Estate of Andersen v. Commissioner
| Decision Date | 14 November 1973 |
| Docket Number | Docket No. 292-72. |
| Citation | 1973 TC Memo 248,32 TCM (CCH) 1164 |
| Parties | Estate of Jeanette Andersen, Deceased, Marcia A. Murphy, Executrix v. Commissioner. |
| Court | U.S. Tax Court |
Sidney C. Ward and John H. Ward, 14th floor, Hartford Bldg., Orlando, Fla., for the petitioner. Donald W. Williamson, Jr., for the respondent.
Memorandum Findings of Fact and Opinion
Respondent has determined a deficiency of $3,070,532.09 in petitioner's Federal estate tax. Because of concessions by both parties, the sole issue for our decision is whether the value of assets in a certain trust is includable in the gross estate of Jeanette Andersen under section 2036(a)(1).1
Some of the facts have been stipulated and are so found. Jeanette Andersen (Jane or the decedent) died on December 4, 1968, at the age of 65. The duly qualified executrix of Jane's estate, Marcia Andersen Murphy (petitioner), filed the estate's Federal estate tax return in 1970 with the district director of internal revenue, Jacksonville, Florida. At the time of the filing of the petition herein, petitioner, who is the decedent's daughter, was a resident of Orlando, Florida.
Jane married Martin Andersen (Martin) on March 6, 1924. In 1931, Martin, who had been in the newspaper business for many years, took a management position with Orlando Daily Newspapers, Inc. (ODN or the newspaper), which was then the publisher of the Orlando Sentinel and the Orlando Star. Sometime in late 1931 or early 1932, Martin, at Jane's urging, asked the owner of ODN, Charles P. Marsh (Marsh), for some stock in the newspaper. Marsh, who was anxious that Martin remain with the paper, consented and on June 11, 1932, he gave Martin a 10-percent stock interest in ODN. Later, in 1935, Marsh gave Martin an option to purchase a controlling block of shares, but Martin did not exercise such option until 1945. Martin's duties at the paper in the 1930's included those of editor, publisher, and president. While Jane did not actively participate in the corporate aspects of the business, she did occasionally contribute to the newspaper's society column.
In 1936, Martin decided to make a gift to Jane of all the stock he owned in ODN, except for a qualifying director's share. Accordingly, on or about October 20 of that year, B.C. Walls (Walls), the corporate bookkeeper and secretary-treasurer, issued certificates to Jane in her name for 110 shares of ODN stock. At the same time, a similar amount of stock in Martin's name was canceled, thus leaving him the record owner of only a single share of stock. The transaction took place in Walls' office at the newspaper, and Jane left such office with the certificates in her possession. There is no credible evidence to suggest that she surrendered such possession to any other person before the transfer in trust to be discussed below. Martin filed a timely Federal gift tax return in connection with the transfer and Jane filed a timely donee's information return acknowledging receipt of the stock reflected in Martin's gift tax return. The stock was valued at $11,000 on the returns.
Between the time of the transfer in 1936, and the transfer in trust in 1941, Jane acted and was recognized as the owner of the aforementioned shares of stock. Shortly after the transfer, when Jane thought the shares had been misplaced or stolen, it was she alone who went to Walls and asked that new certificates be issued in their place. Pursuant to his request, Jane completed an affidavit attesting to her belief as to the shares and Walls soon afterwards issued new certificates to her. Between 1936 and 1940, Jane's name was listed as a shareholder on required annual public reports by ODN of its ownership, management and circulation. She also received all the dividend checks on such stock during those years, and paid the taxes arising therefrom. The stock, however, was not readily marketable at that time, and Jane did not sell any of the shares.
One week after the transfer, on October 27, 1936, Jane wrote a letter to the First National Bank of Orlando in which she authorized Martin to utilize 74 of the transferred shares as security "for any and all loans made to him and for all of his personal liabilities and obligations to you Bank." Such authorization was given in order to obtain the bank's approval for a loan of between $8,000 and $10,000, to be used to pay for additions to the family home. Such additions, which included some new bedrooms, an enlargement of the den, and a new sunporch, had been a pet project of Jane's for some time. There is no evidence in the record, however, that the shares of stock were pledged for any other obligation of either Martin or Jane. Nor is there anything in the record to suggest that Jane agreed to such authorization prior to the October 20, 1936, transfer, or that her freedom to deal in the future with the stock was in any way limited by agreement with Martin or otherwise at that time.
In the early 1940's discords developed in the marriage. In light of such problems, Martin became concerned over Jane's unrestricted ownership and holding of the ODN stock. He feared that if a divorce occurred in the future the shares might come under the influence of persons not currently in the Andersen family. It had always been Martin's hope that the shares would be held only for the benefit of Jane, and later their daughters. In addition, he feared that his own ability to direct the affairs of ODN would be hampered if an outsider, Jane's new husband if she should remarry for example, were to have an influence over the handling of the shares then in Jane's hands. He discussed these concerns with his attorney, George Johnson (Johnson), sometime in 1941. Johnson recommended that a trust instrument be drawn up under which Jane would make an irrevocable transfer of the shares to Martin as trustee. Martin agreed, and asked Johnson to seek Jane's approval of such transfer.
Johnson proceeded to draft a deed of trust, the final form of which was acceptable to Jane. Before the trust was actually executed, Johnson went over the provisions of the proposed trust with Jane. During such discussions, he explained to her the import of the trust provisions, especially the fact that Jane would have to part with all future control over the shares.
On March 25, 1941, in the presence of Johnson and Norbert Consonni (Consonni), Walls' successor as secretary-treasurer of the paper, Jane executed an irrevocable transfer in trust to Martin, as trustee, of the 110 shares of ODN stock given her in 1936. Consonni canceled the 110 shares of ODN stock which had been in Jane's name on the books since 1936, and issued a new certificate for the same number of shares to Martin as trustee under the executed trust document. The trust agreement was recorded in the public records of Orange County, Florida, on August 17, 1965. Under the trust, Jane retained a life interest in income, which was to be paid to her at "convenient intervals." Martin received broad powers, as the fiduciary, to deal with the trust corpus:
It is my intention that in the management of the Trust Estate the Trustees shall have as full and complete power, authority and discretion as they would have if they were the actual owners thereof.
Martin and petitioner, Jane's daughter, received contingent life interests in income, and upon the latter's death, the corpus would go outright to her children. If no such children were surviving at the time of petitioner's death, one-half the corpus would go to the children of Martin's sister and one-half to the children of Jane's sister. The trust was similar to one executed by Martin the previous year in which he had placed in trust 55 shares of ODN stock for petitioner, except that under that trust if petitioner died without issue, the corpus would go to his brothers and sisters alone.
Sometime during the Second World War, Martin and Jane separated. It is not clear from the record, however, whether such separation was continuous to the time of their divorce on February 7, 1950. Prior to such divorce, on January 5, 1950, the parties, represented by separate and independent counsel,2 entered into a property settlement agreement. Under such arrangement Martin was required, among other obligations to Jane and the children, to pay Jane $1,250 per month. Such amount, however, which was thought by the parties to represent a reasonable living allowance for Jane, was to be reduced each month by any distributions of trust income to Jane during such month. In the event Jane remarried, she would no longer be entitled to any of the monthly payments under the agreement, but would receive a lump sum payment of $10,000. A remarriage, however, it was provided in the agreement, would in no way affect her right to the trust income. Jane in fact never remarried.3
As trustee, Martin made monthly accountings to Jane through Consonni. The trust corpus, in the late 1960's, was diversified to include municipal bonds, real estate, and other items. It is not clear whether all of such diversification was a result of reinvestment of the trust proceeds, or whether some came from additions to corpus from other parties. Up to the time of her death in 1968, Jane received all trust income to which she was entitled under the 1941 instrument. Through March 31, 1966, $418,288.79 of income was generated by the trust, with net distributions to Jane exceeding such figure by approximately $20,000....
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