Estate of Emilia W. Olivo, TC Memo 2011-163
The Tax Court has held that an estate could not deduct as a claim against the estate a large amount supposedly owed by the decedent to her son for caretaking services he provided to her for several years before her death. The claim was based on an alleged agreement that had not been reduced to writing, even though the son had been a practicing attorney before he became engulfed in caretaking. The only evidence the estate offered to prove the alleged agreement was the son's testimony, which the Court found to be improbable, self-serving, and uncorroborated.
Facts. Emilia W. Olivo died without a will on April 26, 2003. At the time of her death, she was a widow living in New Jersey. She was survived by two sons and two daughters. One son, Mr. Olivo, the administrator of the estate, lived with his mother at the time of her death. He cared for his mother and father for many years before their deaths. His caretaking starting in the fall of '94, when his mother fell and suffered a compression fracture of her lower spine that left her nearly paralyzed in both legs.
Mr. Olivo was a lawyer but his practice began to disintegrate during the mid '90s, in part because of the amount of time he devoted to his parents' health problems. He prepared durable powers of attorney for his parents and they executed them in '95 (father) and '96 (mother). His father died in the fall of '95 and the probating of his will was highly contentious. Family relationships became strained after that and remained so until 2000.
Emilia had numerous health problems during the last years of her life. The compression fractures to her spine left her incapable of caring for herself and basically paralyzed in both legs. Mr. Olivo purchased a Hoyer lift to move her from bed to her wheelchair and back. She also required assistance to use the bathroom, to get dressed, and to bathe. She had a number of other problems including incontinence, which required Mr. Olivo to clean up after her and change her clothes. She was a diabetic, which required Mr. Olivo to test the insulin levels in her blood several times each day and, if needed, inject her with insulin.
Mr. Olivo was also responsible for preparing all meals and doing general housekeeping. He employed home health aids to assist him, but the aids were not registered nurses and therefore could not administer Emilia's medications or do the blood sticks and insulin injections she required.
Mr. Olivo kept extensive records of his mother's medications, hospital visits, and diagnoses. He also kept a composition notebook where he recorded her blood sugar levels, blood pressure, pulse, and body temperature.
Caring for his mother took a toll on Mr. Olivo. At some point during '98, his brother, an M.D., became concerned about Mr. Olivo's health. After being criticized by a sister, Mr. Olivo offered to stop providing care and to hire round-the-clock nurses instead. His three other siblings, however, asked him to continue the care and he did so until his mother's death.
Mr. Olivo prepared an estate tax return before he was formally appointed as administrator (there was a delay because one sister initially refused to renounce her right to be appointed as administratrix). This return claimed a deduction of $1,240,000 as a debt the estate owed to him for the care he provided to his mother pursuant to an alleged agreement he had with her to compensate him for his services in caring for her (alleged agreement).
Regarding the alleged agreement, during the Tax Court trial, Mr. Olivo testified that at some point during '98, he learned that one of his sisters had commented that all he did was sit around and watch television while getting free room and board. He was upset by the remark, and he told his mother, who offered to pay him $1,000 per week for the care-giving. Mr. Olivo said that he suggested that $200 per day would be agreeable to him. However, he further testified that he became worried about his mother's finances, and he suggested that she defer the payment until her death. He said that, to avoid a complicated interest calculation, she agreed to pay him $400 per day with payment deferred until after her death.
However, Mr. Olivo never reduced the alleged agreement to writing. He acknowledged during his testimony that he “could have and should have” memorialized their agreement, but he was too distracted by the day-to-day details of caring for decedent. He explained that he was not thinking like a lawyer during that time.
Background. Code Sec. 2053(a) allows various deductions in arriving at the taxable estate including claims against the estate. (Code Sec. 2053(a)(3))
No deduction. The Tax Court observed that the only evidence the estate offered to prove the alleged agreement was the testimony of Mr. Olivo. It stressed that Mr. Olivo never reduced the alleged agreement to writing, nor were there any other witnesses to the alleged agreement or any other corroborating evidence. The Tax Court said it did not have to accept testimony that is improbable, self-serving, and uncorroborated by other evidence.
The Tax Court also noted that, under New Jersey law, the oral promise of a decedent must be proved by clear and convincing evidence. However, it did not decide whether to apply that standard because it found that Mr. Olivo's testimony failed to satisfy even the less exacting preponderance standard normally applied by the Tax Court.
The Court said that Mr. Olivo's testimony recounting the facts surrounding the alleged agreement was highly questionable. Although the Court understood that he had a lot on his mind during the years when he was caring for his parents, his claim that he was unable to think like a lawyer during that period was belied by the fact that he prepared powers of attorney for both of his parents and had his parents execute them. Given his training and experience as an attorney, how contentious the probating of his father's estate had been, the apparent animosity between him and one sister, and his vested interest in ensuring that he would receive compensation from his mother pursuant to the alleged agreement, the Court did not believe that he would not have reduced the alleged agreement to writing or at least have some corroborating evidence beyond his self-serving testimony.
In light of the foregoing, the Court declined to accept Mr. Olivo's uncorroborated testimony regarding the alleged agreement. Accordingly, it concluded that the estate failed to establish that his mother entered into the alleged agreement with Mr. Olivo. Consequently, the Court held that Mr. Olivo's claim for compensation pursuant to the alleged agreement may not be deducted by the estate.
In the alternative, the estate contended that Mr. Olivo was entitled to some recovery under quantum meruit. Even in the absence of a contract, when one party has conferred a benefit on another and the circumstances are such that it would be inequitable to deny recovery to the party conferring the benefit, New Jersey courts allow recovery in quasi-contract. Quantum meruit is a type of quasi-contractual recovery that allows a plaintiff to recover the reasonable value of services rendered when the plaintiff conferring the services had a reasonable expectation of payment.
The Court stressed that Mr. Olivo's care for his mother during the last years of her life was extraordinary, and the efforts he expended on her behalf were commendable. However, it concluded that the estate did not show that Mr. Olivo was entitled to recover for that care under quasi-contract because there is a presumption under New Jersey law that services rendered to a family member living in the same household are rendered gratuitously.
References: For the estate tax deduction for claims against an estate, see Federal Tax Coordinator 2d ¶R-5456; United States Tax Reporter Estate & Gift ¶20,534.07; TaxDesk ¶776,046; TG ¶41251.