Before KERNER, DUFFY and SWAIM, Circuit Judges.
These two cases involve a petition and a cross-petition, both seeking a review of a decision of the Tax Court of the United States, 14 T.C. 1263, which determined that there was a deficiency in estate taxes in the amount of $33,541.04 against the estate of Jacob Gidwitz, deceased.
The Tax Court determined that a transfer in trust made by the decedent on December 30, 1936, was made in contemplation of death within the meaning of § 811(c) (1)(A) of the Internal Revenue Code, 26 U.S .C.A. § 811(c)(1)(A), and that the amount thereof should, therefore, be included in the value of decedent's gross estate for estate tax purposes. From this part of the decision of the Tax Court the representatives and heirs of the decedent's estate, hereinafter referred to as the "Taxpayer," appeal.
The Commissioner of Internal Revenue petitioned for a review of that part of the decision of the Tax Court which determined that the income to the trust which accrued between the time of the transfer and the date of the decedent's death did not constitute a part of decedent's gross estate for estate tax purposes.
The decedent, Jacob Gidwitz, died on December 11, 1944, at the age of 80 years. He left, surviving him, the following members of his immediate family.
Name Relationship Marital Status Age
Joseph L. Gidwitz Son Married - 2 39
Gerald S. Gidwitz Son Unmarried 38
Willard M. Gidwitz Son Unmarried 36
On December 30, 1936, approximately eight years prior to his death, the decedent created the trust here in issue and at that time transferred to the trust 83 33/100 shares of the capital stock of the International Furniture Company. This represented one-sixth of the total capital stock of that company. The company up to that time had never paid a dividend but it was then planning to pay a total dividend of $60,000 in order to avoid payment of corporate tax on undistributed profits. One of the decedent's purposes in creating the trust was to have the income represented by his one-sixth of that dividend paid to the trust rather than to himself and thereby avoid additional personal liability for the income tax on the $10,000, which would have amounted to approximately $2,000.
At the time of the transfer of the stock to the trust the decedent reported the transfer for gift tax, reporting the value of the shares transferred as $25,929.17. The value of the gift was increased by the Commissioner to $55,416.67 on which the decedent paid a gift tax of $162.50. On the date of the decedent's death the corpus of the trust, including the income accumulated to that time, was valued by the Commissioner at $341,102.02.
The decedent named himself and his wife as trustees of the trust. The trust instrument provided that the income was to be accumulated during the decedent's lifetime and, upon his death, was to be distributed to his children and their descendants per stirpes. After the death of the decedent the income on the trust was to be paid to the decedent's widow during her lifetime. Upon the death of both the decedent and his wife, the principal of the trust was then to be distributed to their children and to the descendants of any deceased child per stirpes. The distribution was to be so made that the total value of property distributed to each child plus the amount then owned by the child would equal the total so distributed and owned by each of the other children or by the descendants of a deceased child. The beneficiaries were given no power to alienate the interests received by them under the trust. The decedent and his wife resigned as trustees on August 5, 1942, at which time their three sons were substituted as trustees.
About the same time that the decedent caused his attorney to prepare the trust instrument he also had the attorney prepare his last will and testament which was executed on November 3, 1936. The will provided that the residue of the decedent's estate should be held in trust by his wife and their three sons and that the income should be paid to the widow during her life. The will also contained provisions similar to those in the trust instrument for the distribution of the principal of the testamentary trust at the death of the widow in such a manner as to equalize the holdings of the three sons or the descendants of any son who might then be deceased. The idea of the provisions in the trust instrument and in the will for equalizing the holdings of the sons originated with the decedent and these provisions were placed in the two instruments despite the efforts of the decedent's attorney to discourage the decedent from the use of such a plan.
The Tax Court found that the decedent had been having some trouble with his heart and that he knew in 1936 that his heart was not in good condition, but the Tax Court expressly found that the decedent "did not believe at that time that he was in imminent danger of death but, on the contrary, he expected to live for a number ...