Court Opinion

ID: 4597057
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:18:22.97753+00
Date Added: 2024-06-11T07:59:53.620524
License: Public Domain

ESTATE OF MARY W. CUSHMAN, THE HARTFORD-CONNECTICUT TRUST COMPANY, EXECUTOR OF THE WILL OF MARY W. CUSHMAN, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  LOUISE C. CUSHMAN, TRANSFEREE OF THE ESTATE OF MARY W. CUSHMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  ESTATE OF MARY W. CUSHMAN, PHOENIX STATE BANK AND TRUST COMPANY, TRUSTEE UNDER A DEED OF TRUST FROM MARY W. CUSHMAN, DECEASED, AS TRUSTEE AND TRANSFEREE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Cushman v. CommissionerDocket Nos. 92882, 92881, 92883.United States Board of Tax Appeals40 B.T.A. 948; 1939 BTA LEXIS 776; November 24, 1939, Promulgated *776  The decedent, Mary W. Cushman, made her will in 1920, devising and bequeathing her estate to her sons and others.  On June 9, 1923, she made an irrevocable deed of trust of substantially her entire estate for the purpose of securing competent management thereof.  The trust instrument provided that she should receive the income of the trust for life and that thereafter the property should be enjoyed by her sons and others in accordance with the terms of the will which she had executed in 1920.  Mary W. Cushman died October 5, 1935.  Held, that no part of the value of the corpus of the trust at the date of her death is includable in her goross estate.  Charles W. Gross, Esq., for the petitioners.  James T. Haslam, Esq., for the respondent.  SMITH*948  The respondent has determined a deficiency in estate tax due from the estate of Mary W. Cushman, deceased, in the amount of $155,533.44.  The correctness of this determination is assailed in Docket No. 92882.  The three proceedings were consolidated for hearing.  The evidence shows that the value of the property received by each of the transferees of the estate of Mary W. Cushman in Docket Nos. *777  92881 and 92883 was in excess of the deficiency determined.  They are therefore liable as transferees if the deficiency against the estate has been correctly determined.  The petition in Docket No. 92882 alleges that the respondent erred in the determination of the deficiency against the estate in holding: (1) That the transfer was made in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926, as amended; (2) That the transfer was intended to take effect in possession or enjoyment at or after death within the meaning of said section 302(c) of the Revenue Act of 1926, as amended; (3) That the value of the property transferred was properly includable in the gross estate; *949  (4) That section 302(c) of the Revenue Act of 1926, as amended by the Joint Resolution of March 3, 1931, and by section 803(a) of the Revenue Act of 1932, has retroactive effect as to transfers made prior to March 3, 1931.  The reason assigned by the respondent in his deficiency notice for the determination of the deficiency is: The decedent placed practically her entire estate in trust under the trust agreement dated June 9, 1923, and modified by decree of the*778 Superior Court of Hartford County, Connecticut, dated December 21, 1933, Case No. 44,578 - Mary W. Cushman, plaintiff, v.Phoenix State Bank & Trust Company, et al., defendants. The trust was created for the purpose of conserving the property and paying the income to decedent during remainder of her natural life and disposing of the corpus at her death.  After careful consideration of the matter the Bureau holds that the transfer was made in contemplation of and intended to take effect in possession or enjoyment at or after death, within the meaning of section 302(c) of the Revenue Act of 1926, as amended.  Accordingly, the value of the property transferred is properly includable in the gross estate.  FINDINGS OF FACT.  1.  Eugene L. Cushman died a resident of Hartford, Connecticut, on December 17, 1918, survived by his widow, Mary W. Cushman, and two sons, Arthur and Richard; he left a will which was duly probated in the Probate Court for the District of Hartford, Connecticut, under which Mary W. Cushman was named as executrix.  2.  In 1920 Mary W. Cushman executed her last will and testament.  3.  From the estate of her deceased husband there was distributed to Mary*779  W. Cushman as of June 15, 1921, stocks, bonds, and other securities valued at $1,373,729.45, realty and chattels valued at $45,322, and cash in the amount of $19,654, total $1,438,705.45.  4.  While according to the estate valuation the property (other than cash) thus received by Mary W. Cushman as of June 15, 1921, was worth $1,419,051.45, a later revaluation by the Phoenix State Bank & Trust Co., petitioner in Docket No. 92883, puts the value as of that date at approximately $900,000.  5.  Mary W. Cushman was not competent by training, experience, or otherwise to manage the estate which her deceased husband left her.  Her son Arthur had received a considerable distribution from the estate, which he had either lost through investment or dissipated.  Prior to June 9, 1923, the value of her estate had dwindled alarmingly and a large part of the securities was on deposit as collateral with a broker for loans which the broker had made to her.  Mary W. Cushman, with reason, became haunted with fear that she might lose her entire estate and end her days in the poorhouse.  6.  In this predicament she sought the advice of Harry E. Sloan, one of the intimate advisers of the Cushman family*780  and then president of the Cushman Chuck Co. (of which Eugene L. Cushman had in successive stages been secretary and treasurer, president, and chairman of the board of directors, and in which he also owned at *950  the date of his death a large block of the capital stock), and of her son Richard.  These persons advised her to place her property in trust with the Phoenix State Bank & Trust Co.  They believed that with careful management she could receive a good income from the property which was left and that the trust estate would receive careful management.  7.  Acting upon the advice of Sloan and Richard, a competent attorney was engaged to prepare a deed of trust.  He was furnished with a copy of Mary W. Cushman's will and in the trust instrument provided that the trust corpus should be disposed of after her death substantially in accordance with the provisions of her will.  8.  The trust instrument was drawn up pursuant to instructions given to the draftsman by Mary W. Cushman.  It was read and fully explained to her.  She executed it on June 9, 1923.  The trust instrument specifically declared that it was irrevocable.  The reasons for the creation of the trust are stated*781  in the trust instrument as follows: This conveyance is made to said Trustee for the purpose of conserving the property of the Donor and said Trustee is hereby granted the fullest powers to so manage and conduct said trust estate as shall be for the best interest of the Donor primarily, and, secondarily, for the benefit of those persons to whom said property shall pass upon the death of the Donor by the terms hereof.  Mary W. Cushman was to receive the income from the trust estate for life.  9.  The property transferred to the trustee, which included substantially all of the property owned by Mary W. Cushman, was of a gross value of $683,391.42.  It was, however, subject to liens and mortgages given to secure loans owed by her totaling $138,655.81.  Securities with an approximate valuation of $275,000 were pledged to secure loans totaling $103,655.81 and real estate stood mortgaged to secure the balance of said loans of $35,000.  10.  Shortly after the trustee came into possession of the property it paid off substantially all of the loans standing against it.  It changed the investments of the estate from time to time.  The net income of the estate was paid each year to Mary*782  W. Cushman and her annual income during the last eight years of her life averaged just a fraction over $35,000.  On many different occasions she expressed gratification at the management of the trust estate by the trustee.  At the date of her death on October 5, 1935, the value of the trust estate was appraised at $794,904.83.  11.  At the time of the execution of the trust agreement Mary W. Cushman was 68 years of age and was in good health and mentally alert.  She continued to enjoy good health until at or near the time of her death, which was on October 5, 1935, more than 12 years after the date of the creation of the trust.  *951  12.  Despite the substantial income which Mary W. Cushman realized from the trust estate, she left an estate of only $5,988.72, of which $5,713.72 was accrued income in the hands of the trustee.  13.  At some time prior to 1932 her son Richard died.  Under the provisions of the trust instrument one-half of the trust estate became the property of his widow.  This fact was very displeasing to her son Arthur, who had three children.  In 1932 Mary W. Cushman brought a suit returnable to the Superior Court for Hartford County, in the State of Connecticut, *783  on the first Tuesday of November in that year, against the Phoenix State Bank & Trust Co., individually, and as trustee, and against the named beneficiaries of the trust, in which she sought a decree declaring the trust instrument voidable or void and terminating the trust, and prayed for a judgment directing the bank to deliver to her all the trust property free from trust and for such other and further relief as to equity might appertain.  14.  Shortly after the institution of this suit a stipulation was entered into by the parties whereby the interest to be received by Richard's widow was reduced.  The court in due course entered its judgment that the trust was a valid trust, not voidable or void.  It did, however, in the exercise of its equitable powers correct the decree to provide as the parties had stipulated with respect to the remainder interests.  The court found upon the evidence presented that Mary W. Cushman executed the indenture of trust in issue voluntarily and of her own free will and not by reason of any undue influence on the part of any one; that she did not execute it by reason of any mistake; and that the indenture of trust was a legal and valid instrument. *784  15.  The judgment and decree of the Superior Court did not in any way affect the life estate of the donor, Mary W. Cushman, under the trust nor give to her any additional estate or rights, powers, privileges or immunities in respect of the trust estate; but on the contrary her status under and relation to the trust was given express and judicial recognition and sanction.  OPINION.  SMITH: The question presented by this proceeding is whether any part of the trust estate created by Mary W. Cushman on June 9, 1923, is includable in her gross estate.  If no part is includable there is no deficiency in estate tax.  The statutes involved are as follows: Revenue Act of 1926. - SEC. 302.  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, real or personal, tangible or intangible, wherever situated - * * * (c) *952  To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for an adequate and full consideration*785  in money or money's worth.  Where within two years prior to his death but after the enactment of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or intended to take effect in possession or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of $5,000, then to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title.  Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death but prior to the enactment of this Act; without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title.  Revenue Act of 1932. - SEC. 803.  FUTURE INTERESTS.  (a) Section 302(c) of the Revenue Act of 1926, as amended by the Joint*786  Resolution of March 3, 1931, is amended to read as follows: "(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, 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; except in case of a bona fide sale for an adequate and full consideration in money or money's worth.  Any transfer of a material part of his property in the nature of a final disposition or distribution thereof made by the decedent within two years prior to his death without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title." 1.  The first question*787  to be considered is whether the trust estate created on June 9, 1923, was "to take effect in possession or enjoyment at or after death." By the terms of the trust intrument the property in question was conveyed to the trust as of the date of the execution of the trust instrument; Mary W. Cushman was to receive and did receive during her life the income of the trust estate.  The trust instrument provided how the estate was to be handled after her death.  The remainder interests vested in the remaindermen at the date of the execution of the trust instrument.  There was a complete transfer of the property from Mary W. Cushman on June 9, 1923, since she had transferred the property as of that date.  No part of the trust estate passed from the dead to the living as a result of her *953  death.  Her life interest in the trust property was obliterated by the event of her death.  ; ; ; *788 . 2.  The deficiency notice upon which this proceeding, Docket No. 92882, is brought is dated January 17, 1938, prior to the decision of the Supreme Court in . Since the trust estate was created prior to the effective date of the Joint Resolution of March 3, 1931, and section 803(a) of the Revenue Act of 1932, the amendment to the estate tax law effected by the Joint Resolution of March 3, 1931, does not apply. In his contention that it does, the respondent cites . That case presented a situation in which stocks, bonds, and other securities were transferred in 1915 by a trust indenture wherein the donor reserved to herself the income for life.  It provided that upon decedent's death the trust property should be held: * * * for such parties and persons and for such uses, intents and purposes and estates therein as the said Eleanor H. Denniston at the time of her death may by any last will and testament or instrument in the nature thereof direct, provide, limit and appoint.  In 1932 the donor relinquished the power*789  of appointment and also transferred to her daughter certain parcels of real estate, including her home.  The donor died in 1934.  The Commissioner included in the gross estate the value of the stocks, bonds, etc., transferred to the trust in 1915 and the value of the real estate conveyed by deed to her daughter in 1932.  The Board sustained the action of the Commissioner.  Our decision in that case has been appealed to the United States Circuit Court of Appeals for the Second Circuit.  There are no parallel facts in the proceeding at bar.  Mary W. Cushman did not by the trust instrument reserve unto herself any power by which she could control the devolution of the property at her death.  The Denniston case is distinguishable on its facts from the proceeding at bar.  The respondent also cites . In that case an irrevocable trust was created by the decedent, in which the income for life was reserved.  The decedent became dissatisfied with the trust and contemplated a proceeding to have it declared void on account of fraud.  Opposition to such a proceeding threatened to disclose family discord and provide unpleasant notoriety, *790  to avoid which counsel advised that a consent decree declaring the trust violated the rule against perpetuities be entered upon agreement of all the parties.  Such an agreement was reached; it provided that *954  the interest of the opposing beneficiary be not disturbed but that the interest of other beneficiaries be materially altered.  The Supreme Court held that, since the decree of the court declared the 1927 trust void, the trust assets reverted to the decedent.  A new trust was executed in 1932.  The Supreme Court observed: * * * Both the Board and the Court held that the decree of the state court, notwithstanding its entry pursuant to stipulation, adjudicated the rights of the parties, abrogated the trust of 1927, and established the decedent's absolute ownership of the assets.  * * * Since that was the case, the Supreme Court held that the transfer of the assets with which it was concerned took place in 1932, or after the effective date of the amendment to the estate tax law of March 3, 1931.  There are no parallel facts in the proceeding at bar.  Mary W. Cushman transferred the property here in question to the trustee in 1923.  She never recovered it back; she*791  never had any dominion or control over it from the date of its transfer on June 9, 1923.  Manifestly, the principle upon which the Bullard case was decided has no application to this proceeding.  3.  The final contention to be considered is whether the transfer was made in 1923 "in contemplation of" death.  That depends upon whether contemplation of death was decedent's controlling motive in making the transfer.  See . We think that the evidence shows very clearly that contemplation of death was not a motive for the creation of the trust.  All of the evidence goes to show that the real purposes for the creation of the trust were that "of conserving the property of the Donor" and of securing competent management of the estate, which would insure to the settlor an income for life and preserve the corpus for those entitled to her bounty after her death.  At the date of the creation of the trust Mary W. Cushman was 68 years of age and in good health.  She lived for a period of more than 12 years after the creation of the trust.  There is nothing whatever in the evidence that shows that comtemplation of death in any wise prompted*792  the creation of the trust.  In , the Board held that a transfer was not in contemplation of death where it was made for the purpose of protecting the transferor from the importunities of an improvident son.  Such clearly was one of the purposes which Mary W. Cushman had in the creation of the trust estate.  In , the decedent established an irrevocable trust four years before death, while she was in good health at the age of 63 years, without any anticipation *955  of death from any existing bodily infirmity.  The trust reserved the income to the decedent for life and then over to her family.  We held that the fact that the trust instrument provided for disposition of the property after death was itself "rather a result than a cause of the transfer." In , the Supreme Court reversed a decision of the , saying: The court's opinion seems to rest upon an erroneous interpretation of the term "in*793  contemplation of death." The meaning of this was much discussed in  We adhere to what was there said.  The mere purpose to make provision for children after a donor's death in not enough conclusively to establish that action to that end was "in contemplation of death." Broadly speaking, thoughtful men habitually act with regard to ultimate death but something more than this is required in order to show that a conveyance comes within the ambit of the statute.  Here, the Board having before it all the circumstances, including the provisions of the will, concluded that they disclosed an effective motive not directly springing from apprehension of death.  And as pointed out by the dissenting judge there was substantial basis for that view.  * * * The respondent makes much of the fact that the trust instrument was drafted upon the plan of the decedent's will which was executed in 1920.  The argument is therefore made that the trust instrument was testamentary in character.  It is true that the making of a last will or testament contemporaneous with the execution of a trust deed may throw light upon what was the decedent's intention*794  in the creation of the trust estate.  See . But that is only one factor among many to be taken into consideration in determining what was the predominant motive in making the transfer to the trust. Here the decedent made her last will and testament in 1920.  Had it not been for the fact that her estate from the time she acquired possession of it in 1921 or 1923 had dwindled alarmingly, it is possible or probable that the trust instrument would never have been executed.  There is nothing in the facts in this case which tends to show that the execution of the trust instrument was testamentary in character.  The transfer to the trust was not made in contemplation of death.  Decisions of no deficiency will be entered.