Frizzell v. Commissioner

11 T.C. 576, 1948 U.S. Tax Ct. LEXIS 62

• Court: United States Tax Court
• Decided: October 12, 1948
• Docket: Docket No. 6704
• Status: Published

Opinions

SUPPLEMENTAL OPINION.

Harron, Judge:

Issue 1. — Consideration has been given to the contentions of the petitioners which are set forth in their motion for reconsideration under the first issue in this proceeding. Reconsideration of the record and of the pertinent authorities does not move us to set aside our previous finding of fact that the trust for William Pitts Frizzell and the transfers of stock to that trust were made in contemplation of death, and our conclusion as to the question of law to the same effect.

Petitioners stress a short part of the testimony of Boy Bums to the effect that the decedent had sustained losses in six commodities transactions in 1937, shortly before he created the trust; and upon this evidence they argue that this proceeding comes within the rationale of Colorado National Bank of Denver v. Commissioner, 305 U. S. 23. We do not agree with this contention.

In the case of Colorado National Bank of Denver, the evidence clearly established that the decedent, Hendrie, intended to and did speculate on the market to a considerable degree, particularly during the last five or six years of his life, and that his dominant purpose in creating a trust for the benefit of his daughter and grandchildren was to remove his sound assets from the hazards of losses from his own speculations on the market, which he desiréd to and did continue up to the time of his death. See Commissioner v. Colorado National Bank of Denver, 95 Fed. 160, 162; reversed, 305 U. S. 23.

In this proceeding there is practically no evidence that the decedent, Frizzell, speculated on the market before or after the trust was created; or that the decedent believed that his business activities were attended by risks which might or could reduce his assets so that he deemed it prudent to isolate part of his assets from the hazards of losses, and thereby assure for his incompetent son means for his support at the time and for the rest of the son’s life. At the time of death the decedent owned stocks and bonds of the value of about $425,000, exclusive of the stock given to the trust in 1937. There is no evidence that the decedent was a trader or speculator on the market in stocks in 1937 or thereafter, or that his business activities at that time were speculative or hazardous. The only evidence on this point is testimony of the witness Burns that in 1937 the decedent made six purchases on the commodities market which resulted in a net loss of about $5,700, which Burns learned about in 1938 from his preparation of the income tax return of the decedent for the year 1937. Burns had no knowledge otherwise of any market transactions of the decedent and he did not testify that the decedent speculated on the market. We can not make a finding from this fragment of evidence that the dominant purpose of the decedent in creating the trust in 1937 was to isolate part of his property from risk of losses from speculation, as was the basis for the holding in the Colorado National Bank case, supra, of the Board of Tax Appeals in its memorandum opinion that the Hendrie trust was not created in contemplation of death. (The memorandum opinion of the Board of Tax Appeals was entered on September 19, 1936, and is reported by Prentice-Hall in 1936 B. T. A. Memorandum Decisions, vol. 5, par. 36,314, p. 442.) Since this Court does not have before it substantial evidence to make such finding and conclusion in this proceeding, and does not so hold, this proceeding does not come within the rationale of the Supreme Court in Colorado National Bank of Denver v. Commissioner, supra.

We have reviewed again the testimony dealing with the motive of the decedent in creating the trust for the benefit of William Pitts Frizzell. The testimony shows that the son was unable to look after himself in every respect; that is, he had to be under the care of guardians who would buy his clothes and look after him; he was unable to care for himself even though he were provided with an income. Mary George Frizzell, a daughter of the decedent, testified about her deceased father’s reasons for creating the trust as follows:

Well, hé said that he wanted to fix this trust so that my brother would have something to live on under any circumstances that might happen. * * *

Well, I guess maybe he thoüght that there might come a day when he might be left alone in the world; that we might all be taken. * * *

Yes, I mean if something should happen to all of us because that is something you never know. * * *

The beneficiary of the trust was 40 years old when the trust was created; the grantor was 81 years old. The evidence does not show that the decedent intended by his creation of the trust in 1937 to relieve himself of the care of the son during the remainder of his (the decedent’s) life, so as to make the son independent in that sense.

It is our judgment that the evidence shows that the dominant purpose of the decedent in creating the trust was to arrange for such time as the incompetent son might be alone. Such provision could be made either by will or by an inter vivos trust. In this proceeding the evidence shows, in our opinion, that the trust was created in 1937 in lieu of making the same provision under a will. Therefore, the trust comes within the scope of section 811 (c) as a transfer in contemplation of death.

Eeviewed by the Court.

Decision will be entered under Rule SO.