Estate of Belcher v. Comm'r of Internal Revenue

• Decision Date: 16 August 1984
• Docket Number: Docket No. 12184–77.
• Citation: 83 T.C. 227,83 T.C. No. 15
• Parties: ESTATE OF ELLA M. BELCHER, BENJAMIN M. BELCHER, VIRGINIA B. TOULMIN, AND MARTIN ROOB, EXECUTORS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

83 T.C. 227

83 T.C. No. 15

ESTATE OF ELLA M. BELCHER, BENJAMIN M. BELCHER, VIRGINIA B. TOULMIN, AND MARTIN ROOB, EXECUTORS, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12184–77.

United States Tax Court

Filed August 16, 1984.

Decedent mailed checks to a number of charitable donees. The checks did not clear the drawee bank until after the date of decedent's death. Decedent's estate did not try to recover the proceeds of the checks from the donees. The aggregate amount of the checks is deductible as a charitable contribution for purposes of computing decedent's final income tax liability.

Held: Decedent's gross estate does not include the aggregate amount of the checks. Sections 2031 and 2033, I.R.C. 1954; Estate of Spiegel v. Commissioner, 12 T.C. 524 (1949), applied. Oscar Hanigsberg, David M. Stern, and Laurence Keiser, for the petitioner.

Shlomo Aaron Beilis, for the respondent.

NIMS, Judge:

Respondent determined a deficiency in Federal estate tax against petitioner in the amount of $37,282.72. After a concession by petitioner, the issues for decision are as follows:

(1) Whether $94,960 in decedent's checking account is includable in decedent's gross estate under section 2031,¹ where checks totaling this amount had been mailed to charitable donees before decedent's death but did not clear the drawee bank until after her death;

(2) Whether petitioner is entitled to deduct the amount of the checks as a charitable contribution under section 2055;² and

(3) Whether petitioner is entitled to deduct the amount of the checks as a claim against the estate under section 2053.

FINDINGS OF FACT³

Some of the facts have been stipulated; the stipulation and the stipulated exhibits are incorporated herein by this reference.

Petitioner is the Estate of Ella M. Belcher, decedent. Estate of McElroy v. Commissioner, 82 T.C. 509, 510 (1984). Ella M. Belcher is hereinafter referred to as “decedent”. Decedent, who died testate on December 31, 1973, was a resident of Lakeville, Connecticut, at the time of her death. Petitioner's executors are Benjamin Moore Belcher (decedent's son, hereinafter sometimes referred to as “Belcher”), Virginia Belcher Toulmin (decedent's daughter), and Martin Roob (the three of whom are hereinafter sometimes referred to collectively as “the executors”). Letters testamentary as petitioner's executors were granted to the executors by the Probate Court for the District of Salisbury, Connecticut. When the petition in the instant case was filed, the executors' address was in Sharon, Connecticut.

Decedent's will provides a series of specific bequests, among them bequests to six named grandchildren of decedent; the will then provides as follows:

NINTH: I order and direct my Executors, hereinafter named, to divide all the rest, residue and remainder of my personal property of which I shall die seized or possessed, or of which I shall be entitled to dispose at the time of my death, including all lapsed money legacies, into as many equal parts or shares as there shall be children, me surviving, of my daughter, VIRGINIA BELCHER TOULMIN, and of my son, BENJAMIN MOORE BELCHER, and children of said daughter and of my said son who shall have predeceased me leaving issue, me surviving; and I give and bequeath one of said equal parts or shares to each of said children, me surviving, of my said daughter and of my said son, and one of said equal parts or shares to the issue, me surviving, of each of said children of my said daughter and of my said son who shall have predeceased me leaving issue, me surviving, in equal shares, per stirpes, to his, to her or to their own use, benefit and behoof, absolutely and forever. [Emphasis in original.]

In mid-December 1973, decedent, Belcher, and a part-time secretary met in order to consider decedent's charitable giving in the remainder of 1973. After their decisions were made, checks and accompanying letters were to be prepared and sent to the charitable donees. Thirty-six checks (in amounts aggregating $94,960) were drawn on decedent's checking account (hereinafter sometimes referred to as “the account”) at Manufacturers Hanover Trust Co. The 36 checks, together with their accompanying letters, were sent on or about December 21, 1973. On December 21, 1973, there were sufficient funds in the account to cover all of the checks. These checks cleared the drawee bank during january 1974–29 checks ($88,225) by January 10, 1974, and the remaining seven ($6,735) by January 31, 1974. The payees of all 36 checks are organizations described in section 2055(a). These organizations are hereinafter referred to collectively as “the donees”.

The executors did not take any action to stop payment on the 36 checks, nor did they take any action to recover the proceeds of the checks from the donees.

Pursuant to the policy of decedent's family, no pledge cards or other similar obligatory instruments in favor of the donees were in existence before December 21, 1973. None of the checks were contracted for, nor were any made for, an adequate and full consideration in money or money's worth.

During December, 1971, and December, 1972, decedent made charitable contributions totaling $64,690 and $75,093, respectively, to various organizations, including many of the donees.

On decedent's 1973 Federal individual income tax return, charitable contribution deductions under section 170 were claimed, and allowed by respondent, for the amount of each of the checks.⁴ On decedent's Federal estate tax return, the executors reported only the net amount of cash on deposit in the account on December 31, 1973, reduced by the $94,960 in checks outstanding on that date.

OPINION

Petitioner contends that decedent's gross estate does not include $94,960 of the amount in the account, because decedent made gifts aggregating this portion of the account to charitable donees before her death. Respondent contends that the $94,960 is includable in decedent's gross estate under section 2033 because it was in the account, and decedent had an interest in the account, at the time of her death.

We agree with petitioner.

The value of a decedent's gross estate includes, under sections 2031(a) ⁵ and 2033,⁶ the value of all property to the extent of the decedent's interest therein at the time of her death.

Section 20.2031–5, Estate Tax Regs., provides:

Sec. 20.2031–5 Valuation of cash on hand or on deposit. The amount of cash belonging to the decedent at the date of his death, whether in his, possession or in the possession of another, or deposited with a bank, is included in the decedent's gross estate. If bank checks outstanding at the time of the decedent's death and given in discharge of bona fide legal obligations of the decedent incurred for an adequate and full consideration in money or money's worth are subsequently honored by the bank and charged to the decedent's account, the balance remaining in the account may be returned, but only if the obligations are not claimed as deductions from the gross estate. [Emphasis added.]

We have emphasized the second sentence of the above-quoted regulation because we believe it should be the focal point of our inquiry in this case. While petitioner makes an alternative argument on brief that the checks in question taken together with the letters to the charitable donees which accompanied the checks constitute pledges, the testimony of petitioner's two witnesses, Benjamin Moore Belcher and William Fowle,⁷ was that it was the decedent's consistent practice not to make pledges, and the letters to the charitable donees unequivocally bear this out. Mr. Belcher testified that the letters in question constituted letters of intent, not pledges, although he also testified that the Belcher family, which presumably included his mother, always lived up to that letter of intent.

Mr. Belcher further testified that for a number of years he met with his mother during the month of December and went over her list of charitable donees. Both counsel for petitioner and counsel for respondent questioned Mr. Belcher regarding his own state of mind in connection with the checks, apparently for the reason that this would also reflect decedent's state of mind. He stated that “when I write a check to an eleemosynary institution I consider that a donation has been made.” In any event, it seems indisputable that no pledges were intended and therefore that the checks in question were not given in discharge of bona fide legal obligations of the decedent (assuming arguendo that charitable pledges do in fact create legal obligations).

The foregoing, however, does not end our inquiry and we do not assume that the quoted language of the regulation necessarily precludes the exclusion of the outstanding checks from the gross estate under sections 2031 and 2033. A further analysis of the premises presumptively underpinning the regulation is in order.

First, it appears to us that if respondent's argument is correct that Connecticut law requires the inclusion of outstanding checks in the gross estate on the ground that any bank customer can stop payment on a check until it is honored by the bank,⁸ then there is no technical justification for respondent's regulation permitting the exclusion of an outstanding check given in discharge of a bona fide legal obligation. In such case, except for the rule hereinafter discussed, respondent would have to concede that a decedent retained actual command over the account until the instant of death. Nevertheless, the regulation applies a practical rule of reason since outstanding checks given in payment of bona fide legal obligations incurred for an adequate and full consideration, even though includable in the gross estate, would also be deductible under section 2053(a)(3) as claims against the estate, thus creating a “wash”.

Second, it seems obvious that the regulation is intended to exclude ordinary gifts from its coverage, although done sub ...