T.C. Memo. 1997-186
UNITED STATES TAX COURT
ESTATE OF ROSA B. NEFF, DECEASED,
CHRIS HUNT, EXECUTOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1426-95. Filed April 21, 1997.
Vernon D. Hyde, for petitioner.
Elizabeth Downs, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined a deficiency in
petitioner's Federal estate tax in the amount of $61,381. All
section references are to the Internal Revenue Code in effect as
of the date of decedent's death, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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The sole issue for decision is whether transfers of
decedent's property shortly before her death were incomplete
gifts, the value of which should be included in her estate.1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time the petition
was filed, the legal residence of the executor was Keyes,
Oklahoma.
Rosa B. Neff (decedent) died on September 13, 1992, at the
age of 97. Decedent was a resident of Keyes, Oklahoma, most of
her adult life and at the time of her death. Decedent executed
her last will and testament on January 18, 1980.
A Federal estate tax return was filed on behalf of
petitioner on June 9, 1993. The Federal estate tax return was
signed by Chris Hunt, the estate's executor. On May 1, 1993, a
Federal gift tax return for the 1992 tax year was filed on behalf
of the estate by Chris Hunt.
1
Petitioner claims that respondent erred in her
determination that a charitable contribution to Willowbar
Cemetery Association in the amount of $2,500 did not qualify as a
deduction. Petitioner did not present any evidence at trial
regarding this issue, nor did it argue this point on brief. We
cannot be sure that petitioner intended to abandon the issue, but
in any case respondent's determination with respect to this issue
must be sustained as petitioner has not met its burden of proof
on this matter.
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The 1992 Federal gift tax return showed gifts to 19
relatives of decedent made on August 27 or 28 or September 12,
1992. These gifts included 19 separate annuities, 3 Series E
bonds, and $4,000 in cash, with a total reported value of
$293,249. The estate claimed nineteen $10,000 exclusions under
section 2503(b), in the total amount of $190,000, resulting in a
net taxable gift of $103,249. After the gifts in issue were
made, the total gross estate, as reported on the estate tax
return, exceeded $973,000.
Rosa Neff purchased the 19 separate annuities in 1987 from
Delta Life and Annuity Co. (Delta Life). The 19 annuitants were
decedent's nephews and nieces, a sister-in-law, and a former
brother-in-law (Chris Hunt). On each of the annuities, decedent
was listed as the owner, and the annuitant was listed as the
contingent owner. The contingent owner would become the owner at
the death of decedent. Jess Murphy was the selling agent on
behalf of Delta Life with respect to the 19 annuities. The 19
annuities were transferred to their respective “annuitants” on or
about August 27, 1992, according to the schedules attached to the
Federal estate and gift tax returns. The three Series E bonds
were transferred on August 28, 1992. The $4,000 in cash was
transferred on September 12, 1992.
These gifts of annuities, bonds, and cash were executed by
Chris Hunt, Melvin Hammontree, and Mildred Williams, who at the
time jointly held a durable power of attorney on behalf of
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decedent. Mr. Hunt, Mr. Hammontree, and Ms. Williams were each
recipients of one of the annuities in issue. The durable power
of attorney contained broad grants of authority which stated,
inter alia:
My attorneys-in-fact shall have all of the powers,
discretions, elections, and authorities granted by
statute, common law, and under any rule of court.
* * * * * * *
My attorneys-in-fact may sell, convey, lease,
exchange, mortgage, pledge, release, hypothecate, or
otherwise deal with, dispose of, exchange, or encumber
any of my property, either real or personal.
* * * * * * *
My attorneys-in-fact may act in all matters with
respect to all powers described herein as freely,
fully, and effectively as I could or might do
personally if present and of sound and disposing mind.
The power of attorney did not, however, contain an explicit grant
of gift-giving authority. Decedent executed the durable power of
attorney by her own hand on July 17, 1992, and her signature was
notarized. Prior to initiating the transfer of the 19 annuities,
Mr. Murphy consulted the attorney who had drafted the durable
power of attorney regarding whether the attorneys in fact had the
power to make the transfers under the durable power of attorney.
Mr. Murphy was told that the attorneys in fact did have the power
to make such transfers.
The Rosa Neff Living Trust (the trust), a revocable trust,
was created on August 27, 1992, by Mr. Hunt, Mr. Hammontree, and
Ms. Williams, acting as decedent's attorneys in fact. Decedent
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did not personally sign the trust documents; they were executed
by her attorneys in fact on August 27, 1992. Decedent's property
was distributed according to the provisions of the trust rather
than the provisions of decedent's will.
During the period August 16 through September 1, 1992,
decedent was hospitalized due to a fall which resulted in a
broken hip. On September 1, 1992, decedent returned to her home,
where she was under the care of home health care nurses and
family members until her death on September 13, 1992. Decedent
died of acute heart failure as a result of chronic cardiovascular
hypertensive disease and bronchitis from which she had suffered
for approximately 10 years. Decedent's death was not unexpected.
Rosa Neff did not file any Federal gift tax returns during
the 10-year period preceding her death in 1992. The only gifts
made by Rosa Neff to relatives during this 10-year period which
can be shown by documents bearing her signature are checks of
small amounts, with respect to which gift tax returns were not
required to be filed. Decedent also made several gifts of bonds
and certificates of deposit during the 10-year period preceding
her death, the amounts of which did not require the filing of
Federal gift tax returns. Decedent was mentally competent to
manage her affairs at all times.
Decedent was concerned about retaining control of her
property at the time that she was considering executing a power
of attorney. Decedent was present when the power of attorney was
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discussed with the attorney who drafted the document. Decedent
was capable of signing her name in spite of failing eyesight if
directed where to sign.
Prior to her injury and hospitalization, decedent informed
several individuals that she was considering making a gift of the
19 annuities. Sometime during the summer of 1992, decedent told
Betty Aaron, her accountant, that she was considering giving the
annuities to the respective annuitants presently rather than
after her death. Decedent also talked to Mr. Murphy about the
possibility of giving the annuities to the annuitants. Prior to
meeting with the attorney regarding the drafting of a durable
power of attorney, decedent indicated to Chris Hunt that she
wanted to give the 19 annuities to the annuitants.
Prior to her last illness, decedent cashed in two Delta Life
annuities whose contingent owners had died. These annuities are
not included in the 19 in issue. At the time that decedent
cashed in the two annuities, she told Mr. Murphy that she
intended to pay the taxes resulting from the transaction and give
a portion of the proceeds of the annuities, in the amount of the
principal or face amount of $10,000 each, to the heirs of the
deceased annuitants/contingent owners.
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ULTIMATE FINDING OF FACT
Decedent intended to make a present inter vivos gift of the
19 annuities in issue to the respective recipients.
OPINION
Section 2038(a)(1) provides that a decedent's gross estate
includes any interest in property transferred by the decedent for
less than full consideration if, at the time of the decedent's
death, the transferred interest was subject to the decedent's
power to revoke, alter, amend, or terminate. Section 2033
provides that the gross estate includes the value of all property
to the extent that the decedent had an interest in it at the time
of her death. State law determines the extent of a decedent's
interest in property. Burnet v. Harmel, 287 U.S. 103, 110
(1932). We will follow the decisions of the highest State court,
but in the absence of a decision by that court, we may look to
the State's lower courts' rulings and holdings. Commissioner v.
Estate of Bosch, 387 U.S. 456, 465 (1967).
Respondent contends that because the durable power of
attorney did not specifically grant the attorneys in fact the
authority to make gifts of decedent's property, such gifts were
incomplete, invalid, or revocable by decedent and thus includable
in decedent's gross estate. We disagree.
The elements of a completed gift under Oklahoma law are:
(1) Intention to give, (2) complete delivery, and (3) acceptance
by the donee. In re Estate of Carano, 868 P.2d 699 (Okla. 1994);
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McSpadden v. Mahoney, 431 P.2d 432 (Okla. 1967). In order to
establish an inter vivos gift after the death of the alleged
donor, “the evidence must be clear, explicit, and convincing in
support of every element necessary to constitute a gift.” Estate
of Stinchcomb v. Stinchcomb, 674 P.2d 26, 30 (Okla. 1983). There
does not seem to be any dispute that the annuities were delivered
and accepted by the donees. Thus, if petitioner can prove
donative intent, the transfers will be considered to be completed
gifts which are not includable in decedent's gross estate.
Respondent claims that the required donative intent cannot be
supplied by a written durable power of attorney absent an express
written gift authorization. Petitioner contends that the
required donative intent is present because decedent authorized
her attorneys in fact to make the gifts, because decedent
ratified the gifts after the transfers, and because a written
durable power of attorney, even absent an express gift
authorization, is adequate to allow decedent's attorneys in fact
to make effective inter vivos gifts. In order to determine
whether the requisite donative intent existed, we must first look
to the record as a whole to determine whether decedent possessed
the requisite intent, taking into account the authority granted
to decedent's attorneys in fact. See Estate of Goldman v.
Commissioner, T.C. Memo. 1996-29.
Decedent's Intent To Make Gifts
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The transfers of property which are in issue in this case
were executed shortly before decedent's death by decedent's
attorneys in fact. Chris Hunt testified that in the summer of
1992 decedent specifically instructed him and Melvin Hammontree
to transfer the annuities in question to the respective
annuitants.2 We found Mr. Hunt's testimony to be credible and
supported by the record as a whole. Shortly before the gifts
were made, some of decedent's nephews became sick, and they
needed money. At that time, decedent decided to give all of the
annuities to the annuitants. Mr. Hunt testified that after he
completed the transfers and so informed decedent, she was “well
pleased” that the transfers were taken care of.
The record provides additional reasons to believe Mr. Hunt's
testimony. The annuities were transferred to the annuitants who
had been chosen by decedent when she originally purchased the
annuities. These 19 annuitants would have become the owners of
their respective annuities upon the death of decedent. Jess
Murphy testified that when contingent owners of two annuities not
in issue predeceased decedent, it was decedent's desire that a
portion of the funds from the annuities go to the heirs of the
contingent owners. Mr. Murphy described decedent as "generous in
2
We focus our inquiry on the annuities in question because
the parties have so focused their arguments. The annuities in
issue are each valued at $10,000, and that is the amount of the
annual exclusions in question. If we find that the transfers of
the annuities were valid inter vivos gifts, we need not discuss
the validity of the other transfers presented here.
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giving." Additionally, Betty Aaron, decedent's accountant since
approximately 1984, testified that decedent had talked to her in
the summer of 1992 about transferring the annuities in question
to the annuitants at that time rather than waiting until her
death. Mr. Murphy and Ms. Aaron were not contingent owners of
any of the annuities. Lastly, even after the transfers in
question, decedent was left with over $973,000 in assets. Cf. In
re Estate of Rolater, 542 P.2d 219, 223 (Okla. Ct. App. 1975)
(involving “circumstances which discourage the image of a woman
capable of suddenly initiating a program aimed at divesting
herself of over 80 percent of her estate by giving it to her
brother”).
We are cognizant that some States have a flat prohibition
against attorneys in fact making gifts to themselves or to third
parties absent express written authorization. See Townsend v.
United States, 889 F. Supp. 369 (D. Neb. 1995); Fender v. Fender,
329 S.E.2d 430 (S.C. 1985). Oklahoma, however, has not adopted
such a rule. We believe that if the Oklahoma Supreme Court were
to rule on this issue, it would look for “clear, explicit, and
convincing” evidence of intent. Estate of Stinchcomb v.
Stinchcomb, supra at 30. In In re Estate of Rolater, supra at
222, when presented with an issue similar to that found here, the
Court of Appeals of Oklahoma found lacking any “hard evidence or
cogent circumstances” that the decedent intended for her attorney
in fact to make gifts. Those circumstances, however, are not
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lacking in the instant case. Given the facts and circumstances
of this case, we conclude that under Oklahoma law, the transfers
in question would be valid gifts. This is consistent with the
way the Court of Appeals for the Fourth Circuit resolved a
similar issue in Estate of Ridenour v. Commissioner, 36 F.3d 332
(4th Cir. 1994), affg. T.C. Memo. 1993-41. In that case, the
court found that a durable power of attorney could impliedly
include the authority to make irrevocable gifts during the
principal's life if the surrounding circumstances indicated such
an intent. Prior to Estate of Ridenour, the Virginia legislature
passed a statute which specifically provides for an implied gift
power in certain circumstances. Va. Code Ann. sec. 11-9.5
(Michie Supp. 1992). The court in Estate of Ridenour v.
Commissioner, supra at 334, stated that the statute expanded and
clarified the legal standard applied in Estate of Casey v.
Commissioner, 948 F.2d 895 (4th Cir. 1991), revg. T.C. Memo.
1989-511. The court went on to say that Estate of Casey “stands
for the proposition that to infer an implied gift power, the
court must look to the intent of the person granting power of
attorney.” Estate of Ridenour v. Commissioner, supra at 334.
The power of attorney which decedent executed does not
restrict the attorneys in fact from making gifts. The power of
attorney which decedent executed authorized her attorneys in fact
to “convey * * * any of my property, either real or personal.”
The power of attorney authorizes the attorneys in fact to “act in
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all matters * * * as freely, fully, and effectively as I could or
might do personally if present”. This language evidences an
intent to permit the attorneys in fact to make gifts of
decedent's property. See Taylor v. Vernon, 652 A.2d 912 (Pa.
Super. Ct. 1995) (finding similar language evidenced an intent to
allow the attorney in fact to make gifts of the principal's
property); cf. Whitford v. Gaskill, 480 S.E.2d 690 (N.C. 1997)
(finding that the power to “transfer” real estate authorized the
attorney in fact to make gifts of the property in dispute).
Respondent argues that this Court should not allow
decedent's intent to make a gift or decedent's ratification of a
gift to be proved by the oral testimony of interested parties;
namely Mr. Hunt. Respondent points to various factors which she
contends show that decedent did not intend to make present inter
vivos gifts at the time of the transfers. We disagree. As we
have already found, petitioner's witnesses were credible, and
their testimony was supported by the record. See Diaz v.
Commissioner, 58 T.C. 560 (1972) (basing analysis upon evaluation
of the entire record and the credibility of witnesses); cf.
Estate of Goldman v. Commissioner, T.C. Memo. 1996-29. In
determining the intent of decedent, we have looked at “The facts
and circumstances surrounding the parties, their relationship,
and the direct expressions of the decedent”. Foster v. Rose, 238
P.2d 332 (Okla. 1951). Based on the record as a whole, we
conclude that decedent, acting through her attorneys in fact,
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made completed inter vivos gifts of the annuities in question.
Therefore, the value of the gifts is not includable in decedent's
gross estate.
To reflect the foregoing,
Decision will be
entered under Rule 155.