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Tax 2 Case Digest: United States v. Wells 283 U.S. 102 (1931)

United States v. Wells

Laws Applicable:

Lessons Applicable: donation in contemplation of death

  • As early as the year 1901, John W. Wells, a resident of Menominee, Michigan, began the making of advancements of money and other property to his children.  In 1918, 1919, January 1, 1921, January 26, 1921, he transferred stocks to his children. 
  • May 1919: he went to a hospital in Chicago for treatment of asthma and remained there for 11 days
  • April, 1920: he had ulcerative colitis (inflamed large intestine)
  • June, 1920: physicians in California found him to have cancer of the intestines
  • September 14, 1920:  physicians told him he can be absolutely cured if he is careful
  • September 22, 1920: he was discharged and is in excellent condition
  • January 14, 1921: medical examination showed his ulcerative colitis 90% normal
  • April, 1921: he had a recurrence and was advised for operation because he might have cancer
  • June, 1921: reentered hospital in Chicago as his viral infection failed to yield to treatment
  • August 17, 1921 : he died at the age of 73 survived by his wife and 5 children. The Commissioner of Internal Revenue assessed additional estate taxes, upon the ground
that certain transfers by the decedent WITHIN 2 years prior to his death, were made in contemplation of death and should be included in the taxable estate.   The additional estate tax for the transfer in 1919, January 1, 1921, January 26, 1921 was paid by the executors and claim for refund was filed but rejected.
  • Court of Claims: Favored the executors since immediate and moving cause of the transfers 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
  • They filed a Court granted a writ of certiorari

ISSUE: W/N it was a donation in contemplation of death

HELD: NO. Judgment affirmed.

  • The best evidence of the state of the decedent's health at the time the transfers were made is the statement of his doctor.
  • The best evidence of the decedent's state of mind at that time and the reasons actuating him in making the transfers are the statements and expressions of the decedent himself, supported as such statements are by all the circumstances concerning the transfers.
  • Death must be "contemplated" -- that is, the motive which induces the transfer must be of the sort which leads to testamentary disposition.  The natural and reasonable inference which may be drawn from the fact that but a short period intervenes between the transfer and death is recognized by the statutory provision creating a presumption in the case of gifts WITHIN 2 years prior to death. BUT this presumption, by the statute before us, is expressly stated to be a rebuttable.
  • It is contemplation of death, not necessarily contemplation of imminent death, to which the statute refers. 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.