Court Opinion

ID: 9651748
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:34:24.404382+00
Date Added: 2024-06-11T18:12:38.907253
License: Public Domain

SWAN, Circuit Judge
(dissenting).
The question presented by this appeal is whether quarter-yearly payments made by the committee of an incompetent, pursuant to orders of the New York Supreme Court, to relatives of the incompetent during nine years preceding her death, are to be considered property “of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of * * * death”, within the meaning of section 302 (c) of the Revenue Act of 1926, Int.Rev.Code § 811(c), 26 U.S.C.A. Int.Rev.Code, § 811(c).
The statutory language as interpreted by Treasury Regulations1 and by the opinions of the Supreme Court, clearly shows that the operative fact which brings the section into play is “the state of mind” or “motive” of the donor at the time of the transfer. The power of a court of chancery having charge of an incompetent’s property to direct allowances out of the incompetent’s surplus income has long been recognized both by English law and by the law of New York. Ex parte Whitbread, 2 Mer. 99, 35 Eng.Rep. 878; Matter of Willoughby, 11 Paige, 257; Matter of Flagler, 248 N.Y. 415, 162 N.E. 471, 59 A.L.R. 649. Jurisdiction in this field is conferred upon the New York Supreme Court by § 1356 of the Civil Practice Act. Section 1357 of that Act declares that the court exercising jurisdiction over the property of an incompetent “must preserve his property from waste or destruction; and, out of the proceeds thereof, must provide for * * * the safe keeping and maintenance, and the education, when required, of the incom*604pétent person and his' family.” As stated in Matter of Flagler, supra, 248 N.Y. at page 419, 162 N.E. at page 472, 59 A.L.R. 649, allowances out of the incompetent’s surplus income are granted “upon the theory that the lunatic would; in all probability, have made such payments if he had been of sound mind.” In the case at bar the orders of the New York Supreme Court embodied findings that if the incompetent were in possession of her mental faculties she would have made the allowances ordered by the court. It is against this background that the problefn must be considered.
My brothers recognize that “obviously the-incompetent herself could have had no intent of any kind” with respect to the allowances ordered by the state court. They then ascribe to her “the intent of the court”; not however, the intent expressed in the court’s finding that she would have made -the gifts, if competent, but an intent to make “such gifts as she would have made, if for the moment lucid, but with the prospect of imminent incompetency before her.” This seems to me the veriest fiction. Fictions, of course, have frequently been employed in legal reasoning, but not so far as I am aware, to extend the coverage of a taxing act beyond its letter. In the words of Mr. Justice Sutherland in Crooks v. Harrelson, 282 U.S. 55 at page 61, 51 S.Ct. 49, at page 51, 75 L.Ed. 156, “the fact must not be overlooked that we are here concerned with a taxing act, with regard to which the general rule requiring adherence to the letter applies -with peculiar strictness.” It is true that the sums paid out pursuant to -the state court orders decreased the amount of the incompetent’s estate at death, and in so far as they were paid to her next of kin may perhaps be characterized as the “substitution” of a gift inter vivos for an “intestate disposition.” But, as my brothers recognize, gifts to next of kin are not necessarily transfers in contemplation of death—it turns on the donor’s dominant motive. United States v. Wells, 283 U.S. 102, 117, 51 S.Ct. 446, 75 L.Ed. 867. The allowances in question have been subjected to a gift tax under the Revenue Act of 1932. City Bank Farmers Trust Co. v. Hoey, 2 Cir., 101 F.2d 9. I am unable to find in the words of section 302 (c) adequate language to subject them to the estate tax. Concededly the incompetent herself could not “contemplate” death. The state court which directed the payments to be made did not purport to make transfers in contemplation of death and had no legal power to do so. It cannot, make testamentary dispositions for the incompetent, N.Y.Civil Practice Act, § 1383; and in making allowances to his family it “does not do this because, if the lunatic were to die tomorrow, they would be entitled to the entire distribution of his estate * * but because “the court will not refuse to do, for the benefit of the lunatic, that which it is probable the lunatic himself would have done.” Per Lord Eldon in Ex parte Whitbread, 2 Mer. 99, 102-3. Whether Congress would wish to impose an estate tax on gifts made out of an incompetent’s surplus income by court order for the support and education of his family seems to me the merest surmise. At any rate, it has not said so in language justifying the courts in so holding. In my opinion the judgment should be reversed.

 Art. 16, Treas. Reg. 80, says in part: “A transfer in contemplation of death is a disposition of property prompted by the thought of death. * * *
As the phrase ‘transfer in contemplation of death’ is applicable to many varying transactions, the circumstances of eacb case must be examined to ascertain the motive which induced the decedent to make the transfer. If the transfer results from mixed motives, one of which is the thought of death, the more compelling motive controls. * * * ”