's Court of New York County on September 21, 1944. The petitioners, Isidore Dreyfus and Jerome Lewine, were appointed executors under the last will and testament of the decedent, qualified as such, and have since September 25, 1944, been acting as such executors. The Federal estate tax return for the estate of the decedent was filed with the collector of internal revenue for the second district of New York on November 18, 1944.

The decedent was survived by a son, S. Dickson Moyse, presently residing in London, England, a granddaughter, Susan Ann Moyse, also now residing in London, England, and a brother, now residing in Jackson, Mississippi.

On April 17, 1941, Charles Eldredge, vice president of the Bank of New York, wrote to the decedent a long letter in which he discussed her financial position and her place of residence, and reviewed her present will. He then offered detailed suggestions covering the revamping of her will in order to avoid excessive ‘death duties‘ in England and estate taxes in the United States, and relating to the happening of certain contingencies outlined by him.

In the spring of 1941 Julius B. Baer, a New York attorney, prepared for and delivered to the decedent a comparison of the tax laws of California, Connecticut, Florida, Mississippi, and New York, and his conclusion with respect to the most favorable state in which to establish a residence. On June 2, 1941, Charles Eldredge wrote to the decedent that he had examined the Baer memorandum and agreed with it, stating ‘it is my understanding that you do not care too much about the property which you leave, but would rather make sure of a good income while you are living.‘

On November 17, 1941, Charles Eldredge informed the decedent by letter of the cost of creating a trust and approved of the decedent's proposed action, stating:

It seems wise for you to establish a trust for your granddaughter, as it is quite apparent that your fortune is more than ample to take care of all of your wants and in years to come the young lady will undoubtedly thank you for being so far sighted. If the present tendency to conscript wealth continues in England where your son and his family reside he may not be in a position to provide for his daughter as adequately as he could today.

On December 8, 1941, the decedent created an irrevocable trust, with Jerome Lewine and the Bank of New York as trustees. The trust agreement provided that the income from the corpus should be accumulated until Susan Ann Moyse, the decedent's granddaughter, should attain the age of 21 year, and then be paid to her; between the ages of 21 and 30 years the trustees were to pay to her the income of the trust estate, and when she should become 30 years of age the trustees were to transfer the corpus of the trust to her and the trust was to be terminated. In the event of an emergency, the trustees might invade the corpus or income for the granddaughter's benefit. Other provisions related to her death before the distribution of the corpus.

The decedent's will, probated on September 21, 1944, was dated June 7, 1941. After certain directions for the administration of the estate and various specific bequests, the decedent exercised her power of appointment under the will of her husband, Leon Moyse, establishing a trust for her benefit, and provided that her son, S. Dickson Moyse, should receive the income therefrom during his life and at his death, it was to be paid to his lawful issue. If he should leave no such issue, the corpus would pass to other of the decedent's relatives. The decedent then directed that the residue of her own property should be added to the Leon Moyse trust fund and administered similarly. The decedent's will of June 7, 1941, superseded and altered, in several respects, her will executed June 3, 1940.

On January 2, 1943, the decedent and Ralph Schmucker executed a prenuptial agreement, providing that each should preserve his and her own property interests and should not share in each other's estates.

The decedent and Ralph Schmucker were married on January 4, 1943.

In the files of Dr. C. M. Guion, New York City, appears a memorandum dated February 3, 1938, relating to the medical examination of the decedent. The memorandum related to a suspected cyst from which the decedent appeared to have suffered theretofore. A doctor at Vitel, France, advised treatment and the decedent suffered no pain thereafter from the condition. The trouble seemed to be caused by nerves. The decedent planned to go on a cruise and wanted to be sure she was in good condition before starting.

The decedent did not want to tell her age. She was very careful of her diet, eating only chicken, white fish, vegetables, etc. She used tobacco moderately and no alcohol. The doctor prescribed liver pills. On April 17, 1945, Dr. Guion wrote to James Lewine as follows:

Mrs. Augusta Moyse visited me annually for a routine health examination on the following dates: February 3, 1938; January 16, 1939; April 27, 1940; May 2, 1940; May 21, 1940; December 3, 1940; October 16, 1941; November 1, 1941; April 22, 1942; May 20, 1943; June 3, 1943.

On these dates she reported that she had been in excellent health. I gave her a complete physical examination, did an examination of the blood and urine and an electrocardiogram on her first (sic) visit.

I found her to be in very good physical condition. In 1938 and 1939 the Blood pressure was 150/100 but on all other visits it was 120/70.

I considered and so informed the patient on every visit that she was in good condition.

A clinical abstract from the Mount Sinai Hospital in New York City shows that the decedent was admitted to the hospital on March 8, 1936, and discharged therefrom March 11, 1936. She complained of pelvic pains and was under observation. During her stay in the hospital the X-rays were negative and other tests showed a normal condition. The pain disappeared and she was sent home.

On April 3, 1946, the decedent's estate paid the sum of $34,343.56 to the Department of Revenue of the State of North Carolina, pursuant to the inheritance tax laws of that state.

On February 19, 1945, the decedent's estate paid to the Department of Taxation and Finance of the State of New York the sum of $22,895.70, pursuant to the estate tax laws of the State of New York.

The record discloses the following additional facts:

On December 8, 1941, the decedent's assets were worth about $1,000,000 and the value of the corpus of the testamentary trust from which she received the income was about $350,000. Her annual income at the time and thereafter was about $40,000. The Bank of New York held both her own custodian account and the trust account and transmitted to her the income from both sources. On December 8, 1941, and prior thereto, her custodian account included over $200,000 in cash which was lying idle in the bank.

The decedent's only child, a son, married the daughter of one of the wealthiest men in England, lived in England, and had become a British subject. His only child, Susan Ann Moyse, was 8 or 10 years of age at December 1941. Due to social reasons and her son's refusal to return to the United States to live, the decedent exhibited bitter antagonism and resentment toward her son, who wanted her to live in France and not in England. During the war she insisted that her son and his family, or at least her granddaughter and her nurse, come to the United States, but the son refused to do so. In a former will she excluded him entirely as a beneficiary. Prior to executing her last will she was strongly advised by her financial adviser, her attorney, and her banker to alter her attitude toward her son. She did so in the will probated at her death. Such changes were made in view of the uncertainties caused by the war and because of her desire to create a life estate for her son, with the remainder for the benefit of her granddaughter. She desired to insure her granddaughter's adequate care and education if the wealth of British subjects should be conscripted.

The decedent created the trust of December 8, 1941, chiefly because of her great apprehension and fear that the Germans would defeat Russia and then invade and destroy England. She had insisted that her son and his family leave England, but without avail. She wanted to insure her granddaughter's protection through a trust fund in the United States, where it would not be confiscated or impaired by either the Germans or the British. She was advised and persuaded by her banker, her attorney, and her financial adviser, all personal friends, to establish such a trust. She had about $200,000 in idle funds, the income from which would be taxed to her in the higher brackets, but would produce much more income...