*621 Transfers of stock by the decedent to her children in 1927 and in 1929, six and four years, respectively, prior to her death in 1933, were not made in contemplation of death and the value thereof should not be included in decedent's gross estate under section 302(c), Revenue Act of 1926.
*1160 This proceeding involves a deficiency in estate taxes of $188,504.46. Three issues were raised by the pleadings. One issue, that relating to the value of common stock of the International Shoe Co., has been abandoned by the petitioners. Another issue has been conceded by the respondent, namely, that the estate is entitled to deductions of $100 and $200, being pledges made by decedent and later paid by the executors to the Young Men's Christian Association and the Methodist Episcopal Church, as proper claims against the estate.
The sole issue for determination, therefore, is whether there should be included in decedent's gross estate $889,876, being the alleged value at the date of decedent's death of 18,304 shares of common stock and 900 shares of preferred*622 stock of the International Shoe Co., which shares decedent transferred to her four children in 1927 and 1929.
FINDINGS OF FACT.
The petitioners are the executors of the last will and testament of Jessie H. Rand, who died at the age of 68 on December 25, 1933, at Huntsville, Alabama. The decedent was survived by her husband, Edgar Rand, and four children, namely, Joseph O. Rand of St. Louis, Missouri, Fred L. Rand of Atlanta, Georgia, and Minnie Rand Dillard and Ada Rand Yarbrough, both of Huntsville, Alabama.
Prior to the transfers here in question, the decedent had made certain transfers of stock of the International Shoe Co. to members of her family. (As hereinafter used a reference to the company means the Internal Shoe Co., and a reference to stock means the stock of that company, unless otherwise indicated.) In January 1913 she transferred 20 shares of preferred stock to her husband. In 1917 she transferred 100 shares of preferred stock to her two daughters, 50 shares to each.
*1161 For a number of years prior to her death, decedent's interests in the company, and certain of her other interests, were taken care of by her brother, Frank C. Rand, who was an*623 executive of the company. As early as August 1, 1919, he was urging her to transfer a portion of her property to her children, all of whom were grown. Frank C. Rand prepared a list of certain assets that decedent owned on August 1, 1919, and indicated the distribution which he thought she should make. The statement shows that at that date decedent had 2,559 shares of preferred and 2,223 shares of common stock of the company, a cash credit on the company's books of approximately $50,000, and other assets, which he also looked after for her, the total value thereof amounting to $681,200. Rand estimated her income for 1919 as $41,946.59, and her Federal income tax as $4,100.29. He advised his sister that, if she would distribute enough of her holdings to reduce her income to $20,973.69, her income tax would be approximately $1,101.40. Rand contended that, by making the distribution he advised, decedent would effect a saving in her income taxes, and would "get the enjoyment of seeing them (the children) use their income while she was in good health and enjoying life herself along with her children." At that date none of decedent's children had any appreciable amount of property.
*624 Under date of October 13, 1919, decedent wrote her son, Joseph O. Rand, as follows:
I am sending you a little statement as to how I am going to try and divide my interests as soon as possible. I want to do the same by all of my children, and your father. I have my statements, and will have to go over them and see how much I have let you have over the Five Thousand Six Hundred and ten dollars I gave alike to you and Fred for Stock. This was given some time ago and I gave all you children the same. Can you tell me how much money you had sent you while in France and charged to my account? I am willing to let you take up your notes and not pay any interest on them. All I want to do is to make an equal division as I go. From this you can see why it takes a little time to get these matters straight like I wish them to be.
On or about November 25, 1919, and in line with her brother's suggestions, decedent transferred 580 shares of common stock to Joseph O. Rand, 580 shares of preferred stock to her husband, Edgar Rand, 452 shares of preferred stock to Fred L. Rand, 580 shares of preferred stock to her daughter, Minnie Dillard, and 543 shares of preferred stock to her daughter, *625 Mrs. John S. Yarbrough. Although apparently unequal, this distribution was made pursuant to a memorandum dated November 24, 1919, of Frank C. Rand. This statement indicates that certain adjustments were made because of facts not here material in determining the amounts to be distributed, "thus *1162 making the following equal distribution", after which the statement shows the amounts to be distributed as hereinabove set forth.
The above transfers were made on the books and records of the company and the certificates were delivered to decedent's children and her husband.
By letter dated January 6, 1923, decedent's brother listed her holdings in the company as 1,238 shares of preferred and 11,102 shares of common, and her holdings in Columbia as 500 shares of preferred, and advised his sister as follows:
In your circumstances, it seems to me that the wise course would be to divide among your children, while you are in good health, that part of your property for which in the natural course of events you will have little or no actual need.
In arriving at some basis of division, I would retain an amount which will produce an income suffficient to cover even your extraordinary*626 needs, estimated to some degree by the experience of your life-time.
Having fixed this income, I would then determine my course by what would bring the biggest returns to my children and myself.
For illustration:
| Retain | Yearly income |
| 1000 shares International Pfd | $8,000.00 |
| 4500 shares International com | 13,500.00 |
| 500 shares Columbia Pfd | 3,500.00 |
| Total | $25,000.00 |
If $25,000.00 per year, or a little more than $2,000.00 each month, would guarantee you against all financial needs, you might get a big return during your life by seeing the appreciation of your children in what you had given them.
Again on December 3, 1925, Frank C. Rand wrote the decedent, pointing out her holdings in the company, that she had cash of $123,105 with that company, that her annual dividends from the company alone amounted to $74,118, that she could give 1,538 shares to each of her children and still have a yearly income of $40,700 besides the earnings from her $123,105 in cash. The letter states in part: "I believe that you will get much happiness out of making a distribution of this kind and certainly you have no personal need for the money that is piling up." The*627 letter mentions the "similar suggestion made about three years ago but you have never acted on it", and suggests that decedent might prefer trusts for three of the children, but urged that Joe be not restricted as he was actively engaged in the company's business and seemed to understand it thoroughly.
Under date of January 5, 1927, Frank C. Rand sent a form of trust agreement to the decedent, which he had used for his own children, and suggested that her gifts might well be made directly to the boys, but that her daughters' interests could be better protected by a trust agreement.
*1163 On or about February 24, 1927, Frank C. Rand, having failed to hear from the decedent in regard to his letter of January 5, wrote in part as follows:
You are a sweet sister, but mighty hard to hear from. I am referring to what I consider my very important letter of January 5 with which I sent you some forms of trust agreement. I am confident that you ought to work out some plan, and that without delay. Good business judgment prompts it, and there is no particular reason, so far as I can see, why it should not be done.
Shortly thereafter, and on March 14, 1927, the decedent followed*628 her brother's suggestions by transferring 100 shares of preferred and 1,000 shares of common stock of the company to each of her four children. The stock so transferred was given outright to each child, as the decedent preferred an outright gift to a gift in trust. The transfers were made on the books of the company and the certificates of stock were delivered to the donees.
Between the 1927 distribution and October 30, 1929, Frank C. Rand continued to urge his sister to make a further distribution. The argument he advanced was that her children were grown, they were established in their homes, and they actually needed the income more than decedent, who had a greater income than she could possibly use. Again Rand pointed out that a distribution would effect a substantial savings in decedent's income tax and decedent herself recognized that it would result in a saving to her on the newly enacted Alabama personal property tax, which she considered very unfair.
On October 30, 1929, decedent made a further distribution of her property by transferring 125 shares of preferred and 3,576 shares of common stock to each of her children. The transfers were duly made on the books of*629 the company and the certificates delivered to the donees.
The decedent was a person of average height, but greatly overweight, weighing approximately 278 pounds. Her weight had been practically unchanged during the last 20 or 25 years of her life, but despite her excessive weight she was very active. She supervised the servants in her home and worked in her garden. In her later years she cared for her husband, who was a retired physician and practically an invalid. She visited by automobile in Atlanta, Georgia, St. Louis, Missouri, and various other places without apparent fatigue. Prior to her gifts in 1927 and 1929 she had had no serious illness. She was healthy, cheerful, had a good appetite, good color, and never discussed the possibility of death. The only complaints she ever made regarding her health had to do with rheumatic pains in one of her knees, which made it uncomfortable to go up and down steps. When visiting relatives or friends she would go to different places of interest, and engaged in any other forms of diversion that interested her.
*1164 Late in 1931, while visiting her son in St. Louis, decedent went through the clinic at Barnes Hospital. *630 It was determined that she had high blood pressure and was overweight, but no organic disease and no indication of heart disease was discovered. The hospital's diagnosis was in accord with her personal physician's diagnosis in Huntsville, and decedent was placed on a mild diet. There was no curtailment of decedent's activities by the hospital or by her personal physician as a result of their diagnoses. Her appearance when at the hospital was that of obesity, but otherwise she was well.
Early in 1933 decedent planned a trip to New York City to visit her sister, but she had to cancel the trip at the last moment after her things were packed, upon receiving a telegram that her sister was not well.
The decedent's last illness was not a matter of concern to her physician until about 10 days before her death. The decedent thought she had a little cold but did not seem distressed about her condition. Her physician first became alarmed about her condition on December 20 or 21, and even then he felt she could be pulled through with the use of digitalis. Petitioner, however, refused to take the digitalis because it nauseated her. The immediate cause of decedent's death was heart*631 failure with hypostatic pneumonia, i.e., the muscles of the heart giving away, and a fluid forming on the right lung.
The decedent's will, dated February 6, 1930, was written by herself on her husband's letterhead and witnessed by her daughters. After making provision for her husband, she gave, devised, and bequeathed "to my beloved children * * * all of my property of every desciption [description] both real and personal to be divided equally between them share and share alike."
The petitioners reported decedent's gross estate as $729,561.53. The respondent determined that decedent's gross estate was $1,749,217.35. The increase represented the disallowance of the $300 in deductions, now admitted to be deductible by respondent, a valuation of $44 per share for common stock of the company instead of $37 a share, as reported by the petitioners, and the inclusion in the gross estate of the 18,304 shares of common and 900 shares of preferred given to her children by the decedent in 1927 and 1929. The respondent determined that these transfers were "substitutes for testamentary dispositions" and therefore to be included as a part of the decedent's gross estate under section 302(c) *632 of the Revenue Act of 1926, as amended.
We find the gifts in question were not made in contemplation of death.
*1165 OPINION.
ARNOLD: The controlling statute, section 302(c) of the Revenue Act of 1926, is set out in the margin. 1 The respondent's theory is that the gifts, although made six and four years, respectively, prior to decedent's death, were made in contemplation of death. In support of his theory respondent contends that decedent's "dominant motive" in making the gifts was to reduce her estate and avoid the estate tax as to her property. It is urged that, since avoidance of the estate tax was the "dominant motive", it follows that the gifts were made in contemplation of death.
*633 It is frankly conceded by respondent that decedent had other motives for making her transfers in addition to what he terms the "dominant motive." He has conceded that one of decedent's motives was her desire to see her children enjoy the benefits of the property given during her lifetime. He concedes that another motive was her desire to avoid the Alabama personal property tax, and that still another motive was her desire to avoid the Federal income tax. But he contends that the principal motive, the one that primarily moved her to make these transfers, was her desire to avoid the Federal estate tax.
On their part the petitioners contend that decedent was motivated solely by the following desires: (a) to give to her children so she could see them enjoy the property while she lived; (b) to save Federal income taxes; and (c) to save Alabama personal property taxes. Petitioners deny, however, that decedent considered the possibilities of her own death, or any savings in death duties which might result from these transfers.
Whether property alleged to have been transferred in contemplation of death should be included in a decedent's gross estate rests *1166 primarily*634 upon the particular facts of each case. The very nature of the question requires an examination of the motives and reasons which activated the decedent. The state of her health and mind at the time of making the gifts and her purpose in making them are of the utmost importance in determining whether the transfers were made in contemplation of death. ; .
The Supreme Court has pointed out in the Wells case, supra, that it is not the general expectation of death which all entertain, that is meant by the statutory expression "contemplation of death", but that "the thought of death is the impelling cause of the transfer." The Court states that, where the disposition of property springs from a different motive, the statute does not embrace it, and particularly points out the dispositions of property related to purposes associated with life, rather than in anticipation of death.
The record in this case establishes clearly the deep and motherly affection which existed between the decedent and her children. She visited them while living, gave equally*635 to them of her bounty so they could all be established in their homes and businesses, and upon her death distributed the residue among them, share and share alike. Her letters to them indicated a desire to help, with no hint of an apprehension of death. Her physical condition had been unchanged for years, and no organic trouble was discovered in an examination occurring approximately two years after the last transfer. Her disposition was cheerful, and even her last illness was not considered serious until a few days before her death. We can not believe under these circumstances that death was the impelling cause of the transfers here questioned.
The respondent urges, however, that, if the desire to avoid estate taxes on her property was the "dominant motive", that would be sufficient to bring the transfers within the meaning of the statute. He relies particularly upon the testimony of Todd, the cashier of the bank at which decedent did business, which he brought out on cross-examination as follows:
Q. In addition to the discussion of Federal income tax there was also a discussion with reference to tax in event of her death?
A. No, except to this extent - when she called*636 on the telephone and told me that she wanted these securities sent off, she referred to the estate and other Federal tax, and made the remark that she had been wanting to give them to the children for a good while, and she believed she would do it.
* * *
Q. By that she realized that by making the transfer the estate tax would be reduced, did she not?
A. I should think she would have by making the transfers, I cannot say what she realized, but that is what I thought she had in mind.
Q. Did she not say so? A. I think she did.*1167 We are unable to attribute to this testimony the weight respondent gives to it. The witness expressed a conclusion of his own regarding a statement made to him by the decedent over the telephone. He denies there was any discussion of estate taxes, which squares exactly with the rest of the record. Certainly, if death and estate taxes were the principal concern in making the transfers, the letters from decedent's brother would have made some reference indicating that apprehension. On the contrary, every communication from brother to sister, and from mother to children, indicates an intention to divide the property equally among*637 the children for their benefit, so the mother could have the pleasure of watching her children enjoy the gifts.
It is unquestionably true that the transfers enabled the decedent to relieve herself of the responsibility of paying certain taxes. It may well be that she appreciated that she would save in taxes by the transfers, but the evidence could be far less convincing than that here adduced, and still justify us in disapproving the respondent's determination. Had she been primarily concerned in avoiding estate taxes, as respondent insists, we doubt that she would have failed to distribute a much larger proportion of her estate. Nor would she have delayed so long as four years in making another distribution, if the distributions of 1927 and 1929 were impelled by the thought of death. The conclusion is inescapable that the impelling motive was thoughts of life and love, and the savings in taxes were merely a gratifying incident of the transfers.
In view of the foregoing we deem it unnecessary to review the extensive list of authorities presented by counsel. We would direct attention to the similarity of facts in the Wells case, supra, to the facts herein, and to*638 the similarity of facts in .
For the reasons stated the respondent's inclusion of the value of the property transferred in 1927 and 1929 in decedent's gross estate is disapproved. The deficiency should be recomputed, giving effect to the deduction of $300 to which petitioners are admittedly entitled, to the $44 valuation for the common stock of the company, which petitioners concede, and to our opinion herein.
Decision will be entered under Rule 50.
Footnotes
1. 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 -
* * *
(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 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 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. ↩