Honickman v. Comm'r of Internal Revenue (In re Estate of Honickman)
| Decision Date | 26 April 1972 |
| Docket Number | Docket No. 3660-69. |
| Citation | 58 T.C. 132 |
| Parties | ESTATE OF MAURICE H. HONICKMAN, DECEASED, KATE HONICKMAN, HAROLD A. HONICKMAN AND GIRARD TRUST BANK, COEXECUTORS, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Patrick W. Kittredge, for the petitioners.
Mary Ann Hagan, for the respondent.
Decedent made transfers of certain property within 3 years preceding his death. The income of decedent's wife had been used in payment of the joint Federal income tax liability of herself and decedent during a period of eighteen years preceding the date of death. Held, that the transfers of property by decedent were made in contemplation of death. Sec. 2035, I.R.C. 1954. Further, held, that decedent's wife had no valid claim for reimbursement under Pennsylvania law on account of that portion of the payments of Federal income tax of herself and decedent attributable to the latter's income and no deduction therefor is allowable under sec. 2053, I.R.C. 1954.
Respondent determined a deficiency of $23,237.73 in the Federal estate tax of the Estate of Maurice H. Honickman. Due to concessions by both parties, the only two issues remaining for our consideration are:
(1) Whether the transfer of certain property in trust by the decedent within the 3 years preceding his death was made ‘in contemplation of death,‘ as that term is used in section 2035,1 and
(2) Whether the decedent's wife had a valid claim against her husband's estate for Federal income taxes paid by her on her husband's behalf from 1948 through 1965.
Some of the facts have been stipulated and, together with the exhibits related thereto, are incorporated herein by this reference.
Maurice H. Honickman (hereinafter sometimes referred to as the decedent) died testate, a resident of Pennsylvania, on February 14, 1965. His will, duly probated, named Kate Honickman, the decedent's wife (hereinafter sometimes referred to as Kate), his son, Harold A. Honickman, and the Girard Trust Bank as coexecutors; all coexecutors either resided or had their principal place of business in Pennsylvania at the time the petition herein was filed. A Federal estate tax return was timely filed on or about May 13, 1966.
Issue 1. Gift in Contemplation of Death
To the extent applicable, the findings of fact as to issue 2 are incorporated herein by this reference.
The decedent and Kate were married on May 31, 1924, and lived in marital harmony until his death 41 years later.
On July 29, 1963, the decedent was the owner of nine insurance policies on his own life. On that date, the cash value of these policies totaled $79,140.59 and their face value was $120,000. Also on that date, the policies, together with certain shares of stock, were pledged to the Girard Trust Corn Exchange Bank as collateral for outstanding demand loans made by the bank to the decedent. Kate was a ‘contingent liability guarantor’ on the loans.
The accounts of the bank with respect to these loans show the following in composite:
+------------------------------------------------------------------+
¦ ¦ ¦Payments ¦
+--------------------------------------+------------+--------------¦
¦Date ¦Loans made ¦of principal ¦
+--------------------------------------+------------+--------------¦
¦2/3/53 ¦$10,000.00 ¦ ¦
+--------------------------------------+------------+--------------¦
¦3/12/56 ¦ ¦$10,000.00 ¦
+--------------------------------------+------------+--------------¦
¦3/12/56 ¦18,248.21 ¦ ¦
+--------------------------------------+------------+--------------¦
¦4/24/57 ¦ ¦5,919.69 ¦
+--------------------------------------+------------+--------------¦
¦5/6/57 ¦5,000.00 ¦ ¦
+--------------------------------------+------------+--------------¦
¦5/28/57 ¦ ¦5,000.00 ¦
+--------------------------------------+------------+--------------¦
¦5/28/57 ¦50,000.00 ¦ ¦
+--------------------------------------+------------+--------------¦
¦7/1/57 ¦ ¦50,000.00 ¦
+--------------------------------------+------------+--------------¦
¦7/10/57 ¦75,000.00 ¦ ¦
+--------------------------------------+------------+--------------¦
¦2/5/62 ¦ ¦5,010.00 ¦
+--------------------------------------+------------+--------------¦
¦Total ¦158,248.21 ¦75,929.69 ¦
+--------------------------------------+------------+--------------¦
¦ ¦ ¦ ¦
+--------------------------------------+------------+--------------¦
¦Net balance as of 7/29/63, $82,318.52.¦ ¦ ¦
+------------------------------------------------------------------+
In addition, the accounts of the bank show that the decedent borrowed a total of $29,000 in July 1963 and repaid the same on September 26, 1963.
In June of 1963, the decedent consulted his lawyer concerning the formation of an overall estate plan for himself and his wife. His lawyer initially suggested that he transfer ownership of the aforementioned policies in order to remove them from his estate, but, upon learning that their cash value was substantial, that they were pledged as collateral for the aforementioned loans, and that they purportedly constituted the decedent's only liquid asset, he withdrew his recommendation.
On July 29, 1963, the decedent executed an irrevocable trust agreement transferring the nine policies to his wife and Harold Honickman, his son, as trustees for the benefit of his wife, children, and grandchildren. Two days later, he executed his last will and testament. The dispositive provisions of the trust and the will were generally the same.
On September 26, 1963, decedent borrowed.$61,318.52 from the bank, and on October 1, 1963, the balances of the previously outstanding loans were paid in full. The trustees acknowledged receipt of the assignments of the aforementioned policies between October 21, 1963, and November 29, 1963. A Federal gift tax return was filed and a tax paid based upon a gift of $79,140.59. The new loan and non-interest-bearing loans from the decedent's business, i.e., Zuckerman-Honickman, Inc., during his lifetime, in the aggregate amount of $79,778.49, were listed as debts on the estate tax return.
During the years 1955-65, Kate had in excess of $25,000 annual income of her own.
Prior to his final illness, decedent, although a heavy smoker and suffering from smoker's asthma and 50 pounds overweight, did not have any fear of imminent death. His family considered him to be an active person and he worked a normal 5-day week up to the onset of his final illness. In December of 1964, the decedent visited his doctor, who found a tumor on his left lung. The decedent was admitted to Einstein Medical Center on December 13, 1964. Following an operation which revealed the tumor to be malignant and inoperable, he was discharged on January 2, 1965. His health failed rapidly after that and he died on February 14, 1965, due to carcinoma of his left lung and liver.
The transfers of the aforementioned nine insurance policies by decedent were made in contemplation of death.
OPINIONThe question before us is whether the transfers by decedent of the ownership of certain policies of insurance on his life were made in contemplation of death so that the face values of the policies are includable in his gross estate under section 2035.2 In view of the fact that the transfers occurred within 3 years of death, subsection (b) of that section establishes a rebuttable presumption that they were so made.
The purpose of section 2035 is ‘to reach substitutes for testamentary dispositions and thus to prevent the evasion of the estate tax.’ United States v. Wells, 283 U.S. 102, 117 (1931). The fact that the decedent herein was not in fear of imminent death is not controlling. See United States v. Wells, 283 U.S.at 117. The crucial question is one of fact, i.e., whether, in light of all the circumstances, the dominant motive in making the transfer was the thought of death or a purpose normally associated with life. United States v. Wells, supra; Estate of Sumner Gerard, 57 T.C. 749 (1972).
The transfers herein were made in the context of planning by the decedent, on the advice of his lawyer, for the disposition of his estate. They occurred almost simultaneously with the execution of decedent's will, and the dispositive provisions of the trust and the will were generally the same. These circumstances strongly support the statutory presumption and respondent's determination. Davis v. Commissioner, 142 F.2d 450 (C.A. 6, 1944), affirming per curiam a Memorandum Opinion of this Court; Oliver v. Bell, 103 F.2d 760 (C.A. 3, 1939); Estate of A. Carl Borner, 25 T.C. 584, 587 (1955); Estate of Jacob Gidwitz, 14 T.C. 1263 (1950), affd. 196 F.2d 813 (C.A. 7, 1952).
Petitioners' arguments to counteract the foregoing considerations are not persuasive. First, they point to the testimony of decedent's lawyer to the effect that the purpose of the transfers was to place the policies beyond decedent's temptation to use them to cover gambling losses. But this testimony was extremely vague and is totally unsupported by any evidence that the decedent gambled to any degree whatsoever. Neither decedent's wife nor his son, both of whom might be expected to have some inkling of decedent's gambling propensities and who testified at the trial, was questioned to any extent...
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