Case ID: ohio-misc_42/html/0006-01.html
Source: Caselaw Access Project
Author: {"author": "Zimmers, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In re Estate of Walkup.
    
      (No. 184152
    Decided January 17, 1974.)
    Common Pleas Court of Montgomery County.
    
      Messrs. Iddings, Jeffrey S Donnelly, for the executor-exceptor.
    
      Mr. William J. Brown, for the Tax Commissioner.
   Zimmers, J.

This cause is before the court upon exceptions filed by Thomas J. Walkup, executor of the estate of Hugh J. Walkup, deceased, to the Ohio Tax Commissioner’s Certificate of Determination of Ohio Estate or Additional Tax that additional tax was due on the decedent’s transfer listed in Schedule G of the Ohio Estate Tax return, “Transfers During Lifetime,” relative to transfers or gifts on June 1, 1966, of 359 shares of the Jack Wallmp Paper Company to the decedent-donor’s son, Thomas J. Walkup, and his daughter, Jacqueline Walther. It is the Tax Commissioner’s contention, by the Attorney General, that the transfers listed under Schedule G were made in contemplation of death, since they were made within three years of the date of death of the decedent (R. C. 5731.05), and therefore are subject to the Ohio estate tax.

The exceptor-executor denies that the transfers were made in contemplation of death, and contends that they are not subject to Ohio estate tax.

A review of the case shows that the decedent’s last will and testament admitted to probate was executed on. June 23,1966, 22 days after the gift.

The evidence shows that the donees, Thomas J. Walk-up and Jacqueline Walther, were serving as president and secretary-treasurer, respectively, of the Jack Walkup Paper Company at the time of the transfer on June 1,1966,- and that both of them had served in that capacity for several years.

The evidence shows further that the decedent died on January 24,1969, at the age of 73 years, in Fort Lauderdale, Florida, and had been hospitalized several days earlier as a result of an automobile striking his knee. The death certificate shows cause of death to be: “(1) cerebral anoxia sec to (2), (2) Cardiac standstill sec to (3), (3) Arterio-sclerotic heart disease.”

Dr. Lee, who testified on behalf of the exceptor and who was the decedent’s attending physician for many years, testified that he had been treating the decedent for high blood pressure and gout in his right leg for several years, that his blood pressure was well controlled, and that he had been able to have the decedent reduce his weight from 305 pounds in 1952 to 252 pounds in 1966. He testified further that decedent had no serious disease in 1967, 1968 or 1969, and that he had no terminal illnesses.

Counsel for the exceptor cited in his brief that this court had held in a previous decision, Estate of Ida Pansing Eek, Deceased, that each case must be decided upon its own particular facts. Counsel may be assured that the court has not changed its thinking in that regard.

The present Ohio estate statute does not provide any guideline as to “gifts made in contemplation of death” as was previously stated under the former inheritance tax law in R. C. 5731.01(E).

The evidence did not disclose any prior gifts of any substantial amounts or any pattern of previous gifts to these donees at the time he made the gifts of the stock, which gave the donees control of the corporation. The donor had been active in the management of the paper company since its creation in 1940, and was still on the payroll until his death. There was no evidence of the size of his salary or draw before or after the gifts.

It should be noted that a federal gift tax was filed covering the two gifts.

The exceptor-son testified that he had reason to believe he would get the stock, that he had discussed it with his dad, and, in fact, was pushing for it. He wanted the security of ownership of the company. He also testified that he had thought about leaving the company and that four companies had approached his dad about selling the business.

R. C. 5731.05 (transfers in contemplation of death) provides, as follows:

“(A) The value of the gross estate shall include the value of all property, to the extent of any interest therein of which the decedent has at any time made a transfer, except in the case of a bona fide sale for an adequate and full consideration in money or money’s worth, by trust or otherwise, in contemplation of his death.
“(B) Any transfer, except in the case of a bona fide sale for an adequate and full consideration in money or money’s worth, by trust or otherwise, made within a period of three years ending with the date of the decedent’s death shall be deemed to have been made in contemplation of death, unless the contrary is shown. No transfer made before such three-year period shall be treated as having been made in contemplation of death.”

This statute was effective on July 1, 1968, when the. former Ohio inheritance tax law was repealed and the entire estate tax chapter enacted.

The Attorney General, for the Tax Commissioner, contends that R. C. 5731.05 is similar and patterned after Section 2035, Title 26, U. S. Code, which provides as follows:

“2035. Transactions in Contemplation of Death.,
“ (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, in contemplation of his death.
“(b) Application of general rule. If the decedent within a period of 3 years ending with the date of his death (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth) transferred an interest in property, relinquished a power, or exercised or released a general power of appointment, such transfer, relinquishment, exercise, or release shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this section and Sections 2038 and 2041 (relating to revocable transfers and powers of appointment); but no such transfer, relinquishment, exercise, or release made before such 3-year period shall be treated as having been made in contemplation of death.”

He contends further that the standard created by the landmark United States Supreme Court decision, United States v. Wells (1931), 283 U. S. 102, 51 S. Ct. 446, now governs Ohio cases under E. C. 5731.05. In the Wells case, the court established a “controlling motive” which, in effect, requires that gifts may be made for several reasons, but that the court must determine if the estate has met the burden of proof by a preponderance of the evidence to overcome the presumption that a gift made within three years of death was made for the reasons predominately characterized by lifetime motives.- The Attorney General concludes that (1) the decedent’s advanced age and health problems, (2) the proximity of the gifts to the execution of the will, (3) the total absence of a prior gift pattern, and (4) because the gifts of stock would have been testamentary if not induced by the son to be made inter vivos, all established that the controlling motive was the thought of death.

Counsel for the executor in his brief contends that by deleting the statutory definition the Legislature was repudiating the emphasis placed by Ohio courts on the testamentary frame of mind, and the Legislature thereby placed more emphasis on the state of health. He contends that the facts in the case at bar reflect a relative good state of health and that by virtue of the statutory change the execution of the decedent’s will within three weeks of the gift is not to be given effect as it would have under the old law. He cites the Ech case, supra, decided by this court, and urges that this cáse be considered upon its particular facts, which he concludes establishes the controlling motive to be a transfer of management-responsibility and establishment of the security of ownership in his two children who were then active in the business.

By the statutory presumption that all transfers or gifts within three years of death are in contemplation of death the Legislature has eliminated a need for a definition of contemplation of death. Since the gifts made outside of the three-year period are conclusively presumed to be with lifetime motive, there is no need to define the contemplation of death motive. The estate has the burden to establish a lifetime motive if the gift occurred within three years, and the court, therefore, from the evidence must determine, whether such lifetime motive, as a controlling motive, could be ascribed to the gifts of stock in the case at bar.

The vagaries of each case must be closely examined, including the decedent’s physical and mental condition “and all other attendant facts and circumstances” to determine whether a specific transfer was prompted by some death-oriented reason or by a life-motive. The phrase “contemplation of death,” of course, does not mean the general expectation of death that all persons entertain. Its meaning, however, is not restrictive to an apprehension that death is imminent. Generally, both life,and death motives are involved in such gifts, and the inquiry; therefore, becomes whether the life motives were the dominant controlling or impelling reasons for the gifts.

The character of the gifts is determined by the state of mind of the donor or the donor’s motive at the time they were made. If his purpose is to atttain some object desirable to him during his life as distinguished from distribution of his estate as at death, the gifts are not of the character declared to be taxable.

As both counsel have pointed out, the language of the new E. 0. Chapter 5731 is modelled after U. S. Code Section 2035, Title 26. Therefore, this court will have to look to the federal cases for the holding in cases involving Section 2035. The writer must state that he has read and reread many of the federal decisions, and one can find a federal tax decision in favor of either side of the question, some of which do not appear too logical from the reported facts.

The landmark ease on the question “in contemplation of death” is United States v. Wells, supra (283 U. S. 102). The statutory period then was a gift made within two years of death. The court, in Wells, at page 118, said:

“The purposes which may be served by gifts are of great variety. It is common knowledge that a frequent inducement is, not only the desire to be relieved of responsibilities, but to have children, or others who may be the appropriate objects of the donor’s bounty, independently established with competencies of their own, without being compelled to await the death of the donor and without particular consideration of that event. There may be the desire to recognize special needs or exigencies or to discharge moral obligations. The gratification of such desires may be a more compelling motive than any thought of death.”

The federal cases have held where the purpose is to give a person closely related and engaged in the business a greater incentive or as a reward for services to the business or for other family or business purposes, gifts of stock have been held not to have been made in contemplation of death. See Kaufman v. Reinecke, 68 F. 2d 642; Hammond v. Westover (1951), 97 F. Supp. 753. Other reasons which have been held by the Board of Tax Appeals not to make the transfer of stock in a business taxable as in contemplation of death have been the desire by the donor or transferror to relinquish control, to retire, or to release himself from burdens.

The court finds from the evidence that the exceptor has rebutted the presumption that the transfers were made in contemplation of death or with the thought of death in the three-year period prior to decedent’s death on January 24, 1969. The court finds further that he has proved by a preponderance of the evidence that the transfers in question were not made with the thought of death but that the transfers were motivated by lifetime motives to give both his son and daughter, who were running the business, full control of the Jack Walkup Paper Company and to give them desired security. The court also finds that the exception is well taken and the estate is not liable for the additional estate tax in the amount of $1,992.02.

Judgment accordingly.