Cleveland Trust Company v. United States

• Decision Date: 23 January 1970
• Docket Number: No. 19175,19176.,19175
• Citation: 421 F.2d 475
• Parties: The CLEVELAND TRUST COMPANY and A. Dean Perry, Executors of the Estate of Helen Wade Greene, Deceased, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant. The CLEVELAND TRUST COMPANY and A. Dean Perry, Executors of the Estate of Helen Wade Greene, Deceased, Plaintiffs-Cross Appellants, v. UNITED STATES of America, Defendant-Cross Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

421 F.2d 475 (1970)

The CLEVELAND TRUST COMPANY and A. Dean Perry, Executors of the Estate of Helen Wade Greene, Deceased, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.

The CLEVELAND TRUST COMPANY and A. Dean Perry, Executors of the Estate of Helen Wade Greene, Deceased, Plaintiffs-Cross Appellants, v. UNITED STATES of America, Defendant-Cross Appellee.

Nos. 19175, 19176.

United States Court of Appeals Sixth Circuit.

January 23, 1970.

COPYRIGHT MATERIAL OMITTED

Thomas V. Koykka, Cleveland, Ohio, for Cleveland Trust, etc., Carlton B. Schnell, Arter & Hadden, Cleveland, Ohio, on brief.

Michael B. Arkin, Atty., Dept. of Justice, Washington, D. C., for United States, Richard M. Roberts, Acting Asst. Atty. Gen., Lee A. Jackson, Jonathan S. Cohen, Attys., Dept. of Justice, Washington, D. C., on brief, Bernard J. Stuplinski, U. S. Atty., Carl H. Miller, Asst. U. S. Atty., Cleveland, Ohio, of counsel.

Before CELEBREZZE, PECK and McCREE, Circuit Judges.

JOHN W. PECK, Circuit Judge.

These combined appeals arose out of an action for the refund of federal estate tax deficiencies of $565,980.20, assessed and collected by the Internal Revenue Service against the Estate of Helen Wade Greene. The deficiencies were based on the determination of the Internal Revenue Service (hereinafter usually "IRS") that a transfer of property to an irrevocable trust by the decedent, Helen Wade Greene, some sixteen months prior to her death, was made in contemplation of death and thus includable in her gross estate.

The decedent, Helen Wade Greene, was a member of the wealthy and prominent Wade family of Cleveland, Ohio. On August 15, 1957, she transferred property having a value of $1,322,580.70 to an irrevocable trust which provided for payment of the income from the trust to the decedent's daughter, Helen Greene Perry, for life, with the remainder to be distributed to the decedent's grandchildren after Mrs. Perry's death. Approximately sixteen months after the transfer to the irrevocable trust, the decedent died.

The estate and the IRS initially attempted to use informal conference procedures to settle the dispute concerning whether the gift in trust was made in contemplation of death. For reasons more fully discussed below, the dispute was not thus settled at the administrative level; instead additional disputes outside the original contemplation of death issue arose out of the attempted settlement procedure. After that attempt disintegrated the estate paid the deficiency and filed a four-count suit for a refund. The last three counts, more fully discussed below, alleged that the estate was entitled to recover the deficiency independently of the merits of the contemplation of death issue because the IRS violated its own procedures in the course of the attempted settlement of the issue at the administrative level. The District Court granted the government's motion for summary judgment on the last three counts. The first count, concerning the merits of the contemplation of death issue, was tried to a jury. The first trial of the contemplation of death issue resulted in a mistrial when the jury failed to reach a verdict. In the second trial the District Court granted the estate's motion for a directed verdict at the close of all the evidence.

The government has perfected an appeal from the directed verdict in favor of the estate on the contemplation of death issue. The estate has perfected an appeal from the District Court's orders granting the government's motions for summary judgment on the last three counts of the refund suit, the estate's motion for an interlocutory appeal from these orders having been denied by this Court. (Misc. No. 347, January 11, 1967).

I. Contemplation of Death Issue

We will deal first with the substantive issue of whether the transfer of property to the irrevocable trust on August 15, 1957, was in contemplation of death. Section 2035 of the Internal Revenue Code (26 U.S.C. § 2035) requires the inclusion in the gross estate of a decedent transfers made in contemplation of death, and creates a rebuttable presumption that transfers made within three years of a decedent's death were made in contemplation of death. Since the decedent died within three years of making the gift, the statutory presumption arose that the gift here was made in contemplation of death.

It should be noted at the outset that the government did not contend at trial that the decedent was fearful of imminent death at the time of making the gift. Therefore the gift was made in contemplation of death only if it was within the special statutory meaning of those words. Fortunately, the issue is not novel. The meaning of the words "in contemplation of death" as used in § 2035 and its predecessor statutes has long been settled by the case law.

A transfer may be "in contemplation of death" within the meaning of the statute even though not induced by a fear of imminent death. Death is "contemplated" within the meaning of the statutory presumption if the dominant motive for the transfer is the creation of a substitute for testamentary disposition designed to avoid the imposition of estate taxes. Allen v. Trust Company of Georgia, 326 U.S. 630, 66 S.Ct. 389, 90 L.Ed. 367 (1946); United States v. Wells, 283 U.S. 102, 51 S.Ct. 446, 75 L.Ed. 887 (1931); In re Kroger's Estate, 145 F.2d 901 (6th Cir. 1944). Clearly, where the dominant motive for the transfer is to escape estate taxes, the gift is made in contemplation of death. Cronin's Estate v. Commissioner of Internal Revenue, 164 F.2d 561 (6th Cir. 1947). Finally, it is well established that when a transfer is part of an overall testamentary plan, an intention to make the transfer a substitute for testamentary disposition and thereby avoid the imposition of estate taxes can be inferred. Purvin v. Commissioner of Internal Revenue, 96 F.2d 929, 120 A.L.R. 166 (7th Cir. 1938); Updike v. Commissioner of Internal Revenue, 88 F.2d 807 (8th Cir.), cert. denied, 301 U.S. 708, 57 S.Ct. 942, 81 L.Ed. 1362 (1937).

Applying these well established principles to the evidence adduced at the second trial, we hold that the District Court committed reversible error in directing a verdict for the estate. The estate, which had the burden of proof (McGrew's Estate v. Commissioner of Internal Revenue, 135 F.2d 158, 148 A.L.R. 1045 (6th Cir. 1943)), introduced evidence showing the Wade family's strong tradition of support of philanthropic and charitable organizations. The estate also introduced evidence tending to show that the decedent made the transfer to the irrevocable trust to enable her daughter to carry on the family tradition of support for these organizations by putting the money at her ready disposal. The estate also showed that the transfer to the irrevocable trust was a relatively small percentage of the decedent's total estate.

The District Court apparently viewed this evidence as sufficient to overcome the statutory presumption in favor of the government, for in granting the estate's motion for a directed verdict the Court stated:

"There is a complete lack of any evidence here on the part of the Government to show that this was ever a gift in contemplation of death. And by contemplation of death we mean the impelling cause of this gift. There is no evidence here upholding the Government\'s theory that the impelling cause of this gift was the thought of death. There is no such evidence anywhere in this case. There is nothing before us to that effect anywhere. There was only a rebuttable presumption, which was completely rebutted."

While we agree with the District Court that the estate introduced evidence from which the jury could reasonably infer that the gift was induced by life motives and that such evidence was sufficient to rebut the presumption in the government's favor, we disagree with the District Court's view that there was no evidence from which reasonable jurors could infer that the gift was made in contemplation of death. It is true that the government produced only two witnesses of its own (and their testimony related solely to the government's split gift theory discussed below), but it adduced evidence through cross-examination of the estate's witnesses. By this means, frequently the only one available to it in such situations, the government showed that the property with which the irrevocable trust was funded came from the corpus of a revocable trust of approximately nine million dollars, that the decedent revised the revocable trust and her will, which poured over almost all of her property to the revocable trust, simultaneously with the execution of the irrevocable trust in issue, and showed the similarity of the dispositive provisions of each instrument. The government also established through such cross-examination that the decedent had at least some familiarity with the tax laws, that the daughter did not need the trust income for her own support and that the decedent had previously established a separate $1.5 million charitable trust. The effect of all this evidence adduced by the government was to undermine the estate's theory that the gift was induced by a desire to enable the daughter to carry on the family tradition of support for charitable causes and to establish facts from which a jury could find that the gift was induced by a desire to create a substitute for testamentary disposition, thereby avoiding the imposition of estate taxes.

In reaching this result we particularly stress the lack of direct evidence of the motivation for the gift. The decedent failed to state to her attorney or to state in the trust instrument itself the reason for the creation of the trust. On one occasion when the decedent's daughter had asked for some money for a charitable cause, the decedent stated "sort of in a laughing manner" that she should give some money to her daughter to enable her to take care of the charities on her own. We do not find this statement,...