Jackson v. Comm'r of Internal Revenue (In re Estate of Frizzell), Docket No. 6704.
| Decision Date | 28 November 1947 |
| Docket Number | Docket No. 6704. |
| Citation | 9 T.C. 979 |
| Parties | ESTATE OF JAMES E. FRIZZELL, DECEASED, ROY BURNS, E. A. JACKSON AND MARY GEORGE FRIZZELL, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
1. The decedent, at the age of 81 years, created an irrevocable trust to provide for an incompetent son who was made the sole beneficiary of the trust income for life. The trustee was directed to distribute the trust income for the use of the son in such amounts as the trustee should determine to be necessary, and to accumulate all undistributed income. Upon the facts, it is held that the transfer of property to the trust was made in contemplation of death and was a substitute for testamentary disposition of part of the estate under section 811(c) of the I.R.C.
2. The decedent transferred shares of stock of Coca-Cola Co. to the trustee when he created the trust, and thereafter no other property was transferred to the trust by the decedent. Under the holding made under issue 1, the transfer of the Coca-Cola stock was made in contemplation of death. From the creation of the trust until decedent's death, the trustee accumulated part of the trust income. He invested most of the accumulated cash in stocks and bonds. Respondent included in the gross estate all of the trust corpus at the date of death. Held that, since the decedent made complete inter vivos transfer of property to the trust and retained no interest in the trust income or corpus under the trust instrument, only the property of which the decedent made transfer, the shares of Coca-Cola stock, is includible in the gross estate under section 811(c), I.R.C., relating to transfers made in contemplation of death, and that respondent erred in including in the gross estate other property in the corpus of the trust at the date of death which the trustee acquired from accumulations of trust income. Joseph B. Brennan, Esq., for the petitioners.
Bernard D. Hathcock, Esq., for the respondent.
Respondent determined a deficiency in estate tax in the amount of $24,834.80.
Two questions are presented for decision: First, whether an inter vivos transfer in trust of stock was made in contemplation of death. Second, whether the entire corpus of the trust at the date of death is includible in the gross estate as the measure of estate tax.
Certain adjustments were not contested by petitioners. Petitioners abandoned one issue raised by their pleadings at the hearing. Respondent has agreed that deductions are allowable for additional administrative expenses and attorneys' fees. Effect will be given to the respective concessions of the parties in the recomputations under Rule 50.
The estate tax return was filed with the collector for the district of Georgia.
Petitioners are the executors of the estate of James E. Frizzell, who died testate on August 23, 1940, a resident of Waverly Hall, Georgia.
Decedent was born January 24, 1856. He died at the age of 84, after an illness of four weeks following a heart attack.
On October 14, 1937, the decedent executed a trust agreement under which he created an irrevocable trust for the benefit of his son, William Pitts Frizzell. On that date he transferred 1,132 shares of common stock of the Coca-Cola Co. to the Trust Co. of Georgia, trustee under the trust agreement.
The decedent was 81 years old when he created the trust. At that time his family consisted of his wife, who was 66 years old; a daughter, Mary George Frizzell, who was 38; and a son, William Pitts Frizzell, who was 40. There was also a married daughter, Annie Frizzell Jackson, age 36, the wife of E. A. Jackson, who had a son 13 years old.
The decedent's son William is an incompetent person. His mental development had been retarded and his mind was that of a child of twelve years. However, his physical condition, as distinguished from his mental condition, was good. William was unable to care for himself or to earn a livelihood. His parents bought his clothes and took care of him in every way. He was unable to take care of money or property. He was never given any large sum of money. William lived with his parents.
The decedent directed the trustee not to distribute any income or corpus to William, but to make the distributions to his mother, sisters, or some person selected by the trustee. The decedent directed the trustee to distribute whatever amounts of trust income it should determine, in its discretion, to be necessary to provide for the reasonable needs of William, during his life; and to accumulate in the trust all of the undistributed income. He gave the trustee authorization to encroach upon the corpus for the benefit of William in the event of illness or emergencies which the trust income was insufficient to meet. He authorized the trustee to make and change investments, and to receive and add to the trust corpus any additional property from the settlor.
The trust could be terminated at any time after the death of William, and upon such termination the trust was to be distributed to the surviving sisters of William, or their lineal descendants. Or, if the trust was not terminated after the death of William, it was to be divided in equal parts and held in trust for the surviving sisters of William, or their lineal descendants. Other provisions for the eventual termination of the trust and the distribution thereof are not material to the issues presented.
The trust indenture is incorporated herein by this reference.
The trustee did not distribute all of the annual trust income, but paid William's mother $50 per month, as follows:
+--------------------------------------------+
¦Year ¦Trust income¦Distributions¦
+-----------------+------------+-------------¦
¦1937 ¦$3,113 ¦$150 ¦
+-----------------+------------+-------------¦
¦1938 ¦5,094 ¦600 ¦
+-----------------+------------+-------------¦
¦1939 ¦5,660 ¦600 ¦
+-----------------+------------+-------------¦
¦1/1/40 to 8/23/40¦(Not shown) ¦400 ¦
+--------------------------------------------+
The trustee invested about $9,193 of the undistributed accumulated trust income during the period up to the decedent's death, about three years, in stocks and bonds; and when decedent died, the trustee held uninvested, accumulated cash in the corpus amounting to $4,792. At the death of the decedent, the securities held in the trust consisted of the 1,132 shares of Coca-Cola stock, having a value of $108,592.28; 174 shares of stock of Lee Tire & Rubber Co., having a value of $4,219.50; and Federal Land Bank bonds having a value of $2,216.17, including accrued interest. The value of the trust corpus at the date of death was $119,820.80.
At one time the decedent was in the private banking business in Waverly Hall with W. I. H. Pitts, Sr. In June 1937 he acquired a one-third interest in a potato-selling business which was conducted as a partnership. He was active in that business until the time of his fatal illness. During the period from 1937 until his death the decedent devoted time and attention to his investments; he followed the securities market and bought and sold securities. He also dealt in commodities futures and negotiated about six transactions in 1937 in lard and cottonseed oil.
During the year 1937, the decedent was not suffering from any illness. On and prior to October 14, 1937, the date of the trust, the decedent was in good health. His health record in prior years, including 1935 and 1936, was good. He did not suffer any serious illnesses during his lifetime or have any accidents or operations. In 1938 he had some gall bladder disturbance caused by gall stones, for which he received treatment in an Atlanta hospital, but there was no operation; the gall stone passed, and there was no recurrence of gall bladder trouble. In the latter part of 1938 the decedent had some disturbance from arthritis in leg joints, which was relieved by treatment. In July 1940 the decedent suffered a heart attack, which was the cause of death. He was ill about four weeks. There had not been prior heart attacks.
After 1930 Dr. Stewart Roberts of Atlanta was the physician of the decedent and of his family. Decedent and his family went to Atlanta once a year for annual physical check-ups. On September 17, 1937, the decedent was given a complete physical examination. Dr. Roberts wrote to decedent on October 1, 1937, reporting the results of the examination. The letter indicated that the decedent's physical condition was good and stated that the condition of the blood, urine, heart, and lungs was normal for a man 82, that ‘for your age of 82 on January 24, 1938, you are extraordinarily well preserved,‘ and that the decedent did not need any medicines.
During the period 1937 until his death the decedent was active in his business affairs and in his church. He was active physically in 1937 and went down to his place of business every morning, where he stayed all day. He walked to and from his office every day. In 1937 the decedent was chairman of the board of stewards of his church, superintendent of the Sunday school, and leader of a Sunday school class. He often led a prayer meeting. He took trips to Florida. The decedent had a bright and happy disposition.
The decedent executed his last will and testament on April 22, 1940, four months before his death. He executed a codicil to his will on July 24, 1940. By the will and the codicil the decedent devised and bequeathed to a trustee of three trusts for the benefit of his wife and two daughters equal thirds of his residuary estate. He did not make any bequests direct to his son. He stated in clause 5 of his will that the reason he had not made further provision in his will for his son was that he had theretofore made a gift in trust in which he had made full provision for his son's benefit and protection.
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