Commissioner of Internal Revenue v. Masterson , 127 F.2d 252 ( 1942 )

McCORD, Circuit Judge.

The Board of Tax Appeals determined a deficiency in gift tax against Anna Eliza Masterson for the year 1935. By cross-petitions for review both the Commissioner and the taxpayer contest the Board’s determination. The decision of the Board is reported, Masterson v. Commissioner, 42 B.T.A. 419.

In stating the facts we substantially follow the findings of the Board: The taxpayer, Anna Eliza Masterson, was born February 5, 1868. She is a resident of Amarillo, Texas, and is the widow of R. B. Masterson, who died August 1, 1931. In addition to his wife, Masterson was survived by two children by a prior marriage and four children by his marriage to the taxpayer. At the time of Master-son’s death, he and his wife, Anna Eliza Masterson, owned a substantial estate, all of which was community property.

On December 6, 1928, Anna Eliza Masterson and her husband, R. B. Master-son, executed a joint will and covenant wherein they expressed the desire to dispose of all their estate in the manner set forth therein, such disposition to take effect at the time of the death of either of them, with further provision for final distribution of the estate upon the death of the survivor. It was mutually agreed that all of the property belonging to either of them was community property, and that in the distribution of such property all six of the children mentioned above would be treated and considered as of the full blood, share and share alike. Other provisions of the joint will and covenant important to decision follow:

“3. In consideration of said mutual agreements, and in consideration of the further mutual agreement that the survivor of us shall in all things be and remain bound by the provisions hereof, and upon our mutual solemn covenant and agreement with each other that neither of us shall hereafter execute any will, other than as mutually agreed, dealing with our said estate, we have entered into this mutual covenant and the execution of this joint will, expressly agreeing and covenanting with each other that the same shall not hereafter, unless by our mutual written consent, be in any manner changed, modified or revoked, and that all the terms, provisions and conditions hereof shall be from and after the execution hereof binding upon us and the survivor of us as the agreed means and method of making effective our desires and directions as to the disposition of our said community estate. And for such purposes, we each waive our respective community rights and interest in said estate, and here agree that the same shall remain intact, subject to the terms, conditions and provisions hereof.

“II. It is our will and desire that the survivor of us, R. B. Masterson or Anna Eliza Masterson, as the case may be, shall, with the rights and authority below given, have all the estate of every description, real, personal, or mixed, which either or both of us may own, to be used, occupied, enjoyed and expended by and during the life of said survivor, with the full management and control thereof, with the right to receive all rents and revenues, invest all moneys of the estate, pay all taxes and assessments, indebtedness and other proper and just claims and charges against said estate and joint property; but with the limitation, however, that neither of us as such survivor shall have the right or power to sell and dispose of any of said estate except for the purpose of (1) paying proper and legal charges and claims against said estate, (2) provide for the maintenance and support of survivor of us, and (3) such sale and distribution * * * may be made * * * for the purpose of distributing said estate share and share alike among the children named in Paragraph 2, Subdivision I, hereof, * * * The survivor, however, shall in any event have the full right, power and authority to make, execute and deliver oil and gas leases or renew or extend existing oil and gas leases * * *.

“2. The survivor of us shall have the right, power and authority at any time when he or she may deem best to distribute one-half of our joint estate to the children hereinabove named in Paragraph 2, Subdivision I, of this will, share and share alike.

“3. In the event of the marriage of the survivor of us one-half of all our estate shall immediately vest in our children, share and share alike * * *.

“III. Upon the death of the survivor of us, or upon our simultaneous death, we mutually agree and here jointly direct that said joint estate shall be disposed of as follows:

* * * * *

Tt2. Thereupon and after payment of said special bequest to our daughter Mary Masterson Fain and the special bequests to Mrs. Bettie McGregor and Mrs. Flora Masterson, we desire and direct that our executors hereinafter named shall as soon as possible consistent with the welfare of said estate divide, transfer, convey and deliver the residue of same, share and share alike, to our children * * * In the event, however, that any of said children should predecease the survivor of us, then in such event the interest in our estate herein devised to such child shall vest in the issue of his or her body, share and share alike * * * Descendants of deceased children, however, shall take under this will per stirpes and not per capita.

“5. We hereby constitute and appoint the survivor of us as independent executor of this our joint will, without bond, with the rights and powers enumerated under Subdivision II hereof * *

R. B. Masterson died on August 1, 1931, and on August 17, 1931, the will was admitted to probate in the County Court of Potter County, Texas. Letters testamentary were issued to Anna Eliza Masterson and she administered the entire estate until August 19, 1935.

On August 19, 1935 Mrs. Masterson executed an instrument purporting to release and relinquish a certain interest in the estate to the six children named in the joint will and covenant. Important excerpts from the instrument provide:

“Whereas, it is the desire of the undersigned, Anna Eliza Masterson, at this time to release and relinquish unto the said R. B. Masterson, Jr., T. B. Masterson, Sallie Lee Scott, Anna Belle Kritser, Fanny Fern Weymouth, and Mary Masterson Fain all of her right, title and interest in and to the limited life estate reserved unto herself in and to the whole community property of herself and deceased husband, R, B. Masterson, with the exceptions hereinafter stated, and desires also to relinquish and release unto said persons any right of control that she might have in and to the accretions to said undivided one-half interest since her husband’s death, so that henceforth she will look only to the limited life estate granted her by said will in the portion of the joint estate formerly belonging to R. B. Master-son for her support and maintenance, and she will have no interest in any of said joint estate, or its accumulations, save the right to manage and control under the terms of said will the one-half of said joint estate formerly belonging to R. B. Masterson, and will look to the residue of said one-half for her future support and maintenance:

“Now Therefore, in consideration of One Dollar ($1.00) to me in hand paid, receipt of which is hereby acknowledged, and the further consideration of the natural love and affection that I bear for the grantees herein, I, Anna Eliza Masterson, a feme sole, of Potter County, Texas, do by these presents release and relinquish unto T. B. Masterson, of Knox County, Texas, Sallie Lee Scott, of Travis County, Texas, and R. B. Masterson, Jr., Anna Belle Kritser, a widow, Fanny Fern Weymouth and Mary Masterson Fain, all of Potter County, Texas, all right, title and interest of any and every nature whatsoever which I have or claim (the same being the limited life estate above described) in and to the undivided one-half interest which represents my entire community interest in and to the community estate of myself and deceased husband, R. B. Masterson, except as to the reservation and exception hereinafter set out, including any right of control or other rights, that I might have in and to the increased value of said community interest that has accrued since the death of my husband, R. B. Masterson; so that henceforth said grantees hereinabove named shall have, own and control said entire interest herein relinquished free and clear of the limited life estate heretofore owned and held by me, Anna Eliza Masterson.

“It is specifically understood that this relinquishment shall be construed to cover my entire community interest in and to the entire community estate of myself and deceased husband, R. B. Masterson, including all property, real, personal and mixed, of any and every nature whatsoever, except as to the reservation and exception hereinafter set out including the increase in value thereof, so that henceforth I shall have no claim of any nature whatsoever in and to said property. It being distinctly specified that this relinquishment relates to my community one-half in the joint estate formerly belonging to R. B. Masterson and myself, and not to the one-half formerly belonging to him.”

Taking into account Sections 501 and 506 of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, pages 580, 588 relating to gift tax, the question for decision is what property or property interests constituted the subject matter of the taxpayer’s gifts to the children by the instrument of August 19, 1935?

In determining the value of the gifts, the Board of Tax Appeals held that the subject matter of the gifts was a full life interest in one-half of the original community estate, plus a fee interest in one-half of the net revenues of the estate from the date of the husband’s death to the date of the gifts, “being one-half .of the net revenues not shown to have been withdrawn by her.” In her petition for review the taxpayer contends that upon the death of her husband she was divested of all her community property; that thereafter as survivor she had only the personal right to be supported and maintained for her lifetime; that the 1935 gift to the children consisted “solely of the Taxpayer’s personal right to support and maintenance from one-half of the Master-son property”; and that this right had no market value, or at most had a value not exceeding the total of exemptions and. exclusions allowed by the gift tax act. On the other hand, the Commissioner contends that by the instrument of August 19, 1935, the taxpayer gave the children a full one-half interest in fee in the property formerly constituting the community estate of herself and her deceased husband, together with all accretions since his death. In the alternative, the Commissioner urges affirmance of the decision of the Board of Tax Appeals.

The case will and does become simple if we do not hurry over the controlling facts: (1) The Masterson estate consisted of community property. (2) The instrument executed by the husband and wife in 1928 is both a will and a covenant between the parties. (3) By the terms of the joint will and covenant, when R. B. Masterson died, a life interest in his one-half of the community estate was vested in his wife, Anna Eliza Masterson, and the remainder in fee vested in his six children. (4) When Anna Eliza Masterson had the will of her husband probated, and became independent executrix, and took over the property, and accepted benefits under the will, she thereby waived her original community interest in the property and became bound by the terms of the joint will and covenant made and entered into with her husband. Thereafter she retained only a life interest in the one-half of the community estate formerly belonging to her, and the fee remainder vested in the six children.

It is not necessary to seek citation in support of the contention that Anna Eliza Masterson waived her community interest in the estate, and by acceptance of benefits under the will became bound by the terms and express provisions of the joint will and covenant. The case of Wyche v. Clapp, 43 Tex. 543, which is so strongly urged by the Commissioner as being against this proposition, seems to recognize the soundness of this contention in this language: “But when one of the parties to such an agreement is a married woman, it could have no binding force against her estate, it would seem, unless it was consummated in the manner prescribed by law for the execution of contracts by femes covert, or she had in some way bound or estopped herself from denying it after she became free from coverture.” (Italics ours.) Of course, the instrument executed by the husband and wife in 1928 was not probated as the will of the wife for she was still living, and no contention is made that this could be done. The fact is simply this, Anna Eliza Master-son bound herself by waiving her community interest and accepting in lieu thereof a life interest in all of the property in accordance with the terms of the joint will and covenant. A reference to the Texas cases will disclose that they do not conflict with this holding, but that on the contrary they recognize the rule that the wife can, when free from coverture, waive and abandon her community interest. See Larrabee v. Porter, Tex.Civ.App., 166 S.W. 395; Rossetti v. Benavides, Tex.Civ.App., 195 S. W. 208.

By the instrument of August 19, 1935, Anna Eliza Masterson relinquished and gave to the six children, share and share alike, one-half of what she then owned. All that she then owned was a life estate in all the property, and she, therefore, conveyed to the children one-half of her life estate, plus the accretions earned and on hand from this one-half. The fact that she •designated the gift as a release of a “limited life estate” in and to her “undivided one-half interest” in the entire community estate, adds nothing to and takes nothing from the gift.

The Board properly held that the gift was of a life estate in one-half of the original community estate, plus the net accretions to this one-half.

The motion to enlarge the record so as to include proceedings in the Texas State Court is denied, and those proceedings are not before us as evidence. So far as the legal questions decided by the Texas State Court are concerned we take judicial knowledge of the decision. The case was decided by the Texas District Court subsequent to the decision of the Board of Tax Appeals. The United States was not a party to the suit and could not have been made a party as it never consented to be sued in that court. We are not bound by that decision, and to the extent that it differs from what we have said we do not agree with it.

The petitions of the Commissioner and the taxpayer are denied, and the decision of the Board of Tax Appeals is affirmed.