United States v. Wells
| Decision Date | 13 April 1931 |
| Docket Number | No. 252,252 |
| Citation | 75 L.Ed. 867,283 U.S. 102,51 S.Ct. 446 |
| Parties | UNITED STATES v. WELLS et al |
| Court | U.S. Supreme Court |
[Syllabus from pages 102-103 intentionally omitted] The Attorney General and Mr Charles B. Rugg, Asst. Atty. Gen., for the United States.
Mr. W. W. Spalding, of Washington, D. C., for respondents.
John W. Wells, a resident of Menominee, Mich., died on August 17, 1921. The Commissioner of Internal Revenue assessed additional estate taxes, upon the ground that certain transfers by the decedent within two years prior to his death, were made in contemplation of death and should be included in the taxable estate under the provisions of section 402(c) of the Revenue Act of 1918, 40 Stat. 1057, 1097. The amount of the additional tax was paid by the executors and claim for refund was filed. The claim having been rejected, the executors brought this suit in the Court of Claims to recover the amount paid. The Court of Claims decided in favor of the executors (39 F.(2d) 998, 69 Ct. Cl. 485), and this Court granted a writ of certiorari.
The substance of the findings of the Court of Claims with respect to the circumstances of the transfers may be stated as follows:
The decedent died at the age of seventy-three years; his wife and five children, three sons and two daughters, survived him. When a young man he became interested in the business of acquiring and selling timber lands and of manufacturing lumber. He continued in that business to the time of his death.
As early as the year 1901, decedent began the making of advancements of money and other property to his children. He kept a set of books on which he charged to his children some, but not all, of the amounts transferred to them. The decedent believed that the appropriate course for a man of wealth was to give to his children substantial sums of money during his lifetime while he could advise with them as to its proper use. He informed one of his friends: 'I am making distribution from time to time of part of my property to see what my children will do during my lifetime, and I will then know when my time is up what I ought to do with the balance.'1
In 1918, decedent advanced to three of his children, Ralph W. Wells, Mrs. Edna Walsh, and Mrs. Florence Law, shares of stock in the Dunbar & Wausaukee Railway Company for which he charged each of them, in the equalization hereafter mentioned, the sum of $25,460. Neither this transfer, nor any of the earlier transfers, is in controversy.
In December, 1919, decedent transferred to his son Artemus C. Wells, 343 shares, and to his son Daniel Wells, 73 shares, of the stock of the J. W. Wells Lumber Company. He charged Artemus with $89,180, and Daniel with $18,890, on account of these transfers.
On January 1, 1921, after carefully examining his accounts in preparing for the final equalization of the prior advancements, decedent transferred to his children 68,985 shares of the stock of the Girard Lumber Company. His summaries of accounts with each of his children showed debit balances, on which he had computed interest, as follows: Daniel Wells, $266,530; Artemus C. Wells, $231,651; Ralph W. Wells, $214,008; Mrs. Florence Law, $216,445; and Mrs. Edna Walsh, $180,662. The decedent indorsed each of these statements with the words, 'Account with _____,' 'This account is canceled and ledger balanced to date as a gift to _____' (the name of the son or daughter being inserted), or with other words to the same effect.
In this process of equalization decedent charged his children with a total of 3458 shares of the capital stock of the Lloyd Manufacturing Company. These shares were not delivered at that time, as decedent had agreed to exchange them for a like number of shares in a new company to result from an expected merger. On January 26, 1921, decedent transferred to Marshall B. Lloyd, as trustee for the benefit of his wife and five children, 3,713 shares of the stock of the Lloyd Manufacturing Company with authority to exchange these shares for shares of the stock of the new corporation, on the issue of which the trustee was to assign the shares to decedent's wife and children, respectively, in designated amounts, or, in the event that the exchange was not consummated before December 1, 1921, to distribute to them the shares of the Lloyd company.2 On April 6, 1921, Lloyd, the trustee, distributed the certificates for the shares in the new company, but the finding states that the decedent had divested himself of all interest in the 3,713 shares of the Lloyd stock when they were transferred in trust.
The transfers which the Commissioner deemed to be subject to the additional estate tax are these:
That of December, 1919, to his sons Daniel and Artemus, of 416 shares of the stock of the J. W. Wells Lumber Company, increased by a subsequent stock dividend to 1,280 shares at the date of the decedent's death;
That of January 1, 1921, to his children, of 68,985 shares of the stock of the Girard Lumber Company:
That of January 26, 1921, in trust for his wife and children, of 3,713 shares of the stock of the Lloyd Manufacturing Company.
The aggregate value at the time of the decedent's death of all the property embraced in these transfers was $782,903. Excluding this property, the value of decedent's estate at the time of his death was $881,314.61, on which the decedent's annual income was approximately $50,000 a year.
The Court of Claims made detailed findings as to the state of decedent's health. It appeared that for some time prior to the year 1919, he had suffered from attacks of asthma. In May of that year he went to a hospital in Chicago for treatment and remained eleven days. About the middle of April, 1920, decedent began to be afflicted with ulcerative colitis, a condition in which the large intestine becomes inflamed. The finding states: In June, 1920, decedent was advised by physicians in California that he was suffering from cancer of the intestines. In the following July, decedent again entered the hospital in Chicago and, on an examination by a specialist in diseases of the bowels, the case was diagnosed as ulcerative colitis. Between July and September, 1920, decedent was informed in detail of his condition. His physician told him that 'he would get well.'
While at the hospital, following an inquiry by his business associate, Marshall B. Lloyd, whether decedent had made any agreement with his second wife, Katherine Wells, with reference to a division of property after his death, decedent made such an agreement. Reciting his illness, it provided that his wife 'should have $100,000 in money and certain other property in lieu of her statutory and dower rights.' Mrs. Wells ratified all gifts theretofore made by the decedent to his children and all gifts which might be made to his children thereafter 'and before his death whether any of such gifts be made in contemplation of his death, or otherwise.' Pursuant to the agreement, decedent made his will on August 18, 1920, the provisions of which differed only slightly from those of an earlier will. After providing for the payment of $100,000 to his widow and making other bequests, decedent devised his residuary estate to his five children, with the proviso: 'Provided, however, that the amount shown to be due me from each of my children severally in accordance with my books at the time of my death, shall be considered advancement made by me to them from time to time and shall be chargeable to each of them severally as advancements and shall be deducted from their respective shares.'
On September 14, 1920, decedent wrote to his son Ralph: 'The doctors say that I will be absolutely cured if I am careful for two or three months after leaving and I certainly will be careful after this.'3
On September 22, 1920, decedent was discharged from the hospital in an improved condition. His medial a dviser stated that decedent's condition was 'excellent,' 'he had not fully at that time recovered but he did within the next two of three months.' 'His appearance was normal; he had gained an appreciable amount of weight' and 'he was in a very fair state of health.' On his return to Menominee, decedent said to his son, who had been in charge of his affairs during his absence, that 'he was completely cured of the trouble that he had had and he felt good.' Decedent then resumed his normal business activities.4
Decedent was again admitted to the hospital in Chicago, on November 30, 1920, for the purpose of an operation to relieve his asthma. His physician stated that at that time 'he found him to be in good general condition.'5 On December 9, 1920, decedent was discharged from the hospital and returned to his home. He went back to the hospital on January 10, 1921, for the completion of the nasal operation.6 At the time of his discharge on January 14, 1921, the medical examination showed "a very greatly improved condition' and that 'in respect to the ulcerative colitis it was '90 per cent normal."
On January 26, 1921, the date of the trust agreement (constituting the last of the transfers in question), decedent wrote to his son Ralph: On February 3, 1921, he left for California, where he was accustomed to spend the winter months. His physician stated that decedent at that time 'considered himself well, and I told him that he need have no anxiety whatever about his state of health that I considered him in excellent condition; that he need have no fears of any recurrence of the ulcerated colitis.'7
But in April, 1921, while still in California, decedent had such a recurrence. He consulted a specialist of reputation who after examination informed him that he might have a cancer, and advised an operation. In ...
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