*608 1. TRANSFERS IN CONTEMPLATION OF DEATH. - A transfer of property in trust for the benefit of the decedent's children for the purpose of making the children independent financially so that he could see them enjoy the money while he was alive, so that he might observe and advise them in the handling of their money and investments, to relieve them from financial difficulties, and to relieve himself from the annoyance of frequent solicitations of funds, was not made in contemplation of death.
2. Id. - A transfer of property in trust for the benefit of the decedent's grandchildren to enable them, upon reaching their majority, to be independent of their parents, to pay their own expenses, and to complete their education, was not made in contemplation of death.
3. TRANSFERS TO TAKE EFFECT IN POSSESSION OR ENJOYMENT AT OR AFTER DEATH. - The above transfers were irrevocable and absolutely divested the grantor of all interest in the property. They were not made to take effect in possession or enjoyment at or after death.
*1259 The Commissioner determined a deficiency in estate tax of $3,537,291.45. Some of the issues raised by the pleadings have been *1260 settled by a stipulation. The issues for decision are (1) whether the amount of $5,839,414.16, representing the value at the decedent's death of property transferred in trust on October 6, 1931, for the benefit of his children should be included in the decedent's gross estate, and (2) whether the amount of $1,100,000, representing the value at the decedent's death of property transferred in trust on November 28, 1923, May 2, 1927, and September 10, 1930, for the benefit of his grandchildren, should be included in the gross estate. The latter issue is raised by the Commissioner and is the basis of a claim for an increased deficiency.
FINDINGS OF FACT.
Robert Wetherill, the decedent, died on June 18, 1934, at the age of 86 years. He was then a resident of Chester, Pennsylvania. His last will, dated April 11, 1932, containing a codicil dated August 10, 1933, was probated in Delaware County, Pennsylvania. The petitioners are the executors. They filed an estate*610 tax return with the collector of internal revenue for the first district of Pennsylvania.
Mary G. Wetherill, the decedent's wife, died on December 12, 1931. Phoebe W. Nolting, his daughter, died on April 15, 1932. The decedent was survived by five daughters, Mary W. Trainer, Anne W. Kerr, Louise W. Van Keuren, Mildred W. Stull, and Kathleen W. Copeland, by a son, Robert Wetherill, Jr., by eighteen grandchildren, by two sisters, and by a brother.
The decedent and his brother was engaged in a manufacturing business for a period of over forty years. That business, which was conducted in the name of Robert Wetherill & Co., was sold in March 1916 for about $3,000,000. The decedent operated two different corporations during the next few years as Federal receiver. One was a large public utilities holding company. Under the decedent's management its affairs were soon placed on a sound financial basis and the receivership was terminated. The decedent thereupon acquired stock of the company and became its president and one of its directors. He managed its business until 1924, when he sold his stock at a substantial profit. In 1924 he became chairman of the board of directors of*611 the Cambridge Trust Co., which was later combined with the Chester National Bank to form the Chester-Cambridge Bank & Trust Co. The decedent from time to time also served as a director of banking, railway, and other corporations. He was a director of the Chester-Cambridge Bank & Trust Co. and the New York-Pennsylvania Co. when he died.
The decedent received very little education in schools. He went to work at an early age. He had an excellent mind, and was keen and alert. He became an expert in engineering and mechanical problems. *1261 He was able and had sound judgment in matters of business and investments. He was careful and methodical in his work and extremely slow and deliberate in making decisions or taking action. He would not and could not be hurried. He was even tempered, cheerful, and optimistic. He never worried. He was always planning for the future. He was modest and retiring and lived a simple and quiet life. He enjoyed good health throughout his entire life, except as herein stated, never complained of any ailment, and was vigorous and active up to the time of his death. His children and grandchildren were daily visitors at his home.
He devoted*612 his time and energy to business affairs, and spent his evenings at home - working, reading, or visiting with his family. He had no activities or diversions other than business. He never took a vacation. Up to his last illness he attended his office daily and kept regular office hours. He was extraordinarily regular in going to work early, returning late, and in eating his meals and retiring at fixed times. He was proud of his physical condition and held himself up to his children in his later years as an example of regular and careful living. He expected to live to be very old.
The decedent at all times was keenly interested in his physical condition and was very careful of his diet. It had been his custom on Sundays to visit his daughter Louise and her husband Dr. Van Keuren. On those occasions Dr. Van Keuren made physical examinations of the decedent at the latter's request. Those examinations, made regularly over a period of 20 years, disclosed that the decedent's blood pressure was normal and that he was otherwise in good health. At no time did Dr. Van Keuren find any condition indicating the need of medical treatment. In later years he did observe a hardening of*613 the arteries - a usual and normal condition of a man of the decedent's years.
After the decedent recovered from an infected foot in 1913 he never was absent from his work on account of illness until 1932. In December 1932 he contracted bronchial pneumonia. His attending physicians found his general physical condition to be good and they anticipated his recovery. The decedent never spoke of death to any of those about him at that time, and looked forward to his return to his office. He recovered completely and resumed his business activities in March 1933. Thereafter the decedent was in good health until June 1934, when he again contracted pneumonia and died from the disease after a brief illness.
Two of the decedent's children, Louise and Mildred, neither requested nor needed financial assistance from him. His other five children were frequently in need of money and repeatedly called upon him for assistance.
Phoebe's husband had not supported her for several years prior to 1928. The decedent sent her money from time to time until she came *1262 home to live with him in 1928. Thereafter she was supported entirely by him. Mary's husband ceased to support her*614 and their children in 1926. Kathleen's husband had an income of from $4,000 to $5,000 per year.
Anne's husband had an income of about $20,000 per year prior to the market crash of 1929. All of that income was used for living expenses. He lost his salaried position and much of his property in 1930. Thereafter he was in dire need of money to protect his remaining property and for living expenses. Anne made urgent requests to her father for substantial amounts for living expenses and to avoid mortgaging their large farm.
Robert had never been able to earn enough to support himself and his family. He never earned anything after 1926. His living expenses amounted to about $10,000 per year, all of which were paid either directly with funds furnished by his father or with the income from such funds.
The decedent from time to time made a number of gifts of valuable property to hid children. He gave a residence near his own home as a wedding gift to each of the following: Louise, Mildred, Mary, Kathleen, and Robert. Anne received cash and bonds in lieu of a residence. He gave each child $5,000 par value of Liberty bonds in 1918. He gave in addition, over a period of years, *615 par value of bonds as follows: to Mary $100,000, to Anne $175,000, to Phoebe $50,000, to Louise $85,000, to Mildred $60,000, to Kathleen $100,000, and to Robert $100,000. He gave Robert a regular allowance of $200 a month. In addition he frequently gave money to his children for various purposes, such as to pay debts, to pay living expenses, to clothe grandchildren, and to send them to school and to camp. All of the gifts to Mary, Anne, Kathleen, and Robert were made at their solicitation. The Commissioner does not seek to include any of the above amounts in the decedent's gross estate.
The decedent spent a great deal of time prior to November 28, 1923, in preparation of a deed of trust for the benefit of his grandchildren. He made elaborate mathematical computations to determine how much property he would have to place in the trust in order to give each grandchild a certain amount of principal and income at the age of 21 years. He gathered information as to administrative costs. His attorneys drafted the deed after he had worked out the plan of this trust. The decedent intended that the income from this trust should not be paid to any grandchild until that child should*616 reach the age of 21 years, and one of his reasons for creating the trust while the grandchildren were young was that a smaller amount of corpus would be required to produce the desired income than would be required if he delayed. His children learned that this trust was *1263 being created and urged him to provide for his own children first. But he informed them that the trust for the children would come after the trust for the grandchildren had been created. He stated prior to and after the creation of the trust for the grandchildren that his purpose in creating it was to enable the grandchildren to be independent of their parents, to pay their own expenses from the income, and to complete their education.
The decedent, on November 28, 1923, created a trust for the benefit of his grandchildren. It was irrevocable. He transferred to the trust bonds and preferred stock which had cost him $800,000. The net worth of the decedent at the time he created this trust was in excess of $8,500,000 and his annual net income exceeded $425,000. Bonds of the par value of $100,000 were added to the trust on May 2, 1927, and cash in the amount of $100,000 was added on September 10, 1930. *617 The trust was to terminate in 1963. The income was to be accumulated and added to corpus so that a principal fund of $80,000 would be provided for each grandchild, including any thereafter born, when the child was 21 years of age. Four thousand dollars was to be paid annually to each grandchild between the ages of 21 and 35 and, as each reached the age of 35 years, before the expiration of the trust, he was to receive the $80,000. He was entitled, in addition, to his proportionate share of any remaining funds at the termination of the trust. The additions to the trust were made because additional grandchildren had been born, increased income taxes were absorbing a large part of the earnings, and the accumulations on the original corpus were insufficient to provide the amount of income and principal which the decedent had planned to give to each grandchild. The fair market value of the trust property on the date of the decedent's death, including the accumulations of income, was $1,100,000.
None of the transfers made by the decedent to the trust for his grandchildren were made in contemplation of death.
None of the transfers made by the decedent to the trust for his grandchildren*618 were intended to take effect in possession or enjoyment at or after the death of the decedent.
The decedent, shortly after the sale of his interest in Robert Wetherill & Co. in 1916, stated to some of his children that he had more wealth than he needed and he intended to create a trust for his children as soon as he could find the time to do so. He began working on a plan, as early as 1920, whereby a part of his property would be placed in trust for his children during his lifetime. The decedent's family frequently discussed the proposed trust in his presence and at such discussions, as early as 1922, the decedent's wife told the children that the decedent was going to place property worth a million dollars in trust for each child so that each child would be independent. *1264 The decedent never denied such statements and at times made somewhat similar statements to individual children. He advised the Kerrs late in 1930 not to mortgage their farm because the creation of the trust would soon render the mortgage unnecessary. He also advised Kerr early in 1930 not to go into a new business because the creation of the trust would provide his family with all the income it*619 would need. The decedent, at frequent intervals during the period from 1923 until the creation of the trust, discussed the terms of the trust with W. S. Blakeley, Jr., the trust officer of the Chester-Cambridge Bank & Trust Co. The decedent during all of that period was engaged in investigating forms of trusts and trustee charges. His children were impatient at the long delay and frequently questioned him as to when the trust would be created. He invariably replied that he was working on the trust but was not quite ready and they would have to wait until he had finished.
The decedent, following the establishment of the trust for his grandchildren, frequently told his children that his purpose in creating the trust for them was that he wanted to make them independent financially, to see them enjoy the money while he was alive, and to observe and advise them in the handling of their money and investments. He told Blakeley, at the time the deed was being prepared, that the trust was to be in fulfillment of his long standing promises to his children, to make them independent during his lifetime and to relieve him of the burden of managing a part of his estate for which he had no*620 need. He told Blakeley in the spring of 1931 to begin preparation of the deed for the trust which he had so long discussed. Blakeley immediately began preparation of the trust instrument. The decedent, from time to time, suggested changes in the drafts submitted to him. The trust instrument was finally completed in August 1931. The decedent showed it to his son Robert in September 1931, and stated to Robert at that time that he was glad it was finished so that the children would be on their own and would not be bothering him about money.
The trust instrument for the benefit of his seven children was dated October 6, 1931. The net worth of the decedent at that time was about $14,000,000, and he transferred to the trust about 40 percent of his property. The decedent's income for 1931 from property other than that transferred to the trust was approximately $354,000. Most of the securities transferred to the trust were exempt from Federal income tax. The trust was irrevocable. The net income of the trust was payable quarterly to the seven children or to the issue of any deceased child. The trust was to terminate in 1952, at which time the corpus was to be distributed equally*621 among the children then living. The share of any deceased child was to be distributed per stirpes*1265 among the living issue of that child. The property transferred to this trust had a fair market value of $5,839,414.16 at the date of the decedent's death.
The transfer made by the decedent to the trust for his children was not made in contemplation of death.
The transfer made by the decedent to the trust for his children was not intended to take effect in possession or enjoyment at or after the death of the decedent.
The decedent's living expenses for all years material hereto amounted to about $15,000 annually.
The decedent made no further gifts or contributions of any kind to his children after the creation of the trust of October 6, 1931. He advised them shortly after the creation of that trust that he would make no further gifts to them and did not want to be bothered with any requests for money because he believed that each one had enough to take care of himself. The decedent personally delivered to each child the checks drawn by the trustees for the periodic distributions of income of the trust. He assisted his children in setting up books of account*622 recording their investments, income, and expenditures, and advised them in saving and investing the trust income. He never attempted to exercise any control over the use of any of the income.
The decedent never, in any of his conversations respecting the trusts, indicated that either of the trusts was made in contemplation of death. He never discussed his will with his children and never informed them of what he planned to do with the remainder of his property.
The last will of the decedent made numerous specific bequests and bequeathed the residue of his estate to his seven children. The share of any child who predeceased him was to be held in trust for the issue of such child until each grandchild had reached the age of 30 years. The will contained a statement that the decedent made no specific bequests to his grandchildren because he had previously provided for them. The will was made following the death of the wife of the decedent and took the place of one under which the wife was to receive a million dollars in income-tax-exempt securities.
The executors, in the Federal estate tax return which they filed for the decedent's estate, reported a net estate having a value*623 of $5,629,344.11. They reported in the return that transfers had been made to the trusts of November 28, 1923, and October 6, 1931, but they did not include the value of the transferred property in the gross estate. The Commissioner, in determining the deficiency, included in the gross estate $5,839,414.16, representing the value of the property transferred to the trust for the decedent's children. He explained that it was an advance distribution of a material part of the decedent's *1266 estate, made in contemplation of death. The Commissioner, in determining the deficiency, did not include in the gross estate any amount representing the value of property transferred to the trust for the decedent's grandchildren.
The decedent wrote a number of letters to and received a number of letters from the Bankers Trust Co. of New York during the period 1919 to 1926. That company was strenuously seeking to be appointed an executor or a trustee by the decedent. The following is from a letter dated February 25, 1921, from H. R. Reed of the Bankers Trust Co., to the decedent.
Having in mind the cordial reception you were kind enough to give me when I called at your Philadelphia*624 office some time ago, may I ask whether you have yet taken any definite action in the matter of your will involving the acceptance of any suggestions I made on that occasion, including the appointment of the Bankers Trust as co-executor and possibly trustee or co-trustee?
The following is the decedent's reply to that letter:
Have your favor of the 25th ult. Will be glad to call and see you the first opportunity. Have not arrived at anything definite about the matter. Fully aware of the importance of setting your house in order for the inevitable end.
The decedent wrote a letter to Reed dated September 17, 1921, in which he referred briefly to a possible trust for his grandchildren. He had not mentioned any trust in his previous letters. The bank replied and sent a specimen deed of trust. The decedent wrote a short letter to Reed, dated January 27, 1922, in which he indicated that a Philadelphia trustee might be more advantageous for his purpose than a New York trustee, and concluded with this sentence: "Can not proceed until we know how to get your House in order." The petitioner never referred in this correspondence to a trust for his children. The Bankers Trust Co. *625 , in its letters, made frequent reference to the question of taxation as it might affect the decedent's income, gifts, and estate.
OPINION.
MURDOCK: The parties have agreed to the value at the date of the decedent's death of the property in the two trusts. A great deal of evidence was introduced on the question of whether or not the trusts were made in contemplation of death. All six of the decedent's surviving children, several of his sons-in-law, several grandchildren, domestic servants, family physicians, close business associates, attorneys who took part in preparing the trust instruments, and others have testified at length as to the business career, character, mental qualities, physical condition, and mode of life of the decedent, the financial circumstances of the children, and declarations of the decedent made before, at the time of, and after the making *1267 of the transfers in controversy. Their testimony was supplemented by photographs and motion pictures of the decedent. This evidence is summarized in the findings of fact. All of the evidence has been carefully considered, regardless of whether or not particular mention is made of it in the findings.
*626 The first question for decision by the Board is whether the Commissioner erred in including in the gross estate of the decedent $5,839,414.16 representing the value at the date of the decedent's death of property transferred by him in trust for the benefit of his children on October 6, 1931. The Commissioner, in determining the deficiency, held that this transfer was made by the decedent in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926. The burden of proof on this issue was upon the petitioners. They have produced a great deal of evidence to show that the transfer was not made in contemplation of death. The decedent was an unusually healthy man. He suffered from no illness or physical weakness which might furnish a possible reason for making the transfer. Although he was about eighty-three years of age at that time, it has been held that age alone can not be regarded as furnishing a decisive test. . The decedent was cheerful, hopeful, optimistic, and sanguine in character and temperament, and had no tendency to be sad, despondent, or gloomy. He was extremely active in the affairs*627 of life. The evidence shows that his purpose in creating this trust was one associated with life rather than with death. That purpose was to make his children independent financially during his lifetime so that they would no longer annoy him with requests for money and so that he could assist them in their efforts to learn how to handle large incomes. Another purpose, of less importance but one likewise associated with life rather than with death, was to relieve himself of the burden of handling a part of his fortune. His own tastes were simple and he used only a small portion of his income for his personal needs and living expenses. Several of his children were entirely dependent upon him for support; others made frequent and urgent demands upon him for financial assistance. He was both annoyed and disappointed by these frequent demands. The long delay in the establishment of the trust is amply explained by evidence of the decedent's slow, deliberate, careful, and methodical way of conducting his affairs. There is a finding above that the transfer of October 6, 1931, was not made in contemplation of death. The evidence preponderates in favor of such a finding.
The principal*628 argument made by the respondent is based upon statements made by the decedent in letters to the Bankers Trust Co. of New York to show consciousness of Federal estate taxes and contemplation *1268 of death. All of the correspondence between the decedent and that bank has been examined and carefully considered in the light of all of the other evidence in the case. The phrase "setting your house in order for the inevitable end" and the phrase "get your House in order" are the statements relied upon by the respondent to show that the transfer of October 6, 1931, was made in contemplation of death. He says those phrases are "the mournful expressions of the decedent himself." We think, however, that the decedent must have borrowed the words from the writings or statements of some other person because they do not seem to come naturally from his hand. But however that may be, their use by the decedent in these letters is insufficient evidence that the transfer, made many years later, was made in contemplation of death. Cf. .
The letters in this correspondence written by the decedent are for the most part extremely ambiguous, *629 vague, and indefinite. It is difficult, if not impossible, to determine from the letters what may have been the decedent's purpose in writing them. He may have had in mind his will. The trust for his children was never mentioned in any of the letters. The letters contain a reference to a possible trust for his grandchildren. There is evidence to indicate that the decedent was peculiarly fond of obtaining free advice and information on many subjects. The petitioners suggest, and they may be right, that the decedent in this correspondence was merely enticing the bank to give him as much free information as possible without in any way committing himself. But regardless of what may be the correct explanation of these letters and of the use by the decedent of the expressions in question, we are satisfied that their presence in this record is insufficient to show that the transfer of October 6, 1931, was made in contemplation of death or even to balance the evidence of the petitioners that the transfer was not made in contemplation of death.
The respondent contends further that this transfer was made to take effect in possession or enjoyment at or after death. The authorities*630 on this point are to the contrary. The trust was irrevocable and absolutely divested the grantor of all title to the property. After the transfer he held no right in the trust estate which in any sense was the subject of testamentary disposition, and his death neither passed any interest to any of the beneficiaries nor enlarged their interest beyond what was conveyed by the indenture. . The trust instrument contains the following provision:
The interest of the respective beneficiaries to be contingent upon their being respectively alive at the stated time or times of income distribution and the stated time of principal distribution, and not to constitute a previously vested interest. *1269 However, the case is not controlled by niceties of the law of contingent and vested remainders, but rather by whether the death of the decedent is the indispensable event which effects transmission of the estate from the dead to the living. . If the title of the grantor is divested, it is not important whether there was a vesting of title in a particular grantee. *631 . The decedent in the present case parted with all title. He provided that if a particular beneficiary were not alive to receive a particular distribution, that distribution should go to another beneficiary. There was no probability of failure of any part of the grant because of lack of named beneficiaries. Cf. ; affd., ; . The conclusion that this transfer was not made to take effect in possession or enjoyment at or after death within the meaning of section 302(c) seems inescapable.
The next question is to determine whether or not there is evidence in the record to support the respondent's affirmative contention that the transfers in trust for the benefit of the decedent's grandchildren were made in contemplation of death. He did not hold, in determining the deficiency, that those transfers were made in contemplation of death. His claim in this connection is for an increased deficiency, represents new matter in his answer, and, therefore, *632 the burden of proof is upon him. The original of these transfers was made 11 years prior to the decedent's death. The evidence shows that these transfers also were made for purposes connected with life rather than with death. The decedent wanted to use a relatively small part of his ample fortune, while his grandchildren were still young, to create a fund which would give each grandchild a certain financial independence when the child became of age. He planned to have the income accumulate and become corpus during the minority of each child, and it was characteristic of him to want to establish the fund as early as possible so as to hold to a minimum the amount necessary to bring about the desired results. That was his reason for allowing the trust for the benefit of his grandchildren to take precedence over the trust for his children. He had already had experience with his own children and he wanted his grandchildren to be independent of their parents and to pay their own way in life after they became of age. The evidence in the record of his purpose in creating this trust is not nearly as voluminous as is that showing his purpose in creating the trust for his children. He*633 discussed the trust for the grandchildren less than he discussed that for his children. The respondent again relies upon the correspondence with the Bankers Trust Co. which has been discussed above. That *1270 evidence fails to show that this transfer was made in contemplation of death, and there is no other evidence in the record to show that the purpose of the transfers related to death rather than to life. Nor were these transfers for the benefit of the decedent's grandchildren made to take effect in possession or enjoyment at or after death. This trust instrument completely divested the decedent of any interest in the property transferred. The Commissioner did not err in failing to include the value of this trust property in the gross estate of the decedent.
Reviewed by the Board.
Decision will be entered under Rule 50.
MELLOTT, concurring and dissenting: I concur in the findings and the portion of the opinion holding that the conveyance by the decedent of a portion of his property to the trust for the benefit of his grandchildren was not made in contemplation of his death. I am*634 not convinced, however, that the facts justify a similar conclusion with reference to the conveyance for the benefit of his children. The fact that he had discussed, and had given consideration to, the making of such conveyance for 15 years but had deferred doing so until he reached the ripe old age of 83 years; that for many years he had apparently been content to dole out his property to his children rather than attempt to teach them how to handle large incomes; and that he was "fully aware of the importance of setting [his] house in order for the inevitable end" 10 years before the conveyance was made, indicate quite clearly that it was made in contemplation of his death rather than for "purposes associated with life." United States v. Wells,283 U.S. 102">283 U.S. 102. Accordingly I dissent from the portion of the opinion which holds that the property conveyed by the decedent to the trust for the benefit of his children should not be included in his gross estate.
TURNER agrees with the above.