United States v. Past

• Decision Date: 10 May 1965
• Docket Number: No. 19225.,19225.
• Citation: 347 F.2d 7
• Parties: UNITED STATES of America, Appellant, v. Howard PAST, Executor of the Estate of Edna C. Rosedale Ogg, Deceased, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

347 F.2d 7 (1965)

UNITED STATES of America, Appellant, v. Howard PAST, Executor of the Estate of Edna C. Rosedale Ogg, Deceased, Appellee.

No. 19225.

United States Court of Appeals Ninth Circuit.

May 10, 1965.

COPYRIGHT MATERIAL OMITTED

Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Robt. N. Anderson, Loring W. Post, Attys., Dept. of Justice, Washington, D. C., Thomas R. Sheridan, U. S. Atty., Loyal E. Keir, Asst. U. S. Atty., Los Angeles, Cal., for appellant.

Carl A. Stutsman, Jr., Stanley E. Tobin, Jack R. White, Hill, Farrer & Burrill, Los Angeles, Cal., for appellee.

Before CHAMBERS, HAMLIN and ELY, Circuit Judges.

HAMLIN, Circuit Judge.

Appellee is the executor of the estate of Edna C. Rosedale Ogg, deceased, who died December 25, 1956. Appellee filed an action in the District Court for the Southern District of California for the return of federal estate taxes in the total sum of $126,505.16 ($108,817.62 being principal and $17,687.54 being interest) theretofore paid by appellee in said estate following the assessment of a deficiency in estate taxes in the above amount. The district court rendered a judgment in favor of appellee in the full amount and appellant filed a timely appeal. The district court had jurisdiction under 28 U.S.C. § 1346. This court has jurisdiction under 28 U.S.C. § 1291. The facts as shown by the record and the findings of the district court are set out below. The decedent and Harry E. Rosedale were married for twenty-five years. In 1954, because of marital difficulties, complicated by the fact that decedent was addicted to alcohol, each employed independent legal counsel for the purpose of negotiating a property settlement. All of the property owned by the Rosedales was held as community property in which under California law each was an equal owner. For many years prior to 1954 decedent and her husband Harry obtained most of their income from a nursery business developed and managed by Harry. Decedent took no active part in the operation of the business. The principal assets of the community consisted of the common stock in two wholly-owned corporations, the Monrovia Nursery Company and Rosedale's Nurseries, Inc. In addition, the Rosedales owned real property referred to as "Huntington Drive property," upon which Rosedale's Nurseries conducted its business; a private residence; numerous insurance policies; furnishings; personal effects; and cash. Decedent and Harry had three children of their marriage, the youngest being a boy of five years.

Certain findings of fact of the district court provided inter alia as follows:

"10. Decedent\'s husband wanted majority control of the two corporations for himself, and desired that a substantial portion of their community property be preserved for their children. He did not wish that the decedent be permitted to have any part of their valuable community assets outright, particularly the business assets, because of her alcoholic condition; but he did desire that she be provided with an assured comfortable income.

* * * * * * *

"12. On December 17, 1954, after extensive negotiations, a property settlement involving a number of interrelated documents was agreed to. They included a property settlement agreement, a supplemental property settlement agreement, a declaration of trust, a lease and assignment of lease, a guarantee of said lease, and various deeds. * * *

"13. Under the terms of the property settlement agreement, the decedent\'s husband received free from any claims by decedent, 55% of the stock he and decedent owned in Monrovia Nursery Company and Rosedale\'s Nurseries, Inc., plus various items of miscellaneous personal property of approximately $3,000.00 in value. The property settlement agreement further provided that an irrevocable spendthrift trust was to be created by the parties concurrently therewith, to which the parties would convey the remaining 45% of the stock they owned in the two corporations, along with the Huntington Drive property and the residence. Decedent would receive the income for life from such trust, but the property itself would ultimately go to the children. She also received from the property settlement the right to use the residence for her life, and various items of personal property valued at $20,000.00 plus $1,000.00 in cash.

"14. A clean-up fund was also created by said property settlement agreement, whereby all of the insurance policies owned by the parties were converted into cash, which, along with some other funds, was used to satisfy certain of their obligations, except for the $1,000.00 which went to the decedent. The total amount of such clean-up fund, less the $1,000.00 that went to the decedent was $45,880.34.

"15. Under the terms of the supplement and amendment to the property settlement agreement, the salaries which the decedent\'s husband was thereafter permitted to receive from the two corporations were limited to an aggregate of $60,000.00 during any one calendar year, unless 45% of any excess over such amount was paid to the decedent.

"16. Concurrently with the execution of the property settlement agreement, and as part of the division of property thereunder, both the decedent and her husband executed a declaration of trust which created the irrevocable trust referred to in the property settlement agreement. Said declaration transferred to said trust 45% of the stock owned by decedent and her husband in the two corporations, the Huntington Drive property and the residence. Under the terms of the trust, the decedent received all of the income for life with the remainder to the children. The trust was irrevocable and was equipped with spendthrift provisions. Decedent had no rights therein except the right to the income for life and the right to use the residence. The trust was accepted by decedent\'s attorneys, who were named as trustees.

"17. As a means of providing the desired assured income to the decedent, a lease and assignment of lease were made in conjunction with the property settlement. As a result, Rosedale\'s Nurseries, Inc. became obligated to pay a net rental income for the use of the Huntington Drive property in the amount of $20,000.00 per year for at least 20 years. The payment of such rental was further guaranteed by Monrovia Nursery Company, thus committing the assets of both corporations to the payment of a substantial fixed income to the decedent. The amount of rental fixed by the lease was believed by counsel for both spouses to be, and was in fact, in excess of the fair rental value for the Huntington Drive property, and was agreed to only after extensive negotiations.

* * * * * *

"19. It was intended by both decedent and her husband and their respective counsel that all of the property transferred to the aforesaid trust was owned by both spouses equally at the time it was transferred, and that the transfer was a joint transfer by both decedent and her husband. All of said property transferred to said trust was in fact owned equally by the decedent and her husband, and the transfer was in fact a joint one in which each transferred the one-half which he or she owned. The transfers were an integral part of a single larger transaction, to wit, a property settlement.

* * * * * *

"24. The total value of all community property owned by the decedent and her husband at the time of the property settlement was $848,746.08. Of that amount, the decedent\'s husband received property valued at $293,887.74; the decedent received outright property valued at $21,000.00, in addition to the valuable life estate in the trust; the trust received property valued at $487,976.00; and the clean-up fund received $45,880.34.

"25. As of December 17, 1954, the decedent was 44 years of age, and in good health, other than for her addiction to alcohol. Decedent\'s life expectancy at said date was 28 years, 8 months. Her subsequent death was caused by murder."¹

On March 8, 1955, an interlocutory decree of divorce was granted to decedent and her husband, incorporating therein the property settlement agreement, and a final decree of divorce was granted March 13, 1956. Decedent remarried after the final decree and on December 25, 1956, was murdered by her then husband.

Harry died August 15, 1956.

In assessing a deficiency in decedent's estate tax, the government contended that the entire corpus of the trust at decedent's death valued at $642,788.66 should be included in decedents' estate, relying on 26 U.S.C. § 2036.

Section 2036 provides in part as follows:

"(a) General rule. — The value of the gross estate shall include the value of all property (except real property situated outside of the United States) to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money\'s worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death —

"(1) the possession or enjoyment of, or the right to the income from, the property, or

"(2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom."

26 U.S.C. § 2043 provides in part:

"Transfers for insufficient consideration

"(a) In general. — If any one of the transfers, trusts, interests, rights, or powers enumerated and described in sections 2035 to 2038, inclusive, and section 2041 is made, created, exercised, or relinquished for a consideration in money or money\'s worth, but is not a bona fide sale for an adequate and full consideration in money or money\'s worth, there shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor

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