Silverman v. Comm'r of Internal Revenue (In re Estate of Silverman)

• Decision Date: 06 December 1973
• Docket Number: Docket No. 6741-70.
• Citation: 61 T.C. 338
• Parties: ESTATE OF MORRIS R. SILVERMAN, AVRUM SILVERMAN, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

61 T.C. 338

ESTATE OF MORRIS R. SILVERMAN, AVRUM SILVERMAN, EXECUTOR, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 6741-70.

United States Tax Court

Filed December 6, 1973.

Moses M. Cohen, for the petitioner.

Marion L. Westen, for the respondent.

The decedent assigned a life insurance policy on his life to his son, approximately 6 months prior to his death. After the transfer, the son paid the insurance premiums. Held, the transfer of the life insurance policy was made in contemplation of death within the meaning of sec. 2035, I.R.C. 1954. Held, further, the quantum of inclusion is that portion of the face value equal to the ratio of premiums paid by the decedent to total premiums paid. Held, further, the gross estate must also include certain jewelry having a fair market value of $780 which the decedent inherited from his wife.

STERRETT, Judge:

Respondent determined a deficiency in petitioner's Federal estate tax in the amount of.$2,155.01. However, $132.08 of said amount was attributable to the assessment of the penalty imposed by section 6651(a), I.R.C. 1954,¹ which was abated, leaving a net deficiency of $2,022.93. Respondent subsequently conceded the deductibility of certain legal expenses, leaving the following issues for our consideration:

(1) Whether the assignment of a life insurance policy by the decedent, Morris R. Silverman, to his son, petitioner Avrum Silverman, was made ‘in contemplation of death’ within the meaning of section 2035.

(2) If such assignment was made in contemplation of death, what amount is includable in the gross estate of the decedent.

(3) Whether decedent's gross estate must include certain jewelry having a fair market value of $780 which the decedent inherited from his wife.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.

Decedent Morris R. Silverman died testate on July 26, 1966, in New York, N.Y. Letters testamentary were issued to the petitioner, Avrum Silverman, on September 2, 1966. At the time the petition herein was filed, the petitioner resided at Watertown, Mass.

The decedent was born on March 15, 1901. On May 25, 1961, the decedent purchased life insurance policy number 12553 from the Standard Security Life Insurance Co. of New York which insured his life and had a face value of $10,000. To keep the policy in effect, the decedent made monthly payments of $52,60. The decedent's wife Mabel Silverman was made primary beneficiary of the policy, and the petitioner was designated secondary beneficiary.

Mabel Silverman died of cancer on December 12, 1965, after an extended illness of 2 or 3 years. During the period of her illness, she required hospitalization on several occasions.

The decedent's medical history, dated December 22, 1965, states:

During the past several months patient has been under a great deal of stress. His wife has been dying and finally died about two weeks ago. He has noted some intermittent red blood in the stool during the last month and some pain in his back. In the past he had a fistula-in-ano, but he does not have any recurrence of that symptomatology. He has also eaten less and is not sleeping too well. He has lost his appetite. On that date the decedent underwent a full physical examination. X-rays indicated a possible malignancy of the colon. No further evidence concerning the decedent's medical care was available until February 18, 1966.

On January 29, 1966, the decedent assigned to his son, the petitioner, all of his right, title, and interest in life insurance policy number 12553. From this point forward, the petitioner paid the monthly premiums of $52.60.

In a letter to the petitioner's attorney, Joseph Breitstone, the decedent's nephew and insurance broker, stated:

When I met with Morris Ralph Silverman to discuss the change of beneficiary, I recommended that he transfer ownership of the policy to his son Avrum since the estate would no longer reap the benefits of the marital deduction in the event of his death.

On February 18, 1966, the decedent was admitted to the Medical Arts Center Hospital in New York City, where he underwent surgery. During the operation, carcinoma (cancer) of the colon and liver involvement was found. Consequently, a transverse colostomy was carried out. In an attempt to limit the spread of cancer, chemotherapy was begun.

The decedent was discharged from the hospital on March 12, 1966, but was readmitted several times thereafter. He died on July 26, 1966.

The petitioner had made seven premium payments of $52.60 each at the time of his father's death.

OPINION

The decedent transferred ownership of a life insurance policy on his life to his son approximately 6 months prior to his death. The first issue to be decided is whether this transfer was made ‘in contemplation of death’ thereby making such property includable in the decedent's gross estate under the provisions of section 2035.²

Section 2035(b) creates a statutory presumption that any transfer made within 3 years of death, except a bona fide sale, is a transfer in contemplation of death. The petitioner must not only produce evidence refuting the presumption, but must also carry the burden of proof on this issue. First Trust & Deposit Co. v. Shaughnessy, 134 F.2d 940 (C.A. 2, 1943); Estate of Sumner Gerard, 57 T.C. 749 (1972). In this decidedly factual endeavor, we must determine whether the dominant purpose in making the transfer was the thought of death or some purpose more closely associated with life motives. United States v. Wells, 283 U.S. 102 (1931); Estate of Maurice H. Honickman, 58 T.C. 132 (1972), affd. 481 F.2d 1399 (C.A. 3, 1973).

The petitioner has argued that the decedent assigned the life insurance policy to him in order to avoid further premium payments. The original primary beneficiary, decedent's wife, predeceased him. Therefore, according to the petitioner, the decedent felt he no longer needed insurance. The only witness dealing firsthand with the decedent in respect of the insurance was Joseph Breitstone, his nephew and insurance broker. Breitstone testified that the decedent originally desired cancellation of the policy but was persuaded to assign the policy because his son would pay the premiums and the policy would no longer be part of his estate. He also explained that the case surrender value was quite low at that time. Moreover the petitioner testified that his father, the decedent, was philosophically opposed to insurance and preferred to invest in stocks.

We hold that the transfer in issue was made in contemplation of death. The assignment took place on January 29, 1966. The decedent's medical history shows that on December 22, 1965, he underwent a complete physical examination and X-rays to find the cause of acute diarrhea and bleeding. The X-rays revealed a possible malignancy of the colon. After a gap of close to 2 months in the decedent's medical history, during which time the transfer in question took place, the decedent was admitted to a hospital for an operation. Although doctors removed a cancerous tumor, spreading of the disease had occurred, and the decedent died approximately 5 months later.

Whether the decedent knew death was near is subject to conjecture. Nevertheless, because of his symptoms, the operative procedures carried out, and his postoperative treatment, we feel quite certain that he knew he was seriously ill.³ Moreover the close proximity he maintained with his wife during her 2-3-year bout against cancer may have given him special cause to worry. Also, at the age of 65, he was not likely to take his situation lightly. Bodily condition may naturally give rise to fear of death. United States v. Wells, supra at 117; Estate of Sumner Gerard, supra at 760; Estate of Oliver Johnson, 10 T.C. 680 (1948). Petitioner's testimony has little weight on this particular point since he was in California during the early part of decedent's illness.

Breitstone, in a letter responding to petitioner's attorney prior to the trial herein, stated that the assignment was made because ‘the estate would no longer reap the benefits of the marital deduction in the event of his death.’ In this correspondence Breitstone failed to mention that the decedent desired to cancel the policy. Rather he stated that the discussion occurred when the decedent was changing beneficiaries. The motive to avoid taxes is usually intended to relieve beneficiaries of taxes after death. McIntosh's Estate v. Commissioner, 248 F.2d 181 (C.A. 2, 1957), affirming 25 T.C. 794 (1956); Vanderlip v. Commissioner, 155 F.2d 152 (C.A. 2, 1946), affirming 3 T.C. 358 (1944). The statute was specifically enacted to prevent the evasion of estate taxes. Milliken v. United States, 283 U.S. 15, 23 (1931); see also sec. 20.2035-1(c) (1), Estate Tax Regs. Moreover a significant factor in certain cases has been the reliance on an insurance agent's advice to avoid estate taxes by making transfers. Slifka v. Johnson, 161 F.2d 467 (C.A. 2, 1946); Estate of Edwin W. Rickenberg, 11 T.C. 1 (1948).

Lastly the petitioner has testified that the decedent rarely made gifts over $50 or $100. The decedent's assignment, in light of his...