Hill v. Comm'r of Internal Revenue (In re Estate of Hill), Docket No. 4661-73.
| Decision Date | 11 August 1975 |
| Docket Number | Docket No. 4661-73. |
| Citation | 64 T.C. 867 |
| Parties | ESTATE OF ALVIN HILL, DECEASED, CHILTON HILL, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Wentworth T. Durant and Ronald M. Mankoff, for the petitioner.
David L. Jordan, for the respondent.
1. D created a trust for his daughter. Under Texas law, the trust was revocable unless made irrevocable by the trust instrument or by a supplement or amendment thereto. Held, nothing in the trust or other instruments made the trust irrevocable; held, further, the tax treatment of the trust must be determined without regard to the possibility of reformation.
2. D, who was then age 82 and facing exploratory surgery, gave a lake cottage to his son, which he had always intended giving to the son. Held, the gift was not made in contemplation of death.
The Commissioner determined a deficiency in the Federal estate tax of the Estate of Alvin Hill in the amount of $89,753.78. The issues to be decided are: (1) Whether at the date of his death, Alvin Hill had the power to revoke a trust created for his daughter, thus causing the assets of the trust to be includable in his estate under section 2038(a)(1) of the Internal Revenue Code of 1954;1 and (2) whether a gift of land to Chilton Hill was made in contemplation of death within the meaning of section 1035. In the event we find that Alvin Hill did not retain the power to revoke the trust for his daughter, the Commissioner also contends that the gift in trust was made in contemplation of death.
Some of the facts have been stipulated, and those facts are so found.
Alvin Hill (the decedent), a widower, died testate, a resident of Texas, on October 26, 1970. His will was probated in Amarillo, Tex. Chilton Hill, the executor, resided in Oklahoma City, Okla., at the time of the filing of the petition herein. A Federal estate tax return for the estate was filed with the Internal Revenue Service Center, Austin, Tex.
The decedent was survived by his three children: Chilton Hill (Chilton), Polly Hill Trigg (Polly), and Peggy Hill Clark (Peggy). He made gifts in excess of $150,000 each to Chilton and Peggy during the 1960's. Although he wished to make equal gifts to Polly at that time, she had refused to accept them from her father because of her ill feelings toward her stepmother. The gifts to his children were made out of love and affection for them as well as for purposes of tax planning.
In 1961, the decedent bought a cottage on Lake Texoma in Oklahoma (the cottage). He was very fond of the cottage and looked upon it as a possible retirement home. The cottage was used for family reunions, recreation, and entertaining business acquaintances. Chilton assisted the decedent in selecting and remodeling the cottage, and they frequently went there together. In addition, Chilton and his family often used it alone as a weekend retreat. On numerous occasions, the decedent said that he intended to give the cottage to Chilton. He consulted Chilton whenever changes were made to the cottage. He felt that it really belonged to Chilton since Chilton and his family used it more than anyone else.
In January or February 1970, the decedent took a Caribbean cruise. He became sick on the trip and did not recover when he returned home. Until that time, he had enjoyed very good health. In March 1970, he went to his family physician complaining of vomiting blood and feeling very weak. On March 24, 1970, the decedent was admitted to the hospital in Amarillo, Tex. After undergoing tests, he was advised by his doctor that there was an obstruction at the entrance to his stomach, caused by an ulcer or a tumor, and that he should have an exploratory abdominal operation. He was also told that the operation would be major surgery and, in view of his age, should be considered serious.
Upon being advised of his condition and the pending surgery, the decedent requested that he be given a few days to straighten out his affairs. Thereupon, he called his attorney and children and asked them to come to the hospital the next day. They all came on March 26, and the decedent then asked Polly if she would now accept a substantial gift of stock in trust. She agreed, and he told the attorney what he wished done.
The decedent explained to his attorney that he wished to convey certain stock to Chilton in trust for Polly. The stock was to be transferred from his account at Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch). The attorney was directed to draft the necessary instruments to create the trust. In addition, the decedent directed his attorney to draft the following additional instruments as quickly as possible: a new will; a deed of gift to Chilton for the cottage; and a general power of attorney to Chilton and the decedent's accountant. The attorney immediately began preparing the documents, working late that night.
On the following day, the attorney returned to the hospital with the completed documents. After reviewing them, the decedent requested certain changes be made. Peggy typed some of the changes at the hospital, and the attorney returned to his office to make other changes. After all the changes had been made, the decedent executed the documents.
The trust created for Polly was called the ‘Polly Hill Trigg Trust #2’ (Trigg trust). The granting clause of such trust provided:
That I, ALVIN HILL, for and in consideration of the love and affection which I bear for my daughter, POLLY HILL TRIGG, have given and delivered, and by these presents do give and deliver unto CHILTON HILL, in trust, for the said Polly Hill Trigg the following stocks and/or securities * * *
In accordance with such provisions, stock and securities worth $158,171.05 were transferred to Chilton. This gift approximately equaled those previously given to Chilton and Peggy. The trust was to last for 10 years with income to be distributed at least annually. The trustee was given the power to distribute portions of the trust corpus to Polly if necessary for her support. After 10 years, the trust corpus was to be distributed to her. The trustee's powers were stated as follows:
5. My Trustee, his substitutes and successors, shall have the power to handle, manage, control and dispose of the trust property, to invest and reinvest trust funds, to purchase, sell, improve, mortgage, lease, trade or otherwise do everything that they deem advisable and anything that might be done legally by them in absolute ownership except Sections 10, 11 and 12 of the Texas Trust Act shall be binding upon any trustee acting hereunder.
The decedent warranted his title to the transferred stock as follows:
TO HAVE AND TO HOLD the above described property and premises, together with all and singular the rights and appurtenances thereto in anywise belonging unto the said Chilton Hill, Trustee, his successors and assigns, and I do hereby bind myself, my heirs, executors and administrators, to warrant and forever defend all and singular the said premises unto the said Chilton Hill, Trustee, his successors and assigns, against every person whomsoever lawfully claiming or to claim the same or any part thereof.
On the same day, the decedent also executed the stock transfer. It listed the stocks and securities to be transferred to the Trigg trust and provided: 2
I do hereby irrevocably constitute and appoint the said Chilton Hill agent and attorney to transfer the stock on the books of the pertinent corporations. * * *
On the same day, the decedent also executed his new will, the deed transferring the lake cottage to Chilton, and the general power of attorney, appointing Chilton and the decedent's account as his attorneys in fact. The will provided for a specific bequest of $10,000 to the decedent's housekeeper, and the balance of the estate was to be divided equally among the decedent's children. Each child's portion was to be held in trust for 5 years. The will revoked all prior wills and codicils. It differed from the decedent's prior will in two respects: the new will added the bequest to the housekeeper, and it made the bequests to his children in trust. The gifts to the children were placed in trust because of the decedent's concern for his daughters.
The decedent underwent surgery on March 30, 1970. The surgeon found a perforated duodenal ulcer with an abscess, and because of the presence of the infection, he was unable to explore for cancer. After the operation, the decedent's recovery was normal for a person his age. He left the hospital after 2 weeks and appeared to recover. However, in July, he developed pains in his back and reentered the hospital for further surgery. At that time, cancer was found, and he died of cancer on October 26, 1970.
Prior to his death, the decedent purchased certain marketable United States Treasury bonds (bonds). These bonds could be used at face value to pay Federal estate taxes, and those so used were valued at face value on the petitioner's Federal estate tax return. The balance of the bonds were valued at their fair market value at the time of the decedent's death.
In his notice of deficiency, the Commissioner determined that the fair market value of the stocks and securities transferred to the Trigg trust on March 27, 1970, and the fair market value of the cottage, $30,500, were includable in the petitioner's gross estate. Because of these determinations, he also determined that the balance of the bonds should have been valued at face value and not fair market value.
OPINIONSection 2038(a)(1) provides in pertinent part:
(a) IN GENERAL.— The value of the gross estate shall include the value of all property—
(1) TRANSFERS AFTER JUNE 22, 1936.— To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, where the enjoyment thereof...
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