*160 Decision will be entered under Rule 50.
Estate Tax -- Contemplation of Death -- Substitute for Testamentary Disposition -- Section 811 (c). -- A transfer in trust made by an elderly man not in the best of health, to be enjoyed after his death, held a substitute for testamentary disposition and in contemplation of death even though made as an inter vivos trust rather than as a part of the will so that income taxes might be saved during the remaining life of the grantor.
*1263 The Commissioner determined a deficiency of $ 104,350.08 in estate tax. The petitioner alleges that the Commissioner erred in adding *161 to the gross estate as reported $ 341,102.02, the value at the date of death of property in a trust created by the decedent on December 30, 1936, and, in the alternative, in adding to the gross estate the income earned by the trust between December 30, 1936, the date of its creation, and December 11, 1944, the date of the death of the decedent.
*1264 FINDINGS OF FACT.
Jacob Gidwitz, the decedent, was born on June 17, 1864, in Lithuania, and died on December 11, 1944, in Los Angeles, California. The Federal estate tax return was filed with the collector of internal revenue for the first district of Illinois.
Rose Gidwitz, the wife of the decedent, who was living with him at all times material hereto, was born on August 22, 1880. She and the decedent had the following children, all of whom were living apart from their parents on December 30, 1936: Joseph L. Gidwitz, born January 16, 1905, who was married and had two children; Gerald S. Gidwitz, unmarried, born July 17, 1906; and Willard M. Gidwitz, unmarried, born March 5, 1908.
Gidwitz created a trust on December 30, 1936, and conveyed to it on that day 83 33/100 shares of class A capital stock of the International Furniture *162 Co.
The Commissioner, in determining the deficiency, held that $ 341,102.02, the value of the assets in the trust at the date of the death of the decedent, was includible in his gross estate as a transfer made in contemplation of death.
There were 500 shares of stock of the International Furniture Co. outstanding on December 30, 1936. Eighty-three and 33/100 of those shares were owned by the decedent, another one-sixth was owned by his brother, Michael, and the remaining two-thirds was owned by his nephew, Philip W. Pelts. That company had never paid a dividend prior to one of $ 60,000 declared on December 31, 1936, payable in certificates of indebtedness in the form of interest-bearing notes. The stockholders were given the option to receive payment of the notes in cash at maturity or to acquire additional stock as soon as it could be authorized. The decedent knew that this dividend was going to be declared, and one of his purposes in creating the trust above mentioned was to save income taxes by having the trust receive the dividend of $ 10,000 on his shares.
The decedent filed a gift tax return for 1936, in which he reported the gift of 83 33/100 shares of the stock at a value*163 of $ 25,929.17. The respondent increased that value to $ 55,416.67 and the decedent agreed to that value. The tax paid on the transfer was $ 162.50.
The decedent reported net income of $ 33,110.16, with tax thereon of $ 4,284.34 for 1936.
The decedent named himself and his wife trustees of the trust of December 30, 1936. The income was to be accumulated during his lifetime and, upon his death, was to be distributed to his children and their descendants per stirpes. The income thereafter was to be paid *1265 to Rose during her life. The principal of the trust was to be distributed upon the death of the survivor of the decedent and Rose. The trust instrument provided that the property of each child or the property of the descendants of any deceased child should be appraised and the principal of the trust should be distributed to the children or descendants of any deceased child per stirpes in such a way that the total value of the property already owned, plus that received from the trust by each child or group of descendants of a deceased child, would be the same.
The trustees were given broad powers to do anything that they might deem expedient or advisable to conserve or*164 protect the trust property.
The beneficiaries were to have no right to alienate their interests. The decedent and Rose resigned as trustees on August 5, 1942, and the three sons became trustees.
The decedent at the same time that he consulted an attorney in connection with the preparation of the trust of December 30, 1936, also had that attorney prepare his will. His last will was dated November 3, 1936. It provided that all of the residue of his estate should be held in trust by his wife and their three sons to pay the income from the trust to Rose for her life. It contained provisions similar to those contained in the trust for the use of the principal of the testamentary trust at the death of Rose to equalize the holdings of the three sons or the descendants of any deceased son.
The idea of using the corpus of the two trusts to equalize the value of the property held by the sons or the descendants of any deceased son originated with the decedent and he had each instrument contain terms to carry out that idea, despite efforts of his attorney to discourage him from incorporating such a plan in the instruments.
The decedent had been having some trouble with his heart and he knew*165 in 1936 that his heart was not in good condition. He 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 of years. The decedent died of a heart attack, coronary thrombosis.
The dominant motive of the decedent in transferring property to the trust created on December 30, 1936, was to provide for his wife, their children, and the descendants of any deceased child after his death. The trust and the decedent's will were parts of an integrated plan for the disposition of the larger portion of his estate upon his death. The trust was a substitute for a testamentary disposition and the transfer of property to the trust was in contemplation of death.
The stipulation of facts is incorporated herein by this reference.
*1266 OPINION.
Although the decedent was an elderly man and was not in the best of health, nevertheless the conclusion that the transfer to the trust was in contemplation of death stems more from the terms of the instrument than from the condition of the decedent's health at the time he made the transfer. He was then past 72 years of age and he died about 8 years later from a heart attack. He liked*166 to travel and to fish and he expected to enjoy a number of years of life after 1936. Yet, the terms of the trust which he created, paralleling to a considerable extent the terms of his will, when considered in the light of all other facts, indicate pretty clearly that the transfer to the trust was actually made in contemplation of death.
The chief purpose of section 811 (c) "is to reach substitutes for testamentary dispositions and thus to prevent the evasion of estate tax." . The Court held in that case that a transfer may be in contemplation of death even though not induced by a fear that death is imminent. It is sufficient if the dominant purpose of the transfer was to provide for beneficiaries after the death of the decedent by a substitute for testamentary disposition.
The income of the trust in the present case was to be accumulated during the lifetime of the decedent. The beneficiaries were prohibited from anticipating the benefits which they would receive from the trust beginning after the death of the decedent. Thus no beneficiary was to enjoy the trust during the life of the decedent. The widow was*167 to receive the income after his death and upon her death, or at his death if she predeceased him, the principal was to be distributed to the sons or to the descendants of any son then deceased. The method of determining how much was to go to each son was unusual and was originated and prescribed by the decedent. It was to be carried out after his death. This trust was in a true sense a substitute for testamentary disposition.
A saving in income taxes for 1936 is urged as the primary reason for creating the trust. There is evidence that the decedent had in mind the avoidance of some income taxes, a purpose connected with life rather than with death, and it is argued in the brief that, if he merely wanted to provide for his wife and children at or after his death, there was no occasion for a trust, as his will would accomplish that purpose and, from that, it is argued that his dominant motive was to save income taxes. However, a disposition which is in effect a testamentary disposition is made in contemplation of death even though, to save taxes, it may be put in the form of an inter vivos trust rather than as a part of a will. A will is made in contemplation of death and, *168 in that sense, so was this trust made in contemplation of death. *1267 ; ; . The tax-saving purpose in such cases becomes relatively insignificant as compared to the dominant purpose to dispose of a large part of the decedent's property by a method which is a substitute for testamentary disposition. The evidence does not show a dominant purpose connected with life.
It is held, following ; affd., , that the income on the trust property from the date of the creation of the trust to the date of the death of the decedent is not to be included in the gross estate.
Decision will be entered under Rule 50.