Flannery v. Willcuts

• Decision Date: 18 April 1928
• Docket Number: No. 7966.,7966.
• Citation: 25 F.2d 951
• Parties: FLANNERY v. WILLCUTS, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Eighth Circuit

25 F.2d 951 (1928)

FLANNERY v. WILLCUTS, Collector of Internal Revenue.

No. 7966.

Circuit Court of Appeals, Eighth Circuit.

April 18, 1928.

George W. Morgan, of St. Paul, Minn. (Davis, Severance & Morgan and Cleon Headley, all of St. Paul, Minn., on the brief), for plaintiff in error.

Lafayette French, Jr., U. S. Atty., of St. Paul, Minn., and C. M. Charest, General Counsel Bureau of Internal Revenue, and T. H. Lewis, Jr., Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for defendant in error.

Before WALTER H. SANBORN and LEWIS, Circuit Judges, and PHILLIPS, District Judge.

LEWIS, Circuit Judge.

Mary T. Hill died intestate November 22, 1921, aged 75 years, 4 months and 21 days; and the principal question in this case is whether certain gifts made by her were a part of her estate under the Revenue Act of 1918 (40 Stat. 1057), subject to the federal estate tax. She was the widow of James J. Hill, who died intestate May 29, 1916, leaving a large fortune in which her distributive share amounted in value to more than $16,000,000. The administrator of her husband's estate in settlement with her gave her about $1,000,000 in cash, and for the remainder of her share, almost all of it consisted of stock in banks and trust companies, stock in railroad companies and other corporations, mortgage bonds of railroad and other corporations, United States bonds and bonds of foreign countries. From these she made the gifts in question and left at her death an estate of more than $10,000,000, on which her administrator paid an estate tax of $2,011,060.96. The tax officials thereafter claimed a deficiency in the amount of the taxable estate and required her administrator to pay an additional sum of more than $1,000,000 on the gifts here in question as a part of her estate, which he did under protest. Her administrator then brought this action to recover the additional sum paid. Trial by jury was waived. Without discussing the issues, or stating the reasons for his conclusions, the District Judge made general findings of fact, among them:

"That the transfers, gifts and trusts set forth in the complaint * * * were and each of them was made and created by the decedent Mary T. Hill in contemplation of her death within the meaning of section 402 (c) of the Revenue Act of 1918 Comp. St. ß 6336æc(c)."

Recovery was therefore denied.

That part of section 402 of the Act of 1918 to which the court referred in its finding reads thus:

"That 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 —

* * * * * *

"(c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this Act), except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title." 40 Stat. 1057, 1097.

The gifts, except one, were made in the form of trusts, and are referred to as (1) trusts for decedent's thirteen grandchildren; (2) trust for decedent's nine children; (3) trusts for other relatives, friends and employÈs; and (4) the gift of a diamond necklace valued at $18,000 to one of decedent's daughters, made on July 8, 1920. The written declarations of trust specified the property transferred for each donee to a named trustee. They were absolute in form, gifts inter vivos, no interest or future control being retained by the donor; and immediately after the declarations were executed they and the property specified for each donee were delivered to and received by the trustee who accepted the trust. The trust for twelve of the grandchildren was executed on November 25, 1919, and a separate trust for the remaining grandchild was executed on October 19, 1920. For each of eleven of her grandchildren Mrs. Hill conveyed to the named trustee in trust 546 shares of the capital stock of the First National Bank of St. Paul, Minn., 144 shares of the capital stock of the Northwestern Trust Company of St. Paul, Minn., and $77,000 in cash, and for the other grandchild exactly half that number of shares and cash. For the thirteenth grandchild she established a trust estate consisting of $100,000 par value Great Northern Railway mortgage bonds. The powers of the trustee in handling the trust estates are set forth. Compensation for the services of the trustee were provided for out of the income and there were restrictions as to payment of income to the beneficiaries, one-half the net income until each beneficiary reached the age of thirty years, thereafter all of it, and at the age of forty years the whole estate to be delivered to the beneficiary. There was disposition of the trust estate in case of death before that time.

The declaration of trust for her nine children was executed July 19, 1920. That instrument transferred to the trustee for each child $21,000 par value United Kingdom of Great Britain and Ireland and the French Republic Joint Five Per Cent. Bonds, 33 shares of the capital stock in St. Paul Cattle Loan Company and a named number of shares in different banks and trust companies doing business in New York City, Chicago, St. Louis, Minneapolis and St. Paul. Each child was to receive, during his or her life, the net annual income of the trust estate and there was disposition of the corpus of the trust estate upon the death of each child. The powers of the trustee were expressed and a limitation put on compensation for its services. There were three separate declarations of trust covering donations to a sister, friends and employÈs, in which Great Northern Railway mortgage bonds constituted the gifts, the largest one being $100,000 face value of said bonds given in trust for decedent's sister. The others for the different donees were each not more than $10,000 nor less than $1,000 of such bonds. These last three declarations were all executed by the donor on November 24, 1919.

It will be noticed that the trust for twelve of the grandchildren and the three trusts for a sister, friends and employÈs were executed scarcely within the two years preceding Mrs. Hill's death. The one for the other grandchild and the one for the nine children were executed more than one year, but less than two before the date of her decease. At the trial defendant stood on the presumption raised by the statute quoted supra, and plaintiff took the burden of showing that the gifts were not made in contemplation of death. We, of course, agree with counsel for defendant in error, that this court will not weigh the evidence, if it is in disagreement, to find on which side it preponderates, but we may search "the record to find whether there is any substantial evidence to support the lower court's finding that as a matter of fact these gifts were made in contemplation of death." If there is no such evidence the court erred in law. We are also in accord with counsel's statement in his brief that the cases "hold that the thought of death must be the actuating motive without which the gift would not have been made" ‚Äî adding thereto the qualification that the "thought of death" as an anticipation of the inevitable which we all realize, is not within the statute; but to be within the statute the thought must arise because of some known infirmity which, it is believed, will likely cause death. We agree with Judge Morton that gifts inter vivos are not taxable under this statute, unless it can be said on the facts of the case they are testamentary in purpose. Bradley v. Nichols (D. C.) 13 F.(2d) 857.

It seems reasonable to suppose that the taxing officials also acted solely in reliance on the statutory presumption; but if that presumption is inconsistent with the facts in the case it must give way. It will have served its purpose, — in effect, so declared by the statute. In Fresh v. Gilson, 16 Pet. 327, 331, 10 L. Ed. 982, it is said:

"But presumptions can stand only whilst they are compatible with the conduct of those to whom it may be sought to apply them; and still more must give place, when in conflict with clear, distinct and convincing proof."

Wigmore on Evidence (2d Ed.) ß 2491 says:

"Nevertheless, it must be kept in mind that the peculiar effect of a presumption of law (that is, the real presumption) is merely to invoke a rule of law compelling the jury to reach the conclusion in the absence of evidence to the contrary from the opponent. If the opponent does offer evidence to the contrary (sufficient to satisfy the judge's requirement of some evidence), the presumption disappears as a rule of law, and the case is in the jury's hands free from any rule."

In Mobile, J. & K. C. Railroad Co. v. Turnipseed, 219 U. S. 35, 31 S. Ct. 136, 55 L. Ed. 78, 32 L. R. A. (N. S.) 226, Ann. Cas. 1912A, 463, a State statute which raised a presumption of negligence where damages were inflicted by the running of locomotives or cars was under consideration. The court (page 43 31 S. Ct. 138) said:

"The only legal effect of this inference of negligence is to cast upon the railroad company the duty of producing some evidence to the contrary. When that is done the inference is at an end, and the question of negligence is one for the jury upon all of the evidence."

We summarize the uncontradicted facts adduced at the trial: Mrs. Hill spent the winter of 1918-19 at the Hill winter home in Georgia, stopped for a while in New York City at an...