2 T.C. 876 (1943), 110419, Wemyss v. C. I. R.

Docket Nº:110419.
Citation:2 T.C. 876
Opinion Judge:MELLOTT, Judge:
Party Name:WILLIAM H. WEMYSS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Attorney:Cecil Sims, Esq., and James W. Allen, C.P.A., for the petitioner. Charles P. Bagley, Esq., for the respondent.
Judge Panel:DISNEY, J., dissenting:
Case Date:October 14, 1943
Court:United States Tax Court
 
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Page 876

2 T.C. 876 (1943)

WILLIAM H. WEMYSS, PETITIONER,

v.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

No. 110419.

United States Tax Court.

October 14, 1943

Pursuant to antenuptial agreement between petitioner and his intended wife, be transferred to her 13,139 shares of stock in consideration for her promise to marry him, and to compensate her for the loss of income under two trusts created by her former husband. Held:

(1) The transfer was made for less than an adequate and full consideration in money or money's worth and was subject to gift tax under section 503 of Revenue Act of 1932.

(2) Marriage, as a consideration, is not measurable in money or money's worth and the amount taxable as a gift is the value of the property transferred.

(3) Section 503, as construed, does not violate guaranty of due process of law under the Fifth Amendment to the Constitution.

(4) The amount of the taxable gift may not be reduced by the value of the wife's interest in two trusts, lost by her upon her marriage to petitioner.

Cecil Sims, Esq., and James W. Allen, C.P.A., for the petitioner.

Charles P. Bagley, Esq., for the respondent.

Page 877

Respondent determined deficiencies in a gift tax in the amount of $12,995.66 for the calendar year 1939 and $3,965.20 for 1940. The issue is whether the transfer on May 24, 1939, by petitioner to his prospective bride of 13,139 shares of common stock of General Shoe Corporation, having a value of $149,456.14, constituted a taxable gift.

FINDINGS OF FACT.

Petitioner is a resident of Davidson County, Tennessee. On January 1, 1919, he married Helen Peters. She died on April 1, 1934, leaving two children surviving. On June 20, 1939, petitioner married Ellen Stokes More, a widow.

The former husband of petitioner's second wife, E. L. More, died on February 9, 1934, leaving one son surviving. Prior to his death, E. L. More executed two trust indentures, one on June 6, 1927, and one on June 15, 1929, naming the Nashville Trust Co. as trustee. The corpus of the first trust was 650 shares of the capital stock of the Arcade Co., Nashville, Tennessee, and the corpus of the second trust was 20 shares of the capital stock of the same company. Each trust instrument provided that the entire net income of the trust estate should be paid to the grantor's widow during her lifetime or until her remarriage to be used for the maintenance and support of her and her son.

Ellen Stokes More was forty-four years of age on February 9, 1939. The amounts received by her from the trustee or successor trustee of the trusts referred to above from the date of the death of her husband until June 20, 1939 (the date of her marriage to petitioner), were as follows:

June 6, June 15,

1927, trust 1929, trust

1934 (from Feb. 9) $9,222.45 $283.81

1935 11,034.14 337.25

1936 9,411.50 289.75

1937 9,253.32 285.00

1938 11,211.92 342.00

1939 (to June 20) 6,972.10 214.54

Total 57,105.43 1,752.35

The trust instruments were construed to constitute separate and independent trusts for the grantor's widow and son. One-half of the above amount, or $29,428.89, was accordingly treated as received by the widow for her own use and an equal amount for the benefit of her child. Some time prior to May 24, 1939, petitioner made a proposal of marriage to Ellen Stokes More. She told him she would not be willing to marry him and lose her life income under the trusts created by her first husband unless he would enter into a premarriage contract with her to make good the loss. On May 24, 1939, they entered into the following agreement: Page 878 This contract and agreement entered into by and between William H. Wemyss and Ellen Stokes More, both residents of Davidson County, Tennessee: WITNESSETH THAT: WHEREAS, the said Ellen Stokes More has promised to marry William H. Wemyss on June 20, 1939; and, WHEREAS, upon the consummation of said marriage, under the terms of a trust now being administered by the Girard Trust Company of Philadelphia, Pennsylvania, the said Ellen Stokes More will be deprived of a large monthly income; and, WHEREAS, it is the desire and intention of the said William H. Wemyss to compensate said Ellen Stokes More for her aforesaid loss and to provide for and maintain her so long as she may live in keeping with her station in life; and NOW, THEREFORE, I, William H. Wemyss, have this day transferred in blank and delivered to the said Ellen Stokes More thirteen thousand one hundred and thirty nine (13,139) shares of the common stock of the General Shoe Corporation evidenced by the following certificates;

CERTIFICATE NO. NO.SHARES

6,001 472

6,495 231

844 900

840 1,000

839 1,000

837 9,536

In testimony whereof we, William H. Wemyss and Ellen Stokes More, have hereunto affixed our signatures. This May 24th, 1939. (Signed) WILLIAM H. WEMYSS ELLEN STOKES MORE This contract was recorded on June 21, 1939, in the office of the registrar of Davidson County, Tennessee. Petitioner transferred the 13,139 shares of General Shoe Corporation stock to Ellen Stokes More on May 24, 1939. Upon their marriage on June 20, 1939, the income she had been receiving for her own use under the trusts created by her first husband ceased and thereafter all of the income was paid to or for the benefit of her only child by her first husband. On the same date and immediately following the marriage petitioner executed a will, providing therein that his wife should have an estate for life or widowhood in a certain farm, and that one-third of his estate, less the value of 11,139 shares of common stock of General Shoe Corporation, should be held in trust for her. Respondent determined that the transfer on May 24, 1939, of the 13,139 shares of General Shoe Corporation common stock was not made for a consideration in money or money's worth, and that the transfer constituted a gift of an amount equal to the value of the stock. He determined this value to be $149,456.13. Page 879 OPINION. MELLOTT, Judge: The sole issue is whether the transfer of the stock, the value of which is not controverted, constituted a taxable gift. The applicable provisions of the statute are shown in the margin.[1] The parties agree that the transfer was made in consideration of the promise of marriage by petitioner's prospective wife and, as stated in the contract, to compensate her for the loss of income which she had been receiving under the trusts created by her first husband as well as ‘ to provide for and maintain her for so long as she may live in keeping with her station in life.‘ We agree with petitioner's contention that the agreement to marry constituted valuable consideration for the transfer. Prewit v. Wilson, 103 U.S. 22; Barnum v. Le Master, 110 Tenn. 638; 75 S.W. 1045; hence no taxable gift was made if only section 501(a), supra, be considered. We pass at once, therefore, to the other contentions of the parties. Section 503, supra, provides that where property is transferred for less than an adequate and full consideration in money or money's worth the amount by which the value of the property exceeds the value of the consideration shall, for the purpose of the tax imposed...

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