Court Opinion

ID: 4625817
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:57:56.322936+00
Date Added: 2024-06-11T07:56:46.467851
License: Public Domain

ESTATE OF RICHARD HEMMONS HALSEY, LILIAN JOHNSON HALSEY, EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Halsey v. CommissionerDocket No. 96404.United States Board of Tax Appeals42 B.T.A. 607; 1940 BTA LEXIS 978; August 21, 1940, Promulgated 1940 BTA LEXIS 978">*978  ESTATE TAX - GROSS ESTATE. - Property the subject of an inter vivos gift to a needy sister may not be included in the gross estate under 302(a) or (c) of the Revenue Act of 1926, as amended.  Jonathan Grout, Esq., for the petitioner.  Davis Haskin, Esq., for the respondent.  MURDOCK 42 B.T.A. 607">*607  The Commissioner determined a deficiency of $1,192.49 in estate tax.  The only issue for decision is whether the value of 240 shares of Halsey Realty Co. stock and the value of 115 shares of R. B. Halsey & Co. stock was property included in the gross estate of the decedent.  FINDINGS OF FACT.  Richard Hemmons Halsey, a resident of Bridgeport, Connecticut, died on November 27, 1934, at the age of 54 years.  The estate tax return was filed with the collector of internal revenue for the district of Connecticut.  The decedent was survived by his wife, to whom he left all of his property.  They had no children.  He was survived also by his younger brother, Julian, and by his sister, Mabel H. Prendergast.  The latter was a widow with two children, one in high school, the other in college.  Mabel had an income of less than $1,000 a year from a small store which1940 BTA LEXIS 978">*979  she conducted and her brothers gave her necessary financial aid from time to time.  R. B. Halsey & Co. was a corporation engaged in the manufacture and sale of shirts and ties.  Its capital stock consisted of 500 shares each of $100 par value.  The deceased father of the decedent left him 240 of those shares and left Julian 259.  The other share was left to Mabel by her deceased mother.  The decedent and Julian completely controlled and managed the business.  The decedent was president, Mabel was vice president, Julian was secretary and treasurer, and all three were directors.  Mabel attended the annual meetings but otherwise took no part in the business.  The Halsey Realty Co. was a corporation.  Its outstanding stock consisted of 1,000 shares each having a par value of $100.  The father of the decedent left him 490 of those shares and left 509 to Julian.  The remaining share was owned by Mabel.  The officers and directors were the same as those of the other corporation and its affairs were conducted in the same way as were those of the other.  Neither corporation has ever paid a dividend.  The fair market value of the 42 B.T.A. 607">*608  stock of R. B. Halsey & Co. in 1933 and 1934 was1940 BTA LEXIS 978">*980  $98.18 per share and that of the Halsey Realty Co. was $107.20 per share.  The only property which Mabel received from the estates of her parents was the two shares of stock above mentioned and the release of a mortgage upon her home.  The decedent as president and Julian as secretary of the two companies executed two stock certificates made out to Mabel.  One was for 115 shares of R. B. Halsey & Co. stock, and the other was for 240 shares of Halsey Realty Co. stock, all of which belonged to the decedent.  The decedent placed the certificates in an envelope, went to Mabel's store, handed the envelope to her, and said: "Mabel, this is something I want you to have, but keep your mouth shut about it and it may be of use to you sometime", or words to that effect.  Mabel received the envelope and placed it with her insurance policies and other important papers.  The events described above all took place on August 16, 1933.  Mabel did not examine the contents of the envelope or otherwise learn, until after the death of the decedent, that the shares were in her name.  The two brothers and their sister did not discuss the subject further during the life of the decedent.  The decedent, 1940 BTA LEXIS 978">*981  on or about August 16, 1933, consulted a lawyer in regard to drawing a will.  No will was drawn at that time.  The transfer of the shares to Mabel was not mentioned to the lawyer.  Later, on June 21, 1934, the lawyer drew a will for the decedent leaving all of his property to his wife.  The decedent first mentioned the subject of his will to his wife after the death of her brother in January 1934.  He enclosed his will and a letter of instruction and farewell to his wife, in a sealed envelope, and delivered the envelope to his wife on June 21, 1934, with instructions not to open it.  He had previously read to her his draft of the will.  His wife did not know of the transfer of the shares to Mabel.  She and Mabel were friends.  The decedent was active and in good health until a few weeks before his death.  The state of his health on and about August 16, 1933, was excellent.  He never mentioned his possible death or indicated, except as above described, that he was in any way contemplating his death.  His statements and actions indicate that he expected to live and continue to be active in his business.  He was injured in a fall in July 1934 and canceled his proposed business trip1940 BTA LEXIS 978">*982  to Europe as a result.  Thereafter, he again conducted his business as formerly.  The record does not show the cause of his death.  The Commissioner, in determining the deficiency, has included in the gross estate of the decedent $37,018.70 representing the value of the 240 shares of Halsey Realty Co. shares and of the 115 shares of R. H. Halsey & Co. shares standing in the name of Mabel H. Prendergast.  He explained that "It is the position of the Bureau that the decedent was the actual owner of this stock and its value forms a part 42 B.T.A. 607">*609  of his gross estate under the provisions of section 302(a) of the Revenue Act of 1926, as amended." He determined that the value of the entire gross estate was $100,578.47.  Mabel, after the death of the decedent, obtained a loan of $900 from Julian, voluntarily endorsed the two certificates above mentioned, and placed them with a broker for the protection of Julian.  The executrix of the decedent's estate, upon advice of counsel, instituted a suit against Mabel and Julian to set aside the transfers of August 16, 1933.  The proceeding was settled by compromise before trial.  The defendants paid to the executrix $7,250 and she released1940 BTA LEXIS 978">*983  them from all claims of the estate in respect to the shares.  The transfer of the shares by the decedent on August 16, 1933, was a gift in praesenti. It was not made in contemplation of death and it was not intended to take effect in possession or enjoyment at or after death.  OPINION.  MURDOCK: The theory upon which the Commissioner determined the deficiency was that the alleged transfer was an incomplete gift, inasmuch as Mabel did not know what was in the envelope and did not accept a gift of the certificates.  However, it appears that she did accept the envelope and its contents with full intent to keep it as her own.  She had thereafter continuous possession of the shares and was free to do with them as she pleased.  The decedent clearly intended to make a gift; he was competent; the sister was competent, and accepted; and there was a transfer of title with complete relinquishment by the donor of dominion and control of the property.  Cf. . The gift was complete on August 16, 1933.  Cf. 1940 BTA LEXIS 978">*984 . The respondent, by amended answer, has attempted to support his determination upon a wholly different theory - that of contemplation of death.  The evidence shows that the transfer was made within two years of the date of death.  The respondent cites section 302(c) of the Revenue Act of 1926, as amended, providing that such a transfer is presumed to have been made in contemplation of death unless the contrary be proven.  The only affirmative argument advanced by the respondent is that the decedent consulted a lawyer about a will, learned that he could give a part of his property to his sister and the rest would go to his wife in the absence of a will, and then delivered the shares to his sister in contemplation of death.  The evidence does not support this argument.  The decedent did not mention such matters to the attorney.  Almost a year later, on his fourteenth wedding anniversary, he executed his will and gave it, together with a beautiful letter, to his wife.  The facts do not show that the transfer was made in contemplation of death.  But the respondent contends that the 42 B.T.A. 607">*610  statute requires the petitioner1940 BTA LEXIS 978">*985  to prove that the transfer was not in contemplation of death.  The decedent was only 54.  He was extremely active in his business and enjoyed excellent health.  He had no expectation of death within the reasonably near future.  The respondent concedes these facts and relies, as above stated, upon the visit to the lawyer to show a testamentary motive.  The stock was not paying dividends but it was worth about $37,000.  The gift tended to equalize the distribution of the estate of their father among Julian, Mabel, and the petitioner, and to give substantial financial assistance to a widowed sister who was much in need of it.  While the evidence pertaining to the transfer is not as clear and convincing as might be desirable, nevertheless, the reasonable conclusion to be drawn from the entire record is that the transfer was not made in contemplation of death.  The respondent, also by way of amended answer, raises the point that the transfer was one intended to take effect in possession or enjoyment at or after the death of the donor.  The decedent made an absolute transfer of the certificates, permanently parted with possession, and never again exercised any dominion or control over1940 BTA LEXIS 978">*986  or benefited from the shares.  The sister received possession and thereafter retained it.  She was free to use them as she saw fit.  Her possession and enjoyment was immediate and was so intended.  The respondent contends finally that, in any event, the amount of the settlement should be included in the gross estate.  No such issue was raised by the pleadings and it may not be raised in the respondent's brief.  The facts in regard to the suit and settlement are inadequate for a decision of such an issue.  If there is anything, other than the fact of settlement, to show that the estate had a lawful and valuable claim at the date of death in respect to the shares, the respondent should have pleaded the facts and introduced evidence to establish them.  Decision will be entered for the petitioner.