Estate of Stanley Donald Stankievech v. Minister of National Revenue, [1972] CTC 2232, 72 DTC 1231

A J Frost:—This is an appeal from an assessment dated May 30, 1968 wherein estate tax in the sum of $15,164.66 was levied on the aggregate taxable value of the property passing on the death of Stanley Donald Stankievech, which occurred on July 15, 1965. Under his last will and testament, dated April 29, 1960, John Frederick Stankievech, George James Stankievech and Walter William Stankievech were appointed executors of the estate. The appeal was heard at Calgary, Alberta on September 24, 1971 by the Tax Appeal Board as it was then constituted.

The deceased was in partnership with his brothers George and Walter in a farm business called “Stankievech Bros”. The deceased was active until 1954 when he became ill and could no longer do physical work. Until his death on July 15, 1965 he took an active interest in the partnership enterprise, and looked after certain errands and minor chores to the best of his ability. The deceased’s two brothers Walter and George worked full time and “carried” their brother in the partnership for over ten years. Reluctantly, but with the concurrence of all parties, they eventually reached an agreement that an adjustment of interests would have to be made under which the deceased’s interest in the partnership would be reduced. The basis of this agreement was a reduction in the sum of $20,000 or $2,000 per year for the years 1953 to 1962, inclusive, being for a 10-year period. In 1962 the arrangement was modified, and it was decided that the two active partners would be credited with wages as from January 1, 1963. The first opportunity to make an adjustment of interests occurred when $50,000 was received from the sale of lands in April 1965. With the approval of the deceased, Walter Stankievech and George J Stankievech each withdrew $25,000 from the partnership bank account on April 26, 1965, with no amount being withdrawn by the deceased.

In his argument counsel for the respondent submitted there was no consideration for the deceased’s agreement to amend the contract and that the deceased therefore had a one-third interest in the sum of $50,000 on deposit at the bank and that, in effect, he made a gift to his two brothers when he permitted them each to withdraw $25,000 from the partnership bank account on April 26, 1965.

I find that, in fact and in law, a valid and subsisting amending agreement was in existence on April 29, 1960, the date the deceased executed his will, and had been in existence prior to that date. On this point I accept the evidence of John Frederick Stankievech. Unfortunately, the original agreement was based on a mutual exchange of promises and was never reduced to writing. The onus is on the appellant executors to establish that the agreement was actually in effect as of January 1, 1953, the date when consideration for the contract began to run. This onus was not met, and consequently ! can only find that part of the consideration was past consideration. There is no doubt, however, that the contract was in existence some time prior to the time the deceased discussed his will with his brother John, which would be prior to its execution in April 1960. As a matter of convenience and without being too abritrary, I take January 1, 1960 as the effective date of the contract. The payments of $25,000 to Walter and George, brothers of the deceased, are partial gifts, as past consideration is no consideration.

In the estate tax return, the following item is reported:

According to the evidence, the deceased and his two brothers had an arrangement with the members of the families of George and Walter, which is represented as of the date of death as an indebtedness of $10,100 to the individuals named above, one-third of which indebtedness was the responsibility of the deceased.

Some confusion developed at the hearing concerning this item because of the following words which appear in the Notice of Appeal “cattle by way of gifts made to them by the partnership”. These words were inadvertently used by the solicitor, but did not have any foundation in fact. The evidence adduced clearly indicated that the cattle arrangement started in 1952 when the father-in-law of Walter and George gave his daughters (Walter and George had married sisters) 3 cows, and gradually over a period of 13 years a small herd was built up. A separate record was maintained by the partnership showing details over the period. The partnership took care of the cattle for the wives and children of Walter and George. The initial herd was delivered and the records kept by the partnership indicate a clear unequivocal intention in respect of the cattle agreement. I see no ground for disturbing this item and allow the appeal in so far as it relates to this liability shown in the estate return.

The value of agreements for sale in the sum of $78,778.83 and shown in Class B of the estate tax return is also a question in issue. Was the amount properly reduced to show the deceased’s interest in the proceeds of said agreements as $17,293.34, in accordance with the agreement between the three partners, as amended in 1962, to allow for accrued wages, or was the Minister right to increase this valuation to $26,259.61? On the evidence adduced, I find the amount of $17,293.34 to be correct and allow the appeal with respect to the increase of $8,966.27 added by the Minister to the value of the deceased’s interest in these assets.

Under “General Debts” in the estate tax return, the following items appear:

A. Promissory notes made December 15th, 1961: (Brothers, sisters, 4 spouses)

As holders of the notes listed above are not “holders in due course” as defined by the Bills of Exchange Act, the debts shown cannot be allowed as deductions from the aggregate value for estate tax pur- poses. The appeal with respect to these two items in the sum of $28,000 is hereby dismissed.

The appeal is therefore allowed in part and the matter referred back to the Minister for reconsideration and reassessment in accordance with the foregoing.

Appeal allowed in part.