Estate of Casey v. C.I.R.
| Decision Date | 04 November 1991 |
| Docket Number | No. 90-2052,90-2052 |
| Citation | 948 F.2d 895 |
| Parties | -6060, 91-2 USTC P 60,091 ESTATE OF Olive D. CASEY, deceased; Carlton D. Casey, Executor, C. Lewis Casey, Executor, Robert T. Casey, Executor, Petitioners-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Teresa Ellen McLaughlin, Tax Div., U.S. Dept. of Justice, Washington, D.C., argued (Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, Kenneth L. Greene, on brief), for respondent-appellant.
John E. Donaldson, Williamsburg, Va., argued, for petitioners-appellees.
Before PHILLIPS, Circuit Judge, CHAPMAN, Senior Circuit Judge, and KISER, U.S. District Judge for the Western District of Virginia, sitting by designation.
The Commissioner of Internal Revenue (Commissioner) appeals a decision of the Tax Court that gifts of decedent Olive Casey's assets made during her lifetime by her attorney-in-fact were authorized by a durable power of attorney held by the attorney, hence were not revocable at the time of her death, and therefore were not includible in her gross estate for federal estate tax purposes. 1 Because we agree with the Commissioner that the Tax Court erred in finding the gifts authorized, hence not revocable, we reverse.
As stipulated under the Tax Court's rules, the relevant facts are these.
Olive Casey (Olive) died testate, a resident of Virginia, in September of 1989. Until his death in June of 1982, she had been married to Carlton C. Casey (Carlton), and of this marriage there were three sons, Carlton D. Casey, C. Lewis Casey, and Robert T. Casey (Robert), all of whom survived Olive's death.
At the relevant times during the senior Casey's marriage, approximately 90% of their combined assets were held in Carlton's name. They consisted in substantial part of real estate owned by him, but in which under Virginia law Olive had a dower interest.
In 1962, 1968, and 1969, Carlton had conveyed parcels of this real estate, in equal shares, to the Caseys' three sons. Olive joined in these conveyances to release her dower interests.
In December of 1973, Olive executed a power of attorney appointing Robert her attorney-in-fact. The power of attorney was a "durable" one executed pursuant to then recently enacted Va.Code Ann. § 11-9.1. The principal feature of such a power of attorney--one not allowed by the common law--is that it is not revoked by the principal's disability, incompetence, or incapacity, but endures until her death unless revoked by the principal or a duly appointed guardian. 2
This power of attorney authorized Robert, "to lease, sell, grant, convey, assign, transfer, mortgage and set over to any person, firm or corporation and for such consideration as he may deem advantageous, any and all of my property ..." and "to accept and receive any and all consideration payable to me on account of any such lease, sale, conveyance, transfer or assignment and to invest and reinvest the proceeds derived therefrom." And it followed this conferral of specific powers with the general power
[t]o do, execute and perform all and every other act or acts, thing or things as fully and to all intents and purposes as I myself might or could do if acting personally, it being my intention by this instrument to give my attorney hereby appointed, full and complete power to handle any of my business or to deal with any and all of my property of every kind and description, real, personal, or mixed, wheresoever located and howsoever held, in his full and absolute discretion.
J.A. at 29-30. Critically for our purposes, the instrument nowhere expressly conferred any power "to make gifts," or "to convey with or without consideration," or the like.
In December of 1974, a year after Olive executed the power of attorney, Carlton embarked upon an estate plan designed to minimize his estate tax by taking advantage of the annual gift tax exclusion. From 1974 through 1977, following this plan, he made yearly transfers of property to the Caseys' three children and to seven trusts established for their grandchildren. Olive joined in these conveyances to release her dower interests, and filed gift tax returns consenting to being treated as having made one-half of each conveyance.
At some time between 1977 and 1980, Olive became incompetent to manage her affairs due to Alzheimer's disease, and she remained so until her death in 1989. Accordingly, when Carlton made additional conveyances of real estate to his estate plan donees in 1980 and 1981, Robert joined in their execution to convey Olive's dower interest, signing as her attorney-in-fact.
After Carlton's death in June of 1982, Robert, as attorney-in-fact for Olive, later that year transferred $14,000 to the estate plan donees, including himself, from Olive's bank account. And in 1983, in similar fashion he conveyed to the estate plan donees, including himself, real estate owned by Olive valued at $47,360, and transferred to the same donees $50,000 in cash from Olive's bank accounts.
In both 1982 and 1983, Olive had available income that exceeded the amounts required for her support. After the various gifts had been made by Robert, Olive had assets in excess of $426,000.
Following Olive's death in 1989, the federal estate tax return filed on behalf of her estate did not include in gross estate the gifts made by Robert as attorney-in-fact in 1982 and 1983. Taking the position that in the absence of an express grant of authority, a general power of attorney does not authorize gifts of a principal's assets by an attorney-in-fact, the Commissioner determined that Robert's 1982 and 1983 gifts were voidable transfers of Olive's assets. Accordingly, he concluded that they constituted revocable transfers includible in Olive's gross estate under § 2038(a)(1) of the IRC.
Upon the estate's petition in the Tax Court challenging the resulting deficiency assessment, that court rejected the Commissioner's position and held the gifts not includible in Olive's gross estate.
Looking to Virginia law as controlling on the issue, the Tax Court (Korner, J.) concluded that under that law, as it would be applied by the state's highest court, the gifts would be found authorized by the power of attorney. The court's analysis was brief. Conceding "the general proposition that broad, general language in a power of attorney should be carefully scrutinized," the court opined, however, that "a construction which faithfully reflects the intent of the grantor of the power is equally important." Believing that Virginia's highest court "would closely scrutinize the circumstances under which Robert Casey was granted the power of attorney," the court held that this would lead that court to the conclusion "that the power to make gifts to family members in order to minimize [estate taxes] and to carry out an established estate plan, was within the scope of the power granted." J.A. at 72-73. The court did not identify the particular power expressed in the instrument within whose scope it thought the specific power of gift would be found. Though it spoke in the plural of "circumstances" supporting such a finding, the only circumstance specifically identified by the court was Olive's having joined her husband, both before and after execution of the power of attorney, in making comparable gifts "in order to make use of the annual gift tax exclusion." The court summed up:
Based on the broad grant of authority in the power of attorney itself and on the particular circumstances under which it was granted, as well as decedent's established pattern of giving, we hold that Robert Casey was authorized to make the gifts in question on the decedent's behalf.
From the resulting decision disallowing the deficiency, the Commissioner took this appeal.
The Tax Court rightly recognized that Virginia law controlled on the dispositive issue of the power of attorney's interpretation, Morgan v. Commissioner, 309 U.S. 78, 80, 60 S.Ct. 424, 425, 84 L.Ed. 1035 (1940), and that in the absence of direct Virginia authority on the point, it must seek to determine how Virginia's highest court would decide the issue, Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967).
Following the same path, we conclude that the Tax Court erred in its determination that the Virginia Supreme Court would find the gifts in issue authorized by the power of attorney. We conclude to the contrary that the most relevant Virginia decisions dealing with the interpretation of powers of attorney in general and with the particular problem of self-dealing transactions by attorneys-in-fact point in the other direction.
First off, we believe that the Virginia Supreme Court might well adopt, as a matter of policy, a flat rule that the unrestricted power to make gifts will not be found in any formally drawn, comprehensive, durable power of attorney that does not expressly grant it. Such a rule--which would make the gifts here revocable ones--would be but a special application of an assumption generally made in the interpretation of such instruments. As expressed in the Restatement (Second) of Agency:
Formal instruments which delineate the extent of authority, such as powers of attorney ..., giving evidence of having been carefully drawn by skilled persons, can be assumed to spell out the intent of the principal accurately with a high degree of particularity. Such instruments are interpreted in light of general customs and the relations of the parties, but since such instruments are ordinarily very carefully drawn and scrutinized, the terms used are given a technical rather than a popular meaning, and it is assumed that the document represents the entire understanding of the parties.
Id. § 34, comment h.
A sister state in this circuit recently has adopted such a flat rule applicable to powers of...
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