#### NATHANIEL SYLVESTER DAY v. HELEN A. POWERS, SECRETARY OF REVENUE OF THE STATE OF NORTH CAROLINA

No. 864SC855

(Filed 2 June 1987)

Taxation § 27; Trusts § 13.2— transfer of property in fee simple —no resulting trust —assessment of gift taxes proper

The trial court erred in concluding that plaintiffs transfer of property constituted a parol trust in his behalf where there was no indication on the face of the deed that plaintiff intended to pass anything other than a fee simple to his son, and there were no allegations of fraud, mistake, or undue influence; therefore, respondent could properly assess gift taxes against plaintiff.

APPEAL by Secretary of Revenue from Tillery, Judge. Judgment entered 2 June 1986 in Superior Court, ONSLOW County. Heard in the Court of Appeals 13 January 1987.

Attorney General Lacy H. Thornburg by Special Deputy Attorney General George W. Boylan for the appellant, Secretary of Revenue.

White & Allen by John C. Archie for plaintiff appellee.

COZORT, Judge.

This appeal involves a civil action pursuant to N.C.G.S. § 105-267 for the refund of gift taxes brought by the plaintiff Nathaniel Sylvester Day against the Secretary of Revenue of the State of North Carolina. The plaintiff contended in his complaint that the deed in question constituted a trust arrangement and that the assessment of gift taxes was therefore improper. The trial court granted summary judgment for plaintiff. We reverse.

The forecast of evidence shows plaintiff Nathaniel Sylvester Day was a tenant in common with his brother Nere E. Day, Jr., in some Onslow County real property. In December 1978 plaintiff was considering marriage to Faye Darden Snow. Plaintiff approached his fiancee several times about releasing and waiving any rights she might acquire in his property as a result of marriage. Ms. Snow rejected this idea, refused to sign a contract waiving her rights to any marital property, and further indicated she would not sign any deeds after their marriage. Plaintiff and his brother became concerned that their ability to deal with their property might be restricted.

*86Plaintiff next talked with his son James Milton Day about transferring all his Onslow County real property to him in trust and consulted his attorney about a trust transaction. On 29 December 1978 plaintiff conveyed his real property in Onslow County to his son. Plaintiff took an executed promissory note and deed of trust for $250,000 from his son. The note and deed of trust were prepared only as protection for plaintiff until his attorney could draft a trust agreement for his son to sign. This deed of trust was never recorded. A trust agreement dated 29 June 1979 was prepared for plaintiffs son to sign, but it was never executed by plaintiffs son. Since the transfer of 29 December 1978 plaintiff has paid his share of the property taxes, paid for repairs and improvements on the property and received proceeds from sales of tracts of the property. Plaintiff has also received proceeds from the sale of timber off the land and the rental of the land. All of the proceeds received by plaintiff have been reported as income on his tax returns. Plaintiff has also continued to keep the financial records concerning the land and entered into all leases concerning the land.

On 10 December 1984 plaintiff and his son signed a Declaration of Trust with respect to the 1978 real property transfer from plaintiff to son. On 12 December 1984, defendant assessed gift taxes against plaintiff. As a result of plaintiffs objection to the assessment, a hearing was held on 14 December 1984 before the Secretary of Revenue. The assessment was sustained.

The Tax Review Board affirmed the decision of the Secretary of Revenue. Plaintiff timely paid the gift tax assessment. In a letter dated 10 January 1986 plaintiff requested a refund of the tax paid. This request was denied by the North Carolina Department of Revenue on 23 January 1986. On 6 March 1986 plaintiff instituted an action against the Secretary in the Superior Court of Onslow County for the recovery of the gift taxes paid. On 19 May 1986 plaintiff filed a motion for summary judgment, supported by affidavits. On 28 May 1986 defendant filed a motion for summary judgment, supported by affidavits. On 2 June 1986 the trial court awarded summary judgment for plaintiff.

Defendant alleges the trial court erred in granting summary judgment for plaintiff and thereby concluding that the plaintiffs transfer of property constituted a trust in his behalf. Defendant *87argues that the general rule stated in Gaylord v. Gaylord, 150 N.C. 222, 63 S.E. 1028 (1909), should control in this case. The rule from Gaylord reads as follows:

> [E]xcept in cases of fraud, mistake or undue influence, a parol trust, to arise by reason of the contract or agreement of the parties thereto, will not be set up or engrafted in favor of the grantor upon a written deed conveying to the grantee the absolute title, and giving clear indication on the face of the instrument that such a title was intended to pass.

Id. at 227, 63 S.E. at 1031.

As a rule of evidence, parol evidence is admissible in appropriate cases to establish a trust because the seventh section of the English Statute of Frauds (Stat. 29, Car. II, c. 3, s. 7) concerning the creation of parol trusts has not been enacted in North Carolina. Thompson v. Davis, 223 N.C. 792, 794, 28 S.E. 2d 556, 557 (1944). Plaintiff contends that the instant case is an appropriate case for the engrafting of a parol trust because the grantee, plaintiffs son, does not contest the trust and is not trying to assert a fee simple. Citing Strange v. Sink, 27 N.C. App. 113, 116, 218 S.E. 2d 196, 198, disc. rev. denied, 288 N.C. 733, 220 S.E. 2d 353 (1975), plaintiff contends that a trust arises where a person makes or causes to be made a conveyance of property under circumstances which raise an inference that he does not intend the person taking or holding the property should have the beneficial interest in the property, and the beneficial interest is not otherwise effectively disposed of. Plaintiffs reliance on Strange is misplaced. In Strange, this Court found the engrafting of a parol trust to be appropriate where the grantee refused to convey the property to a third party in accordance with an agreement between the grantor and the grantee. In the instant case, the en-grafting of a parol trust is for the benefit of the grantor only. We find no fraud, mistake, or undue influence, and thus find no reason for deviating from the rule stated in Gaylord. We find the trial court erred in granting summary judgment for the plaintiff.

The order granting summary judgment for the plaintiff is reversed and the case is remanded for entry of judgment for the defendant.

Judges Martin and Parker concur.