Court Opinion

ID: 4602768
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:30:28.810668+00
Date Added: 2024-06-11T07:59:24.610443
License: Public Domain

ESTATE OF CAROLINE FOERDERER ARTMAN, DECEASED, PERCIVAL E. FOERDERER AND FLORENCE F. TONNER, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Artman v. CommissionerDocket No. 92084.United States Board of Tax Appeals38 B.T.A. 1020; 1938 BTA LEXIS 796; October 26, 1938, Promulgated *796  Decedent on May 4, 1927, her sixty-sixth birthday, created a trust with herself and her two children as trustees.  All of the income, except approximately 20 percent to be used for her brothers and sisters and religious, educational, and/or charitable purposes, was reserved to her for life, and at her death, in effect, the trust property was to be distributed equally to decedent's son and daughter, or their issue per stirpes, with provision for wife or husband of any child and minor contingent provisions.  At that date decedent was in good mental and physical health, except an old gall bladder trouble and a digestive upset which recurred occasionally.  The object of the trust was primarily to rid the decedent of responsibilities of administration of a large and complicated estate inherited from her husband; also to make gifts to her children, brothers, and sisters and provide for religious, educational, and/or charitable interests.  After the formation of the trust, she lived seven years and three months, continuing in good health, except for an automobile accident, until about a year prior to her death.  She died on August 3, 1934, from a coronary occlusion which did not have*797  its origin prior to the date of the trust.  Held, the transfer to the trust is not includable in gross estate under section 302(c) of the Revenue Act of 1926.  J. S. Y. Ivins, Esq., for the petitioners.  Frank T. Horner, Esq., and A. H. Monacelli, Esq., for the respondent.  DISNEY*1020  Respondent determined a deficiency in estate tax in the amount of $213,999.33.  Of this amount petitioner concedes that there will be a deficiency in the sum of $87,213, and the remainder is in dispute.  The single question for determination here is whether or not the trust formed by the decedent was in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926, the question of value of property transferred having been severed prior to hearing.  *1021  FINDINGS OF FACT.  Robert H. Foerderer died intestate on July 26, 1903, leaving an estate highly involved and including, in addition to a large leather business near Philadelphia, manufacturing vici kid leather, many ventures and interests in widely separated locations, some of them abroad, including a gold mine in Dutch Guiana, a railroad and phosphate mine in Tennessee, *798  a live stock company in New Mexico, a telephone company, and a gas company.  Robert H. Foerderer left a wife and two children, a son and daughter, the son being approximately 18 years of age.  The estate was inherited by the wife and children in equal parts.  The son left college shortly before his father's death, having learned of his father's ill health, and went into his father's office.  After the death of the father, the wife, Caroline Foerderer, though without previous business experience, assumed the primary responsibility of administering the estate, and, with the assistance of the son and advice of the father's attorney and secretary, managed the estate, which was heavily indebted.  Had the estate been forced to pay its creditors, it would have been insolvent.  She remarried one Major Artman about 1908.  He died about 1912.  The son continued to assist his mother in the management of his father's estate.  Over a period of years the indebtedness was largely liquidated and the estate put in a fairly sound condition.  The gas company - the Brooklyn Borough Gas Co., of which control had been secured - was sold in 1925 for about $4,000,000 cash.  On May 4, 1927, the son was conducting*799  at least three-fourths of the management of the estate, which had been reduced in part to liquid form of bonds and securities, but still contained large amounts of property of various kinds in an unliquid condition.  The estate left by Robert H. Foerderer had been incorporated as the Robert H. Foerderer Estate, Inc., and upon her sixty-sixth birthday, May 4, 1927, after considering the matter about two years, Caroline Foerderer Artman created a trust to which she transferred 3,005 shares of the capital stock of the Robert H. Foerderer Estate, Inc.  She had about 1925 stated to her son that she wanted to be relieved of business responsibilities, to travel and devote herself to other activities.  Caroline Foerderer Artman and her son Percival E. Foerderer and her daughter Florence F. Tonner were made trustees.  All of the net income of the trust (except $4,800 per year, payable to brothers and sisters of the settlor and 20 percent of the net income, which was to be paid to religious, educational, and/or charitable purposes, or to settlor's blood relatives, within the discretion of the trustees), was to be paid to the settlor during her lifetime and upon her death, in effect, was to go, *800  first, to her son and daughter, and, in case of their earlier demise, to their descendants per stirpes, with provision for *1022  husband or wife of a child and minor contingent provisions.  Upon the same day as the formation of the trust, a power of attorney was executed by decedent and her daughter, her cotrustee, giving the son as other trustee power of attorney to act for all, and thereafter he largely managed the estate.  Decedent did not include in the trust large amounts of liquid assets, such as municipal bonds and securities, but those transferred were semispeculative, which would require management and looking after.  She never sold any of the securities retained by her, but much later transferred some of them as gifts to the trust.  (These later gifts, however, are not in issue in this proceeding.) Caroline Foerderer Artman was at the time of the formation of the trust an unusually vital woman for her age.  She had a wide variety of interests, social, religious, cultural, philanthropic, and business, and was leading a very active life.  Such activities increased after the creation of the trust.  She had the appearance of a woman considerably younger than her*801  years, and was physically strong.  In 1925 she went to Europe, and in 1926 she took a hurried trip with her son to Europe, without a maid.  In 1927 she took a cruise through the West Indies.  She was on these trips an active sightseer.  On all of these she looked after herself without the assistance of a maid.  She had done the same on two trips to Europe in 1906 and 1913.  She was actively engaged as one of the founders of the Artman Home, a philanthropic institution near Philadelphia, and took great interest in and spent much time upon its affairs.  She managed a large home and an 18-acre estate near Philadelphia, without a housekeeper, and superintended the servants and repairs and alterations in and around the house and grounds.  The house contained a high steep staircase, which she used several times a day.  She very frequently attended social affairs, bridge parties, musical functions, and the theater.  She had for many years a recurrence of a gall bladder trouble and a digestive upset, but this occurred at long intervals, and in her physician's opinion did not relate to the illness which resulted in her death.  She had a deposit of cholesterol in her eyes and in her hands.  The*802  hand deposit was uncommon.  A restricted diet was prescribed for her.  Beginning about 1926 her physician saw her 12 to 18 times a year.  It was his habit to check up on patients even when in good health.  At the time of the formation of the trust she did not have high blood pressure or indication of heart infection.  On January 17, 1929, she was severely injured in an automobile accident, suffering fractures of the collar bone and pelvis.  In that connection, first evidence of tendency to high blood pressure appeared.  She was discharged from the hospital after two months and thereafter continued to engage in her former activities to a large extent.  In the autumn of 1933, a bacterial infection of the *1023  respiratory tract developed, also pleurisy and heart disease, and she was never well thereafter, suffering from weakened heart and chest.  After that illness, at her physician's suggestion an elevator was installed in her home to take the place of the stairway.  In the spring of 1934 she had an attack of shingles, followed by two heart attacks during the summer.  The second heart attack on August 3, 1934, resulted in death from coronary occlusion.  In connection with the*803  filing of the estate tax return after the death of Caroline Foerderer Artman, an attorney suggested that the return state (in accordance with statements to him made by the decedent's son and daughter), with reference to the purpose of the deed of trust, that it was to establish for her children an immediate and vested interest in her property, and that the trust was established while she was in good health.  These recitations were in effect incorporated in the estate tax return.  Without consulting with decedent's son or daughter as to the phraseology of the affidavit, and using his own phraseology and general knowledge he had about the matter (he had drawn the trust), the attorney drew the estate tax return and an affidavit attached thereto.  This affidavit was signed by decedent's son and daughter, and filed.  It contains the statement that upon the death of decedent's first husband considerable confusion and difficulties of administration resulted, and that after the death of decedent's second husband she expressed her desire to deponents on numerous occasions to dispose of her property in her lifetime to avoid the difficulties and uncertainties and expenses incident to the settlement*804  of decedent's estate, especially in view of the fact that a large part of her property consisted of real estate and stock in a manufacturing company.  The affidavit further recited that finally on May 4, 1927, and while she was in excellent health, mental and physical, decedent executed the deed of trust in consideration of $1, irrevocably transferring certain property in trust to and for her two children, and then expressed her desire to give them an immediate interest in her property so that she might thereafter be free from business worries and that they might better plan their future with the acquisition of her property; and that it was her birthday gift to her children.  The affidavit was sent to the office of decedent's son by the attorney very shortly before the time when the estate tax return to which it was attached was required to be filed, and was signed by him immediately prior to going to the hospital for an operation and without careful examination by him.  It was signed by his sister, decedent's daughter, without being read by her, because her brother had already signed it.  The trust was created for the purpose of relieving decedent of the care and labor incident*805  to the management of the estate of her first husband and to make gifts to decedent's children and brothers and *1024  sisters and provision for religious, educational, and/or charitable purposes, and the transfer to the trust was not in contemplation of death.  OPINION.  DISNEY: The question here is, of course, one of fact and, since each case of this character must be considered on its own facts, other decisions do not greatly assist.  It should, however, be kept in mind under the principles laid down in , that there is a general expectation of death which all entertain, and that such an expectation only is not sufficient to characterize a transfer as in contemplation of death.  There is here, we think, no very serious contention that the decedent was in dangerous physical condition or contemplating death in the immediate future at the time of the formation of the trust.  The testimony of the physician attending her and acquainted with her condition for many years is positive to the effect that she did have recurrent digestive disorders, with symptoms of gall bladder trouble, but that there were long periods when these*806  did not recur and in his opinion they did not relate to the cause of her death.  All of the multitudinous details, which it is not considered necessary or practical here to set forth, indicate that the decedent was an unusually active woman for her age, participating in many varied activities, possessed of an optimistic disposition, and with an interest in life and its affairs.  We have no hesitation in concluding from all the evidence that the condition of health and the state of mind of the decedent at time of formation of the trust negative rather than support any idea of contemplation of any immediate prospect of death at that time.  There is no evidence that the heart disease, which caused her death more than seven years later, had originated at the time of the formation of the trust.  Even after the automobile accident in 1929, she continued to be a very active individual.  Respondent's principal contention, as stated by counsel at the hearing, is that the statements made by decedent's son and daughter in an affidavit attached to the estate tax return as to decedent's estate demonstrate that the object of the trust was testamentary.  It is undoubtedly true that in terms the*807  language of the affidavit strongly tends to support this contention, for in the affidavit the two children depose that their mother on numerous occasions expressed her desire to dispose of her property in her lifetime to avoid the difficulties and uncertainties and expenses incident to the settlement of a decedent's estate, especially in view of the fact that a large part of her property consisted of real estate, etc.  These statements, if they came unexplained from the decedent, would very obviously demonstrate the *1025  soundness of respondent's position.  But they come from the son and daughter, whose testimony upon hearing giving their version of the matter is inconsistent with the affidavit they made about eight years after the transaction being considered here, and they are explained as prepared by the attorney with no consultation with the son or daughter of decedent as to their phrasing and were signed by the deponents with little regard to the facts.  The phraseology was that of the attorney.  The daughter did not read the affidavit at all because her brother had signed it, and the son explains that he signed it after scanning it hastily while on the way to the hospital*808  for an operation, at a time when he was under business stress.  Under such circumstances the statements are attributable largely to the attorney who drew the affidavit; and they are counterbalanced by the positive statements of the son, who was his mother's business associate, that the object of the trust was not only that decedent wished to make a birthday present to her two children, but that she wished to rid herself of the work and trouble of the management of the estate in which she had been engaged for many years, and to make provision for her four brothers and sisters less troublesome than had been their appeals to her.  The testimony of the attorney who drew the trust is positive to the effect that the object was the avoidance of business responsibilities, and the daughter testified as to the desire of decedent to make gifts.  It is, of course, true that the son was already doing much the larger part of the work of management, but the estate was of such proportion that decedent's part therein was still onerous.  The fact that decedent was herself named as trustee would, of course, by itself, indicate that she did not altogether rid herself of such business responsibilities, *809  but this is largely at least negatived by the fact that on the same day the trust was formed all the trustees gave the son a power of attorney in effect to manage the estate, while the decedent devoted herself largely to other interests.  The fact also that the decedent retained much of the liquid assets, such as bonds and stocks, and did not put them into the trust, indicates that it was the troublesome part of the estate, that is, that part which required supervision, that was placed in the trust and of which the decedent divested herself.  The evidence in this case is voluminous, consisting of a multitude of small details tending to cast light upon the intent in the formation of the trust, and the physical and mental condition of the settlor, and includes photographs of the settlor and moving picturees exhibited to the Member presiding at the hearing.  It would serve no purpose, we think, to attempt to set forth more details than above.  From a consideration of all of these details, we are convinced that the object of the trust was primarily the elimination of business worries and responsibilities from the settlor and secondarily the desire *1026  to make gifts to her children*810  (as well as minor gifts to her brothers and sisters and 20 percent of the net income for contributions to religious, educational, and/or charitable matters and to blood relatives), and that the trust was not set up in contemplation of death.  Although as above stated other cases are not highly helpful, the conclusion to which we come is consonant with the decision in , wherein it was found that the purpose of the trust was to relieve a husband of the management of securities.  The fact that the two children did not get immediate possession of the portion of the property which eventually vested in them, the net income of which went primarily to the settlor for her life, does not demonstrate contemplation of death.  The settlor parted with possession and beneficial interest. ; . We hold that the transfer here in question was not in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926.  Decision will be entered under Rule 50.