Estate of Pruitt v. Commissioner , 80 T.C.M. 348 ( 2000 )

T.C. Memo. 2000-287
UNITED STATES TAX COURT
ESTATE OF SUZANNE C. PRUITT, DECEASED, SANDRA S. THOMPSON,
PERSONAL REPRESENTATIVE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19126-97. Filed September 12, 2000.
Marc K. Sellers, for petitioner.
Gerald W. Douglas, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
MARVEL, Judge: Respondent determined a deficiency of
$47,660 in petitioner’s Federal estate tax. The sole issue1 for
decision is whether gifts of real property made by decedent’s
1
The remaining adjustments proposed in the notice of
deficiency were not contested in the petition and are deemed to
be conceded. See Rule 34(b)(4), Tax Court Rules of Practice and
Procedure.
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attorney-in-fact are includable in decedent’s gross estate under
section 2038.2 Resolution of the issue requires us to decide
whether decedent’s attorney-in-fact was authorized to make the
gifts in question by certain powers of attorney granted to her by
decedent.
FINDINGS OF FACT
The parties have stipulated some of the facts. The
stipulated facts are incorporated in our findings by this
reference.
Suzanne C. Pruitt (Mrs. Pruitt or decedent) died on February
11, 1994, from complications of Alzheimer’s disease. Decedent’s
will was admitted to probate in Oregon and decedent’s United
States Estate (and Generation-Skipping Transfer) Tax Return, Form
706, showed decedent’s domicile in Multnomah County, Oregon.
Decedent’s daughter, Sandra S. Thompson (Ms. Thompson), was
appointed personal representative of decedent’s estate (the
estate). At the time the petition was filed, Ms. Thompson
resided in Troutdale, Oregon.
Prior to 1988, decedent and her husband3 engaged in estate
planning discussions with their attorney, James W. Walker (Mr.
2
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.
Monetary amounts are rounded to the nearest dollar.
3
Decedent’s husband died in November 1993.
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Walker). Ms. Thompson attended one or two of the meetings at
which the discussions took place. Mr. Walker discussed ways to
reduce Mr. and Mrs. Pruitt’s projected estate tax liability and
advised them on the effect of the Federal gift tax, gifting
schedules, and charitable donations. Mr. and Mrs. Pruitt were
concerned about the considerable size of their estate and
potential estate tax problems. Mr. and Mrs. Pruitt wanted their
children to inherit as much of their estate as possible.
From 1980 through 1992, in accordance with Mr. Walker’s
advice, decedent engaged in a pattern of making gifts to her
daughters, their husbands, and her grandchildren in an attempt to
reduce the size of her estate. Decedent personally made all the
gifts during this period. The gifts made by decedent from 1980
through 1992 were as follows:
Donee1 Date of Gift Amount
Robyn Muckerheide 1980 $1,000
Sharon K. Phillips 1,000
Sandra S. Thompson 1,000
Robyn Muckerheide 1981 1,000
Sharon K. Phillips 1,000
Sandra S. Thompson 1,000
Robyn Muckerheide 1982 1,000
Sharon K. Phillips 1,000
Sandra S. Thompson 1,000
Robyn Muckerheide 1983 2,000
Sharon K. Phillips 2,000
Sandra S. Thompson 2,000
Robyn Muckerheide 1984 3,000
Sharon K. Phillips 3,000
Sandra S. Thompson 3,000
Robyn Muckerheide 1985 3,000
Sharon K. Phillips 3,000
Sandra S. Thompson 3,000
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Robyn Muckerheide 1986 3,500
Sharon K. Phillips 3,500
Sandra S. Thompson 3,500
Robyn & Leo Muckerheide 10/1987 2,500
Sharon & J. Richard Phillips 2,500
Sandra S. & Marvin R. Thompson 2,500
Robyn & Leo Muckerheide 12/1987 5,000
Sharon & J. Richard Phillips 5,000
Sandra S. & Marvin R. Thompson 5,000
Robyn & Leo Muckerheide 08/1988 10,000
Sharon & J. Richard Phillips 10,000
Sandra S. & Marvin R. Thompson 10,000
Robyn & Leo Muckerheide 12/1988 10,000
Sharon & J. Richard Phillips 10,000
Sandra S. & Marvin R. Thompson 10,000
Robyn & Leo Muckerheide 1989 20,000
Sharon & J. Richard Phillips 20,000
Sandra S. & Marvin R. Thompson 20,000
Robyn & Leo Muckerheide 1990 20,000
Sharon & J. Richard Phillips 20,000
Sandra S. & Marvin R. Thompson 20,000
Tamara Kaye Johnston Irrevocable Trust 5,000
Sheri Lea Muckerheide Irrevocable Trust 5,000
Troy Alan Muckerheide Irrevocable Trust 5,000
Brent Elvin Phillips Irrevocable Trust 5,000
Brian Paul Phillips Irrevocable Trust 5,000
Kevin Scott Phillips Irrevocable Trust 5,000
Shauna Sue Shigeta Irrevocable Trust 5,000
Derek Lee Thompson Irrevocable Trust 5,000
Jason Rubin Thompson Irrevocable Trust 5,000
Kevin Luis Thompson Irrevocable Trust 5,000
Shelly Lusandra Thompson Irrevocable Trust 5,000
Todd Marvin Thompson Irrevocable Trust 5,000
Robyn & Leo Muckerheide 1991 20,000
Sharon & J. Richard Phillips 20,000
Sandra S. & Marvin R. Thompson 20,000
Tamara Kaye Johnston 10,000
Sheri Lea Muckerheide 10,000
Troy Alan Muckerheide 10,000
Brent Elvin Phillips 10,000
Brian Paul Phillips 10,000
Kevin Scott Phillips 10,000
Shauna Sue Shigeta 10,000
Derek Lee Thompson 10,000
Jason Rubin Thompson 10,000
Shelly Lusandra Thompson 10,000
Todd Marvin Thompson 10,000
Robyn & Leo Muckerheide 02/1992 20,000
Sharon & J. Richard Phillips 20,000
Sandra S. & Marvin R. Thompson 20,000
Tamara Kaye Johnston 10,000
Sheri Lea Muckerheide 10,000
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Troy Alan Muckerheide 10,000
Brent Elvin Phillips 10,000
Brian Paul Phillips 10,000
Kevin Scott Phillips 10,000
Shauna Sue Shigeta 10,000
Derek Lee Thompson 10,000
Jason Rubin Thompson 10,000
Shelly Lusandra Thompson 10,000
Todd Marvin Thompson 10,000
Sandra S. Thompson 11/1992 61,666
Sharon K. Phillips 61,667
Robyn Muckerheide 61,667
1
Robyn Muckerheide, Sharon K. Phillips, and Sandra S. Thompson are
decedent’s three daughters. Leo Muckerheide, J. Richard Phillips, and Marvin R.
Thompson are decedent’s daughters’ husbands, respectively. The remaining donees
are decedent’s grandchildren or related trusts.
With the exception of the November 1992 gifts, decedent
transferred the gifted funds by personal check. The November
1992 gifts consisted of stock.
On December 22, 1987, pursuant to Mr. Walker’s advice,
decedent, while domiciled in Oregon, executed and delivered to
Ms. Thompson a durable power of attorney4 (December 22, 1987,
power). The December 22, 1987, power was a standard form (Form
No. 853) preprinted by the Stevens-Ness Law Publishing Co.,
Portland, Oregon. The power appointed Ms. Thompson as attorney-
in-fact and granted her specific enumerated powers. Mr. Walker
advised decedent that the power would allow Ms. Thompson to do
anything decedent could do. Relevant portions of the December
22, 1987, power read as follows:
KNOW ALL MEN BY THESE PRESENTS, That I, Suzanne C.
Pruitt have made, constituted and appointed and by
these presents do make, constitute and appoint Sandra
4
The parties stipulated that each of the powers of attorney
was a durable power under Oregon law.
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S. Thompson my true and lawful attorney, for me and in
my name, place and stead and for my use and benefit,
(1) To lease, let, grant, bargain, sell, contract
to sell, convey, exchange, remise, release and dispose
of any real or personal property of which I am now or
hereafter may be possessed or in which I may have any
right, title or interest, including rights of
homestead, for any price or sum and upon such terms and
conditions as to my said attorney may seem proper;
* * * * * * *
I hereby give and grant unto my said attorney full
power and authority freely to do and perform every act
and thing whatsoever requisite and necessary to be done
in and about the premises, as fully to all intents and
purposes, as I might or could do if personally present,
hereby ratifying and confirming all that my said
attorney-in-fact shall lawfully do or cause to be done
by virtue hereof.
On March 12, 1992, pursuant to Mr. Walker’s advice,
decedent, while domiciled in Oregon, executed and delivered to
Ms. Thompson two durable powers of attorney (March 12, 1992,
powers). One was to be recorded, and the other was for Ms.
Thompson to use that same day for matters unrelated to this case.
One of the powers was a standard form (Form No. 853) preprinted
by the Stevens-Ness Law Publishing Co., Portland, Oregon, (March
12, 1992, No. 1 power), and the other was a standard computer-
generated form used by Mr. Walker’s office (March 12, 1992, No. 2
power). Each of the March 12, 1992, powers named Ms. Thompson as
attorney-in-fact. The language of the March 12, 1992, No. 1
power was identical in many but not all respects to the language
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used in the December 22, 1987, power.5 Relevant portions of the
March 12, 1992, No. 2 power read as follows:
I, SUZANNE C. PRUITT, hereby make, constitute and
appoint SANDRA S. THOMPSON my agent and attorney in
fact with power and authority to:
* * * * * * *
8. Convey, sell, mortgage, pledge, consign, lease
and in any other manner deal in and with my property,
both real and personal.
* * * * * * *
I authorize my attorney for me and in my name
generally to do and perform all and every act which is
necessary or desirable to be done in order to properly
conduct, manage and control all my business and my
property and to execute and acknowledge any and all
instruments necessary or proper to carry out the
foregoing powers, hereby releasing all third persons
from responsibility for the acts and omissions of my
attorney.
All three powers of attorney constituted valid and binding
powers of attorney under Oregon law. At the time decedent
executed and delivered each of the powers,6 she did so with full
mental capacity.
5
The March 12, 1992, No. 1 power provided that “My said
attorney and all persons unto whom these presents shall come may
assume that this power of attorney has not been revoked until
given actual notice either of such revocation or of my death.” It
also contained par. (16) authorizing decedent’s attorney-in-fact
to act with respect to certain tax and governmental matters, and
an effective date clause. The December 22, 1987, power did not
contain similar provisions.
6
The parties stipulated that none of the powers of attorney
took precedence over or superseded any other power.
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On December 30, 1993, and on January 18, 1994, Ms. Thompson,
as attorney-in-fact, made gifts of interests in decedent’s real
property by separate deeds to each of decedent’s three daughters
(including Ms. Thompson) and their husbands. On the dates of the
gifts, decedent’s medical condition had deteriorated to the point
where she lacked the mental capacity to discuss the gifts with
Ms. Thompson. Ms. Thompson did not have any discussions with Mr.
Walker prior to making the gifts. Each gift was confirmed by a
deed recorded in Multnomah County, Oregon. The gifts are
summarized as follows:
Donee Property1 Transfer date Property value
Sandra & ½ interest in 12/30/93 $20,000
Marvin 1204 NE Meadow
Thompson Drive
Sharon & Dick ½ interest in 12/30/93 15,500
Phillips 1125 NE Meadow
Drive
Robyn & Leo ½ interest in 12/30/93 19,000
Muckerheide 1137 NE Meadow
Drive
Sandra & ½ interest in 01/18/94 22,000
Marvin 1204 NE Meadow
Thompson Drive
Sharon & Dick ½ interest in 01/18/94 15,500
Phillips 1125 NE Meadow
Drive
Robyn & Leo ½ interest in 01/18/94 19,000
Muckerheide 1137 NE Meadow
Drive
1
All property transferred was real property located in
Portland, Oregon.
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The estate filed Federal gift tax returns (Form 709)
reporting the 1993 and 1994 gifts and claiming six annual gift
tax exclusions in each year for the values of the gifts.7 As a
result, the estate reported no net gifts for 1993 and $2,000 in
net gifts for 1994.
The estate filed a timely Federal estate tax return (Form
706) reporting a total gross estate of $1,427,908 and adjusted
taxable gifts of $252,000. The 1993 and 1994 gifts made pursuant
to the powers of attorney were not included in calculating
decedent’s gross estate. Following an examination, respondent
mailed a notice of deficiency to the estate in which respondent
determined, among other things, that the 1993 and 1994 gifts
“which were transferred during decedent’s lifetime by the
decedent’s attorney in fact under a durable power of attorney
that did not expressly authorize the attorney in fact to make
gifts are includable in the decedent’s gross estate.”
OPINION
Respondent’s Objections
We first address respondent’s objections to the testimony of
witnesses Ms. Thompson and Mr. Walker. At trial, the Court
conditionally admitted the testimony over respondent’s objection
7
The 1993 and 1994 gifts did not impoverish decedent or
adversely impair her ability to support herself. On the date of
her death, decedent owned assets having a value in excess of
$1,400,000.
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based on the parol evidence rule and directed the parties to
address the issue on brief. On brief, respondent contended that
petitioner is attempting to expand the powers specifically
granted to Ms. Thompson through the use of oral testimony, which
is prohibited by the parol evidence rule. Prior to trial and on
brief, respondent raised another general objection to the
testimony, contending it was inadmissible hearsay.
A. Respondent’s Hearsay Objection
On brief, respondent argued that any third-party testimony
regarding decedent’s intent is inadmissible because it is offered
to prove the truth of the matter asserted; namely, that decedent
intended to include a power to make gifts in each of the
three powers of attorney. Petitioner responded that the
testimony is admissible under rules 803(3) and 807 of the Federal
Rules of Evidence. Assuming arguendo that the witnesses’
testimony as to decedent’s intent is hearsay in the first
instance,8 we hold that the testimony is admissible under the
8
On brief, respondent made the following arguments that
certain parts of the witnesses’ testimony constituted
inadmissible hearsay: (1) “At trial, the decedent’s attorney [Mr.
Walker] testified that, with respect to the powers of attorney,
he had discussions with the decedent that the powers allowed the
decedent’s daughter to do anything that the decedent could do
* * *. Any statements by the attorney which relate to this
belief by the decedent, including an implied intent to make gifts
are inadmissible hearsay under FRE 803(3).” (2) “The same
rationale and result [as in (1) above] applies to the overall
testimony of the decedent’s daughter [Ms. Thompson].” (3) “In the
present case, it is respondent’s position that the testimony of
(continued...)
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state of mind exception to the hearsay rule. See Fed. R. Evid.
803(3). The testimony of the witnesses involved decedent’s state
of mind at the time the powers were executed; the witnesses were
credible, and the testimony regarding decedent’s intent was
relevant to the interpretation of the powers. See Mutual Life
Ins. Co. v. Hillmon, 145 U.S. 285 (1892); United States v.
Emmert, 829 F.2d 805, 809-810 (9th Cir. 1987). In light of our
ruling, we do not, and need not, decide whether the testimony is
admissible under rule 807 of the Federal Rules of Evidence.
B. Respondent’s Parol Evidence Objection
Respondent also contends that the testimony of Ms. Thompson
and Mr. Walker is inadmissible under Oregon’s parol evidence rule
because the testimony is being offered to prove that Ms. Thompson
was authorized by the powers of attorney to make gifts when, in
fact, the powers of attorney contained no such provision.
Petitioner contends that the parol evidence rule may not be
invoked by a litigant who is not a party to the agreement and
that, in any event, the testimony is offered solely to assist
8
(...continued)
the decedent’s daughter and attorney that the decedent intended
her powers of attorney to include the power to make gifts of her
property is inadmissible hearsay.” We are not convinced that any
of the examples cited by respondent are hearsay. See Fed. R.
Evid. 801. Nevertheless, we address respondent’s argument.
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this Court in determining the knowledge and intent of decedent in
granting the powers of attorney.
When we are required to make a State law determination as to
the existence and extent of legal rights and interests created by
a written instrument in order to decide a case over which we have
jurisdiction, “we must look to that State’s parol evidence rule
in deciding whether or not to exclude extrinsic evidence that
bears on the disputed rights and interests under the
instrument.”9 Estate of Craft v. Commissioner, 68 T.C. 249, 263
(1977), affd. per curiam 608 F.2d 240 (5th Cir. 1979); see also
Stevenson v. Commissioner, T.C. Memo. 1986-207 (applying Oregon
law); Young v. Commissioner, T.C. Memo. 1985-221. Since this
case requires us to decide whether the power to make gifts was
granted to Ms. Thompson by the powers of attorney given to her by
decedent, we must examine the applicable State parol evidence
rule and decide whether it requires us to exclude the disputed
testimony. The parties agree that Oregon State law applies.
Oregon’s parol evidence rule, codified in Or. Rev. Stat.
sec. 41.740 (1999), provides:
When the terms of an agreement have been reduced
to writing by the parties, it is to be considered as
containing all those terms, and therefore there can be,
between the parties and their representatives or
9
“The so-called parol evidence rule is a misnomer; the rule
is one of substantive law and not one of evidence.” Estate of
Craft v. Commissioner, 68 T.C. 249, 262-263 (1977), affd. per
curiam 608 F.2d 240 (5th Cir. 1979).
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successors in interest, no evidence of the terms of the
agreement, other than the contents of the writing,
except where a mistake or imperfection of the writing
is put in issue by the pleadings or where the validity
of the agreement is the fact in dispute. However this
section does not exclude other evidence of the
circumstances under which the agreement was made, or to
which it relates, as defined in ORS 42.220,[10] or to
explain an ambiguity, intrinsic or extrinsic, or to
establish illegality or fraud. The term “agreement”
includes deeds and wills as well as contracts between
parties.
The Supreme Court of Oregon has not applied a literal
reading of Or. Rev. Stat. sec. 41.740. See Hatley v. Stafford,
588 P.2d 603, 605 n.1 (Or. 1978). Instead, it has treated the
statute as a codification of the common-law parol evidence rule.
See Abercrombie v. Hayden Corp., 883 P.2d 845, 849 (Or. 1994).
In Abercrombie, the Supreme Court of Oregon described the Oregon
common-law parol evidence rule as follows:
The parol evidence rule, in brief, provides that a
binding, completely integrated, written agreement
supersedes or discharges all agreements, written or
oral, that were made before the completely integrated
agreement, to the extent that the prior agreements are
within the scope of the completely integrated
agreement. Restatement (Second) of Contracts § 213(2)
(1979). The rule also provides that a binding,
partially integrated, written agreement supersedes or
discharges all agreements, written or oral, that were
made before the partially integrated agreement, to the
extent that the prior agreements are inconsistent with
10
Or. Rev. Stat. sec. 42.220 (1999) provides:
In construing an instrument, the circumstances
under which it was made, including the situation of the
subject and of the parties, may be shown so that the
judge is placed in the position of those whose language
the judge is interpreting.
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the partially integrated agreement. Restatement
(Second) of Contracts § 213(1) (1979). * * *
[Abercrombie v. Hayden Corp., 883 P.2d at 850; fn. ref.
omitted.]
“Under Oregon law, a power of attorney creates an agency
relationship. * * * Therefore, the authorities and duties of
an attorney in fact are governed by the principles of agency.”
Wilkinson v. Commissioner, T.C. Memo. 1993-336; see also Scott v.
Hall, 163 P.2d 517, 518 (Or. 1945) (“Attorneys in fact created by
formal letters of attorney are merely special kinds of agents
* * * and in construing such letters or powers and determining
their effect the principles of the law of agency apply.”); Ho v.
Presbyterian Church, 840 P.2d 1340-1343 (Or. Ct. App. 1992).
Petitioner argues that Oregon’s parol evidence rule does not
apply in cases like this where a litigant who is not a party to
the power of attorney is attempting to use the rule to exclude
evidence regarding the intent of the principal and the
circumstances surrounding the execution of the power of attorney.
We need not decide whether a litigant who is not a party to
the power of attorney may invoke Oregon’s parol evidence rule,
codified in Or. Rev. Stat. sec. 41.740 (1999). Although it is
well established under Oregon law that the authority conferred by
a power of attorney cannot be enlarged by parol evidence, see
United States Natl. Bank v. Herron, 144 P. 661, 663-664 (Or.
1914) (interpreting a limited power of attorney); Wade v.
Northup, 140 P. 451, 457 (Or. 1914) (interpreting a general power
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of attorney); Coulter v. Portland Trust Co., 26 P. 565, 569 (Or.
1891) (interpreting a limited power of attorney), it is equally
well established that parol evidence may be used to interpret
those powers actually given, see Wade v. Northup, supra at 457
(“we may resort to ‘the circumstances under which it was made
* * *’ so that the court may be placed in the position of those
whose language it is interpreting”); Coulter v. Portland Trust
Co., supra at 569; see also Or. Rev. Stat. secs. 41.740, 42.230
(1999).11
Applying Oregon law, we hold that we properly may consider
the testimony of petitioner’s witnesses as evidence of the
circumstances under which the powers were executed or to
interpret an ambiguity in their terms; however, we may not use
the testimony to enlarge the authority granted to Ms. Thompson in
the powers of attorney. In accordance with these holdings, we
admit the testimony in question.
Interpreting the Powers of Attorney
Section 2038(a) provides that a decedent’s gross estate
includes any interest in property transferred by the decedent for
11
Or. Rev. Stat. sec. 42.230 (1999) provides:
In the construction of an instrument, the office
of the judge is simply to ascertain and declare what
is, in terms or in substance, contained therein, not to
insert what has been omitted, or to omit what has been
inserted; and where there are several provisions or
particulars, such construction is, if possible, to be
adopted as will give effect to all.
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less than full and adequate consideration if, at the time of
decedent’s death, the enjoyment of the property was subject to
the decedent’s power to alter, amend, revoke, or terminate. See
sec. 2038(a)(1). Respondent asserts that decedent had the power
to revoke the gifts made by Ms. Thompson to decedent’s three
daughters and their husbands on December 30, 1993, and January
18, 1994 (the gifts), because the powers of attorney did not
authorize Ms. Thompson to make gifts of decedent’s real property;
therefore, the gifts must be included in decedent’s gross estate.
Petitioner contends that the powers of attorney authorized Ms.
Thompson to make the gifts and that, therefore, the gifts are not
revocable.
The legal effect of gifts made pursuant to a power of
attorney is determined according to State law. See Morgan v.
Commissioner, 309 U.S. 78 (1940). Oregon has not established,
either through case law or statute, a bright-line rule flatly
prohibiting gifts by attorneys-in-fact to themselves or to third
parties absent express written authorization in a power of
attorney.12 Consequently, we must examine Oregon law, and decide
12
Numerous jurisdictions have adopted the rule that “an
agent lacks authority to make a gift of the principal’s property
unless that authority is expressly given by the language of the
power of attorney.” Kunewa v. Joshua, 924 P.2d 559, 565 (Haw.
Ct. App. 1996); see also Townsend v. United States, 889 F. Supp.
369, 371-372 (D. Neb. 1995); Aiello v. Clark, 680 P.2d 1162, 1166
(Alaska 1984); In re Estate of Crabtree, 550 N.W.2d 168, 170
(Iowa 1996); Whitford v. Gaskill, 480 S.E.2d 690, 692 (N.C.
(continued...)
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the issue presented here as we believe the highest State court
would decide it. See Commissioner v. Estate of Bosch, 387 U.S.
456 (1967); Estate of Goree v. Commissioner, T.C. Memo. 1994-331.
Under Oregon law, powers of attorney must be strictly
construed. See United States Natl. Bank v. Herron, 144 P. 661,
663 (Or. 1914); Wade v. Northup, 140 P. 451 (Or. 1914); Security
Sav. Bank v. Smith, 62 P. 794 (Or. 1900); Coulter v. Portland
Trust Co., 26 P. at 567. The rule that a power of attorney must
be strictly construed, however, “does not require that it shall
be so construed as to defeat the intention of the parties. * * *
A strained construction should never be given to defeat that
intention, nor to embrace in the power what was not intended by
the parties." Wade v. Northup, supra at 458 (citing Hemstreet v.
Burdick, 90 Ill. 444 (1878)). “[T]he intention of the donor of
the power is the great principle that governs”. Brown v. Laird,
291 P. 352, 354 (Or. 1930). Although the intention of the donor
ordinarily is gleaned from the language of the power of attorney,
see id., where the language of the power is broad and is not free
from ambiguity, Oregon law requires that we examine the
12
(...continued)
1997); Fender v. Fender, 329 S.E.2d 430, 431 (S.C. 1985); F.M.
Stigler, Inc. v. H.N.C. Realty Co., 595 S.W.2d 158, 161 (Tex. Ct.
App. 1980); Bryant v. Bryant, 882 P.2d 169, 172 (Wash. 1994). In
contrast, at least two States have enacted statutes providing
that a general power of attorney contains an implied authority to
make gifts of the principal’s assets under certain circumstances.
See Ala. Code sec. 26-1-2.1 (Michie Supp. 1994); Va. Code Ann.
sec. 11-9.5 (Michie 1999).
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“circumstances under which it was made, including the situation
of the subject and of the parties * * * so that the judge is
placed in the position of those whose language the judge is
interpreting.” Or. Rev. Stat. sec. 42.220 (1999); see also Wade
v. Northup, supra at 457 (parol evidence may be used to interpret
the language of a general power of attorney).
The parties agree that the three powers of attorney at issue
in this case did not expressly authorize Ms. Thompson to make
gifts. The parties do not agree, however, whether the power to
make gifts can be inferred from the language of the powers of
attorney and the circumstances surrounding their execution.
Applying Oregon law, we examine the language of the powers of
attorney and the facts and circumstances surrounding decedent’s
execution of the powers of attorney to determine whether the
power to make gifts must be inferred in order to give effect to
decedent’s intent. Our goal is to ascertain whether decedent had
the intent to confer gift-giving power upon Ms. Thompson.
The March 12, 1992, No. 2 power, which was prepared by
decedent’s lawyer, appointed Ms. Thompson as decedent’s “agent
and attorney in fact” with power and authority to “Convey, sell,
mortgage, pledge, consign, lease and in any other manner deal in
and with my property, both real and personal.” (Emphasis added.)
The March 12, 1992, No. 2 power, also authorized Ms. Thompson “to
execute and acknowledge any and all instruments necessary or
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proper to carry out the foregoing powers, hereby releasing all
third persons from responsibility for the acts and omissions of
my attorney.”
The December 22, 1987, power and the March 12, 1992, No. 1
power were prepared on preprinted standard power of attorney
forms published by the same company and used identical language
in most respects. They appointed Ms. Thompson as decedent’s
“true and lawful attorney” to exercise certain powers “for me and
in my name, place and stead and for my use and benefit”. Among
those powers was the power to “lease, let, grant, bargain, sell,
contract to sell, convey, exchange, remise, release and dispose
of” any of decedent’s “real or personal property * * * for any
price or sum and upon such terms and conditions as to my said
attorney may seem proper”. The powers of attorney also contained
a general grant, giving Ms. Thompson “full power and authority
freely to do and perform every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully to
all intents and purposes, as I might or could do if personally
present”.
Our review of the March 12, 1992, No. 2 power in particular
leads us to conclude that the grant of power authorizing
decedent’s attorney-in-fact to transfer decedent’s real or
personal property was sufficiently broad to encompass the power
to make gifts. See sec. 2512(b) (“Where property is transferred
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for less than an adequate and full consideration in money or
money’s worth, then the amount by which the value of the property
exceeded the value of the consideration shall be deemed a gift”).
Ms. Thompson was authorized by the terms of the March 12, 1992,
No. 2 power not only to sell, mortgage, and pledge decedent’s
property, but also to convey decedent’s property. “Convey” is
defined in Black’s Law Dictionary 301 (5th ed. 1979) as follows:
To transfer or deliver to another. To pass or transmit
the title to property from one to another. To transfer
property or the title to property by deed, bill of
sale, or instrument under seal. * * *
The authority to convey without any qualification of that
authority is broad enough to permit property conveyances for no
consideration. Even if the word “convey” is interpreted to mean
transfer for consideration, the March 12, 1992, No. 2 power
broadly authorized Ms. Thompson to deal with decedent’s property
“in any other manner” and was not necessarily restricted to
transactions for consideration.
In other cases where the applicable State law required us to
ascertain the decedent’s intent in interpreting a generally
worded power of attorney, we have applied a similar analysis.
For example, in Estate of Bronston v. Commissioner, T.C. Memo.
1988-510, we examined a power of attorney which granted the
attorney-in-fact the authority to convey property without
restriction to determine if the power to make gifts could be
inferred under New Jersey law. The power of attorney did not
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restrict conveyances to those for consideration and contained a
broad grant of authority to the attorney-in-fact to do whatever
the principal could do if personally present. After
distinguishing several decisions interpreting powers of attorney
decided under New Jersey law, we concluded that the specific
language in the power of attorney, which authorized the attorney-
in-fact to convey property without any apparent restriction,
“could authorize gifts in appropriate circumstances.” Id. We
examined the facts and circumstances surrounding the execution of
the power of attorney and the making of the gifts, noting that
the decedent “historically gave gifts to her children” and had
expressed her intention to give them gifts in the year the
disputed gifts were made, and we concluded that the attorney-in-
fact “acted on behalf of decedent, continuing her usual affairs.”
Id. Based upon our review of the language of the power of
attorney and the evidence of the decedent’s intent, we held that
the power of attorney authorized gifts. See id.; see also Estate
of Neff v. Commissioner, T.C. Memo. 1997-186 (applying Oklahoma
law, we concluded that Oklahoma had not adopted a flat
prohibition against attorneys-in-fact making gifts to themselves
or to third parties absent express written authorization, and
that the durable power of attorney at issue included the implied
- 22 -
authority to make irrevocable gifts during the principal’s
lifetime).
Because the powers of attorney in this case contain language
broad enough to include the power to make gifts and, therefore,
could be interpreted to authorize Ms. Thompson to make the 1993
and 1994 gifts, we now must examine the facts and circumstances
surrounding the execution of the powers of attorney to ascertain
whether decedent intended to confer gift-giving power and, if so,
whether the gifts in question were “within the spirit of the
power conferred upon” Ms. Thompson. Wade v. Northup, 140 P. at
458; see also Brown v. Laird, 291 P. at 354.
Petitioner offered the following evidence of decedent’s
intent: A substantial and consistent pattern of annual gifting
extending over a period of 13 years prior to the gifts made by
Ms. Thompson; a February 26, 1987, handwritten letter from
decedent to her children;13 decedent’s awareness of the potential
13
The handwritten letter, dated February 26, 1987, reads as
follows:
Dear Kids of Ours,
We hope this does not shock you too much, but we
* * * [thought] we’d like to share with you some of the
rewards of our efforts, and we like to think, “good
management.” We * * * [thought] too that it is better,
to give to you now, instead of from a will. Then most
of it would be consumed by old Uncle Sam, who is always
hungry. We want you to enjoy it. It will cause you no
income tax, because it has already been paid.
(continued...)
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tax liabilities of her estate; the testimony of decedent’s
daughter, Ms. Thompson, and decedent’s attorney, Mr. Walker; and
decedent’s last will and testament. We review this evidence for
what it shows, if anything, about decedent’s intent regarding the
interpretation of the powers of attorney in this case.
Beginning in 1980 and continuing annually through 1992,
decedent made gifts to the natural objects of her bounty.
Decedent gave her daughters annual gifts in amounts that
increased over time. In 1987, decedent expanded her gifting
program to include her sons-in-law and her grandchildren. When
decedent executed the first of her three powers of attorney in
1987, the gifting program was well established and steadily
growing, and she already had made her annual gifts for 1987. The
power of attorney was executed in connection with estate planning
by decedent and her husband which was designed to minimize, to
the fullest extent possible, the estate and gift tax liability of
their estates and to maximize the assets passing to their family.
13
(...continued)
We realize we are getting older and do not need so
much so thought it would be nice to share now.
Just remember, we love you lots and are glad you
were born to us.
Lots of love –
Your Daddy + Mom
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After the execution of the December 22, 1987, power, decedent
continued to make annual gifts of her property, periodically
increasing the amount of the gifts and the number of donees. In
February 1992, decedent again made substantial gifts to her
daughters, their husbands, and her grandchildren. We believe
this pattern of making annual gifts covering a period of 13 years
demonstrates, and is consistent with, decedent’s intention to
make annual gifts of her property until her death in order to
take full advantage of the annual per-donee gift tax exclusion,
thereby reducing the amount of estate tax her estate would owe
upon her death.
Decedent’s intention to make annual gifts to her children in
order to minimize her estate tax liability is demonstrated
further by her February 26, 1987, letter to her children in which
she stated: “it is better, to give to you now, instead of from a
will. Then most of it would be consumed by old Uncle Sam, who is
always hungry. We want you to enjoy it.” Decedent’s intention,
shown by annual gifts beginning in 1980 and stated clearly in her
1987 letter to her daughters, was to minimize the potential tax
liabilities of her estate by giving annual gifts to her family.
The testimony of decedent’s daughter also reinforces
petitioner’s argument that decedent intended to grant the power
to make gifts to her attorney-in-fact. Ms. Thompson testified
that she discussed the “gifting program” on numerous occasions
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with her parents, who were concerned about the size of their
estates. Ms. Thompson also testified that when decedent
delivered the powers of attorney to her, decedent never indicated
that Ms. Thompson was prohibited from taking certain acts and
decedent gave no specific instructions to Ms. Thompson. Since
decedent was told by her attorney, Mr. Walker, that such powers
of attorney authorized Ms. Thompson to do whatever decedent could
do with her own property, and since each of the powers of
attorney contained a general grant of power that would appear to
a nonlawyer to be consistent with Mr. Walker’s statement to
decedent, we do not find it surprising that decedent did not
discuss specifically with Ms. Thompson whether Ms. Thompson had
the power to continue the annual gifts to decedent’s family.
The testimony of decedent’s attorney, Mr. Walker, lends
support to petitioner’s argument. Mr. Walker testified that,
when the December 22, 1987, power was executed, “my words were to
her that ‘this will allow your daughter to do anything that you
can do.’” With respect to the March 12, 1992, powers, Mr. Walker
testified: “The intent was that the agent under [the power]
could do anything that [decedent] could do.” Mr. Walker further
testified that when he presented the March 12, 1992, powers to
decedent for execution, he recalled “using the words ‘this will
allow your daughter to do anything that you can do.’” When Mr.
Walker was asked on cross-examination whether decedent ever told
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him whether she specifically wanted to include the power to make
gifts in the powers of attorney, Mr. Walker responded: “I think
it might have been the other way around. I said that ‘this will
allow your daughter to do anything that you could do’, and we
specifically talked about the gifting.” The record amply
demonstrates that decedent relied upon Mr. Walker’s advice and
acted upon it. Decedent understood from conversations she had
had with Mr. Walker that lifetime gifts were an important estate
planning tool and that her powers of attorney authorized her
daughter to do anything decedent could do. It is reasonable,
therefore, for us to conclude on this record that decedent
intended the powers of attorney to include the power to make
gifts.
Finally, a review of decedent’s will confirms that the 1993
and 1994 gifts were to the same individuals who would have
inherited the properties under the terms of decedent’s will. In
her will, decedent bequeathed all her real and personal property
to her three daughters if she was not survived by her husband
(decedent’s husband died in November 1993).
Petitioner and respondent base their arguments on two
opinions of the Court of Appeals for the Fourth Circuit
interpreting Virginia State law, Estate of Ridenour v.
Commissioner, 36 F.3d 332 (4th Cir. 1994), affg. T.C. Memo. 1993-
41, and Estate of Casey v. Commissioner, 948 F.2d 895 (4th Cir.
- 27 -
1991), revg. T.C. Memo. 1989-511. Petitioner contends that the
facts in Estate of Ridenour are analogous to the instant case and
that Estate of Casey is factually distinguishable. Respondent,
on the other hand, asserts that the Supreme Court of Oregon would
rely heavily on the holding and rationale of Estate of Casey and
that the holding in Estate of Ridenour has no application to the
present case. Although each of these cases involves an issue
identical to the one presented here and may be helpful to our
analysis, the cases applied Virginia State law and are not
controlling.
When the Court of Appeals for the Fourth Circuit decided
Estate of Casey, Virginia’s highest court had not decided whether
the power to make gifts must be stated expressly in a power of
attorney in order to validate gifts made pursuant to the power of
attorney. See Estate of Casey v. Commissioner, supra at 898. In
the absence of guidance from Virginia’s highest court, the Court
of Appeals concluded that the power of attorney must be construed
strictly. The Court of Appeals examined the record for the
decedent’s intent and concluded that the decedent did not intend
to confer upon the attorney-in-fact the power to make gifts. See
id. The power to make gifts was not listed expressly in the
power of attorney, and the provisions of the power, read in
context, “suggest most strongly that the only asset transfer
powers intended to be conferred by the enumeration of the
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specific and general powers were transfers for value.” Id. at
901.
The decision of the Court of Appeals for the Fourth Circuit
in Estate of Casey is distinguishable from the instant case.
Although the power of attorney in Estate of Casey authorized the
decedent’s attorney-in-fact “To lease, sell, grant, convey,
assign, transfer, mortgage and set over” decedent’s property,
such actions were required to be taken “for such consideration as
he may deem advantageous”. Id. at 896. In addition, the case
record as summarized in the opinions of this Court, see Estate of
Casey v. Commissioner, T.C. Memo. 1989-511, and the Court of
Appeals for the Fourth Circuit does not disclose with the same
clarity as in the present case what understanding, if any,
decedent had regarding the scope of authority conferred by the
power of attorney that she signed. In contrast, the powers of
attorney at issue here do not limit the authority of the
attorney-in-fact to conveyances for consideration as she deems
advantageous, and the record in the instant case contains
evidence from which we can ascertain decedent’s intention to
confer broad authority on her attorney-in-fact.
- 29 -
The decision of the Court of Appeals for the Fourth Circuit
in Estate of Ridenour is also distinguishable.14 One year after
Estate of Casey was decided, the Virginia legislature enacted a
statute recognizing an implied gift power in a power of attorney
which grants broad general powers to the attorney-in-fact.15 In
Estate of Ridenour, the Court of Appeals for the Fourth Circuit,
14
We acknowledge, however, that many of the facts in Estate
of Ridenour v. Commissioner, 36 F.3d 332, 335 (4th Cir. 1994),
affg. T.C. Memo. 1993-41, are similar to the facts at hand. For
example, the decedent, Joseph Ridenour (Joseph), had a history of
making gifts to his family that were, in part, tax driven. In
1987, Joseph suffered from acute renal failure and could no
longer effectively communicate with others. Acting pursuant to a
power of attorney, which contained no language limiting the
authority to business transactions or requiring consideration in
exchange for the attorney-in-fact’s disposition of property,
Joseph’s son, James, made substantial cash gifts to family
members, including himself, from Joseph’s checking account.
James wrote the checks on Mar. 27, 1987; Joseph died on Apr. 15,
1987. The gifts were not included as part of Joseph’s gross
estate on his Federal estate tax return.
15
Va. Code Ann. sec. 11-9.5 (Michie 1999) provides, in
pertinent part, as follows:
§ 11-9.5. Gifts under power of attorney.--A. If any
power of attorney or other writing (i) authorizes an
attorney-in-fact or other agent to do, execute, or
perform any act that the principal might or could do or
(ii) evidences the principal’s intent to give the
attorney-in-fact or agent full power to handle the
principal’s affairs or deal with the principal’s
property, the attorney-in-fact or agent shall have the
power and authority to make gifts in any amount of any
of the principal’s property to any individuals or to
organizations described in §§ 170(c) and 2522(a) of the
Internal Revenue Code or corresponding future
provisions of federal tax law, or both, in accordance
with the principal’s personal history of making or
joining in the making of lifetime gifts.
- 30 -
affirming the Tax Court, held that the newly enacted statute had
retroactive effect and required a decision in favor of the
taxpayer.16 In this case, however, we are not guided by a
specific State statute clarifying when we may infer the power to
make gifts from a general power of attorney; therefore, the
approach taken in Estate of Ridenour differs from our analysis.
Without an explicit ruling by the Supreme Court of Oregon or
a statute enacted by its legislature, we cannot decide this case
based on a bright-line rule that an agent lacks authority to make
gifts of the principal’s property unless the agent is expressly
given that power in the power of attorney. We must rely instead
upon Oregon law which requires us to consider both “the strict
letter” and “the spirit of the power” conferred upon the agent.
Wade v. Northup, 140 P. 451, 458 (Or. 1914). We recognize the
16
The court noted, however, that its decision in Estate of
Casey v. Commissioner, 948 F.2d 895 (4th Cir. 1991), revg. T.C.
Memo. 1989-511, and the statute “can be reconciled, with the
statute expanding and clarifying the holding of the case”.
Estate of Ridenour v. Commissioner, supra at 334. Commenting on
the analysis that it applied in Estate of Casey, the court
stated:
This court therefore found that the appropriate method
to resolve the question was to review the complete text
of the particular instrument and the circumstances of
its execution to determine whether we could infer in it
a power, though unexpressed, to make the gifts at
issue. * * * Casey thus 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.]
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potential for “self-dealing” that exists when an agent acting
pursuant to a durable power of attorney has the power to make
gifts, especially after the principal becomes incapacitated, and
we agree that we must be wary when asked to infer from a power of
attorney a power to make gifts when the attorney-in-fact has made
the gifts in question to herself and to individuals related to
her. See Wilkinson v. Commissioner, T.C. Memo. 1993-336.
Acknowledging, as we must, that a decision inferring a power to
make gifts from the general language of a durable power of
attorney must be made with great caution, we nevertheless must
decide this case based on the best information available to us
and our review of applicable State law. After reviewing Oregon
law and examining the decisions of the Supreme Court of Oregon,
this Court, and other courts for guidance, we are convinced that
a decision to infer the power to make gifts from the general
language of a durable power of attorney is warranted in this case
because (1) there is no case law or statute in the controlling
jurisdiction prohibiting an inferred power to make gifts, (2) the
controlling jurisdiction considers the principal’s intention in
interpreting the power of attorney, (3) there is a substantial
pattern of gifting by the principal preceding the gifts made by
the attorney-in-fact, (4) the gifts made by the attorney-in-fact
are consistent with the principal’s prior gifting, (5) the gifts
do not deplete the principal’s assets to the principal’s
- 32 -
detriment, and (6) it is clear there has been no fraud or abuse
by the agent.
We conclude on the record in this case that it was
decedent’s intention to include the power to make gifts in the
powers of attorney given to Ms. Thompson and that the gifts made
by Ms. Thompson on December 30, 1993, and January 18, 1994, were
authorized by those powers of attorney. We hold that decedent
did not have the right to revoke the gifts on the date of her
death and that the gifts are not includable in decedent’s gross
estate under section 2038.
We have considered all remaining arguments made by the
parties for contrary holdings and, to the extent not discussed,
find them to be irrelevant or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.