Bel v. United States

• Court: U.S. Court of Appeals — Fifth Circuit
• Writing for the Court: GEWIN, GOLDBERG, and DYER, Circuit
• Citation: Bel v. United States, 452 F.2d 683 (5th Cir. 1971)
• Decision Date: 09 December 1971
• Docket Number: No. 71-1232.,71-1232.
• Parties: Mrs. Daisy Miller Boyd BEL and Richard E. Gerard, Co-executors under the Last Will and Testament of John Albert Bel, Deceased, et al., Plaintiffs-Appellants-Cross-Appellees, v. The UNITED STATES of America, Defendants-Appellees-Cross-Appellants.

452 F.2d 683 (1971)

Mrs. Daisy Miller Boyd BEL and Richard E. Gerard, Co-executors under the Last Will and Testament of John Albert Bel, Deceased, et al., Plaintiffs-Appellants-Cross-Appellees, v. The UNITED STATES of America, Defendants-Appellees-Cross-Appellants.

No. 71-1232.

United States Court of Appeals, Fifth Circuit.

December 9, 1971.

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Richard E. Gerard, Lake Charles, La., Leon J. Reymond, Jr., New Orleans, La., for appellants.

Charles G. Barnett, Tax Division, Dept. of Justice, Fort Worth, Tex., Fred B. Ugast, Asst. Atty. Gen., Meyer Rothwacks, Atty., Tax Division, Dept. of Justice, Washington, D. C., Donald L. Walter, U. S. Atty., Shreveport, La., Michael L. Paup, Atty., Dept. of Justice, Tax Division, Washington, D. C., for appellees.

Before GEWIN, GOLDBERG, and DYER, Circuit Judges.

GOLDBERG, Circuit Judge:

In this estate tax case we are confronted with three issues, one of which concerns the quantum of inclusion in the decedent's taxable estate of an accidental death policy inceptively procured within three years of the decedent's death. We deem this issue to be of transcendent importance. While the other two problems, which involve the interrelationship of the estate tax marital deduction with Louisiana's forced heirship laws and estate tax apportionment statute, do have substantial impact upon the taxpayers, they are of lesser jurisprudential significance. We first turn to the Goliath of the triad.

I. Accidental Death Policy

Commencing in October of 1957, the decedent, John Albert Bel, purchased annually an accidental death policy on his own life in the principal amount of $250,000. Each policy covered a term of one year, and the last such policy was acquired in October of 1960, less than one year prior to the decedent's death. While the decedent himself executed the original insurance application and paid, with community funds, all of the premiums, the policies from their inception were owned solely by the decedent's three children. The October 1960 policy matured as a result of the decedent's accidental death, and his three children, as beneficiaries under the policy, received the $250,000 proceeds. Plaintiffs Mrs. Daisy Miller Boyd Bel and Richard E. Gerard, as executors of the decedent's estate, duly filed an estate tax return, in which they omitted from the decedent's gross estate an amount equal to John Bel's community share of the policy proceeds. The Commissioner of Internal Revenue thereafter assessed a deficiency, which resulted in part from a determination that the accidental death policy had been transferred by the decedent to his children in contemplation of death. The plaintiffs paid the deficiency, filed a claim for refund, and then instituted this suit.

With respect to the accidental death policy, the district court held (1) that the taxpayers failed to discharge their statutory burden of proving that the decedent's purchase of the policy was not a transfer in contemplation of death within the meaning of 26 U.S.C.A. § 2035, and (2) that the amount includable in the decedent's gross estate as a result of this transfer in contemplation of death was the purchase price of the policy (premiums paid), rather than its matured value at the time of decedent's death (insurance proceeds). 310 F.Supp. 1189. On appeal, the taxpayers assert that the former holding of the district court is erroneous, while the government contends that it is the latter ruling that is incorrect as a matter of law. We affirm the district court's conclusion that the decedent's purchase of the accidental death policy was a transfer in contemplation of death, but we reverse its holding that only the policy premiums are includable in the decedent's gross estate.

Section 2035(a) of the Internal Revenue Code of 1954 requires that a decedent's gross estate shall include the value of any property which the decedent at any time transferred in contemplation of death. 26 U.S.C.A. § 2035 (a). Appendant to this general principle is the statutory presumption of Section 2035(b), which provides that "if the decedent within a period of 3 years ending with the date of his death . . . transferred an interest in property, . . . such transfer, . . . shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this section . . ." 26 U.S.C.A. § 2035(b). The underlying purpose of section 2035 is to prevent evasion of the federal estate tax by excising those transfers of a decedent which are essentially substitutes for testamentary dispositions. United States v. Wells, 1931, 283 U.S. 102, 116-117, 51 S.Ct. 446, 75 L.Ed. 867. Accordingly, the presumption embodied in section 2035(b) is rebuttable, for if a taxpayer can demonstrate that a donation made within the three-year period was not a substitute for a testamentary disposition, then the dominant purpose of section 2035 is not served by taxing such a transfer. Therefore, in every instance in which a transfer is effectuated within the statutory period, the crucial inquiry is whether or not the donation represents a testamentary substitute, or in statutory terminology, whether or not the transfer was made "in contemplation of death."

The phrase "in contemplation of death" does not encompass the general expectation of death which all mortals entertain. Rather, the Supreme Court has held that a transfer is made in contemplation of death only if the thought of death is the impelling cause of the transfer. Allen v. Trust Co. of Georgia, 1946, 326 U.S. 630, 635, 66 S.Ct. 389, 90 L.Ed. 367. Of course, the statutory presumption casts upon the taxpayer the burden of proof as to the dominant, controlling, and impelling motive of the decedent in making a transfer. This means that the taxpayer has the task of persuading a court that in transferring property the decedent was not motivated by purposes associated with the distribution of property in anticipation of death. Fatter v. Usry, E.D.La.1967, 269 F.Supp. 582. And, of course, whether or not any particular purpose was "the dominant, controlling or impelling motive is a question of fact in each case." Allen v. Trust Co. of Georgia, supra, 326 U.S. at 636, 66 S.Ct. at 392.

In assessing the determination of the court below, we first note that our scope of review is circumscribed by the "clearly erroneous" standard of Rule 52(a). The district court found that the taxpayers herein failed to show by a preponderance of the evidence that the decedent's dominant motive in transferring the accidental death policy was not the thought of death. The record reveals that the plaintiffs introduced evidence tending to show that the decedent had established a policy of making gifts to his children during his lifetime, and that the purchase of the accidental death policy merely represented a continuation of this appanage. It is true that a transfer will not be considered in contemplation of death if a decedent's motive for the transfer was to fulfill a plan to distribute his property during his lifetime. United States v. Wells, supra; Landorf v. United States, 187 Ct.Cl. 99, 408 F.2d 461, 1969. Plaintiffs contend that they have shown the decedent's long-established policy of providing for his progeny and that the challenged transfer was merely a continuation of that policy. Therefore, they assert that the district judge's factual determination is clearly erroneous. But in addition to showing the decedent's history of generosity, the taxpayers introduced a considerable amount of evidence tending to show that the decedent's purpose in effectuating the challenged transfer was to avoid estate taxes. Indeed, the decedent's wife, his bookkeeper, and his secretary all testified that the decedent's reason for placing title to the accidental death policy in his children was to "get the proceeds out of his estate."

A transfer is in contemplation of death when made with the dominant purpose of avoiding death taxes. Allen v. Trust Co. of Georgia, supra, 26 C.F.R. § 20.2035-1(c). As noted above, the district court found, in effect, that the decedent's purchase of the accidental death policy was death-motivated. When confronted with the record testimony concerning the decedent's desire to avoid estate taxes, we can only conclude that the trial judge was not clearly erroneous in his assessment of the decedent's dominant motive. While the only certainties in life might be death and taxes, the tax reaper cuts his swath within section 2035 when the conjunction of these certitudes has a contrived rather than an aleatory positivism. The trial court found such predesigned positivity, and we have no warrant either in fact or in law to veto this finding. The trial judge had before him the entire panoply of a life, complete with its familial ties and relationships. We agree with the taxpayers' assertion that a decedent's kindness, love, thoughtfulness, and planning are all matters to be considered in determining whether or not a gift was made in contemplation of death. But, absent an evidential vacuum or clear error, the final judgment as to motivation must come from the judicial gridiron, and not from armchair quarterbacks' reading of the game in Sunday's paper. Therefore, we affirm district court's holding that the decedent's purchase of the accidental death policy was a transfer made in contemplation of death.

In determining what the decedent had transferred to his children as a result of his purchase of the accidental death policy, the district court concluded that only the dollar amount of the policy premiums was includable in the decedent's gross estate. In disposing of this issue the district court relied entirely upon the Tax Court case of Estate of Coleman v. Commissioner, 1969, 52 T.C. 921. In Coleman the decedent's children purchased, more than four years prior to the decedent's death, a life insurance policy on her life. The children were the record...