Jacobs v. Commissioner

JACOB A. JACOBS, GEORGE G. GAMBRILL, AND HENRY D. HAIN, EXECUTORS OF THE LAST WILL OF MORRIS EISENSTADT, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Jacobs v. Commissioner

Docket No. 4642.

United States Board of Tax Appeals

9 B.T.A. 636; 1927 BTA LEXIS 2549;

December 17, 1927, Promulgated

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The decedent by an antenuptial contract provided for payment to his wife upon his death of $75,000 out of his estate in lieu of dower and other martial rights, in case she survived him. After his death the widow accepted a bequest in trust for her benefit under the provisions of the decedent's will in lieu of and in full satisfaction of any claim she might have against the estate under the marriage contract. Held that in these circumstances the $75,000 was not an allowable deduction from the gross estate of the decedent.

David Goldsmith, Esq., for the petitioners.

Thomas P. Dudley, Jr., Esq., for the respondent.

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LITTLETON

The Commissioner determined a deficiency in estate tax of $2,659.49 under the Revenue Act of 1921. It is claimed that the Commissioner erred in refusing to allow a deduction of $75,000 from the gross estate of the decedent as a claim against the estate under the provisions of an antenuptial contract.

FINDINGS OF FACT.

Jacob A. Jacobs, George G. Gambrill, and Henry D. Hain are residents of St. Louis, Mo., and are the duly appointed, qualified, and acting executors of the estate of Morris Eisenstadt, who died July 27, 1923.

In 1920 the decedent and Marie F. Johnston entered into the following antenuptial contract in St. Louis, Mo.:

This agreement made and entered into this ninth day of March, in the year nineteen hundred and twenty (1920), by and between Morris Eisenstadt, party of the first part, and Marie F. Johnston, party of the second part, both being of the City of St. Louis and State of Missouri, witnesseth:

Whereas a marriage is about to be solemnized between the said Morris Eisenstadt and the said Marie F. Johnston, and in consideration thereof, they have mutually agreed upon the matters and things hereinafter set forth:

Now, therefore, it is hereby covenanted and agreed by and between the said Morris Eisenstadt and the said Marie F. Johnston that, if said marriage be solemnized and the said Marie F. Johnston shall survive said Morris Eisenstadt, then the said Marie F. Johnston shall have and receive out of the estate of said Morris Eisenstadt the sum of seventy-five thousand dollars.

It is, however, further covenanted and agreed by and between said Morris Eisenstadt and the said Marie F. Johnston that, if the said Marie F. Johnston shall receive the said sum of seventy-five thousand dollars, or more, under or in accordance with the last will of said Morris Eisenstadt, then, unless said will shall otherwise provide, such receipt by said Marie F. Johnston of said sum, or more, shall constitute and be the receipt by her of said sum of seventy-five thousand dollars out of the estate of said Morris Eisenstadt within the purview of the foregoing provisions hereof, and shall accordingly constitute and be full satisfaction and discharge of the right of said Marie F. Johnston to receive said sum out of said estate under these presents. But, if said Marie F. Johnston shall not receive said sum of seventy-five thousand dollars, or more, under or in accordance with the provisions of said last will of said Morris Eisenstadt, then, if said marriage shall be solemnized and she shall survive said Morris Eisenstadt, she may enforce the payment of said sum of seventy-five thousand dollars as a demand against the estate of said Morris Eisenstadt.

It is further covenanted and agreed by and between the said Morris Eisenstadt and the said Marie F. Johnston that, if said marriage be solemnized and the said Marie F. Johnston shall survive the said Morris Eisenstadt, then the provision hereby made for the said Marie F. Johnston shall stand and be, and the said Marie F. Johnston hereby accepts the same, in lieu and in full discharge of, and in full satisfaction of, any and all rights of dower which she shall or may have in the estate or property of the said Morris Eisenstadt, or any thereof, and furthermore, in lieu in full discharge of, and in full satisfaction of, any and all right of said Marie F. Johnston by reason of said marriage and survivorship to take, receive or claim, any share or part of, or any interest in, or any allowance or payment out of, said estate or property, or any thereof, and furthermore in lieu and full discharge of, and in full satisfaction of, any and all other marital rights whatsoever of the said Marie F. Johnston in or to said estate or property, or any thereof, it being the intention of both the said Morris Eisenstadt and the said Marie F. Johnston that the said Marie F. Johnston shall not by virtue of said marriage and survivorship have or acquire any title or interest or right or claim whatsoever, whether present or future, or whether at law or in equity, or whether statutory or otherwise, in or to or against the estate or property of the said Morris Eisenstadt, or any thereof, other than her right to receive said sum of seventy-five thousand dollars under and in accordance with the provisions hereof.

And said Marie F. Johnston, in consideration of the premises, hereby covenants and agrees with the said Morris Eisenstadt that, in the event said marriage takes place and she survives the said Morris Eisenstadt, she will not make any claim in or to or against said estate or property of said Morris Eisenstadt, or any thereof, which is inconsistent herewith, and accordingly that if, in said event the said Morris Eisenstadt dies intestate, or leaves a will but does not thereby make any provision for her in addition to that hereby made, then she shall not be entitled to and will not claim any of his estate or property, or any interest therein, or anything out of the same, other than the provision hereby made for her; but that if, in such event, he leaves a will and does thereby make provision for her in addition to that hereby made, then she shall not be entitled to and will not claim any of his estate or property, or any interest therein, or anything out of the same, other than the provision hereby made for her and such additional provision as may be made for her by said will.

And the said Marie F. Johnston declares that this agreement is entered into by her with full knowledge on her part of the extent and value of the present estate and property of the said Morris Eisenstadt and of the nature and effect of this agreement, and accordingly with the knowledge that, if after her marriage to the said Morris Eisenstadt she survives him and he dies possessed of his present estate and property, she as his widow would be entitled to claim and receive out of the same very much more than the amount of the provision hereby made for her.

And the said Marie F. Johnston further declares her satisfaction with the provisions hereof, notwithstanding her knowledge aforesaid.

Morris Eisenstadt and Marie F. Johnston were married on March 13, 1920. Marie Eisenstadt survived her husband.

The decedent left a will which was duly proven in the Probate Court of St. Louis, the material portions thereof being as follows:

In as much as my wife, Marie F. Eisenstadt, and I have heretofore made and entered into a marriage settlement, which is dated the ninth day of March, 1920, and which provides that my said wife, if she survives me, shall receive the sum of seventy-five thousand dollars out of my estate, and that the same shall stand and be in lieu and in full discharge of, and in full satisfaction of, any and all rights of dower which my said wife shall or may have in my estate or property, or any thereof, and furthermore in lieu and full discharge of, and in full satisfaction of, any and all right of my said wife by reason of her marriage to me and survivorship of me to take, receive or claim, any share or part of, or interest in, or any allowance or payment out of, my estate or property, or any thereof, and furthermore in lieu and full discharge of, and in full satisfaction of, any and all other marital rights whatsoever of my said wife in or to my said property, or any thereof; Now, in accordance therewith, I direct my executors to pay the said sum of seventy-five thousand dollars to my said wife under and in accordance with the provisions of said marriage settlement, if she shall survive me, the payment thereof to have the effect provided in said marriage settlement. However, I deem the provision hereinafter conditionally made for my said wife better suited for her and more advantageous to her than that made by said marriage settlement, and, therefore, I desire and intend to give her the right to elect to take the provision hereinafter made for her, provided and on condition that she will accept the same with all the effect and upon all the conditions and subject to all the provisions hereinafter set forth, but that she shall not have the right to take both the provision hereinafter made for her and said sum of seventy-five thousand dollars.

And if my said wife shall survive me, and will accept the provision hereinafter made for her with all the effect and upon all the conditions and subject to all the provisions hereinafter set forth, then and in that case, but not otherwise, and with the intention aforesaid, I give and bequeath the sum of two hundred and fifty thousand dollars to, and direct my executors to pay the same to, the Mercantile Trust Company, a corporation organized under the laws of the State of Missouri and located at said City of St. Louis, in trust, nevertheless, to pay the net income and revenue thereof to my said wife for and during her natural life; but upon the death of my said wife the said trust shall terminate and end and the principal or corpus of said trust fund, that is, the aforesaid sum of two hundred and fifty thousand dollars, shall revert to and become a part of my residuary estate, and accordingly pass to and vest in my residuary legatee under the succeeding provisions of this will. But I do expressly provide that, if my wife accepts the provision made for her by this bequest, the same shall be in lieu, satisfaction and discharge of her right to the aforesaid sum of seventy-five thousand dollars under and in accordance with the provisions of said marriage settlement, and shall have the same effect in every way, as if said sum of seventy-five thousand dollars had been paid her under and in accordance with said marriage settlement, and accordingly shall be in lieu and in full discharge of, and in full satisfaction of, any and all rights of dower which my said wife shall or may have in my estate or property, or any thereof, and furthermore in lieu and full discharge of, and in full satisfaction of, any and all right of my said wife by reason of her marriage to me and survivorship of me to take, receive or claim, any share or part of, or any interest in, or any allowance or payment out of, my estate or property, or any thereof, and furthermore in lieu in full discharge of, and in full satisfaction of, any and all other marital rights whatsoever of my said wife in or to my said property, or any thereof; and, as follows from the foregoing, if my said wife accepts the provisions made for her by the foregoing bequest, then the foregoing direction for the payment of said sum of seventy-five thousand dollars shall be ineffective and void.

On September 17, 1924, Marie Eisenstadt delivered to the petitioners as such executors a writing by which she elected to take and accept the provisions of said will of said Morris Eisenstadt in her favor, that is to say, the provisions by which a bequest of $250,000 was made to the Mercantile Trust Co. as in said will set forth, stating in said writing:

The undersigned, Marie F. Eisenstadt, widow of Morris Eisenstadt, accepts the provision made for her, creating a trust fund, under the terms of the will. She agrees that the provision shall be and is in lieu, satisfaction and discharge of her right to the sum of Seventy-Five Thousand Dollars ($75,000.00), under the provisions of the marriage settlement, and shall be and is in lieu and full discharge of, and in full satisfaction of any and all rights and dower which she shall or may have in the estate of Morris Eisenstadt, and she accepts the provision in full discharge of, and satisfaction of any and all other marital rights whatsoever in the property of her deceased husband.

Marie Eisenstadt filed no claim in the probate court for the allowance of the amount of $75,000 as a debt owing to her.

On October 18, 1924, Marie Eisenstadt and the Mercantile Trust Co. filed in the probate court a petition setting forth her election to take and accept the bequest of the $250,000 to the Mercantile Trust Co., in trust, for the uses and purposes, and subject to the provisions of the will and asking that to the end that the trust become operative and the executors be ordered to pay $250,000 to the Mercantile Trust Co. The probate court forthwith ordered the executors to pay to the Mercantile Trust Co. the sum of $250,000, to have, hold and dispose of same in accordance with the provisions of the will, as prayed in said petition.

In compliance with this order, the executors paid to the Mercantile Trust Co. $250,000, on November 15, 1924.

The executors filed an estate-tax return on September 24, 1924, in which the $75,000 mentioned in the antenuptial contract was scheduled as a debt of Morris Eisenstadt at the time of his death, and, together with other debts, was deducted from the total gross estate arriving at the net estate. The Commissioner disallowed the deduction of $75,000 as a debt of the decedent or as a claim against his estate upon the ground that the widow elected to take under the will rather than under the antenuptial contract.

OPINION.

LITTLETON: It is insisted upon behalf of the executors that the amount of $75,000 constituted a debt of the decedent and such a claim against the estate of the decedent as is allowable by the law of Missouri.

Section 403(a)(1) of the Revenue Act of 1921 provides that for the purpose of the tax the value of the net estate shall be determined by deducting from the value of the gross estate "Such amounts for * * * claims against the estate, * * * as are allowed by the laws of the jurisdiction, * * * under which the estate is being administered."

The case of , is relied upon by the executors. That case involved an antenuptial contract providing that in case the wife survived her husband she should receive a specific sum from the husband's estate. After his death there was action by the widow against the administrators to recover the sum so provided, and the court said:

The plaintiff sues for the two hundred dollars promised to her in this marriage contract. There was a demurrer by defendant to the petition, which was overruled, and judgment afterwards rendered by default in favor of the plaintiff. The defendant excepted, sued out of his writ of error and brings the case to this court.

The defendant, plaintiff in error, relies upon the following point for a reversal: That this contract is a testamentary disposition and does not create a legal liability so as to constitute the plaintiff a creditor; that she should go into the Probate Court and claim as a distributee, and that this action cannot be maintained.

This Court will, therefore, only notice this point. In our opinion this is a valid and subsisting contract, and that a legal obligation is thereby created in favor of the petitioner to demand the sum of money from the estate of her deceased husband.

The executors also rely upon the case of , affirmed . In that case the court considered an antenuptial contract providing for the payment of a fixed sum to the wife, if she survived her husband, in lieu of dower and other rights. Upon the death of her husband she received payment from the estate of the amount provided in the contract and the question was whether such amount was subject to the transfer tax imposed upon transfers of property by will or succession and transfers made in contemplation of death or intended to take effect in possession or enjoyment at or after death. The husband died intestate and it was held that the amount received by the widow was in payment of an obligation created by contract and not in succession to the decedent and, therefore, not subject to the transfer tax. The court said:

It will doubtless be conceded that the respondent's claim is not one which is dependent for its validity upon a deed or grant of any kind, and, furthermore, that it is not testamentary in its character, although it did not become due and payable until after the death of her husband. It was simply the outgrowth of a contract entered into between the decedent and the claimant, which was founded upon a perfectly good and valuable consideration, and one which is regarded with favor by the law, and will generally be enforced in accordance with the intention of the parties (; ; ). It would seem to follow, therefore, that a claim arising from such a source is in the nature of a debt against the estate, and as such enforceable like any other debt (; Warner v. Warner, 18 Abb.N.C. 151), and, if this is its character, we do not see why it should be subject to taxation under the Transfer Tax Law any more than if it were a debt represented by a bond or note. The tax imposed by the statute in question is a tax on the right of succession and not on the property itself (); and "a payment of an obligation dependent upon a valuable consideration is not a succession in any sense."

The executors also cited , affd. . In this case the court again had before it an antenuptial contract providing -

In the case at bar, Mrs. Vanderbilt's right to receive these securities did not grow out of the will; its source was in the antenuptial agreement, and the obligation could have been enforced against the estate had there been no will. It rested upon a valuable consideration, which was executed by the marriage. The mere fact that the method of payment and satisfaction of the obligation was directed by the will did not change the inherent character of the obligation.

In , an antenuptial contract provided that the wife should have out of the estate of the husband in the event she survived him the sum of $250,000 in full discharge of all dower and other rights as a debt of the estate. The will of the deceased husband directed that this amount to paid to her, but provided that she might take securities of equal value. The Supreme Court of Massachusetts held that the securities of this amount transferred to the widow in accordance with the will, were subject to the transfer tax imposed by Statutes of 1909, ch. 490, part IV, sec. 1. The tax imposed by such statute was similar in kind to that involved in the New York cases mentioned. The court held that the securities received by the widow were received by her under the will and were, therefore, subject to the transfer tax. The court said, however:

We are of opinion that by force of the antenuptial agreement Mrs. Hill became a creditor of the estate. That agreement was in terms that she should receive from his estate the sum of two hundred and fifty thousand dollars "as a debt against his estate." If Mrs. Hill had asked for and received from the executors of her husband's will two hundred and fifty thousand dollars in cash, no inheritance tax could have been imposed upon the sum so paid. For a decision to that effect see , affirming , on opinion below.

* * * The inheritance tax law of the Commonwealth (St. 1909, C. 490, Pt. IV, Sec. 1) applies to all cases where property or an interest therein passes by will.

The conclusion of the court in the above case appears to have been based somewhat upon the fact that the manner of payment was provided by will.

The foregoing decisions involve the question whether amounts received under an antenuptial contract were subject to tax as transfers of property by will or succession. There was no alternative provision in the will and the case did not involve an election of the widow to take under the will in lieu of the contract. We think they are not authority for the allowance of the deduction here claimed.

Had Mrs. Eisenstadt elected to take only the $75,000 provided in the antenuptial contract and nothing more, we think there could be no question but that the amount would have been a proper deduction from the gross estate as a claim against the estate; however, she did not do this. She chose to take the bequest of $250,000 in trust, thereby completely relinquishing whatever claim she had to the estate by the marriage agreement. She became a beneficiary of the estate instead of a creditor. In view of these circumstances it should not be held that the bequest in trust, to the extent of $75,000 thereof, was a claim against the estate. We have found no provisions in the statutes of Missouri, nor any decisions of the Missouri courts to the effect that when an election, such as we have here, is made the amount provided in contract is a claim or charge against the estate. We are of the opinion that had the case of , relied upon by the executors involved a state of facts such as we have here, the court would have held the amount received under the will subject to the transfer or succession tax.

In ; , the Supreme Court of Missouri said:

It is a fundamental principle of law that one who accepts a beneficial interest under a will, thereby adopts the whole will and renounces every right or claim that is inconsistent with the will.

Since Mrs. Eisenstadt elected to take under the will as any other legatee, she expressly waived any claim she might have had as a creditor of the estate by virtue of the antenuptial contract. By reason of the provisions of the will it was necessary for her to decide whether she would take under its provisions or under the contract. When she decided to take under the will the contract no longer constituted a claim against the estate, nor would it have been allowed as a claim against the estate in the administration thereof.

In , the court held that under section 204 of the Revenue Act of 1916 the value of the widow's dower was a proper deduction from the gross estate of the husband under the local laws. Subsequently, in , the court had before it a will in which the decedent had made certain provisions for the widow expressly in lieu and in bar of dower and thirds in the estate. The court held that the devise or bequest in lieu of dower was subject to the estate tax under the provisions of the Revenue Act of 1916 and could not be diminished by the value of the widow's dower and other rights. The question here involved is in principle the same as that of the

In Briscoe v. Craig, decided June 20, 1927, the District Court for the Eastern District of Tennessee held that a widow, when she takes under the provisions of her husband's will and enters into an agreement with the executors and trustees of his estate whereby she receives a lump sum of $75,000 based upon what she might have received as dower had she dissented from the will, such payment is not deductible from the gross estate of the husband for the purpose of the estate tax for the reason that the widow did not dissent from the will and take dower instead of the sum agreed upon.

The Board is of the opinion that the estate was not entitled to a deduction of $75,000 and the Commissioner is therefore affirmed.

Reviewed by the Board.

Judgment will be entered for the respondent.