Butterworth v. Usry

• Decision Date: 26 May 1959
• Docket Number: Civ. A. No. 5590.
• Parties: Mrs. Mildred O'Connor BUTTERWORTH and Mrs. Camille O'Connor Agnew, Plaintiffs, v. Chester A. USRY, District Director of Internal Revenue, Defendant.
• Court: U.S. District Court — Eastern District of Louisiana

177 F. Supp. 197

Mrs. Mildred O'Connor BUTTERWORTH and Mrs. Camille O'Connor Agnew, Plaintiffs, v. Chester A. USRY, District Director of Internal Revenue, Defendant.

Civ. A. No. 5590.

United States District Court E. D. Louisiana, New Orleans Division.

May 26, 1959.

Gibbons Burke, New Orleans, La., for plaintiffs.

M. Hepburn Many, U. S. Atty., Prim B. Smith, Jr., Asst. U. S. Atty., New Orleans, La., for defendant.

BOOTLE, District Judge, designate.

This suit is by the two daughters, sole heirs, of Mrs. Camille Bertel O'Connor for the recovery of estate taxes assessed by the Commissioner of Internal Revenue, paid by plaintiffs and the subject of a claim for refund which was denied. While the complaint as drawn attacks other adjustments made by the Commissioner, the plaintiffs, by concessions at the trial, have limited this lawsuit to one question; namely, whether the Commissioner erred in including in the decedent's gross estate, as transfers made in contemplation of death, the value of 200 shares of the capital stock of the Whitney National Bank of New Orleans and cash in the amount of $6,000, 103 shares of the stock and $3,000 in cash having been transferred by decedent without consideration to each of the plaintiffs, the cash on August 17, 1951 and the stock on August 28, 1951, approximately thirteen months prior to her death intestate on September 5, 1952.

Section 811 of the Internal Revenue Code of 1939 provides, in pertinent part, as follows:

"The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States—

* * * * * *

"(c) as amended by section 7(a), Act of October 25, 1949, c. 720, 63 Stat. 891, and by Section 501 of the Revenue Act of 1950, c. 994, 64 Stat. 906. Transfers in contemplation of, or taking effect at, death

"(1) General rule. To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise—

"(A) in contemplation of his death; or

* * * * * *

"(l) Contemplation of death. If the decedent within a period of three years ending with the date of his death (except in case of a bona fide sale for an adequate and full consideration in money or money's worth) transferred an interest in property, relinquished a power, or exercised or released a power of appointment, such transfer, relinquishment, exercise, or release shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of subsections (c), (d), and (f); but no such transfer, relinquishment, exercise, or release made prior to such three-year period shall be deemed or held to have been made in contemplation of death. (26 U.S.C. 1952 ed., Sec. 811)."

Under the above quoted statute, Sec. 811(c) (1) (A), this inclusion by the Commissioner was properly made if the transfers were made "in contemplation of * * * death", and inasmuch as the transfers were made within a period of three years prior to decedent's death (gifts, August 17 and 28, 1951; death, September 5, 1952), they must, unless shown to the contrary, be decreed to have been made "in contemplation of death". Section 811(c) (1). Thus, in addition to the presumptive correctness of the Commissioner's determination in all tax refund suits, United States v. Rindskopf, 1881, 105 U.S. 418, 26 L.Ed. 1131; United States v. Anderson, 1926, 269 U.S. 422, 443, 46 S.Ct. 131, 70 L.Ed. 347; Reinecke v. Spalding, 1930, 280 U.S. 227, 232-233, 50 S.Ct. 96, 74 L.Ed. 385; Welch v. Helvering, 1933, 290 U.S. 111, 115, 54 S.Ct. 8, 78 L.Ed. 212; Old Mission Portland Cement Co. v. Helvering, 1934, 293 U.S. 289, 294, 55 S.Ct. 158, 79 L.Ed. 367; Helvering v. Taylor, 1935, 293 U.S. 507, 514, 55 S.Ct. 287, 79 L.Ed. 623; Commonwealth Trust Co. of Pittsburgh v. Driscoll, D.C.W.D. Pa.1943, 50 F.Supp. 949, affirmed per curiam 3 Cir., 1943, 137 F.2d 653, certiorari denied 1944, 321 U.S. 764, 64 S. Ct. 521, 88 L.Ed. 1061; Neal v. Commissioner, 8 Cir., 1931, 53 F.2d 806, there is the specific statutory presumption above quoted. This doubly founded presumption requires the plaintiffs to carry the burden of proving that the transfers were not made in contemplation of death. McCaughn v. Real Estate Land Title & Trust Co., 1936, 297 U.S. 606, 56 S.Ct. 604, 80 L.Ed. 879; O'Neal's Estate v. Commissioner, 5 Cir., 1948, 170 F.2d 217, 220; Humphrey's Estate v. Commissioner, 5 Cir., 1947, 162 F.2d 1, 2; McClure v. Commissioner, 5 Cir., 1932, 56 F.2d 548, 550. The force and effect of this statutory presumption is stated by Judge Learned Hand in First Trust & Deposit Co. v. Shaughnessy, 2 Cir., 1943, 134 F.2d 940, 941, certiorari denied, 1943, 320 U.S. 744, 64 S.Ct. 46, 88 L.Ed. 442, as follows:

"If the Treasury had sued the executors for the tax, it could safely have rested its case after proving that Ballard had died within two years, and the executors would then have been obliged to bring forward some evidence that he had not made the gift in contemplation of death. Here however the positions are reversed, for the executors, who have paid the tax, allege that it is unjust for the collector to keep it because it was not due. To make good that claim they must not only bring forward some evidence that Ballard did not make the gift in contemplation of death, but they must carry the burden of proof on that issue: a duty which comprises more than the duty imposed by the presumption."

The leading case of United States v. Wells, 1931, 283 U.S. 102, 119, 51 S.Ct. 446, 452, 75 L.Ed. 867, in discussing the phrase "contemplation of death", points out the "necessity of carefully scrutinizing the circumstances of each case to detect the dominant motive of the donor in the light of his bodily and mental condition, and thus to give effect to the manifest purpose of the statute." It teaches that the thought of death must be the "impelling" cause of the transfer, although a belief that death is imminent or near at hand is not required. It is possible for a donor, though believing that death is near, to make a gift which is not in contemplation thereof. On the other hand, the gift may be made in contemplation of death though its immediacy is not contemplated or feared. The quest must be for the decedent's impelling motives in making the gifts. United States v. Wells, supra. The inquiry must be whether or not she was "motivated by the same considerations as lead to testamentary dispositions of property, and made as substitutes for such dispositions without awaiting death, when transfers by will or inheritance become effective." Milliken v. United States, 1931, 283 U.S. 15, 23, 51 S.Ct. 324, 327, 75 L.Ed. 809.

Decedent was a widow, her husband having died on May 31, 1924. His estate was not divided, she being entitled to the usufruct of the entire estate during her life. In 1927 or 1928, however, she gave one daughter $31,000 to buy or build a home, and the other daughter an equal amount in securities. No other substantial gifts were made except those here involved. After her husband's death, however, decedent continued his practice of giving to each daughter monthly allowances. These allowances began at about $50 per month in 1924 and gradually increased to about $250 per month at the time of Mrs. O'Connor's death. They were continued even after the gifts here involved and even until her death. There was a drop off in these amounts during the depression years, and it was decedent's practice, depending on which daughter she was living with, to designate a portion of the allowances as satisfying her obligation to pay room and board.

Mr. Dunbar, decedent's financial adviser, consulted with counsel, and counsel recommended to Mr. Dunbar that decedent make outright gifts of income-producing property, which would...