Fortner v. Hornbuckle , 235 N.C. App. 247 ( 2014 )

NO. COA13-1209
NORTH CAROLINA COURT OF APPEALS
Filed: 5 August 2014
EARL WAYNE FORTNER and HENRY
FORTNER, Co-Administrators
of the Estate of Johnnie H.
Fortner, Sr.,
Plaintiffs,
v. Swain County
No. 11 CVS 137
JONATHAN A. HORNBUCKLE and
LYNDA HORNBUCKLE FORTNER,
Defendants and
Third Party Plaintiffs
v.
EARL WAYNE FORTNER and HENRY
FORTNER,
Third Party Defendants
Appeal by defendants from judgment entered 8 April 2013 by
Judge James U. Downs in Swain County Superior Court. Heard in
the Court of Appeals 20 February 2014.
Moody & Brigham, PLLC, by Fred H. Moody, Jr., for
plaintiffs-appellees.
McGuire, Wood & Bissette, P.A., by Mary E. Euler, Joseph P.
McGuire, and Starling B. Underwood III, for defendants-
appellants.
DAVIS, Judge.
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Jonathan A. Hornbuckle (“Jonathan”) and Lynda Hornbuckle
Fortner (“Lynda”) (collectively “Defendants”) appeal from the
trial court’s entry of judgment upon a jury verdict awarding
Earl Wayne Fortner (“Earl”) and Henry Fortner (“Henry”)
(collectively “Plaintiffs”), co-administrators of the Estate of
Johnnie H. Fortner, Sr. (“the Estate”), an apportioned share of
the Estate’s estate tax liability. On appeal, Defendants
contend that the trial court erred by (1) denying their motion
for a directed verdict; and (2) failing to appropriately
instruct the jury. After careful review, we vacate the judgment
and remand for a new trial.
Factual Background
Lynda and Johnnie H. Fortner, Sr. (“Johnnie”) lived
together and held themselves out to the public as husband and
wife — although they were not actually married — from 1976 until
1988 and then from 1998 until Johnnie’s death on 23 January
2007. Johnnie died intestate and two of his sons, Earl and
Henry, were appointed as co-administrators of the Estate. At
the time of his death, Johnnie owned a number of parcels of real
property, five of which are pertinent to the present case.
Also, in 2005, Johnnie and Lynda opened a joint checking account
(“the Joint Checking Account”) with a right of survivorship at
the State Employees’ Credit Union in Bryson City, North
Carolina.
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In August and October of 2006, Johnnie executed three
general warranty deeds to Jonathan, Lynda’s son, encompassing
(1) a 154-acre tract known as the “Round Hill Property”; (2) an
11.14-acre tract known as “Conley’s Creek Property”; and (3) a
2.95-acre tract known as the “Macktown Property.” Johnnie also
executed two general warranty deeds to Lynda for a 14.74-acre
tract known as the “Galbraith Creek Property” and a 9.3-acre
tract known as the “Shoal Creek Property.”
In October of 2006, Johnnie placed all five deeds in a
manila envelope, which he handed to Lynda while the two of them
were alone in his office. He then instructed her to “take
[them] home, put [them] up and keep [her] mouth shut.” Lynda
took the deeds home and placed them in a dresser drawer in her
bedroom. On 23 January 2007, Johnnie died intestate. The five
deeds were recorded in the Jackson and Swain County Register of
Deeds offices on 5 February 2007.
Plaintiffs subsequently filed an action in Swain County
Superior Court on 7 June 2011 alleging, in pertinent part, as
follows:
4. That during his lifetime, Johnnie H.
Fortner, Sr. executed five (5) certain deeds
purporting to convey real property located
in Swain and Jackson Counties, North
Carolina, to the Defendants without
consideration.
. . . .
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7. That the fair market values of said
tracts or parcels of land were require[d] to
be included in the gross estate of Johnnie
H. Fortner, Sr. for purposes of estate . . .
taxes.
8. That the Plaintiffs have paid or will pay
from the assets of the Estate of Johnnie H.
Fortner, Sr., estate . . . taxes upon the
gross taxable Estate of Johnnie H. Fortner,
Sr., including taxes attributable to the
parcels of real property herein described.
9. That the Plaintiffs, as personal
representatives of the Estate of Johnnie H.
Fortner, Sr., are entitled to recover from
the Defendants an apportioned share of the
estate . . . taxes paid by the Estate of
Johnnie H. Fortner, Sr., which share shall
be an amount which bears the same ratio to
the total tax paid as the value of such
tracts or parcels of land bear to the
taxable estate.
10. That the Plaintiffs are also entitled to
recover from the Defendants an apportioned
share of any and all interest and penalty on
the estate . . . taxes paid by the Estate of
Johnnie H. Fortner, Sr.
11. That at the time of the death of Johnnie
H. Fortner, Sr., he and the Defendant, Lynda
Hornbuckle Fortner, as joint tenants with
right of survivorship, owned account
#3003309 at the State Employees Credit
Union, Bryson City, N.C.
12. That at the time of the death of Johnnie
H. Fortner, Sr., said account had a balance
of $249,121.63.
13. That, to the information and belief of
the Plaintiffs, all of the funds included in
said account had been contributed to said
account from the funds of Johnnie H.
Fortner, Sr.
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14. That, to the information and belief of
the Plaintiffs, the assets of the Estate of
Johnnie H. Fortner, Sr. are not sufficient
to pay the debts of said estate.
15. That the Plaintiffs are entitled to
recover of the Defendant, Lynda Hornbuckle
Fortner, the sum of $249,121.63 to be used
solely for the payment of debts of the
Estate of Johnnie H. Fortner, Sr., which are
not payable from the other assets of the
Estate.
16. That, alternatively, if the Plaintiffs
are not able to recover the sum of
$249,121.63 from the Defendant Lynda
Hornbuckle Fortner, said sum was required to
be included in the gross estate of Johnnie
H. Fortner, Sr. for purposes of estate . . .
taxes and the Plaintiffs have paid or will
pay from the assets of the Estate of Johnnie
H. Fortner, Sr. estate . . . taxes upon the
gross taxable estate of Johnnie H. Fortner,
Sr. including taxes attributable to the bank
account hereinabove referred to and are
entitled to recover from the Defendant Lynda
Hornbuckle Fortner an apportioned share of
the estate . . . taxes paid by the Estate of
Johnnie H. Fortner, Sr., which share shall
be an amount which bears the same ratio to
the total tax paid as the value of said
account bears to the taxable estate and are
entitled to recover from the Defendant,
Lynda Hornbuckle Fortner an apportioned
share of any and all interest and penalty on
the estate . . . taxes paid by the Estate of
Johnnie H. Fortner, Sr.
Defendants filed an answer, counterclaim, and third-party
complaint1 on 17 August 2011. With regard to the five deeded
1
The counterclaim (brought against Earl and Henry in their
capacities as co-administrators of the Estate) and the third-
party complaint (brought against Earl and Henry individually)
both alleged a breach of fiduciary duty resulting from their
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properties, Defendants asserted that the transfers to Lynda and
Jonathan constituted completed gifts and that as a result (1)
the five properties were not properly includable in the Estate
for purposes of calculating its tax liability; and (2)
Plaintiffs were therefore not entitled to recover an apportioned
share of the Estate’s tax liability from Defendants attributable
to those properties. Defendants also contended that the Estate
should not be permitted to use any funds in the Joint Checking
Account to pay the debts of the Estate.
A jury trial was held in Swain County Superior Court on 6
March 2013. The jury returned a verdict in favor of Plaintiffs,
responding to the issues on the verdict sheet as follows:
WE, THE JURY, AS OUR UNANIMOUS VERDICT,
ANSWER AS FOLLOWS:
1. Are the Plaintiffs as representatives of
the estate of Johnnie H. Fortner, Sr.
entitled to an apportioned share of the
federal and state estate taxes and interest
on the asset referred to as:
Round Hill Property Answer: yes
1a. If so, what amount? $541,275.69
2. Conley's Creek Property Answer: yes
2a. If so, what amount? $58,210.18
3. Macktown Property Answer: yes
alleged overstatement of the tax liability owed by the Estate
and failure to sell real property to produce sufficient funds to
pay the debts of the Estate.
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3a. If so, what amount? $23,968.90
4. Galbraith Creek Property Answer: yes
4a. If so, what amount? $128,273.12
5. Paul Cooper/ Answer: yes
Shoal Creek Property
5a. If so, what amount? $129,853.48
6. What amount, if any, are the Plaintiffs
as representatives of the estate of Johnnie
H. Fortner, Sr. entitled to recover from the
joint account with right of Survivorship at
the State Employees Credit Union having an
approximate balance of $248,322.00 at the
time of Mr. Fortner, Sr.'s death?
ANSWER: $248,322.00 = 100%
7. If none, what is the amount of the
apportioned share of the federal and state
estate taxes and interest that is
attributable to the State Employees Credit
Union account that the Plaintiffs, as
representatives of the Estate of Johnnie H.
Fortner, Sr., are entitled to recover from
Lynda Hornbuckle Fortner?
ANSWER: .
Defendants filed a timely notice of appeal to this Court.
Analysis
I. Denial of Motion for Directed Verdict
Defendants initially argue that the trial court erred in
denying their motion for a directed verdict based on their
contention that the transfer of the five deeded properties
constituted a completed gift such that the Estate was not
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entitled to an apportioned share of its tax liability
attributable to these properties. We disagree.
In reviewing the denial of a motion for a directed verdict,
we examine
whether the evidence, taken in the light
most favorable to the non-moving party, is
sufficient as a matter of law to be
submitted to the jury. In determining the
sufficiency of the evidence to withstand a
motion for a directed verdict, all of the
evidence which supports the non-movant's
claim must be taken as true and considered
in the light most favorable to the non-
movant. The non-movant is given the benefit
of every reasonable inference which may
legitimately be drawn from the evidence,
resolving contradictions, conflicts, and
inconsistencies in the non-movant's favor.
A motion for directed verdict should be
denied if more than a scintilla of evidence
supports each element of the non-moving
party's claim.
Trantham v. Michael L. Martin, Inc., ___ N.C. App. ___, ___, 745
S.E.2d 327, 331 (2013) (internal citations, quotation marks, and
brackets omitted).
The elements required to show the valid delivery of a deed
in the form of a completed gift are “(1) an intention by the
grantor to give the instrument legal effect according to its
purport and tenor; (2) evidence of that intention by some word
or act which discloses that the grantor put the instrument
beyond his legal control; and (3) acquiescence by the grantees
in such intention.” Penninger v. Barrier, 29 N.C. App. 312,
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315, 224 S.E.2d 245, 247, disc. review denied, 290 N.C. 552, 226
S.E.2d 511 (1976) (emphasis omitted).
“A clear and unmistakable intention on the part of the
donor to make a gift of his property is an essential requisite
of a gift inter vivos. The intention may be inferred from the
relation of the parties and from all the facts and
circumstances.” McLean v. McLean, 323 N.C. 543, 550, 374 S.E.2d
376, 381 (1988) (citation, quotation marks, brackets, and
ellipses omitted).
Therefore, if the intent of the grantor is not to actually
part with title to the property at issue but rather to retain an
interest in it, there can be no completed transfer of the
property. Accordingly, where evidence is introduced that calls
into question the intention of the grantor, an issue of fact
exists for resolution by the jury and the entry of a directed
verdict on that issue is improper. See Lerner Shops of N.C.,
Inc. v. Rosenthal, 225 N.C. 316, 320, 34 S.E.2d 206, 208-09
(1945) (“There must be an intention of the grantor to pass the
deed from his possession and beyond his control, and he must
actually do so with the intent that it shall be taken by the
grantee or by someone for him. Both the intent and act are
necessary for a valid delivery. Whether such existed is a
question of fact to be found by the jury.” (citation and
quotation marks omitted and emphasis added)).
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We find instructive our decision in Penninger. In
Penninger, the decedent, approximately three years prior to his
death, executed three deeds conveying property to the
defendants. Penninger, 29 N.C. App. at 314-15, 224 S.E.2d at
246. The decedent, without informing the defendants of the
existence of these deeds, instructed his attorney to keep
possession of them and to deliver the deeds to the defendants
after his death. Id. at 314, 224 S.E.2d at 246.
The plaintiff, the decedent’s next of kin and heir at law,
filed an action to have the deeds declared null and void on the
ground that the decedent “never at any time prior to his death
released control over either of said deeds . . . and said deeds
were never, in contemplation of law, delivered to the grantees
or to anyone else for the use and benefit of the grantees with
the intention at said time that title should pass as the
instruments become effective as a conveyance.” Id. at 313, 224
S.E.2d at 246.
The decedent’s attorney — who had drafted the deeds and
then kept them in his possession at the decedent’s direction —
testified that had the decedent ever requested that he modify
the deeds, “I imagine I would have but I don't know. . . . I did
whatever he instructed me to do” and that “I would have done
what he wanted with these deeds to comply with his wishes.” Id.
at 314, 224 S.E.2d at 246.
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This Court emphasized in Penninger that the dispositive
factor for whether a completed transfer of a deed has occurred
is the intention of the grantor at the time of the execution of
the deeds. Id. at 315, 224 S.E.2d at 247. Applying this
principle, we held that the testimony by the decedent’s attorney
“would certainly justify a reasonable inference that the grantor
retained ultimate control over the deeds until his death. So
long as a deed is within the control and subject to the
authority of the grantor there is no delivery, without which
there can be no deed.” Id. (citation and quotation marks
omitted).
In the present case, Lynda testified, in pertinent part, as
follows:
Q. Okay. And when did you first see those
deeds?
A. I'm going to have to think here just a
minute because all this is running together.
I got these deeds — he gave me these deeds —
we were at the office and it was in October.
Q. Was it October 25, the date that's on
those latest deeds?
A. I'm pretty sure it was.
Q. And how did he give you those deeds?
A. They were in a manilla [sic] folder, just
stuck in it.
Q. And he handed it to you?
A. He handed it to me from — he was sitting
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in his chair and they were to the side of
him. He pulled it out that way.
Q. And he may've said something to you, and
I don't want to ask you what he said, but he
may've said something to you?
A. He said — yeah, he said a few words.
Q. And what did you do with the envelope and
the deeds?
A. I looked at them and seen what they were
and I just — we were standing up, we was
getting ready to go out of the office. And
I just pitched them — the file over to my
desk. And when we got to the door, he asked
me a question and I said, it's right there
on the desk. And I was instructed to get
it, take it home, put it up and keep my
mouth shut.
Q. And did you do that?
A. I done that.
Q. Where did you put the manilla [sic]
envelope and the deeds?
A. I put them in a dresser drawer in the
bedroom.
. . . .
Q. Ms. Fortner, let me ask you this: If on
October the 26th, or sometime after that,
Johnny [sic] Fortner had asked you to go
bring him that manilla [sic] envelope with
those deeds in it, would you have done that?
MS. EULER: Objection.
THE COURT: Overruled.
BY THE WITNESS: (Resuming)
A. Yeah, I would have.
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We are satisfied that sufficient evidence existed to
support the denial of Defendants’ motion for a directed verdict.
Lynda’s testimony creates a reasonable inference that Johnnie
lacked the intent to fully relinquish control of the deeded
properties at the time he handed the deeds to her — a key
element of the delivery of a deed by a donor.
This conclusion is also supported by evidence presented by
Plaintiffs at trial tending to show that Johnnie did not
substantially alter his control and use of the deeded properties
at issue after handing the deeds to Lynda. He continued to
reside on the Galbraith Creek Property and to receive rental
income from the Round Hill Property, the Macktown Property, and
the Shoal Creek Property — just as he had before handing the
deeds to Lynda. Lynda also testified that Johnnie was
considering making improvements to the Conley’s Creek Property.
This evidence was sufficient to raise a question for the
jury as to whether Johnnie intended to retain control over the
properties at issue. “There must be an intention of the grantor
to pass the deed from his possession and beyond his control, and
he must actually do so, with the intent that it shall be taken
by grantee or some one for him. Both the intent and the act are
necessary to the valid delivery. Whether such existed is a
question of fact to be found by the jury.” Huddleston v. Hardy,
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164 N.C. 210, 212-13, 80 S.E. 158, 159 (1913) (citation and
quotation marks omitted).
Defendants contend that Johnnie’s donative intent was
established by the fact that he gave the deeds directly to
Lynda, one of the donees, instead of to a third party. However,
in Huddleston, the Supreme Court emphasized that “the
controlling test of delivery is the intention of the grantor to
part with the deed and put it beyond his control, and that this
intent is an issue of fact, to be passed on by a jury.” Id. at
213, 80 S.E. at 160 (emphasis added). Therefore while the
giving of a deed from the donor directly to the donee may
constitute some evidence of donative intent for a completed
gift, it does not establish as a matter of law that a completed
gift did, in fact, occur where evidence also exists tending to
show that the donor did not intend to put the deed beyond his
legal control.
We also reject Defendants’ argument that evidence of
Johnnie’s subsequent actions regarding the properties is
irrelevant to his intent at the time he handed the deeds to
Lynda. We believe such actions could properly be used by the
jury to ascertain Johnnie’s intent at the time he gave Lynda the
deeds. The weight to be given this evidence was for the jury to
decide. Accordingly, the trial court properly denied
Defendants’ motion for a directed verdict.
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II. Jury Instructions
Defendants next make a series of arguments challenging the
trial court’s jury instructions.
On appeal, this Court considers a jury
charge contextually and in its entirety.
The charge will be held to be sufficient if
it presents the law of the case in such
manner as to leave no reasonable cause to
believe the jury was misled or misinformed.
The party asserting error bears the burden
of showing that the jury was misled or that
the verdict was affected by an omitted
instruction. Under such a standard of
review, it is not enough for the appealing
party to show that error occurred in the
jury instructions; rather, it must be
demonstrated that such error was likely, in
light of the entire charge, to mislead the
jury.
Hammel v. USF Dugan, Inc., 178 N.C. App. 344, 347, 631 S.E.2d
174, 177 (2006) (citations and quotation marks omitted).
Our Supreme Court has stated that “jury instructions should
be as clear as practicable[.]” Swink v. Weintraub, 195 N.C.
App. 133, 157, 672 S.E.2d 53, 69 (2009) (citation and quotation
marks omitted), disc. review denied, 363 N.C. 812, 693 S.E.2d
352 (2010). This is because
[t]he chief purposes to be attained or
accomplished by the court in its charge to
the jury are clarification of the issues,
elimination of extraneous matters, and
declaration and explanation of the law
arising on the evidence in the case. These
are essential in cases requiring the
intervention of a jury. The jury should see
the issues stripped of all redundant and
confusing matters, and in as clear a light
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as practicable. The chief object
contemplated in the charge is to explain the
law of the case, to point out the essentials
to be proved on the one side and on the
other, and to bring into view the relation
of the particular evidence adduced to the
particular issue involved.
Stern Fish Co. v. Snowden, 233 N.C. 269, 271, 63 S.E.2d 557, 559
(1951) (internal citations and quotation marks omitted).
Defendants contend that the trial court committed
reversible error in its jury instructions both as to the deeded
properties and as to the Joint Checking Account. We address
each of their arguments in turn.
A. Deeded Properties
The trial court’s instructions to the jury with regard to
the deeded properties consisted of the following:
Members of the jury, there are a number
of issues you'll be called upon to consider,
and let's look at the first five. They're
broken down in five prospective tracts of
land that were deeds signed by Mr. Fortner,
Sr., to Lynda Fortner for her and/or
Jonathan Hornbuckle. And the principles
that I give you with regard to what the
plaintiff must prove by the greater weight
of the evidence will apply on each of these
tracts. I'm not going to go over all of
them, the same five times. You'd run me off
if I did that. I'm not going to run that
risk. But you will consider each of these
tracts separate and apart, one from the
other. If you answer one or more a certain
way, that does not bind you to answer the
remainder of them a certain way. The
contrary is true.
Now, on each of these issues the burden
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of proof is upon the plaintiffs, the
Fortners, as administrators of the father's
estate, to satisfy from the evidence and by
its greater weight that you should answer
that issue in their favor.
The issue essentially states as to each
tract: Are the plaintiffs, as
representatives of the estate of John H.
Fortner, Sr., entitled to an apportioned
share of the federal and state estate taxes
and interest on the asset referred to as —
and it goes down to each one, each one of
those properties.
The plaintiff says and contends that
Mr. Fortner executed those deeds and
transferred the property by doing so but yet
retained the interest in the land and each
tract of land, each, some or all of them.
And the defendants, on the other hand, say
and contend — the defendants on the other
hand say that he did not retain the interest
but rather that they received it as a gift
from him, that he did not retain control and
ownership of the property.
Now, transferring real estate or any
asset, more specifically here real estate,
but retaining ownership of that property may
consists [sic] of control, possession,
living or occupying the property in
question, deriving and collecting for his
individual benefit any income that the
property produced and any other facts and
circumstances that you find from the
evidence to the extent of by its greater
weight that may give rise to the contention
that he retained ownership of the property
albeit he'd given deeds for it.
On the other hand, with regard to the
defendant's contentions, that if he had
transferred the property and not retained
ownership of it, that he had given title to
it. A gift means that Mr. Fortner intended
to give up all his ownership and control of
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the property immediately, not contingent.
And intent is a mental attitude seldom
proven by what's called direct evidence, the
evidence of an eyewitness. Intent is proven
by circumstances which it may be inferred.
And every person regardless of what they've
done is presumed to have intended the
natural and probable consequences of their
voluntary actions as opposed to involuntary.
And furthermore, the defendants contend
that Mr. Fortner actually or he
constructively transferred the property in
the form of a gift. An actual delivery
occurs when there is a direct transfer to
another of ownership or control of
something. And constructive delivery occurs
when, although there is no actual delivery
ownership and control of something is
indirectly transferred.
Therefore, as to each of those issues
on the numerical, 1, 2, 3, 4 and 5 parts of
it, if you find from the evidence and by its
greater weight, and the plaintiffs have
satisfied you to that extent considering
each of them separate and apart, one from
the other, that Mr. Fortner, Sr. transferred
that deed or those deeds, as the case may
be, to the property yet retained ownership,
control and/or possession of the property,
and that he intended to do so, and did not
intend to convey it as a gift either
actually or constructively, then it would be
your duty to answer that issue yes, in favor
of the administrators of the estate and
against the recipients of the property, the
defendants.
On the other hand, if you fail to so
find those things and the plaintiffs have
not satisfied you by the greater weight of
the evidence to that extent, then — or you
cannot say what the truth is, then you would
answer that issue against the party who has
the burden of proof or otherwise answering
it no, then it'd be in favor of the
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recipients of the property and against the
administrators of the estate.
To the extent that you answer any of
them no, then you don't consider the
subparts of 1(a), 2(a), 3(a), 4(a) or 5(a).
But if you've answered those issues yes,
that the estate is entitled to some
apportioned share of the federal and state
taxes for those — and interest on those
properties, then it will be your duty to
determine what that amount of taxes — what
is the amount of those taxes. And the
burden is again upon the representatives of
the estate to satisfy you that, first of
all, taxes are due and, second, in what
amount.
And I think as the lawyers have
explained to you in their final arguments if
you decide that no, the estate is not
entitled to any apportioned estate taxes,
that they were gifts, then the estate bears
the burden of paying for the gift tax. If
you find that there is some apportioned
share due, then it would be the
responsibility of the recipients of the
property to contribute whatever amount you
insert on that blank space. And you have
the various testimonies to consider pro or
con on these issues. It's for you to say
what credibility to give them and what
weight to give them if you deem them to be
believable by the greater weight of the
evidence.
So the Court charges as to any of the
first — of the five issues, primary issues,
and to the extent that the representatives
of the estate have satisfied you that taxes
are due, estate taxes are due, and the
amount of those taxes, then you will insert
that amount in a dollars and cents response,
not yes or no, but a dollar and cents
response as to issue 1(a), 2(a), 3(a), 4(a)
or 5(a), one, some, or all of them as the
case may be. On the other hand — and it'll
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be in some substantial amount in accordance
with what the plaintiffs contend the taxes
are.
On the other hand, if you're not so
satisfied or you cannot say what the truth
is, even on that issue, then you may answer
at some substantially lesser amount in
accordance with what the defendant's [sic]
contend.
We are concerned by the lack of clarity in these
instructions. Much of the confusion arose from the trial
court’s simultaneous and condensed discussion of the doctrines
of completed gifts (requested by Defendants) and retained
interests (requested by Plaintiffs) — two related yet distinct
legal doctrines. See Edwards v. Hardin, 113 N.C. App. 613, 616,
439 S.E.2d 808, 810 (1994) (“It is misleading to embody in one
issue two propositions as to which the jury might give different
responses.” (citation and quotation marks omitted)), disc.
review improvidently allowed, 339 N.C. 607, 453 S.E.2d 166(1995).
As discussed above, in order to show a completed gift
through the delivery of a deed, a party must show “(1) an
intention by the grantor to give the instrument legal effect
according to its purport and tenor; (2) evidence of that
intention by some word or act which discloses that the grantor
put the instrument beyond his legal control; and (3)
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acquiescence by the grantees in such intention.” Penninger, 29
N.C. App. at 315, 224 S.E.2d at 247 (emphasis omitted).
With regard to the doctrine of retained interests, both
parties agree that the most relevant provision of law applying
this principle in the context of apportionment of federal estate
taxes is 26 C.F.R. § 20.2036-1(a)(3)(i), a tax code regulation
promulgated under the authority of 26 U.S.C. § 2036. The test
for determining whether an interest in property was retained by
the donor is whether before his death the decedent retained or
reserved “[t]he use, possession, right to income, or other
enjoyment of the transferred property.” 26 C.F.R. § 20.2036-
1(a)(3)(i) (2013). If so, the property in question is properly
includable in the decedent’s gross estate for the purpose of
calculating federal estate tax liability. Id.The United States Tax Court has held that
[a]s used in section 2036(a)(1), the term
"enjoyment" has been described as synonymous
with substantial present economic benefit.
Regulations additionally provide that use,
possession, right to income, or other
enjoyment of transferred property is
considered as having been retained or
reserved to the extent that the use,
possession, right to the income, or other
enjoyment is to be applied toward the
discharge of a legal obligation of the
decedent, or otherwise for his pecuniary
benefit. Moreover, possession or enjoyment
of transferred property is retained for
purposes of section 2036(a)(1) where there
is an express or implied understanding to
that effect among the parties at the time of
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the transfer, even if the retained interest
is not legally enforceable. The existence
or nonexistence of such an understanding is
determined from all of the facts and
circumstances surrounding both the transfer
itself and the subsequent use of the
property.
Estate of Strangi v. Comm'r, 85 T.C.M. (CCH) 1331, 1336 (2003)
(internal citations and quotation marks omitted), aff'd, 417
F.3d 468 (5th Cir. 2005).
Therefore, while the doctrines of completed gifts and
retained interests are not unrelated, they each have distinct
elements and required separate consideration by the jury. We
believe that the trial court’s instructions failed to properly
explain these principles to the jurors in a manner sufficient to
allow them to understand these concepts and properly apply them
to the facts of this case.
The confusion engendered by the jury instructions was then
compounded by the manner in which the issues were listed on the
verdict sheet. This Court has held with regard to verdict
sheets that
[t]he form and the number of issues
submitted to the jury is within the trial
court's discretion. However, the issues
should be formulated so as to present
separately the determinative issues of fact
arising on the pleadings and evidence. It
is misleading to embody in one issue two
propositions as to which the jury might give
different responses.
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Godfrey v. Res-Care, Inc., 165 N.C. App. 68, 80, 598 S.E.2d 396,
404-05 (internal citations and quotation marks omitted), disc.
review denied, 359 N.C. 67, 604 S.E.2d 310 (2004).
The legal issues raised by the facts and claims for relief
in this case required the jury to decide a number of sub-issues
before making the ultimate determination of what amounts, if
any, Plaintiffs were entitled to recover as an apportioned share
of the tax liability attributable to each of the five deeded
properties. However, instead of setting out these sub-issues,
the verdict sheet instead simply asked the jury to decide — as
to each of the five properties — the ultimate issue of whether
Plaintiffs were entitled to an apportioned share of the estate
tax liability as to that property and, if so, in what amount.
As a result, the likelihood of jury confusion was unacceptably
high. Furthermore, we have no way of knowing the precise basis
upon which the jury reached its verdict as to the deeded
properties.
In sum, we conclude that Defendants have sufficiently
demonstrated that the trial court’s jury instructions and
verdict sheet were “likely, in light of the entire charge, to
mislead the jury.” See Hammel, 178 N.C. App. at 347, 631 S.E.2d
at 177 (citation and quotation marks omitted). Accordingly, we
must remand this action for a new trial. See Edwards, 113 N.C.
App. at 616, 439 S.E.2d at 810 (remanding for new trial where
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“[t]he ambiguity of the manner in which the instructions were
set forth and the uncertainty of the verdict rendered [were]
indisputable”).
B. Joint Checking Account
Defendants’ final argument is that the trial court erred in
failing to submit to the jury the issue of whether funds
contained in the Joint Checking Account were necessary to
satisfy the claims against the Estate. We agree that the trial
court’s instructions on this issue likewise constituted
reversible error, thereby necessitating a new trial.
N.C. Gen. Stat. § 28A-15-10 provides that administrators of
an estate can only access funds in a joint deposit account with
a right of survivorship in order to satisfy the claims against
an estate once all other assets of the estate have been
exhausted.
When needed to satisfy claims against a
decedent's estate, assets may be acquired by
a personal representative or collector from
the following sources:
. . . .
(3) Joint deposit accounts with right
of survivorship created by decedent
pursuant to the provisions of G.S. 41-
2.1 or otherwise . . . .
. . . .
Such assets shall be acquired solely for the
purpose of satisfying such claims, however,
and shall not be available for distribution
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to heirs or devisees.
N.C. Gen. Stat. § 28A-15-10(a) (2013) (emphasis added).
Defendants argue that had the jury properly been instructed
that the Joint Checking Account could only be accessed as a
source of funds by the Estate as a last resort, it could have
reasonably concluded either that none of these funds, or that
merely some limited portion of these funds, were actually needed
to satisfy the claims against the Estate. Defendants further
assert that evidence was presented at trial establishing that
other assets did, in fact, exist in the Estate that could have
been used to satisfy its tax obligations without resort to the
funds in the Joint Checking Account.
The question of whether the Estate was entitled to recover
funds from the Joint Checking Account was listed as Issue No. 6
on the verdict sheet and the trial court’s instructions
pertaining to that issue stated as follows:
Regardless of how you answer the issues
1 through 5 and subparts, you will go and
consider issue number 6 which states: What
amount, if any, are the plaintiffs, as
representatives of the estate of Mr.
Fortner, Sr., entitled to recover from the
joint account [with] the right of
survivorship of the State Employees' Credit
Union having an approximate value or balance
of $248,322 at the time of Mr. Fortner,
Sr.'s death. The burden of proof, again, is
upon the representatives of the estate to
satisfy you from the evidence by its greater
weight that the estate is the owner or has
the right to claim some portion of that
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account, and in turn, pay taxes on it.
But the defendants, on the other hand,
say and contend that the total of it or a
great portion of it was a gift or it had
already been established and owned by the
defendant, Lynda Hornbuckle Fortner.
Therefore, the Court charges if you find
from the evidence by its greater weight that
the plaintiffs have satisfied you to that
extent that some portion or all of that
joint account with right of survivorship was
retained by Mr. Fortner's estate at the time
of his death, then it would be for you to
say what that amount is in the answer
provided.
At the top it says, what amount, if
any. The plaintiffs say and contend it's a
substantial amount, if not all of it. The
defendants say and contend it's a
substantially lessor [sic] amount, if any of
it. But if you fail to so find or have a —
cannot say what the truth is as to what that
issue is, then you'll answer in some
substantially lessor [sic] amount in
accordance with what the defendants suggest,
even to the sum of none.
Now, if you answered in any amount then
that ends the lawsuit, or at least that ends
the issues. Only if you say that there was
none in that account that was attributable
to Mr. Fortner's estate, then you'll go and
consider issue number 7 . . . .2
2
The trial court then proceeded to separately instruct the jury
on the issue denominated on the verdict sheet as Issue No. 7,
which asked the jury to decide — assuming it determined that
Plaintiffs were not entitled to any of the funds in the Joint
Checking Account under Issue No. 6 — the following issue: “If
none, what is the amount of the apportioned share of the federal
and state estate taxes and interest that is attributable to the
State Employees’ Credit Union account that the Plaintiffs, as
representatives of the Estate of Johnnie H. Fortner, Sr., are
entitled to recover from Lynda Hornbuckle Fortner?” The manner
in which Issue No. 6 and Issue No. 7 were presented to the jury
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It is clear from the above-quoted portion of the jury
instructions that the trial court failed to direct the jury to
determine whether the funds contained in the Joint Checking
Account were actually needed to satisfy claims against the
Estate. Plaintiffs concede that the trial court erred in
failing to so instruct the jury but argue that the error was
cured by the trial court’s insertion of language in the third
paragraph of the judgment stating that with regard to the sum of
$248,322.00 awarded by the jury to Plaintiffs in its verdict as
to Issue No. 6, “said sum shall be used solely for the purpose
of satisfying claims against the Estate of Johnnie H. Fortner,
Sr. which exceed all of the other assets of the Estate of
Johnnie H. Fortner, Sr. . . .”
We are unpersuaded by Plaintiff’s argument. The question
of whether the Estate needed all, or some portion of, the funds
in the Joint Checking Account in order to satisfy claims against
the Estate was a factual issue for the jury. In the absence of
an instruction on this point, the jury would have felt no need
to first determine whether the remaining assets of the Estate
were sufficient to satisfy all claims against the Estate — as
as separate and distinct issues, each asking the jury to
determine whether or not Plaintiffs were entitled to recover
funds from the Joint Checking Account, also likely served to
confuse the jury.
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required by N.C. Gen. Stat. § 28A-15-10 — before deciding
whether Plaintiffs were entitled to recover any or all of the
funds contained in the Joint Checking Account. Accordingly, we
conclude that the trial court’s failure to instruct the jury on
this issue constituted prejudicial error and likewise requires a
new trial.
Conclusion
For the reasons stated above, we hold that the trial court
did not err in denying Defendants’ motion for a directed
verdict. However, we conclude that the trial court committed
prejudicial error in its instructions to the jury. Therefore,
we remand this matter for a new trial.
NEW TRIAL.
Judges CALABRIA and STROUD concur.