                        T.C. Memo. 2000-287



                      UNITED STATES TAX COURT



   ESTATE OF SUZANNE C. PRUITT, DECEASED, SANDRA S. THOMPSON,
             PERSONAL REPRESENTATIVE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19126-97.                 Filed September 12, 2000.



     Marc K. Sellers, for petitioner.

     Gerald W. Douglas, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:   Respondent determined a deficiency of

$47,660 in petitioner’s Federal estate tax.     The sole issue1 for

decision is whether gifts of real property made by decedent’s



     1
      The remaining adjustments proposed in the notice of
deficiency were not contested in the petition and are deemed to
be conceded. See Rule 34(b)(4), Tax Court Rules of Practice and
Procedure.
                                - 2 -

attorney-in-fact are includable in decedent’s gross estate under

section 2038.2   Resolution of the issue requires us to decide

whether decedent’s attorney-in-fact was authorized to make the

gifts in question by certain powers of attorney granted to her by

decedent.

                          FINDINGS OF FACT

     The parties have stipulated some of the facts.    The

stipulated facts are incorporated in our findings by this

reference.

     Suzanne C. Pruitt (Mrs. Pruitt or decedent) died on February

11, 1994, from complications of Alzheimer’s disease.    Decedent’s

will was admitted to probate in Oregon and decedent’s United

States Estate (and Generation-Skipping Transfer) Tax Return, Form

706, showed decedent’s domicile in Multnomah County, Oregon.

Decedent’s daughter, Sandra S. Thompson (Ms. Thompson), was

appointed personal representative of decedent’s estate (the

estate).    At the time the petition was filed, Ms. Thompson

resided in Troutdale, Oregon.

     Prior to 1988, decedent and her husband3 engaged in estate

planning discussions with their attorney, James W. Walker (Mr.



     2
      All section references are to the Internal Revenue Code in
effect as of the date of decedent’s death, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
Monetary amounts are rounded to the nearest dollar.
     3
      Decedent’s husband died in November 1993.
                                 - 3 -

Walker).    Ms. Thompson attended one or two of the meetings at

which the discussions took place.     Mr. Walker discussed ways to

reduce Mr. and Mrs. Pruitt’s projected estate tax liability and

advised them on the effect of the Federal gift tax, gifting

schedules, and charitable donations.            Mr. and Mrs. Pruitt were

concerned about the considerable size of their estate and

potential estate tax problems.    Mr. and Mrs. Pruitt wanted their

children to inherit as much of their estate as possible.

      From 1980 through 1992, in accordance with Mr. Walker’s

advice, decedent engaged in a pattern of making gifts to her

daughters, their husbands, and her grandchildren in an attempt to

reduce the size of her estate.    Decedent personally made all the

gifts during this period.    The gifts made by decedent from 1980

through 1992 were as follows:
           Donee1                 Date of Gift                  Amount

Robyn Muckerheide                        1980                   $1,000
Sharon K. Phillips                                               1,000
Sandra S. Thompson                                               1,000

Robyn Muckerheide                        1981                    1,000
Sharon K. Phillips                                               1,000
Sandra S. Thompson                                               1,000

Robyn Muckerheide                        1982                    1,000
Sharon K. Phillips                                               1,000
Sandra S. Thompson                                               1,000

Robyn Muckerheide                        1983                    2,000
Sharon K. Phillips                                               2,000
Sandra S. Thompson                                               2,000

Robyn Muckerheide                        1984                    3,000
Sharon K. Phillips                                               3,000
Sandra S. Thompson                                               3,000

Robyn Muckerheide                        1985                    3,000
Sharon K. Phillips                                               3,000
Sandra S. Thompson                                               3,000
                                     - 4 -
Robyn Muckerheide                            1986     3,500
Sharon K. Phillips                                    3,500
Sandra S. Thompson                                    3,500

Robyn & Leo Muckerheide                  10/1987      2,500
Sharon & J. Richard Phillips                          2,500
Sandra S. & Marvin R. Thompson                        2,500


Robyn & Leo Muckerheide                  12/1987      5,000
Sharon & J. Richard Phillips                          5,000
Sandra S. & Marvin R. Thompson                        5,000

Robyn & Leo Muckerheide                  08/1988     10,000
Sharon & J. Richard Phillips                         10,000
Sandra S. & Marvin R. Thompson                       10,000

Robyn & Leo Muckerheide                  12/1988     10,000
Sharon & J. Richard Phillips                         10,000
Sandra S. & Marvin R. Thompson                       10,000

Robyn & Leo Muckerheide                       1989   20,000
Sharon & J. Richard Phillips                         20,000
Sandra S. & Marvin R. Thompson                       20,000

Robyn & Leo Muckerheide                      1990    20,000
Sharon & J. Richard Phillips                         20,000
Sandra S. & Marvin R. Thompson                       20,000
Tamara Kaye Johnston Irrevocable Trust                5,000
Sheri Lea Muckerheide Irrevocable Trust               5,000
Troy Alan Muckerheide Irrevocable Trust               5,000
Brent Elvin Phillips Irrevocable Trust                5,000
Brian Paul Phillips Irrevocable Trust                 5,000
Kevin Scott Phillips Irrevocable Trust                5,000
Shauna Sue Shigeta Irrevocable Trust                  5,000
Derek Lee Thompson Irrevocable Trust                  5,000
Jason Rubin Thompson Irrevocable Trust                5,000
Kevin Luis Thompson Irrevocable Trust                 5,000
Shelly Lusandra Thompson Irrevocable Trust            5,000
Todd Marvin Thompson Irrevocable Trust                5,000

Robyn & Leo Muckerheide                       1991   20,000
Sharon & J. Richard Phillips                         20,000
Sandra S. & Marvin R. Thompson                       20,000
Tamara Kaye Johnston                                 10,000
Sheri Lea Muckerheide                                10,000
Troy Alan Muckerheide                                10,000
Brent Elvin Phillips                                 10,000
Brian Paul Phillips                                  10,000
Kevin Scott Phillips                                 10,000
Shauna Sue Shigeta                                   10,000
Derek Lee Thompson                                   10,000
Jason Rubin Thompson                                 10,000
Shelly Lusandra Thompson                             10,000
Todd Marvin Thompson                                 10,000

Robyn & Leo Muckerheide                  02/1992     20,000
Sharon & J. Richard Phillips                         20,000
Sandra S. & Marvin R. Thompson                       20,000
Tamara Kaye Johnston                                 10,000
Sheri Lea Muckerheide                                10,000
                                     - 5 -
Troy Alan Muckerheide                                              10,000
Brent Elvin Phillips                                               10,000
Brian Paul Phillips                                                10,000
Kevin Scott Phillips                                               10,000
Shauna Sue Shigeta                                                 10,000
Derek Lee Thompson                                                 10,000
Jason Rubin Thompson                                               10,000
Shelly Lusandra Thompson                                           10,000
Todd Marvin Thompson                                               10,000

Sandra S. Thompson                      11/1992                    61,666
Sharon K. Phillips                                                 61,667
Robyn Muckerheide                                                  61,667
      1
       Robyn Muckerheide, Sharon K. Phillips, and Sandra S. Thompson are
decedent’s three daughters. Leo Muckerheide, J. Richard Phillips, and Marvin R.
Thompson are decedent’s daughters’ husbands, respectively. The remaining donees
are decedent’s grandchildren or related trusts.

With the exception of the November 1992 gifts, decedent

transferred the gifted funds by personal check.             The November

1992 gifts consisted of stock.

      On December 22, 1987, pursuant to Mr. Walker’s advice,

decedent, while domiciled in Oregon, executed and delivered to

Ms. Thompson a durable power of attorney4 (December 22, 1987,

power).    The December 22, 1987, power was a standard form (Form

No. 853) preprinted by the Stevens-Ness Law Publishing Co.,

Portland, Oregon.      The power appointed Ms. Thompson as attorney-

in-fact and granted her specific enumerated powers.              Mr. Walker

advised decedent that the power would allow Ms. Thompson to do

anything decedent could do.        Relevant portions of the December

22, 1987, power read as follows:

           KNOW ALL MEN BY THESE PRESENTS, That I, Suzanne C.
      Pruitt have made, constituted and appointed and by
      these presents do make, constitute and appoint Sandra


      4
      The parties stipulated that each of the powers of attorney
was a durable power under Oregon law.
                                    - 6 -

     S. Thompson my true and lawful attorney, for me and in
     my name, place and stead and for my use and benefit,

          (1) To lease, let, grant, bargain, sell, contract
     to sell, convey, exchange, remise, release and dispose
     of any real or personal property of which I am now or
     hereafter may be possessed or in which I may have any
     right, title or interest, including rights of
     homestead, for any price or sum and upon such terms and
     conditions as to my said attorney may seem proper;

                    *      *    *    *      *   *   *

          I hereby give and grant unto my said attorney full
     power and authority freely to do and perform every act
     and thing whatsoever requisite and necessary to be done
     in and about the premises, as fully to all intents and
     purposes, as I might or could do if personally present,
     hereby ratifying and confirming all that my said
     attorney-in-fact shall lawfully do or cause to be done
     by virtue hereof.

     On March 12, 1992, pursuant to Mr. Walker’s advice,

decedent, while domiciled in Oregon, executed and delivered to

Ms. Thompson two durable powers of attorney (March 12, 1992,

powers).   One was to be recorded, and the other was for Ms.

Thompson to use that same day for matters unrelated to this case.

One of the powers was a standard form (Form No. 853) preprinted

by the Stevens-Ness Law Publishing Co., Portland, Oregon, (March

12, 1992, No. 1 power), and the other was a standard computer-

generated form used by Mr. Walker’s office (March 12, 1992, No. 2

power).    Each of the March 12, 1992, powers named Ms. Thompson as

attorney-in-fact.       The language of the March 12, 1992, No. 1

power was identical in many but not all respects to the language
                               - 7 -

used in the December 22, 1987, power.5     Relevant portions of the

March 12, 1992, No. 2 power read as follows:

          I, SUZANNE C. PRUITT, hereby make, constitute and
     appoint SANDRA S. THOMPSON my agent and attorney in
     fact with power and authority to:

                   *   *   *    *      *     *    *

          8. Convey, sell, mortgage, pledge, consign, lease
     and in any other manner deal in and with my property,
     both real and personal.

                   *   *   *    *      *     *    *

          I authorize my attorney for me and in my name
     generally to do and perform all and every act which is
     necessary or desirable to be done in order to properly
     conduct, manage and control all my business and my
     property and to execute and acknowledge any and all
     instruments necessary or proper to carry out the
     foregoing powers, hereby releasing all third persons
     from responsibility for the acts and omissions of my
     attorney.

     All three powers of attorney constituted valid and binding

powers of attorney under Oregon law.     At the time decedent

executed and delivered each of the powers,6 she did so with full

mental capacity.




     5
      The March 12, 1992, No. 1 power provided that “My said
attorney and all persons unto whom these presents shall come may
assume that this power of attorney has not been revoked until
given actual notice either of such revocation or of my death.” It
also contained par. (16) authorizing decedent’s attorney-in-fact
to act with respect to certain tax and governmental matters, and
an effective date clause. The December 22, 1987, power did not
contain similar provisions.
     6
      The parties stipulated that none of the powers of attorney
took precedence over or superseded any other power.
                                 - 8 -

     On December 30, 1993, and on January 18, 1994, Ms. Thompson,

as attorney-in-fact, made gifts of interests in decedent’s real

property by separate deeds to each of decedent’s three daughters

(including Ms. Thompson) and their husbands.        On the dates of the

gifts, decedent’s medical condition had deteriorated to the point

where she lacked the mental capacity to discuss the gifts with

Ms. Thompson.   Ms. Thompson did not have any discussions with Mr.

Walker prior to making the gifts.    Each gift was confirmed by a

deed recorded in Multnomah County, Oregon.      The gifts are

summarized as follows:

   Donee             Property1       Transfer date     Property value
Sandra &          ½ interest in          12/30/93         $20,000
Marvin            1204 NE Meadow
Thompson          Drive
Sharon & Dick     ½ interest in          12/30/93          15,500
Phillips          1125 NE Meadow
                  Drive
Robyn & Leo       ½ interest in          12/30/93          19,000
Muckerheide       1137 NE Meadow
                  Drive
Sandra &          ½ interest in          01/18/94          22,000
Marvin            1204 NE Meadow
Thompson          Drive
Sharon & Dick     ½ interest in          01/18/94          15,500
Phillips          1125 NE Meadow
                  Drive
Robyn & Leo       ½ interest in          01/18/94          19,000
Muckerheide       1137 NE Meadow
                  Drive


     1
      All property transferred was real property located in
Portland, Oregon.
                               - 9 -

     The estate filed Federal gift tax returns (Form 709)

reporting the 1993 and 1994 gifts and claiming six annual gift

tax exclusions in each year for the values of the gifts.7    As a

result, the estate reported no net gifts for 1993 and $2,000 in

net gifts for 1994.

     The estate filed a timely Federal estate tax return (Form

706) reporting a total gross estate of $1,427,908 and adjusted

taxable gifts of $252,000.   The 1993 and 1994 gifts made pursuant

to the powers of attorney were not included in calculating

decedent’s gross estate.   Following an examination, respondent

mailed a notice of deficiency to the estate in which respondent

determined, among other things, that the 1993 and 1994 gifts

“which were transferred during decedent’s lifetime by the

decedent’s attorney in fact under a durable power of attorney

that did not expressly authorize the attorney in fact to make

gifts are includable in the decedent’s gross estate.”

                              OPINION

Respondent’s Objections

     We first address respondent’s objections to the testimony of

witnesses Ms. Thompson and Mr. Walker.   At trial, the Court

conditionally admitted the testimony over respondent’s objection



     7
      The 1993 and 1994 gifts did not impoverish decedent or
adversely impair her ability to support herself. On the date of
her death, decedent owned assets having a value in excess of
$1,400,000.
                              - 10 -

based on the parol evidence rule and directed the parties to

address the issue on brief.   On brief, respondent contended that

petitioner is attempting to expand the powers specifically

granted to Ms. Thompson through the use of oral testimony, which

is prohibited by the parol evidence rule.   Prior to trial and on

brief, respondent raised another general objection to the

testimony, contending it was inadmissible hearsay.

     A.   Respondent’s Hearsay Objection

     On brief, respondent argued that any third-party testimony

regarding decedent’s intent is inadmissible because it is offered

to prove the truth of the matter asserted; namely, that decedent

intended to include a power to make gifts in each of the

three powers of attorney.   Petitioner responded that the

testimony is admissible under rules 803(3) and 807 of the Federal

Rules of Evidence.   Assuming arguendo that the witnesses’

testimony as to decedent’s intent is hearsay in the first

instance,8 we hold that the testimony is admissible under the


     8
      On brief, respondent made the following arguments that
certain parts of the witnesses’ testimony constituted
inadmissible hearsay: (1) “At trial, the decedent’s attorney [Mr.
Walker] testified that, with respect to the powers of attorney,
he had discussions with the decedent that the powers allowed the
decedent’s daughter to do anything that the decedent could do
* * *. Any statements by the attorney which relate to this
belief by the decedent, including an implied intent to make gifts
are inadmissible hearsay under FRE 803(3).” (2) “The same
rationale and result [as in (1) above] applies to the overall
testimony of the decedent’s daughter [Ms. Thompson].” (3) “In the
present case, it is respondent’s position that the testimony of
                                                   (continued...)
                              - 11 -

state of mind exception to the hearsay rule.    See Fed. R. Evid.

803(3).   The testimony of the witnesses involved decedent’s state

of mind at the time the powers were executed; the witnesses were

credible, and the testimony regarding decedent’s intent was

relevant to the interpretation of the powers.    See Mutual Life

Ins. Co. v. Hillmon, 145 U.S. 285 (1892); United States v.

Emmert, 829 F.2d 805, 809-810 (9th Cir. 1987).   In light of our

ruling, we do not, and need not, decide whether the testimony is

admissible under rule 807 of the Federal Rules of Evidence.

          B.   Respondent’s Parol Evidence Objection

     Respondent also contends that the testimony of Ms. Thompson

and Mr. Walker is inadmissible under Oregon’s parol evidence rule

because the testimony is being offered to prove that Ms. Thompson

was authorized by the powers of attorney to make gifts when, in

fact, the powers of attorney contained no such provision.

Petitioner contends that the parol evidence rule may not be

invoked by a litigant who is not a party to the agreement and

that, in any event, the testimony is offered solely to assist




     8
      (...continued)
the decedent’s daughter and attorney that the decedent intended
her powers of attorney to include the power to make gifts of her
property is inadmissible hearsay.” We are not convinced that any
of the examples cited by respondent are hearsay. See Fed. R.
Evid. 801. Nevertheless, we address respondent’s argument.
                                - 12 -

this Court in determining the knowledge and intent of decedent in

granting the powers of attorney.

     When we are required to make a State law determination as to

the existence and extent of legal rights and interests created by

a written instrument in order to decide a case over which we have

jurisdiction, “we must look to that State’s parol evidence rule

in deciding whether or not to exclude extrinsic evidence that

bears on the disputed rights and interests under the

instrument.”9   Estate of Craft v. Commissioner, 68 T.C. 249, 263

(1977), affd. per curiam 608 F.2d 240 (5th Cir. 1979); see also

Stevenson v. Commissioner, T.C. Memo. 1986-207 (applying Oregon

law); Young v. Commissioner, T.C. Memo. 1985-221.   Since this

case requires us to decide whether the power to make gifts was

granted to Ms. Thompson by the powers of attorney given to her by

decedent, we must examine the applicable State parol evidence

rule and decide whether it requires us to exclude the disputed

testimony.   The parties agree that Oregon State law applies.

     Oregon’s parol evidence rule, codified in Or. Rev. Stat.

sec. 41.740 (1999), provides:

          When the terms of an agreement have been reduced
     to writing by the parties, it is to be considered as
     containing all those terms, and therefore there can be,
     between the parties and their representatives or


     9
      “The so-called parol evidence rule is a misnomer; the rule
is one of substantive law and not one of evidence.” Estate of
Craft v. Commissioner, 68 T.C. 249, 262-263 (1977), affd. per
curiam 608 F.2d 240 (5th Cir. 1979).
                                 - 13 -

     successors in interest, no evidence of the terms of the
     agreement, other than the contents of the writing,
     except where a mistake or imperfection of the writing
     is put in issue by the pleadings or where the validity
     of the agreement is the fact in dispute. However this
     section does not exclude other evidence of the
     circumstances under which the agreement was made, or to
     which it relates, as defined in ORS 42.220,[10] or to
     explain an ambiguity, intrinsic or extrinsic, or to
     establish illegality or fraud. The term “agreement”
     includes deeds and wills as well as contracts between
     parties.

     The Supreme Court of Oregon has not applied a literal

reading of Or. Rev. Stat. sec. 41.740.     See Hatley v. Stafford,

588 P.2d 603, 605 n.1 (Or. 1978).     Instead, it has treated the

statute as a codification of the common-law parol evidence rule.

See Abercrombie v. Hayden Corp., 883 P.2d 845, 849 (Or. 1994).

In Abercrombie, the Supreme Court of Oregon described the Oregon

common-law parol evidence rule as follows:

          The parol evidence rule, in brief, provides that a
     binding, completely integrated, written agreement
     supersedes or discharges all agreements, written or
     oral, that were made before the completely integrated
     agreement, to the extent that the prior agreements are
     within the scope of the completely integrated
     agreement. Restatement (Second) of Contracts § 213(2)
     (1979). The rule also provides that a binding,
     partially integrated, written agreement supersedes or
     discharges all agreements, written or oral, that were
     made before the partially integrated agreement, to the
     extent that the prior agreements are inconsistent with


     10
          Or. Rev. Stat. sec. 42.220 (1999) provides:

          In construing an instrument, the circumstances
     under which it was made, including the situation of the
     subject and of the parties, may be shown so that the
     judge is placed in the position of those whose language
     the judge is interpreting.
                                 - 14 -

     the partially integrated agreement. Restatement
     (Second) of Contracts § 213(1) (1979). * * *
     [Abercrombie v. Hayden Corp., 883 P.2d at 850; fn. ref.
     omitted.]

     “Under Oregon law, a power of attorney creates an agency

relationship.   *   *   *   Therefore, the authorities and duties of

an attorney in fact are governed by the principles of agency.”

Wilkinson v. Commissioner, T.C. Memo. 1993-336; see also Scott v.

Hall, 163 P.2d 517, 518 (Or. 1945) (“Attorneys in fact created by

formal letters of attorney are merely special kinds of agents

* * * and in construing such letters or powers and determining

their effect the principles of the law of agency apply.”); Ho v.

Presbyterian Church, 840 P.2d 1340-1343 (Or. Ct. App. 1992).

Petitioner argues that Oregon’s parol evidence rule does not

apply in cases like this where a litigant who is not a party to

the power of attorney is attempting to use the rule to exclude

evidence regarding the intent of the principal and the

circumstances surrounding the execution of the power of attorney.

     We need not decide whether a litigant who is not a party to

the power of attorney may invoke Oregon’s parol evidence rule,

codified in Or. Rev. Stat. sec. 41.740 (1999).     Although it is

well established under Oregon law that the authority conferred by

a power of attorney cannot be enlarged by parol evidence, see

United States Natl. Bank v. Herron, 144 P. 661, 663-664 (Or.

1914) (interpreting a limited power of attorney); Wade v.

Northup, 140 P. 451, 457 (Or. 1914) (interpreting a general power
                                - 15 -

of attorney); Coulter v. Portland Trust Co., 26 P. 565, 569 (Or.

1891) (interpreting a limited power of attorney), it is equally

well established that parol evidence may be used to interpret

those powers actually given, see Wade v. Northup, supra at 457

(“we may resort to ‘the circumstances under which it was made

* * *’ so that the court may be placed in the position of those

whose language it is interpreting”); Coulter v. Portland Trust

Co., supra at 569; see also Or. Rev. Stat. secs. 41.740, 42.230

(1999).11

     Applying Oregon law, we hold that we properly may consider

the testimony of petitioner’s witnesses as evidence of the

circumstances under which the powers were executed or to

interpret an ambiguity in their terms; however, we may not use

the testimony to enlarge the authority granted to Ms. Thompson in

the powers of attorney.    In accordance with these holdings, we

admit the testimony in question.

Interpreting the Powers of Attorney

     Section 2038(a) provides that a decedent’s gross estate

includes any interest in property transferred by the decedent for


     11
          Or. Rev. Stat. sec. 42.230 (1999) provides:

          In the construction of an instrument, the office
     of the judge is simply to ascertain and declare what
     is, in terms or in substance, contained therein, not to
     insert what has been omitted, or to omit what has been
     inserted; and where there are several provisions or
     particulars, such construction is, if possible, to be
     adopted as will give effect to all.
                               - 16 -

less than full and adequate consideration if, at the time of

decedent’s death, the enjoyment of the property was subject to

the decedent’s power to alter, amend, revoke, or terminate.    See

sec. 2038(a)(1).   Respondent asserts that decedent had the power

to revoke the gifts made by Ms. Thompson to decedent’s three

daughters and their husbands on December 30, 1993, and January

18, 1994 (the gifts), because the powers of attorney did not

authorize Ms. Thompson to make gifts of decedent’s real property;

therefore, the gifts must be included in decedent’s gross estate.

Petitioner contends that the powers of attorney authorized Ms.

Thompson to make the gifts and that, therefore, the gifts are not

revocable.

     The legal effect of gifts made pursuant to a power of

attorney is determined according to State law.   See Morgan v.

Commissioner, 309 U.S. 78 (1940).   Oregon has not established,

either through case law or statute, a bright-line rule flatly

prohibiting gifts by attorneys-in-fact to themselves or to third

parties absent express written authorization in a power of

attorney.12   Consequently, we must examine Oregon law, and decide


     12
      Numerous jurisdictions have adopted the rule that “an
agent lacks authority to make a gift of the principal’s property
unless that authority is expressly given by the language of the
power of attorney.” Kunewa v. Joshua, 924 P.2d 559, 565 (Haw.
Ct. App. 1996); see also Townsend v. United States, 889 F. Supp.
369, 371-372 (D. Neb. 1995); Aiello v. Clark, 680 P.2d 1162, 1166
(Alaska 1984); In re Estate of Crabtree, 550 N.W.2d 168, 170
(Iowa 1996); Whitford v. Gaskill, 480 S.E.2d 690, 692 (N.C.
                                                   (continued...)
                                - 17 -

the issue presented here as we believe the highest State court

would decide it.   See Commissioner v. Estate of Bosch, 387 U.S.

456 (1967); Estate of Goree v. Commissioner, T.C. Memo. 1994-331.

     Under Oregon law, powers of attorney must be strictly

construed.   See United States Natl. Bank v. Herron, 144 P. 661,

663 (Or. 1914); Wade v. Northup, 140 P. 451 (Or. 1914); Security

Sav. Bank v. Smith, 62 P. 794 (Or. 1900); Coulter v. Portland

Trust Co., 26 P. at 567.   The rule that a power of attorney must

be strictly construed, however, “does not require that it shall

be so construed as to defeat the intention of the parties.   * * *

A strained construction should never be given to defeat that

intention, nor to embrace in the power what was not intended by

the parties."   Wade v. Northup, supra at 458 (citing Hemstreet v.

Burdick, 90 Ill. 444 (1878)).    “[T]he intention of the donor of

the power is the great principle that governs”.    Brown v. Laird,

291 P. 352, 354 (Or. 1930).   Although the intention of the donor

ordinarily is gleaned from the language of the power of attorney,

see id., where the language of the power is broad and is not free

from ambiguity, Oregon law requires that we examine the


     12
      (...continued)
1997); Fender v. Fender, 329 S.E.2d 430, 431 (S.C. 1985); F.M.
Stigler, Inc. v. H.N.C. Realty Co., 595 S.W.2d 158, 161 (Tex. Ct.
App. 1980); Bryant v. Bryant, 882 P.2d 169, 172 (Wash. 1994). In
contrast, at least two States have enacted statutes providing
that a general power of attorney contains an implied authority to
make gifts of the principal’s assets under certain circumstances.
See Ala. Code sec. 26-1-2.1 (Michie Supp. 1994); Va. Code Ann.
sec. 11-9.5 (Michie 1999).
                              - 18 -

“circumstances under which it was made, including the situation

of the subject and of the parties * * * so that the judge is

placed in the position of those whose language the judge is

interpreting.”   Or. Rev. Stat. sec. 42.220 (1999); see also Wade

v. Northup, supra at 457 (parol evidence may be used to interpret

the language of a general power of attorney).

     The parties agree that the three powers of attorney at issue

in this case did not expressly authorize Ms. Thompson to make

gifts.   The parties do not agree, however, whether the power to

make gifts can be inferred from the language of the powers of

attorney and the circumstances surrounding their execution.

Applying Oregon law, we examine the language of the powers of

attorney and the facts and circumstances surrounding decedent’s

execution of the powers of attorney to determine whether the

power to make gifts must be inferred in order to give effect to

decedent’s intent.   Our goal is to ascertain whether decedent had

the intent to confer gift-giving power upon Ms. Thompson.

     The March 12, 1992, No. 2 power, which was prepared by

decedent’s lawyer, appointed Ms. Thompson as decedent’s “agent

and attorney in fact” with power and authority to “Convey, sell,

mortgage, pledge, consign, lease and in any other manner deal in

and with my property, both real and personal.”   (Emphasis added.)

The March 12, 1992, No. 2 power, also authorized Ms. Thompson “to

execute and acknowledge any and all instruments necessary or
                              - 19 -

proper to carry out the foregoing powers, hereby releasing all

third persons from responsibility for the acts and omissions of

my attorney.”

     The December 22, 1987, power and the March 12, 1992, No. 1

power were prepared on preprinted standard power of attorney

forms published by the same company and used identical language

in most respects.   They appointed Ms. Thompson as decedent’s

“true and lawful attorney” to exercise certain powers “for me and

in my name, place and stead and for my use and benefit”.   Among

those powers was the power to “lease, let, grant, bargain, sell,

contract to sell, convey, exchange, remise, release and dispose

of” any of decedent’s “real or personal property * * * for any

price or sum and upon such terms and conditions as to my said

attorney may seem proper”.   The powers of attorney also contained

a general grant, giving Ms. Thompson “full power and authority

freely to do and perform every act and thing whatsoever requisite

and necessary to be done in and about the premises, as fully to

all intents and purposes, as I might or could do if personally

present”.

     Our review of the March 12, 1992, No. 2 power in particular

leads us to conclude that the grant of power authorizing

decedent’s attorney-in-fact to transfer decedent’s real or

personal property was sufficiently broad to encompass the power

to make gifts.   See sec. 2512(b) (“Where property is transferred
                              - 20 -

for less than an adequate and full consideration in money or

money’s worth, then the amount by which the value of the property

exceeded the value of the consideration shall be deemed a gift”).

Ms. Thompson was authorized by the terms of the March 12, 1992,

No. 2 power not only to sell, mortgage, and pledge decedent’s

property, but also to convey decedent’s property.    “Convey” is

defined in Black’s Law Dictionary 301 (5th ed. 1979) as follows:

     To transfer or deliver to another. To pass or transmit
     the title to property from one to another. To transfer
     property or the title to property by deed, bill of
     sale, or instrument under seal. * * *

The authority to convey without any qualification of that

authority is broad enough to permit property conveyances for no

consideration.   Even if the word “convey” is interpreted to mean

transfer for consideration, the March 12, 1992, No. 2 power

broadly authorized Ms. Thompson to deal with decedent’s property

“in any other manner” and was not necessarily restricted to

transactions for consideration.

     In other cases where the applicable State law required us to

ascertain the decedent’s intent in interpreting a generally

worded power of attorney, we have applied a similar analysis.

For example, in Estate of Bronston v. Commissioner, T.C. Memo.

1988-510, we examined a power of attorney which granted the

attorney-in-fact the authority to convey property without

restriction to determine if the power to make gifts could be

inferred under New Jersey law.    The power of attorney did not
                              - 21 -

restrict conveyances to those for consideration and contained a

broad grant of authority to the attorney-in-fact to do whatever

the principal could do if personally present.   After

distinguishing several decisions interpreting powers of attorney

decided under New Jersey law, we concluded that the specific

language in the power of attorney, which authorized the attorney-

in-fact to convey property without any apparent restriction,

“could authorize gifts in appropriate circumstances.”    Id.   We

examined the facts and circumstances surrounding the execution of

the power of attorney and the making of the gifts, noting that

the decedent “historically gave gifts to her children” and had

expressed her intention to give them gifts in the year the

disputed gifts were made, and we concluded that the attorney-in-

fact “acted on behalf of decedent, continuing her usual affairs.”

Id.   Based upon our review of the language of the power of

attorney and the evidence of the decedent’s intent, we held that

the power of attorney authorized gifts.   See id.; see also Estate

of Neff v. Commissioner, T.C. Memo. 1997-186 (applying Oklahoma

law, we concluded that Oklahoma had not adopted a flat

prohibition against attorneys-in-fact making gifts to themselves

or to third parties absent express written authorization, and

that the durable power of attorney at issue included the implied
                               - 22 -

authority to make irrevocable gifts during the principal’s

lifetime).

     Because the powers of attorney in this case contain language

broad enough to include the power to make gifts and, therefore,

could be interpreted to authorize Ms. Thompson to make the 1993

and 1994 gifts, we now must examine the facts and circumstances

surrounding the execution of the powers of attorney to ascertain

whether decedent intended to confer gift-giving power and, if so,

whether the gifts in question were “within the spirit of the

power conferred upon” Ms. Thompson.     Wade v. Northup, 140 P. at

458; see also Brown v. Laird, 291 P. at 354.

     Petitioner offered the following evidence of decedent’s

intent:   A substantial and consistent pattern of annual gifting

extending over a period of 13 years prior to the gifts made by

Ms. Thompson; a February 26, 1987, handwritten letter from

decedent to her children;13 decedent’s awareness of the potential


     13
      The handwritten letter, dated February 26, 1987, reads as
follows:

     Dear Kids of Ours,

          We hope this does not shock you too much, but we
     * * * [thought] we’d like to share with you some of the
     rewards of our efforts, and we like to think, “good
     management.” We * * * [thought] too that it is better,
     to give to you now, instead of from a will. Then most
     of it would be consumed by old Uncle Sam, who is always
     hungry. We want you to enjoy it. It will cause you no
     income tax, because it has already been paid.

                                                      (continued...)
                              - 23 -

tax liabilities of her estate; the testimony of decedent’s

daughter, Ms. Thompson, and decedent’s attorney, Mr. Walker; and

decedent’s last will and testament.    We review this evidence for

what it shows, if anything, about decedent’s intent regarding the

interpretation of the powers of attorney in this case.

     Beginning in 1980 and continuing annually through 1992,

decedent made gifts to the natural objects of her bounty.

Decedent gave her daughters annual gifts in amounts that

increased over time.   In 1987, decedent expanded her gifting

program to include her sons-in-law and her grandchildren.     When

decedent executed the first of her three powers of attorney in

1987, the gifting program was well established and steadily

growing, and she already had made her annual gifts for 1987.    The

power of attorney was executed in connection with estate planning

by decedent and her husband which was designed to minimize, to

the fullest extent possible, the estate and gift tax liability of

their estates and to maximize the assets passing to their family.



     13
       (...continued)
           We realize we are getting older and do not need so
      much so thought it would be nice to share now.

           Just remember, we love you lots and are glad you
      were born to us.

                                          Lots of love –
                                          Your Daddy + Mom
                                - 24 -

After the execution of the December 22, 1987, power, decedent

continued to make annual gifts of her property, periodically

increasing the amount of the gifts and the number of donees.       In

February 1992, decedent again made substantial gifts to her

daughters, their husbands, and her grandchildren.     We believe

this pattern of making annual gifts covering a period of 13 years

demonstrates, and is consistent with, decedent’s intention to

make annual gifts of her property until her death in order to

take full advantage of the annual per-donee gift tax exclusion,

thereby reducing the amount of estate tax her estate would owe

upon her death.

     Decedent’s intention to make annual gifts to her children in

order to minimize her estate tax liability is demonstrated

further by her February 26, 1987, letter to her children in which

she stated:     “it is better, to give to you now, instead of from a

will.     Then most of it would be consumed by old Uncle Sam, who is

always hungry.     We want you to enjoy it.”   Decedent’s intention,

shown by annual gifts beginning in 1980 and stated clearly in her

1987 letter to her daughters, was to minimize the potential tax

liabilities of her estate by giving annual gifts to her family.

        The testimony of decedent’s daughter also reinforces

petitioner’s argument that decedent intended to grant the power

to make gifts to her attorney-in-fact.     Ms. Thompson testified

that she discussed the “gifting program” on numerous occasions
                               - 25 -

with her parents, who were concerned about the size of their

estates.    Ms. Thompson also testified that when decedent

delivered the powers of attorney to her, decedent never indicated

that Ms. Thompson was prohibited from taking certain acts and

decedent gave no specific instructions to Ms. Thompson.      Since

decedent was told by her attorney, Mr. Walker, that such powers

of attorney authorized Ms. Thompson to do whatever decedent could

do with her own property, and since each of the powers of

attorney contained a general grant of power that would appear to

a nonlawyer to be consistent with Mr. Walker’s statement to

decedent, we do not find it surprising that decedent did not

discuss specifically with Ms. Thompson whether Ms. Thompson had

the power to continue the annual gifts to decedent’s family.

     The testimony of decedent’s attorney, Mr. Walker, lends

support to petitioner’s argument.    Mr. Walker testified that,

when the December 22, 1987, power was executed, “my words were to

her that ‘this will allow your daughter to do anything that you

can do.’”    With respect to the March 12, 1992, powers, Mr. Walker

testified:    “The intent was that the agent under [the power]

could do anything that [decedent] could do.”    Mr. Walker further

testified that when he presented the March 12, 1992, powers to

decedent for execution, he recalled “using the words ‘this will

allow your daughter to do anything that you can do.’”    When Mr.

Walker was asked on cross-examination whether decedent ever told
                              - 26 -

him whether she specifically wanted to include the power to make

gifts in the powers of attorney, Mr. Walker responded:    “I think

it might have been the other way around.    I said that ‘this will

allow your daughter to do anything that you could do’, and we

specifically talked about the gifting.”    The record amply

demonstrates that decedent relied upon Mr. Walker’s advice and

acted upon it.   Decedent understood from conversations she had

had with Mr. Walker that lifetime gifts were an important estate

planning tool and that her powers of attorney authorized her

daughter to do anything decedent could do.    It is reasonable,

therefore, for us to conclude on this record that decedent

intended the powers of attorney to include the power to make

gifts.

     Finally, a review of decedent’s will confirms that the 1993

and 1994 gifts were to the same individuals who would have

inherited the properties under the terms of decedent’s will.      In

her will, decedent bequeathed all her real and personal property

to her three daughters if she was not survived by her husband

(decedent’s husband died in November 1993).

     Petitioner and respondent base their arguments on two

opinions of the Court of Appeals for the Fourth Circuit

interpreting Virginia State law, Estate of Ridenour v.

Commissioner, 36 F.3d 332 (4th Cir. 1994), affg. T.C. Memo. 1993-

41, and Estate of Casey v. Commissioner, 948 F.2d 895 (4th Cir.
                              - 27 -

1991), revg. T.C. Memo. 1989-511.   Petitioner contends that the

facts in Estate of Ridenour are analogous to the instant case and

that Estate of Casey is factually distinguishable.   Respondent,

on the other hand, asserts that the Supreme Court of Oregon would

rely heavily on the holding and rationale of Estate of Casey and

that the holding in Estate of Ridenour has no application to the

present case.   Although each of these cases involves an issue

identical to the one presented here and may be helpful to our

analysis, the cases applied Virginia State law and are not

controlling.

      When the Court of Appeals for the Fourth Circuit decided

Estate of Casey, Virginia’s highest court had not decided whether

the power to make gifts must be stated expressly in a power of

attorney in order to validate gifts made pursuant to the power of

attorney.   See Estate of Casey v. Commissioner, supra at 898.     In

the absence of guidance from Virginia’s highest court, the Court

of Appeals concluded that the power of attorney must be construed

strictly.   The Court of Appeals examined the record for the

decedent’s intent and concluded that the decedent did not intend

to confer upon the attorney-in-fact the power to make gifts.     See

id.   The power to make gifts was not listed expressly in the

power of attorney, and the provisions of the power, read in

context, “suggest most strongly that the only asset transfer

powers intended to be conferred by the enumeration of the
                               - 28 -

specific and general powers were transfers for value.”      Id. at

901.

       The decision of the Court of Appeals for the Fourth Circuit

in Estate of Casey is distinguishable from the instant case.

Although the power of attorney in Estate of Casey authorized the

decedent’s attorney-in-fact “To lease, sell, grant, convey,

assign, transfer, mortgage and set over” decedent’s property,

such actions were required to be taken “for such consideration as

he may deem advantageous”.    Id. at 896.     In addition, the case

record as summarized in the opinions of this Court, see Estate of

Casey v. Commissioner, T.C. Memo. 1989-511, and the Court of

Appeals for the Fourth Circuit does not disclose with the same

clarity as in the present case what understanding, if any,

decedent had regarding the scope of authority conferred by the

power of attorney that she signed.      In contrast, the powers of

attorney at issue here do not limit the authority of the

attorney-in-fact to conveyances for consideration as she deems

advantageous, and the record in the instant case contains

evidence from which we can ascertain decedent’s intention to

confer broad authority on her attorney-in-fact.
                              - 29 -

     The decision of the Court of Appeals for the Fourth Circuit

in Estate of Ridenour is also distinguishable.14   One year after

Estate of Casey was decided, the Virginia legislature enacted a

statute recognizing an implied gift power in a power of attorney

which grants broad general powers to the attorney-in-fact.15   In

Estate of Ridenour, the Court of Appeals for the Fourth Circuit,



     14
      We acknowledge, however, that many of the facts in Estate
of Ridenour v. Commissioner, 36 F.3d 332, 335 (4th Cir. 1994),
affg. T.C. Memo. 1993-41, are similar to the facts at hand. For
example, the decedent, Joseph Ridenour (Joseph), had a history of
making gifts to his family that were, in part, tax driven. In
1987, Joseph suffered from acute renal failure and could no
longer effectively communicate with others. Acting pursuant to a
power of attorney, which contained no language limiting the
authority to business transactions or requiring consideration in
exchange for the attorney-in-fact’s disposition of property,
Joseph’s son, James, made substantial cash gifts to family
members, including himself, from Joseph’s checking account.
James wrote the checks on Mar. 27, 1987; Joseph died on Apr. 15,
1987. The gifts were not included as part of Joseph’s gross
estate on his Federal estate tax return.
     15
      Va. Code Ann. sec. 11-9.5 (Michie 1999) provides, in
pertinent part, as follows:

     § 11-9.5. Gifts under power of attorney.--A. If any
     power of attorney or other writing (i) authorizes an
     attorney-in-fact or other agent to do, execute, or
     perform any act that the principal might or could do or
     (ii) evidences the principal’s intent to give the
     attorney-in-fact or agent full power to handle the
     principal’s affairs or deal with the principal’s
     property, the attorney-in-fact or agent shall have the
     power and authority to make gifts in any amount of any
     of the principal’s property to any individuals or to
     organizations described in §§ 170(c) and 2522(a) of the
     Internal Revenue Code or corresponding future
     provisions of federal tax law, or both, in accordance
     with the principal’s personal history of making or
     joining in the making of lifetime gifts.
                               - 30 -

affirming the Tax Court, held that the newly enacted statute had

retroactive effect and required a decision in favor of the

taxpayer.16   In this case, however, we are not guided by a

specific State statute clarifying when we may infer the power to

make gifts from a general power of attorney; therefore, the

approach taken in Estate of Ridenour differs from our analysis.

     Without an explicit ruling by the Supreme Court of Oregon or

a statute enacted by its legislature, we cannot decide this case

based on a bright-line rule that an agent lacks authority to make

gifts of the principal’s property unless the agent is expressly

given that power in the power of attorney.   We must rely instead

upon Oregon law which requires us to consider both “the strict

letter” and “the spirit of the power” conferred upon the agent.

Wade v. Northup, 140 P. 451, 458 (Or. 1914).   We recognize the



      16
      The court noted, however, that its decision in Estate of
Casey v. Commissioner, 948 F.2d 895 (4th Cir. 1991), revg. T.C.
Memo. 1989-511, and the statute “can be reconciled, with the
statute expanding and clarifying the holding of the case”.
Estate of Ridenour v. Commissioner, supra at 334. Commenting on
the analysis that it applied in Estate of Casey, the court
stated:

      This court therefore found that the appropriate method
      to resolve the question was to review the complete text
      of the particular instrument and the circumstances of
      its execution to determine whether we could infer in it
      a power, though unexpressed, to make the gifts at
      issue. * * * Casey thus stands for the proposition
      that to infer an implied gift power, the court must
      look to the intent of the person granting power of
      attorney. [Estate of Ridenour v. Commissioner, supra at
      334.]
                              - 31 -

potential for “self-dealing” that exists when an agent acting

pursuant to a durable power of attorney has the power to make

gifts, especially after the principal becomes incapacitated, and

we agree that we must be wary when asked to infer from a power of

attorney a power to make gifts when the attorney-in-fact has made

the gifts in question to herself and to individuals related to

her.   See Wilkinson v. Commissioner, T.C. Memo. 1993-336.

Acknowledging, as we must, that a decision inferring a power to

make gifts from the general language of a durable power of

attorney must be made with great caution, we nevertheless must

decide this case based on the best information available to us

and our review of applicable State law.   After reviewing Oregon

law and examining the decisions of the Supreme Court of Oregon,

this Court, and other courts for guidance, we are convinced that

a decision to infer the power to make gifts from the general

language of a durable power of attorney is warranted in this case

because (1) there is no case law or statute in the controlling

jurisdiction prohibiting an inferred power to make gifts, (2) the

controlling jurisdiction considers the principal’s intention in

interpreting the power of attorney, (3) there is a substantial

pattern of gifting by the principal preceding the gifts made by

the attorney-in-fact, (4) the gifts made by the attorney-in-fact

are consistent with the principal’s prior gifting, (5) the gifts

do not deplete the principal’s assets to the principal’s
                             - 32 -

detriment, and (6) it is clear there has been no fraud or abuse

by the agent.

     We conclude on the record in this case that it was

decedent’s intention to include the power to make gifts in the

powers of attorney given to Ms. Thompson and that the gifts made

by Ms. Thompson on December 30, 1993, and January 18, 1994, were

authorized by those powers of attorney.    We hold that decedent

did not have the right to revoke the gifts on the date of her

death and that the gifts are not includable in decedent’s gross

estate under section 2038.

     We have considered all remaining arguments made by the

parties for contrary holdings and, to the extent not discussed,

find them to be irrelevant or without merit.

     To reflect the foregoing,



                                      Decision will be entered

                                 under Rule 155.
