Meluskey Estate

317 A.2d 607, 455 Pa. 589, 1974 Pa. LEXIS 676

• Court: Supreme Court of Pennsylvania
• Decided: March 26, 1974
• Docket: Appeal, 42
• Status: Published

Opinions

Opinion by

Mr. Chief Justice Jones,

On March 30, 1971, Clara S. Meluskey, a resident of Lebanon County, Pennsylvania, died testate. Letters testamentary were issued by the Register of Wills of Lebanon County on April 1, 1971, to her sons, Reverend Andre J. Meluskey and James R. Meluskey, the named executors. After filing their Inventory and Appraisement and Statement of Debts and Deductions on December 29, 1971, the executors paid Pennsylvania inheritance tax based on a gross estate of $89,995.56. On May 17, 1972, the Commonwealth of Pennsylvania, through its Chief Inheritance Appraiser for Lebanon County filed its appraisement, which raised the value of the total taxable estate. As a result, additional inheritance taxes were assessed.¹ The executors filed a petition sur appeal from this assessment and a hearing was held on April 16, 1973.

One of the issues raised below, and the question before this Court, centers on a transfer of realty by the decedent to her son, James.² By a written agreement dated June 1, 1970, this realty, valued at $47,500, was transferred to James in return for his promise to pay her an annuity of $4,000 a year for the rest of her life. This annuity was valued at $27,353.80 according to the appropriate life expectancy tables.³ The present controversy concerns the tax treatment of $20,147.20, the difference between the market value of the realty and the present value of the annuity. The Commonwealth asserts that this sum is taxable pursuant to Sections 221(a) and 225 of the Inheritance and Estate Tax Act of 1961, P. L. 373, Article II, 72 P.S. §2485-221 (a) and 72 P.S. §2485-225. These sections provide as follows:

§221 (a) Consideration. All transfers of property, specified in sections 222-226, which are made during his lifetime by a resident or a nonresident, to the extent that they are made without valuable and adequate consideration in money or money’s worth at the time of transfer, are subject to tax under this act.

“§225. A transfer conforming to section 221(a) and under which the transferee promises to make payments to, or for the benefit of, the transferor ... during the remainder of the transferor’s life is subject to tax under this act.” The Commonwealth maintains that each and every requirement of these sections is satisfied in this case and that taxation is appropriate.

To the contrary, the executors insist that the $20,-147.20 is not subject to the state inheritance tax because the agreement expressly provided that it was being transferred as a gift independent of the annuity portion of the agreement. They concede that if the overall agreement consisted of only one transfer these sections would be applicable to impose a tax. However, they submit that two separate transfers were in fact made in the June 1,1970, agreement. Specifically, they contend that a portion of the realty equal to the present value of the annuity was transferred in full and complete consideration for said annuity and that the remaining portion of the realty was conveyed as a gift and was so identified in the agreement. These contentions, if accepted, would have the following tax consequences: the annuity transfer would not fall within Section 221(a) since adequate consideration was given and, while the gift transfer would fall within Section 221(a), tax liability would have to be authorized by some section other than Section 225.⁴

It is apparent that the lower court was inclined to agree with the executors for without directly discussing the applicability of Section 221 and Section 225, it proceeded as if two transfers had been made and concluded that since the gift portion was not made in contemplation of death, no further inheritance tax was due. We affirm that decision.

Two elements must combine to constitute a valid inter vivos gift: “An intention to make the gift then and there, and such an actual or constructive delivery at the same time to the donee as divests the donor of all dominion over the subject, and invests the donee therewith.” Brightbill v. Boeshore, 385 Pa. 69, 74, 122 A.2d 38, 41 (1956). The Commonwealth has not heretofore questioned the donative intent of the decedent. The recital in the written agreement that the $20,147.20 was being conveyed as a gift clearly establishes that intent. Furthermore, this Court has held that when actual physical delivery of property is impractical and the donor delivers a written assignment, deed of gift or equivalent writing to the donee under circumstances which manifest the donor’s present intention to pass right of possession to the donee, the delivery of the instrument operates as a constructive delivery so as to effectuate the gift. Re Pyewell’s Estate, 334 Pa. 154, 5 A. 2d 123 (1939). Hence in the instant case, when the written agreement was signed by the parties, a bona fide gift of the $20,147.20 interest in the realty was effectuated. To hold otherwise would require an abrogation of well-established gift principles.

While the Commonwealth has cited numerous cases in its brief to justify the applicability of Section 221 and Section 225 herein, none of these cases involves a bona fide gift of the difference between the value of the realty and the value of the annuity. We also disagree with the Commonwealth’s contention that, if Section 225 does not apply to the agreement in this case, then there can never be a situation where the section would apply. As the executors concede, had the decedent transferred the entire real estate valued at $47,-500 solely in exchange for the annuity valued at $27,-353.80 without specifically making a gift of the difference, the difference between the market value of the real estate transferred and the consideration in the form of the annuity value would have been properly taxable under Section 225, assuming, of course, the absence of any other evidence sufficient to establish donative intent.

Two separate and independent transfers were made in the agreement, and tax treatment must be afforded accordingly.

Decree affirmed.

Mr. Justice Eagen took no part in the consideration or decision of this case.

1 These additional inheritance taxes amounted to $2,585.18.

2 The other issue decided below which is not relevant to this appeal is whether the transfer into the joint names of the decedent and her daughter, Mary Monica Meluskey, of two bank accounts and the transfer of five shares of preferred stock by the decedent within two years of her death were fully taxable as being made in contemplation of death pursuant to Section 222 of the Inheritance and Estate Tax Act of 1961.

3 Clara S. Meluskey was seventy-three years old when she entered this agreement.

4 In this appeal, the Commonwealth has not attempted to demonstrate the applicability of any other section of the Inheritance and Estate Tax Act.