Updike v. Commissioner of Internal Revenue

• Decision Date: 06 March 1937
• Docket Number: No. 10718.,10718.
• Citation: 88 F.2d 807
• Parties: UPDIKE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

88 F.2d 807 (1937)

UPDIKE v. COMMISSIONER OF INTERNAL REVENUE.^*

No. 10718.

Circuit Court of Appeals, Eighth Circuit.

March 6, 1937.

Alfred G. Ellick, of Omaha, Neb. (Edward J. Shoemaker, of Omaha, Neb., on the brief), for petitioner.

Joseph M. Jones, Sp. Asst. to the Atty. Gen. (Robert H. Jackson, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to the Atty. Gen., on the brief), for respondent.

Before GARDNER, WOODROUGH, and THOMAS, Circuit Judges.

THOMAS, Circuit Judge.

Edward Updike, a resident of Omaha, Neb., died July 29, 1931, at the age of 91 years, 10 months, and 6 days. The Commissioner of Internal Revenue, in 1934, gave notice to his three sons of a proposed assessment against them of $11,401.93 constituting their liability as transferees of property of the deceased under section 315 (b) Revenue Act 1926, 44 Stat. 80 (see 26 U.S.C.A. § 427 (b), and section 316 of the Revenue Act of 1926 (26 U.S. C.A. § 500 and note) and as fiduciaries under section 3467 of the Revised Statutes of the United States (31 U.S.C.A. § 192) on the ground that the transfer was made in contemplation of death. Petition for redetermination of the assessment was filed with the United States Board of Tax Appeals within the statutory period, and the case comes here on petition of one of the sons for review of the order of redetermination of the Board confirming the proposed assessment by the Commissioner.

Two questions are presented for review:

(1) Is there any substantial evidence in the record to sustain the decision that the transfer was made in contemplation of death?

(2) If so, was the tax properly calculated?

The transfer in question was made by Edward Updike on May 5, 1926, when he was 85 years, 7 months, and 11 days of age. On that day by "Deed of Gift" he transferred to his three sons jointly substantially all of his property consisting of securities of the value at the time of his death of $453,871.45. On the same day he executed his will, naming his three sons as beneficiaries, share and share alike, of all his property.

At the same time, and as a part of the same transaction, the three sons executed and delivered to their father an agreement in writing, reciting that in consideration of love and affection, and other good and valuable considerations, they jointly and severally agreed to pay to him during his life the yearly sum of $27,000 in four equal quarterly payments, free and clear of all taxes, including federal taxes.

In connection with these transactions, and at the request of the father, the three sons orally agreed to pay the sum of $70,000, being $10,000 each, to the seven grandchildren of the deceased, and $1,000 to his brother. The payments were immediately made by the sons out of the transferred assets.

At the oral request of the deceased the sons set aside $190,000 of the securities transferred to secure the payment of the annuity.

From May 5, 1926, to the date of decedent's death, on July 29, 1931, the $27,000 annuity was paid by the transferees in quarter yearly payments.

The two findings of the Board claimed to be erroneous in the petition for review are that:

(1) The transfer of substantially all of decedent's property of May 5, 1926, was not a "bona fide sale for an adequate and full consideration in money or money's worth" and was made in contemplation of death.

(2) The value of an annuity of $27,000 payable quarterly on the life of a man 85½ years of age was $69,700.76; that that amount only was deductible from the value of the transferred securities ($453,871.45); and that the balance of $384,170.69 was includable in the gross estate.

It is conceded at the outset by counsel for the petitioner that in reviewing decisions of the Board of Tax Appeals this court is limited to a consideration of errors of law, and that the Board's findings may not be disturbed if there is any substantial evidence to support them. Flannery v. Willcuts (C.C.A.8) 25 F.(2d) 951; Washburn v. Commissioner (C.C.A.8) 51 F.(2d) 949; Neal v. Commissioner (C.C. A.8) 53 F.(2d) 806, 807; Whitlow v. Commissioner (C.C.A.8) 82 F.(2d) 569; Richards v. Commissioner (C.C.A.9) 81 F.(2d) 369, 106 A.L.R. 249.

The first question for consideration is whether there is substantial evidence in the record to support the Board's finding that the transfer in question was made in contemplation of death within the meaning of the statute. The statute, section 302 of the Revenue Act of 1926, c. 27, 44 Stat. 9, 70, provides that:

"The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property * * * wherever situated — * * *

"(c) To the extent of any interest therein of which the decedent has at any time made a transfer * * * in contemplation of * * * death."

The finding of the Board that the transfer was made "in contemplation of death" is a finding of fact. The phrase, "in contemplation of death," is used to describe the impelling motive of the donor at the time the gift was made. The courts have given the meaning of the phrase, as it is used in the statute, careful consideration. It was analyzed at length by Chief Justice Hughes in 1931 in United States v. Wells, 283 U.S. 102, 51 S.Ct. 446, 452, 75 L.Ed. 867; and since that time the courts have endeavored to follow the rules there stated. This court has reviewed and applied the doctrines of that decision on several occasions; in an opinion by Judge Stone, in Neal v. Commissioner of Internal Revenue, 53 F.(2d) 806, 807; in an opinion by Judge Booth, in Willcuts v. Stoltze, 73 F.(2d) 868, 871; and in an opinion by Judge Sanborn, in St. Louis Union Trust Co. v. Becker, 76 F.(2d) 851, 862. So far as applicable here, these decisions establish the following propositions: (1) The test of whether or not the transfer was made in contemplation of death is always to be found in the transferor's motive; (2) "the motive which induces the transfer must be of the sort which leads to testamentary disposition"; (3) in determining the presence or absence of such motive the fact-finding tribunal, where the evidence is circumstantial, should take into consideration such circumstances as (a) the condition of the body and mind of the transferor, (b) his age, (c) his desire to be relieved of responsibility, (d) his desire to discharge any moral obligations, or (e) his purpose to carry out some previously adopted policy with respect to the objects of his bounty. But, it is pointed out by the Supreme Court in the Wells Case, supra, that "It is apparent that there can be no precise delimitation of the transactions embraced within the conception of transfers in `contemplation of death,' as there can be none in relation to fraud, undue influence, due process of law, or other familiar legal concepts which are applicable to many varying circumstances. There is no escape from the necessity of carefully scrutinizing the circumstances of each case to detect the dominant motive of the donor in the light of his bodily and mental condition, and thus to give effect to the manifest purpose of the statute."

As to decedent's motive, the Board, having reviewed all the testimony, concluded that "The transfer is a substitute for testamentary disposition." In the findings and opinion of the Board it is shown that the age of Mr. Updike was considered; the fact that he was in good health; that his wife had just died; that his sight was impaired; that by the transactions of May 5, 1926, he had disposed of substantially all of his estate to the natural objects of his bounty; that "By these acts he put his house in order against the time of his demise"; that "No other act was necessary or, so far as the record shows, was ever done by the decedent relating to the disposal of his property." It was also pointed out by the Board that the sons were independently established in business, were all financially well off, and in no wise dependent upon gifts from their father; that the decedent had made prior gifts to the sons, but with the apparent purpose to equalize matters because of certain debts of some of the sons to the father, and not pursuant to any continuing policy of making gifts.

At the hearing before the Board now under review, the petitioner assumed the burden and undertook to show that the impelling motive was consistent with the thought of life and not of death. His counsel contend that the testimony establishes that the motive for the transfer consists of the following elements, all of which negative the finding of the Board:

"(a) To relieve decedent of the cares and worries connected with the management of his estate, which had become a burden due to his impaired vision; to ease his mind and eliminate the annoyance caused by having strangers handle his securities.

"(b) To avoid partiality in his loans to his sons.

"(c) To avoid anxiety over loans to one son, who was in a highly speculative business.

"(d) To carry out a policy previously adopted of making liberal gifts to his sons and grandchildren from time to time.

"(e) To afford decedent greater freedom to travel and in the expenditure of an assured income as long as he lived."

There is testimony in the record tending to support each one of these inferences; but it is not so conclusive that the Board was bound to accept petitioner's theory.

There is no direct evidence to support the first (a) inference. It is based upon the fact that prior to the transfer the decedent's vision was impaired and that he secured the assistance of a clerk in his son's office to aid him in checking his securities and in clipping his coupons. The second (b) inference is based upon the fact that among the securities transferred were notes of his three sons in unequal amounts representing loans made by the father. The transfer had the effect of equalizing the division of his property among his sons. The father at various times showed concern (c) over the fact that one of the sons was engaged in the grain business and...