Register of Wills for Kent County v. Blackway

Bruñe, C. J., delivered the opinion of the Court. This is an appeal from a declaratory judgment rendered in favor of the plaintiff-appellee by the Circuit Court for Kent County. It involves primarily a question of inheritance tax liability under Art. 81, Sec. 150 of the 1951 Code, Sec. 151 of the 1957 Code. The Circuit Court held the transfer of property here involved exempt from the tax.

The facts out of which this litigation arose are stated in the opinion of Judge Horney, who heard the case in the trial court, as follows : ⁶ “The plaintiff, Herman Blackway, by his bill or petition for a declaratory decree or judgment seeks a judgment declaring that the real estate described in this proceeding is not subject to the inheritance tax imposed by Code (1951), Article 81, Section 148 et seq., and for other and further relief. The defendant, the Register of Wills for Kent County, by the answer filed on his behalf by the State Law Department, denies the material allegations of the petition and alleges that the real estate, having been lawfully appraised, and the assessment of an inheritance tax having been duly made, the plaintiff owes the defendant the tax assessed in the amount of $1,384.75, and seeks a judgment therefor. “Prior to April 27, 1952, the plaintiff, a widower, owned and operated a retail grocery and provision business in Chestertown in partnership with his son, from which he received a net income of approximately $2,500 in 1952. On or about the date mentioned he and his son sold their business, the proceeds of which netted the plaintiff $1,250, and the plaintiff took up his abode with his mother, Sarah D. Pfeffer, who was then 85 or 86, and his stepfather, Samuel T. H. Pfeffer, who was then 91' or 92. On May 2, 1953, the plaintiff’s stepfather and mother, who joined in the conveyance to release her inchoate right of dower, granted four parcels of real estate located in Chestertown to the plaintiff, in fee simple, but reserved life estates unto the grantor and his wife, as tenants by the entireties, for their joint lives, and for the life of the survivor of them, in consideration of ‘the sum of Five ($5.00) Dollars, and other good and valuable considerations.’ The plaintiff continued to live with his mother and stepfather, and helped take care of them until their respective deaths.

The mother died October 10, 1954. The stepfather died May. 13, 1955. “Subsequent to the death of Samuel T. PI. Pfeffer, when it was discovered by the Register of Wills, that the grantor had reserved life estates unto himself and his wife in the real estate in question, the defendant requested the plaintiff to pay the collateral inheritance tax on such real estate. When it became evident that the plaintiff did not intend to pay the tax, the Register of Wills petitioned the Orphans’ Court ⁷ of Kent County to appoint appraisers to value the real estate involved.

The properties were appraised at $14,600, whereupon the tax plus a penalty and costs, aggregating $1,384.75, were assessed. The tax was not paid and this action for a declaratory judgment was instituted by Herman Blackway on November 8, 1956.” The evidence admitted by the trial court showed that Mr. Blackway had entered into an agreement with his stepfather, who agreed to convey to him the interests that were in fact deeded to him on May 2, 1953, if he would promise to come and live with the grantor and his wife, and to care and look after them both until they died. The court below found as a matter of fact that such an agreement existed, and that it had been fully executed by both sides. The appellant contends that Art. 81, Sec. 150 (Code, 1951) (1957 Ed., Art. 81, Sec. 151) applies to this case and requires that an inheritance tax be paid by the appellee on the value of the four parcels of land deeded to him by his stepfather.

That Section reads as follows: “The taxes imposed by Sections 148 and 149 of this sub-title shall apply to all tangible or intangible property, real or personal, passing either by will or under the intestate laws of this State, or by deed, gift, grant, bargain or sale, made in contemplation of death, or intended to take effect in possession or enjoyment at or after the death of a decedent, including property in which the decedent, prior to his death, had an interest as joint tenant or tenant in common, and including property over which the decedent retained any dominion during his lifetime * * *. * * * The reservation of a beneficial interest in favor of the decedent or of a power of revocation, absolute or conditional or of a power of appointment by will or otherwise, in or over any property passing subject to the tax imposed by this sub-title, shall be deemed to constitute dominion within the meaning of this section. * * *.” He contends further that a considerable portion of the evi ⁸ dence establishing the existence of the agreement between the appellee and his stepfather was erroneously admitted by the trial' court over objections by him that its introduction into the case violated the provisions of (1) the “Dead Man’s Statute”, Art. 35, Sec. 3 (Code, 1951, 1957), and (2) the hearsay rule. Hence it is contended by the appellant that there is no evidence properly in the case which would sustain the finding of the lower court as to the existence of such a contract. In this court the appellee set forth in his brief, but did not press in oral argument, the contention that the transfer of the four parcels of land in this case to the appellee, with the reservation of a life estate in the grantors, did not constitute a transfer of property by deed which was “intended to take effect in possession or enjoyment at or after the death of a decedent” within the meaning of the statute. We think that the trial judge fell into error in adopting this view.

The cases which he relied upon, such as Downes v. Safe Deposit & Trust Co., 157 Md. 87 , 145 A. 350 , and a second case reported under the same names in 163 Md. 30 , 161 A. 400 , arose under the Inheritance Tax Law as it stood prior to the amendment made by Ch. 124 of the Acts of 1936, which eliminated the provision under which the tax was imposed only upon property of which the decedent should die “seized and possessed.” The retention of a beneficial interest, such as a life estate, is now a sufficient basis for the imposition of the tax. Safe Deposit & Trust Co. v. Bouse, 181 Md. 351, 360 , 29 A. 2d 906 . See also Opinions of the Attorney General, Vol. 21, pp. 782; Vol. 24, pp. 894, 895. The first of these opinions of the Attorney General was reversed in 22 Ops.

Att'y Gen. 722, on a question of retroactivity. However, it has been recognized in this State, as in others, that although the statute makes no express exception, transfers from the decedent which have been executed pursuant to a binding agreement in which an adequate and valuable consideration has passed to the decedent in an amount equal in value to the property transferred by him, are exempt from the tax imposed by Sec. 150. 85 C. J. S., Taxation, § 1147 (1), pp. 913, 914. This implied exemption is based ⁹ on the theory that it would be undesirable to tax the recipient of property when he has already paid full and adequate consideration for it. He stands more in the role of a purchaser of the property than a distributee of the decedent and, accordingly, it has been thought that the inheritance tax should not apply in such instances.

This implied exemption has long been recognized in Maryland, and the rules governing and defining the situations which come within the exemption status are set out at some length in 25 Ops. Att’y Gen. 678 (1940). The four requirements that must be met are there described as follows: “A transfer, which is otherwise within the scope of the statute, is not taxable provided (1) it is made in fulfillment of a binding contractual obligation, (2) the obligation is based on a consideration reasonably commensurate with the value of the property (or the amount of money) transferred, (3) the consideration is not executory but is received or enjoyed by the decedent during his lifetime, and (4) the contract or agreement is clearly established and defined.” It is the position of the Register of Wills that there was no consideration passing from the appellee to the decedent that was commensurate with the value of the property transferred in this case. The concept of commensurate consideration is somewhat elusive and in practice is not always easy of application. 29 Ops.

Att'y Gen. 215, 216 (1944). The appellant in substance urges that in order to determine whether the consideration was adequate in this respect, the point in time at which it must be appraised is at the death of the decedent-grantor. Thus in this case he asserts that the value of the services and care provided by the appellee to the decedent and his wife during the period in which it was rendered (just over two years) was substantially less than the value of the property deeded to the appellee. He urges that two years’ service was not sufficient when compared to the $14,600 figure at which the transferred property was appraised after the death of the decedent.

We are thus squarely confronted with this issue: What is the proper time as of which to evaluate the consideration passing from the grantee to the decedent for purposes of determining ¹⁰ whether it is commensurate with the value of the property? Is it, as the appellant in effect contends, the date of death of the decedent or is it the date at which the contract or agreement was entered into by the parties? If the time of contracting is the crucial date, the value of the promise to provide care and services throughout the lives of the decedent and his wife should ordinarily be evaluated prospectively at the date of the agreement by the use of life expectancy tables and the consideration of any special factors which may exist in the particular case relating to the health of the two individuals concerned or the value of the services to be performed. Such means of evaluation are commonly accepted and in use for example in determining the present worth of annuity contracts to run for the lives of one or more persons, remainder interests, life estates and the like.

We think it is clear, at least by inference, from a number of opinions of the Attorney General that the date of the agreement, rather than the date of death, is the date as of which the consideration should be valued. In Vol. 30, (p. 229), Opinions, the Attorney General was asked to rule on the inheritance tax liability occasioned by a transfer of the decedent in contemplation of death. On February 2, 1945, the decedent transferred certain property to his son, who, in return, agreed to pay him $100 a week for life, and did so until his death on March 9, 1945. The Opinion stated (p. 231) : “It would seem that not over six payments (or $600.00) could have been made between February 2nd and the death of the father. * * * Of course, at the time the agreement was made, the son’s liability was uncertain—no one could tell exactly how long his father would live.

However, the circumstances under which the conveyance was made would appear to be strong evidence that it was not contemplated that the father would live long enough to receive weekly payments equaling the full value of the property transferred.” If the date of the death of the decedent were the crucial date, it would seem that the “circumstances under which the conveyance was made” would be entirely irrelevant. Similarly, in Vol. 31, Opinions, 247, 248, the decedent had ¹¹ transferred in contemplation of death about $3,000 worth of property to the recipient who had paid her $1,500 and agreed to care for her, and provide a home for her until her death. The Attorney General recognized that the transfer would be tax free, if supported by “an adequate and full consideration”, and stated in this regard (p. 248) : “Having in mind the age of the decedent at the time of the transfer and the value of the property transferred, it seems to us that you have presented to you a rather dose question, much depending on the state of her health at the time of the transfer and the value of