Estate of Gutchess v. Comm'r of Internal Revenue, Docket No. 4926-63.

• Decision Date: 09 August 1966
• Docket Number: Docket No. 4926-63.
• Citation: 46 T.C. 554
• Parties: ESTATE OF ALLEN D. GUTCHESS, THE TOLEDO TRUST COMPANY, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

46 T.C. 554

ESTATE OF ALLEN D. GUTCHESS, THE TOLEDO TRUST COMPANY, EXECUTOR, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4926-63.

Tax Court of the United States.

Filed August 9, 1966.

James F. Kennedy, Jr., for the petitioner.

Ronald S. Supena, for the respondent.

Held, value of family residence transferred by husband to wife about 11 years before his death is not to be included in husband's estate under section 2036, I.R.C. 1954, even though he continued to occupy the residence with his wife until his death. There was no written or oral express retention of right of occupancy by the husband and no agreement for right of occupancy will be implied from the fact that he lived there with his wife until he died.

MULRONEY, Judge:

Respondent determined a deficiency in the estate tax of petitioner-estate in the sum of $5,90238.

The issue presented here is whether the decedent, Allen D. Gutchess, retained, within the meaning of section 2036 of the Internal Revenue Code of 1954, the possession and enjoyment of the family residence for his life even though he had deeded it to his wife, Julia, about 11 years before his death.

FINDINGS OF FACT

Some of the facts have been stipulated and they are found accordingly.

In 1932 decedent bought a residence at 2311 Evergreen Road, Ottawa Hills, Toledo, Ohio, and he and his wife Julia moved into it and made it their home until decedent's death on June 30, 1960. Decedent had been married before and a daughter, the only child of this first marriage, was largely raised by her two grandmothers. Decedent and Julia also had a son and daughter who lived with them until they were married in 1955 and 1944, respectively, and the residence is now Julia's home.

Decedent was a retired executive of a corporation. He had a very substantial income. Julia also had income-producing real property and stocks which she had inherited. They had a joint bank account in which they both deposited and on which they both checked and Julia kept a smaller separate household bank account for household affairs.

Decedent had diabetes when he retired in 1949 and because of what was believed to be a family problem (mother and stepdaughter situation) decedent believed Julia would be more secure if she owned the residence property.

On or about September 8, 1949, the decedent quit-claimed the title to his residence property, known as 2311 Evergreen Road, Ottawa Hills, Toledo, Ohio, to his wife Julia B. Gutchess who at all times after September 9, 1949, and up to and subsequent to decedent's death, was the record owner of the property. No consideration was paid to decedent for the conveyance. Decedent paid taxes on the residence after the transfer and also on other property Julia owned.

In the Federal estate tax return filed by the Toledo Trust Co. as executor of decedent's estate, the home was not included as an asset of the estate. In his determination of deficiency respondent added the value of such property, explaining:

The property known as 2311 Evergreen Road, Ottawa Hills, Ohio, was transferred by the decedent to his wife, Julia B. Gutchess, in September 1949. The value of such property is deemed includible in the decedent's gross estate in accordance with the provisions of Section 2036 of the Internal Revenue Code of 1954.

OPINION

It is respondent's position that the residence involved in this proceeding is includable in the gross estate of decedent under section 2036, I.R.C. of 1954. We have set forth the pertinent portion of said statute in the margin. ¹

In order for the statute to apply with respect to an inter vivos transfer of property there must be a retention of ‘the possession or enjoyment’ of the property by the transferor. There is some indication in respondent's brief that he is arguing that the mere fact the husband continued to live in the residence after the transfer and until he died is sufficient to make the property includable in the husband's estate under the above statute.²

Some statements in some of the decided cases in this area offer support for the conclusion that express or implied retention of rights to use or enjoy the property is not necessary where there was actual use and enjoyment by the transferor after the transfer.

In Commissioner v. Estate of Church, 335 U.S. 632 (1949), the decedent transferred property to an irrevocable trust but the trust instrument required that the trustees pay the income to him for life. In the course of the opinion holding the transferred property includable in the decedent's estate, the Court stated—

an estate tax cannot be avoided by any trust transfer except by a bona fide transfer in which the settlor, absolutely, unequivocally, irrevocably, and without possible reservations, parts with all his title and all of his possession and all of his enjoyment of the transferred property. * * * In Skinner's Estate v. United States, 316 F.2d 517 (C.A. 3, 1963), the facts were much the same as the Church estate except that there the trust indenture gave the trustees ‘sole and absolute discretion’ as to making payments of income to decedent. During her lifetime decedent actually received all of the income from the trust and this was deemed sufficient to warrant a conclusion that there was a prearrangement between decedent and trustee that she was to have the income and therefore it was held the trust corpus was includable in her estate. In the course of the opinion, the Court stated:

We realize, as did the court below, that to some degree at least it was breaking new and perhaps dangerous ground in reaching this decision. Judge Layton stated: ‘(T)he court is aware that the holding in this case places a heavy burden upon the estate of a settlor of a discretionary trust to avoid the inference of secret prearrangements with the trustee when the settlor has in fact received all income during his life.‘

In our opinion in Estate of Daniel McNichol, 29 T.C. 1179, affd. 265 F.2d 667 (C.A. 3, 1959), the decedent transferred realty to his children but thereafter continued to receive and treat as his own all rents from the property. There was no retained interest stated in the transfer instrument but the grantees at the time of the transfer understood the grantor was retaining a life estate. We held the property includable in decedent's estate, stating:

Thus, property transferred will be included in a decedent's estate if in fact the decedent retained possession or enjoyment thereof for his life, regardless of whether, in the case of income-producing property, he had a legal right to the income.

* * * Since Congress has established ‘possession or enjoyment’ of the property as an alternative test to the ‘right’ to the income, we construe the provision to mean that ‘possession or enjoyment’ is to be determined as a matter of fact and not on the basis of a construction, either express or implied, of the words of the instrument of transfer.

In all of the above cases there are statements that could be said to mean no right of retention would be necessary if there was actual retention of use and enjoyment by the transferor after the transfer. However, in all of these cases involving transfers of income-producing property the courts were able to find agreements or prearrangements with respect to retention that were express or implied on which to base the transferor's right of retention. Where post-transfer income is actually retained without any objection by the transferee it is reasonable to conclude that some pretransfer agreement or arrangement for such retention existed.

Respondent argues here that there was retained possession because there was post-transfer occupancy and therefore there must have been an understanding or implied agreement between decedent and his wife that decedent would continue to occupy the residence. But the spouses' joint occupancy of a home after an interspouse transfer of the residence is insufficient in and of itself to indicate the existence of an agreement for retained enjoyment. In such a case there is not such a withholding of use from the transferee as is present when the transferor actually retains income from property he has transferred. The transferor husband's use of the property by occupancy after the transfer is a natural use which does not diminish transferee wife's enjoyment and possession and which grows out of a congenial and happy family relationship. Such post-transfer use is insufficient to indicate any prior agreement or prearrangement for retention of use by the transferor. Union Planters National Bank v. United States, 238 F.Supp. 883 (W.D. Tenn., 1964), affd. 361 F.2d 662 (C.A. 6, 1966); Stephenson v. United States 238 F.Supp. 660 (W.D. Va. 1965); Estate of Gordon A. Binkley v. United States, 358 F.2d 639 (C.A. 3, 1966); and Estate of Robert W....