*3 provided alia court inter as follows: CHAMBERS, and Before HAMLIN ELY, Judges. Circuit “10. husband wanted Decedent’s corpo- majority control of the two himself, for Judge. rations desired
HAMLIN, Circuit
portion
a
com-
of their
substantial
Appellee is
.
the estate
executor
munity property
preserved
be
Ogg, deceased,
of Edna C. Rosedale
who
their
He
children.
did not wish that
Appellee
died December
filed
1956.
permitted
to have
decedent be
an action
the District Court for the
any part of their
commu-
valuable
Southern District of California
nity
outright, particularly the
assets
return of
total
federal
taxes in the
assets,
of her alco-
business
because
being
($108,817.62
$126,505.16
sum
condition;
holic
but
did desire
he
being interest)
principal
$17,687.54
provided
that she
with an assured
paid by appellee in said estate
theretofore
income.
comfortable
following
deficiency
the assessment
a
in estate
vor
pellant
district court rendered a
court
had
appellee
filed a
taxes
jurisdiction
court
timely
in the full amount and
in the above amount.
has
appeal.
jurisdiction
under 28
judgment
The district
U.S.C. under
ap-
fa-
extensive
terrelated documents was
“12. On
settlement
They
[*]
included
[*]
December
negotiations,
involving
a
17, 1954,
number
#
a
settlement
agreed
[*]
n after
[*]
in-
to.
agreement,
supplemental property
excess
such
over
amount
45%
was
agreement,
paid
settlement
a declaration
to the decedent.
assignment
a lease
Concurrently
“16.
with the execu-
guarantee
lease,
lease,
of said
tion of
settlement
* * *
various deeds.
agreement,
part
and as
of the divi-
property thereunder,
sion of
prop-
“13. Under the terms of the
the decedent and her
ex-
erty
settlement
the de-
ecuted a declaration of trust which
cedent’s husband received free from
any
created the
irrevocable
referred
by decedent,
claims
55%
agree-
to in the
stock he and decedent
in Mon-
owned
ment. Said declaration transferred
Nursery Company
rovia
and Rose-
said
of the stock owned
Inc., plus
Nurseries,
45%
dale’s
various
by decedent and her husband
personal prop-
items of miscellaneous
*4
Huntington
corporations,
two
approximately $3,000.00
erty of
property
Drive
and the residence.
property
value. The
settlement
Under
trust,
the terms of the
agreement
provided
further
decedent received
all
the income
spendthrift
irrevocable
trust was
for life with the remainder to the
by
parties
be created
concur-
children. The trust was irrevocable
rently therewith,
par-
to which the
equipped
and
spendthrift
was
with
convey
remaining
ties
provisions.
rights
Decedent had no
they
of the stock
owned in the
45%
except
right
therein
to the in-
corporations, along
two
with the
right
come for life and the
to use
Huntington
property
Drive
and the
the residence. The trust
ac-
was
residence. Decedent would receive
cepted by
attorneys,
decedent’s
who
the income for life from such
were named as trustees.
property
but the
itself would ulti-
mately go to the
providing
children.
also
She
“17. As a
means of
property
received from the
settle-
desired
de-
assured income to the
ment
assignment
cedent,
to use the residence
a lease and
life,
for her
personal property
conjunction
and
various items
lease were
made
$20,000.-
property
valued at
re-
As a
settlement.
plus $1,000.00
sult,
cash.
Nurseries,
be-
Rosedale’s
Inc.
obligated
pay
came
a net rental
clean-up
“14. A
also
fund was
Hunting-
income for the
use of
by
created
said
settlement
ton
Drive
in the amount
agreement, whereby
the insur-
all of
$20,000.00 per year
for at least
policies
by
parties
owned
ance
years.
payment of such
rental
which,
cash,
were converted into
guaranteed by
was further
Mon-
along
funds,
with some other
was
Nursery Company,
rovia
com-
thus
satisfy
used to
of their
certain
ob-
mitting
corpora-
the assets of both
ligations, except
$1,000.00
for the
payment
tions to
a substan-
which went to the
The to-
decedent.
tial fixed income to the decedent.
fund,
clean-up
tal amount
such
by
The amount of
rental fixed
$1,000.00
less
that went to the
was believed
counsel
$45,880.34.
spouses
fact,
be,
decedent was
both
was in
and
in excess of the fair rental value
sup-
“15. Under the terms
Huntington
for the
plement
prop-
amendment
agreed
only
and was
after exten-
erty settlement
the sal-
negotiations.
sive
aries which the decedent’s husband
******
permitted
was
thereafter
receive
from the two
were lim-
“19.
It was intended
both dece-
aggregate
$60,000.00
to an
ited
dent and her
and their re-
during any
year,
spective
prop-
one calendar
unless
counsel that all of the
deficiency
assessing
decedent’s
erty
aforesaid
transferred
government
tax,
spouses
contended
owned
both
trust was
at
the entire
equally
trans-
time it was
at the
$642,788.66
death
ferred,
valued
that the transfer
estate,
decedents’
joint
should
included in
transfer
relying
on 26 U.S.C. §
All of said
her husband.
in fact
to said trust was
transferred
part
provides
fol-
Section
equally
decedent and
owned
lows:
husband,
inwas
and the transfer
“(a)
value of
rule.—The
General
joint
trans-
each
fact a
one which
include the value
estate shall
or she
he
ferred
one-half which
property (except real
of all
an in-
owned.
transfers were
the United
situated outside
single larger
tegral part
trans-
aof
any
States)
interest
to the extent
action, wit, property
settlement.
has
therein of which the decedent
******
(except in
made a transfer
for an ade-
of a bona fide sale
commu-
case
quate
value of all
“24. The total
mon-
nity
full
consideration
the decedent
owned
ey money’s worth),
or
or
time of the
and her husband
otherwise,
re-
$848,746.-
he
under which
has
any period
amount,
for his
or for
tained
the decedent’s
08. Of that
reference
not ascertainable without
valued at
husband received
*5
any period
or
$293,887.74;
his death
for
the decedent
his
outright
$21,000.-
in
before
property
fact end
at
does
valued
death—
00, in
life
addition to the valuable
trust;
the trust
re-
estate in the
enjoyment
“(1)
possession or
$487,976.-
property
from,
ceived
valued
of,
income
or the
00;
clean-up fund received
and the
or
$45,880.34.
right,
“(2)
alone or
either
any person,
conjunction
des-
17,
1954,_
December
“25. As of
ignate
possess
age,
persons
years
shall
who
44
decedent was
enjoy
property or the income
good health,
or
for her
other than
ad
therefrom.”
diction
alcohol. Decedent’s
years,
expectancy
was 28
at said date
provides
part:
U.S.C. §
subsequent death
Her
months.
consid-
for insufficient
“Transfers
was caused murder.”
eration
interlocutory
1955,
8,
On
an
March
“(a)
general.
of the
In
one
—If
granted to decedent
decree
divorce
interests, rights,
transfers, trusts,
or
husband, incorporating therein
and her
powers
described
enumerated and
and a
settlement
inclusive,
2035 to
sections
granted
final
March
decree of divorce was
made, created, ex-
2041 is
section
after the
1956. Decedent remarried
ercised,
relinquished for a con-
or
25, 1956,
final
and on December
decree
money’s
money or
sideration
by her then husband.
was murdered
worth,
for
fide
is not
sale
but
a bona
Harry
August
adequate
an
and full consideration
died
1956.
properties
settlement
1.
of the
The values
the various
17, 1954,
be:
found
district court to
December
per
stock
500 shares Monrovia
share
$989
1.
equals $222,500)
equals
(55%
$271,975; 45%
34,340
at $340
2. 101 shares Rosedale Nurseries
share
equals
equals
$18,887;
$15,453)
(55%
45%
225,000
Huntington
3.
4. Residence
25,000
money money’s worth,
jointly owned,
or
going
shall
there
with the remainder
gross
only
be included in the
estate
to their children. The
also
wife
re
linquished
ownership
excess of the fair market value
her stock
family
at the time of
death
and in certain other
jointly
otherwise to be
property.
included on account
owned
Without men
tioning
transaction,
of such
over the value of
prop
the relative
of the
values
spouses,
consideration received therefor
erties received
the tax
”
* *
*
by the decedent.
court held that the transfers were bona
fide sales for an
adequate
and full con
“The
The district court found:
purposes.
sideration for
estate
tax
entire
an effort
settlement was
Therefore, upon the death of the hus
by the decedent and her husband to settle band, the value of the trust in which he
relationships.
their marital and business
possessed
a life estate
reason
bargained-
arms-length
It was a bona fide
property settlement was
in
held not
for transaction.” On the basis
cludable in his
under
finding the district court held:
2036. The tax court seemed to assume
part
“The
that because
transfer of
the transfers
were
* * *
was,
length
settling
an
as mat-
arm’s
transaction
law,
adequate
ter of
made
an
marital and business affairs of the
money
spouses that,
law,
full consideration in
or mon-
as a
matter
there
ey’s worth,
meaning
pur
within the
was sufficient consideration for the
poses
agree.2
2036 of the Internal Revenue Code
of section
We do not
tion 2036.
cident to a divorce. Pursuant
the district court cited Estate of
to a
S.
that no
the trust was a transfer
There, the husband and wife entered in
Therefore,
n
[*]
McCoy, Sr.,
property
[*]
part
*»
the district court concluded
*6
20
settlement
support
T.C.Memo.224
spouses
decedent’s transfer
of its
subject
agreement
received life
decision,
(1961).
to sec
to the
Byron
in
tion 2036. The value of what the dece
measured
sufficient to make the transfer of the
erty she transferred to the trust. See
Estate of
dent received under
trust was
agreement
The fact alone that the transfer into the
consideration within the
decedent one
against
Gregory,
part
incident
of a
the
(one-half
along
which came
of
with all other allowable deduc-
tions, exemptions
one-half
decedent’s contribution and
and credits. Such
contribution).
recomputation
from her husband’s
Since
would still result in
contribution to the trust
no
decedent’s
Federal
Tax
Estate
or interest
greater
added.)
(Emphasis
was
than the consideration she
due.”
(the
be-
return
difference
Since the decedent’s transfer
into
$100,-
$143,346,
tween
or
and
subject
trust was
we
to section
643),
adequate
she did not receive
agree
her
with
court
the district
purposes
full
consideration for the
gross estate
would include one-half
section 2036.
corpus
the value of
her
the trust
($321,394.43)
death5
reduced
alternative,
the district
2043(a)
allowed
credit
section
court found:
Internal Revenue
Code
the considera
received con-
“Since
decedent
tion she received.6' n have found that
We
money’s
money or
sideration in
the consideration received
the dece
worth for her
.transfer
equal
dent
her
was
value
pursuant
property settlement,
to receive
her
the income for life from
even
such
had not
if
consideration
Un
husband’s contribution to
trust.
adequate
full,
been
her
treasury regulations
der the
the con
would nevertheless
entitled to a
be
sideration received
the decedent was
2043(a)
credit under
$143,345.97.8
Internal
extent
Revenue Code to the
reasoning
Therefore, under
actually
the above
of the consideration
re-
she
calculations,
in-
to be
the amount
ceived, which would be deducted
gross
cluded in decedent’s
estate would
any property
from the
value
be the
difference between the value
might
be includable in her
es-
corpus
one-half of the
at the date
tate under section 2036.”
death, $321,394.43(one-half
$642,-
The district court then held:
788.66) and the amount
consideration
recomputation
“A
of the dece-
$143,345.97 (one-
therefor,
she received
dent’s taxable estate would be re-
half of the
its
value of the trust estate at
quired in
accordance
creation,
e.,
$286,691.95),
i.
one-half of
fore-
going Findings
Fact, taking into
$178,048.46.
or the
gross
sum
From this
corpus
account
actually
estate,
course,
there should
transferred
decedent and
exemptions
all
deducted
allowable
5. The
transferred is to be valued
tions. The
as fol-
district court found
the date of decedent’s death.
See
lows:
v.
value,
Vardell’s Estate
of In
Commissioner
“The
as shown
the Internal
Revenue,
(5th
Regulations,
ternal
307 F.2d
Revenue
of the life estate
1962).
Cir.
death,
acquired
the date of
At
the one-
the value of the entire trust
lialf of the transfer
to the trust
stipulated
$642,788.86.
to be
One
to her
attributable
husband was
lialf,
$321,394.43,
$143,345.02.
or
is includable
This constituted consid-
*8
money money’s
estate under
eration in
.
or
worth re-
2032.
ceived
decedent for her transfer
meaning
said trust
the
§
within
of
2043
Gregory,
(1963).
6. Estate of
15
pre-
attorney
including
received had
deductions,
which the husband
reasonable
and,
wife,
viously
the
been owned
is the
be considered
allow-
fees. Also to
importance
moreover,
attributed to
is
ance,
any,
gift
no
tax credit.
if
of a
probability
cor-
of the
control
the
that
the district
is remanded to
case
The
acquisi-
represented
porations
valuable
a
any,
taxes,
if
of
court for recalculation
that un-
and the fact
tion
the
opinion.
with this
accordance
pro-
agreement
be no
the
there could
der
forty-five per
of the
test
the holder
(dissenting).
Judge
ELY, Circuit
set
of stock
the two
cent
agree
majority
the
I
that
with the
of the hus-
wife’s benefit
aside to the
judgment
that
salary
$60,-
district court erred
its
a
of
band’s
to receive
property
the
of
per year.
decedent’s transfer
000
adequate
full
was made
employed
object
the
I
to the method
meaning
26
the
of
consideration within
believing
computations,
majority
in its
however,
disagree,
I
U.S.C. §
injustice
case,
is
that
this
worked
majority’s acceptance of the district
the
Government,
in other cir-
upon the
finding
spouse “con-
each
court’s
that
cumstances,
application of
ma-
the
the
the
the
tributed
of
one-half
injustice upon
jority’s method could work
may
finding
itself,
not be
trust.” Of
the
taxpayer.
the
clearly erroneous, but
the transactions
approaches
possible
three
There are
separation
of
and divorce
incident
adopted in
case before
which
the
could
adjustment
spouses
their
of
the
and their
First,
the total
us.
it could be
that
held
property dispute
viewed as
should be
corpus
in-
of the trust
value of the
of the
whole.
It should be
substance
for the
in the decedent’s estate
cludible
our
total
control
result which should
This
of federal estate taxes.
assessment
proposi-
determination
here.
For
prefer,
approach, which I
could have been
tion,
numerous.
authorities
are
fact,
as
found
taken had the trial court
States,
F.2d
Greene v.
237
United
orig-
might
done,
as it well
have
(7th
1956),
Bank
852
First National
Cir.
corpus was
inal source
the whole trust
of
States,
Shreveport
342 F.2d
of
v. United
property,
part
or a
of the
Gregory,
(5th
1965),
Estate
Cir.
as
aside to the wife
which had been set
Moreover,
(1963).
39 T.C.
community
assets.
her share
below,
proof
rest-
the burden
court
participation in
the creation
wife’s
appellee.
Trust
ed
Germantown
whether,
voluntary;
trust was
(3rd
Lederer,
Co.
F.
Cir.
v.
division,
more or less than
she received
1920),
Co.,
Mayes v.
Trust
United States
community
one-half
(6th
1922),
$487,978 as the some by was made value contribution to the trust placed equiiable in the trust at the time the husband. It more and, Then, accepting majority, creation of the trust. than that taken findings, sup- case, in- one of the district court’s under the facts of this it is complete majority itself, ported by existing authority. divides is an recognizes approach this amount in half determines that eco- total beginning, decedent, contrib- nomic effect of the whole transaction $243,989. examination, precise uted Following of the value of calls for more based pattern equal findings, of this divi- all the district court’s major- improper, it, corpus. sion I which view as I see the source As ity fifty determines cent of the the ing sources are made the follow- clear corpus, recapitulation: value of the trust the date community property Total value of at time of settle- agreement..................................... $848,746 ment clean-up expenses.............. 45,880 payment Less fund community property Net value of at time of settle- agreement $802,866 ment ..................................... TO CONTRIBUTION BY HUSBAND TRUST community property........... $401,433 Husband’s one-half of net apart (disregarding Less value of set value control of to receive salary) 293,888 fixed ........................................ $107,545 Value of husband’s contribution to trust................. CONTRIBUTION TO BY TRUST DECEDENT WIFE community property $401,433 Decedent one-half wife’s of net value of . apart 21,000 Less value of set without wife restriction .. $380,433 Net contribution of decedent wife to trust................ Adding death, namely, con- the wife’s and husband’s the date of her trust, $642,789,1 tribution we arrive at would contribut- hold that she Now, $487,978. $501,125 only $321,394, total ed de- contribution of and not turning majority. the value of the trust termined death, the time of the wife’s we see Since, making original her contribu- $642,789. it was I arrive exchange only $380,433 tion of value of the decedent’s contribution $107,545 life estate in contributed applying proportionate ratio. the At husband, obviously she did not receive con- creation she “adequate and full so that consideration” tributed of a total value exemption there is under Section $487,976, applying proportion 2043(a) we turn to Section to determine contribution as the time of the the amount which should be included in creation of federally trust to the value of Un- taxable estate.
17 unjust to the Govern and results either section, be should this amount der this taxpayer has to when there con- ment or the decedent which the value of that the apprecia depreciation or namely, $501,125," been substantial tributed, less “the value by of death. tion in value as date therefor the received the consideration Kramer, Estate and Federal Lowndes and the decedent.” 1962), Taxation, (2d 70 298 ed. Gift problem the to whether There is as Helvering (1957), 1486 Harv.L.Rev. cf. by wife should received the consideration Co., F.2d v. United States Trust of transfer to be as the time valued (2d 1940). absence clear Cir. the the time of decedent’s trust or the mandate, express statutory I and would death, statutory language pertinent The adopt approach to would which an seem clearly 2043(a) is clear. Section not just be to Government and fair the provides is trans which that the it, taxpayer I in to the all cases. Under as the date ferred to evaluated is be interpret of the considera “value urged death. It can be that the provided 2043(a), tion”, as as in Section provide seems that the consideration to proportion the of the value of the for the valued at the transfer is be is to the con death which attributable transfer, time of in its Foot the by sideration received decedent.2 citing #6, majority, note Vardell’s estate which retained decedent Estate v. of Internal Reve Commissioner her cannot be contributed nue, (5th 1962), 307 F.2d Cir. majority consideration, and the taken as holds that is the the time of transfer recognizes. opinion so must then We proper I submit for evaluation. of the consideration ascertain ratio that Vardell’s Estate v. Commissioner not, upon contribu received the decedent Internal Revenue careful does analysis, proposition. by the to ascertain tion made decedent stand language corpus at which There in death is to that effect found value language opinion re page is attributable consideration but Utilizing Treasury Regulations strictly applied. Adopting is not ceived. Regulations Tax, (Treasury proper date of on Estate transfer as the date for Code, 20.2031-7) computing the evaluation the consideration re justly ceived we have decedent has “value of consideration” been following: leading extremely criticized as harsh Value of life estate interest contributed 63,182 ($107,545 .58751) to trust x ............... $ contributed Value children’s remainder interest ($380,433 .41249) to trust x ............... 2043(a) Thus, under to the Section we should be our determination as estab applicable
lish an ratio cent. of 40.262 “value consideration” percentage $501,125, exchange This the value is wife in for that which recognizable properly the decedent’s contribution as a transfer death, as of the date is When this amount subtracted her.3 is $201,763. my amount, judgment, wife’s fair value of the market appellee interpre- agree 2. The concedes ma- I with the conclusion of the jority expressed opinion, is tation of “value of the consideration” its Footnote hold, fairly justly proper arrangement if we are to under have, 2043(a) we that Section substan- to receive a majority applicable. Section 2036 annual rental of real con- tial opinion, appellee veyed while favorable trust and leased cor- result, computa- adopts, porations, its overall its should not considered tion, approach which neither Gov- additional consideration above ac- appellee cepted contemplated by ernment nor has advanced. standards Treas- *11 death, contribution as date of namely, $501,125,there results a balance $299,362. amount of I believe should be included in the sig- purposes, federal estate tax and it is nificantly greater $178,- than sum of figure majority. reached course,
Of there should be deducted there- proper exemptions
from all and deduc- by law, including
tions which are allowed attorney’s Moreover,
reasonable fees. appropriate
there should be considered in
recomputation, the allowance of credit gift paid taxes the decedent at
the time of the creation trust.
The CITIZENS AND SOUTHERN NA- BANK, TIONAL Appellant,
v.
AMERICAN SURETY COMPANY OF YORK, Appellee. NEW
No. 21429.
United Appeals States Court of
Fifth Circuit.
June ury Regulations, would, my judgment, equal Section 20.2031-7. or exceed controlling corpora- might interest two value which be fixed husband, tions together arrangement. with his salary, to receive a fixed