Estate of Schwab v. Commissioner
| Decision Date | 03 September 1981 |
| Docket Number | Docket No. 14258-78. |
| Citation | 42 TCM (CCH) 989,1981 TC Memo 487 |
| Parties | Estate of Gertrude H. Schwab: Suzanne S. McMurray and James G. Schwab v. Commissioner. |
| Court | U.S. Tax Court |
Lewis C. Murtaugh, 111 West Jackson Blvd., Chicago, Ill., for the petitioner. Val J. Albright, for the respondent.
Memorandum Findings of Fact and Opinion
The Commissioner determined a deficiency of $50,076.01 in petitioner's Federal estate tax. The only issue for our determination is whether certain transfers made by or on behalf of decedent Gertrude H. Schwab (decedent) within three years of her death were made in contemplation of death within the meaning of section 2035 of the Internal Revenue Code of 1954.1
Some of the facts have been stipulated. The stipulations of facts, together with the exhibits attached thereto, are incorporated herein by this reference.
Decedent died March 7, 1975. A Federal Estate Tax return for decedent's estate was timely filed with the Internal Revenue Service Center, Kansas City, Missouri. The return was signed by Suzanne S. McMurray, in the capacity as a person in possession of property of the decedent, and listed the gross estate at a value of $433,765.80. On December 26, 1978, the Circuit Court of Cook County, Illinois, Probate Division, appointed Suzanne S. Murray and James G. Schwab as co-executors of the decedent's estate. At the time the petition herein was filed, the co-executors resided at the following locations:
Residence at Time
Co-Executor of Filing
Suzanne S. McMurry ......... Glencoe, Illinois
James G. Schwab ............ Mequon, Wisconsin
Decedent was born October 13, 1894, and was therefore 80 years old when she died. In 1923, decedent married Laurence E. Schwab (Laurence) who was born July 16, 1891. This marriage continued until Laurence's death on April 30, 1972, at the age of 80.
The marriage of decedent and Laurence produced two children, James G. Schwab (James), born March 17, 1937, and Suzanne S. Schwab (Suzanne), born January 1, 1930. These children are the co-executors of decedent's estate, discussed above.
Suzanne married John W. McMurray in 1954. Their marriage resulted in the following six children, who are also the grandchildren of decedent:
Name Date of Birth
John W. McMurray, Jr. ...... 03/29/55
Anne B. McMurray ........... 09/16/56
Laurence C. McMurray ....... 09/17/57
Susan W. McMurray .......... 10/01/59
Jane D. McMurray ........... 10/26/61
Margaret K. McMurray ....... 01/30/64
James married Katherine, his current wife, in 1964. This marriage produced the following children, who are also the grandchildren of the decedent:
Name Date of Birth
Michael L. Schwab ........ 08/25/68
Matthew A. Schwab ........ 01/25/71
Gertrude Wachter (hereinafter Gertrude) was the housekeeper/companion of Laurence and the decedent beginning in 1942. After Laurence's death in 1972, Gertrude continued to reside with decedent. On or about April 1, 1974, Gertrude moved into the home of Suzanne where she continued to reside up to the time of trial. Since 1942, Gertrude has been considered a member of decedent's immediate family.
In 1941, decedent and her husband Laurence purchased a 17-acre tract of land in Ephraim, Door County, Wisconsin, and subsequently improved it with a residence containing four bedrooms, two and one-half bathrooms, a large living room, a family room, kitchen, two-car garage, and two outbuildings. Customarily, decedent and Laurence would spend the period from spring to fall at their Door County residence and from late fall to mid-spring of the following year elsewhere. For many years prior to Laurence's death, the winter residence was at Random House in Palm Springs, California. Decedent and her husband regularly had their children and grandchildren visit them during the summers.
During the year 1955, decedent gave $7,000 cash to Suzanne. Sometime during the 1960's, decedent and Laurence gave to Suzanne and James equal undivided interests in an unimproved 7-acre parcel of the Door County tract.
Decedent suffered a stroke in 1966 and another one in 1969. Some of the effects of these two strokes were to impair her ability to move around; she required a cane, a walker, or an arm, and her ability to write was reduced to making a mark.
In 1969, decedent and her husband Laurence had to purchase an inclinator for decedent's use because she was unable to climb the stairs in her Door County residence unaided.
Following the strokes and the death of Laurence, Gertrude attended decedent on a twenty-four-hour-a-day basis. She was decedent's constant companion, sleeping in the same room with her although decedent resided in a four-bedroom house.
During August 1970 the decedent was hospitalized as a result of a hiatus (stomach) hernia. A hiatus hernia is one in which part of the stomach protrudes into the thoracic cavity, causing usually minor distress in the form of sticking of food, regurgitation of food or acid, and easy filling of the stomach. The distress occurs when the stomach becomes overly filled, particularly if the person is supine or bends over. The condition is permanent unless it is surgically corrected.
Decedent complained to Gertrude about the discomfort resulting from the hernia. She had to refrain from lying down directly following a meal because if she did so, she suffered especially marked discomfort. The hiatus hernia persisted from 1970 until decedent's death in 1975. Decedent did eventually learn how to cope with the condition and minimize her discomfort. Dr. J.B. Grace is a medical doctor who, during the 1960's and early 1970's, rendered medical services to decedent. His records reflect that decedent's father died of a stroke at the age of 68 and decedent's mother died of a stroke at the age of 71.
During 1970, Dr. Grace examined the decedent and found that she had residual weakness from her 1969 stroke. Dr. Grace examined decedent in 1971 and noted that she was unable to dress herself due to weakness in her right hand. He found that she was able to feed herself. He last examined her August 18, 1972, at which time she advised him that she had fallen twice within the previous year. He also found that she was moving slowly.
As of August 18, 1972, decedent was taking the following medications having the following indications:
Medication Indication
Pavabid ........... Maintain circulation in the
brain to prevent recurrent
strokes
Aldoril-25 ........ Maintain normal blood
pressure
Kaon (potassium) .. Maintain proper level of
potassium
Vivactil tablets .. Mild tranquilizer; has
been used for depression
Theragran ......... Vitamin
Donnatal Elixir ... Remedy stomach distress
Placidyl .......... Remedy insomnia
Laxative tablets
As of September 1972, however, decedent was only taking the Pavabid, Aldoril-25 and Theragran medications.
Dr. Grace noted that from 1970 to 1972, decedent became less depressed, more active, more conversive and, in general, moderately improved.
As stated above, Laurence died April 30, 1972. The immediate cause of his death was diagnosed to be a cerebral hemorrhage (commonly known as a stroke). He was stricken ill April 29, 1972, and died one day later. During the early part of 1972 and prior to his death, Laurence had had an earlier slight stroke before leaving Palm Springs. Decedent was aware of this stroke and feared that he might have another, more severe one. Although decedent was greatly saddened by her husband's death, she told Gertrude that it was good that he died so quickly after the stroke as he would have been a "vegetable" had he lived. to the principal of the James G. Schwab
The Federal estate tax return filed for the estate of Laurence E. Schwab listed a gross estate of $268,261.41 and a net estate tax payable of $10,625.76.
After payment of funeral expenses, expenses of estate administration, and debts, $249,454.11 of assets remained in Laurence's estate for distribution under his last will and testament of November 17, 1971, and was distributed as follows:
_____________________________________________________________________________________________
DISTRIBUTEE Amount Total
_____________________________________________________________________________________________
(1) Gertrude H. Schwab
(a) Household furnishings, jewelry, automobile
and other tangible personalty ................. $ 4,070.50
(b) Jointly owned personalty ...................... 7,706.76
(c) Insurance ..................................... 6,220.64
(d) ½ interest in the Door County residence ....... 41,500.00
(e) Marital Trust established under
will of Laurence Schwab for 58,363.00
benefit of Gertrude Schwab .................... 65,229.15* 124,727.05
(2) Suzanne S. McMurray
(a) Cash ...................................... 2,500.00
(b) Suzanne S. McMurray Trust established under
will of Laurence Schwab ................... 55,863.00 58,363.00
(3) John W. McMurray — Cash ....................... 2,500.00 2,500.00
(4) James G. Schwab
(a) Cash ...................................... 2,500.00
(b) James G. Schwab Trust established
under the will of Laurence Schwab ......... 55,863.00 58,363.00
(5) Katherine Schwab—Cash ......................... 2,500.00 2,500.00
(6) Gertrude Wachter—Cash ......................... 3,000.00 3,000.00
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