*1331 Shortly after the marriage of decedent his wife invested her savings in a business of operating a store in Chardon, Ohio, which decedent had been operating with a partner. Decedent and his wife orally agreed that the wife should have a half interest in the business and all property. The agreement continued in effect until the death of decedent. Decedent purchased the partner's interest and decedent's wife worked steadily in the store for many years. In 1920 decedent and his wife moved to California, where decedent placed all their property in joint tenancy. In 1937, eleven days before decedent's death, decedent and his wife orally agreed to partition the property then held in joint tenancy. This was done in order that decedent might leave his property by will to their son. Decedent died and left the property which he received by the partition to his son. Held, that the partition was effective and should be given effect. Accordingly, only that property which decedent left by will should be included in his gross estate.
*429 Respondent determined a deficiency in estate tax due from the estate of decedent in the sum of $18,426.23. Petitioner claims an overpayment of tax. The sole issue before the Board is whether or not respondent erred in including in decedent's gross estate certain property which appeared in the joint names of decedent and his wife at the date of death of decedent.
FINDINGS OF FACT.
Thomas L. Fletcher, hereinafter called petitioner, is the executor of the will of Lester L. Fletcher, hereinafter referred to as the decedent. Decedent died May 15, 1937. Petitioner is the son of decedent and Helen L. Fletcher and was born in Chardon, Ohio, in the year 1890.
In the year 1888 decedent married Helen L. Bostwick. Prior to her marriage Mrs. Fletcher had been employed as a school teacher *430 for ten or twelve years and had saved approximately $1,000. At the time decedent and Mrs. Fletcher were married decedent operated a dry goods and clothing store in Chardon in partnership with an individual named Bodman.
Shortly after her marriage Mrs. Fletcher invested her savings in the store and early in the 1890's decedent purchased his partner's interest in the*1333 store. At that time decedent and Mrs. Fletcher orally agreed that Mrs. Fletcher should have a half interest in the business and all property acquired. That agreement continued until decedent's death.
Decedent and Mrs. Fletcher had rooms over the store and Mrs. Fletcher had charge of the dry goods department of the store and waited on women customers. Mrs. Fletcher's services were very valuable because she had a wide acquaintance and was very popular. While petitioner was very young Mrs. Fletcher left him in the custody of her mother during the time Mrs. Fletcher was working in the store.
About 1900 decedent built a house. Thereafter Mrs. Fletcher worked in the store intermittently. She continued to work while petitioner was attending college and performed some services in the store during the period petitioner was in the Army.
The store was sold to Mrs. Fletcher's brother, R. L. Bostwick, for approximately $25,000. He took possession on January 1, 1918. The proceeds from the sale of the store were invested in Cleveland real estate. All property of the Fletchers at this time was held in the name of decedent.
About January 1920, the Fletchers moved to California. *1334 From that time everything which decedent purchased he placed in the names of himself and Mrs. Fletcher as joint tenants, stating that the properties were as much Mrs. Fletcher's as his.
From 1928 all income tax returns of decedent and his wife were filed as separate returns, each spouse reporting one-half of the income from the jointly owned property. The following explanation was noted on the separate returns filed by decedent and his wife for the year 1928:
The property from which this income is reported is all jointly owned by the taxpayer and his wife Helen L. Fletcher. Title is held by joint deeds, trust deeds, or mortgage certificates executed in the state of California. This is not a division of community property, but a division of income from jointly owned property.
Substantially the same explanation was noted on all subsequent income tax returns of decedent and his wife. Respondent has not questioned any of the separate returns filed by decedent and his wife for subsequent years.
*431 Edward A. Adams acted as attorney for decedent from 1927 or 1928 until decedent's death. He was familiar with the business affairs of decedent throughout the period in*1335 which he acted as his attorney.
On May 4, 1937, petitioner called Adams on the telephone, stating that decedent was ill and requesting Adams' presence to discuss some legal matters. Adams went to the home of the Fletchers, where he found decedent in bed. Mrs. Fletcher and petitioner were present.
Decedent had been previously advised by Adams that if he died leaving his property in joint tenancy it would all go to Mrs. Fletcher. Decedent told Adams that he wished to arrange his affairs so that his son would receive one-half of the properties held in the names of decedent and his wife and inquired as to the proper legal procedure to bring about the desired result. At that time all the property of decedent and Mrs. Fletcher was held in joint tenancy. Adams informed formed decedent that the first step to be taken was a partition of the assets of decedent and Mrs. Fletcher which were held in joint tenancy. Adams suggested a termination of the joint tenancy and a division of the property so that decedent and Mrs. Fletcher each would hold one-half the property as separate property. Adams then told decedent that decedent would be able to bequeath his separate property as he desired.
*1336 Decedent said that the arrangement was agreeable to him and discussed cussed the matter with Mrs. Fletcher at that time. She also agreed to the plan.
The manner of dividing the properties then held in joint tenancy was next discussed. It had always been the policy of decedent to keep about one-half of his property in investments based on real estate and one-half in bonds and other personal property. At the time of the conference among decedent, Mrs. Fletcher, Adams, and petitioner, decedent and his wife held as joint tenants approximately $256,000 in United States Treasury bonds and Los Angeles City High School District bonds, and cash and notes secured by trust deeds on real estate in an approximate sum of $207,700. The bonds were bearer bonds and were kept in a safety deposit box held in the names of decedent and his wife as joint tenants. Mrs. Fletcher expressed a desire to take the real estate investments as her half of the properties. Decedent and Mrs. Fletcher thereupon decided that decedent should retain the bearer bonds as his separate property, while Mrs. Fletcher would take the real estate investments as her share. The income of the bonds was about equal to that*1337 of the other investments.
Adams informed decedent and Mrs. Fletcher that their oral agreement had the effect of terminating the joint tenancy. At the date of this conference decedent's will which was then in existence provided that all his property should be left to Mrs. Fletcher. Adams advised decedent that in order to leave the property to petitioner he should *432 make a new will leaving his separate property to petitioner. After the conference petitioner made a draft of a new will for his father which, by its terms, left decedent's property to petitioner. The will was typed by petitioner and was executed by decedent on May 5, 1937. About May 6, 1937, petitioner telephoned Adams and informed him that decedent had made a new will.
Decedent died May 15, 1937, of cancer of the stomach, at the age of approximately 81 years. Although he had been afflicted with the disease for almost two years, decedent's family did not become aware of it until nine months before his death.
At the time of the conference on May 4, 1937, Adams did not consider decedent to be seriously ill. Although Adams advised decedent that under California law the oral partition was effective immediately, *1338 he planned later to arrange for the actual transfers of property in order to evidence the agreement and remove any question that might arise. This was not done immediately and was prevented by decedent's death eleven days after the conference at which decedent and Mrs. Fletcher orally agreed to partition their property. At the date of death of decedent the property, other than the bonds, was in the names of decedent and Mrs. Fletcher as joint tenants. The bonds remained in a safety deposit box held in the joint names of decedent and Mrs. Fletcher.
Adams was confused as to the proper manner of perparing the estate tax return and, on the advice of a bank officer, returned one-half of the property which decedent and Mrs. Fletcher had agreed should be Mrs. Fletcher's separate property, but which had not yet been actually transferred to Mrs. Fletcher, as "jointly owned property." This portion of the property was valued as of the date of death of decedent at $103,624.97. The following note was appended to the schedule listing the "jointly owned property":
all of the property listed herein either originally belonged or was derived from property which originally belonged to both*1339 of the tenants. The tenants' accumulation of property resulted from the merchandise business which they operated together in Chardon, Ohio, and during their entire married life and up to May 15, 1937, the date of death, the property was originally owned by them. Subsequent to January 1, 1937, and prior to May 15, 1937, Helen L. Fletcher, one of the joint tenants of the property, entered into an agreement with her deceased husband whereby she relinquished to him any of her property rights to the securities listed in Schedule B, it being the desire of the parties that the securities on and after the agreement were to be the separate property of Lester L. Fletcher, so that said property might pass to their only heir and son, Thomas L. Fletcher. Other than the said stocks and bonds as listed in Schedule B, all of the property at the date of death was the joint property of the co-tenants.
United States Treasury bonds and Los Angeles City High School District bonds in a total value of $256,945.46 were also included in the return.
*433 The will of decedent executed May 5, 1937, was probated, giving full effect to the oral agreement between decedent and Mrs. Fletcher entered*1340 into May 4, 1937.
Subsequent to the determination of the deficiency in this proceeding by respondent petitioner incurred additional expenses. Petitioner made an agreement in behalf of the estate with the firm of Lybrand, Ross Brothers & Montgomery whereby he paid a retainer of $2,000 and agreed to pay 30 percent of the amount by which the proposed deficiency in estate tax might be reduced. Petitioner also expended $300 for expenses of a witness who testified for petitioner at the hearing of this proceeding.
The tax indicated by the estate tax return was $43,511.38 and was paid January 19, 1938. On April 10, 1939, petitioner made an additional payment of tax in the sum of $9,581.63, of which the sum of $368.52 was interest.
OPINION.
VAN FOSSAN: The sole issue for our consideration is whether or not respondent erred in including in decedent's gross estate certain property which petitioner alleges was owned by decedent's wife. The applicable provisions of the statute are section 302(c) of the Revenue Act of 1926, as amended by section 803 of the Revenue Act of 1932 1 and section 302(e) of the Revenue Act of 1926. 2
*1341 *434 Petitioner contends that Mrs. Fletcher contributed $1,000 cash and her services to the business of operating the store and that she, by agreement with decedent, became a tenant in common with an undivided one-half interest in all the property held by decedent. Petitioner maintains that when decedent and Mrs. Fletcher went to California and all their property was placed in joint tenancy Mrs. Fletcher's interest as tenant in common formed one-half the consideration for the joint tenancy. Finally, petitioner contends that decedent and Mrs. Fletcher made an oral agreement on May 4, 1937, which effected a partition of the jointly owned property so that at decedent's death Mrs. Fletcher owned, as her separate property, investments valued at $207,249.94.
Respondent argues that petitioner has failed to prove the existence of an oral agreement between decedent and his wife at the time of their marriage and that he has not proved that there was a partition of the joint tenancy properties of May 4, 1937.
Respondent also argues that unless Mrs. Fletcher contributed consideration to the joint tenancy the partition agreement of May 4, 1937, must have caused a transfer in contemplation*1342 of death. Therefore, we find it necessary to consider the alleged oral agreement entered into by decedent and his wife shortly after their marriage. Mrs. Fletcher had capacity to enter into a contract with her husband. Ohio Rev. Stat., § 3112 (now Ohio G. C., § 7999).
We have found as a fact that decedent and Mrs. Fletcher agreed that Mrs. Fletcher should have a half share in decedent's business and property and that that agreement continued in effect until the death of decedent. The evidence from which we made that finding is substantial. Mrs. Fletcher testified to the agreement. It was fully corroborated by other testimony. The fact that decedent later placed all the property in joint tenancy, stating that it belonged equally to himself and his wife, indicates that decedent intended to give the oral agreement full effect and recognize its validity. The courts have considered similar evidence and testimony as to oral agreements between husband and wife and have foung them sufficient proof of the existence of agreements. *1343 ; . The cases of , and , cited by respondent, are not controlling in the present proceeding, since the courts in those cases held that the evidence was not sufficient to establish a contract implied from the circumstances. In the instant case petitioner has established an express agreement. Mrs. Fletcher's contribution of $1,000 and her services were adequate consideration for the agreement that she should have a one-half interest in the business and property. The proceeds from the sale of the store were invested in Cleveland real estate. Later, after the Fletchers moved to California, everything was placed in *435 joint tenancy. It seems clear that Mrs. Fletcher's share in the marital property before it was placed in joint tenancy was that of an undivided one-half interest as tenant in common. Thereafter it was that of a joint tenant.
Respondent has taken the position that there was no partition of the property held in joint tenancy*1344 by the agreement of May 4, 1937, and that all of the jointly owned property should be included in decedent's estate. We are of the opinion, however, that petitioner has demonstrated that one-half of the consideration for the joint tenancy was furnished by Mrs. Fletcher. The original contribution of $1,000 and Mrs. Fletcher's subsequent services in the store constitute "an adequate and full consideration in money or money's worth." See All aubsequent accretions or accumulations related back to the original consideration.
There seems to be no question as to the validity of the oral partition agreement of May 4, 1937. ;;; . That agreement caused the inclusion in decedent's estate for estate tax purposes of property of greater value than would have been includible if there had been no partition agreement. Decedent, by virtue of the partition, was enabled to leave property to his son and Mrs. Fletcher agreed*1345 to the disposition. Petitioner does not ask us to disturb the inclusion of the total value of the bearer bonds in decedent's gross estate.
We have held that Mrs. Fletcher furnished adequate and full consideration in money or money's worth for one-half of the jointly owned property. It is obvious that decedent die not make a gift of the real estate investments in contemplation of death. Decedent did not give his wife anything by the partition. If there were any gift involved Mrs. Fletcher, who received the smaller share, and not the decedent, would be the bonor. The fact that one-half the property still remaining in the joint names of decedent and his wife at decedent's death was erroneously reported on the estate tax return filed for decedent's estate is not controlling. Petitioner has overpaid the tax due. The overpayment will be adjusted under Rule 50.
Petitioner incurred additional expenses in behalf of decedent's estate relative to the deficiency in estate tax here under consideration. Effect will be given to those expenditures upon recomputation.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 803 FUTURE INTERESTS.
(a) Section 302(c) of the Revenue Act of 1926, as amended by the Joint Resolution of March 3, 1931, is amended to read as follows:
"(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, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death(1) the possession or enjoyment of, or the right to the income from, the property, or(2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. 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 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." ↩
2. 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 -
* * *
(e) To the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth: Provided,↩ That where such property or any part thereof, or part of the consideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person: * * *