Davenport v. Commissioner

Estate of Ralph Slocum Davenport, Deceased, United States Trust Company of New York, Executor, Petitioner, v. Commissioner of Internal Revenue, Respondent

Davenport v. Commissioner

Docket No. 84608

United States Tax Court

38 T.C. 670; 1962 U.S. Tax Ct. LEXIS 97;

August 20, 1962, Filed

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Decision will be entered under Rule 50.

Estate Tax -- Marital Deduction -- Power of Appointment Surrendered in Will Contest -- Separate Foreign Will -- Regs. Sec. 20.2056(e)-2(d)(1). -- The decedent, by his uncontested American will, gave a life estate in a trust to his widow with power of appointment. His three adult daughters contested probate of his separate French will leaving to his widow real estate in which the three daughters had a vested three-fourths interest under French law. The widow surrendered her power of appointment in exchange for consent by daughters to probate of French will. Held, the trust under the American will did not qualify as a marital deduction in view of the surrender of the power of appointment in a will contest. Regs. sec. 20.2056(e)-2(d)(1).

Hyman L. Battle, Jr., Esq., and Charles B. Markham, Esq., for the petitioner.

Dean P. Kimball, Esq., for the respondent.

Murdock, Judge.

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MURDOCK

The Commissioner determined a deficiency of $ 87,823.69 in estate tax. The only issue for decision relates to the marital deduction. The Commissioner denied the part thereof representing the value of a two-sixths interest in the residuary estate over which the widow was given a testamentary power, and the question is whether she gave up the power in settlement of a will contest.

FINDINGS OF FACT.

The decedent, a citizen of and domiciled in the United States, died on July 18, 1955. The estate tax return was filed with the director of internal revenue for the Lower Manhattan District of New York.

The decedent died in Paris, France, survived by his widow, Yvonne, whom he had married in 1940, and by his three adult daughters of a former marriage, Myriam Williford, Solange du Mortier, and Gisele Davenport, now Gisele Payne. The decedent had a residence in New York at the time of his death but he, his wife, and Solange were living at that time at his villa, "La Falaise," in Sanary-sur-Mer (Var), France.

The decedent had two mutually exclusive wills at the time of his death. One, herein called the American will, dated May 19, 1949, disposing of all of his property except his real estate in France, left his residuary estate as follows:

One-sixth outright to each daughter;

One-sixth outright to his widow, Yvonne; and

Two-sixths in trust for Yvonne for life with the power to her to dispose of the trust corpus by will, but if she failed to exercise the power then the corpus was to go to the decedent's surviving children, or their issue per stirpes.

This will was admitted to probate on September 23, 1955, in New York without objection. Its validity and effect were never challenged or questioned.

The other will, herein called the French will, purported to devise the decedent's real estate in France to Yvonne. However, each of the three daughters became entitled under the law of France to a one-fourth interest in that real estate at the death of their father and they would not consent to the probating of the will giving all of that property to Yvonne. Attorneys for the four survivors then entered into negotiations which led to an agreement executed by Yvonne on November 8, 1956, providing in substance that the French will would be probated, giving her the real estate in France, in accordance with the French will, and she would surrender her power of appointment over the two-sixths of the residuary estate left in trust for her for life under the American will. The French will was then probated in April 1957 and thereafter Yvonne delivered to the trustee on April 19, 1957, her release of the power of appointment over the trust corpus.

The Commissioner, in determining the deficiency, disallowed $ 242,704.52 of the claimed marital deduction to represent the value of the two-sixths residuary estate placed in trust for Yvonne.

All stipulated facts are incorporated herein by this reference.

OPINION.

The contention of the Commissioner is that:

Where the widow released the testamentary power of appointment of the trust under the American Will in settlement of a controversy involving a bequest under the French Will, the interest so released did not pass to her from the decedent within the purview of the Internal Revenue Code and the Regulations thereunder so as to qualify the bequest in trust for the marital deduction.

Section 2056(a) of the Internal Revenue Code of 1954 is as follows:

SEC. 2056. BEQUESTS, ETC., TO SURVIVING SPOUSE.

(a) Allowance of Marital Deduction. -- For purposes of the tax imposed by section 2001, the value of the taxable estate shall, except as limited by subsections (b), (c), and (d), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.

The parties agree that the life estate with power of appointment in Yvonne would qualify for the marital deduction if she had not released that power. See sec. 2056(b)(5). They also agree that regulations sec. 20.2056(e)- 2(d)(1), I.R.C. 1954, must be considered. That provision is as follows:

(d) Will Contests. (1) If as a result of a controversy involving the decedent's will, or involving any bequest or devise thereunder, his surviving spouse assigns or surrenders a property interest in settlement of the controversy, the interest so assigned or surrendered is not considered as having "passed from the decedent to his surviving spouse."

The petitioner argues, "The plain meaning of these Regulations is that the 'will controversy' must be over the interests bequeathed to the wife for which a marital deduction is taken." It insists that the power "passed" to Yvonne under the uncontested American will and what she did with it thereafter does not eliminate the trust value from the marital deduction.

The decedent chose to write two wills to dispose of his total estate. Although the American will was not contested, there was a real controversy in regard to his attempted disposition by will of his real estate in France. The parties agree that the real estate in France was not a part of the decedent's gross estate for United States estate tax purposes and it did not play any part in the computation of the marital deduction. However, the widow relinquished her power of appointment given her by the American will in order to settle the controversy over the French will, to permit that will to be probated and in that way to receive complete title to the real estate in France. Thus, when the estate of the decedent was finally settled, the widow had no power of appointment over the trust corpus here involved. The question is whether the value of that corpus is a part of the marital deduction under such circumstances.

The answer is not too obvious. The words of the Code provisions are not particularly helpful and the quoted regulation is relied upon by both parties. No case in point appears. A decedent should not be able to change the marital deduction by using more than one will (cf. Estate of Leo J. Dutcher, 34 T.C. 918">34 T.C. 918 (1960)), even where some of his property is not includible in his gross estate for Federal estate tax purposes because it has a tax situs in a foreign country. The fact that the use of two wills may be permissible is not determinative here where the question is the meaning of Federal estate tax provisions.

It is the best judgment of this Court that the quoted regulation refers to any controversy, with relation to the decedent's disposition of his entire estate, settled by the widow giving up some part of the estate subject to United States estate tax which, but for the controversy, she would have been entitled to retain, and as thus interpreted the regulation is reasonable and carries out the intent of the law. The widow and the three daughters in effect substituted distributions of property different from that stated in the wills and the substitution relating to the trust estate does not qualify for the marital deduction. Cf. Estate of Thomas W. Tebb, 27 T.C. 671">27 T.C. 671, 682, et seq. (1957). The Commissioner did not err in disallowing the portion of the marital deduction here in controversy.

Decision will be entered under Rule 50.