*2534 1. Since the articles of copartnership of which the decedent was a member provided that the good will of the partnership should "be vested in and belong exclusively, without any financial consideration whatever, to" three partners, of whom the decedent was one, "or such, if any, of said partners as may have an interest in any firm, corporation or other organization that shall continue, substantially as successor thereto," and since pursuant to such agreement the executor of the decedent's estate never received anything in respect of the good will, held that no amount representing the decedent's interest in the good will of the partnership should be included in the gross estate.
2. The decedent made a bona fide gift of a portion of his property to his wife and son more than two years prior to his death. Held, the value of the gift should not be included in the gross estate of the decedent.
*1050 This is a proceeding for the redetermination of a deficiency in estate tax in the amount of $19,811.85. The allegations of error are:
(1) The increase*2535 of the gross estate by the inclusion therein of the sum of $32,700 representing the value of decedent's share in the so-called "good will" of the firm of Blodget & Co., bankers, of Boston.
(2) The increase of the gross estate by the inclusion therein of the sum of $225,000 representing a part of the capital of the decedent in the firm of Blodget & Co. where the decedent had in fact more than two years prior to his death conveyed said sum of $225,000 to his wife and son, $100,000 to the former, and $125,000 to the latter.
FINDINGS OF FACT.
William Blodget died on June 28, 1923, a resident of Newton, Mass., leaving a will of which his widow, Fanny H. Blodget, and his son, William P. Blodget, were appointed executors.
The decedent at the time of his death was the senior member of the firm of Blodget & Co., dealers in investment securities, which had its principal office in Boston. The firm was one of long standing although the particular partnership in existence on the date of the death of the decedent was created by articles of partnership *1051 dated December 30, 1922, which declared that the parties should become and be partners under the firm name of Blodget & *2536 Co. in the business of dealings in investment securities from January 1, 1923, to December 31, 1924, both dates inclusive.
At the date of the death of William Blodget, the partnership of Blodget & Co. was composed of six individuals, only three of whom, however, including William Blodget, had capital invested in the partnership. The names of the partners and their respective shares in the net profits of the partnership and the capital contributed, were as follows:
| Share of net profit | Capital contributed | |
| Per cent | ||
| William Blodget | 19 | $573,000 |
| Charles E. Ober | 20 | 185,000 |
| R. High Carleton | 19 | 110,000 |
| Bayard F. Pope | 17 | |
| J. Dana Thomas | 15 | |
| Arthur C. Dunmore | 10 |
The partnership articles of Blodget & Co. provided that upon the death of any partner the capital of the deceased partner should remain in the business and the partnership should continue for the term of one year after such death as if the deceased member had survived. Pursuant to this provision of the articles the capital of William Blodget invested in the partnership on the date of his death, to wit, June 28, 1923, was left in the business until June 28, 1924.
The 19 per cent share*2537 of the net profits of Blodget & Co. for the year following the date of the death of William Blodget to which he would have been entitled had he survived and which was paid to his executors, the petitioners herein, amounted to $57,766.41, the agreed fair market value of which at the date of the death of the decedent was $49,346.15.
Article XIV of the partnership articles provided as follows:
Upon the dissolution or termination of the partnership for any cause, the "good-will" shall be vested in and belong exclusively, without any financial consideration whatever, to the three first named partners in this Agreement, namely: William Blodget, Charles E. Ober and R. H. Carleton, or such, if any, of said partners as may have an interest in any firm, corporation or other organization that shall continue, substantially as successor thereto, the business of said Blodget & Co., as herein set forth, any partner under this instrument who shall not have an interest in such successor to have no right, title or interest whatsoever in said "good-will." The word "good-will" shall be held to include any value arising from the right to use the firm name of Blodget & Co., or any variation or part*2538 thereof, and from the fact that the firm is a going concern with an established business, and also all leases, office fixtures, furniture, appliances and supplies, firm books, correspondence and records of *1052 every kind, reference libraries, financial data reports, lists of clients and correspondents, and all similar property wherever situate.
The decedent by his will dated July 9, 1921, provided in part as follows:
Article Second. All the estate, real, personal or mixed, of which I may die seized or possessed, or to which I may be in any way entitled at the time of my death, or over which I may then have any power of appointment (the foregoing to include the good-will of the business of the firm now known as "Blodget & Co." and the right to the use of the firm name, both being vested in me by the partnership agreement), I give, devise, bequeath, and expressly appoint, as follows: * * *
No further reference to the item of good will is made in the will of the decedent. No amount in respect of the decedent's interest in the good will was ever realized by the executors of his estate.
In the latter part of 1919, at which time Bodget & Co. was operating under articles*2539 of copartnership dated December 31, 1918, and expiring December 31, 1919, the decedent first mentioned to Fanny H. Blodget, his wife, and William P. Blodget, his son, his intention to transfer to them a part of his capital in the firm of Blodget & Co., which at that time amounted to $750,000, giving as his reason for so doing his desire to reduce his income tax. William Blodget took up the matter with the other members of the firm. The articles of partnership provided that no capital should be withdrawn during the existence of the partnership. It was pointed out, however, to William Blodget by Charles E. Ober that the capital contributed by Blodget was his own; that no objection could be raised to his contributing a part of the capital to take effect upon the expiration of the articles of partnership December 31, 1919; that the contribution of William Blodget to the capital of the new partnership would be reduced by any amount that he might wish to give to his wife and son. It was further arranged that the gifts made by Blodget to his wife and son should remain as loans by them to the partnership and that the partnership should pay interest at the rate of 7 per cent per annum upon*2540 them. This was agreeable to all concerned. Blodget gave to his wife, Fanny H. Blodget, $100,000, and to his son, William P. Blodget, $125,000 The actual transfer was made on the books of Blodget & Co. on December 31, 1919, after the termination of the old partnership articles and before the new partnership articles went into effect on January 1, 1920. The donees were both informed of and accepted the gifts and from and after January 1, 1920, could have withdrawn the deposits at any time they wished. The articles of partnership of Blodget & Co., effective on January 1, 1920, show William Blodget's capital account to be in the amount of $540,000.
*1053 Charles E. Ober, a partner of Blodget & Co., next in seniority to the decedent, made the arrangements for the actual transfer of the gifts to the decedent's wife and son, giving the orders to the bookkeepers and instructions in behalf of the wife and son as to the payment of interest into their bank accounts. From and after January 1, 1920, and until the widow and son withdrew their funds from Blodget & Co., long after the death of William Blodget, the firm of Blodget & Co. continued to pay monthly to the widow 7 per cent*2541 on the sum of $100,000, and quarterly to the son 7 per cent on $125,000. These interest payments were made by depositing in the banks of the widow and son checks covering the interest, notice of such payment being sent to the widow and son by Blodget & Co. in the form of duplicate deposit slips.
On or about June 6, 1921, the decedent made a written conveyance to his son of the $125,000 of his capital in the firm of Blodget & Co. This conveyance was dated January 1, 1920, and was a confirmation of the gift of December 31, 1919. At the same time the son, William P. Blodget, and all the partners of Blodget & Co., including the decedent, entered into an agreement dated January 1, 1920, whereby the son agreed that the $125,000 in question should be subordinated to the obligations of the firm and two notes of $100,000 each to Elizabeth P. Merritt and Jennie S. Eaton, wives of former members of the firm who had deposits with the firm. This was done at the instigation of William Blodget, who believed that he was under a moral obligation to protect the creditors of the firm and the wives of the former members.
On June 6, 1921, the decedent executed another instrument in writing purporting*2542 to convey to his son $100,000 of his capital in the firm of Blodget & Co. At the same time the son executed with all the members of Blodget & Co., including the decedent, an agreement whereby the son agreed to subordinate his claim on $100,000 to the obligations of the firm and the two aforesaid notes of the wives of the former partners. This instrument was dated June 6, 1921, and was exactly like the instrument of subordination signed by the son and dated January 1, 1920, in respect of the $125,000, the only difference being the amount involved.
On the same day the son executed a trust indenture whereby he declared that he held the $100,000 in trust for the benefit of Fanny H. Blodget, wife of the decedent. At the same time the son executed a power of attorney to Fanny H. Blodget giving her power to collect the income and principal of said sum of $100,000 on deposit with Blodget & Co. This power of attorney was authorized under the terms of the declaration of trust. On August 25, 1923, the son transferred to Fanny H. Blodget the sum of $100,000.
*1054 The ledger sheets of Blodget & Co. show a transfer of $100,000 from the account of Mrs. F. H. Blodget to the account*2543 of William Power Blodget, trustee for Fanny H. Blodget, the date of the transfer being June 7, 1921.
Neither the widow nor the son can explain the purpose of the creation of the above described trust. The son merely signed the papers at the behest of his father, the decedent. He was a young man and an architect by profession. Fanny H. Blodget was the son's stepmother. She was an elderly woman.
OPINION.
SMITH: The only questions presented by this proceeding are:
(1) Whether an amount of $32,700 representing the share of the decedent, William Blodget, in the so-called "good will" of the firm of Blodget & Co., bankers of Boston, should be included in the gross estate of William Blodget, the decedent; and
(2) Whether there should also be included in the gross estate $225,000 alleged by the petitioners to represent gifts made by the decedent to William Power Blodget, decedent's son, and to Fanny H. Blodget, decedent's wife, claimed by the respondent to be a part of the capital of the decedent in the firm of Blodget & Co., at the date of his death.
The partnership articles of Blodget & Co. place the good will, in case the partnership should terminate for any cause, in*2544 three of the partners, William Blodget, Charles E. Ober, and R. H. Carleton. The other partners had no share in the good will. The decedent in his will dated December 28, 1922, includes among the assets of his estate the good will of the business of the firm now known as Blodget & Co.
As we construe the articles of partnership in force at the date of the death of the decedent, it was the contemplation of the three partners in whom the good will of the firm vested that upon the death of one the good will should vest in the other two. This was the construction placed upon the articles by the petitioners herein and the other members of the firm of Blodget & Co. The interest of Blodget alone in that good will had no monetary value. The decedent did not attempt to bequeath his interest in the good will of the partnership to the other partners. The estate of William Blodget never realized anything for the interest of the decedent in the good will of Blodget & Co. Upon the record, we find that William Blodget's interest in the good will of the firm of Blodget & Co. had no cash value at the date of his death. The contention of the petitioners upon this point is therefore sustained.
*2545 *1055 The determination of the respondent with respect to the $225,000 involved in alleged gifts made by William Blodget to his son and wife in 1919 appears to have been made without a knowledge of the facts in the case. The evidence of record shows that William Blodget made actual gifts of $125,000 and $100,000 in 1919 to his son and wife, respectively. From January 1, 1920, they received interest upon this money and returned such interest as a part of their taxable incomes. One of the members of Blodget & Co. testified that the $125,000 and $100,000 left with the firm at interest could have been withdrawn by the donees at any time they wished.
The reason for the creation of a trust in favor of Fanny H. Blodget with respect to the $100,000 on June 6, 1921, is not apparent. It appears that on that day the deposit standing to the credit of Mrs. F. H. Blodget was transferred to William Power Blodget, the son, as trustee for Fanny H. Blodget and that at or about that time William Power Blodget executed agreements whereby he thereafter held the money as trustee for Fanny H. Blodget, subject to certain other obligations of Blodget & Co. These agreements, however, in no*2546 way served to revest in William Blodget the amounts that he had given to his son and wife in 1919.
The inclusion of the $225,000 in the gross estate by the respondent was predicated upon the view that this money constituted a part of the capital of William Blodget up to the date of his death. The evidence conclusively shows that the amount in question was not a part of the capital of William Blodget from and after January 1, 1920. The contention of the petitioners upon this point is therefore sustained.
Judgment will be entered under Rule 50.