Fuller v. Bassett's Estate

• Citation: 224 N.W. 639,246 Mich. 440
• Decision Date: 29 March 1929
• Docket Number: Nos. 44-46.,s. 44-46.
• Parties: FULLER, State Auditor General, v. BASSETT'S ESTATE et al. In re BASSETT'S ESTATE (two appeals).
• Court: Michigan Supreme Court

246 Mich. 440

224 N.W. 639

FULLER, State Auditor General,

v. BASSETT'S ESTATE et al.In re BASSETT'S ESTATE (two appeals).

Nos. 44-46.

Supreme Court of Michigan.

March 29, 1929.

Error to Circuit Court, Genesee County; James S. Parker, Judge.

Tax proceeding by Oramel B. Fuller, Auditor General of the State of Michigan, against the estate of Harry H. Bassett, deceased, and others. To review the judgment, inventory filed, and orders of probate court, plaintiff brings error. Affirmed.

Argued before the Entire Bench, except POTTER, J.Wilber M. Brucker, Atty. Gen., and Emerson R. Boyles, Deputy Atty. Gen. (Ralph E. Hughes, Asst. Atty. Gen., of counsel), for appellant.

John J. Carton and Roy E. Brownell, both of Flint, for appellees.

FEAD, J.

These three actions, consolidated, have the single purpose of determining and collecting inheritance taxes on the estate of Harry H. Bassett, deceased. They were submitted on statement of facts.

Bassett died of pneumonia on October 17, 1926, while on a trip to Europe. He was 52 years of age, had been in good health until a short time before his death, and was president of Buick Motor Company, a division of General Motors Corporation.

In 1923, General Motors Corporation, for the benefit of and to promote efficiency among its executives, organized Managers' Securities Company, to buy and hold General Motors stock and with other sources of revenue which promised and produced great profits. It was a General Motors ‘family’ corporation. To restrict ownership to active executives, all the stock was placed in escrow under irrevocable option to General Motors Corporation to purchase it between January 1 and May 15, in any year, to May 15, 1930. The shareholders received interim certificates which were transferable, which carried the right to vote and receive dividends, and, except for the option to General Motors Corporation, were equivalent to stock certificates.

November 30, 1923, Bassett purchased 2,400 shares of Series A and 2,400 shares of Series B stock of Managers' Securities Company stock. Certificates in his name were issued and deposited in escrow and interim certificates delivered to him. The purchase price was $300,000, of which he borrowed $290,000 from Bankers' Trust Company of New York, with other stock as collateral. Later the interim certificates for 4,800 shares of Managers' Securities Company were substituted for the other stock as collateral to his loan and were so held by Bankers' Trust Company to the time of Bassett's death. After his death, his executor, First National Bank of Flint, paid the loan, then reduced to $120,000, and received the certificates. On December 14, 1926, Genesee Corporation, hereafter described, made a demand on the executor for the certificates, which was refused. In the spring of 1927 the stock was redeemed by General Motors Corporation, partly in cash and partly in General Motors stock which was issued in the name of the estate of Harry H. Bassett, deceased, and later sold by the executor. The proceeds were turned over to Genesee Corporation. At Bassett's death the Series A stock was worth $464,494.61, and Series B stock, $6,234,089.23, The stock was inventoried as part of his estate. The appraisers refused to appraise it on the ground that it was not Bassett's property. Genesee Corporation filed a petition to strike from the inventory the Managers' Securities Company stock, and the court so ordered. This is one of the orders here reviewed. The state, at the filing of the final account, asked that such stock be included in the assets of the estate for the purpose of taxation, which was denied, and it also commenced an original suit at law for collection of inheritance taxes on the stock. Those actions present the other matters for review. An inheritance tax of $100,622.77, upon exclusion of Managers' Securities Company stock, was assessed and paid.

On April 6, 1925, Bassett caused a personal or holding corporation, known as Genesee Corporation, to be formed under the law of Delaware, ‘partly to facilitate the handling of his securities and partly to reduce the payment of taxes.’ On September 24, 1925, the corporation was authorized to do business in Michigan. On April 15, 1925, Bassett made an offer to Genesee Corporation:

‘In consideration of the issuance to me or my nominee of 12,500 shares of the no-par value capital stock of your corporation, full paid and nonassessable, I hereby offer to sell and convey unto your corporation the following stock, bonds and other property rights and interests, viz: (Securities, including 2400 shares Series A, 2400 shares Series B Managers' Securities Company, and a number of others listed).

‘All of the above securities and interests are fully paid and nonassessable except as to such further payments as may be required in connection with Camera Syndicate or Bendlecrest Subdivision and/or Colwell-Urban contract and except further that certain shares of the aforesaid stock are now held by Bankers' Trust Company of the City of New York and Genesee County Savings Bank as collateral for the payment of loans to me in the sums of $290,000 and $15,000 respectively, which loans with interest I hereby undertake and agree to pay without cost or expense to your corporation. In the event of your acceptance of this offer all dividends or other income received by me upon or in respect of any of the foregoing securities or investments on or subsequent to March 1, 1925, shall go and belong to your corporation.’

On May 21, 1925, Genesee Corporation, at a duty called and held meeting of its board of directors, adopted and entered on its records a resolution of acceptance, the pertinent part of which is:

‘Resolved, that the offer of said Harry H. Bassett to sell to this corporation the property herein above referred to, subject to the terms and conditions and option contained in said offer, be and hereby is accepted, and that the proper officers of this corporation be and hereby are authorized and directed to execute in the name of and in behalf of the corporation and under its corporate seal, such agreement or agreements as may be necessary for the purchase of said property in accordance with said offer; and

‘Further Resolved, that the proper officers be, and they hereby are authorized and directed to issue and deliver, in payment for said property in accordance with said offer, certificates of full paid capital stock of this corporation to said Harry H. Bassett or his nominees for the aggregate of 12,490 shares, and to the signers of the certificates of incorporation or to their respective assigns for the ten shares subscribed for by them, as shown by the certificate of incorporation.’

On the same day a certificate for 12,500 shares of Genesee Corporation was issued to Bassett, was surrendered by him for cancellation, and certificates issued on May 21 or May 28 to Harry H. Bassett, 1,400 shares; to Mary T. Bassett, his mother, 300 shares; to Jessie H. Bassett, his wife, 7,000 shares; to Tammison B. Mann, his sister, 500 shares; to Cornelia B. Kapp, his sister, 500 shares; to Harry H. Bassett, guardian for Harry Hood Bassett, his minor son, 1,500 shares; to Harry H. Bassett, guardian for Marie Antoinette Bassett, his minor daughter, 1,000 shares; and to Russell Bonynge, his secretary, 300 shares. The stock was paid for by demand promissory notes to the order of Harry H. Bassett. The mother, sisters, and children were not financially responsible at the time the notes were given. The wife owned property not exceeding in value 50 per cent. of her liability on the note. The stock certificates, indorsed in blank, were attached to the notes, delivered to Bassett, and remained in his possession until his death. The loans were inventoried as part of his estate. Payments were made upon the notes from time to time, practically all of which were with dividends from Genesee Corporation. Payments by Jessie H. Bassett were not indorsed on her note, but were credited on the ledger. Payments were indorsed on the other notes. It was anticipated that such dividends would pay the notes in full by the option date of May 15, 1930. Bassett was authorized by the probate court to sell the stock to his minor children and execute the notes in payment.

Bassett was president of Genesee Corporation and directed the management and control of its affairs and participated in declaring dividends, including those received from Managers' Securities Company. His wife, sister, and secretary were directors and officers. Later his wife's secretary was made secretary of the corporation.

No other assignment or instrument affecting the transfer of Managers' Securities Company stock was executed except two orders to such corporation signed by Bassett, one of June 11, 1925, to pay all future dividends on the stock to Genesee Corporation, ‘this dividend order to remain in force until revoked’; and the other dated September 1, 1925, to pay the dividends to Wilmington Trust Company, of Wilmington, Del., ‘for deposit to the account of the Genesee Corporation,’ and reciting: ‘This letter cancels any previous dividend instructions and is to remain in force until otherwise advised by me.’

The order remained in force during Bassett's lifetime.

The state claims inheritance taxes upon the value of the 4,800 shares of Managers' Securities Company at the time of Bassett's death. It concedes that the transaction was not entered into by Bassett in contemplation of his death, within Act 257, Pub. Acts 1923, but contends that there was no effective transfer of the interim certificates to Genesee Corporation during his lifetime because they were always under his personal control.

“The test is always whether the property comes into possession and enjoyment of the transferee upon the death of the transferor. If the death of the transferor makes no difference in the rights of the parties, there is no tax.” Gleason & Otis on Inheritance Taxation (4th Ed.) 876,...