Baldwin v. Commissioner , 43 B.T.A. 183 ( 1940 )

MURRAY BALDWIN, INDIVIDUALLY, AND AS EXECUTOR OF THE LAST WILL AND TESTAMENT OF JANET M. BALDWIN, DECEASED, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Baldwin v. Commissioner

Docket No. 86050.

United States Board of Tax Appeals

43 B.T.A. 183; 1940 BTA LEXIS 833;

December 31, 1940, Promulgated

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">*833 1. Decedent's conveyance of real estate to her son with the understanding, which was carried out, that the latter would execute a reconveyance to her to be recorded upon the son's prior death or to be destroyed upon the decedent's prior death, held, to be a transfer intended to take effect in possession or enjoyment at or after death, requiring the value of the property to be included in decedent's estate. Klein v. United States,283 U.S. 231">283 U.S. 231, and Hallock v. Helvering,309 U.S. 106">309 U.S. 106, followed.

2. Communications between client and attorney in the presence of a third person, or which are, pursuant to the client's instructions, to be communicated to a third person, held, admissible in evidence and not objectionable as confidential communications.

Allen Spivock, Esq., for the petitioner.

Harry R. Horrow, Esq., for the respondent.

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OPPER

">*184 This proceeding was brought for a redetermination of a deficiency in estate tax in the amount of $2,034.74, which was paid under protest by petitioner after having filed the present petition.

The questions presented are whether the transfer by decedent">*834 to her son of certain real property was in the nature of a testamentary disposition made in contemplation of death or intended to take effect in possession or enjoyment at or after death, and therefore whether the value of said property should be included in her gross estate under section 302(c) of the Revenue Act of 1926, as amended. A further issue was raised in the petition, which alleged that respondent's determination of the value of said property at decedent's death ($65,000) was excessive. In his brief, however, petitioner has abandoned this contention. A subsidiary question has been presented by petitioner's motion to strike all the testimony of respondent's sole witness, David Cosgrave, which motion was taken under advisement after the testimony had been presented. This question requires a decision as to whether or not Cosgrave's testimony amounted to the disclosure of confidential communications between decedent as client and the witness as her attorney. Minor adjustments made by respondent with respect to the value of certain assets included in decedent's gross estate are not contested by petitioner.

The following facts have been found from the evidence, which consists">*835 of the testimony of petitioner's witnesses at the original hearing, the testimony adduced at a further hearing, and certain exhibits introduced by the parties.

FINDINGS OF FACT.

1. The petitioner, Murray Baldwin, was and is the duly qualified and acting executor of the estate of his mother, Janet M. Baldwin, deceased. Janet M. Baldwin, hereinafter referred to as the decedent, died testate, a resident of San Francisco, California, on January 22, 1934. The decedent was 87 years of age at the time of her death. The cause of her death was a mild carditis and degeneration of the heart muscles and chronic nephritis.

2. Decedent's last will and testament, dated March 26, 1933, was admitted to probate in the Superior Court in San Francisco. The petitioner and David Cosgrave, decedent's attorney, were appointed coexecutors of the will, and letters testamentary were issued to them by the Superior Court on February 8, 1934. Cosgrave resigned as coexecutor on March 31, 1938. He was not an executor of the estate at the date of the hearings in this proceeding.

Decedent made a bequest in her will of $500 to Cosgrave. Cosgrave had known the decedent for about 20 years prior to">*836 her death and had handled most of her legal affairs in California.

">*185 After providing in her will for bequests totaling $4,150 and for an annuity of $50 per month to a beneficiary over 70 years of age at the time of decedent's death, the decedent devised and bequeathed the residue of her estate to her son. The value of the personal property in decedent's estate was appraised by each of the executors at $45,918.34, in the separate estate tax returns filed by each executor.

3. Prior to February 1931 the decedent owned two pieces of real estate in Texarkana, Texas. She had inherited these properties in 1927 or 1928 from her sister. The net annual income from the properties was about $3,300. Prior to about April 1931 the income received from renting the properties was deposited in an account in the decedent's name with a bank in Texarkana, and expenses incurred in connection with the Texarkana properties were paid by checks drawn by the decedent upon this account.

The only other real estate owned by the decedent was a cemetery lot. The decedent owned stocks and bonds worth approximately $50,000, and she received approximately $25,000 every three years under the">*837 terms of a trust which had been set up by one of her sisters. Her annual income, excluding the income from the Texas properties, in 1931 and the few years prior and subsequent thereto, approximated $10,000.

4. On several occasions shortly prior to February 1931, when the decedent consulted with Cosgrave with respect to the provisions of her will, Cosgrave advised her that rather than to leave the Texarkana properties to Murray Baldwin in her will it would be better to convey the properties to Baldwin by deed of gift in order to save the expense and inconvenience of probate proceedings in Texas. Cosgrave also advised decedent that the deed of gift should be recorded during her lifetime. Cosgrave further advised decedent that Baldwin should execute a deed of gift reconveying the properties to her for her protection; and that the deed from Murray Baldwin to Janet Baldwin be held either by decedent or by Cosgrave under an escrow arrangement; and that such deed be recorded in the event of Murray Baldwin's prior death.

Cosgrave explained to the decedent that the purpose of the arrangement suggested by him was to save the inconvenience and expense of probate proceedings in Texas, ">*838 and to permit decedent to retain control over and enjoy the income from the Texarkana properties until her death.

In advising decedent, Cosgrave did not consider the possibility of avoiding Federal estate taxes by means of the deed of gift to her son.

The decedent indicated that she understood and concurred in the advice given by Cosgrave and was going to rely on it. Cosgrave thereafter drafted her will. He prepared a deed of gift conveying the Texarkana properties from decedent to her son. At the same ">*186 time he prepared another deed of gift reconveying the properties from Murray Baldwin to decedent. The making of the will and the preparation of the two deeds were all part of the same transaction. Decedent understood, as was the fact, that the will omitted any reference to the properties in Texarkana and that the purpose of the arrangement was to avoid probate proceedings in Texas.

5. On February 25, 1931, the decedent executed and delivered the deed of gift conveying the Texarkana properties to her son. The deed was duly recorded in Texas. On the same day that the decedent executed the deed, she executed the will which had been drafted by Cosgrave. Although">*839 the will executed on February 25, 1931, was not the will which was probated, both wills were substantially the same with respect to the bequest to Murray Baldwin.

For some time prior to 1931 Murray Baldwin had been residing with decedent at her home and she furnished him with money, which augmented the salary he received as a teacher and his income as a retired army officer. He was in 1931, and had been for some time prior thereto, in financial distress, and had lost about $8,000 on an invention several years prior to 1931.

6. At the time the decedent executed and delivered the deed to Murray Baldwin she was about 84 years of age. She had a profound arthritis which affected her knees. Although it was difficult for her to walk, she could leave the house, and she attended movies and theaters. She had high blood pressure and was overweight. Prior to February 25, 1931, there had been no sudden change in her physical condition. She had been in the same general physical condition for many years.

Her state of mind was good. She had perfect possession of her mental faculties. She frequently expressed the belief that she would outlive her sister, who had died at the age of">*840 95. On the occasions when she discussed her will and the deed of gift she did not express any fears of death, and she stated that she was not superstitious about making a will.

7. Cosgrave gave to Murray Baldwin for execution the deed reconveying the Texarkana properties from Murray Baldwin to decedent, which had been prepared by Cosgrave. Cosgrave explained to Murray Baldwin that the deed from him to decedent was not to be recorded unless he predeceased decedent. Baldwin was advised by Cosgrave as to what was being done in connection with the transfer, and he explained that the purpose of the exchange of deeds was to avoid Texas probate proceedings under decedent's will.

On April 4, 1931, Murray Baldwin executed the second deed, reconveying the Texarkana properties to decedent. Shortly thereafter, Baldwin gave the deed to Cosgrave, at the request of the decedent. At no time did the decedent have possession of the second deed. Cosgrave ">*187 held the second deed under the following arrangement: In the event that Murray Baldwin predeceased Janet Baldwin the second deed was to be delivered to Janet Baldwin and recorded; and in the event Janet Baldwin predeceased Murray">*841 Baldwin, the second deed of gift was to be of no effect at all, was not to be recorded, and was to be destroyed or returned to Murray Baldwin.

After the death of the decedent Cosgrave returned the second deed to Murray Baldwin, who destroyed it.

Decedent had no desire or intent to evade Federal estate tax in executing the deed from herself to Murray Baldwin.

Murray Baldwin was present during some, but not all, of the discussions between decedent and Cosgrave regarding this transaction. He was not present when discussions took place concerning decedent's will, nor when the legal aspects of the exchange of deeds were considered. However, Cosgrave informed Baldwin of all phases of the transaction concerning the deeds so that he knew what was being done and the reason for doing it. While Cosgrave considered the terms of decedent's will as confidential, the communications between decedent and Cosgrave with respect to the execution of the two deeds were disclosed by Cosgrave to Murray Baldwin with the consent of decedent, and were not intended to be, nor were they, confidential or privileged communications. Cosgrave, at the time of the drafting of the will and both deeds, was">*842 acting as attorney solely for decedent. In giving the property to her son and securing a return deed from him which was held in escrow, decedent intended that the property should pass to him unconditionally only if he survived her and would revert to her upon his death if she were then living.

8. At about the same time that Murray Baldwin executed the second deed, the bank account in Texarkana was changed from the name of the decedent into a joint account in the names of Murray Baldwin and the decedent.

9. On January 22, 1935, the petitioner filed an estate tax return for the estate of decedent with the collector of internal revenue for the first district of California. In schedule E of the return petitioner reported the transfer to him of the Texarkana properties and stated that the decedent had not made the transfer in contemplation of death and that the transfer was not intended to take effect in possession or enjoyment at or after death. Before filing the return petitioner requested Cosgrave to sign the return as coexecutor. Cosgrave refused to sign the return because it did not report the second deed reconveying the Texarkana properties to the decedent.

On July 8, 1935, Cosgrave">*843 filed a separate estate tax return for the estate of the decedent. In schedule E of the return filed by him, Cosgrave reported both the deed conveying the Texarkana properties ">*188 to petitioner, and the deed reconveying the properties to decedent, and stated that the decedent received all the income from the properties up to the date of her death. Cosgrave also stated in the return that the decedent had made a transfer in contemplation of or intended to take effect in possession or enjoyment at or after her death. Cosgrave filed the return because he felt that there should be a disclosure of the second deed reconveying the properties to decedent.

10. The value of the Texarkana properties at the date of decedent's death was $65,000.

11. The transfer of the Texarkana properties by the decedent to Murray Baldwin was intended to take effect in possession or enjoyment at or after death.

OPINION.

OPPER: The original hearing in this proceeding was held October 3, 1938, pursuant to a mandate of the Circuit Court of Appeals for the Ninth Circuit, reversing an order of the Board which dismissed the proceeding for the reason that the petition did not comply with the requirements">*844 of Rule 5(g) of the Board's Rules of Practice. See . Accordingly, although the petitioner herein was signed by only one of two executors, the Board has jurisdiction to consider it.

A memorandum findings of fact and opinion was entered after that hearing on November 9, 1939. Upon motion of petitioner this findings of fact and opinion was set aside and vacated by an order dated December 20, 1939, and the proceeding was restored to the calendar "for further hearing." On May 20, 1940, a few days before the further hearing was held, petitioner filed a motion to strike all the testimony of respondent's sole witness, David Cosgrave, or, in the alternative, for a hearing de novo. At the further hearing the first alternative was granted over respondent's objection, the testimony of petitioner's three witnesses remaining in the record, but the estimony of respondent's witness Cosgrave being stricken subject to the right of respondent to recall and reexamine him. Thereupon Cosgrave testified on direct and cross-examination and petitioner was recalled for rebuttal testimony. Petitioner objected to certain questions asked of">*845 Cosgrave at the further hearing, upon the ground that, since Cosgrave was decedent's attorney, they called for a disclosure of confidential communications of the decedent. The objections were overruled, and at the conclusion of the hearing petitioner moved to strike all the testimony of this witness upon the same ground. This is the motion which was taken under advisement, to be ruled upon in connection with the decision of the case itself.

The substantive question in the case is whether certain real property owned by decedent was conveyed by her to her son in contemplation ">*189 of death or as a transfer intended to take effect in possession or enjoyment at or after death, so as to justify respondent's proposed inclusion in the gross estate of the value of that property. We have found as a fact the second of the two alternatives. Although the facts might justify a further finding that the transfer was made in contemplation of death, or that conclusion might follow as a matter of law from the evidentiary facts, we have refrained from finding it also as a fact because, in the view we take, the proceeding is sufficiently disposed of by the ultimate finding which we have">*846 made.

The evidence upon which we have based that finding is that given by Cosgrave, which we believe to have been properly admitted. Cosgrave testified that he represented only the decedent, and according to his testimony the material facts with reference to the real property in issue were in part communicated in the presence of a third person, decedent's son, or were, as to the balance, to be communicated to him pursuant to decedent's instructions. Under settled rules of general law as well as under the law of evidence of the District of Columbia, and of the State of California, which was decedent's domicile, such circumstances are sufficient to remove the usual seal of secrecy from communications between attorney and client, from which their customarily confidential nature arises. Oliver v. Cameron, 11 D.C. (McArthur and Mackey) 237; ; ; ; ; ; ">*847 ; ; , citing ; ; ; ; . See also ; ; . This being so, petitioner's objection to Cosgrave's testimony was properly overruled and for similar reasons his motion to strike that testimony taken under advisement at the hearing must be and it is denied. ¹

">*848 The substance of Cosgrave's testimony was that the conveyance of the property to petitioner's son in lieu of testamentary disposition was accomplished by a deed to him duly recorded but prepared simultaneously ">*190 with a return deed which, as understood by all the parties, was to be executed by the son and retained by Cosgrave, and was to be recorded in the event that the son predeceased decedent. It is petitioner's contention that this testimony, even though admissible, should not be credited, first, because Cosgrave was a biased witness and, second, because his testimony is contradicted by petitioner and other witnesses appearing in his behalf. While it is true that Cosgrave's testimony was flatly denied by petitioner and can not be reconciled with his statements, the testimony of the other witnesses was not necessarily inconsistent with that of Cosgrave. Such declarations by decedent to these witnesses as that she intended to give the property to her son or that she wanted him to have the income from it because of his impecunious condition are not at variance with Cosgrave's version of what was actually performed. Nor are her assertions after she had executed the will">*849 and deed that "I have given the estate to Murray," her son, or that after the execution of the return deed she is said to have told one of the witnesses "he gave it back to me" sufficiently significant or unequivocal to form a basis for any conclusion one way or the other as to the intention of the parties respecting the reversionary interest in the property, which is the crucial factor for us to consider in deciding the present proceeding.

Hence it is unnecessary, in order to accept Cosgrave's statements on that point, to disregard the testimony of apparently disinterested witnesses. This, of course, does not apply to the evidence given by petitioner himself. But Cosgrave is an attorney of many years standing and one whose understanding and memory of the transactions was not successfully impeached. We are unable to conclude that his statements were deliberately false, as we should have to if we were to disregard them. As opposed to the testimony of Baldwin, an interested witness, and one whose understanding or memory may have been much less clear, we have reached the conclusion that Cosgrave is the more reliable witness.

">*850 On this version of the facts it seems evident that the effect of the two deeds was no different than would have been a single deed conveying the property to decedent's son but with a reversion to her in the event that she survived him. Such a transfer is taxable as part of decedent's estate. ; ; . Respondent was accordingly justified in determining a deficiency in estate tax based upon the undisputed value of the property.

Reviewed by the Board.

Decision will be entered under Rule 50.

LEECH concurs only in the result.

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Footnotes

• 1. The procedure at the hearing followed substantially the approved rule for examination of a witness under such circumstances stated in the following language in :↩ "It is proper to ask the attorney whether or not with relation to the transaction under inquiry he was acting as the attorney for the person making the statements. If either of the parties are not satisfied with the answer of the witness, the dissatisfied party can ask such questions as are essential to enable the court to determine whether or not the relationship existed. If the relationship is established to the satisfaction of the court, it remains to be determined whether or not the communication was of such a character as comes within any of the exceptions to the rule concerning communications between attorney and client. The burden of showing that the confidential relation existed was upon the respondent. The showing made being insufficient for that purpose, the rulings excluding the testimony were for that reason erroneous. * * *."