*750 1. On the evidence, held that certain gifts inter vivos and certain transfers in trust made by decedent during his lifetime were not made in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926, as amended.
2. On the evidence, held that a certain forgiveness of indebtedness by decedent during his last illness constituted a gift made in contemplation of death.
3. During his lifetime decedent endorsed two promissory notes, collaterally secured, which were payable on demand. Subsequent to decedent's death the holder made demand and the makers failed to pay. Thereupon the holder filed a claim against the estate for the unpaid balance due on the notes, which claim was allowed by the probate court. The collateral security was then sold and the proceeds applied on the notes. The estate immediately paid the balance remaining due on the claim. Held, petitioner is entitled to a deduction in the amount so paid, and not in the amount computed by deducting from the claim allowed by the probate court the fair market value of the collateral security at decedent's death.
*426 This is a proceeding for the redetermination of a deficiency in estate tax in the amount of $1,237,480.84. The issues are (1) whether five (5) gifts in the aggregate of 24,650 shares of common stock of the De Soto Securities Co. made by the decedent to his wife and children on December 24, 1923, were made in contemplation of death; (2) whether five (5) gifts aggregating 500 shares of beneficial interest in the De Soto Realty Trust made by the decedent to his wife and children on March 19, 1930, were made in contemplation of death; (3) whether a transfer in trust on April 3, 1930, of 9,750 shares of preferred stock of the De Soto Securities Co. by the decedent for the benefit of his wife and children, was made in contemplation of death; (4) whether petitioner is entitled to a deduction in the amount of $129,081.44, as claimed by him, or in the amount of $82,427.62, as contended by the respondent, on account of the liability of decedent's estate on two certain promissory notes endorsed by the decedent during his lifetime; (5) whether eight*752 certain transfers in trust made by the decedent for the benefit of *427 his wife and children and grandchildren, two on July 15, 1919, and one each on November 1, 1921, March 1, 1922, July 15, 1922, November 15, 1922, November 28, 1922, and June 24, 1926, respectively, of various securities having an aggregate fair market value as of the date of decedent's death in the sum of $1,022,233.12, were made in contemplation of death; and (6) whether the forgiveness by the decedent on March 23, 1931, of an indebtedness due him by the De Soto Securities Co. in the amount of $234,788.84 was made in contemplation of death.
Issues (1) to (4), both inclusive, were raised by the petitioner in his pleadings, while issues (5) and (6) were raised by the respondent in an amended answer filed at the hearing.
The parties agreed upon certain facts, which were embodied in a stipulation filed at the hearing, and in addition offered evidence, both oral and documentary. From such stipulation and evidence, we make the following findings of fact.
FINDINGS OF FACT.
Petitioner is the duly appointed, qualified and acting executor of the estate of Bernard A. Eckhart, deceased. Decedent was born*753 in Alsace, now a part of France, on September 4, 1848, and died in Chicago, Illinois, on May 11, 1931.
Decedent left surviving him: Katie L. Eckhart, his wife; Carlos K. Eckhart, a son; Percy B. Eckhart, a son; Hazel Eckhart Brophy, a daughter; Dorothy Eckhart Williams, a daughter; Eleanor Eckhart McLaughlin, a granddaughter; Charlotte Eckhart Coyne, a granddaughter; Marion Eckhart Stevenson, a granddaughter; Elizabeth Eckhart, a granddaughter; Katherine Williams Barry, a granddaughter; Bernard Eckhart Williams, a grandson; Truman W. Brophy, III, a grandson; Donald Hamilton McLaughlin, Jr., a great-grandson; Charles Capen McLaughlin, a great-grandson.
The De Soto Securities Co. was incorporated under the laws of the State of Illinois on June 1, 1923, with an authorized capital stock of 60,000 shares of an aggregate par value of $6,000,000, consisting of 10,000 shares of 7 percent cumulative preferred and 50,000 shares of common, of the par value of $100 each. At the date of incorporation 10 shares of the common stock were issued for cash and 10,000 shares of the preferred stock and 44,990 shares of the common stock were issued to B. A. Eckhart in exchange for certain securities. *754 The remaining 5,000 shares of the authorized common stock not issued at the date of incorporation were sold for cash during the period from January 2, 1926, to February 28, 1928, to B. A. Eckhart and members of his family.
*428 The outstanding shares of preferred and common stock of the De Soto Securities Co. at the time of decedent's death were held as follows:
| Preferred stock | Common stock | |
| B. A. Eckhart | 21,400 | |
| Katie L. Eckhart, wife | 50 | 6,300 |
| Percy B. Eckhart, son | 50 | 6,300 |
| Percy B. Eckhart, as trustee | 9,750 | |
| Dorothy E. Williams, daughter | 50 | 6,300 |
| Hazel E. Williams, daughter | 50 | 6,300 |
| Carols K. Eckhart, son | 50 | 3,400 |
The officers and directors of the De Soto Securities Co., from its incorporation to the date of decedent's death, were as follows: President and treasurer, Bernard A. Eckhart; vice president, Katie L. Eckhart; secretary, Percy B. Eckhart. The three persons named also comprised the board of directors of the corporation during the said time.
The fair market value of the common stock of the De Soto Securities Co., at the date of decedent's death was $117 per share.
The B. A. Eckhart Milling Co. was incorporated under*755 the laws of Illinois on December 20, 1915, with an authorized capital stock of $1,000, increased on December 31, 1915, to $250,000 and increased again on November 6, 1922, to $1,500,000, consisting of 15,000 shares of a par value of $100 each, and as at May 11, 1931, all of the authorized shares were issued and outstanding as follows:
| B. A. Eckhart | 8,248 shares |
| De Soto Securities Co | 6,750 shares |
| E. A. Weaver | 1 share |
| Frank Kucera, Jr | 1 share |
Bernard A. Eckhart was president of the company from the date of its incorporation to the date of his death.
The fair market value of the capital stock of the B. A. Eckhart Milling Co. as of the date of decedent's death was $150 per share.
On August 22, 1925, Bernard A. Eckhart executed a written instrument creating the De Soto Realty Trust, in the execution of which instrument the grantor's wife, Katie L. Eckhart, joined for the sole purpose of releasing her inchoate right of dower. The instrument provided for the issuance of beneficial ownership certificates representing 1,000 shares, all of which were then issued to Bernard A. Eckhart in exchange for certain real estate transferred to the trust. On March 19, 1930, Bernard*756 A. Eckhart transferred by gift to his wife and children 500 shares of beneficial interest in the De Soto Realty Trust, and at the date of his death on May 11, 1931, was the legal holder and owner of the remaining 500 shares of beneficial interest in the trust.
During the period from 1908 to his death on May 11, 1931, the decedent, Bernard A. Eckhart, made absolute gifts inter vivos to *429 and made transfers in trust for the benefit of his wife, children, and grandchildren, as follows:
1908. 5 gifts to wife and children, aggregating $30,000 in cash.
1909. 5 gifts to wife and children, aggregating $30,000 in cash.
1910. 5 gifts to wife and children, aggregating $30,000 in preferred stock.
1911. 5 gifts to wife and children, aggregating $30,000 in preferred stock.
1912. 5 gifts to wife and children, aggregating $30,000 in preferred stock.
1913. 5 gifts to wife and children, aggregating $30,000 face value of bonds.
1914. 5 gifts to wife and children, aggregating $30,000 face value of bonds.
1915. 5 gifts to wife and children, aggregating $50,000 in cash and stock.
1916. 5 gifts to wife and children, aggregating $36,600 in cash and bonds.
*757 1917. 14 gifts to wife and children, aggregating $100,000 face value of bonds.
1918. 5 gifts to wife and children, aggregating $100,000 face value of bonds.
1919. 10 gifts to wife and children, aggregating $60,000 face value of preferred stock and bonds.
1 1 transfer in trust for the benefit of wife and children, corpus aggregating $1,368,984.80 face value of stocks and bonds, of the fair market value of $443,108.08.
1 1 transfer in trust for the benefit of wife and children, corpus aggregating $110,000 quoted value of stock; fair market value $110,000.
1 transfer in trust for the genefit of wife and children, corpus aggregating $138,000 quoted value of stock; fair market value $138,000.
1920. 5 gifts to wife and children, aggregating $32,000 quoted value of stock.
1921. 1 1 transfer in trust for benefit of wife and children, corpus aggregating $72,900 quoted value of stock; fair market value $63,000.
1922. 1 1 transfer in trust for benefit of wife and children, corpus aggregating $31,000 quoted value of stock; fair market value $31,000.
1 1 transfer in trust for benefit of wife and children, corpus aggregating $286,000 quoted value of stock; *758 fair market value $225,000.
1 1 transfer in trust for benefit of wife and children, corpus aggregating $172,500 quoted value of stock; fair market value $170,000.
1 1 transfer in trust for benefit of grandchildren, corpus aggregating $49,000 quoted value of stock and interest in certain agreement; fair market value of $176,400.
1923. 7 gifts to wife and children, aggregating $35,000 face and fair value of stock.
5 1 gifts to wife and children, aggregating 24,650 shares of common stock of De Soto Securities Company, having a fair value of $2,465,000.
5 gifts to wife and children, aggregating $25,000 par and fair value of stocks.
1925. 1 gift to daughter of house and lot purchased at cost of $34,500.
1926. 1 1 transfer in trust for benefit of grandson, corpus aggregating $32,287.50 quoted value of stock; fair market value of $31,162.50.
1928. 5 gifts to wife and children, aggregating $115,000 par and fair value of stock.
1930. 5 1 gifts to wife and children consisting of 500 shares of beneficial interest in De Soto Realty Trust, of the fair market value of $828,428.77.
1 1 transfer in trust for benefit of wife and children, corpus consisting of*759 9,750 shares of preferred stock of De Soto Securities Co. of the par and fair value of $975,000.
*430 1931. 1 transfer in trust for the benefit of sisters and certain employees, corpus aggregating $50,000 face value of bonds. (This transfer petitioner concedes was made in contemplation of death, and the value thereof was included in the gross estate and tax paid thereon.)
In addition to the foregoing gifts and transfers in trust, decedent in 1925 paid a bank indebtedness of his son, Percy B. Eckhart, in the amount of $45,000.
| Total no. | Aggregate value | Approximate fair | |
| market value | |||
| Gifts made by decedent, 1908-1931 | 108 | $4,135,927.77 | $4,136,528.77 |
| Transfers in trust, 1908-1931 | 11 | 3,285,672.30 | 2,412,670.58 |
| Total | 119 | 7,421,601.07 | 6,549,199.35 |
The foregoing gifts were immediate, absolute and unconditional, no interest in the subject matter thereof being retained by the donor.
The foregoing transfers in trust were immediate, absolute and irrevocable, no interest in the subject matter thereof, nor any power to alter, amend or revoke, being retained by the grantor.
In addition*760 to the direct gifts and transfers in trust above set out, the decedent, on March 23, 1931, forgave an indebtedness due him from the De Soto Securities Co. in the amount of $234,788.84 representing advancements theretofore made by decedent to that company from time to time for the purchase of securities. (Directly involved in this proceeding.)
During the period from 1901 to the date of his death, decedent was an officer and director, or a director, of numerous large corporations, including the Chicago, Terre Haute & Southeastern Railroad Co., Chicago Title & Trust Co., Armour & Co., Borg-Warner Co., Continental Illinois Bank & Trust Co., Erie Railroad Co., Montgomery, Ward & Co., and others.
The decedent at the time of his death owned the following assets:
| 21,400 shares of the outstanding 50,000 shares of | ||
| the common stock of De Soto Securities Co. having | ||
| a fair market value of $117 per share | $2,503,800.00 | |
| 500 shares of the outstanding 1,000 shares of | ||
| beneficial interest in De Soto Realty Trust, having | ||
| a fair market value of | 828,428.77 | |
| 8,248 shares of the outstanding 15,000 shares of the | ||
| capital stock of B. A. Eckhart Milling Co. having a | ||
| fair market value of $150 per share | 1,237,200.00 | |
| Other stocks and bonds | 516,433.06 | |
| Other assets: | ||
| Household goods, etc | $22,736.90 | |
| Mortgages and cash | 10,149.17 | |
| Club memberships | 7,800.00 | |
| 40,686.07 | ||
| Total assets | 5,126,547.90 |
*761 *431 Decedent during his lifetime endorsed two promissory notes executed by William F. Peter and Marion M. Peter, payable on demand, on which notes an unpaid balance of $147,853.44 was due at the time of his death. Subsequent to decedent's death the holder of these notes demanded payment of the makers, and upon the failure of the latter to pay filed claim for the unpaid balance against decedent's estate in the probate court of Cook County, Illinois. On May 16, 1932, the probate court allowed the claim in the said amount of $147,853.44. Thereafter, on June 27, 1932, the collateral securing the notes was sold, pursuant to the terms of the collateral agreement, for its then fair market value of $18,772. Said collateral security had a fair market value at decedent's death of $65,425.82. After deducting from the amount of the claim allowed by the probate court the proceeds realized from the sale of the collateral security, there remained due and owing a balance of $129,081.44, which decedent's estate immediately paid.
The decedent was endowed with an extraordinarily vigorous constitution and was an exceptionally strong and virile man. He was forceful and dynamic, and assumed*762 a leading part in every enterprise in which he participated. He had unusually strong will power and tenacity of purpose. He was about 5 feet 8 inches in height and weighed about 160 pounds. Decedent never displayed until a short time before his death the indicia of old age. He was never stooped and slow of action, he had thick black hair and even at the time of his death had few gray hairs. He wore glasses only for reading. His teeth were sound and his hearing good until his death. He enjoyed dancing and danced up to the time he was 80 years old. He was fond of golf, was a good player and frequently played 36 holes a day, even when he was 80 years of age.
Decedent was abstemious and regular in his habits, did not smoke and did not drink alcohol in any form. He did not drink coffee until the last few years of his life, and then only occasionablly. He ate little and voluntarily followed a restricted diet. He went to bed early and arose early.
Decedent was optimistic, cheerful and forward-looking habitually. He concerned himself with the immediate present and future. Until a short time before his death he was constantly making plans for the future, some of which would*763 require years for consummation.
In 1908, approximately 23 years before his death, decedent initiated the policy of making gifts inter vivos to his wife and children for the purpose of giving them the enjoyment and benefit of his property during his lifetime. It was his desire to establish independent competencies for his wife and children while he was alive instead of requiring them to wait until his death before sharing in *432 his wealth. This policy was followed consistently and continuously to and including the transfer of April 3, 1930, a little more than 13 months before his death.
Decedent made gifts to his wife and children in gradually increased amounts in order that they might become accustomed to having property and learn how to manage large incomes. It was his expressed intention to avoid the mistake of giving his children too much money at one time, and, by making his gifts gradually, to teach them to save and to live within their income. Decedent increased his gifts to enable his children to take care of their growing needs and requirements, as their families grew up.
Apart from an attack of nervous indigestion and appendicitis in 1891, decedent*764 enjoyed generally sound and robust health during substantially the first 80 years of his life. His activities continued unabated after 1891 as before, and were interrupted only by occasional minor ailments.
In October 1928 the decedent noticed a discoloration of his urine, and consulted his physician, who diagnosed the ailment as an ordinary case of enlargement of the prostate. Decedent's physician called into consultation two genito-urinary specialists, who recommended in the later part of December 1928 that decedent undergo an operation for the removal of his prostate. The specialists both advised decedent that except for the prostate ailment he was in excellent physical condition and a good surgical risk.
Decedent was not unduly concerned about the operation, and commented to members of his family on the fact that his older brother several years before had successfully undergone an operation for the removal of his prostate. This brother had entirely recovered from the operation and lived for a number of years thereafter, until he died suddenly of cerebral hemorrhage in his 89th year.
The operation for the removal of decedent's prostate was performed in two stages. The*765 first operation, which consisted of the draining of the bladder, was performed January 9, 1929. The second operation for the actual removal of the prostate took place on January 28, 1929. The operation as such was successful and the prostate was removed, but because of certain adhesions the surgeon became suspicious of the presence of cancer. In order to safeguard against this possibility he inserted radium into the bed from which the prostate had been removed. Later a microscopic examination of sections of the prostate containing the adhesions disclosed carcinoma of the prostate.
The surgeons informed decedent's son, petitioner herein, of their findings of cancer and advised against telling the decedent or other members of the family of his true condition, since he might live *433 for an extended time and enjoy what would appear to be normal health.
Thereafter both the doctors and the decedent's son took steps to withhold from the decedent knowledge that he had carcinoma. The internes and nurses at the hospital were instructed not to discuss with him the character of the operative findings. Decedent's son told his friends and business associates that the operation*766 had been a complete success, and the other members of the family were not informed of the decedent's true condition until late in 1930. After the operation the doctors told decedent that his prostate had been removed; that he would be able to urinate freely, and that the operation had been successful. Decedent told his friends and others that his operation had been successful, and that he would soon be out and back to work again. Decedent's condition improved after the operation, and he left the hospital on March 13, 1929.
Decedent lost considerable weight while in the hospital, but after leaving he rapidly regained his strength, and in April he and his son Percy began playing golf, a few holes at first, which were gradually increased to 18 holes. About the middle of May 1929 decedent went to White Sulphur Springs, West Virginia, where he also engaged in playing golf. At that time decedent appeared to be in good physical condition, and to have made a full recovery from his operation.
Decedent returned to his home from White Sulphur Springs in the early part of June 1929 and resumed his usual business activities. He would arrive at his office at about 8 o'clock in the morning, *767 where he worked until 10, and then would go to the Board of Trade, where he would spend an hour or more buying wheat for his mill. Thereafter he would visit banks and other institutions in which he was interested, and attend directors' and committee meetings, returning to the mill about four o'clock in the afternoon. About six o'clock he would arrive home for dinner. In the evenings he went out frequently, attending banquets and operas.
In the latter part of June 1929 and again in December 1929 decedent went to New York to attend directors' meetings of the Erie Railroad Co. On the latter trip he took cold and was confined to his home with this ailment and neuritis in his legs for about ten days.
In April 1929 decedent, as president of the De Soto Securities Co., entered into an iron and steel syndicate involving a liability of $75,000. In June or July 1929 the decedent, on behalf of De Soto Securities Co., joined a purchase syndicate of Borg-Warner common stock involving a liability of $850,000, and in January 1930 he entered into an agreement on his own account for the purchase of stock of the Continental Illinois Bank & Trust Co. involving a *434 liability of $325,000*768 to $350,000. The syndicates and agreements continued until after decedent's death. On August 6, 1929, decedent assumed the additional duties of a director of the Borg-Warner Co. and on September 11, 1929, he became a director of the Continental Chicago Corporation.
The decedent had been accustomed to spending his winter vacations in California during the last preceding 15 years, except in 1929, when his operation was performed. In 1930 he left Chicago on January 10 and returned on March 14. While in California decedent's general condition improved and he gained in weight. However, he was troubled with neuritis in his legs and had stomach and bowel difficulties for which he was treated by a stomach specialist in Pasadena. During his vacation in California decedent gave no indication that he regarded himself as seriously ill or that he was contemplating death; on the contrary he was making plans for the future and anticipating going back to work on his return to Chicago.
Upon his return from California decedent appeared rested, his color was good and he had gained about seven pounds in weight, but he did not resume his customary business routine. He Managed his affairs from*769 his home, where he discussed business matters with his associates.
On April 24, 1930, decedent entered a hospital to be treated for abdominal discomfort and neuralgic pains in his legs. He remained in the hospital until June 3, 1930, when he was discharged and returned to his home. On June 19, 1930, decedent again entered the hospital because of severe pains in his abdomen, but the trouble responded to treatment and he left the hospital on July 9, 1930. This attack was explained to decedent as a recurrence of the colitis which he had had for many years.
After decedent returned from the hospital on July 9, 1930, the pains in his legs and stomach were intermittent. He would have good days when he would be up and walk about the house or take automobile drives; on other days he would spend the larger part of the time in bed. The change in his condition was gradual. For the first time he had nurses in attendance at his home. Decedent continued personally to direct his business affairs from his home until the early part of 1931. In August 1930 decedent took part in an attempt to consolidated two of the large Chicago banks, in both of which he was a director. Also during this*770 time decedent was planning the erection of a large office building on his Wacker Drive site in the city of Chicago.
During 1930 decedent's physical condition gradually became worse, until in the early part of 1931 the accumulated change became markedly *435 apparent. In March 1931 decedent expressed a desire to have Dr. Bevan operat on his intestines, and upon refusal of the latter to operate, decedent definitely indicated realization of the seriousness of his condition and that he might not recover from his illness.
The five gifts in the aggregate of 24,650 shares of common stock of the De Soto Securities Co. made by decedent to his wife and children on December 24, 1923, were not made in contemplation of death.
The five gifts aggregating 500 shares of beneficial interest in the De Soto Realty Trust made by decedent to his wife and children on March 19, 1930, were not made in contemplation of death.
The transfer in trust on April 3, 1930, of 9,750 shares of preferred stock of the De Soto Securities Co. by the decedent for the benefit of his wife and children was not made in contemplation of death.
The eight transfers in trust made by decedent for the benefit*771 of his wife and children and grandchildren, two on July 15, 1919, and one each on November 1, 1921, March 1, 1922, July 15, 1922, November 15, 1922, November 28, 1922, and June 24, 1926, respectively, of various securities having an aggregate fair market value as of the date of decedent's death in the sum of $1,022,233.12, were not made in contemplation of death.
The forgiveness by the decedent on March 23, 1931, of an indebtedness due him by the De Soto Securities Co. in the amount of $234,788.84 was made in contemplation of death.
OPINION.
TRAMMELL: The first and principal issue in this case is whether or not certain direct gifts inter vivos and transfers in trust made by the decedent to and for the benefit of his wife, children, and grandchildren, during the years 1919 to 1930, both inclusive, were made in contemplation of death, within the meaning of the taxing statute.
Section 302(c) of the Revenue Act of 1926, as amended by Joint Resolution No. 131, 71st Cong., approved March 3, 1931, applicable here, provides, among other things, that 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, *772 wherever situated, to the extent of any interest therein of which the decedent has at that 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, including a transfer under which the transferor has retained for his life or any period not ending before his death (1) the possession or enjoyment of, or the income from, the property, or (2) the right to designate the persons who shall possess or enjoy the property or the income *436 therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth.
No contention is made in this proceeding that any of the transfers in controversy were intended to take effect in possession or enjoyment at or after the decedent's death, nor that he retained for his life the possession or enjoyment of any of the property or the income therefrom, or the right to designate the persons who should possess or enjoy such property or income. The sole question is whether the transfers were made "in contemplation of death."
The meaning of the phrase "in contemplation of death" has been the subject of judicial consideration*773 on numerous occasions and a long line of decisions more or less to the same general effect might be cited, but for purposes of the present case, a comprehensive discussion of the term is embodied in the opinion of the Supreme Court in , decided April 13, 1931. The statute involved there was section 402(c) of the Revenue Act of 1918, which, so far as material here, is substantially the same as section 302(c) of the 1926 Act, supra. From the opinion of the Court, delivered by the Chief Justice, we quote as follows:
Transfers in contemplation of death are included within the same category, for the purpose of taxation, with transfers intended to take effect at or after the death of the transferor. The dominant purpose is to reach substitutes for testamentary dispositions and thus to prevent the evasion of the estate tax. * * * * * *. As the transfer may otherwise have all the indicia of a valid gift inter vivos, the differentiating factor must be found in the transferor's motive. *774 Death must be "contemplated," that is, the motive which induced the transfer must be of the sort which leads to testamentary disposition. As a condition of body and mind that naturally gives rise to a feeling that death is near, that the donor is about to reach the moment of inevitable surrender of ownership, is most likely to prompt such a disposition to those who are deemed to be the proper objects of his bounty, the evidence of the existence or non-existence of such a condition at the time of the gifts is obviously of great importance in determining whether it is made in contemplation of death. The natural and reasonable interference which may be drawn from the fact that but a short period intervenes between the transfer and death is recognized by the statutory provision creating a presumption in the case of gifts within two years prior to death. But this presumption, by the statute before us, is expressly stated to be a rebuttable one, and the mere fact that death ensues even shortly after the gift does not determine absolutely that it is in contemplation of death. The question, necessarily, is as to the state of mind of the donor.
* * *
It is contemplation of death, not*775 necessarily contemplation of imminent death, to which the statute refers. It is conceivable that the idea of death may possess the mind so as to furnish a controlling motive for the disposition of property, although death is not thought to be close at hand. Old age may give premonitions and prompting independent of mortal disease. Yet age in itself can not be regarded as furnishing the decisive test, for sound health and purposes associated with life, rather than with death, may motivate the transfer. *437 The words "in contemplation of death" mean that the thought of death is the impelling cause of the transfer * * *
If it is the thought of death, as a controlling motive prompting the disposition of property, that affords the test, it follows that the statute does not embrace gifts inter vivos which spring from a different motive. * * * The purposes which may be served by gifts are of great variety. It is common knowledge that a frequent inducement is not only the desire to be relieved of responsibility, but to have children, or others who may be the appropriate objects of the donor's bounty, independently established with competencies of their own, without being compelled*776 to await the death of the donor and without particular consideration of that event. There may be the desire to recognize special needs or exigencies or to discharge moral obligations. The gratification of such desires may be a more compelling motive than any thought of death.
For further discussion of the principles announced in the Wells case, see . See also .
In the case at bar the evidence clearly establishes that beginning in 1908 the decedent adopted a policy, thereafter consistently followed to and including the year 1930, of making substantial gifts inter vivos to the members of his family and establishing trusts for their benefit. During the period mentioned decedent made 108 separate gifts to and created 10 irrevocable trusts for the benefit of those who were the appropriate objects of his bounty. The fair market value of the gifts exceeded $4,000,000, and of the trusts, $2,000,000. Yet decedent died possessed of an estate valued at more than $5,000,000. The declared purpose of the decedent in making gifts directly to*777 the members of his family and transfers in trust for their benefit was to provide them with independent competencies, so that they might enjoy the use of a part of his property without having to wait for his death.
Another purpose which motivated decedent in this matter was to accustom his children to the handling and management of large amounts of property during his lifetime, while he could teach them habits of thrift and economy, and to live within their incomes. The decedent through the years often discussed with his family and business associates the purposes which prompted his policy of making gifts.
In respect of the trusts created and the gifts inter vivos made by decedent during the period from 1919 to 1926, inclusive, the evidence shows that the decedent had theretofore never been seriously ill in his life, had suffered only minor ailments, and was enjoying unusually sound and robust health. We find nothing in the record to justify the conclusion that his state of mind involved contemplation of death, or that the gifts in any manner constituted testamentary dispositions of property. On the contrary, the evidence convinces *438 us that the gifts made during*778 the period referred to were pursuant to decedent's long-established policy of making such gifts to his family, and that his purposes were distinctly associated with life rather than with death.
We, therefore, have no difficulty in concluding, and have so found as a fact, that the eight (8) transfers in trust made by decedent in 1919 to 1926, of various securities having a fair market value at his death of $1,022,233.12, and the five (5) gifts of De Soto Securities Co. common stock made by decedent to his wife and children on December 24, 1923, were not made in contemplation of death within the purview of the statute.
In respect of the five gifts aggregating 500 shares of beneficial interest in De Soto Realty Trust made by decedent to his wife and children on March 19, 1930, and the transfer in trust on April 3, 1930, of 9,750 shares of preferred stock of the De Soto Securities Co., a little more than a year prior to his death, a somewhat more difficult problem is presented. Decedent was then more than 81 years of age, and in January of the preceding year had undergone a serious surgical operation for the removal of his prostate gland. He was no longer enjoying the sound and*779 robust health of his earlier years. However, as against these facts it is shown that the decedent believed that he had fully recovered from the prostate operation; his health was reasonably good for a man of his age; he did not know that he was suffering from carcinoma, or cancer, of the prostate; he was actively engaged in the personal direction of his various business interests; during 1929 and 1930 subsequent to his operation decedent assumed the additional burden of directorships in two large corporations, and entered into syndicate agreements involving a combined liability of $1,250,000, which syndicates and agreements continued until after his death; during the same period decedent was planning the erection of a large office building in Chicago, and in August 1930 took part in an attempt to consolidate two of the large Chicago banks, in both of which he was a director.
As pointed out by the Supreme Court in the Wells case, supra, age in itself cannot be regarded as furnishing the decisive test, but the question is as to the state of mind of the donor. His state of mind can be determined only from the contemporaneous statements, acts and conduct of the donor. Considering*780 the facts in the instant case, above referred to, it is our opinion that the decedent's state of mind indicated thereby does not support the conclusion that the five gifts of March 19, 1930, nor the gift of April 3, 1930, were made in contemplation of death, and we have found that they were not so made.
*439 In , the decedent was 78, 81, and 82 years of age when he made the transfers which the court held were not made in contemplation of death. Also, the decedent died within two years of the last transfer, which comprised more than half of his total assets. Notwithstanding the age of the decedent at the time the gifts were made, the court concluded that the transfers were motivated by purposes associated with life rather than with death.
In , reversing , the court applied the test defined in the Wells case, and held that a transfer of stock by the decedent to his wife when he was 73 years of age, and only two months and 19 days before his death, was not made in contemplation of death. The*781 court accepted the taxpayer's contention, held to have been erroneously rejected by the Board, that the transfer was in keeping with the decedent's long-established custom of making gifts to his wife and children in order to provide them with independent means and incomes of their own.
In respect of the forgiveness by the decedent on March 23, 1931, of an idebtedness owing to him by the De Soto Securities Co. in the amount of $234,788.84, which respondent contends was a gift made in contemplation of death, we think an entirely different picture is presented. Decedent was then in his last illness, from which he died one month and nineteen days later. During the preceding several months his physical condition had become gradually worse, and in the early part of 1931 the change in his appearance was most marked. We think it can not be assumed that a man of decedent's long experience and mental alertness could have failed to realize that the end of his life was rapidly approaching, that death was imminent. Furthermore, it was about this time that decedent had expressed a desire to have Dr. Bevan operate on his intestines, and upon the refusal of the doctor to operate the decedent*782 showed unmistakable evidence of a realization of the seriousness of his condition. In the light of the facts and circumstances discussed, the respondent's contention on this point is sustained.
There remains for consideration issue (4), which involves the amount of the deduction to which petitioner is entitled on account of the liability of decedent's estate on two promissory notes endorsed by the decedent during his lifetime.
Section 303 of the Revenue Act of 1926 provides that, for the purpose of the tax, the value of the net estate shall be determined by deducting from the value of the gross estate, among other things, "claims against the estate" to the extent that such claims were incurred *440 or contracted bona fide and for a full and adequate consideration in money or money's worth, and allowed by the laws of the jurisdiction under which the estate is being administered. No question is raised in this case that the claim upon which the deduction is based was not incurred or contracted bona fide and for an adequate money consideration. The issue goes only to the amount of the deduction which is allowable. The petitioner contends that he is entitled to a deduction*783 in the amount of $129,081.44, while respondent asserts that the amount allowable is $82,427.62.
During his lifetime decedent endorsed two promissory notes, which were payable on demand. The unpaid balance due on the notes at decedent's death was $147,853.44. The notes were secured by collateral having a fair market value of $65,425.82. Subsequent to decedent's death the holder of the notes made demand upon the makers for payment, and upon their failure to pay the amount due, filed claim therefor against decedent's estate in the probate court. On May 16, 1932, the probate court allowed the claim for the full amount due, $147,853.44. On June 27, 1932, the collateral security was sold for its then fair market value of $18,772, which amount was applied against the claim allowed by the probate court, reducing the claim to $129,081.44, which the estate immediately paid.
The latter amount is the amount claimed by the petitioner as a deduction. Respondent contends that since tax liability is determined upon the basis of the value of the estate at the date of decedent's death, the allowable deduction is the amount of the claim allowed by the probate court, less the value of the*784 collateral security at decedent's death, or the amount of $82,427.62.
We can not agree with respondent's view. While it is true that for purposes of the tax property is valued as of the date of decedent's death, the statute specifically provides for the deduction of funeral expenses, administration expenses, claims against the estate, losses incurred during settlement of the estate, and amounts expended during settlement of the estate for the support of the decedent's dependents, all of which arise subsequent to the decedent's death, and the amounts of such deductions are not determined with regard to the date of death.
In respect of the item here in dispute, it must be remembered that there was no matured liability on the part of the estate at the date of the decedent's death. At that time the liability was wholly contingent, and if the collateral security had had a fair market value equal to or in excess of the unpaid balance due on the notes, there would have been no claim presented against the estate. The estate became liable only when the makers failed to pay upon demand of the holder, both of which events transpired subsequent to *441 decedent's death. The liability*785 of the estate thereupon became fixed, but the amount of such liability could not be definitely determined until the collateral security had been sold and the proceeds applied against the unpaid balance due upon the notes. When this had been done the amount of the estate's liability was fixed and determined, and such amount was immediately paid by the estate. Petitioner is entitled to the deduction in the amount claimed.
Reviewed by the Board.
Judgment will be entered under Rule 50.
Footnotes
1. Directly involved in this proceeding. ↩