Baldwin v. Commissioner

Estate of Isaac W. Baldwin, Deceased, Florence E. Baldwin and George A. Baldwin, Executors v. Commissioner.

Baldwin v. Commissioner

Docket No. 9446.

United States Tax Court

T.C. Memo 1959-203 ; 1959 Tax Ct. Memo LEXIS 44 ; 18 T.C.M. (CCH) 902 ; T.C.M. (RIA) 59203 ;

October 28, 1959

*44 Until June 1940 decedent and his older brother were partners in the real estate and construction business. The brother was domineering, grasping and dishonest. He had dominated decedent since childhood, and was cheating him in business matters. Decedent's activity was limited to construction work, while his brother handled all financial, legal and other office and paper work, except during a period in or about 1936 when the latter was gravely ill.

From time to time the partners would divide their real property holdings. In June 1940 the partnership was terminated and a final division of properties occurred. One contract then executed authorized decedent's brother to manage decedent's real estate, and by a second, contemporaneously executed contract each ex-partner assumed and agreed to pay one-half of all liabilities of each other and of the firm. Decedent died May 9, 1941.

1. The value of, inter alia, two certain parcels of real estate is in issue. Values thereof are determined in accordance with all evidence of record.

2. An issue as to the valuation of eight parcels of real estate transferred to decedent's brother by the executors in October of 1941 is rendered moot by the result *45 reached in issue 29, infra, and will not be decided.

3. Decedent in fact owned only a one-half interest in certain real property at his death, and only the value of that one-half interest may be included in the computation of the estate.

4. In June 1940 deeds to six properties were executed in blank and delivered to an attorney, who had variously acted for decedent, his brother and the firm. The properties were charged to decedent's account in the division of partnership assets, and were thereafter managed by decedent's brother under color of the contract authorizing him to manage decedent's property. Income therefrom was credited to or expended on behalf of decedent and his estate. After decedent's death one of his sons obtained the deeds and inserted as named grantees trustees for the benefit of decedent's children.

Petitioner has failed to prove that the attorney held the deeds other than as decedent's agent. The values of the six properties must be included in the computation of the estate.

5. A recorded deed to a parcel of realty named one of decedent's sons as grantee, but neither the deed itself nor possession and control of the property was actually delivered to the named grantee, *46 who learned of the deed only by perusal of reports of official recordings. Income was credited to decedent and his estate.

Petitioner has failed to show error in the inclusion of this property for estate tax purposes.

6. About the same time as the dissolution of the firm, decedent's brother executed a deed to a property previously held in his name, designating a daughter of decedent as grantee, but with a clause requiring her to first offer the property to him (the brother) at a stated price if she should wish to sell within 15 years. Delivery was not to take place until April 1, 1942, which was subsequent to the date of decedent's death. This property was charged to decedent's account in the final division of partnership property, was managed by decedent's brother on the strength of his contractual authority over decedent's real property, and income was credited to decedent and his estate. The deed was delivered to the same attorney who held those deeds executed in blank.

The value of this property is properly includible in the computation of the estate. The first-offer price in the restrictive clause is a factor affecting value, but does not conclusively set a ceiling thereon. Valuation *47 is made on the basis of all available evidence.

7. A similar deed was executed at about the same time in favor of decedent's other (and older) daughter, covering a property in which she then resided and on which she was then paying rent. Thereafter she continued to reside there but paid no further rent.

There was a complete delivery of the property to the daughter during decedent's lifetime, and no retention of possession or enjoyment by the decedent. The property must be excluded from the estate.

8. In June 1941 decedent's brother rendered an accounting of his real estate management, which purported to show a balance of $625.37 in favor of the estate. However, a payment of $10,000 on the principal of a mortgage, one-half of which was a liability of decedent, was deducted as an expense, and there is no evidence of the actual date of payment, whether before or after death, of various items of expense exceeding $100,000. No payment was actually made in respect of this accounting.

Petitioner has not shown error in the inclusion of $625.37 as a debt due decedent from his brother as of the date of decedent's death in respect of the management of real properties, and the denial of any deduction *48 in respect of an alleged debt due to the brother arising from such management.

9. Decedent transferred in trust for the benefit of his wife and children two policies of insurance upon his own life.

On the facts, the transfers were in contemplation of death.

10. On the facts, petitioner has failed to prove that decedent's wife contributed toward the purchase of certain property held by the entirety.

Further, petitioner's present contention of a partition of the properties is outside the scope of the pleadings.

11. Petitioner has failed to prove erroneous respondent's determination that decedent owned an interest in market stores at the time of his death, having a value of $6,500.

12. In 1944 suit was commenced by petitioner and the beneficiaries of decedent's estate against decedent's brother, based principally on fraud and breach of fiduciary duty during decedent's lifetime. Certain equitable relief and damages were sought amounting to approximately $2,000,000.

Determined from all of the facts that on the date of his death decedent had a claim against his brother having a net value of $150,000.

13. A number of properties (44 in all) were deeded to decedent's wife and children (including *49 two such children adopted by decedent's brother) and the deeds were recorded. The named grantees were not consulted, and discovered the transactions only by perusal of reports of recordings. Neither the deeds nor possession or control of the properties were actually given to the grantees during decedent's lifetime. Income, to the extent traceable, was credited to decedent, and the properties, to the extent evidence is available, were charged to his account in the division of partnership properties. Respondent has conceded that the inclusion of an additional parcel was erroneous.

Delivery was incomplete during decedent's lifetime, and decedent in fact retained possession and enjoyment of the 44 properties until his death, requiring inclusion of their values in the computation of the estate.

14. The value placed on the claim against decedent's brother was a net valuation, taking into account all prospective legal fees and other costs and expenses. Petitioner may not additionally deduct the fee actually paid the attorney as a result of the actual settlement in 1947, no part of the proceeds of which is includible in the gross estate.

Further, additional legal fees and expenses at and after *50 trial herein, if not agreed upon in the Rule 50 recomputation, are to be determined under Rule 51.

15. The amount of certain expenses of administration determined.

16. Deductions for alleged debts to two sons of decedent denied for failure of proof.

17. Mere good faith of executors in paying claims asserted against an estate is insufficient to sustain deductions. Decedent's actual liability is determined from all available evidence.

18. Deductions in respect of loans on policies of insurance on life of decedent's brother denied for failure of proof.

19. Deduction in respect of a certain alleged mortgage denied for failure to prove existence of the mortgage.

Further, as to mortgages constituting valid liabilities, interest accrued to the date of death is deductible, along with the principal amount of the liability thereon.

20. Petitioner may deduct one-half of the amount of a mortgage on a parcel of real property the value of which was held includible in the estate under 13, supra.

21. Deduction in respect of an alleged mortgage denied for failure of proof.

22. Decedent's date-of-death liability on eight bills determined.

Further, the full amount of such liability as determined is *51 deductible, notwithstanding that subsequently decedent's brother may have compromised some debts by payments to the creditors of smaller, compromised amounts, and entirely avoided payment of other obligations.

Further, the pleadings sufficiently apprised respondent that petitioner sought to deduct, under this issue, one-half of the charge by decedent's brother for his services in managing decedent's realty.

23. In view of the determination in issue 11, supra, that decedent owned an interest in market stores, petitioner may deduct one-half of the amount of certain unpaid bills resulting from the operation of such stores.

24. Lots having an aggregate value of $800 were encumbered by sewer and paving assessment liens aggregating $1,979.88 at the time of decedent's death.

Petitioner may deduct only $400, or one-half of the value of the encumbered property on account of the liens.

25. The agreement whereby each brother assumed one-half of all liabilities of the other is valid, and petitioner may accordingly deduct one-half of the amount of improvement liens on properties owned by decedent's brother.

26. Petitioner may deduct one-half of the amount of taxes on properties held by decedent *52 and his brother as tenants in common.

27. Petitioner may deduct one-half of delinquent city and school taxes, as determined on properties owned by decedent's brother.

28. Decedent's date-of-death gift tax liability, as affected by determinations as to the includibility of certain items in the tax base, is deductible. Computation of the actual amount of gift tax liability is to be made as a part of the Rule 50 recomputation.

29. On decedent's death in May 1941 his executors, his widow and a son, had little or no pertinent experience, and no idea of the nature and extent of decedent's estate. Decedent's brother, who alone had virtually all records and information essential to orderly administration, became hostile, and refused to cooperate in any manner. In October 1941 the executors and the brother settled their differences pursuant to an agreement, as a result of which a net consideration was transferred to the brother, and the latter thereupon cooperated in the administration of the estate. Petitioner deemed many of the brother's claims and contentions baseless, but had to come to terms with him because of his position, in order to make even the beginnings of an intelligible administration *53 of the estate. The executors believed, with reason, that it would be far more satisfactory and probably less expensive to do this than to engage in a prolonged and bitter legal battle, the only other alternative. Held, the net consideration so paid is a deductible expense of administration.

30. (a) As a result of the assumption by each brother of one-half of the liabilities of the other, certain adjustments are made, halving certain deductions previously allowed in full.

(b) At date of death, a loan was outstanding on one of the policies assigned to the insurance trust, issue 9, supra.

Such insurance loan may only reduce the net amount of proceeds includible, and may not be independently deducted as a debt of the estate. Annie S. Kennedy et al., Executors, 4 B.T.A. 330 , followed.

Allen H. Gardner, Esq., for the petitioner. Albert J. O'Connor, Esq., for the respondent.

FORRESTER

Memorandum Findings of Fact and Opinion

FORRESTER , Judge: Respondent has determined a deficiency in the estate tax of the Estate of Isaac W. Baldwin, Deceased, in the amount of $656,369.94. Petitioner challenges the deficiency so determined, and, in addition, claims an overpayment. The issues, too numerous *54 for purposeful enumeration here, will be separately set forth and treated. A number of concessions and stipulations have been made with respect to various issues, and will be given effect in the recomputation under Rule 50.

The testimony herein was taken at Erie, Pennsylvania, before a Commissioner of this Court. The Commissioner's report of his findings of fact was duly served upon both parties, and objections were made thereto by their respective counsel. We have considered those findings and objections in the light of the entire record before us, and have resolved them in accordance with our interpretation of that record.

Findings of Fact

The stipulated facts are so found, and are incorporated herein by this reference.

General Facts

1. The petitioner is the Estate of Isaac W. Baldwin, Deceased, who died May 9, 1941, a resident of the Commonwealth of Pennsylvania. An estate tax return was duly filed with the collector of internal revenue for the 23rd district of Pennsylvania, reporting a total gross estate of $1,480,188.91, total deductions of $498,194.26, a net estate for the basic tax of $981,994.65, and a net estate for the additional tax of $1,041,994.65. An estate tax liability *55 in the amount of $218,073.45 was reported.

2. In the statutory notice of deficiency respondent advised petitioner that, after making numerous adjustments to the net estate as reported, he had determined a net estate for the basic tax of $2,555,484.25, a net estate for the additional tax of $2,615,484.25, an estate tax liability in the amount of $874,443.39, and a deficiency of $656,369.94. The additions to the value of the net estate and the decreases in the deductions allowed by the respondent, were, by categories and amounts, as follows: Real estate $ 68,716.00

Mortgages, notes and cash 5,249.88

Insurance 142,314.25

Jointly owned property 43,810.00

Other miscellaneous property 1,004,000.00

Transfers 126,050.00

Executors' commissions 10,000.00

Legal fees 5,000.00

Debts of decedent 168,952.47

Total $1,574,092.60

The foregoing categories follow in order the schedules of the estate tax return, and the issues hereinafter described tend to follow the same order. Unless otherwise stated, the terms "Schedule" and "Subschedule" refer to the estate tax return. All real properties hereinafter referred to are, unless otherwise stated, located in Erie, Pennsylvania.

Historical Facts

3. From 1909 to 1940, the decedent, *56 Isaac W. Baldwin (hereinafter called "Isaac"), and his brother, G. Daniel Baldwin (hereinafter called "G. Daniel"), carried on a real estate business in Erie, Pennsylvania, as partners, doing business under the firm name of Baldwin Brothers. Their father, James Baldwin, had first engaged in the real estate business prior to 1900.

Isaac and G. Daniel entered into their first formal contract of partnership on June 26, 1909. By this contract, they agreed to carry on the business as equal partners. This partnership continued in existence and actively carried on the real estate business under various agreements until formally terminated in June of 1940, as will be hereinafter described in greater detail.

4. The partnership agreement of June 26, 1909, provided that the partnership should engage in the purchase, improvement, lease, sale, and exchange of real estate and in a general contracting and building business. The partnership was to continue for 5 years, and the real estate owned was to be held in the names of the individual partners.

Other written agreements were entered into after 1909, the last of which was executed on November 15, 1923. This contract was similar to the original *57 agreement of June 26, 1909, covered a 3-year period, and provided that partnership real estate should be "held in the names of the individual partners, each party to have and carry in his name such proportionate part in valuation of the firm real estate as his share or investment is of the whole capital of the said partnership." This contract was extended by endorsement to November 15, 1927. With certain modifications hereinafter described with greater particularity, made on December 1, 1938, it apparently was the contract under which the partnership continued to operate until its termination on June 5, 1940.

5. The original and primary business of Baldwin Brothers was the construction of small, low-priced houses for sale. The partnership would both build houses on the land of others and buy land and construct houses thereon. The houses were usually sold for cash plus either first or first and second purchase-money mortgages. Sometimes a house was taken in trade, and rented. In some cases, the houses constructed could not be immediately sold, and were rented.

The partnership carried mortgages for an average of 30 days or less, until it could find a buyer. It occasionally repossessed *58 and rented houses on which the purchasers had failed to make agreed payments.

During the late 1920's, more than 300 houses a year were built. At other times, as in the depression of the 1930's, there was little or no construction, and the handling of rental properties constituted the firm's main business activity.

The partnership also owned and rented some commercial property, including two large Erie markets, respectively known as the Twelfth Street Market and the Central Market. It held many rental properties, and the maintenance of these properties and the collection of rentals was an important part of its business.

6. Isaac's brother, G. Daniel, took charge of the financial end of the business. He was in charge of purchases of land, sales of houses, legal work, and maintenance of records. Isaac was in charge of construction, and hired and fired men, designed the buildings, and purchased materials. In the late 1920's, when the partnership was building about 300 houses a year, Isaac advertised in various European newspapers for building tradesmen and brought them to Erie. He would occasionally perform other functions, but normally confined his activities to construction.

7. G. Daniel *59 had a strong, overpowering personality, and dominated almost everyone with whom he came in contact. Isaac was several years younger, and especially susceptible to domination by G. Daniel. Almost without exception, he yielded to G. Daniel in partnership matters. In addition, G. Daniel's control over Isaac extended to personal and family matters, and was so complete that he dictated what Isaac's children should do in purely personal affairs.

8. The partnership's extensive real properties were held in the individual names of Isaac and G. Daniel. Their agreement called for each of them to hold in his name partnership real estate in proportion to his capital investment, and there were many property transfers between them to cause their respective individual holdings to conform thereto.

Isaac and his wife, Florence, one of the co-executors herein, immediately upon their marriage in June of 1911, executed a power of attorney in favor of G. Daniel. On December 13, 1911, Isaac and Florence executed another power of attorney authorizing G. Daniel to collect and sue for all sums of money payable to them, to give discharges for all such collections, to compromise all such claims, to release *60 mortgages due them, to lease, sell, and convey realty upon such terms as he should see fit, to borrow money on their names and execute evidence of indebtedness therefor, and to perform other specified acts. Under this power, G. Daniel transferred many properties out of the name of the decedent and performed other acts until Isaac's death.

9. In the latter part of 1935 or early in 1936 G. Daniel became critically ill with appendicitis and peritonitis, and was hospitalized for some time. As a result, he was unable to perform his partnership duties for a year or more, or until about the spring of 1937. During this period, Isaac was in complete charge of all phases of the business, including those which had previously been performed by G. Daniel alone.

G. Daniel's illness left him with a fistula, and his doctors cautioned him not to engage in certain forms of physicial activity to which he had been accustomed. He was irritated by his condition and by the restraints imposed, and frequently disregarded them, causing further physical difficulties and discomfort.

After his illness and as a result of his physical condition and its aggravation due to his disregard of medical advice, G. Daniel *61 became increasingly disagreeable and uncompromising. Whereas he and Isaac had previously gotten along fairly well, in spite of G. Daniel's domination and criticisms, increasing friction now began to develop between them.

10. George A. Baldwin (hereinafter called "George"), one of decedent's sons and co-executor of the estate, was in his second year at Colgate University when G. Daniel became ill. He feared that his uncle's illness would prevent him from finishing the school year. He was able, however, to complete the college year, and upon returning home at the close thereof worked full time for the partnership, as he had done each summer since he was 7 or 8 years of age. He worked with his father who was then in complete charge of the business, drove him around, visited G. Daniel in the hospital with Isaac, and attended to various things necessary to keep the partnership operating.

In the fall of 1936, G. Daniel decided that he needed George and requested the latter to move in with him. Accordingly, George left his parents' home and lived with G. Daniel and his family until March of 1940. While G. Daniel was still partially incapacitated, George drove him around and served as liaison *62 between G. Daniel and the business. George's position in the business at that time was not clearly defined, but the fact that he acted as the representative of his uncle enabled him to exercise substantial authority.

11. During the period of G. Daniel's incapacity, Isaac observed various aspects of G. Daniel's partnership activities which he did not like. Things that he observed, of which he had been previously unaware because of the limitation of his activity to the construction phase of the business, reduced his confidence in the soundness of some of G. Daniel's business policies. To an even greater degree, he lost confidence in G. Daniel's honesty and fairness, especially where he, Isaac, was concerned.

12. Upon G. Daniel's resumption of active participation in the business in the early part of 1937, he made plans which Isaac thought too risky. The initial disagreement between them arose over the building of gas service stations for long-term lease. Isaac thought that this step involved too much financial hazard, and that the construction of one station in particular, which required a deep excavation next to a gravel bank, might endanger the lives of the laborers.

Isaac suggested *63 that it would be better to pay off the partnership debts so that the firm would be in a more liquid position. He was concerned about possible losses on mortgages guaranteed by G. Daniel during the early 1930's and prior thereto, and about outstanding municipal improvement liens on a large tract of land acquired by the partnership in the late 1920's. By 1937, the aggregate amount of these liens exceeded the value of the tract of land, and G. Daniel had made their payment a personal obligation.

G. Daniel scoffed at Isaac's attitude and said that he would construct the gasoline stations with his own funds if Isaac was unwilling to proceed. Isaac refused to undertake the project, and G. Daniel had George take charge of construction under his direction. The gasoline stations were built during the summer of 1937. This was the first time in their partnership relations that Isaac had ever refused to abide by G. Daniel's business decisions.

13. Beginning at some undisclosed time, and with noticeable effects at least as early as the fall of 1938, Isaac suffered from an incapacitating nervous and mental ailment due to his affliction some years earlier with Parkinson's disease. By reason thereof, *64 he was ordered by his physician to take a rest and vacation in Florida, for which he began to prepare no later than the latter part of 1938. He was never able at any subsequent time to resume active participation in partnership affairs.

14. As a result of Isaac's foregoing illness and his disagreement with G. Daniel, Isaac gradually withdrew from the business. He avoided G. Daniel wherever possible, and timed visits to the partnership office so as to miss seeing him. G. Daniel took everything out of Isaac's hands, put George in charge of construction, and generally tended to ignore Isaac's status as a partner. Isaac made no effort to assert his legal rights or to reassume his former control over construction. He felt that the new situation benefited George and avoided quarrels with G. Daniel, and, in any event, his physical condition prevented further active participation in the business.

15. Construction activity of the partnership increased in 1938. All construction undertaken in 1938 was on property owned by G. Daniel or standing in his name. Isaac discussed operations with George, visited construction sites at times, and gave George valuable advice on construction problems.

16. *65 In the summer of 1938, G. Daniel told Isaac that there would have to be a division of partnership assets between them. He did not, however, propose termination of the partnership.

In earlier years there had been frequent divisions of the partnership real estate in accordance with provisions of the various partnership agreements requiring the realty to be held in the names of the individual partners in proportion to the capital interest of each in the partnership. These previous divisions appear either not to have been intended as final determinations of the partnership's assets and liabilities at a given date, or, if so intended, that a given partner was thereafter to be liable only for indebtedness on his own properties.

By 1938, considerable time had elapsed since the last such division. G. Daniel's foregoing proposal called for action different from previous divisions, in that each partner was thereafter to have exclusive ownership of property in his name, but was to be liable for one-half of all obligations of every kind, whether partnership or individual.

17. G. Daniel pressed Isaac for such division, and presented long lists of properties showing the proposed ownership for each *66 partner. Isaac agreed that it was time for another property division, but considered G. Daniel's specific proposals unfair. He wanted to be certain, especially in view of the finality of the proposed division and the provision for equal assumption of all liabilities, that he receive a proper share of the real estate.

Isaac, with the assistance of George, spent considerable time on the lists of properties as prepared by G. Daniel. They both concluded that the arrangement was unfair. George urged his father to insist on changes, but G. Daniel pressed Isaac to sign the agreement as proposed by him.

Isaac was unable to resist G. Daniel in the discussions without considerable emotional tension and the resulting arguments over a period of months worried him and made him nervous. He finally executed the agreement (hereinafter called the Division Agreement) under date of December 1, 1938, in the form in which it had been originally submitted. This agreement (provisions of which are hereinafter set forth) provided that each partner assumed one-half of all liabilities, that neither partner had any interest in real estate held in the name of the other, and that the settlement, evidenced by the *67 concurrent deeds and the contract itself, should constitute a final agreement.

18. From the time of the disagreement of the partners in 1937 until March of 1940, George remained on good terms with his uncle. During this period, G. Daniel praised George's ability and said that George would succeed him in the partnership, and that J. Robert Baldwin (a younger brother of George and an adopted son of G. Daniel) would take Isaac's place.

19. In or about March 1940, George informed G. Daniel that he had married secretly in November 1939. G. Daniel disapproved of the marriage and insisted that George have it annulled, get a divorce, or separate. When George refused, G. Daniel had no more use for him. He forced George out of his (G. Daniel's) home, insisted that Isaac deny his home to George, and demanded that Isaac change his will and disinherit George. G. Daniel was thereafter critical of everything George did, told him he was not fit to hold the position he held in Baldwin Brothers, and demoted him.

Isaac steadfastly refused to disinherit George. G. Daniel then stated that he would no longer work for Isaac and his family, and that the partnership would have to be dissolved.

20. G. Daniel *68 took immediate steps to terminate the partnership. He pressed first for the execution of an agreement, similar to the Division Agreement, which would provide for a final division of real estate between the partners, and for the assumption by each of one-half of all liabilities of the partnership and of the individual partners. Lists of properties were submitted showing the proposed division of the real estate, and long, hard negotiations followed.

In 1938 George, because of his then position in the partnership, had stayed out of the discussions with G. Daniel leading up to the Division Agreement. He had at that time limited himself to making suggestions to his father. He now took an active part in the controversy and let G. Daniel know that he did not approve of the proposed agreement and division of real estate. Isaac and George both considered the proposals unfair, and George strongly urged his father not to agree to the proposed terms.

21. The controversy and discussions appeared to be having a detrimental effect upon Isaac's health, his illness having progressed, and his condition having become more pronounced. George and others in the family finally withdrew their opposition so *69 that the controversy, with its injurious effects upon Isaac, could be ended.

When active objection to the agreement for the equal assumption of liabilities and division of real estate (hereinafter called the Assumption Agreement) had ended, G. Daniel presented a second agreement (hereinafter called the Management Agreement). This provided for termination of the partnership, allowed G. Daniel to conduct a real estate business under the name of "Baldwin Brothers," and made him manager of Isaac's real estate for a period of 3 years.

22. Isaac and George welcomed the termination of the partnership, but George objected to the provision making G. Daniel the manager of Isaac's properties. He feared that G. Daniel, given such power, would continue his unfair practices and further reduce Isaac's holdings. But, as in the case of the Assumption Agreement, the family abandoned its opposition in deference to Isaac's physical and emotional problems.

Isaac remarked to George during this time that the two of them could make more money building houses together on land that Isaac owned than by fighting G. Daniel. He also told George that the Management Agreement permitted him to terminate the management *70 arrangement at the end of a year, and that if G. Daniel were unfair in his management, he (Isaac) would make a complete break with G. Daniel at the end of a year and go into business with George. Both contracts were signed under date of June 5, 1940.

23. The Assumption Agreement was signed by G. Daniel, Isaac, and their wives, and was approved in writing by all the children. Each partner assumed one-half of all liabilities of the partnership and of the partners, agreed that the settlement of real estate interests as evidenced by concurrent deeds and by the contract, should be a final settlement between the parties, and that a given partner and his wife should have no interest in real property in the name of the other partner or of the other partner and his wife.

The Management Agreement was signed by G. Daniel, Isaac, and their wives. It provided that the partnership was thereby dissolved; that G. Daniel should be free to continue the business under the name "Baldwin Brothers"; that Isaac employ G. Daniel to manage for 3 years all of Isaac's realty; that G. Daniel should render an account of his management on June 5, as of June 1, of each year of the contract period; and that either *71 party might cancel the contract on August 5, 1941, or August 5, 1942, by giving 30 days' written notice of his intention to cancel.

24. After the two agreements were signed on June 5, 1940, Isaac avoided G. Daniel almost completely. He spent the winter of 1940-1941 in Florida, as he had done the two preceding winters. Upon his return to Erie in March or April 1941, he discussed business matters with George and asked how G. Daniel was handling the properties under the Management Agreement.

George told his father that G. Daniel had not been dealing fairly with them, that Isaac would find this out beyond any room for doubt, and that he (George) expected his father to make a complete break with G. Daniel and go into business with George as he had promised the previous year. Isaac believed, from what George had said, that the account due June 5, 1941, would show that G. Daniel had taken advantage of him. He was upset by this and seemed to dread the forthcoming account and inevitable controversy with G. Daniel. He paid one visit to G. Daniel's office, came out of the conference visibly shaken, went home and to bed, and died a few days later on May 9, 1941, at the age of 58 years.

25. Isaac, *72 who was born December 5, 1882, was survived by his widow, Florence E. Baldwin (hereinafter sometimes called "Florence"), and seven children, whose names and dates of birth are as follows: Esther B. Allen October 12, 1912

James D. Baldwin May 18, 1914

George A. Baldwin January 20, 1916

J. Robert Baldwin November 3, 1918

Margaret B. Thomson February 16, 1920

Richard O. Baldwin August 31, 1922

Arthur W. Baldwin October 23, 1925

Isaac's Health and Mental Attitude

26. In or about 1931, Isaac was first observed to have a tremor in his right hand, at a time when he was temporarily under a severe emotional strain. A little later, especially from and after 1933, the tremor was again noticed. Prior to April 1937, it did not seem to bother him, other than the fact that he was somewhat sensitive about it. He was an active man, engaged in various forms of recreation, usually ran, whistling, wherever he went, and devoted long hours to the partnership business.

During the period in 1936 and early 1937 when G. Daniel was incapacitated, Isaac had assumed complete charge of the business, handled matters without fear or hesitation, and worked from early morning until late at night. When, upon G. Daniel's return to *73 active participation in the partnership business in the early part of 1937, the aforementioned disagreements arose between the two partners, Isaac was emotionally upset and the shaking became more apparent. On April 9, 1937, he consulted a physician.

27. The physician diagnosed Isaac's ailment as paralysis agitans or Parkinson's disease. He prescribed medicine and relaxation. Noting that Isaac's condition was greatly aggravated by disputes with G. Daniel, the physician advised him and the family that Isaac should stay away from G. Daniel. The physician also advised Isaac to spend the winter in a warmer climate. Such winter trips would have a dual advantage; the warmth would contribute to greater relaxation and the distance would make it more difficult for G. Daniel to see Isaac.

Between April 9, 1937, and May 9, 1941, the physician saw Isaac approximately 40 or 50 times. In December 1940, the last time the physician saw the decedent before his last illness, Isaac was sufficiently alert mentally to have participated in a real estate business in an advisory capacity, but was unable to do manual labor.

28. Paralysis agitans, or shaking palsy, is incurable, but some persons afflicted therewith *74 have lived for many years. The exact cause of the disease is unknown but heredity may be a contributory factor. The disease is not, in and of itself, a cause of death. Complications often resulting therefrom, such as encephalitis, thrombi, shock, or excessive nervous strain, are the immediate causes of death. These complications may arise at any time, since paralysis agitans lowers resistance to other ailments, and one of the most frequent is encephalitis, or inflammation of the brain. Since the complications are the immediate causes of death, no prognosis can be made. The immediate cause of Isaac's death was encephalitis lethargica, which began about 4 days before he died.

29. Isaac thought that he had inherited the tremor in his right hand from his father, James, whose hand had shaken for many years. This, however, had not prevented James from patching the roofs of his houses when 80 years of age. Isaac stated on occasion that he expected to live to be as old as his father, who had died at the age of 89 years.

Isaac tended to feel insulted when others directed attention to his shaking, and he would sometimes tell such persons that he would be shaking after they were dead. His reaction *75 to such comments or misguided sympathy appears to have taken either the form of a positive assertion that he expected to outlive many persons not so afflicted, or, negatively, that many persons (and inferentially the sympathizer) drop dead despite a perfectly sound appearance until their last moments. He worried about business matters and about the amount of property he would have left after negotiations with G. Daniel, but gave no indication to his physician or his family that he was concerned about death. His wife and family felt no alarm until very shortly prior to his actual demise.

30. In or about April 1937, when Isaac first began treatment for his ailment, Dorothy Goetz, a practical nurse, was brought into his household to assist in caring for him. She thereafter accompanied Isaac as a nurse and companion until his death. Isaac did not at first like this arrangement, but soon became reconciled to it and found her assistance valuable.

Although Isaac could still drive a car, his nurse would drive him to nearby towns for lunch to escape G. Daniel, and drove him to Florida and California on his winter trips. She did some paper work for him during the course of his various negotiations *76 with G. Daniel. She kept his clothes cleaned and repaired, rubbed his back when he was tired, entertained him, and engaged with him in various sports and recreations, such as horseback riding and shuffleboard.

While in Florida in March 1941, Isaac generally swam and relaxed on the beach in the sun every day, weather permitting. He took walks alone, drove along the ocean front, and went down to the pier to watch people fishing. His ailment, even at this late date, did not confine him to a chair or to his bed. However, his need for the services of his nurse was sufficiently acute that when his wife arrived in West Palm Beach, Florida, where he was staying in March 1941, and his apartment was too small for three people, the nurse remained with him in the apartment while his wife rented another apartment for herself.

31. Isaac's wife accidentally came across his will while he was in Florida in the winter or spring of 1939-1940, and noticed that he had given G. Daniel considerable control over his estate. The will had been executed on February 27, 1937. G. Daniel was named co-executor and co-trustee and received the power to designate his successor and to distribute the shares of any child *77 attaining the age of 21 years if in his (G. Daniel's) opinion such distribution should be advisable. He was made sole judge of the value of property turned over to each legatee and received other important rights and powers.

32. When Isaac returned to Erie in the spring of 1940, Florence asked him to change the will. Accordingly, on September 5, 1940, Isaac executed a new will which named Florence, together with his son, George, who had been previously so named, as coexecutors and co-trustees. This will also eliminated the various other powers and rights conferred upon G. Daniel in the earlier will, and was Isaac's last will and testament. It provided in part as follows: One-third of the estate, after legal obligations and funeral expenses, was left to Isaac's wife, Florence; the residue was left to his five children (meaning those not adopted by G. Daniel) in equal shares, with further provision that if any of them should be under the age of 30 years at Isaac's death, his or her share should be held in trust until he or she should reach 30 years of age and be then paid over. The executors and trustees were empowered to distribute funds to any of the children after reaching 21 years *78 of age if in their opinion such distribution should be advisable.

Facts and Circumstances Respecting Various Transfers

33. During their boyhood, G. Daniel and Isaac worked hard on their father's farm and in his real estate business. They lived on the farm under conditions of severe austerity with no opportunity for recreation. These conditions were apparently imposed by their parents as a matter of taste or choice in method of discipline and character building, rather than by virtue of actual poverty.

When their father was away, G. Daniel was in complete charge of the farm, the employees, and also of Isaac, who was about 7 or 8 years younger. His authority over Isaac included the right to punish him, such punishment normally being physical, in the nature of whippings.

The father of G. Daniel and Isaac kept a record of the time worked by his sons but gave them no money or property until they reached 21 years of age, at which time he made a settlement with each of them. G. Daniel entered into partnership with his father when he became 21. Later the father became dissatisfied with G. Daniel and offered Isaac the same opportunity. Isaac rejected this offer and entered into partnership *79 with G. Daniel.

34. G. Daniel and his wife, Mabel L. Baldwin, had no children. G. Daniel desired to have some boys, and, when Isaac's youngest son, Arthur, was about 18 months of age, which would be about June 1927, he persuaded Isaac to let him adopt Arthur. Isaac strongly urged his wife to agree to this, and she finally consented.

About 2 years later, G. Daniel urged Isaac and his wife to let him have another of their sons as a companion for Arthur. After some consideration, Robert, who was then about 11 years of age, volunteered to go. He was formally adopted a few months later. Isaac and Florence continued to look upon Robert and Arthur as their sons, despite their legal adoption by G. Daniel.

35. Isaac's five sons were required to work for Baldwin Brothers by G. Daniel and Isaac from the time each was about 8 years of age. They left for work at 7 a.m. and did not return until after 5 p.m. They worked about 9 hours a day on the job and loafing was not permitted. They worked Saturdays and holidays during school months and on week days during the summer and vacations. When they became 10 or 12 years of age they also worked after school. Frequent quarantines for childhood diseases *80 kept the children out of school, but the boys who were not sick were required to work during the quarantine periods. This work, like the lives the girls were required to lead (hereinafter described) was a method of discipline or characterbuilding, and was not viewed as compensable labor as such.

36. The first job assigned the boys was nailing on wood laths. As they became older, they worked as helpers for carpenters, plumbers, and electricians, and did pick and shovel work. At 15 years of age, they were doing a carpenter's job, and by 16 or 17 years of age some of them were serving as foremen on some jobs. G. Daniel and Isaac also used the boys in other phases of the partnership business, such as collecting rents, putting signs on vacant properties, cleaning up rental properties after the tenants left, showing properties to prospective tenants, working at the warehouse, checking operations at the Twelfth Street Market, and learning the office routine.

37. Isaac and G. Daniel agreed on the methods to be used in rearing and disciplining the children and about the training the boys should have to enter the partnership business. They believed that children should work, and regarded the *81 customary activities of neighborhood children as frivolous and wasteful. They were very exacting in their requirements, and the boys were punished immediately and physically either by G. Daniel or Isaac for any infraction of the rules imposed. No distinction in this respect was made by G. Daniel or Isaac between the adopted boys and the other children.

The boys received no money to compensate them for their services to the partnership and no allowance before they reached college age. They usually obtained spending money by mowing lawns, shoveling walks, selling junk, and similar chores.

The girls, too, were subjected to rigid discipline. They were denied lipstick, nail polish, silk stockings, party dresses, beautyshop treatments, etc., but were not expected to work for the partnership nor subjected to corporal punishment by G. Daniel or Isaac. Discipline was enforced in their case by deprivation of privileges. This was more burdensome to the girls, because their duties did not keep them as occupied as were the boys. The girls worked in the family home at Erie or in the summer home at Manchester Beach, a summer colony where the family, including the boys adopted by G. Daniel, resided *82 during the summer months.

Both Isaac and G. Daniel wanted the children to become leading citizens, marry well, and attain a high standing in the community. They were convinced that the most important factor in achieving such position and standing was the ownership of a substantial amount of property.

38. When the boys first began working for Baldwin Brothers, they were told by Isaac and G. Daniel that some day they would receive property for their submission to this type of training. From time to time, Isaac and G. Daniel would point out to the boys that this way they would appreciate property more when they received it. It was also explained that working would develop character, keep them from developing frivolous habits and tastes, and would teach them not to dissipate what they acquired.

There was no definite understanding about when the boys would receive property for their work and lack of privileges, but the idea was implanted in their minds that eventually each would receive substantial property at an age when he was able to appreciate its value. There was, however, no indication as to the meaning of such "age." The boys were also told that when they demonstrated their ability *83 they would be taken into the partnership business. This promise was no more specific than those with respect to the receipt of property.

39. The girls were assured that if they lived sensibly and did not develop frivolous and expensive tastes, they too would receive property, and would thus become substantial persons. The promise of property was used by Isaac and G. Daniel as a means of securing compliance by all the children to a rigid course of conduct, which in the case of the boys happened to include long, hard work from an early age, and in the case of the girls meant certain other forms of acts or restraints normally obnoxious to children of their age and not normally enforced by other parents in like circumstances.

40. As the children grew older, the promises of G. Daniel and Isaac respecting property became somewhat more definite. Certain favorably located properties were pointed out by Isaac as the type or class of property that would some day be transferred to the children. The transfers were a constant subject of family discussions, during the course of which George gradually became and was recognized by Isaac as spokesman for the children. George also discussed the matter *84 of transfers with G. Daniel prior to the latter's serious illness of 1935 or 1936. Thereafter, G. Daniel was so unapproachable that most of George's discussions were with Isaac.

41. The purpose of Isaac and G. Daniel in transferring property was to elevate the social status of the children. Both elder Baldwins considered such status to be inextricably bound up with the ownership of substantial property. The labor of the boys, and the various restraints and duties placed upon them and upon the girls were, in the minds of Isaac and G. Daniel, a method by which their characters would be molded so as to make them the type of people Isaac and G. Daniel wanted them to be and to make them sufficiently responsible to hold and use property wisely.

When property was from time to time transferred to the children it was done for the above purposes, and not as actual compensation for services performed. Had a child rebelled, and refused to abide by the disciplinary regime imposed, he would have received no property, as punishment for disobedience. None of the children did so rebel, and receipt by them of property was in the nature of a reward for being good, i.e., for doing as Isaac and G. Daniel *85 wished.

42. Esther, the oldest child, was the first to receive any property. She received a flat in 1927, when she was about 15 years of age, and a house in 1935. She did not make any payment for either of these properties. James, the second oldest child, received two properties in 1932 when about 18 years of age, and George, the third child, received a house in 1934, also at about 18 years of age. In 1935, James was given a mortgage through which he later acquired a house. In 1936, James and George each received a property, and George received another property in 1937.

43. The foregoing transfers were mostly made by G. Daniel, since it was the practice, with hardly an exception, for him to make all transfers regardless of whether title was in him or in Isaac. When title was in Isaac, G. Daniel made the transfer under the aforementioned power of attorney.

Some of the properties received by James and George were lots encumbered by municipal improvement liens which they had to satisfy. They built houses on some of these properties, using the facilities of Baldwin Brothers. James and George would do some of the work on the houses themselves, and would given Baldwin Brothers a note to *86 cover the cost of construction. If the lot was not received from Baldwin Brothers, a separate payment was made for it. The building costs were so low that James and George received these properties at bargain prices.

The rentals from the improved properties owned by James and George were deposited in their bank accounts, and used to pay off the notes to the partnership. Sometimes, contrary to the strongly expressed wishes of G. Daniel, they were used for nonbusiness purposes. Robert, the fourth oldest child and one of the two boys adopted by G. Daniel, acquired two houses before 1938.

44. In June of 1938, Richard, the sixth oldest child and the youngest of the Baldwin boys not adopted by G. Daniel, purchased a vacant lot. The purchase was from persons other than the partners. Richard chose the type of house to be built thereon, and assisted in its designing and construction during the summer of 1938. The partnership, as already described with respect to James and George, supplied materials and some labor. This was one of the better types of property acquired by the children and later became Richard's home. The foregoing method of acquisition was viewed as part of the children's education. *87

45. When G. Daniel proposed the division of partnership assets and equal assumption of liabilities in the summer of 1938, James and George let Isaac know that they thought it was time the children received some tangible benefits, in view of frequent remarks to that effect by G. Daniel and Isaac over many years. George repeatedly urged his father to discuss the matter with G. Daniel. Isaac was sympathetic but was reluctant to face G. Daniel and insist that the partners transfer property to the children. Nevertheless, Isaac and G. Daniel did discuss the matter, and during December of 1938 deeds were made out covering various properties and purporting to convey them to or for the benefit of the children.

46. Several factors influenced Isaac and his family to press for property transfers while the December 1, 1938, contract was being discussed. The family knew that G. Daniel took advantage of Isaac in partnership matters, and was concerned over the possibility of further mistreatment under the new arrangement. James and George were afraid that G. Daniel would manipulate matters so as to further reduce Isaac's holdings and would refuse to make the promised transfers. There was also some *88 concern about certain liabilities, and Isaac desired to place some property beyond the reach of contingent creditors.

47. The amount and the extent of Baldwin Brothers' contingent liabilities were unknown. From 1919 to 1931, inclusive, G. Daniel, on behalf of the partnership, had guaranteed the payment of many purchasemoney mortgages in connection with the construction and sale of homes. Such mortgages were assigned for cash to banks or other long-term investors, and the guarantees were made to facilitate assignment. No records had been kept by Baldwin Brothers as to the number or the aggregate amount of such guaranteed mortgages, and G. Daniel did not personally know such facts.

Purchase-money mortgages usually ran for 5 years, but if the mortgage was a good investment, the mortgage owner and the debtor often continued it without formal extension. When mortgage debtors began to default in the early 1930's, Baldwin Brothers honored many guarantees, and no one knew how many more would be presented. Sometimes the assignee permitted the partnership, in effect, to repossess the property and assume payment of the mortgage, but some assignees demanded cash payment. Usually the matter could *89 be and was handled by the former method. By the end of 1938, demands for payment of mortgages guaranteed by G. Daniel prior to 1931 had almost disappeared, but Isaac considered it possible that some remained outstanding and in the case of another economic disaster might be presented later for payment.

Isaac was also concerned over a second category of possible or contingent liabilities. During the peak building activity of the late 1920's the partnership had purchased a farm tract known as the "Morrison and Dinsmore Subdivision," and comprising approximately 150 acres. The partners induced the City of Erie to make substantial municipal improvements on the tract, and in order to obtain prompt action, had personally guaranteed payment of the resulting liens.

During the depression construction activity dwindled and the value of the property depreciated. The improvement liens remained unpaid, and far exceeded the value of the land. No demand had actually been made by the city in respect of the guarantee, but Isaac feared that such demand might be made in the future. The vacant land was in his name, and he was genuinely worried over the possibility of a suit against him in which he alone *90 would be held personally responsible to satisfy the liens to the extent they exceeded the value of the encumbered realty. This concern was a factor in Isaac's acceptance of the contract of December 1, 1938, since that contract assured him that G. Daniel would be accountable for one-half of any such liability which might be enforced against Isaac.

48. Prior to the execution of the Division Agreement, Isaac had two policies of insurance upon his life, each in the face amount of $100,000. One policy, dated January 14, 1927, with Connecticut Mutual Life Insurance Company (hereinafter referred to as Connecticut), named as equal beneficiaries, his wife and G. Daniel, equally, or, if only one should survive Isaac, such survivor. If neither survived, the policy named as beneficiaries Isaac's executors, administrators, or assigns. The other policy, dated March 5, 1928, with Massachusetts Mutual Life Insurance Company (hereinafter referred to as Massachusetts), named as equal beneficiaries Isaac's wife and G. Daniel, or, if only one of them should survive Isaac, named that survivor as sole beneficiary. Prior to December 5, 1938, Isaac's children could have derived no direct benefits under either *91 of these policies by virtue of Isaac's death.

49. On December 5, 1938, Isaac created a trust, naming G. Daniel, his wife, and George as trustees. Concurrently with the execution of the trust agreement, he irrevocably assigned and delivered to the trustees the two insurance policies aforementioned. The trust provisions read in part as follows:

"TRUST AGREEMENT

"THIS AGREEMENT Made this 5th day of December, A.D., 1938, by and between ISAAC W. BALDWIN, of the City of Erie, County of Erie and State of Pennsylvania, hereinafter called the "Insured", party of the first part, and GEORGE DANIEL BALDWIN, FLORENCE E. BALDWIN and GEORGE A. BALDWIN, of the City of Erie, County of Erie and State of Pennsylvania, hereinafter called the "Trustees" parties of the second part;

" - WITNESSETH -

"FIRST: The Insured has delivered and caused to be made payable to the Trustees the insurance policies upon his life set forth in Schedule "A", hereto attached, made a part hereof and identified by the signatures of the parties hereto, the proceeds thereof, upon the death of the first party during their continuance, and prior to maturity of the endowment in such thereof as are on the endowment plan, are to be *92 held and disposed of by the Trustees for the uses and purposes hereinafter set forth; it being understood and agreed that the Insured shall pay the premiums and other charges on the said policies as and when the same shall become due and payable, or the premiums may be paid by any beneficiary or beneficiaries of this Agreement, and that the Trustees shall be under no obligation and assume no liability nor responsibility to see that the premiums are paid or to pay the same.

"SECOND: As soon as practicable after the death of the Insured, the Trustees shall make proper proof of the Insured's death and shall collect all moneys due under said policies, and any other policy or policies which may be in the place of any or all thereof, either by conversion, reissuance, consolidation or otherwise, together with any additional policies made subject to this agreement by the Insured, and shall then hold and dispose of the same as a trust fund with full authority to manage, control, sell, invest, reinvest and otherwise deal therewith as they shall deem advisable and for the best interests of the beneficiaries hereunder, to the same extent as the Insured might do if living, without being confined *93 to such investments as are considered legal investments for trust funds by the Commonwealth of Pennsylvania.

"THIRD: From and after the death of the Insured, the Trustees shall collect and receive the income from the trust fund, and after deducting all lawful costs, charges, taxes and expenses incident to the care and management of said trust, together with One ($1.00) Dollar per year for each Trustee, as full compensation for their services for acting as Trustee, shall use, pay and apply the net income, and shall hold, pay over and distribute the principal thereof in the following manner:

"(a) The Trustees shall pay the first twenty-four hundred ($2400.00) Dollars of net income therefrom, in each year, commencing with the date of death of the Insured, in convenient installments, preferably monthly, to FLORENCE E. BALDWIN, wife of the Insured, for and during the full term and period of ten years from the date of death of the Insured. Provided however, that should FLORENCE E. BALDWIN, wife of the Insured, predecease the Insured, or should she, FLORENCE E. BALDWIN, survive the Insured, but die before the termination of the Trust Estate, then the income herein directed to be paid to *94 her shall be paid and distributed by the Trustees to the same children of the Insured and in the same manner as the Insured has herein directed the disposal of the remaining net income.

"(b) The remaining net income, that is to say, all net income in excess of Twenty-four Hundred ($2400.00) Dollars in each year, commencing with the date of death of the Insured, shall be paid by the Trustees, in convenient installments, equally, to ESTHER, JAMES, GEORGE, MARGARET and RICHARD, children of the Insured, share and share alike, for and during the full term and period of ten years from the date of the death of the Insured. Provided however, that if ESTHER, JAMES, GEORGE, MARGARET or RICHARD or any of them, shall have predeceased the Insured, without leaving child or children, him or her surviving, or if such children of the Insured, or any of them shall have survived the Insured, but shall have died before the termination of the Trust Estate, without leaving a child or children him or her surviving, then the share of the income directed to be paid to such child of Insured dying without leaving child or children surviving, shall be paid equally by the Trustees to the surviving child or children *95 of Insured, and the surviving child or children of such deceased child of the Insured, who leave children surviving, per stirpes, until the termination of the Trust Estate.

"AND PROVIDED FURTHER, that if ESTHER, JAMES, GEORGE, MARGARET or RICHARD, or any of them, shall have predeceased the Insured, leaving child or children him or her surviving, or if such child or children of the Insured, or any of them shall have survived the Insured, but shall have died before the termination of the Trust Estate, leaving a child or children him or her surviving, then the share of income directed to be paid to such child of the Insured so dying, shall be paid by the Trustees equally to the child or children of such deceased child of the Insured, until the termination of the Trust Estate.

"(c) Ten years after the date of the death of the Insured, the Trust herein created shall cease and terminate, and the Trustees shall distribute the principal or corpus of the Trust Estate, equally, to ESTHER, JAMES, GEORGE, MARGARET and RICHARD, children of the Insured, share and share alike. In the event, however, of the death of any child or children of the Insured either before the death of the Insured or before *96 the termination of the Trust Estate, then the share of the child or children of the Insured so dying, shall be paid by the Trustees at the termination of the Trust Estate, to the child or children of such deceased child of the Insured, per stirpes, and should such child or children of the Insured so dying, not leave child or children him or her surviving, then the share of such deceased child of the Insured shall be paid by the Trustees, equally, at the termination of the Trust Estate, to the child or children of the Insured, and the child or children of any deceased child or children of the Insured leaving children who are living at the termination of the Trust Estate, per stirpes.

"In event that any grandchild of the Insured, who may be entitled to any income and/or principal from the Trust Estate, should die before the termination of the Trust Estate, then the income and/or principal to which such deceased grandchild would be entitled shall be paid to such deceased grandchild's brothers and sisters, and in event such deceased grandchild does not have brothers and/or sisters, then such income shall be paid equally to the children of the Insured, and the child or children of deceased *97 children of the Insured, per stirpes.

"FOURTH: Neither the principal nor the income of the Trust Fund shall be liable for the debts of any beneficiary hereof, nor shall the same be subject to seizure or attachment by any creditor or any beneficiary under any writ or proceeding at law or in equity, and no beneficiary hereunder shall have any power to sell, assign, transfer, encumber or in any other manner to anticipate or dispose of his or her interest in the Trust Fund or the income produced thereby so long as the same is held by the Trustees.

* * *

"SIXTH: The Trustees are authorized and empowered to change and convert and to sell, assign, transfer and convey, any and all property constituting such trust fund at either public or private sale, at such time or times, for such price or prices, upon such terms as to cash and credit as they may seem best, and to make, execute and deliver to the purchaser thereof good and sufficient deeds of conveyance therefor, and all assignments, transfers and other legal instruments either necessary or convenient for passing title and ownership thereto, free and discharged of all trusts, and the purchaser shall not be bound to see to the application *98 of the purchase money arising therefrom, or to inquire into the validity, expedience or propriety of such sale. The Trustees are authorized and empowered to make all leases for any real estate for such term, at such rents and upon such conditions as the Trustees may deem expedient. Furthermore, the Trustees, may in their discretion, pay and discharge any liens, debts or obligations existing or chargeable on any such assets.

* * *

"The Trustees, at their election, may borrow money on such terms and conditions and at such times, and for such purposes, as they may deem proper, and for such borrowings, they may issue their promissory note and notes, as Trustees, and secure the same, by pledging, mortgaging or hypothecating any or all assets of the Trust Estate.

"SEVENTH: Until the death of the Insured he reserves the right, power and authority at all times, by his own act alone and without the consent or approval of the Trustees, or any beneficiary of this Trust, by an instrument in writing directed to the Trustees.

"(a) To cause additional policies of insurance to be made payable to the Trustees and to bring same within the operation of this Agreement by affixing hereto additional policies, *99 and may add any other improved real estate or first bonds and mortgages upon improved real estate all in the City of Erie, County of Erie and State of Pennsylvania.

"EIGHTH: It is hereby declared by the said Insured that he has been fully advised as to the legal effect of the execution of this Agreement and informed as to the character and amount of the property hereby transferred and conveyed; and further that he has given consideration to the question whether the settlement herein contained shall be revocable or irrevocable, and he hereby declares the same to be irrevocable, and that it shall stand without power in him, the said Insured, at any time to revoke, change or annul any of the provisions herein contained, or to cancel, revoke, recall or otherwise control any insurance policies or property made a part of this Agreement.

* * *

"ELEVENTH: The Insured has named three individual Trustees in this Agreement, and specifically directs that any act, or action by a majority of Trustees shall be binding and conclusive on all the Trustees and on the Trust Estate. In event of the death or resignation of a Trustee, the vacancy so created need not be filled, unless the surviving Trustee *100 or Trustees shall so desire, in which event, if my brother, G. Daniel Baldwin is living, he is to have the sole authority to appoint a Trustee or Trustees to fill said vacancies, and in case my brother, G. Daniel Baldwin, should resign, or die, he may appoint his successor to take his place as Trustee, either by writing filed with the surviving Trustees, or such Trustee may be named in the Last Will and Testament of G. Daniel Baldwin. * * * In event of the death or resignation of one of the Trustees, G. Daniel Baldwin, and the surviving Trustees cannot agree then a successor Trustee shall be named by the Orphans' Court of Erie County, Pennsylvania. * * *"

Schedule "A" referred to in paragraph "FIRST" listed and identified the Connecticut and Massachusetts policies. The value of these policies for gift tax purposes on December 5, 1938, was $34,183.50.

50. During December 1938, G. Daniel and Isaac caused deeds to be made to 23 parcels of real estate. Isaac's children, other than George, were named as grantees. Deeds to two other parcels named Isaac's wife as grantee. Nineteen of these properties had been held in Isaac's name, and were transferred on December 16, 1938, by deeds executed *101 in the name of decedent by G. Daniel Baldwin, attorney in fact. The remaining properties had been held in G. Daniel's name, and were the subject of deeds executed by G. Daniel on December 17, 1938. The deeds were recorded on December 19, 1938.

51. The named grantees were not informed in advance, and first learned of the transactions when the fact of their recording was published in the Washburn Confidential Report. This publication, which was subscribed to by Baldwin Brothers, reported transfers recorded, judgments entered, and other legal matters of record at the Erie County Courthouse.

The children were at first elated, and felt that they were finally realizing something after the years of harsh discipline they had undergone. Their elation, however, turned to disappointment upon inspection of the properties, which were old and low-grade, fully depreciated on the partnership books, and would be vacated first upon any reduction in demand for rental properties.

52. Upon Isaac's return from his winter trip of 1938-1939, George discussed the foregoing transfers with him. These discussions continued from time to time throughout the year until December of 1939. George explained the children's *102 disappointment to Isaac and their feeling that Isaac and G. Daniel had not treated them fairly. Isaac agreed that the transfers were insufficient and that something further should be done. He discussed the matter with G. Daniel and between December 15 and 18, 1939, 14 properties previously held in the name of decedent, and 7 held in the name of G. Daniel were the subjects of deeds executed by G. Daniel Baldwin, either individually or as attorney in fact. The named grantees were George, Robert, and a trust, with George and Robert as trustees, and Arthur, Richard, James, Esther, and Margaret as beneficiaries. Five deeds were executed, and all five were recorded on December 27, 1939.

53. The grantees learned of the 1939 transactions, as in the case of those of the previous year, by their appearances in the Washburn Confidential Report. They were at first pleased, but were again disappointed after inspecting the properties involved.

When Isaac returned in 1940 from his winter trip to Florida, George again stressed the disappointment of the children. Isaac again agreed that the children were entitled to some additional property; the difficulty was in persuading G. Daniel.

During the protracted *103 negotiations that preceded the dissolution of the partnership on June 5, 1940, George, now openly at odds with G. Daniel, pressed the partners to make good their promises with additional transfers to the children. In June 1940, G. Daniel deeded 7 additional properties standing in his name to or for the benefit of the children, as follows: On June 5 and 7, 1940, 5 properties were transferred to G. Daniel, Florence, and George, trustees under the insurance trust of December 5, 1938; on June 5, 1940, single properties were transferred by separate deeds to Margaret and to Esther. The deed to Esther was recorded July 3, 1940; the remaining deeds were recorded almost a year later on June 25, 1941.

54. The foregoing deeds provided that the grantees, their heirs and assigns were to have and hold the described property "forever." Some of the deeds contained limitations, restrictions or conditions hereinafter more fully considered. The deeds were not personally delivered to the grantees, and the grantees did not assume actual control over the properties.

The properties covered by the deeds were rented, and rents were usually collected by Baldwin Brothers and credited to the grantee's account. *104 Such rental income was to be used primarily for maintenance and for the acquisition of new properties. G. Daniel strenuously objected to the children spending rental income for any other purpose, and referred to "wasteful" expenditures as "running with the money" or "eating your seed potatoes." The children were convinced that failure to follow G. Daniel's policies, to which their father also subscribed, would make it much more difficult if not impossible to secure any additional property.

Liability for One-Half of All Indebtedness

55. The Division Agreement of December 1, 1938, contained the following paragraph on the subject of liabilities:

"1. Each of the parties to this contract have agreed to assume, and do assume, payment of an undivided one-half of all the liabilities and obligations of every kind and character of the partnership known and trading as "Baldwin Brothers" and of each of the co-partners thereof either in their individual or partnership capacities. Each of the parties hereto specifically agrees to pay one-half of all the notes, mortgages, liens, bills payable, claims, obligations and liabilities of every kind and character with respect to properties owned by either *105 of the parties hereto, and with respect to properties the title to which is in either of said parties. Each of the said parties agrees to pay one-half of all the obligations, claims and liabilities of every kind and character created by reason of any guarantees or agreements heretofore made by either or both of said parties with respect to any mortgages, notes, liens, agreements to purchase and contracts of every kind, together with any costs or expenses incident thereto, which have been entered into either by the partnership or by the co-partners thereof individually. Payment shall only be made when it shall have been legally and finally determined that said partnership or either of said co-partners, as individuals, is liable, or when in the judgment of either party hereto said obligations should be paid. The provisions of this contract shall not in any wise inure to the benefit of any third party. Said contract is made for the purpose of fixing and defining the rights of the parties with respect to each other, their heirs, executors, administrators and assigns. This contract shall be binding upon the parties hereto, their heirs, executors, administrators and assigns."

56. During *106 the negotiations leading up to the two contracts of June 5, 1940, Isaac feared that if he were to break completely with G. Daniel by refusing to sign the Management Agreement his brother would pay and then demand contribution of one-half the amount of all liabilities under the Division Agreement. This fear was one of the factors which influenced Isaac to sign the two agreements.

57. The Assumption Agreement, after reciting that "obligations of the partnership known as 'Baldwin Brothers' have been or may have been assumed by individual members of said partnership" and that "it is understood and agreed that all obligations and debts of every kind of both individual members of said partnership are actually debts of said partnership" contained the following additional paragraphs relating to liabilities:

"1. G. Daniel Baldwin of the first part and Isaac W. Baldwin of the second part hereby agree to assume and do assume, payment of an undivided one-half (1/2) of all liabilities and obligations of every kind and character of the partnership known and trading as "Baldwin Brothers" and of each of the co-partners thereof either in their individual or partnership capacities. Both G. Daniel Baldwin *107 and Isaac W. Baldwin and each of them of the parties hereto specifically agree to pay one-half (1/2) of all the notes, mortgages, liens, bills payable, claims, obligations, liabilities, loans on life insurance policies, contingent liabilities and all other liabilities of every kind and character owed by either the said G. Daniel Baldwin or Isaac W. Baldwin. The said G. Daniel Baldwin and Isaac W. Baldwin, and each of them agree to pay one-half (1/2) of all obligations and liabilities of every kind and character with respect to properties, the title to which is in either of them or is in either of them as tenants by the entireties with their wives or with respect to which they or either of them have any equitable interest; and each of them particularly agrees to pay and assume one-half (1/2) of any and all obligations in connection with real estate where agreements have been made for the payment of City improvements where a liability or obligation has been created by reason of any guarantees or agreements heretofore made by either or both of the said parties, G. Daniel Baldwin and Isaac W. Baldwin. And they, the said G. Daniel Baldwin and Isaac W. Baldwin hereby assume and agree to *108 pay one-half (1/2) of any and all obligations and liabilities with respect to any mortgages, notes, legal agreements to purchase, loan on insurance policies and contracts of every kind and nature, together with any costs or expenses incidental thereto which have been entered into either by the partnership or by either of the co-partners thereof individually. Payment shall only be made when it shall have been legally and finally determined that said partnership or either of said co-partners as individual is liable, or when in the judgment of either the said G. Daniel Baldwin or Isaac W. Baldwin, said obligations should be paid. It is further agreed by said G. Daniel Baldwin and Isaac W. Baldwin that any amount due from either of them for personal service by any servant rendered to their Father or Mother or both shall be paid in equal parts by the said G. Daniel Baldwin and Isaac W. Baldwin if and when said obligations for personal service shall be legally established.

The provisions of this contract shall not in any wise inure to the benefit of any third party. Said contract is made for the purpose of fixing and determining the rights of the parties hereto with respect to each of them *109 and his executors, administrators and assigns. This contract shall be binding upon the parties hereto, their wives, their heirs, executors, administrators and assigns.

* * *

3. From and after the execution of this contract, G. Daniel Baldwin will no be required to pay any premiums or any portion of any premiums on any life insurance policies carried on the life of Isaac W. Baldwin; and Isaac W. Baldwin will not be required to pay any premiums or any portion of any premiums on any life insurance policies carried on the life of G. Daniel Baldwin. Any loans on said life insurance policies are to be paid by G. Daniel Baldwin and Isaac W. Baldwin; that is, G. Daniel Baldwin is to pay one-half of said loans and Isaac W. Baldwin is to pay one-half of said loans. Any of the provisions of this paragraph or the preceding paragraph which are in conflict with previous provisions of this contract are intended as exceptions to the said previous provisions.

Neither Mabel L. Baldwin nor Florence E. Baldwin shall be liable for any of the debts or obligations of the co-partnership known as "Baldwin Brothers" nor of the individual members of said co-partnership who are G. Daniel Baldwin and Isaac W. Baldwin. *110

The provisions of this contract are intended to apply only to obligations of Baldwin Brothers and of the individual partners thereof which are legal, valid and binding obligations. This contract is intended by the parties hereto to be a complete settlement as of this date between the parties and in no wise defines or affects the rights or duties of the parties hereto with respect to any other person or persons.

Wherever in this contract any of the parties hereto have assumed and agreed to pay any obligations or liabilities, it is understood and agreed that they assume and agree to pay said obligations or liabilities only after they have been legally established or when in the judgment of the parties hereto or their personal representatives, said obligations or liabilities should be paid."

This contract was executed, as previously noted, by Isaac, G. Daniel, and their wives. In addition, there was attached a separate addendum in which the children stated that they had examined and did approve the contract.

58. The Management Agreement contained various provisions which directly and indirectly affected Isaac's liability for expenses incurred. It read as follows:

"CONTRACT

"Made and entered *111 into this 5th day of June, 1940, between G. DANIEL BALDWIN and MABEL L. BALDWIN, his wife, of the City of Erie County of Erie and State of Pennsylvania, parties of the first part, and ISAAC W. BALDWIN and FLORENCE E. BALDWIN, his wife, of the City, County and State aforesaid, parties of the second part.

"WHEREAS, G. Daniel Baldwin and Isaac W. Baldwin, two of the parties to this agreement have for many years been co-partners in the partnership known as Baldwin Brothers with offices at 1002 State Street, Erie, Pennsylvania, and

"WHEREAS, it is the desire of the said partners that the partnership heretofore known as Baldwin Brothers be dissolved and that Isaac W. Baldwin, one of the said partners, withdraw from the said business, and

"WHEREAS, a contract between the parties hereto was made on the 5th day of June, 1940, according to the terms of which the rights of the said partners with respect to indebtedness and ownership of real estate was established, and

"WHEREAS, it is the wish of the said Isaac W. Baldwin that his brother, G. Daniel Baldwin, continue to manage certain real estate owned by him, said Isaac W. Baldwin and Florence E. Baldwin, his wife, or both of them.

"NOW THIS *112 INDENTURE WITNESSETH that for and in consideration of the premises and for and in the further consideration of One ($1.00) dollar paid to first parties by second parties and paid to second parties by first parties, the receipt of which is hereby acknowledged, and for and in the consideration of any sums hereinafter mentioned, it is agreed as follows:

"1. The partnership heretofore known as Baldwin Brothers which partnership consisted of G. Daniel Baldwin and Isaac W. Baldwin, is dissolved as of June 5, 1940. From and after said date, the said partnership shall cease to exist.

"2. Isaac W. Baldwin, as of June 5, 1940, withdraws from the business known as Baldwin Brothers and agrees that his brother, G. Daniel Baldwin, may continue such business under the name of Baldwin Brothers upon his filing the fictitious name certificate required by the Laws of Pennsylvania.

"3. A settlement between the parties hereto shall be made as of June 5, 1940 with respect to all personal property, cash or cash in the bank.

"4. From June 5, 1940, and for a period of three (3) years, to June 5, 1943, Isaac W. Baldwin agrees and does hereby employ his brother, G. Daniel Baldwin, to manage all of the real estate *113 owned by the said Isaac W. Baldwin, and Florence E. Baldwin, his wife, or both, formerly handled by Baldwin Brothers.

"5. G. Daniel Baldwin agrees to manage said real estate, to procure tenants, collect rentals, pay taxes, make repairs and do all of the things needful for the proper management of the said property, as an employee only.

"6. G. Daniel Baldwin agrees to use the funds received from the rental of said property, and if any property is sold, the proceeds from the sales thereof, for the following purposes:

"(a) to pay taxes on said property.

"(b) to keep said property in repair.

"(c) to pay one-half of the office expense attorney fees, incidental expenses, automobile expenses or any other expenses not mentioned herein, necessary for the carrying out of this contract, including office rent, warehouse rent, and other incidental expenses, incurred by G. Daniel Baldwin incidental to the management of his own property and the property of Isaac W. Baldwin.

"(d) to place in the bank account of Florence E. Baldwin and subject to her check, the sum of One hundred fifty ($150.00) Dollars on Monday of each week.

"(e) to pay to Isaac W. Baldwin such sums as he may request for his personal *114 use.

"(f) to apply all of the balance received from the rental or sales of the property of the said Isaac W. Baldwin toward the payment of the one-half of the obligations owned by the said Isaac W. Baldwin, G. Daniel Baldwin and Baldwin Brothers in accordance with the terms of the contract dated June 5, 1940, and hereinbefore mentioned.

"7. It is agreed by all the parties hereto that the cost of the repairs and other expenses of Isaac W. Baldwin's property shall be determined by dividing the total cost of repairs and other expenses of all the property of Isaac W. Baldwin, Isaac W. Baldwin and Florence E. Baldwin, G. Daniel Baldwin, and G. Daniel Baldwin and Mabel L. Baldwin, as shown by the report made to the Internal Revenue Department for income tax purposes, by two.

"8. G. Daniel Baldwin agrees to make a complete, correct and accurate account of all of his transactions with respect to the property of Isaac W. Baldwin, said report to be made every June 5th as of June 1st of each and every year during the continuance of this contract, and G. Daniel Baldwin is not to be required to make reports in any year prior to June 5th of each year. At the time of making the report, the cost *115 of repairs on property of Isaac W. Baldwin for the first five (5) months of the current calendar year is to be estimated as being five-twelfths (5/12) of one-half (1/2) of the cost of all repairs on property belonging to the parties hereto of the previous calendar year and is to be adjusted on the basis of the current calendar year at the time of making the next report or, if this contract is cancelled, then said cost of repairs is to be adjusted on or before June 5th of the following year.

"9. It is agreed by all of the parties hereto that this contract may be cancelled by either party on Aug. 5, 1941, or Aug. 5th, 1942, providing, however, that the parties desiring to cancel said contract shall give the other parties thirty (30) days written notice of their intention so to do. It is also agreed that the death of either G. Daniel Baldwin or Isaac W. Baldwin shall cancel this contract.

"10. Upon the giving or receiving of such notice, G. Daniel Baldwin agrees to render a complete, accurate and correct account with respect to the property of Isaac W. Baldwin, as of the date when such cancellation shall become effective.

"11. G. Daniel Baldwin is instructed by parties of the second part *116 to use his best judgment in matters concerning this contract, and is specifically instructed not to carry insurance of any kind or character on property belonging to second parties and under his management unless it is his judgment that insurance should be carried. The said G. Daniel Baldwin is not to be held individually responsible for loss as a result of the failure of any bank or banks or any robberies or any happening beyond his control.

"12. It is further agreed between the parties hereto that G. Daniel Baldwin in the performance of his duties as set forth in this contract shall be personally and financially responsible only for the funds which he collects and for the exercise of such care and judgment as would be exercised by an ordinarily prudent man engaged in similar employment.

"13. It is further agreed between the parties hereto that in case the said G. Daniel Baldwin feels that he should be paid for his work, he is to receive at the time of the annual settlement or at the time the annual report is to be filed on June 5th of each year, the sum of Six thousand ($6000.00) dollars together with any legal expenses or accounting expenses incurred on account of the accounting *117 or filing of the report hereinbefore mentioned, for each year that he is employed by Isaac W. Baldwin and Florence E. Baldwin, payable from second parties funds.

"14. An inventory of the personal property as of June 5th, 1940, is hereto attached and made part of this contract.

"IN WITNESS WHEREOF the parties to this contract have hereunto set their hands and seals as of June 5th, 1940."

This contract was executed by Isaac, G. Daniel, and their wives. Unlike the Assumption Agreement, there was no addendum covering the children.

59. The inventory of "personal property as of June 5th, 1940," referred to in paragraph 14 of the Management Agreement, listed, without valuation, construction materials and supplies, 17 automobiles and trucks separately by engine numbers, and office furniture grouped as one item. In addition, there was listed "Cash in Security Bank - $3700," and "Cash in Marine Bank - $1165." The inventory did not mention or refer to personal property at the market stores.

Early Administrative Problems of Decedent's Estate

60. Upon Isaac's death, G. Daniel wanted to continue his management of decedent's properties. When the executors requested that such properties be turned *118 over to them for purposes of administration and management, G. Daniel refused to cooperate or furnish the executors with information relative to Isaac's properties, leases, rentals, tenants, and the like. Prior to the dissolution of the partnership, such matters were handled and recorded by G. Daniel through Baldwin Brothers, a partnership. After the dissolution, G. Daniel handled such matters through Baldwin Brothers, a sole proprietorship managing Isaac's properties pursuant to the Management Agreement. G. Daniel refused to assist the executors upon the ground that they were not paying him for any services.

61. The attorney requested by Isaac in his will, C. T. Bryan, was employed by the executors as counsel for the estate. Neither Florence nor George was conversant with the management and administrative problems which confronted them, and Bryan advised them in detail regarding such matters. He went to G. Daniel's office and requested a list of Isaac's properties, which was refused. Upon his advice the executors secured from the office of the city assessor, by virtue of a search of the assessment rolls, a separate card for each property listed in the name of any member or members *119 of the Isaac or the G. Daniel Baldwin families.

These cards, which were acquired about the end of June 1941, showed the address, the city index number, a brief description of the property, the name of the record owner, and the assessed value, separately for land and building, if any, as of May 9, 1941. Such cards were known to be incomplete, but they constituted one source of information of Isaac's real properties at that time. In addition, the deeds for larger tracts of land from G. Daniel to Isaac, the Washburn Confidential Reports, and G. Daniel's accounting of his management under the June 5, 1940, contract were all studied.

62. On May 9, 1941, the operation of Baldwin Brothers as a sole proprietorship and the dissolution of the partnership were little known facts. The leases, keys, collection records and files of the former partnership, including those relating to Isaac's properties, continued in the hands of the sole proprietorship, meaning G. Daniel, by virtue of the Management Agreement. G. Daniel denied the executors access to the records and files of Baldwin Brothers, and refused to advise tenants of the estate to pay their rent to the executors.

The executors tried to collect *120 rents where properties were known to belong to the estate. G. Daniel countered these efforts by reminding the tenants that their leases were with Baldwin Brothers, and that failure to pay their lessor might subject them to double rental payments. Some collections of rentals by Baldwin Brothers were turned over to the executors by G. Daniel, but others were not. Throughout the summer of 1941, the collection of rentals from properties of the estate was difficult and unsatisfactory.

63. Shortly after Isaac's death, G. Daniel presented a 3-page summary to the executors entitled "Obligations of Isaac W. Baldwin and G. Daniel Baldwin As of June 1, 1941." This summary showed obligations for notes, policy loans, mortgages, and unpaid bills totaling $429,552.77. G. Daniel represented that Isaac's estate owed one-half of such obligations under the Division Agreement and Assumption Agreement. He stated that the executors' plans for managing the estate would bankrupt it, demanded immediate payment, and threatened to attach the largest and most valuable properties of the estate in order to protect himself and secure payment of decedent's one-half of the obligations. At or about the same time, *121 G. Daniel informed the executors that the Twelfth Street and Central Market houses were run down, outmoded and obsolete, and that either several hundred thousand dollars would have to be spent in their renovation, or they would have to be closed, since physically the properties could be used for no other business.

64. There were also some threats made, the exact nature of which is not clear, with respect to partition proceedings. The executors were first under the impression that G. Daniel could cause their one-half interest in the market properties to be put up for sale.

This caused them some concern, since they feared that bids might be low because potential bidders would find that G. Daniel was the owner of the other one-half interest. However, at least sometime prior to October 1, 1941, they became aware that partition would mean a sale of the entire fee, and the bidders would not be faced with G. Daniel as a tenant in common or joint tenant. They were also made aware that they, as well as G. Daniel, could bring about such a proceeding.

65. At the end of June 1941, G. Daniel submitted to the executors the accounting required by the Management Agreement of June 5, 1940. Therein, *122 G. Daniel showed "Receipts" for the "Isaac W. Baldwin Account" totaling $177,875.87, "Expenditures" totaling $178,140.64, and a balance due him from the decedent's estate of $264.77.

He further requested payment of $6,000 for his services, as provided in the Management Agreement. The accounting included, on a separate page, market receipts and expenditures. This page showed a net balance of receipts over expenses in the amount of $11,780.28, prior to the deduction of a mortgage payment in the amount of $10,000.

66. The executors were unable to make the payments demanded by G. Daniel. They were also unable, in a practical sense, to cope with or counter his threats to take various legal steps against them, irrespective of the merits and notwithstanding their own belief that his claims were for the most part baseless. As a result of G. Daniel's control over the business and over Isaac's property during Isaac's life, and his sole possession of many records and much information needed by the executors, his position was such that little headway in proper administration of the estate could be made without some cooperation on his part. He was in a position to greatly harass the executors by *123 various means, including a variety of legal measures, however devoid of merit as a matter of substantive law.

67. In addition to the foregoing, the City of Erie commenced sequestration proceedings to seize the rentals of tenants and to apply them to improvement liens outstanding against some of decedent's properties.

68. The executors were advised by their attorney that even if G. Daniel was unfair in his accounting and dealings, he had all the advantages. They were advised to make peace with him and secure his cooperation, because without it they could not prepare an inventory or effectively administer the estate. In accordance with this advice and in spite of their knowledge that the demands of G. Daniel were unjust and excessive, the executors entered into a contract (hereinafter called the "Settlement Agreement") with G. Daniel on October 1, 1941, in settlement of their various differences. The Settlement Agreement was not presented to or approved by the court in which the estate was undergoing probate.

69. The principal provisions of the Settlement Agreement were, briefly, as follows. That the executors would (1) convey their interests in specified properties to G. Daniel, Robert, *124 and the City of Erie; (2) accept G. Daniel's accounting for the period June 5, 1940, to June 1, 1941; (3) execute a bond and mortgage in favor of G. Daniel to secure the payment of $86,810.24, the computation of such amount being set forth in the contract; and (4) release G. Daniel from liability on any claims against property of the estate owned prior to October 1, 1941. On his part, G. Daniel agreed that he would (1) convey specified properties to the executors; (2) release the executors from liability on any claims against his properties; (3) accept the bond and mortgage for $86,810.24 as full payment and settlement of all obligations of every kind due from the executors as of October 1, 1941; (4) turn over to the executors the leases and management of the properties belonging to the estate.

70. In preparing the Federal estate tax return some errors were made due to the difficulty of determining what properties the decedent owned at death. The cards which were made from the city assessment records were the principal means of ascertaining real estate includible in the return, although the information therein was supplemented with other available data. The cards did not reflect unrecorded *125 deeds or real estate outside of the city. The property descriptions were often erroneous or confusing with consequent inaccuracies in the cards. Because of these various difficulties, some properties which Isaac owned were omitted from the return and included in a supplemental return, and other properties which Isaac did not own were included.

Specific Facts and Opinion, By Issues

The foregoing findings of fact have been for the most part limited to general facts relating to the case as a whole. The voluminous nature of the present record and factual background, as well as the large number of issues to be resolved, make impractical the inclusion in the foregoing findings of specific facts relating to each issue. Such facts would in large measure have to be then repeated in order to make possible an intelligible discussion and resolution of legal issues involved or an explanation of the reasons for the ultimate resolution of specific issues of fact. Accordingly, to avoid such repetition, the general facts have been set forth in the above findings of fact, but the specific facts relating to each individual issue will be set forth with the discussion and resolution of such issue.

As far *126 as practicable, the issues will be discussed in the order in which they arise as a result of the various allegations of error in paragraph 4 of the amended petition. A number of issues have been conceded or resolved by stipulation or deferred by agreement until the filing of computations by the parties, and no longer require a determination here on the merits. The issues so affected are those raised in paragraphs 4(c), (i), (j), (k), (l), (m), (p), (r), (s), (u), (w), (z), (ff), (hh), (vv), and (ww) of the amended petition. These concessions, stipulations and deferrals, along with others pertaining to parts of or specific items within various other issues, will be given effect in the recomputations pursuant to Rule 50.

Issue 1. Valuation of Certain Real Estate Items

Paragraph 4(a) of the amended petition alleges that respondent placed values upon various real estate and related items exceeding in the aggregate amount of $149,500 the true aggregate value of such assets on the date of decedent's death.

Findings of Fact

In the real estate schedule of the estate tax return, the executors listed 381 separate items of property and the rents accrued on some of such items at the date of decedent's *127 death. The aggregate value of the real properties and accrued rents was reported as $1,303,715.50, of which $1,298,427 was the reported value of 370 separate items of real property and $5,288.50 was the reported value of accrued rents thereon. The values used for the 370 items of real estate were the values placed thereon by a special appraiser for inheritance tax purposes for the Commonwealth of Pennsylvania.

Respondent accepted the values reported by the executors for most of the properties listed. However, some adjustments were made, which increased to $1,372,431.50 the aggregate value of properties listed or determined by respondent to belong in the real estate schedule. The adjustments included increases in value over the values reported for 8 items, the valuation of 9 property items reported without value, the accrual of additional rentals on 3 items, the inclusion and valuation of 6 properties omitted, and the correction of an alleged error in addition.

The valuation of 173 separate items on the real estate schedule was disposed of by the parties with the following stipulation:

"1. The properties referred to in paragraphs 4(a) and 5(b) of the amended petition filed April 21, *128 1955 (hereinafter referred to as the amended petition) shall be deemed to have values at death equal to those reported therefor in the real estate schedule (Schedule A) of the estate tax return (Form 706) filed August 6, 1942 with the following exceptions:

"(a) Item 114 shall be deemed to have a value at death of $5,500.00.

"(b) Item 124 shall be deemed to have a value at death of $5,000.00.

"(c) Item 295 shall be deemed to have a value at death of $2,800.00 instead of the $3,800.00 shown as the value of this item in Schedule A of the estate tax return.

"(e) The value of Items 289 and 291 is not agreed to by this stipulation and evidence may be introduced by either party as to the value of such items.

"(f) The value of the accrued rents on 232 E. 29th Street, on property owned jointly with G. Daniel Baldwin, and on property owned jointly with Florence E. Baldwin is not agreed to by this stipulation and evidence may be introduced by either party as to the value of such items."

The real properties referred to in subparagraph (e) of the above-quoted stipulation, their descriptions, their valuation in the return and their valuation in the notice of deficiency, were as follows: Value in

Value Deficiency

Item Description in Return Notice

289 12th Street Market $75,000 $92,500

291 1209 French Street 3,700 5,500

*129 Petitioner alleges in its amended petition that the values of the above items on the date of Isaac's death were "not more than" $75,000 and $3,700, respectively, as reported in the return.

Petitioner called two expert witnesses, both eminently qualified, to testify as to the values of the above and other properties. One such witness testified that the value of the full interest in each was, respectively, $150,000 and $7,500. He also stated that in his opinion a discount of 20 per cent would be required in valuing one-half interests in these properties, in view of G. Daniel's ownership of the other one-half interests. The other witness testified that the full interests in the properties were worth, respectively, $150,000 and $9,000. He disagreed with the theory that a discount should be applied in valuing half interests, and concluded that the values of Isaac's one-half interests in the above properties on the date of his death were, respectively, $75,000 and $4,500.

Opinion

Having reviewed the record, we are inclined to find the testimony of the second of the above-mentioned witnesses more weighty as to this issue. Accordingly, we hold that the values of Isaac's one-half interests *130 in the two properties in question here on the date of his death were, respectively, $75,000 and $4,500.

The question as to the accrued rents mentioned in subparagraph (f) of the above stipulation is more directly connected with matters raised by later paragraphs of the amended petition, and will be disposed of hereinafter.

Issue 2. Value of Property Couveyed to G. Daniel

Paragraph 4(b) of the amended petition alleges that respondent assigned excessive values to eight items of real property conveyed to G. Daniel pursuant to the Settlement Agreement of October 1, 1941. These properties include items 289 and 291, which we have already discussed. The allegation of error in paragraph 4(b) is an alternative to that contained in paragraph 4(uu), wherein petitioner asserts a right to deduct the net excess consideration paid to G. Daniel as a result of the Settlement Agreement. In view of our determination, infra, (issue 29 hereof) with respect to petitioner's primary position, the issue raised by paragraph 4(b) is moot, and requires no further consideration.

Issue 3. Certain Unimproved Real Property

Findings of Fact

On or about December 1, 1938, in connection with the division of partnership *131 properties under the Division Agreement, Isaac transferred to G. Daniel an undivided one-half interest in an unimproved parcel of land located on the north side of West 24th Street between Berst Avenue and Geist Road. Isaac owned the other undivided one-half interest in this property on the date of his death. The deed was recorded July 16, 1940. This parcel was included as item 286 in Schedule A of the return at its full value of $280. Respondent made no adjustment with respect thereto. Petitioner now claims in paragraph 4(d) of the amended petition that there should be included only one-half of the value of this parcel.

Opinion

We find as ultimate facts and hold that Isaac had only a one-half interest in this parcel at the time of his death, and that such interest at that time had a fair market value of $140.

Issue 4. Certain Properties Covered by Deeds in Blank

Six items of improved property with an aggregate value of $27,600 were included in the gross estate, as properties owned by the decedent at date of death. They were listed in Schedule A under the title "Supplemental Return," and were identified as items 24 S.R., 25 S.R., etc. They are also identified as a part of the 381 *132 parcels itemized in Schedule A. Petitioner now alleges in paragraph 4(e) of the amended petition that decedent had no interest in these parcels at the time of his death.

Findings of Fact

The item numbers, the location of the six houses and lots here in issue and their values at date of death, as reported (and as accepted by respondent), were as follows: Value at

Item No. Location Date of Death

(366) or 24 S.R. 2518 Perry St. $ 4,500

(167) or 25 S.R. 2521 French St. 5,500

(370) or 30 S.R. 1164 W. 5th St. 2,800

(371) or 31 S.R. 1146 W. 5th St. 4,500

(372) or 32 S.R. 1144 W. 5th St. 4,500

(373) or 33 S.R. 1006 W. 26th St. 5,800

Total $27,600

In 1933 Isaac conveyed these six properties to G. Daniel by three separate deeds, which were recorded November 29, 1933. G. Daniel remained the owner of record of these properties until June 25, 1941. During the negotiations in connection with the dissolution of the partnership and the execution of the Management Agreement, G. Daniel agreed to convey the six properties to the trustees under the Trust Agreement of December 5, 1938, but did not do so at that time.

A number of deeds, including two deeds covering the foregoing six properties, and purporting to be executed in *133 June of 1940, were signed by G. Daniel, but with the names of the grantees left blank, and delivered to Bryan, the attorney for the estate. After Isaac died, George obtained the deeds, filled in the blanks by inserting the names of the trustees as grantees, and recorded the deeds.

The six properties here in controversy were charged against Isaac's account in the division of properties pursuant to the Assumption Agreement of June 5, 1940.

From June 5, 1940, until Isaac's death, G. Daniel, doing business as Baldwin Brothers, managed the six properties under the Management Agreement. After Isaac's death and prior to October 1, 1941, demand was made on G. Daniel for payment of the income derived from these six properties. G. Daniel acceded to this demand, and in the Settlement Agreement he allowed the following credit for the benefit of the estate against the amount allegedly due him:

"Less credit on statement concerning properties deeded to Trust as of June 5, 1940 $2,681.50."

The foregoing amount was substantially the amount of net income of the six properties from the execution of the deeds to the date of Isaac's death.

The six properties were included in Schedule A upon the advice *134 of Bryan. Respondent made no adjustments with respect thereto.

Opinion

The evidence shows only that Bryan received deeds executed in blank, retaining them until after Isaac's death. But such receipt and retention are ambiguous. Bryan acted as attorney for both G. Daniel and Isaac at various times, and there is no evidence as to the capacity in which he acted on this occasion. For whom did Bryan act? This question is unanswered. It could have been G. Daniel, or Isaac, of the children. We simply do not know.

If Bryan's possession of the deeds is to be imputed to Isaac, it seems clear that the properties must be included in the estate, as no enforceable obligation on Isaac's part to reconvey them to his children appears from the record. Bryan was called as a witness by petitioner, but was not asked for whom he acted. 1 *135 Petitioner bears the burden of proof here, and this failure is fatal to its position on this issue.

The foregoing is strengthened by the facts that (1) G. Daniel managed these properties under the Management Agreement, (2) he credited to the estate income therefrom against amounts allegedly due him, (3) the deeds remained blank and unrecorded until after Isaac's death, (4) petitioner included the value of the parcels here in question in the estate tax return on advice *136 of counsel, and (5) these properties were apparently charged ot Isaac's account in the division of properties pursuant to the Assumption Agreement of June 5, 1940. 2 The Management Agreement related to Isaac's property, and did not authorize G. Daniel to manage that belonging to the children or their trustees. And the foregoing credit benefited only the estate.

To be sure, G. Daniel may have acted under errors of law, or he may have intentionally arrogated to himself authority not juridically his to manage properties of the children, and deliberately misapplied funds of the trustees to the satisfaction of his alleged claims against the estate. This, however, is mere surmise. The uncertainties surrounding this entire issue require its resolution against petitioner. Inclusion of the properties here in controversy must, under the circumstances, be held proper.

Petitioner also argues that G. Daniel and Isaac were both under obligation to transfer property to the children, as a result of the various labors, restraints *137 and deprivations to which they had been and were still being subjected. We have found as facts that the various unpleasant aspects of the upbringing of the children, described in greater detail in the foregoing findings of Historical Facts, constituted a method of discipline and character development rather than a contractual relationship or compensable services.

Any obligation borne by Isaac and G. Daniel was merely a moral obligation, and, as far as these properties are concerned, simply remained unfulfilled. We cannot, because of any such moral obligation, supply facts absent from the record, but necessary to a finding that respondent erred.

Moreover, G. Daniel, whatever his moral obligation to the children, had a legal obligation to Isaac in the division of properties required as a result of the dissolution of the partnership. These properties were applied by G. Daniel in partial satisfaction of that obligation. We agree with respondent that "G. Daniel could not reap a double benefit by claiming that the payment of his legal debt to decedent also discharged his supposed moral obligation to the children." In any event, the record fails to show that Bryan held the blank deeds to *138 these properties in any capacity other than as Isaac's representative.

Petitioner correctly notes that delivery need not be directly to the donee, and cites In re Rynier's Estate, 347 Pa. 471 , 32 A. 2d 736 , where the court held sufficient a delivery to a third person for the use of the donee or to be turned over to him. In that case, however, the facts established such delivery. Here they do not. The court also noted ( 32 A. 2d at pp. 738-739 ): "The delivery to an agent or custodian is ineffective as a gift inter vivos if it is not accompanied with definite instructions to make delivery in turn to the donee."

We are totally ignorant of any instructions to Bryan, and no witness has enlightened us. We are not free to presume an answer favorable to petitioner. Indeed, not until after Isaac's death, when George filled in the blanks, were the identities of the grantees finally established.

The foregoing makes unecessary a consideration of respondent's alternative position to the effect that these properties were transferred in contemplation of death.

Issue 5. 524 East 2nd Street

A house and lot at 524 East 2nd Street valued at $2,200 at the date of death, was included in the return as *139 property then owned by decedent. Paragraph 4(f) of the amended petition alleges that decedent had no interest in this property at the time of his death, and that its inclusion was hence erroneous.

Findings of Fact

This property was erroneously described in a deed from Isaac to his son, George, in December 1939. As a result of that error the Erie assessment records and the card prepared from those records and used in preparing the return showed that title was in Isaac. The street address, 524, had been inadvertently substituted for the correct distance in feet (240) as the point of beginning from a certain street intersection.

This parcel was one of several deeded to Isaac's children in December 1939, by Isaac and G. Daniel, after the children had expressed their disappointment with the 1938 transactions. The deed in question, dated December 15, 1939, and recorded December 27, 1939, was executed by G. Daniel as attorney in fact for Isaac. It covered two parcels of real property, namely, those appearing as items 30 and 19 of Schedule A of the return. On August 15, 1942, the executors delivered a deed to George which correctly described the property at 524 East 2nd Street. However, the *140 1941 accounting of G. Daniel under the Management Agreement credits $331.10 in rentals from this parcel to Isaac.

Opinion

The record here is in some respects more and in other respects less favorable to petitioner than was true of the immediately preceding issue. Here we have evidence of recordation prior to decedent's death. We have found as a fact that a mistake in the deed caused official records to show title in Isaac, and draw no inference unfavorable to petitioner therefrom.

On the other hand, the deed in question was one of several executed after the children expressed disappointment over the original purported transfers, and was discovered by them only by a reading of reports of real estate recordings. Moreover, G. Daniel managed the parcel in controversy under color of the Management Agreement and credited rentals to Isaac's account.

Any presumptions in favor of petitioner arising from recordation are, we think, at least counterbalanced by the adverse features above noted. Cf. Estate of John W. Mortimer, 17 T.C. 579 . We cannot find that respondent has erred here.

Issue 6. 421 Beverly Drive

An improved property located at 419 (now 421) Beverly Drive, was included in Schedule *141 A of the return as item 368 (or 28 S.R.), as property owned by the decedent at death, with a value of $3,400. The respondent determined the value of this property to be $5,500, and acquiesced in its inclusion. Petitioner now alleges in paragraph 4(g) of the amended petition that decedent had no interest in this property at the time of his death.

Findings of Fact

G. Daniel acquired this property on or about June 29, 1935, from Roger A. and Margaret Withrow. The deed was recorded on July 11, 1935. G. Daniel was the owner of record at the time of the Division Agreement and during the negotiations prior to and on June 5, 1940. This was another of the several properties purportedly transferred to the children when the partnership was dissolved and the Management Agreement executed.

G. Daniel deeded this property to Isaac's daughter, Margaret, by deed dated June 5, 1940. The deed was recorded on June 25, 1941, along with the June 5, 1940, deeds to the trustees of the December 5, 1938, trust. The deed provided that possession of the premises was to be given April 1, 1942. This provision was discovered after Isaac's death when the deed was obtained from Bryan, and an attempt was made to obtain *142 rents from G. Daniel in respect thereto.

The deed also contained a clause to the effect that if Margaret wished to sell the property at anytime within 15 years from June 5, 1940, G. Daniel and his wife, Mabel, or their heirs, had the first right to purchase such property free and clear from any encumbrance for $3,500, such purchase to be made within 30 days from time of receiving notice of Margaret's intention to sell. Prior to April 1, 1942, Margaret received no rent from this property.

Opinion

This deed was held by Bryan, as were those mentioned in issue 4, supra. There is here the same lack of proof of Bryan's capacity. The property appears to have been charged to Isacc's account in the division of assets, pursuant to the Assumption Agreement. It was managed by G. Daniel under color of the Management Agreement, and income was applied for the benefit of Isaac or his estate until almost 1 year after Isaac's death.

Petitioner claims that this deed was not executed in blank, and we are inclined to agree. A clause gives G. Daniel and his wife, or their heirs, the right to purchase the property for $3,500 if within 15 years after June 5, 1940, the grantee wishes to sell. The pronouns *143 used in that clause show that there is but one grantee, a female.

We do not believe that Bryan, holding the deed as Isaac's agent or attorney, would permit the later insertion of such a clause. Yet when the clause was written, it was known that there was one female grantee.

We must conclude either that Bryan held the deed other than as Isaac's agent, or that the clause and necessarily the grantee's name existed before he received it from G. Daniel. The former holding would require exclusion of the property from the estate. There being no actual proof of either point, we must make that finding least favorable to petitioner. We gold, therefore, that G. Daniel inserted Margaret's name as grantee (as Isaac's nominee) as well as the restrictive clause, before turning the deed over to Bryan, but that Bryan thereafter held it as Isaac's agent.

Thus, there was a delivery not to Margaret, but to Isaac through his agent, Bryan. Margaret was merely Isaac's nominee as named grantee, and having furnished no legally cognizable consideration, could not have enforced a delivery to herself. Isaac retained ownership until his death, through the possession of the deed by Bryan, and the property was properly *144 included in his estate.

Petitioner claims that the foregoing restrictive clause limits the value of the property to $3,500. The law is well settled to the contrary.

That clause does not require the owner to sell. Nor does it constitute an option to G. Daniel to buy. Only if, within 15 years, the owner should wish to sell, must the property be offered to G. Daniel or his successors in interest for $3,500.

Such a clause reduces the value of the property below its unrestricted value, but even where it is unlimited in time it does not conclusively fix the maximum value of the property. Worcester County Tr. Co. v. Commissioner, 134 F.2d 578 (C.A. 1).

In Halsted James, 3 T.C. 1260 , affd. 148 F. 2d 236 (C.A. 2), we said at page 1264:

It has been the consistent view of this Court in cases where the stockholder is under no obligation to sell by reason of his contract, but has simply agreed to offer his stock to others on certain stated terms if he should desire to sell, that such an agreement does not have the effect of limiting the value upon which the Government may compute its tax to the amount at which the stock is to be offered if the owner decides to sell. See Estate of George Walker, 23 B.T.A. 663 ; *145 Michigan Trust Co. et al., Executors, 27 B.T.A. 556 ; Frederick A. Koch, Jr., Executor, 28 B.T.A. 363 ; Estate of James Smith, 46 B.T.A. 337 . See also Kline v. Commissioner, 44 B.T.A. 1052 ; affd., 130 Fed. (2d) 742 .

Each of these cases is distinguishable from Wilson v. Bowers, supra; Lomb v. Sugden, supra; Helvering v. Salvage, 297 U.S. 106 ; and Commissioner v. Bensel, 100 Fed. (2d) 639 , cited by petitioner. In those cases, on the date as of which the value was to be determined there had already been granted a valid, binding, irrevocable option to purchase, specifically enforceable. The holder had no choice to refrain from selling at the stipulated price. The stock was already impressed with the onus of the option.

See also Henry K. Chapin, 33 B.T.A. 688 ; City Bank Farmers Trust Co., Executor, 23 B.T.A. 663 .

Even actual contemporary sales, where not under accepted standards of open, aware, arm's length dealing, have been held inconclusive of true value for estate tax purposes. Cf. Schnorbach v. Kavanagh, 102 F. Supp. 828 (D. Mich.).

We cannot find from the record that in valuing this property respondent failed to consider, inter alia, the existence of the restriction on sales. *146 Accordingly, respondent's determination herein must be sustained.

Issue 7. 611 Maryland Avenue

The executors included in Schedule A, item 379 or 21 S.R., as property owned by decedent at death, an improved property at 611 Maryland Avenue, at a value of $1,400. Respondent adjusted this item by increasing its valuation to $3,500. It is now alleged in paragraph 4(h) of the amended petition that decedent had no interest in this property at the time of his death.

Findings of Fact

G. Daniel acquired this property from the receiver of the Erie Trust Company by deed dated February 11, 1938. On June 5, 1940, and prior thereto, Esther Allen, one of Isaac's daughters, lived in the house at 611 Maryland Avenue and paid rent to G. Daniel. In the negotiations preceding the 1940 transfers, George and Isaac insisted that Esther receive the place in which she lived. G. Daniel finally agreed, and by deed dated June 6, 1940, he deeded the property to Esther. This deed was recorded July 3, 1940. Subsequently, and on January 27, 1941, the deed from the receiver to G. Daniel was recorded.

The foregoing deed from G. Daniel to Esther provided that "This conveyance is made subject to the taxes for the year *147 1940." It further provided, as in the deed to Margaret, that if at any time within 15 years from June 6, 1940, Esther desired to sell the property, she should notify G. Daniel and Mabel, or their heirs, who had the first right to purchase the property, free and clear of any encumbrance for $2,450, such purchase to be made within 30 days from the time of receiving the notice, if at all. Esther continued to live at 611 Maryland Avenue after June 6, 1940, but paid no rent.

Opinion

The facts surrounding this parcel, while largely similar to those relevant to the property located at 524 East 2nd Street, are different in several respects.

Esther received the immediate benefit of the property by virtue of the fact that she continued to reside therein without further payment of rent. This, we think, is the equivalent of receiving the rental value, i.e., the income from the property if rented to others. And it does not appear that G. Daniel managed the property after execution of the deed.

Thus, it appears that no benefits were retained by or remained in Isaac after the conveyance, and there is no evidence sufficient to overcome the presumption of delivery created by recordation of the deed. *148

To be sure, Isaac may have been willing to permit Esther to reside gratuitously on a property belonging to him, and there would be no reason for G. Daniel to manage such a parcel. We incline to the view, however, that there is on this issue a preponderance of the evidence in petitioner's favor. We thus hold that the inclusion of 611 Maryland Avenue was erroneous.

Issue 8. G. Daniel's Accounting of June 1941

Statement of Issue and Findings of Fact

Subparagraphs (n), (o), (q), (y), and (gg) of paragraph 4 of the amended petition all relate to the accounting rendered by G. Daniel in June of 1941 under the Management Agreement. The ultimate evaluation of this accounting, which will determine the indebtedness of G. Daniel to the estate or of the estate to him, is a single issue. Subparagraphs (y) and (gg), alleging error, respectively, in the inclusion of $625.37 as a debt due from G. Daniel and the denial of a deduction of $13,325.03 (now claimed to be $9,454.19), as a debt due to G. Daniel, both raise the question of the ultimate valuation of the accounting. Subparagraphs (n), (o), and (q), relating to specific items in the accounting, are merely subsidiary parts or phases of such valuation. *149

Paragraph 4(n) challenges the inclusion as accrued rents of $5,288.50 originally so included in Schedule A of the return, and additions by respondent in the amounts of $35 and $244. The addition of $35 is based on rentals from 232 East 29th Street (item 190 of Schedule A) and that in the amount of $244 was added as rentals on property jointly owned by decedent and G. Daniel.

The amount of $5,288.50 reported in the return, the addition $35of, and another addition in the amount of $637 (hereinafter discussed in greater detail) comprise the total amount of $5,960.50 set forth in the accounting as "Rents, I.W.B. Prop. 5/9/41-6/1/41." The addition in the amount of $244 is based upon an item in the account in that amount designated "Rents, Joint Title 5/9/41-6/1/41, 1/2 Interest."

Paragraph 4(o) alleges error in the inclusion of the foregoing item of $637,which respondent designated as "Additional accrued rent on property owned jointly with Florence E. Baldwin." Petitioner claims therein that the proper amount includible in the estate as a result of this item is $23.44. Although not reported in the return, this item of $637 was taken into account in evaluating G. Daniel's accounting.

After *150 Isaac's death, rentals in the amount of $191 were received by the estate on properties given to Isaac and his wife as tenants by the entireties by James D. Baldwin, the father of Isaac and G. Daniel. Additional rent on such properties was received by Baldwin Brothers between May 3 and May 10, 1941, in the amount of $161.48, which was turned over to the estate. Of the total amount so collected, $45.48 was received in respect of rentals due for periods prior to May. The remaining $307 constituted rent for the month of May.

No part of the foregoing rentals in the amount of $352.48 was accounted for in the return. The effect on the valuation of the accounting of these rentals is the subject of paragraph 4(q) of the amended petition.

In Schedule C of the return, which relates to mortgages, notes, and cash owned by the decedent at the time of death, the executors reported a balance of $324.14 in Isaac's checking account in the Marine National Bank of Erie. Respondent made no adjustment of this item. Petitioner has alleged, in said paragraph 4(q), that decedent's interest therein at the time of his death was in the amount of $75.21.

Prior to Isaac's death, Baldwin Brothers collected the rentals *151 on the aforementioned properties owned jointly by Isaac and Florence. These rentals were deposited in the "Isaac W. Baldwin" account with the Marine National Bank of Erie. The balance in this account on May 1, 1941, was $79.36. On May 5, 1941, the balance was increased to $324.14 by the deposit of $244.78, representing rentals collected by Baldwin Brothers for the period April 30 to May 2, 1941, inclusive.

The previous balance of $79.36 arose from an earlier deposit of $201.26, consisting of rentals collected from such properties for the period April 17 to 26, 1941, inclusive. None of these rents was reflected in G. Daniel's accounting of June 1941. All were received prior to Isaac's death. The rents so collected and deposited were applicable to the month of May and to periods before and after May, as follows: Before After

Amount May May May

$244.78 $ 43.59 $198.59 $2.60

201.26 135.92 59.67 5.67

Total $446.04 $179.51 $258.26 $8.27

The return as filed by petitioner both included an asset and claimed a deduction in respect of the accounting by G. Daniel. In Schedule F the amount of $625.37 was included as a part of the gross estate, while in Subschedule (A2) of Schedule K thereof a deduction in the amount *152 of $3,460.50 was claimed.

Respondent accepted and left undisturbed the $625.37 inclusion, but denied any deduction. Paragraphs 4(y) and (gg) of the amended petition allege error, respectively in such inclusion and denial, the latter claiming a deduction in the amount of $13,325.03 to be proper. The deduction now claimed by petitioner is in the amount of $9,454.19.

In his account of June 30, 1941, G. Daniel showed that decedent's estate owed him $264.77 as a result of his management of properties under the Management Agreement of June 5, 1940. However, the operation of the two market properties was accounted for separately and showed a net profit in the amount of $1,780.28, after payment of $10,000 on the principal of a mortgage. The amount of $625.37, the excess of one-half of $1,780.28 over $264.77, was thus claimed by decedent's estate to be due from G. Daniel. No payment was ever made under the account of June 30, 1941, by G. Daniel or by decedent's estate. Settlement of the account was postponed until October 1, 1941, at which time G. Daniel and the executors arrived at a basis for settlement, as hereinafter set forth in greater detail.

The account rendered by G. Daniel in June *153 of 1941 showed the following receipts and expenditures for Isaac's account from June 5, 1940, to June 1, 1941, exclusive of those relating to the market properties: ISAAC W. BALDWIN ACCOUNT

RECEIPTS:

Cash on Hand 6/4/40, 1/2 Interest $ 1,850.00

Inventory 6/4/40, 1/2 Interest 6,297.38

Office Furn. (Inventory) 1/2 Interest 161.50

* Rents, I.W.B. 6/5/40 - 5/9/41 $132,262.58

* Rents, Joint Title 6/5/40 - 5/9/41, 1/2 Interest 3,876.50

* Rents, I.W.B. Prop. 5/9/41 - 6/1/41 5,960.50

* Rents, Joint Title 5/9/41 - 6/1/41, 1/2 Interest 244.00

142,343.58

Proceeds - Sale of Vacant Lots 7,170.00

Proceeds - Sale of 2209 Parade Street 5,000.00

House to Kenyon, 646 W. 3rd St., 1/2 Interest 1,750.00

Front & Wallace, 1/2 Interest in Mortgage 2,025.00

Allowance of 1/2 on Mortgage paid by I.W.B. 2,000.00

Refund on County Tax, Erie 4,745.44

* Net Income Misc. Property 4,532.97

$177,875.87

EXPENDITURES:

Taxes $ 60,723.00

Repairs 49,500.00

Interest 8,841.00

Salaries 8,649.00

Auto Expense 3,908.00

Light & Heat 1,050.00

Telephone 180.00

Water 140.00

Compensation 346.00

Office Supplies & Postage 166.00

Legal Expense 1,687.00

Recording Fees 30.00

Government Taxes 2,565.00

Paving Liens 525.95

Advertising 56.00

Insurance 117.00

Misc. Exp. Cash Book J.R.B. - J.D.B., Etc. 1,265.00

Misc. Exp. Auto Depreciation 250.00

Office Rent 780.00

Warehouse Rent 1,200.00

Garage Rent 300.00

Losses:

E. D. Kenyon $3,250.00 1/2 of

R. T. Marsh 632.00 actual

Misc. 474.00 loss 4,356.00

(Brought Forward) $146,634.95

Uncollected Water Rents Due 182.30

Florence E. Baldwin 7,650.00

* Miscellaneous Bills Paid 1,563.54

* Payments on Notes & Mortgages 11,500.04

DeFrancisco Taxes & Loss - 1/2 Interest 4,390.00

* Payments on Bills Due 6/4/40 - 1/2 Interest 3,719.81

Sara Weis - 1/2 Interest 2,500.00

$178,140.64

Less Income 177,875.87

Due from I.W.B. Est. $ $ 264.77

*154

Receipts and expenditures with respect to the market properties were stated as follows: Market Statement of Receipts & Expenditures

Receipts:

Cash balance 6/5/40 $ 2,973.75

Rents - Twelfth Street Market 42,371.01

Rents - Central Market 33,273.60

Cash from tokens 1,842.30

$ 80,460.66

Expenditures:

Equipment & repairs on equipment $ 1,372.90

Coal 1,447.85

Advertising 8,623.58

Interest 4,205.69

Water 1,145.90

License tax law suit 800.00

Repairs 15,000.00

Gas 323.70

Electricity 9,120.03

Parking lot rent 3,375.00

Misc. operating expenses 1,120.01

Payroll 9,823.72

Taxes 11,258.00

Insurance 1,064.00

$ 68,680.38

Net receipts $ 11,780.28

Required annual payment on Mtge. 10,000.00

$ 1,780.28

Thus, the June 1941 accounting purports to show a net indebtedness of G. Daniel to the estate in the amount of $625.37.

Opinion

Taking the figures contained in said accounting as true, it is nevertheless apparent that errors in computation have been made which, if corrected, would require substantial additions to the foregoing figure. A payment on the principal of a mortgage is in effect a part of the purchase price. It is too clear to require *155 citation that such payment is a capital expenditure, and must be disregarded in determining net profit or loss. G. Daniel's accounting shows such a payment in the amount of $10,000, which he erroneously deducted in computing the net profits realized under his management of market properties.

In making this mortgage payment, one-half of which is attributable to decedent or his estate, G. Daniel may have acted properly. Nonetheless, the estate was increased by the amount of $5,000 or one-half of the amount by which the mortgage indebtedness was reduced. This fact must be taken into account in determining the taxable estate. Contrary to petitioner's contentions, the foregoing reduction of the mortgage indebtedness has not been offset elsewhere in the return.

Petitioner argues that the accrued rentals reported in the return in the amount of $5,288.50, as well as respondent's respective additions thereto of $35 and $244 will be taken into account to whatever extent proper, and should not be included twice by inclusion as well in the real estate schedule (Schedule A) of the return. The same contention is made with respect to the item of $637 of accrued rent on property owned jointly with *156 Florence E. Baldwin. We agree with petitioner. The foregoing items will accordingly be excluded from Schedule A.

We now must consider whether, taking all relevant items into account, respondent erred in determining that a balance of no less than $625.37 existed in Isaac's favor at the time of his death.

Petitioner takes the position that the account included a net amount of $9,454.19 in which Isaac had no interest at his death, computed as follows: May rents attributable to period after

May 9, 1941 $ 6,748.80

June rents 772.68

Net income of parties other than

decedent 4,532.97

Total $12,054.45

Less:

Expenditures for period after

May 9, 1941 2,600.26

Net amount in which decedent had no

interest at death $ 9,454.19

The item "Net income of parties other than decedent" apparently refers to income from those properties covered by deeds handed to Bryan and certain other properties, inclusion whereof is in issue. From what has already been determined, for the purposes of this proceeding we must view rentals from the properties covered by deeds delivered to Bryan as belonging to Isaac. Accordingly, and in view of our disposition, infra, of certain other issues, rentals therefrom may not be eliminated in valuing *157 the accounting.

Petitioner has allocated merely $2,600.26 of expenses to the period after death, but produced no evidence supporting such allocation. Expenses do not necessarily occur in even amounts month after month, nor do they necessarily occur in the same proportion to income. Seasonal variations may substantially affect such expenses. There may well be many items of expense heavier at certain times of the year than at others. We do not know the actual date of payment of many large items of expense, such as taxes in the amount of $60,723, and repairs in the amount of $49,500, to name just the two largest items. We cannot merely assume that by far the greatest part of such expenses was paid or accrued before death. Petitioner bears the burden of proof here, and has simply failed to meet its burden.

The foregoing deficiencies in the record make moot the question as to inclusion of prepaid rentals for periods subsequent to Isaac's death. A resolution of that question entirely in petitioner's favor would fall far short of counterbalancing its failure to show the date of payment of large items of expense, plus the additional $5,000 resulting from the mortgage payment previously discussed. *158 We cannot find error in respondent's ultimate valuation of the June 1941 accounting. His determination with respect thereto must be sustained, both in the inclusion of the amount of $625.37 and in the denial of the deduction of $9,454.19.

Issue 9. Insurance Proceeds

Paragraph 4(t) of the amended petition alleges error in respondent's action of including in the computation of the gross estate the amount of $142,314.25, representing the excess over the then statutory exemption of $40,000 of the proceeds of two policies of insurance on decedent's life payable to beneficiaries other than the estate.

The pleadings which frame this issue are complicated and we feel that a full exposition will be helpful to understanding.

The executors had originally included these two ordinary life policies 3 in Schedule D (Insurance) of the estate tax return, showing net proceeds of $81,622.25 and $100,692, from which they deducted amounts, in the same ratio as premiums paid prior to January 10, 1941, bore to total premiums paid, to arrive at a net total value of $11,228. From this last figure they deducted as an "amount receivable by beneficiaries, other than the estate, not in excess of $40,000.00" the *159 sum of $11,228 and thus included nothing in the Recapitulation (Schedule O) of the return.

In the statutory notice of deficiency there appears only the following having any significance to this issue: Adjustments to Net Estate

Additions to value of net estate and

decreases in deductions:

Insurance $142,314.25

Transfers 126,050.00

Explanation of Adjustments

[Deter-

[Returned] mined]

Insurance

Item # 1

Connecticut Mutual Life

Insurance Company,

Policy # 588,657 $ 8,014.00 $100,692.00

Item # 2

Massachusetts Mutual

Life Insurance Com-

pany, Policy # 835,186 $ 3,214.00 $ 81,622.25

Total $11,228.00 $182,314.25

Less insurance exemp-

tion 11,228.00 40,000.00

$ 0.00 $142,314.25

It is determined that the net proceeds of insurance policy No. 588,657 issued in the name of the decedent by the Connecticut Mutual Life Insurance Company, and policy No. 835,186 issued in the name of the decedent by the Massachusetts Mutual Life Insurance Company should be included in the gross estate to the extent of the excess over $40,000.00 or $142,314.25.

* * *

Transfers

[45 parcels *160 of real estate which had not been included in the estate tax return are listed.]

It is determined that the properties transferred on December 19, 1938 and December 27, 1939, located in Erie, Pennsylvania, having a fair market value of $126,050.00 should be included in the gross estate within the meaning of Internal Revenue Code, Section 811(c) .

The entire portion of the notice of deficiency under the heading "Insurance" has been quoted above.

In his answer to the amended petition the respondent entered a general denial to paragraph 4(t), supra, and then pleaded:

"Further answering the petition, respondent * * * alleges that:

* * *

"8. If the Court holds that the decedent made a legally complete, valid and irrevocable transfer of all interest in the insurance policies in issue in paragraph 4(t) prior to his death without retaining any reversionary interest therein, then and in that event respondent alleges that the proceeds of said policies were property transferred in contemplation of death under the provisions of section 811(c) of the Internal Revenue Code of 1939 , and further alleges that respondent has already determined, in the alternative, that such transfers, if valid, were in *161 contemplation of death."

Respondent's treatment of this issue on brief may be summarized as follows:

1. Under the heading "Questions Presented" he includes: "2. Whether the creation of an nisurance trust constituted a transfer in contemplation of death."

2. Under the heading "Statutes and Regulations Involved" section 811(g) dealing with proceeds of life insurance is not included.

3. Under his Point II, respondent argues only that the creation of the insurance trust in December 1938 constituted a transfer in contemplation of death and states, inter alia, "On the basis of additional evidence and subsequent statutory amendments, respondent now concedes that the trust was not revocable or reversionary in nature."

Thus respondent does not now contend that, independent of the contemplation of death issue, any amount representing proceeds of these insurance policies is includible in the gross estate and we shall consider no other theory.

On this state of the pleadings petitioner argues with considerable force that the burden of proof is on respondent under our Rule 32. We feel that the record shows ample facts for our affirmative consideration of this issue and consequently it is unnecessary *162 to rule on this contention.

Findings of Fact

Decedent was 56 years old when this trust was created on December 5, 1938. He died 29 months later. Decedent had made a will on February 27, 1937, which he changed at his wife's request, executing his last will on September 5, 1940, all as set out by paragraphs numbered 31 and 32 hereof under the heading "General Facts."

Specific findings relating to decedent's health and mental attitude are made at numbered paragraphs 26 through 30, supra.

The trust was immediately funded by irrevocable assignment and delivery to the trustees of the Connecticut and Massachusetts policies described at numbered paragraph 48, supra. These were both so-called ordinary life policies with premiums payable annually, and on December 5, 1938, their combined cash surrender value was $34,183.50. The record is not clear as to who actually paid the premiums after December 5, 1938. There was no further funding of the trust prior to decedent's death.

Pertinent portions of the December 5, 1938 trust are set out in full at numbered paragraph 49, supra.

Decedent was greatly concerned over certain contingent liabilities more fully described under our general findings *163 at numbered paragraphs 46 and 47. He feared that these liabilities might eventually reduce or even wipe out his net assets.

Opinion

As this and other courts have stated many times, the determination of the question whether decedent gave or transferred "in contemplation of death" within the meaning of section 811(c), Internal Revenue Code of 1939 , is one of fact, to be decided by all of the evidence.

The ultimate question to be decided has been stated by the Supreme Court in United States v. Wells, 283 U.S. 102 , 115 :

"While the interpretation of the phrase [in contemplation of death] has not been uniform, there has been agreement upon certain fundamental considerations. It is recognized that the reference is not to the general expectation of death which all entertain. It must be a particular concern, giving rise to a definite motive. The provision is not confined to gifts causa mortis, * * * The statutory description embraces gifts inter vivos, despite the fact that they are fully executed, are irrevocable and indefeasible. The quality which brings the transfer within the statute is indicated by the context and manifest purpose. * * * The dominant purpose [of the statute] is to reach *164 substitutes for testamentary dispositions and thus to prevent the evasion of the estate tax. [Citing cases.] As the transfer may otherwise have all the indicia of a valid gift inter vivos, the differentiating factor must be found in the transferor's motive. * * *"

In Garrett's Estate v. Commissioner, 180 F. 2d 955 , the court affirmed the Tax Court in holding that the proceeds of the 30 life insurance policies plus a proportionate part of a fund, income from which was to pay the premiums, had been given "in contemplation of death." The policies and fund had been irrevocably assigned to an inter vivos trust providing payments to beneficiaries only after settlor's death. In commenting on the context and nature of the trust and its funding properties, the court said at page 956:

"Nevertheless, * * * it would go too far to say that a transfer of policies can never be other than testamentary, when the beneficiary cannot possibly profit by them, living the settlor, ordinarily such a transfer will be of that kind. A conveyance of property which the grantee can by no chance use until the grantor's death, will so commonly be in the main testamentary, that it is fair to infer that that was its *165 preponderating, if not indeed its only, purpose, unless there be affirmative evidence of other contributory motives. * * *"

This and other courts have often found from the particular facts in a given case that there existed strong lifetime motives in the donations to trusts of life insurance policies and other properties even though all payments to beneficiaries were deferred until after settlor's death. Estate of Charlotte A. Hopper, 22 T.C. 138 ; Estate of Louis Richards, 20 T.C. 904 ; Estate of Frank W. Thacher, 20 T.C. 474 ; Estate of Edmund W. Mudge, 27 T.C. 188 ; Estate of Verne C. Hunt, 14 T.C. 1182 . And in such cases the lifetime motives were found to be the dominant or moving ones and the property was not taxed.

Regardless of which party bears the burden of proof as to this issue 9, we feel that since it has been shown from the very nature of this trust instrument that the beneficiaries' enjoyment is deferred until after settlor's death, it at least casts the burden of going forward to show lifetime motives upon petitioner. Cf. Garrett's Estate v. Commissioner, supra.

Petitioner's principal contention is that a strong lifetime motive has been shown, to-wit, that Isaac *166 was genuinely concerned over the possibility that his net assets might be substantially reduced or even wiped out if certain contingent liabilities became payable. Such contingent liabilities were Isaac's liabilities on the mortgage guarantees made between 1919 and 1932 and his guarantees of the improvement liens on the Morrison and Dinsmore Subdivision, said guarantees made in the late 1920's.

Respondent urges that such fears were groundless in view of the size of Isaac's estate and because claims based upon such guarantees had almost disappeared before the creation of this trust, but we find it unnecessary to weigh and consider such evidence because of the peculiar provisions of Pennsylvania law.

Section 517 , title 40, Pa. Stat. Ann. (Purdon), provides that the net amount payable under any policy of life insurance made for the benefit of or assigned to the wife or children or dependent relative of the insured shall be exempt from all claims of insured's creditors as to obligations created after passage of the act (June 28, 1923), whether or not the right to change the named beneficiary is reserved by or permitted to the insured. Such statute has been interpreted to exempt from the *167 claims of creditors the cash surrender value of life insurance policies during the insured's lifetime as well as the proceeds payable upon his death and that this was true whether or not insured had the power to change the beneficiary. In Re Rose, 24 F. 2d 253 (E.D., Pa.); In Re Lang, 20 F. 2d 236 (E.D., Pa.); Dussoulas v. Lang, 24 F. 2d 254 (C.A. 3), certiorari denied 277 U.S. 593 .

It is thus apparent that the strongest lifetime motive urged on us by petitioner has fallen by the wayside. The life insurance policies with which Isaac funded this trust could have been made equally as secure from creditors by the simple expedient of removing G. Daniel as a named beneficiary and leaving only Florence or by naming as beneficiaries the identical persons named by the December 5, 1938, trust. Thus in so far as protecting his assets against possible contingent liabilities was concerned, Isaac's creation of this trust was unnecessary. This is not to say that Isaac's estate is to be taxed on the basis of what he could or might have done but is simply to illustrate that petitioner's evidence of a lifetime motive has little value.

Petitioner also urges as lifetime motives that this trust was *168 created in partial fulfillment of Isaac's promises to his children to reward them for past services and deprivations, and that this trust was a part of the general scheme of his December 1938 division of properties with G. Daniel. We do not look upon either argument as forceful. These purposes could have been easily realized by the removal of G. Daniel as a beneficiary and substitution of the children. This, too, would have completely removed G. Daniel from all control over the policies and their later proceeds, a desirable result not accomplished by the trust since G. Daniel was named as one of the trustees.

In view of the above, we conclude that the burden of going forward with the evidence to show a dominant lifetime motive in the creation of this trust was upon petitioner, that no such motive appears in the record and that respondent's determination with respect to this issue must be sustained.

Issue 10. 925-931 West 6th Street

In Schedule E of the return, the executors reported as item 9 therein that decedent owned a one-half interest in properties located at 925-931 West 6th Street, and valued this interest therein at death at $11,875. They claimed that decedent and his wife *169 were joint owners and that his wife owned the other one-half interest. In the deficiency notice, respondent determined that decedent owned the full interest in these properties at his death, and valued such interest at $23,750.

Paragraph 4(v) of the amended petition alleges that respondent erred in such determination, and that the value of decedent's one-half interest in the properties in question was overstated by respondent in the amount of $13,750. Petitioner now claims that decedent should be viewed as the owner of 925 West 6th Street with an alleged date of death value in the amount of $14,250, and that the property at 931 West 6th Street belonged to Florence alone.

Findings of Fact

The properties, measuring 123 3/4 feet by 165 feet, were acquired by Isaac and Florence as tenants by the entireties by a deed dated October 20, 1924, and recorded April 27, 1925. The property at 925 West 6th Street consisted of two lots, on one of which was built a brick house which was used as the residence of Isaac and his family. The property at 931 West 6th Street comprised one lot improved by a two-family brick flat (a building with two floors suitable for separate families).

In 1912, Florence *170 received $1,000 from the estate of her father. Isaac used this money in the partnership business for about 2 years. It was then used to purchase "flood lots" near Mill Creek, which were deeded to Florence in November 1915. The deed, which was recorded November 18, 1915, described the "flood lots" as a parcel of land, 32 1/2 feet by 165 feet, and the consideration therefor as $800. The other $200, plus the accumulated interest, was used by Baldwin Brothers in the construction of a two-family, frame dwelling house on the lot. The cost of this frame house and the date of its erection are unknown.

On October 5, 1916, Florence conveyed this improved property to Pawel Lipinski, et ux, for $3,400, subject to the leases then on the property with rent from November 1, 1916. Prior to the sale the partnership accumulated the rentals from this property, the amount of which is unknown.

The proceeds of the October 5, 1916, sale and the accumulated rentals from the Mill Creek property were held by Baldwin Brothers until 1923 when a lot, 44 1/4 feet by 165 feet, was purchased at 341 West 9th Street and a two-family brick flat with double garage was erected thereon. The amount invested in the lot *171 and the improvements at 341 West 9th Street is unknown. Florence believed that she received this property in consideration for the accumulated rents on and the proceeds from the sale of her Mill Creek property, but she does not know whether her understanding is correct. She had no knowledge of or experience in business. Florence collected the rents on the property at 341 West 9th Street until April 1, 1929.

Prior to March 26, 1929, G. Daniel asked Florence if she would be willing to let him sell 341 West 9th Street and take in exchange a flat at 950 West 6th Street. Florence agreed, and on March 26, 1929, G. Daniel, as attorney in fact for Florence and Isaac, sold the property to "Marshall G. Pratt UX," the deed being recorded the same day. The consideration stated in the deed was $1.

Thereafter, and on May 28, 1929, G. Daniel and his wife conveyed the property at 950 West 6th Street to Florence. The deed described this property as a lot 41 1/4 feet by 165 feet improved by a two-family brick flat and double garage, and the consideration as $1. After the transfer of 950 West 6th Street to her, Florence collected the rents thereon. Neither the selling price of 341 West 9th Street nor *172 the value of 950 West 6th Street at March 26, 1929, and May 28, 1929, respectively, is known. When this proceeding was heard, Florence was still the owner of the property at 950 West 6th Street.

The transfer of the property at 950 West 6th Street was said by G. Daniel to be free from all encumbrances, but Florence learned 2 or 3 years prior to Isaac's death that there was a mortgage on it. The mortgage, originally to secure payment of $8,000, covered 950 West 6th Street and the adjoining property. The adjoining property had apparently been released therefrom prior to the transfer to Florence, but there is no evidence of any apportionment of the mortgage as between the two properties. After such release of a portion of the mortgaged property, a payment of $4,000 was made on the mortgage debt on or about November 10, 1931. On or before February 5, 1941, Isaac paid the $4,000 balance.

Florence had some sort of oral, informal understanding of uncertain date with her husband that, as between themselves, the flat at 931 West 6th Street belonged to her. At the beginning of their marriage, she used rent from the flat above them to carry on the expenses of Isaac's household. It does not appear *173 that any contribution was made by her with respect to acquisition of the property where they first lived.

After acquisition of a two-family flat at 341 West 9th Street, as hereinbefore noted, Florence had rentals from three apartments with which to meet household expenses. As the family increased in size, other properties were acquired by Florence and some rentals therefrom used for household expenses, property taxes, and incidentials. The rentals from 341 West 9th Street, 950 West 6th Street, and 931 West 6th Street were so used.

Rentals from some of Florence's properties were collected by Baldwin Brothers and used in its business, but there is no evidence of such use prior to the purchase in 1924 of 931 West 6th Street, with the exception of the rents invested in such purchase. Florence thought that the flat at 931 West 6th Street was in her name alone since she handled the property, collected the rents, and was billed for and paid the taxes thereon. It was after Isaac's death that she learned that the flat was still held by Isaac and herself as tenants by the entireties.

The value of the properties at 925-931 West 6th Street at the date of death was $23,750. Florence did not contribute *174 to the purchase price of 925-931 West 6th Street.

Opinion

Section 811(e) of the Internal Revenue Code of 1939 requires the inclusion in the gross estate of, inter alia, interests held by a decedent and spouse as tenants by the entireties. There may be excluded only that part of the value "as may be shown to have originally belonged to * * * [the survivor] and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth * * *."

It goes without saying that it is here incumbent upon petitioner to prove the fact and amount of any part of the value of the assets in controversy excludible from the gross estate. Florence testified in an attempt to do so, but her testimony falls far short of achieving its goal.

She had no experience in or knowledge of business matters, and could trace funds belonging to her only in a vague, general and unsatisfactory manner. Much of her testimony consists of what her opinions and understandings were, but we do not know if such views were correct. To the extent she did trace her funds, she traced them to 341 West 9th Street and thence to 950 West 6th Street, which latter *175 property she still owns. And her private understandings were, by her own admission, incorrect in more than one instance. She thought 950 West 6th Street was free and clear, but later learned that it was subject to a mortgage, and she erroneously believed that 931 West 6th Street stood in her name alone.

Nor is petitioner aided by testimony of rents collected by Florence. Such rents appear to have been used for household and other expenses. If traceable at all to a capital item, they are traced to 341 West 9th Street and thence to 950 West 6th Street. Moreover, it would appear that Florence received the major part of these rents after the acquisition in 1924 of 925-931 West 6th Street.

We sympathize with petitioner, and appreciate the difficulty it faces in proving such matters. Nonetheless, it must prove them. We cannot find that it has successfully done so here.

Petitioner seems now to claim a partition, whereby Isaac became the owner of 925 West 6th Street and Florence received sole ownership of 931 West 6th Street. Of course, the best evidence of a partition would be recorded deeds to that effect, but such proof may not necessarily be essential. Cf. Lipsitz v. Commissioner, 220 F.2d 871 *176 (C.A. 4), certiorari denied 350 U.S. 845 . Petitioner argues that a parol partition is valid for estate tax purposes. The entire record here, however, does not satisfy us that such partition in fact occurred.

Moreover, respondent has made timely objection to evidence of partition, and, claiming surprise, asserts that the pertinent allegation in the amended petition (paragraph 5(bb)) is inconsistent with that theory. Paragraph 5(bb) reads as follows:

"The Commissioner has included in the jointly-owned property schedule of the gross estate the full interest, at a value of $23,750, in two properties located at 925-31 West 6th Street, which were shown as item 9 of Schedule E of the return. The decedent and his wife owned these properties as tenants by the entireties at the time of his death. Each of them supplied out of his or her separate property approximately one-half of the consideration paid fo

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