Opinion
October 1, 1946.
November 8, 1946.
Taxation — Transfer inheritance tax — Gifts — Items in safe deposit box of decedent — Evidence — Witnesses — Competency — Restatement, Trusts — Acts of May 23, 1887, P. L. 158, and June 20, 1919, P. L. 521.
1. On appeal from a supplemental inheritance tax appraisement, in which it appeared that in decedent's safe deposit box there were items of currency, bonds and jewelry, almost all in envelopes or packages bearing particular notations that the items were the property of named third persons, it was Held that the testimony established that the items belonged to the different claimants and not to the estate. [233-9]
2. In such case, it was Held that (1) the claimants were not incompetent to testify, under the Act of May 23, 1887, P. L. 158, section 5(e), and (2) the failure of the Commonwealth to object to their testimony was a waiver of its alleged incompetency. [236]
3. In such case, where it appeared that U.S. Treasury bonds, in an envelope bearing a notation that they were the property of A. were registered in the names of decedent or A, and the testimony did not clearly indicate that the decedent had no interest in them, it was Held that the bonds were subject to the transfer inheritance tax at one-half the assessed value. [236-7]
4. Where it appeared that at the time of decedent's death savings accounts in various banks stood in her name "in trust for" certain named persons, that in each case the decedent had notified the beneficiary of the opening of the account and stated that the account was a gift or that it was in payment of a debt, that the passbook was delivered to each beneficiary, and that the decedent did not make a withdrawal from any account for her own use, it was Held that (1) the trusts created were irrevocable and (2) the gifts of the bank accounts were not taxable under the Act of June 20, 1919, P. L. 521, as amended, as transfers intended to take effect in possession or enjoyment at or after death. [236-41]
Restatement, Trusts, section 58, cited. [239]
Before MAXEY, C. J., DREW, LINN, STERN, PATTERSON, STEARNE and JONES, JJ.
Appeal, No. 119, March T., 1946, from decree of O. C., Allegheny Co., 1944, No. 6711, in Estate of Anna M. E. McGary, deceased. Decree affirmed.
Appeal by executor from supplemental appraisement for transfer inheritance tax.
The facts are stated in the opinion by TENER, J., of the court below, as follows:
This is an appeal by the Commonwealth Trust Company of Pittsburgh as executor of the will of Anna M. E. McGary, deceased, and as agent for all parties in interest, from a supplemental inheritance tax appraisal made by the Register of Wills of Allegheny County, Agent for the Commonwealth of Pennsylvania, in the amount of $57,630.23.
The appellant claims that, with two exceptions, none of the items described in the appraisal were assets of the estate of the decedent, within the meaning of the appropriate taxing statute.
The two items admittedly taxable are (1) $100.00, in cash, contained in an envelope marked "Property of Martha Glynn Edmondson," addressed to Rev. L. J. Huber, for masses, and (2) the sum of $1,000.00, in cash, in an envelope addressed to Rev. Raphael Adams. As to these items the appeal will be dismissed.
Anna M. E. McGary died, testate, November 15, 1944. She appointed the Commonwealth Trust Company of Pittsburgh her executor, and named her niece, Martha Glynn Edmondson, her brother, Eugene L. McGary, and her brother, Raymond D. McGary, her residuary legatees.
For many years prior to her death the decedent had resided with her sister, Clara McGary, in the Arlington Apartments in Pittsburgh. In 1925, when she was six years of age, Martha A. Glynn, their niece, came to live with them. She continued to reside with them until March of 1940 when Miss Clara McGary died. Thereafter Martha Glynn lived with the decedent until her marriage in November of 1940. When, in January 1944, her husband, J. W. Edmondson, entered the United States Army, she returned to live with Miss Anna McGary, the decedent, bringing with her her infant daughter, Anna McGary Edmondson, sometimes referred to as "Nancy."
On November 20, 1944, five days after the death of the decedent, the officers of the Commonwealth Trust Company, the executor, in the presence of the three residuary legatees, opened her safe deposit box.
The Commonwealth, in its supplemental appraisal, has included for purposes of taxation certain items which were in the safe deposit box and were not inventoried by the executor as assets of the estate. They were as follows:
(1) A $500.00, U.S. Treasury Bond contained in an envelope marked "property of Raymond D. McGary."
The testimony of Raymond D. McGary was that the bond was delivered to him as a birthday present by the decedent in 1942, at her residence; that, because he had no box of his own, he handed it back to her for safekeeping; that the handwriting on the envelope was that of the decedent.
(2) $1050.00, in currency, contained within two envelopes, one over the other. The outer envelope was marked "Martha Glynn Edmondson's property." The inner envelope bore the notation "Martha this is for Nancy."
Mrs. Edmondson testified that the currency was given to her by the decedent one day in February 1944 when they were together at the bank, to be used, in case of emergency, for the baby "Nancy." She testified further that after delivery of the money she wrote the notation on the outer envelope; that on the inner envelope was in the handwriting of the decedent. It further appears that she had access to the box as the deputy of the decedent and that she placed the two envelopes there for safekeeping and where the money would be easily available.
(3) $600.00 in currency, contained in an envelope marked "Personal property of Lydia McGary."
Miss Lydia McGary testified that this sum represented the accumulation of gifts made on Christmas, Easter, or her birthday, over a period of ten years, by the decedent, her deceased sister Clara, and their brother Eugene. Miss Lydia McGary was a cousin of the decedent. She asked that the money be kept by the decedent for her in her vault because she did not wish to deposit it in her own bank account, which happened to be in the joint names of herself and another cousin, not on the McGary side. The handwriting she identified as that of the decedent.
(4) $2300.00 (face value) U.S. Treasury bonds, contained in an envelope marked "Property of Martha Glynn Edmondson."
Mrs. Edmondson identified her own handwriting on the envelope and testified that the bonds had been given to her over a period of time for graduation, Christmas, and the like; that she had them in her lock box in Boston until she came to Pittsburgh, when her husband entered the Army, then, with the decedent, she went to the box and placed them there.
(5) $675.00 (face value) in the U.S. Treasury, Series E, bonds, in various denominations, registered in the names of "Miss Anna M. E. McGary or Mrs. Martha Glynn Edmondson," in an envelope marked "property of Martha Glynn Edmondson."
Mrs. Edmondson identified her own handwriting on the envelope and testified that the bonds had been delivered to her on her second wedding anniversary (1942) as a present; that she brought them with her from Boston; that they had been registered in her name and that of her aunt in case anything happened to her.
(6) Numerous items of jewelry contained in a box around which was wrapped an envelope marked "Property of Mrs. J. W. Edmondson." Enclosed with the jewelry was a memorandum reading "All jewelry in this box belongs to Martha Glynn Edmondson."
(7) Several other packages of jewelry without any notation as to ownership.
The jewelry included in items (6) and (7) was, according to Mrs. Edmondson, her own property. Some she had acquired by gift upon various occasions, from the decedent, but much of it came from sources other than the decedent. It had all been in her possession prior to her return to Pittsburgh. Some of it (item 7) was clearly marked in the handwriting of the decedent. She identified the various items and the sources of ownership with perfect clarity and candor. There can be no question of ownership.
No objection was taken at the hearing by the Commonwealth to the admission of any of the testimony summarized above, and much more by the claimants named. In his brief, however, counsel for the Commonwealth contends that the witnesses were incompetent to testify, under the Act of 1887, P. L. 158, 5(e).
But it seems clear that the Act has no application. The parties to this proceeding are the Commonwealth of Pennsylvania and the estate. The witnesses were not claimants against the estate, nor was their testimony adverse to the rights of the decedent. And so it was held in Esbenshade's Estate, 73 P. L. J. 779 (1925), and in Watson's Estate, 23 Pa. D. C. 669, at 677 (1935), which were appeals from the assessment of inheritance taxes. But the failure to object was a waiver of incompetency and rendered the testimony admissible ( Dean and Stoughton v. Warnock, 98 Pa. 565; Heller et al., Exrs., v. Fabel, Exrx., 290 Pa. 43; Rash's Estate, 22 Pa. D. C. 405; Atkin's Estate, 36 Pa. D. C. 549).
In respect of all of the items above enumerated, except item 5, it sufficiently appears that the decedent, in her lifetime, had made valid gifts, where she was the source of the title, and where the source of title was other than the decedent, the testimony is conclusive that the items belonged to the different claimants and not to the estate. The appeal will accordingly be sustained as to items 1, 2, 3, 4, 6, and 7.
In respect of item 5 ($675.00 Treasury bonds in various denominations, registered in the names of the decedent and Mrs. Edmondson) the form of registration indicates that title was in both. The testimony does not clearly indicate that the decedent had no interest in them. Indeed the testimony of Mrs. Edmondson is that the joint registration was adopted so that if anything should happen to her, her aunt, the decedent, "would have possession." If, then, Mrs. Edmondson had predeceased her aunt the bonds would have been the sole property of the decedent. The appeal will therefore be dismissed as to this item and a tax allowed at one half the assessed value. Prifer's Estate, 53 Pa. D. C. 103.
At the time of the death of Miss McGary six savings accounts in various banks stood in her name "in trust for" certain named persons.
(1) Three of these accounts were in the name of the decedent "in trust for" Raymond D. McGary. The evidence is that in July, 1943, Raymond D. McGary was at the home of the decedent doing some repair work. The decedent then informed him of these accounts and delivered the bank books to him. He took the books home with him and kept them there until after the death of the decedent when the funds were transferred into his own name.
(2) One of the accounts was in the name of the decedent "in trust for" Anna McGary Edmondson, the infant daughter of Martha Glynn Edmondson. The evidence is that, shortly after the christening of the child, the decedent told the mother that as soon as her sister Clara's estate was settled she intended to open an account for the child. When the decedent visited Mrs. Edmondson in Boston in 1943 she delivered the bank book to her, and she retained it until after the death of the decedent.
(3) One of the accounts was in the name of the decedent "in trust for" Martha Glynn Edmondson. The evidence is that at the time of her marriage the decedent told Mrs. Edmondson she intended to make her a wedding present of a bank account as soon as the affairs of her sister's (Clara's) estate were straightened out. Some months later, in the summer of 1943, the decedent delivered the bank book to Mrs. Edmondson. The only withdrawals from this account were those of interest which were made at Mrs. Edmondson's request. She delivered the book to the decedent who withdrew the sums of interest, paid the money over to Mrs. Edmondson and returned the book to her.
(4) One of the accounts was in the name of the decedent "in trust for" Eugene McGary. The evidence is that many years prior to the opening of this account the decedent had received a sum of money from her brother, Eugene McGary, and this account was the method adopted for paying the debt. In 1940 the decedent notified her brother that she had opened the account and would deliver the bank book to him whenever he wanted it. She wished to send it to him, but he told her to hold it for him until he should come from Chicago, where he lived, to Pittsburgh. He was in ill health and did not see the decedent before her death. The decedent told her niece, Mrs. Edmondson, where, in her apartment, the book was to be found so that it could be delivered to her brother when he came to Pittsburgh. The decedent deliberately refrained from placing the book in her safe deposit box.
It was stipulated of record by the parties that only the decedent could, during her lifetime, withdraw funds from any of the accounts and "in any such instance upon presentation of the appropriate pass book."
It does not appear that the decedent ever made any withdrawals from any account for her own use. As noted above, she did withdraw from one account certain accrued interest at the request and for the use of her niece, Mrs. Edmondson, the beneficiary of that particular account. In that case the pass book was delivered to the decedent to enable her to make the withdrawal and was returned by her. In each case, except that of Eugene McGary, the decedent delivered the pass book to the named beneficiary. In the case of Eugene McGary, item 4, above, it would seem clear that the circumstances were the equivalent of a delivery. In each case the decedent notified the beneficiary of the opening of the account and, except in the case of Eugene McGary, notified them that the account was a gift; that in favor of Eugene McGary was not a gift but the payment of a debt.
It follows that none of the bank accounts were so called "tentative trusts." Each was a completed gift or transfer.
Restatement of Trusts, Section 58, Comment (a) states: "Although notice to the beneficiary is not essential to the creation of a trust, notification by a depositor to the beneficiary of the deposit is evidence of an intention that the trust should be irrevocable, whether such notification is given at the time of the deposit or subsequently. So also, delivery of the bank book to the beneficiary is such evidence. So also are statements by the depositor to third persons of his intention to create an irrevocable trust."
In Bearinger's Estate, 336 Pa. 253 (1939), it is said (p. 256): ". . . the mere fact that an account in a savings bank is changed to the name of the depositor 'in trust' for another is not sufficient to show an intention to create an irrevocable trust: Scanlon's Estate, 313 Pa. 424. Nor does the delivery of the pass-book, under such circumstances, in itself make the trust an irrevocable one. There must be a delivery, coupled with words of a gift or a declaration that the depositor is thereby giving to the cestui que trust the money to the credit of the depositor . . .".
The circumstances already recited with respect to the creation of the bank accounts in question show that the trusts were irrevocable, within the strict requirements of this rule.
The trusts being irrevocable, the question is did the decedent, nevertheless, at the time of her death, have such an interest in the accounts as to make them subject to the Pennsylvania transfer inheritance tax? The Act of 1919, P. L. 521, Art. I, Sec. 1, as amended, 72 PS 2301, reads in part as follows: "A tax shall be, and is hereby, imposed upon the transfer of any property, real or personal, or of any interest therein or income therefrom in trust or otherwise, to persons or corporations in the following cases: . . ."
The only applicable case would seem to be when the transfer is: "c. . . . by deed, grant, bargain, sale or gift . . . intended to take effect, in possession or enjoyment, at or after such death".
Despite the stipulation of the parties, as to who had the right to withdraw from the accounts, it seems clear that the decedent could not have done so without obtaining the pass books from the beneficiaries. The decedent retained no interest, income or possession for herself. It was only the right of immediate possession of the funds that possibly was postponed until the decedent's death.
In Townsend Trust, 349 Pa. 162 (1944), the decedent had, prior to his death, created a funded life insurance trust. By an irrevocable agreement he conveyed to the trustee securities to be held in trust, the income to be used for the payment of the premiums on a life insurance policy on his life, the balance of the income, if any, to be added to the principal of the trust until the decedent's death. On such death, the proceeds of the policy were to be added to the trust, and the income from the thus augmented corpus paid to certain beneficiaries, with remainder over. The Commonwealth contended that the original value of the securities placed in the trust and the balance of income remaining at the death of the decedent, after payment of the premiums on the policy, were subject to the inheritance tax. The Supreme Court held otherwise, saying (p. 169): ". . . in the present case the settlor had no right to receive any of the principal or income during his lifetime. It is, therefore, an intermediate case but, as we have pointed out above, the beneficiaries' rights became vested at the time of the transfer and it was only the right of possession which was postponed until his death. . . ."
In Pozzuto's Estate, 124 Pa. Super. 93, the court said with respect to a tentative trust bank account (p. 99): "Here, the deposit was 'in trust' and an immediate interest arose in the donee, subject only to revocation by some unequivocal act . . ."
In the instant accounts there was no power of revocation in the decedent, nor had she any right to principal or income, after the accounts were created and the pass books delivered. An immediate interest arose in the beneficiaries with the right of immediate possession postponed. Death accelerated nothing except, perhaps, the right of immediate possession in the beneficiaries and as such it is not a taxable event ( Townsend's Estate, supra). Reference should be made to In re Mines, 31 Pa. D. C. 153 (1937), where the Court denied liability for inheritance tax on an "in trust" bank account under circumstances not so favorable to the estate as those here presented. (See also 49 A.L.R. 897.)
The appeal will be sustained as to all of the items (1, 2, 3 and 4), noted above, involving "in trust accounts."
A decree will be entered in accordance with this opinion.
Commonwealth appealed.
Raymond D. Evans, with him George W. Keitel, Deputy Attorney General, and James H. Duff, Attorney General, for appellant.
T. F. Ryan, with him Joseph H. Bialas, Tice F. Ryan, Jr., and Bialas Ryan, for appellee.
Argued October 1, 1946.
The decree of the Orphans' Court is affirmed on the able opinion of Judge TENER. Costs to be paid by appellant.