Bell v. United States, Civ. No. 1087.

• Citation: 74 F. Supp. 295
• Decision Date: 07 November 1947
• Docket Number: Civ. No. 1087.
• Parties: BELL et al. v. UNITED STATES.
• Court: United States District Courts. 8th Circuit. United States District Court of Minnesota

74 F. Supp. 295

BELL et al. v. UNITED STATES.

Civ. No. 1087.

District Court, D. Minnesota, Third Division.

November 7, 1947.

Patrick J. Ryan, of St. Paul, Minn., for plaintiffs.

Victor E. Anderson, U. S. Atty., Linus J. Hammond, Asst. U. S. Atty., both of St. Paul, Minn., Paul S. McMahon, Sp. Asst. to the Atty. Gen. (Theron L. Candle, Asst. Atty. Gen., and Andrew D. Sharpe, Sp. Asst. to the Atty. Gen., on the brief), for defendant.

BELL, District Judge.

This is an action under Section 24(20) of the Judicial Code, 28 U.S.C.A. 41(20), by the executrices of the will of Daniel L. Bell, deceased, who died testate St. Paul, Minnesota, on March 15, 1944. It seeks recovery of $55,615.84 paid to the Collector of Internal Revenue on March 8, 1945, as additional federal estate taxes.

Daniel L. Bell, the deceased, was a resident of St. Paul for many years. In his will he nominated his sisters Minnie A. Bell and Nellie V. Bell to be executrices. The will was admitted to probate in the Probate Court of Ramsey County and the sisters, who are the plaintiffs herein, became the qualified and active executrices and they now are acting as such.

The plaintiffs duly filed with the Collector of Internal Revenue their federal estate tax return disclosing a liability of $101,607.52 which was paid to the Collector. On February 28, 1945, the Commissioner of Internal Revenue determined a deficiency in the estate tax liability of $55,720.76 which the plaintiffs paid on March 8, 1945. The plaintiffs filed a claim for refund on April 16, 1945, in the sum of $55,615.84. This claim was rejected by the Commissioner on February 25, 1946.

A deficiency of $55,615.84, the amount of the claim for refund involved in this suit, was attributable to the inclusion in the gross estate of the value of the corpora of the two trusts which the decedent had created in 1935, each of the sisters being named the beneficiary of one of the trusts. These trusts were terminated by the decedent in 1943 by distributing to his sisters the bonds which constituted the principal of the two trusts. The Commissioner included the value of the bonds in the gross estate for tax computation on the grounds that the transfers and the termination of the trusts were in contemplation of death. The deficiency assessment included $104.92 for minor adjustments not here involved.

After rejection of the claim for refund, this action was timely commenced on April 1, 1946. The case was tried without a jury at the April 1947 term of this court.

The trust instruments¹ were identical in all their provisions except the beneficiaries and the character and amounts of the principal of the trust funds. The deceased gave for the benefit of Minnie United States Treasury 4% bonds of the value of $115,840, and he gave for the benefit of Nellie United States Treasury 3% bonds of the value of $103,240 as of July 16, 1935, the date when the trusts were created.

The decedent had executed his last will and testament² on January 2, 1935, in which he gave his entire estate to the two sisters. The decedent on May 10, 1943, wrote a letter³ to his sisters pertaining to the termination of the trusts. The sisters accepted receipt of the bonds as shown by the signatures of the three to the letters acknowledged before a notary public.

The existence of the two trusts were disclosed in the estate tax return but their values were not included as a part of the taxable estate. A recital in the return follows: "Decedent's purpose was to equalize wealth with sisters with whom he had lived and counselled all his life, all three being unmarried." The claim for a refund⁴ asserts that the transfers and creation of the trusts were not in contemplation of death. It does not state decedent's motive in terminating the trusts and distributing the funds. On further consideration of the case after the claim for refund was filed, the Internal Revenue agent in charge advised the representative of the estate by letter dated May 25, 1945, that the claim would be recommended for disallowance. A statement⁵ was enclosed with the letter giving the reasons for disallowance. The Commissioner in a letter⁶ of rejection stated that the termination of the trusts was in contemplation of death.

Two questions are involved as follows: (1) whether the creation by the decedent in 1935 of the two trusts, with each of his sisters the beneficiary of one, was in contemplation of death within the meaning of Section 811(c) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 811(c); and (2) whether the termination of the trusts by the decedent in 1943 was in contemplation of death within the meaning of Section 811(d) (2) and (4) of the Internal Revenue Code.

Section 811 of the Internal Revenue Code⁷ 26 U.S.C.A. Int.Rev.Code, § 811, applies.

Treasury Regulations 105, promulgated under the Internal Revenue Code,⁸ apply.

The donor's motive is determinative of whether a gift inter vivos was made "in contemplation of death" within the meaning of the Revenue Acts. The words "in contemplation of death" mean that the thought of death is the impelling cause of the action resulting in the transfer. The donor's motive must be ascertained by the facts and circumstances, such as his age, mental and physical condition, financial circumstances and all acts that might be taken into consideration to ascertain the thoughts that might have been in the mind of the donor at the time of the transfer. When the motive influencing the gift is of the character that it amounts to a testamentary disposition, it is "in contemplation of death". An important factor in determining motive is whether the donor was caused to act by a fear of death or by reasons associated with life. When the objective is to attain ends sought by the donor in his lifetime, the gift is not in contemplation of death, as where the primary and moving cause was to carry out an established custom of making such gifts. The meaning of the language has been thoroughly expounded by the courts. United States v. Wells, 283 U.S. 102, 51 S.Ct. 446, 75 L.Ed. 867; Becker v. St. Louis Union Trust Co. et al., 296 U.S. 48, 56 S.Ct. 78, 80 L.Ed. 35; Colorado Nat. Bank v. Commissioner, 305 U.S. 23, 59 S.Ct. 48, 82 L.Ed. 20; City Bank Farmers Trust Co. v. McGowan, 323 U.S. 594, 65 S.Ct. 496, 89 L.Ed. 483; Allen v. Trust Co., 326 U.S. 630, 66 S.Ct. 389, 90 L. Ed. 367; Neal et al. v. Commissioner, 8 Cir., 53 F.2d 806; Willcuts v. Stoltze, 8 Cir., 73 F.2d 868; St. Louis Union Trust Co. v. Becker, 8 Cir., 76 F.2d 851; Updike v. Commissioner, 8 Cir., 88 F.2d 807; Loetscher v. Burnet, 60 App.D.C. 38, 46 F. 2d 835; Commissioner v. Nevin, 3 Cir., 47 F.2d 478; Heiner v. Donnan, 3 Cir., 61 F. 2d 113; Lippincott v. Commissioner, 3 Cir., 72 F.2d 788; Brown v. Commissioner, 10 Cir., 74 F.2d 281; McGregor v. Commissioner, 1 Cir., 82 F.2d 948; Routzahn v. Brown, 6 Cir., 95 F.2d 766; Denniston v. Commissioner, 3 Cir., 106 F.2d 925; Blakeslee v. Smith, 2 Cir., 110 F.2d 364; Bradley v. Smith, 7 Cir., 114 F.2d 161; Wishard v. United States, 7 Cir., 143 F.2d 704; Gardner v. United States, D.C., 1 F.Supp. 483; Safe Deposit & Trust Co. v. Tait, D.C., 3 F.Supp. 51; Poor v. White, D. C., 8 F.Supp. 995; Levi v. United States, 14 F.Supp. 513, 83 Ct.Cl. 284; Old Colony Trust Co. v. United States, D.C., 15 F.Supp. 417; Myers v. Magruder, D.C., 15 F.Supp. 488; Smith v. United States, D.C., 16 F.Supp. 397, 401; United States Trust Co. of New York v. United States, 23 F. Supp. 476, 87 Ct.Cl. 721; Central Nat. Bank of Cleveland v. United States, 41 F. Supp. 239, 94 Ct.Cl. 527; Proctor v. Hassett, D.C., 52 F.Supp. 12; Tonkin v. United States, D.C., 56 F.Supp. 817; Fair v. United States, D.C., 59 F.Supp. 801; Gamble v. United States, D.C., 65 F.Supp. 114.

United States v. Wells, supra, is the leading case on gifts in contemplation of death. Wells died in August, 1921, at the age of 73 years. He had made gifts to the members of his family aggregating nearly $800,000, retaining assets of the value of $900,000. He had commenced the practice of making gifts as early as 1901, for the reason contained in a statement as follows 283 U.S. 102, 51 S.Ct. 447: "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." During the two years prior to his death, he was ill, was in and out of hospitals, frequently consulted specialists but was told and believed that he would recover. The Commissioner included the value of Wells' gifts made within two years of death in his gross estate and assessed the deficiency which was paid. The estate claimed a refund which was denied and suit to recover was brought in the Court of Claims. The court held that the gifts were not made in contemplation of death, and the Supreme Court affirmed. In part the court said:

"The quality which brings the transfer within the statute is indicated by the context and manifest purpose. Transfers in contemplation of death are included within the same category, for the purpose of taxation, with transfers intended to take effect at or after the death of the transferor. The dominant purpose is to reach substitutes for testamentary dispositions and thus to prevent the evasion of the estate tax. Nichols v. Coolidge, 274 U.S. 531, 542, 47 S.Ct. 710, 71 L.Ed. 1184, 1192, 52 A.L.R. 1081; Milliken v. United States, 283 U.S. 15, 51 S.Ct. 324, 75 L.Ed. 809 * * *. As the transfer may otherwise have all the indicia of a valid gift inter vivos, the differentiating factor must be found in the transferor's motive. Death must be `contemplated', that is, the motive which induces the transfer must be of the sort which leads to testamentary disposition. As a condition of body or mind that naturally gives rise to the feeling that death is near, that the donor is about to reach the moment of inevitable surrender of ownership, is most likely to prompt such a...