Prudowsky v. Comm'r of Internal Revenue (In re Estate of Prudowsky) , Docket No. 4217-68.
| Decision Date | 03 March 1971 |
| Docket Number | Docket No. 4217-68. |
| Citation | 55 T.C. 890 |
| Parties | ESTATE OF HARRY PRUDOWSKY, DECEASED, VIVIAN PRUDOWSKY, ADMINISTRATRIX, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Thomas G. A. Herz and Arthur J. Blumenthal, for the petitioner.
Denis J. Conlon, for the respondent.
At the date of his death, decedent held certain assets as custodian for his three minor children under the Wisconsin Uniform Gifts to Minors Act. Held, the assets held by decedent as custodian are includable in his estate under both secs. 2036 and 2038, I.R.C. 1954.
Respondent asserted a deficiency in petitioner's estate tax of $20,799.09. Concessions having been made, the sole issue for decision is the includability in decedent's estate of certain stocks and savings accounts held by the decedent as custodian for his minor children.
Some of the facts are stipulated, and the stipulation of facts, together with the exhibits attached thereto, is incorporated herein by this reference.
Harry Prudowsky (hereinafter referred to as decedent) died intestate on December 20, 1963, being survived by his wife, Vivian, and their three minor children, Judith, Mark, and Sharon. Judith, the eldest of the three children, suffers from mental retardation caused by brain injuries.
Vivian having been duly appointed as administratrix of her husband's estate filed a Federal estate tax return with the district director of internal revenue, Milwaukee, Wis. At the time of filing the petition herein Vivian and her children resided in that same city.
Decedent, prior to his death, had been engaged in the practice of medicine for approximately 26 years. His untimely death was the result of a heart attack. Decedent was 51 years old at the time of death and until that time had enjoyed a life free from known heart trouble or other serious health problems.
During the years 1957 through 1963 decedent and his wife reported adjusted gross income, generally in excess of $40,000, reaching a high of approximately $59,500 in 1962. From time to time during this period petitioner made gifts to each of his three children of both stocks and cash. The gifts of stock were made pursuant to the Wisconsin Uniform Gifts to Minors Act () and accordingly were held by decedent as custodian for the benefit of the minor children.
At the date of his death decedent was custodian of assets under the Act as follows:
+----------------------------------------------------------------------------+
¦Child ¦Item¦Description ¦Value ¦
+-----------+----+-------------------------------------------------+---------¦
¦Mark Allen ¦1 ¦Modern Federal Savings & Loan Association Account¦$2,957.15¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦107 ¦American Electric Power stock ¦4,280.00 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦35 ¦General Telephone Corp. stock ¦1,091.56 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦70 ¦General Telephone & Electronics Corp. stock ¦2,183.13 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦800 ¦Great Lakes Management ¦3,600.00 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦50 ¦Standard Oil Co. stock ¦3,753.13 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦ ¦ ¦17,864.97¦
+-----------+----+-------------------------------------------------+---------¦
¦Sharon Faye¦1 ¦Modern Federal Savings & Loan Association account¦3,525.66 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦32 ¦American Telephone & Telegraph Co. stock ¦4,434.00 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦70 ¦General Telephone & Electronics Corp stock ¦2,183.13 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦35 ¦General Telephone stock ¦1,091.56 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦800 ¦Great Lakes Management stock ¦3,600.00 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦156 ¦R.C.A. stock ¦14,781.00¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦ ¦ ¦29,615.35¦
+-----------+----+-------------------------------------------------+---------¦
¦Judith ¦1 ¦Modern Federal Savings & Loan Association account¦4,127.82 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦1 ¦Guarantee Savings & Loan Association account ¦1,942.71 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦100 ¦Canada General Fund Lt. stock ¦1,886.00 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦67 ¦Electronics Capital Corp. stock ¦540.19 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦60 ¦General Telephone & Electronics Corp. stock ¦1,871.25 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦30 ¦General Telephone stock (presently G.T. & E.) ¦935.63 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦800 ¦Great Lakes Management stock ¦3,600.00 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦100 ¦Standard Oil (N.J.) stock ¦7,506.25 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦6 ¦Potter Instrument stock ¦44.63 ¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦ ¦ ¦22,454.48¦
+-----------+----+-------------------------------------------------+---------¦
¦ ¦ ¦Total ¦69,934.80¦
+----------------------------------------------------------------------------+
The shares of stock listed above were purchased with checks drawn on decedent's and Vivian's joint checking account. Decedent was the custodian for the stock from the time of purchase until his death, at which time Vivian was named as successor custodian. Records for purchases of the children's stock were maintained separate from records of decedent's own transactions. The stock certificates representing the children's shares were kept in a folder marked ‘Judy, Mark and Sharon.’ The stock belonging to reach child was kept in separate compartments within this file.
Dividends paid on the stock held as custodian by decedent were deposited in the children's savings accounts. No part of the income from the stocks nor any of the proceeds of their sale were used by decedent to discharge his support obligation to his children.
As shown above, each of the children had bank accounts in the Modern Federal Savings & Loan Association (hereinafter referred to as Modern Federal). In addition, Judith had a second savings account with the Guarantee Savings & Loan Association. The Modern Federal accounts consisted of cash gifts made by decedent plus dividends from each child's stock. From the early 1950s until 1963 the three Modern Federal savings accounts were held by decedent as trustee for each of his children. In October 1963 decedent closed all three accounts and opened new ones with the same institution in the name of ‘Harry Prudowsky, custodian for (one of his three children) under the Wisconsin Uniform Gifts to Minors Act.’
Judith's account with the Guarantee Savings & Loan Association has been held from its inception by decedent as custodian.
Respondent determined that the stock and savings accounts discussed above were held by decedent as custodian; that under Wisconsin law a custodian can apply the custodial assets to satisfy obligations of support as well as terminate the relationship at will; that these powers fall directly within the purview of sections 2036 and 2038,1 and consequently that the value of all of the items must be included in decedent's estate, resulting in the deficiency asserted herein.
OPINIONThe issue to be decided is whether the assets held by decedent as custodian at the date of his death are subject to such powers under the law of the State of Wisconsin as to warrant inclusion in the estate by virtue of either section 2036,2 2038,3 or both.
Under the Wisconsin Uniform Gifts to Minors Act a custodian named thereunder has both the power to apply income or principal for the minor's support, maintenance, education, or benefit, and the power to terminate the relationship at his discretion.4 The former power permits a parent who names himself as custodian of a gift to his minor child to apply the funds of that custodianship in satisfaction of his legal obligation of support; the latter creates a power of termination. We have consistently held that a tranferor-parent custodian, who dies while the custodianship is in effect, possesses at his death precisely those powers which under sections 2036 and 2038 result in the inclusion in his gross estate of the assets transferred. Dorothy Stuit, 54 T.C. 580 (1970), on appeal (C.A. 7, Aug. 24, 1970); Estate of Jack F. Chrysler, 44 T.C.55 (1965), reversed on other grounds 361 F.2d 508 (C.A. 2, ...
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