Hull's Estate v. CIR

• Decision Date: 29 November 1963
• Docket Number: No. 14393.,14393.
• Parties: ESTATE OF Arthur H. HULL, Deceased, Central Trust Capital Bank, Kathrine W. Hull and Margaret Hull Daniels, Executors, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Third Circuit

325 F.2d 367 (1963)

ESTATE OF Arthur H. HULL, Deceased, Central Trust Capital Bank, Kathrine W. Hull and Margaret Hull Daniels, Executors, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 14393.

United States Court of Appeals Third Circuit.

Argued October 14, 1963.

Decided November 29, 1963.

Rehearing Denied December 30, 1963.

Robert R. Batt, Philadelphia, Pa. (William R. Spofford, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., on the brief), for petitioners.

Timothy B. Dyk, Dept. of Justice, Washington, D. C., (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Harry Baum, Michael K. Cavanaugh, Attys., Dept. of Justice, Washington, D. C., on the brief), for respondent.

Before McLAUGHLIN, HASTIE and FORMAN, Circuit Judges.

HASTIE, Circuit Judge.

In this case the Tax Court, sustaining a ruling of the Commissioner, has decided that Arthur Hull's irrevocable gratuitous transfer of full ownership rights in 15 policies of insurance on his own life to his three daughters equally, as accomplished about two and one-half years before his death, was a transfer "in contemplation of his death" within the meaning of section 2035 of the 1954 Internal Revenue Code. Accordingly, the court required that the proceeds of these policies upon the death of the insured, a total of $130,923.38, be included in his gross estate for federal estate tax purposes. 1962, 38 T.C. 512. From this decision the decedent's executors have appealed.

The principal matter in dispute is the decedent's state of mind at the time of the transfer as indicated by various undisputed circumstances and occurrences.

Mr. Hull was a successful lawyer. When he died in 1957, at the age of 72, his survivors were his wife and the three daughters of a prior marriage, to whom he had made the questioned transfer of insurance policies in 1954. His will, made in 1950 shortly after his second marriage and at a time when all his daughters were adults, provided that the bulk of his estate be held in trust for his wife for her life with remainder to his three daughters equally.

In 1954 the decedent's daughter, Elizabeth, was divorced from her husband. The divorce settlement provided her with only $200 per month for the support of herself and three children. As a result of the divorce and consequent financial problems, this daughter suffered persisting emotional difficulty and a sense of insecurity. At her father's suggestion she moved to Harrisburg, his home city, and took up residence in a house which he purchased for her use and later devised to her in a 1955 codicil to his will. He also provided her with the sum of $300 monthly for her support until his death.

When the decedent transferred the insurance policies to his daughters he told them he was taking this step to ease the mind of Elizabeth and to provide her with financial security. He pointed out that the policies had substantial present cash value. Actually, each daughter received policies worth more than $20,000 at the time of transfer. He also stated that he was dividing the policies equally among the three daughters because it had always been his wish and practice to treat them alike. At the time of the transfers the daughters already were the equally sharing death beneficiaries designated in the policies, with the father as owner reserving the right to change the beneficiaries.

Since the transaction occurred less than three years before the donor's death and the Commissioner had found, in accordance with the presumption created by section 2035(b), that the transfer was made in contemplation of death, the petitioning executors had the burden of proving in the Tax Court that considerations connected with life rather than with the anticipation of death were the motivating or dominant cause of the transfer. However, neither the Commissioner's ruling nor the statutory presumption created by death within three years after the transfer is evidence of motivation. These circumstances merely imposed the burden of going forward with evidence and the burden of persuasion upon the petitioners. Belyea's Estate v. Commissioner, 3d Cir. 1953, 206 F.2d 262; Valetti v. Commissioner, 3d Cir. 1958, 260 F.2d 185.

Nor does it strengthen the Commissioner's position that the property was life insurance. That fact does not make the transfer inherently testamentary, Estate of Aaron v. Commissioner, 3d Cir. 1955, 224 F.2d 314, particularly in a case like this where full ownership rights were transferred unconditionally, and the policies had substantial cash value.

We turn now to the evidence relevant to decedent's motivation. He was 70 years old when he gave his life insurance policies to his daughters. However, the Tax Court found that he had never been hospitalized and had no medical history...