*1061 1. Certain transfers involved herein were made in contemplation of death.
2. Where the value of transfers made by a decedent during his lifetime is to be included in his gross estate for the purposes of the Federal estate tax, it is not unconstitutional to include in the gross estate the value of such property as at the date of the decedent's death rather than as at the date of the transfers.
3. An obligation incurred by executors for the perpetual care of a cemetery lot, where the estate is being administered in the State of Florida, held not deductible as a funeral expense.
4. Certain life insurance policies on the decedent's life were procured by his employer, the decedent signing the respective applications. Thereafter in consideration of the payment by decedent to his employer of the cash surrender value, all the right, title, and interest of the employer in and to the policies were assigned to decedent. He named new beneficiaries other than his estate, reserving the right further to change the beneficiaries and thereupon, up to the date of death, paid all the premiums falling due. Held, as a result of this transaction the policies were, within the meaning*1062 of the statute, taken out by the decedent and hence to the extent of its excess over $40,000 the amount of the proceeds of the policies, as of the date of the decedent's death, should be included in the gross estate.
5. The estate tax being a transfer or transmission tax and not a tax on property, the value of Federal Farm Loan bonds issued under the provisions of section 26 of the Federal Farm Loan Act approved July 17, 1916, should be included in a decedent's gross estate for Federal estate tax purposes, notwithstanding that by the provisions of the act such bonds and the income derived therefrom are exempted from "Federal, State, municipal and local taxation."
*889 This proceeding involves the redetermination of a deficiency in estate tax amounting to $145,201.04.
Fourteen issues were raised by the pleadings. Two issues have been withdrawn by the petitioners and others have been settled by stipulation or otherwise disposed of. The issues remaining for our determination are as follows:
(1) Whether or not the creation by the decedent*1063 of a certain trust for the benefit of his wife constitutes a transfer in contemplation of death or to take effect in possession or enjoyment at or after the decedent's death, and whether or not the so-called conclusive presumption clause of section 302(c) of the Revenue Act of 1926 is constitutional.
(2) Whether or not the taking out by the decedent of a paid-up endowment policy on the life of his wife constitutes a transfer in contemplation of death.
(3) Whether or not the cash payment made on a house in Florida, purchased by the decedent, title being taken in his wife's name, constitutes a transfer in contemplation of death.
(4) Whether or not the payment by the decedent of income taxes due from a certain trust created by the decedent for the benefit of his wife constitutes a transfer in contemplation of death, and whether or not the respondent duplicated the inclusion of the amount of these taxes in the taxable estate.
(5) In the event that the creation by the decedent of the trust for the benefit of his wife is held to be a transfer in contemplation of death or intended to take effect in possession or enjoyment at or after the decedent's death, whether or not the increase*1064 in value of *890 the assets of the trust between the date of its creation and the date of the decedent's death should be included in the taxable estate, and whether or not such inclusion would be violative of the Constitution.
(6) Whether the value of a certain revocable trust at the date of its creation or its value at the date of the decedent's death should be included in the taxable estate.
(7) Whether or not a sum of money paid by the estate for the perpetual care and upkeep of a cemetery lot and mausoleum should be allowed as a deduction from the gross estate.
(8) Whether or not the proceeds of certain insurance policies taken out on the decedent's life for the benefit of his employer should be included in the taxable estate to the extent that the proceeds exceed $40,000, the policies having been purchased later by the decedent from his employer at their cash surrender value and persons other than the estate being named the beneficiaries.
(9) Whether or not Federal Farm Loan bonds owned by the decedent and also those included in the assets of a certain trust created by him should be included in computing the gross estate subject to the Federal estate tax.
*1065 The proceeding was submitted for determination upon the pleadings, the depositions of witnesses and various stipulations, both written and oral, entered into by the parties.
FINDINGS OF FACT.
The decedent, Addison W. Igleheart, was born on March 5, 1852. He died on December 24, 1927. The cause of death was cerebral hemorrhage of three days duration. He left him surviving Cora B. Igleheart, his wife, who was born on December 24, 1866; Isabelle M. Igleheart, a daughter, born in May 1883; Susanna Darby, a daughter, born in November 1889; Edgar A. Igleheart, a son, born August 1, 1891; and Evelyn I. Johnson, a daughter, born February 8, 1893. On June 1, 1926, the date of the creation of the trust for the benefit of Cora B. Igleheart, which is hereinafter referred to, the decedent had four grandchildren, respectively between the ages of one and eight years.
The decedent was the second of three sons of Levi Igleheart, who was the founder of Igleheart Brothers, which was originally a partnership but was afterwards incorporated under the laws of the State of Indiana. This concern was engaged in the flour milling business and was the producer of Swans Down Cake Flour. The decedent's*1066 father died at the age of 83 years and 11 months. Both his elder and younger brothers outlived the decedent.
From his boyhood until April 1926, at which date all of the common stock of Igleheart Brothers was sold, the decedent was connected *891 in business with that corporation. In the earlier years he was a clerk and salesman and from 1905 to April 1, 1926, was vice president and treasurer, holding both offices at the same time.
In November 1915, the decedent suffered a stroke described as a right-side hemiplegia. He did not become unconscious as a result thereof. He was confined to his bed about four weeks, at the end of which time he regained his normal health except that up to the time of his death the use of his right leg and right arm was seriously impaired.
A right-side hemiplegia is the consequence of a condition. It is not a disease. It results from trouble occurring in the left side of the brain. It may be due to the thickening or hardening of an artery, to an embolism or blood clot which travels along the blood stream and clogs up a small artery, to disease of the stomach or to nephritis which would cause such secondary weakness of a blood vessel*1067 that the blood vessel might rupture, or to other causes. A right-side hemiplegia may involve the whole of the right side of the body. In the case of the decedent it involved only the extremities, namely, the leg and arm.
Medical and chemical examination immediately after the stroke suffered by the decedent failed to disclose the cause of the hemiplegia. His urine was normal, there was no heart trouble, and he had no kidney disease.
The decedent's speech and hearing were not affected by the stroke. His mind was normal, his speech clear, and his hearing and eyesight good until his final illness. He learned to write with his left hand. From four weeks after the stroke until three days before his death his general health was good and he was not attended by a physician except on two or three occasions and then only for minor ailments not due to or connected in any way with the hemiplegia. During the 12 years from November 1915 until December 1927, the date of the decedent's death, his appetite remained normal and he ate with enjoyment and generously except that he did not eat much meat. Neither before nor after the stroke did he drink intoxicating liquors or smoke habitually.
*1068 The decedent was slight of build but after the stroke he gained somewhat in flesh. During the 12 years succeeding the stroke he could and did walk short distances with assistance and with the help of a cane. He slept well at night. During the day he spent much of his time in a chair, in his house or on the veranda, reading newspapers, magazines, market reports, and the Bible, and talking with members of his family, friends or business associates who called on him. In good weather he rode out each day in an automobile and several times during his later years he took automobile trips of *892 several hundred miles in length. In the spring of 1927 he traveled from Fort Myers, Florida, to Jacksonville, Florida, by automobile; in July of that year from Evansville, Indiana, to Wequetonsing, Michigan, and in September of the same year returned by automobile to Evansville, a distance of more than 800 miles.
Before the stroke the decedent was always very cheerful and during the 12 years thereafter his disposition did not change but he remained cheerful and optimistic. He was never morose. He did not talk about the condition of his right leg and arm. He displayed a sense*1069 of humor. He was of a sociable nature and up to the time of his death received and enjoyed the visits of his friends and neighbors with whom he liked to talk about what he was reading. He was deeply religious all his life and until the end thereof retained his interest in the church at Evansville, Indiana, to which he made substantial donations.
Although the decedent did not go to the office of Igleheart Brothers after the stroke in 1915, he kept in active touch with the corporation's affairs and remained its vice president and treasurer up to the time of his retirement in 1926. He and his two brothers were the directors of Igleheart Brothers. No major business policy was adopted by the directors except by the unanimous consent of all of them, and after November 1915, the meetings of the directors with relation to major policies were held at the decedent's home at Evansville or Newburgh, Indiana, unless he was absent from both of those places. Records of the business of Igleheart Brothers, carrying statements of the daily sales, reports of the wheat market, and telegrams relating to the business, were regularly sent to the decedent. During the later years of his life, whenever*1070 he was at his home in Indiana the office manager of the company would call on him once a week, and sometimes oftener, and spend several hours discussing with the decedent such subjects as the wheat market, the earnings of the company, the amount expended for advertising, the balance sheets, sales and sales quota.
During the last 12 years of his life, the decedent did not discuss the subject of his death with members of his family, with his friends or with business associates.
The decedent spent a part of his time in the summer at Newburgh, Indiana, at a home the title to which was in his wife. In the later years of his life he spent the late fall and winter months in Florida. During the fall and winter of 1926-1927 and the fall of 1927 he was at Fort Myers, Florida, where he established a residence. In May 1927, he purchased a home from one Ragan for the sum of $50,000, paying $40,214.46 of the consideration in cash and the balance by the conveyance to Regan of the residence in Newburgh, *893 Indiana. Title to the Fort Myers residence was taken in the name of the decedent's wife.
The decedent and his two brothers each owned two ninths of the common and preferred*1071 stock of Igleheart Brothers of Indiana. Each of the three brothers had one son and each son owned one ninth of the stock of the corporation.
As a result of negotiations begun in January 1926, on or about April 1, 1926, all of the common stock of Igleheart Brothers of Indiana was sold to the Postum Co. Prior to the negotiations for the sale of the common stock the preferred stock, which amounted to $810,000 par value, was retired. Each of the six stockholders received cash representing his holdings of preferred stock at par. As consideration for the delivery to it of all of the common stock of Igleheart Brothers of Indiana, the Postum Co. paid to the stockholders of Igleheart Brothers $595,000 in cash and delivered to them 95,000 shares of the Postum Co. stock. At the same time the liquid assets of Igleheart Brothers of Indiana, consisting of cash and securities, were divided pro rata among the six stockholders of the corporation. Contemporaneously there was organized a Delaware corporation known as Igleheart Brothers Incorporated, which received the 95,000 shares of the Postum Co. stock and in exchange therefor delivered to the former stockholders of Igleheart Brothers of*1072 Indiana its own class A stock in proportion to their respective interests. Shortly after the consummation of the sale of the common stock of Igleheart Brothers of Indiana to the Postum Co. the decedent returned from Florida to his home in Indiana.
As a result of the retirement of the preferred stock of Igleheart Brothers of Indiana and the sale of the common stock to the Postum Co., the decedent acquired cash and stock amounting in value to $2,423,000. Before these transactions his net worth, excluding his interest in Igleheart Brothers of Indiana, was approximately $100,000 and after the sale of the common stock of Igleheart Brothers of Indiana to the Postum Co. the decedent was possessed of independent means in excess of $2,500,000. He and his two brothers were greatly concerned about the investment of the funds they had received. They discussed the investment of their capital in such manner that in their "absence" their wives would not have any burden in the care of it. They considered that they ought "to get their estates fixed up" so as to be prepared for any "eventualities" and that they should do this "while they were clear-headed and there was no rush." The decedent*1073 consulted his attorney regarding the matter, informing him that he, the decedent, then had for the first time sufficient free funds to enable him to *894 provide an independent income for his wife consistent in amount with his means, that he wished her to learn about the care of investments and that he, therefore, wanted to create a trust for her benefit. He also informed the office manager of Igleheart Brothers of Indiana, who audited the decedent's personal books and prepared for him his income tax returns, that the creation of such a trust would reduce his income taxes, which result he desired to accomplish.
On June 1, 1926, the petitioner, as grantor, entered into an irrevocable agreement with Cora B. Igleheart, his wife, whereby he transferred and assigned to her in trust certain securities described in the instrument. The trust instrument recites that "the grantor desires to create a trust fund for the support and benefit of said Cora B. Igleheart, his wife, throughout the term of her natural life, and to make provision for the disposition of the fund providing such support upon the death of his wife."
The securities transferred and assigned by the trust instrument*1074 were:
| U.S. Government obligations, Philippine Island bonds | $85,300 |
| Federal Land Bank and Joint Stock Land Bank bonds | 104,000 |
| Municipal bonds and 3,000 shares of the no par | 75,522.83 |
| value Class A stock of Igleheart Brothers | |
| Incorporated of Delaware |
The agreement between the decedent and Cora B. Igleheart, as trustee, contains the following provisions, among others:
TO HAVE AND TO HOLD unto the trustee, in trust, however, for the following uses and purposes, to wit:
To collect and receive the dividends, profits and income thereof and after deducting all proper charges and expenses, to pay over the said dividends, profits and income, as the same accrue, to said Cora B. Igleheart, wife of the Grantor, in her individual capacity, for and during the term of her natural life.
Upon the death of said Cora B. Igleheart, the principal of said trust fund shall be divided by the representative of the estate of said Trustee into as many equal parts as there are children of the Grantor surviving at the time of the death of said Cora B. Igleheart, plus as many additional parts as there are deceased children of the Grantor leaving issue then surviving.
One of*1075 said parts shall be paid over, assigned and transferred unto each of the then living children of the Grantor; and one of such parts shall be paid over, assigned and transferred in equal shares to the then living issue of any deceased child of the Grantor.
Should there be no child of the Grantor nor any issue of any deceased child of the Grantor then surviving, the entire trust fund shall be paid over, assigned and transferred to such person or persons or institutions as the said Cora B. Igleheart shall by her last will direct, or failing such will, to her heirs at law in the proportions provided by the statutes of descent of the State of Indiana.
On June 1, 1926, the date of the execution of the transfer to Cora B. Igleheart, as trustee, the total value of the property transferred to her was $498,599.88 and the value of the property held under the trust instrument at the date of the decedent's death was $606,974.88 *895 which latter amount was included by the respondent in the gross estate.
On August 20, 1926, the decedent and Cora B. Igleheart entered into an agreement supplemental to their agreement dated June 1, 1926. The supplemental agreement recites that Cora*1076 B. Igleheart, as trustee, had sold 2,000 shares of the class A stock of Igleheart Brothers of Delaware for $205,000 and would be required to pay Federal income taxes on the gain derived from the sale. The agreement provides that the amount of such tax, together with any income tax payable because of any sale of the 1,000 shares of class A stock remaining in the trust fund should be paid out of and be chargeable to the capital of the trust fund and should not be chargeable to the income thereof.
The transfer to Cora B. Igleheart, as trustee, above described, was made in contemplation of death.
On June 1, 1926, the decedent also entered into an agreement with the Union Trust Co. of Indianapolis, as trustee, whereby he transferred and assigned to the trustee 12,000 shares of the no par value class A stock of Igleheart Brothers, Inc., of Delaware. This trust instrument recites that it is the desire of the grantor to create a trust fund for the support and benefit of himself during his life and thereafter for his four children. The instrument provides in part as follows:
TO HAVE AND TO HOLD unto the Trustee, its successors and assigns, in Trust however, for the following uses*1077 and purposes, to wit:
To collect and receive the dividends, profits and income thereof and after deducting all proper charges and expenses, to pay over the said dividends, profits and income as the same accrue and are paid to the Trustee, to the Grantor, for and during the term of his natural life.
Upon the death of the Grantor, the net income of said Trust Fund shall be divided into as many equal parts as there are children of the Grantor surviving at the time of the death of the said Grantor, plus as many additional parts as there are deceased children of the Grantor leaving issue then surviving.
One of said parts shall be paid over unto each of the then living children of the Grantor, and one of such parts shall be paid over, assigned and transferred in equal shares to the then living issue of any deceased child of the Grantor.
Upon the death of any of said children leaving issue surviving, following the death of the Grantor, and during the life of the trust, such issue shall receive the share of the income which the parent would have been entitled to receive if living. If any child should die without issue surviving, the share which it would have been entitled to receive*1078 shall be paid to the other beneficiaries hereunder under the rule above provided. If the issue of any such child so dying shall not survive the period of this trust, the entire income shall be divided among my living children and the living issue of any deceased child, the latter to take the share which the parent would have taken if living.
Should no child of the Grantor nor any issue of any deceased child survive the Grantor, the entire trust fund shall be paid over, assigned and transferred to the heirs of the Grantor in the shares provided by the Statutes of Descent of the State of Indiana.
*896 This trust shall terminate upon the death of the last survivor of said four children of the Grantor (unless they shall all predecease the Grantor, in which event it shall terminate on the death of the Grantor) and the entire principal, as well as any undistributed portion of the income, shall be paid over, assigned and transferred in equal shares to the then surviving children of the said four children of the Grantor per capita and not per stirpes; provided, however, if any such child of a child (i.e. a grandchild of mine) shall have died leaving issue surviving, such issue, *1079 whether one or more, shall take the share which the parent of such issue would have been entitled to receive, if living, and no more.
The decedent expressly reserved the right at any time during his lifetime to revoke, annul or amend the foregoing trust agreement executed by him and the Union Trust Co. On June 1, 1926, the date of the execution of the trust instrument, the property transferred to the Union Trust Co., as trustee, was of the value of $869,122.28 and on December 24, 1927, the date of the decedent's death, the value of the trust fund was $1,140,021.69, which latter amount the respondent included in the decedent's estate in determining the deficiency in question.
On June 1, 1926, the same date on which the trusts were created, decedent executed his last will and testament, in which his wife was named as an executrix.
Between September 3, 1904, and April 24, 1920, the corporation, Igleheart Brothers of Indiana, engaged certain insurance companies to take out 13 policies of insurance on the decedent's life. The decedent signed the application blank for each of these policies of insurance; Igleheart Brothers paid all premiums on the policies from the dates of their*1080 issue to about February 16, 1926, and Igleheart Brothers was named the beneficiary in all of the policies and remained such beneficiary until about February 16, 1926. On or about February 16, 1926, Igleheart Brothers of Indiana sold to the decedent all of its right, title, and interest in and to the policies of insurance for and in consideration of the decedent paying to Igleheart Brothers the cash surrender value of the policies as shown on that corporation's balance sheets as of December 31, 1925, plus any premium paid or due to be paid after January 30, 1926. Pursuant to the terms of the policies, the decedent caused the respective insurance companies to change the name of the beneficiary from that of Igleheart Brothers to certain designated beneficiaries other than the estate of the decedent. The decedent retained until his death the right to change the beneficiaries, and after the transfer by the corporation of its interest in the policies to the decedent he personally paid all premiums on the policies until his death. These policies aggregated $110,500 in amount and there was received on account of them as of the date of the decedent's death the sum of *897 $112,446. *1081 The proceeds of these policies, by the terms thereof, were paid to certain designated beneficiaries other than the estate of the decedent. The respondent, in determining the deficiency herein, determined that the amount received was $112,656.59 and included this amount, less $40,000, namely, $72,656.59 in the estate. Included in this amount was interest of $210.59 accrued on the claims from the time of the decedent's death to the date of settlement, which sum, it was stipulated, is not subject to tax and should be excluded from the taxable estate.
During the year 1926 the Cora B. Igleheart trust estate sold certain securities and reported a profit thereon of $205,381. In order that the corpus of the trust should remain intact the decedent paid the collector of internal revenue during 1927, $25,672.63 in quarterly installments for and on account of the income taxes assessed by the collector of internal revenue for the calendar year 1926 against the Cora B. Igleheart trust estate. The respondent, in determining the deficiency herein, included this $25,672.63 in the value of the estate at the time of the death of the decedent.
The decedent took out a two-year endowment policy*1082 of $100,000 on the life of the decedent's wife, Cora B. Igleheart. The cost of the endowment policy was a single premium of $97,225, paid by the decedent. The cash surrender value of the endowment policy at time of the decedent's death was $94,500. The respondent, in determining the deficiency herein, included in the estate the full amount of the premium paid for the policy, namely, $97,225.
The decedent owned outright in his own name at the time of his death Farm Loan bonds with a value of $376,700. The accrued interest thereon at the time of the decedent's death was $5,310.40. The Cora B. Igleheart trust, referred to in the deficiency notice as "trust to wife as trustee for herself and others, $606,974.88," had among its assets at the time of decedent's death Farm Loan bonds with a value of $309,000, and the accrued interest thereon at the time of the decedent's death was $5,536.19. The Farm Loan bonds of $376,700 and $309,000, respectively, were issued under the provisions of the Federal Farm Loan Act of July 17, 1916, 39 Stat. 360. The respondent, in determining the deficiency herein, included in the estate the foregoing Farm Loan bonds of $376,700 and $309,000 and accrued*1083 interest thereon of $5,310.40 and $5,536.19.
Subsequent to the decedent's death the estate incurred an obligation of $1,500 for the perpetual care and maintenance of a mausoleum and cemetery lot for the last resting place of the decedent. This obligation of $1,500 was incurred or contracted bona fide and for an adequate consideration in money or money's worth. The respondent, *898 in determining the deficiency herein did not allow the $1,500 or any part thereof as a deduction in arriving at the net value of the estate.
The decedent's gross income for the years 1920 to 1927, both inclusive, was as follows:
| Year | Salary | Dividends | Interest | Total |
| 1920 | $15,000.00 | $485.28 | $2,076.44 | $17,561.72 |
| 1921 | 15,000.00 | 13,874.87 | 1,972.11 | 30,846.98 |
| 1922 | 22,500.02 | 22,888.84 | 1,710.94 | 47,099.80 |
| 1923 | 25,000.04 | 28,800.00 | 161.15 | 53,961.19 |
| 1924 | 27,500.00 | 50,312.29 | 298.47 | 78,110.76 |
| 1925 | 24,999.96 | 12,341.40 | 2,771.00 | 40,112.36 |
| 1926 | 8,249.99 | 86,699.60 | 3,172.09 | 98,121.68 |
| 1927 | 49,429.82 | 37,415.14 | 86,842.96 |
The income of Cora B. Igleheart trust estate for the year 1926 was $6,312.84 and for the year 1927 was $25,600.02. These*1084 incomes are exclusive of capital gain in both tax years.
It was agreed that if the Board should find that the decedent retained an interest in the trust fund created for the benefit of Cora B. Igleheart, the value of the interest retained shall be determined under Rule 50 of the Board's Rules of Practice.
In respect to the issues settled by stipulation or otherwise disposed of, it was agreed by the parties as follows:
The net estate should be decreased $312,626.25 for the reason that at the date of the decedent's death the trust fund of which the Union Trust Co. of Indiana was trustee had only 7,500 shares of the stock of Igleheart Brothers, Inc., instead of 10,000 shares as determined by the respondent in the notice of deficiency. This stock had a value of $125 1/16 a share at the date of the decedent's death.
The estate should be reduced by $6,090 on account of an obligation of the decedent to the Trinity Methodist Episcopal Church of Evansville, Indiana.
The estate should be reduced by the sum of $425 on account of additional income taxes of the decedent determined by the respondent for the years 1925, 1926, and 1927.
The amount deductible on account of attorneys' *1085 and accountants' fees and out-of-pocket expenses incurred in this proceeding shall be settled under Rule 50 of the Board's Rules of Practice.
It was conceded by the respondent that no more than the sum of $94,500, the cash surrender value of the $100,000 endowment policy on the life of the decedent's wife, should be included in the estate.
In calculating the amount of taxable transfers to be included in the estate the respondent allowed an exemption of $5,000 for each of five beneficiaries.
The respondent determined a net taxable estate of $2,876,703.66.
*899 OPINION.
VAN FOSSAN: For the purposes of our discussion the questions to be determined herein may be grouped as follows:
I. Were certain transfers made by the decedent prior to his death made in contemplation of or intended to take effect in possession or enjoyment at or after the decedent's death? II. Is section 302(c) of the Revenue Act of 1926, in so far as concerns the so-called "conclusive presumption" thereof, constitutional?III. Should there be included in the gross estate the value, at the date of decedent's death, of certain transfers made by him, where the value at the date of death*1086 is in excess of the value at the date of the transfer, and is such inclusion constitutional?
IV. Are the petitioners entitled to the deduction of the amount of an obligation incurred by them for the perpetual care of a cemetery lot and mausoleum? V. To the extent of their excess over $40,000, should the proceeds of certain insurance policies be included in the gross estate? VI. Should any part of the value of certain Federal Farm Loan bonds be included in the gross estate for Federal tax purposes?I. and II. The respondent contends that the value of the assets of the trust of which decedent's wife, Cora B. Igleheart, was trustee was included lawfully in the gross estate for the reason that the creation of the trust was a transfer in contemplation of or intended to take effect in possession or enjoyment at or after the death of the decedent, within the provisions of section 302(c) of the Revenue Act of 1926. He also contends that a transfer in contemplation of death within the intent of the statute occurred in each of the following transactions: The purchase by the decedent of an endowment insurance policy of $100,000 on his wife's life; the making of a cash payment*1087 by the decedent as part consideration for a house in Florida, title to which was taken in his wife's name; and the payment of income taxes due from the Cora B. Igleheart trust.
Section 302 of the Revenue Act of 1926 reads, in part, as follows:
SEC. 302. 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, real or personal, tangible or intangible, wherever situated -
(a) To the extent of the interest therein of the decedent at the time of his death;
* * *
(c) To the extent of any interest therein of which the decedent has at any 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, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Where within two years prior to his death but after the enactment *900 of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or intended to take effect in possession*1088 or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of $5,000, then, to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death but prior to the enactment of this Act, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title.
The so-called "conclusive presumption" contained in the second sentence of section 302(c) has been pronounced unconstitutional. Heiner v. Donnan,285 U.S. 312">285 U.S. 312. To this extent petitioners' contention is sustained. This, however, is not an end of the matter.
Under the valid provisions of the section, the petitioners must establish by a preponderance of evidence that the transfers in question were not, in fact, made in contemplation of death or intended to take*1089 effect in possession or enjoyment at or after the decedent's death. J. Bertram Lippincott et al., Executors,27 B.T.A. 735">27 B.T.A. 735. The petitioners contend that the transfers here in question were induced by motives different from contemplation of death and that none of the transfers were intended to take effect in possession or enjoyment at or after the death of the decedent.
In United States v. Wells,283 U.S. 102">283 U.S. 102, the Supreme Court has definitely established the tests to be applied in determining whether any particular transfer was made "in contemplation of death." In that case the court interpreted the phrase "contemplation of death" as used in section 402(c) of the Revenue Act of 1918. The phrase is used similarly in section 302(c) of the Revenue Act of 1926. In the Wells case the Supreme Court said, inter alia:
* * * 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. *1090 Nichols v. Coolidge,274 U.S. 531">274 U.S. 531, 542; Milliken v.United States, ante p. 15. 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. Death must be "contemplated", that is, the motive which induces the transfer must be of the sort which leads to testamentary disposition. * * * The question, necessarily, is as to the state of mind of the donor.
The Supreme Court also said:
As the test, despite varying circumstances, is always to be found in motive, it cannot be said that the determinative motive is lacking merely because of the absence of a consciousness that death is imminent. It is contemplation of *901 death, not 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 promptings independent of mortal disease. Yet age in itself cannot be regarded as furnishing a decisive test, for sound health and purposes*1091 associated with life, rather than with death, may motivate the transfer. The words "in contemplation of death" mean that the thought of death is the impelling cause of the transfer, and while the belief in the imminence of death may afford convincing evidence, the statute is not to be limited, and its purpose thwarted, by a rule of construction which in place of contemplation of death makes the final criterion to be an apprehension that death is "near at hand."
In the search for the motive including the transfers in this proceeding, we do not find such a state of facts as appeared in the Wells case, in which the Court of Claims had held that the immediate moving cause of the transfers there in question "was the carrying out of a policy, long followed by decedent in dealing with his children, of making liberal gifts to them during his lifetime." In the present proceeding there is no evidence of any policy on the part of the decedent of making gifts prior to the transfers in question. The picture here is that of a man of 74 years or more of age whose physical activities had been greatly limited for about 11 years because of a hemiplegia resulting from a so-called stroke. In*1092 other respects he was apparently in good health. He was thoughtful, intelligent, cheerful and interested in the affairs of the business with which he had been connected for many years.
In April 1926, as a result of the redemption of the preferred stock of Igleheart Brothers of Indiana, and as a result of the sale of that corporation, the decedent found himself possessed of a large amount of free capital. He talked about its investment with his brothers, who were relatively in the same position as himself. He consulted his counsel. Shortly thereafter, on June 1, 1926, he executed three instruments prepared by his counsel at his request, namely, (a) the irrevocable trust for the benefit of his wife during her life with remainder over; (b) a revocable trust for his own benefit for life with the remainder to his children and grandchildren; and (c) his last will and testament.
Of the trusts created by the decedent June 1, 1926, when he also executed his will, only the transfer effected by the execution of the trust to Cora B. Igleheart is here in question. In respect to this transfer it is our opinion that the evidence discloses testamentary intent and therefore the motive inducing*1093 it was contemplation of death. United States v. Wells, supra;Heiner v. Donnan, supra;J. Bertram Lippincott et al., Executors, supra.
The evidence shows that the decedent and his brothers were concerned about the investment of their newly acquired free capital. *902 They wanted to invest it in such a way that in the event of their "absence" their "wives would not have the burden of it, in the care of it." The natural conclusion is that the "absence" referred to is that permanent separation effected by death. While the decedent and his brothers did not discuss the possibility of the decedent's death, the evidence further shows that they, including the decedent, considered that they ought to be "prepared for any eventuality" by getting "their estates fixed up." The decedent was then over 74 years of age and the hemiplegia, resulting from the stroke, which seriously limited his locomotion, undoubtedly furnished him a constant reminder of the uncertainty of life. What then was the "eventuality" in preparation for which the decedent wished to have "his estate fixed up?" The answer is patent. What the decedent had*1094 in mind was so to dispose of his property that his estate "would be fixed up" finally in preparation for his death. The evidence shows that he wanted so to dispose of his property when there was "no rush" and he was "clear-headed."
Another significant bit of evidence is found in the statement of the lawyer to whom decedent entrusted his confidence and the drafting of the trusts and his will, all executed June 1, 1926. Asked if decedent made any statements indicating the reason for executing the will at the same time the trusts were executed, he replied: "Yes, that inasmuch as the trust made a certain disposition as to that part of the property that was to go to his children he wished to indicate the way the remainder of his estate should go, outright, as to his wife and children." To us this statement speaks with striking clarity. It enunciates the same testamentary intent in the making of the trusts as in making the will. Moreover, it is consonant with the recitals of other witnesses above referred to. Short of a deliberate declaratory statement of purpose, it would be difficult to conceive better proof of a testamentary intent than is found in these excerpts of testimony when*1095 coupled with the actual execution of the three documents - the trusts and the will - on the same day. The motive, therefore, which induced the decedent to execute, on June 1, 1926, the Cora B. Igleheart trust was the same motive which induces testamentary disposition of property and which in fact induced the decedent to execute his last will and testament on the same date. The inducing motive was contemplation of death.
The petitioners contend that the main motive inducing the transfer to Cora B. Igleheart, as trustee, of a part of the decedent's property was his desire to give her, for life, an independent income consistent with his means. In support of their contention in this respect the petitioners rely largely on the testimony of decedent's counsel who prepared the three instruments referred to. The latter *903 testified that during his consultations with decedent concerning the drafting of the instruments, the decedent informed him that since he, the decedent, for the first time in his life was possessed of ample free capital he wished to give his wife an independent income consistent with his means. This desire of decedent is not inconsistent with testamentary*1096 intent with respect to the trust in her favor. Every person executing a testamentary instrument thereby exhibits a desire to give something to the beneficiary named therein. The decedent's counsel also testified that the decedent told him that he wanted his wife to get experience in handling investments and the petitioners contend that this statement is evidence that the motive inducing decedent to execute the trust to his wife was not, in fact, testamentary in character. There appears no special reason why the decedent's wife should have managed investments while the decedent remained alive and the expression of his desire to have her learn to manage investments seem to us to be evidence that when he made such statement he was contemplating his death, as a result of which his wife would become one of the executors of the last will and testament, charged with the management of a large estate.
Petitioners' counsel also stresses by questions to his witnesses that decedent was of a cheerful, optimistic disposition, concerned with living, never morose and never given to discussing the eventuality of death and argues therefrom that this state of mind was not consistent with the contemplation*1097 of death or a testamentary purpose. If any act can be said to be done in contemplation of death, it is the making of a will. It is the most usual testamentary disposition. Yet the prudent man makes his will while in the full vigor of life. The prefatory words to most wills refer to the sound and disposing mind of the testator. Though the making of a will is a testamentary act, provocative of solemnity, nothing could be further from truth than the impression that such acts are not performed by persons of cheerful, optimistic dispositions, uninfluenced by the shadows of approaching death. Yet, the Supreme Court has said, such acts are in contemplation of death.
The humor and disposition of the person is no necessary indication of a testamentary purpose or of its absence.
These contentions of the petitioners, together with their contention that one reason for the execution of the Cora B. Igleheart trust was the decedent's wish to reduce his income tax, are not, in our judgment, of sufficient weight to overcome the implications of the other evidence already referred to which points strongly to the fact that the execution of the Cora B. Igleheart trust was induced by the same*1098 motive which induced the decedent to execute his will, namely, the contemplation of death.
*904 On all the evidence we hold that the petitioners have failed to prove that the transfer to Cora B. Igleheart, as trustee, was not in fact made in contemplation of death.
The petitioners have presented no evidence relating directly to the motive inducing the decedent's purchase, in August 1927, of the $100,000 endowment policy on the life of his wife, the purchase price of which was included by the respondent in the gross estate. It would perhaps be fair to presume that this gift was induced by the same motive as the transfer to Cora B. Igleheart, as trustee, namely, contemplation of death. In any event, petitioners, who had the burden of proof, have not proved the contrary. Therefore, the cash surrender value of the policy at the date of decedent's death, $94,500, should be included in the gross estate.
It appears that in addition to the full corpus of the estate, the respondent included in the taxable gross estate the sum of $25,672.63, which amount had been paid by the decedent during 1927 for and on account of income taxes for the year 1926 assessed against the Cora*1099 B. Igleheart trust. It was stipulated that the payment was made "in order to keep the capital of the trust intact." This payment did not remain in the corpus of the trust. In effect it merely passed from decedent through his wife's hands to the Government as income taxes. It was not in the estate at decedent's death. Except for this payment the corpus of the estate would have been depleted by $25,000 and the taxable estate would have been correspondingly less. Respondent has included the full amount of the estate. Therefore, the inclusion in the taxable gross estate of this payment constitutes a duplication of the amount.
It is our opinion that the payment of $40,214.48 by the decedent as cash consideration for the house in Florida, title to which was taken in the name of his wife, was not a transfer in contemplation of death. The petitioner and his wife had lived in Newburgh, Indiana, in a house the title to which was in his wife's name. The evidence shows that the decedent established residence at Fort Myers, Florida. As part payment for the house there the house at Newburgh belonging to decedent's wife was transferred to the owner of the Fort Myers house. The normal*1100 inference in this transaction is that the decedent was merely substituting one house standing in his wife's name for another house of like category and that any expenditure of cash connected with such substitution was not, in fact, made in contemplation of death.
III. At the date of the decedent's death the respective values of the assets of the two trusts described in the findings of fact were in excess of their values at the date of their creation. The respondent included in the gross estate the respective values at the *905 date of death. The petitioners contend that the inclusion of the increase in value between the date of creation of the trusts and the date of decedent's death is unconstitutional. They rely solely on the following quotation from Heiner v. Donnan,285 U.S. 312">285 U.S. 312:
Moreover, under the statute the value of the gift when made is to be ignored, and its value arbitrarily fixed as of the date of the donor's death. The result is that upon those who succeed to the decedent's estate there is imposed the burden of a tax, measured in part by property which comprises no portion of the estate, or which the estate is in no way related, and*1101 from which the estate derives no benefit of any description. Plainly, this is to measure the tax on A's property by imputing to it in part the value of the property of B, a result which both the Schlesinger and Hoeper cases condemn as arbitrary and a denial of due process of law. Such an exaction is not taxation but spoliation. "It is not taxation that government should take from one the profits and gains of another. That is taxation which compels one to pay for the support of the government from his own gains and of his own property." United States v. Baltimore & O.R. Co., 17 Wall., 322, 326, 21 L.ed. 597, 599.
It is evident that the quoted statement is related solely to the question then before the Court, namely, whether the second sentence of section 302(c) of the Revenue Act of 1926 is constitutional. The Court was elaborating its argument with respect to the arbitrary character of the so-called "conclusive presumption." Earlier in its opinion the Court had held that the second sentence violates the due process clause of the Fifth Amendment to the Constitution. The Court had stated, however, the "there is no doubt of the power of Congress to*1102 provide for including in the gross estate of a decedent, for purpose of the death tax, the value of gifts made in contemplation of death." In Heiner v. Donnan, supra, the Court discussed the nature of the tax imposed by section 301 of the Revenue Act of 1926, saying that "the thing taxed is the transmission of property from the dead to the living," citing Knowlton v. Moore,178 U.S. 41">178 U.S. 41. Citing Milliken v. United States,283 U.S. 15">283 U.S. 15, the Court said that the value of property transferred without consideration and in contemplation of death is included in the value of the gross estate of a decedent for the purpose of a death tax "because the transfer is considered testamentary in effect." It is our opinion, therefore, that in the quotation from Heiner v. Donnan, relied on by the petitioners, the Court was not suggesting that there was anything arbitrary or unconstitutional in measuring the tax on transfers made in contemplation of death by the same measure applying to all testamentary transfers of property. Such a suggestion would be inconsistent with the stated reason for including, for the purposes of a death tax, *1103 the value of property transferred without consideration and in contemplation of death.
The inclusion of the value of the assets of the two trusts at the time of the decedent's death is in strict conformity with the provisions *906 of section 302 of the Revenue Act of 1926. In Milliken v. United States, supra, a question quite similar to the one before us was involved. In that case, while the Revenue Act of 1916 was in force, the decedent gave certain shares of stock to his children. The decedent died after the effective date of the Revenue Act of 1918. The Commissioner included the shares of stock in the decednt's estate and collected a tax computed on the value of the stock at the date of the decendent's death. The Court said, in part:
The objection to the tax, chiefly urged in brief and argument, is that the taxing statute, as applied, is a denial of due process of law because retroactive. It is said that the statute is invalid not alone because it reaches a gift made before its enactment, but because it measures the tax by rates not in force when the gift was made, applied to the value of the property not when given, but at the uncertain*1104 later time of the death of the donor.
* * *
Hence, in challenging the present tax it does not suffice to say that the gift antedated the statute. It is necessary to consider the nature of the tax and of the decedent's gift. When the gift was made it was subject to the provisions of the 1916 Revenue Act. By it, Congress had adopted the well understood system of taxation of transfers of property at death, already in force in forty-two states. * * *
* * *
* * * Not only was the decedent left in no uncertainty that the gift he was then making was subject to the provisions of the existing statute, but in view of its well understood purpose he should be regarded as taking his changes of any increase in the tax burden which might result from carrying out the established policy of taxation under which substitutes for testamentary gifts were classed and taxed with them. [Italics supplied.]
It is our opinion that the above quotations from Milliken v.United States, are directly applicable to the question now under consideration. Here it is urged that the taxing statute as applied is invalid because it applies the rates in force to the value of the transfers not*1105 when made, but at the uncertain later time of the death of the transferor. feror. It appears from the evidence that at the time he executed the two trusts the decedent was advised as to the application to them of the provisions of the Revenue Act of 1926. Therefore, as suggested in Milliken v. United States, supra, under similar circumstances, he should be regarded as taking his chances of any increase in the tax burden which might result from carrying out the established policy of taxation under which substitutes for testamentary gifts are classed and taxed with them. We therefore hold that the inclusion in the gross estate of the increase in value of the two trusts between the date of their creation and the date of the decedent's death is both proper and constitutional.
IV. The respondent allowed as a deduction the cost of a cemetery lot and a mausoleum. He disallowed the deduction of the sum of $1,500 which represents an obligation incurred by the petitioners for *907 the perpetual care of the lot and mausoleum. The petitioners contend that this disallowance was error. This obligation was not incurred by the decedent but by the executors and*1106 therefore the question for determination is whether the amount is deductible as a proper funeral expense.
Section 303(a)(1) of the Revenue Act of 1926 provides, in part, for the deduction of "such amounts for funeral expenses * * * as are allowed by the law of the jurisdiction, whether within or without the United States, under which the estate is being administered."
Apparently the decedent's estate was being administered under the laws of the State of Florida where the decedent had established his legal residence during his last years. Section 5541 of the laws of Florida provides, among other things, that executors and administrators shall be allowed all reasonable charges on account of funeral expenses. There is no evidence before us from which we can infer that the Florida court having jurisdiction allowed this item in the accounts of the petitioners.
It is the general rule that necessary amounts expended for the burial of a decedent are allowable out of the decedent's estate and that where the estate is solvent the amount to be allowed must vary with local custom, the station in life of the decedent, the extent of his fortune, as well as other material circumstances. *1107 Schouler on Wills, Executors and Administrators, 6th ed., vol. III, p. 2293; Crothers v. Crothers,123 Md. 603">123 Md. 603; 91 Atl. 691; Pierce v. Fulmer,168 Ala. 344">168 Ala. 344. The respondent allowed the deduction of the cost of the cemetery lot and mausoleum in accordance with this rule. It has been held that where there is objection the expenses of fencing, preserving and improving a cemetery lot are not allowable out of the estate. Tuttle v. Robinson,33 N.H. 104">33 N.H. 104. Expenditures for perpetual care are expenditures for preservation. In some states, however, a payment to a cemetery corporation for perpetual care of a burial lot is made allowable by statute. Hall v. Burgess,40 R.I. 314">40 R.I. 314; 100 Atl. 1013. It does not appear that such is the case in the State of Florida. The statute of that state appears to contemplate allowance only of expenses necessary to the burial. Such expenses manifestly do not include the perpetual care of a cemetery lot and mausoleum. It is, therefore, our opinion that the respondent correctly disallowed the amount in question.
V. The petitioners contend that no*1108 portion of the proceeds of the 13 life insurance policies set forth in the findings of fact, the issuance of which was originally procured by Igleheart Brothers of Indiana, should be included in the taxable estate.
Section 302 of the Revenue Act of 1926 provides for the inclusion in the gross estate of the value of a decedent's property at the time *908 of his death to the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life.
The proceeds of the policies in question were receivable by beneficiaries other than the executors of the decedent's estate, but it is contended by the petitioners that the policies were not taken out by the decedent on his own life and, therefore, the proceeds thereof are not within the provisions of the section.
These policies were originally taken out on decedent's life through the procurement of Igleheart Brothers of Indiana and for the benefit of that corporation. The decedent signed the respective applications*1109 for the policies. The corporation procuring the policies paid all the premiums up to about February 16, 1926. On the latter date the decedent purchased from Igleheart Brothers of Indiana all its right, title, and interest in and to the policies, paying therefor the cash surrender value of the policies, plus any premiums paid or to be paid after January 30, 1926. Thereupon, at the instance of the decedent, the beneficiaries of the policies were changed, the decedent reserving the right to change the beneficiaries further, and he paid all of the premiums falling due thereafter until the date of his death.
It is our opinion that to the extent of their excess over $40,000 the proceeds of these policies as of the date of decedent's death should be included in the taxable estate. To hold otherwise would be either to ignore the intent of the statute or to nullify it by mere technical construction. The applicable provisions of the statute should be construed as intending to include all the insurance on a decedent's life in favor of beneficiaries other than his estate which was acquired by him through the expenditure of his own money, where he has the power to dispose of the proceeds*1110 of the insurance at will. Such a construction is in harmony with the views of the Supreme Court expressed in Chase Nat. Bank v. United States,278 U.S. 327">278 U.S. 327. The tax is imposed on the transfer by death of the decedent's net estate and in the Chase Nat. Bank case, referring to the word "transfer" the Court said, "it must, we think, at least include the transfer of property procured through expenditures by the decedent with the purpose, effected at his death, of having it pass to another." When the decedent bought from Igleheart Brothers of Indiana all of that corporation's right, title and interest in and to the insurance policies on his own life he acquired, by expenditure of his own money, property rights which he intended to pass to others at his death but which, so long as he lived, he could dispose of at will. Since he originally *909 signed the respective applications for the insurance policies, paid the cash surrender value for the assignment to himself of the corporation's rights and immediately named new beneficiaries of the policies, the effect of the transfer was that on the date of such purchase he procured insurance on his own life, the*1111 proceeds of which were payable to beneficiaries designated by him. By this transfer he became a party to the insurance contracts as actually as if he himself had "taken out" the policies originally. The policies were owned by him like any other chose in action and his rights therein could only be defeated by forfeiture because of failure to pay the stipulated premiums. New York Life Ins. Co. v. Statham,93 U.S. 24">93 U.S. 24; Mutual Life Ins. Co. v. Hurni Packing Co.,263 U.S. 167">263 U.S. 167. Under these conditions we must hold that the acquisition of these policies by purchase was, in result, the taking out of the policies by the decedent on the date of purchase by him of all the rights thereunder. Therefore, the proceeds of the policies, to the extent of their excess over $40,000, should be included in the gross estate.
In reaching this conclusion we have not failed to consider Bessie M. Ballinger, Executrix,23 B.T.A. 1312">23 B.T.A. 1312. The facts of that proceeding are distinguishable from the facts respecting the insurance here involved. That proceeding in part concerned group insurance taken out by a corporation to cover the lives of its employees. *1112 There was no evidence of any payment of money by the insured and no evidence that he had any rights under the group policy except to change the name of the beneficiary. Here, however, by the expenditure of $94,000 the decedent had had himself substituted for the corporation which originally procured the insurance, securing thereby all of the rights and privileges attendant upon ownership of the policies. Bessie M. Ballinger, supra, is, therefore, not applicable to the question under consideration.
VI. With respect to the Federal Farm Loan bonds referred to in the findings of fact, the petitioners contend that to include the value of the whole or any part thereof in the gross estate for purpose of estate tax is to subject to taxation instrumentalities of the Government which are exempted from such taxation by provisions of the statute authorizing their issue. This contention is based primarily on the provisions of section 26 of the Federal Farm Loan Act approved July 17, 1916, ch. 245 (39 Stat. 360) which reads in part as follows:First mortgages executed to Federal land banks, or to joint stock land banks, and farm loan bonds issued under the provisions of*1113 this Act, shall be deemed and held to be instrumentalities of the Government of the United States, and as such they and the income derived therefrom shall be exempt from Federal, State, municipal and local taxation.
*910 Section 302(a) of the Revenue Act of 1926 provides in substance that to the extent of his interest therein at the time of his death, the value of all the decedent's property, real and personal, tangible and intangible, wherever situated, shall be included in his gross estate. It is, of course, apparent that Farm Loan bonds are within the classification of property contained in the section. It is urged, however, that the phraseology of section 26 of the Farm Loan Act above quoted discloses that it was the intention of Congress to exempt the principal of the bonds issued in accordance with the provisions of the act, together with the income therefrom, from all forms of taxation, including taxation under the estate tax law. In this connection it should be observed that the Federal estate tax law was not approved until September 8, 1916, and therefore it can not be said to have been necessarily within the contemplation of the Congress at the date of the enactment*1114 of the Federal Farm Loan Act on July 17, 1916. It is our opinion, however, that the inclusion of the value of such bonds in the gross estate of the decedent for the purpose of determining the amount of tax imposed on the transfer of the net estate is not interdicted by the quoted provisions of the Federal Farm Loan Act.
The nature of the estate tax imposed by the revenue acts, beginning with the Revenue Act approved September 8, 1916, is well settled. It is not a tax on property. It is an excise, the amount of which is measured by the value of the property transferred. Chase Nat. Bank v. United States, supra;Heiner v. Donnan, supra.
Questions closely akin to the one here involved were discussed by the Supreme Court in Plummer v. Coler,178 U.S. 115">178 U.S. 115, where the fundamental question was the constitutionality of the inheritance tax law of the State of New York when applied to a legacy which consisted of bonds of the United States containing a clause exempting them from state and Federal taxation. The Supreme Court upheld the validity of the state law, holding that "a State may lawfully measure or fix the amount of*1115 the tax by referring to the value of the property passing and that the incidental fact that such property is composed, in whole or in part, of Federal securities does not invalidate the tax or the law under which it was imposed." The language just quoted with reference to Plummer v. Coler, supra, is an excerpt from Murdock v. Ward,178 U.S. 139">178 U.S. 139; 44 L.ed. 1009. In the latter case the Court had under consideration the same statute considered in Knowlton v. Moore, supra, namely, the War Revenue Act of June 1898, when applied to United States Government bonds issued under statutes providing that neither principal nor interest should be taxed. In Murdock v. Ward, the Court also said: "Without repeating the discussion in Plummer v. Coler, and following the *911 conclusion there reached, we are unable to distinguish that case from the present one." Nor can we distinguish the Plummer case, on principle, from the issue now before us. If a state, by an inheritance tax law, can validly impose a tax measured by the amount or value of a legacy, even if the legacy includes tax-exempt United States*1116 bonds, the reasoning justifying such a conclusion must, in our opinion, when applied to the present issue lead to the similar conclusion that the United States may impose a death tax measured by the value of Farm Loan bonds although the principal and interest of such bonds are exempted by statute from Federal, state, and local taxation.
The petitioners urge, however, that the decision of the Supreme Court in First Nat. Bank of Boston v. State of Maine,284 U.S. 312">284 U.S. 312, recognizes that the estate tax, while not a direct tax, is in substance a tax on property and that, therefore, the value of no part of the Farm Loan bonds may be included in the decedent's gross estate for estate tax purposes. The question in that case, as stated by Mr. Justice Sutherland, is "whether the State of Maine has power under the Fourteenth Amendment to impose a tax upon the transfer by death of shares of stock in a Maine corporation, forming part of the estate of a decedent, who, at the time of his death, was domiciled in the Commonwealth of Massachusetts." In its decision of the question the Supreme Court applied the rule mobilia sequunter personam and held that the situs of intangibles*1117 is at the domicile of a decedent for the purpose of state taxation of their transfer by death. We have heretofore considered the effect of this and similar decisions of the Supreme Court upon the power of Congress to tax. In Estate of John Joseph Garvan,25 B.T.A. 612">25 B.T.A. 612, we held that First Nat. Bank of Boston v.State of Maine and similar decisions "are not controlling when the power of Congress to tax is considered." Nor, in our opinion, is there anything in the decision in the First Nat. Bank of Boston case modifying the rule that in Federal taxation of transfers by death, "the thing taxed is the transmission of property from the dead to the living." Knowlton v. Moore, supra;Murdock v. Ward, supra;Chase Nat. Bank v. United States, supra;Heiner v. Donnan, supra.
The controlling statute has definitely set forth what property is to be included in a decedent's gross estate for the determination of the amount of tax to be imposed on the transfer of the net estate and it is our opinion that the value of the Farm Loan bonds in question may not be excluded from the value*1118 of the gross estate.
Reviewed by the Board.
Decision will be entered under Rule 50.
*912 SEAWELL, dissenting: Having reference to part III in the prevailing opinion, I do not agree, under the circumstances here present, that the property embraced in the trust should be valued for estate tax purposes, as of the date of decedent's death; or, if it is required by the statute to be so valued, that the statute is not unconstitutional.
The statute in reference to estate taxes, here applicable, is section 302 of the Revenue Act of 1926, which provides:
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, real or personal, tangible or intangible, wherever situated * * *.
This obviously refers to property of the decedent owned by him at the time of his death, and is not sufficient to include property theretofore conveyed away and not then owned by him. This is shown further by subsection (a) of this section, 302, which provides immediately after the language above quoted:
(a) To the extent of the interest therein of the decedent at the time of his death.
It is significant*1119 that not only subsection (a) but also subsection (b) repeats the phrase theretofore used in the section, to wit: "at the time of his death," and that the next succeeding subsection, (c), does not use the phrase. It is subsection (c), in which the phrase "at the time of his death" is not used, that is controlling in this proceeding, and its pertinent language for the case at bar is as follows:
(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of * * * death. * * *
The transfer being by trust in this case and having been determined to have been made in contemplation of death, we come to apply the cited portions of the statute to the following portions of the findings of fact:
On June 1, 1926, the date of the execution of the transfer to Cora B. Igleheart, as trustee, the total value of the property transferred to her was $498,599.88 and the value of the property held under the trust instrument at the date of the decedent's death was $606,974.88, which latter amount was included by the respondent in the gross estate.
The question presented is how and by what yardstick of time should we measure*1120 and fix "the extent" of the "interest" in the property transferred on June 1, 1926, to the trustee, for its inclusion in the gross estate of the decedent. The petitioner, answering the question, says by using the value of the property transferred at the date of the transfer; the respondent says by using the value of the property transferred at the time of the death of the transferor. The *913 statute does not require that because the transfer is of a testamentary nature it should be measured as if under a testament.
On June 1, 1926, the extent of the interest of the transferor in the property was all of it, including the right to convey it even in contemplation of death. A conveyance made in contemplation of death is not void or voidable for that reason. The extent of the interest of the transferor in the property after June 1, 1926, when he conveyed it to the trust, including the time of his death, was nothing. How the difference of $108,375 was added to the trust fund after the transfer made by decedent and before decedent's death, whether by the efforts and management of the trust by the trustee, contributions by other friends of the beneficiaries, or by the general*1121 rise in the market values of the trust properties, or otherwise, is not shown in the evidence and the findings of fact. The only thing we know is that the $108,375 was not transferred by the decedent to the trust and his death was no generating source of any right therein. Coolidge v. Long,282 U.S. 582">282 U.S. 582. Shall it be included in the gross estate of the decedent? It seems to me that to measure the transferor's estate at death, for estate tax purposes, by including property which was not then and never had been his property, is arbitrary and capricious beyond that permitted by the statute or the Constitution. Heiner v. Donnan,285 U.S. 312">285 U.S. 312. See also Frew v. Bowers, 12 Fed.(2d) 625.
In the case of Milliken v. United States,283 U.S. 15">283 U.S. 15, cited as the controlling authority in the prevailing opinion, decedent therein in contemplation of death, gave property to his children after the effective date of the 1916 Revenue Act and before the effective date of the 1918 Revenue Act, in which latter act the estate tax rate was increased. Decedent died in 1920. The tax was computed on the basis of the value*1122 of the gift at the time of the death of decedent and taxed at the rate in the 1918 Act; but there is nothing in the case in the Court of Claims or the Supreme Court to indicate that the value of the gift to the children was greater or less when decedent died than when the gift was made. In the Milliken case petitioner was contending that the 1918 Act, enacted after the gift to the children, was retroactive, and that he should be taxed at the lesser rate provided in the 1916 Act, if at all. There was no dispute as to the value of the property and no contention that its value at the time of the death of the decedent was different from its value at the time the gift was made. Whatever may have been said in the two opinions filed in the Court of Claims or in the opinion of Mr. Justice Stone in the Supreme Court, if anything, in reference to the time when the value of the gift should be computed, was obiter Dictum, for that question, present here, was not present in the *914 Milliken case. There are found in the books judicial expressions anticipatory of this question, but no case cited in the majority opinion or called to the attention of the Board presents this*1123 precise question for review.