DocketNumber： No. 5873-01
Citation Numbers： 85 T.C.M. 1561, 2003 Tax Ct. Memo LEXIS 188, 2003 T.C. Memo. 189
Judges： \"Vasquez, Juan F.\"
Filed Date： 6/30/2003
Status： Non-Precedential
Modified Date： 11/20/2020
*188 Decision was entered for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined a deficiency of $ 2,224,224.71 in the Federal estate tax of the Estate of Charles N. Aronson (decedent). Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the date of decedent's death.
The sole issue for decision is whether an interest in the trust created by decedent's will qualifies for the estate tax marital deduction as "qualified terminable interest property" (QTIP), within the meaning of
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference.
At the time of his death on December 20, 1996, decedent resided in Cattaraugus County, New York. At the time of decedent's death, decedent and Josephine R. Aronson (Jo) were married -- and had been married 61 years -- and they were U.S. citizens and residents. Decedent was survived by, *189 among others, (1) Jo, (2) Barney R. Aronson (Barney), who is Jo's son and decedent's adopted son, and (3) Barney P. Aronson (Bar), who is Barney's son and decedent's grandson.
Bar is the executor of decedent's estate. At the time the petition was filed, Bar resided in Arcade, New York.
Decedent was born in 1913 near Lincoln, Nebraska. Decedent was a knowledgeable businessman. Decedent founded and ran Aronson Machine Co. He retired in 1969.
Decedent was a strong-willed, "bullheaded" man. He was self made, and, even though he had only a high school education, he "felt superior to everyone else". In general, decedent "disliked attorneys". He felt attorneys "were out to get his money".
At the time decedent died, Bar and decedent lived at 11520 Bixby Hill Road, Arcade, New York (Hundred Acres). 1 There were two houses on Hundred Acres. Decedent and Jo lived in "the Big House", and Bar and his wife, Charlene Voit Aronson (Charlene), lived in "the Little House". While living on Hundred Acres, Bar took care of decedent, Jo, and Hundred Acres.
*190 Bar was responsible for maintaining Hundred Acres. Decedent met with Bar once a week to discuss the maintenance of Hundred Acres, to inform Bar of anything that required attention, and to chastise Bar if he did not get things done in a timely fashion. Decedent had conversations with Bar regarding estate taxes and Jo's income. Decedent, however, never discussed leaving a QTIP to Jo.
On May 31, 1980, decedent executed a will (1980 will). The 1980 will revoked all prior wills and codicils. In the first article of the 1980 will, decedent gave all of his personal effects, household effects, motor vehicles, works of art, and tangible personal property to Jo. The 1980 will also provided:
SECOND: If my wife survives me, I hereby create a marital
trust. There shall be allocated to the marital trust that amount
(if any) which, when added to any other sums allowable in
determining the marital deduction in the federal estate tax
proceeding relating to my estate, shall equal the maximum
marital deduction allowable in such proceeding. Notwithstanding
the foregoing, such amount shall not exceed that minimum sum
which, when*191 added to such other sums, will have the effect of
reducing to zero the federal estate tax (after giving effect to
all credits against tax) determined in such proceeding. The
marital trust (which is an amount and not a fractional share)
shall be established with cash or any other assets qualifying
for the marital deduction, first preference to be given to
assets not subject under the Internal Revenue Code to a credit
for foreign death taxes. All assets allocated to the marital
trust shall be valued as of their respective dates of
distribution. The marital trust shall be held upon the following
terms:
A. The entire net income of the marital trust shall be
paid to my wife, JOSEPHINE R. ARONSON, at least quarter-
annually during her lifetime.
* * * * * * *
THIRD: If my wife survives me, I give all the rest of my
property, real and personal, wherever situated, herein called my
residuary estate, to my Trustee to hold as a family trust upon
the following*192 terms:
A. The entire net income of the family trust shall be
paid to my wife, JOSEPHINE R. ARONSON, at least quarter-
annually during her lifetime.
* * * * * * *
FIFTH: As my wife and I in no way want to try to impose the
will of the dead hand, it will be up to our heirs to determine
who lives in the Big House and the Little House on Hundred
Acres. It is our wish that Hundred Acres will always belong to
Aronsons, that an Aronson live in the Big House, and that
Charles J. Aronson have the use of the Little House as long as
he wishes. It is also our wish that our heirs see to it that the
property taxes and utility bills are paid so that the Big House
will be kept from freezing up or passing from Aronsons through
tax default.
On February 25, 1982, decedent executed a new will (1982 will). The 1982 will revoked all prior wills and codicils. The 1982 will was virtually identical to the 1980 will, except, in pertinent part, the fifth article of the 1982 will provided that Bar, instead*193 of Charles J. Aronson, should have use of the Little House.
The 1980 will and the 1982 will were drawn by a law firm in Buffalo, New York. Decedent remarked that his experience with this law firm was "less than successful", and he eventually fired those attorneys.
Robert C. Newman has been an attorney since 1981. He first met with decedent in February 1988 after decedent contacted him via a letter dated February 6, 1988. Decedent contacted Mr. Newman because decedent knew Mr. Newman's parents and decedent was dissatisfied with his then-current attorneys at the law firm in Buffalo, New York. 2 Most of decedent's communications with Mr. Newman, and vice versa, were in writing.
At first, Mr. Newman thought decedent was seeking tax advice; however, it quickly became clear to Mr. Newman that decedent did what decedent wanted to do. Furthermore, decedent stated to Mr. Newman that he (decedent)*194 would rather pay estate taxes than draw up his will in a way other than what he wanted.
Decedent received financial and tax advice from C.P.A. s at the accounting firm of Seidman & Seidman. Mr. Newman never had any contact with accountants at Seidman & Seidman.
Decedent prepared a will dated February 6, 1988 (1988 proposed will). Decedent mailed a copy of the 1988 proposed will to Mr. Newman. In the letter to Mr. Newman accompanying the 1988 proposed will, decedent informed Mr. Newman that it was a serious mistake to underestimate his abilities and that what he wanted was an attorney who could sign the following statement: "I have closely examined this Will and have found it to be a legal document that should have no difficulty in probate." 3 Decedent would have considered changes to the 1988 proposed will if it had meant Mr. Newman would sign the aforementioned statement. Decedent, however, was "not looking for any changes at all, frankly, but if there is a glaring error, we'll want that corrected." Decedent also wrote: "I do not expect you to know everything but I do expect you to know where to find out whatever we need to know to do the job better than it has ever been done before. *195 "
The 1988 proposed will revoked all former wills and codicils and provided, in relevant parts, as follows:
FIRST: I hereby create a Trust and give into it all my
personal effects, household effects, motor vehicles, works of
art, and other tangible personal property, all my stocks and
bonds, my personal checking account, such to be held secure for
equal division among Jo's biologic descendants if she survive[s]
me and if so, Jo is to receive all the dividend and interest
income from such assets as long as she lives, and upon her death
the real property known as Hundred Acres and the buildings
thereon will be added to this Trust, as spelled out in Jo's
Will, and this Trust will then be liquidated and the proceeds
divided equally among Jo's biologic descendants as administered
by*196 the two Executors, Barney R. Aronson and Barney P. Aronson,
or if one is dead, the remaining named Executor will name a
replacement, and these Executors will have arranged the Trust to
be effectuated, at Central Trust Arcade or such as they choose,
and the distribution of assets made among Jo's biologic
descendants which at this writing are: Barney R. Aronson, Scott
Haley Aronson, Charles J. Aronson, Barney P. Aronson, Heather
Aronson, Rozlyn Jo Aronson, Jeff Aronson, Charles J. Aronson
Jr., or if Jo predeceases me, her Will will have added Hundred
Acres to the assets of the Trust and division will proceed as
ordered.
* * * * * * *
D. Upon Jo's death, if she survives me, all my estate,
now including Hundred Acres, shall be distributed to the
eight biologic descendants as named above, or such of them
as shall then be surviving, in equal shares, per capita.
* * * * * * *
THIRD. The process of liquidating*197 the assets of my estate,
for distribution to the eight biologic descendants as heretofore
decreed, may take up to three years after my death, to allow
proper advertising, for example, and to avoid flooding the
market with art, for instance, and until Hundred Acres has been
sold * * *.
Decedent signed the 1988 proposed will, which he prepared, and Jo, Bar, and Charlene signed the 1988 proposed will as witnesses.
On February 19, 1988, decedent wrote a letter to Mr. Newman regarding their meeting on February 18, 1988. Decedent decided that he wanted Mr. Newman to be his attorney. Decedent requested Mr. Newman to inform him, as soon as possible, of "all the subtractions from an estate of approx. $ 4,000,000". Decedent approved changing the 1988 proposed will to make Bar and Barney executors and trustees. Decedent requested Mr. Newman's "business identification number" so he could fill out "Forms 1099".
On February 22, 1988, decedent wrote a letter to Mr. Newman. Decedent explained that Bar and his wife Charlene had come to live in the Little House on Hundred Acres in the early 1980s to take care of decedent and Jo. Although he felt they were not*198 "worth a damn" the first 3-1/2 years they lived on Hundred Acres, they had "smartened up". Decedent stated that Bar wanted to live on Hundred Acres until he (Bar) died, so Jo and decedent wanted Bar to inherit Hundred Acres, the buildings thereon, and the vehicles and machinery decedent owned "in addition to his being Executor and Trustee and an equal recipient of the residual estate after taxes and expenses." Decedent instructed Mr. Newman to draft his will to reflect this change and to provide him with a copy so he could study the draft, make notes on the draft, and finalize the will.
On February 23, 1988, Mr. Newman wrote a letter to decedent. Mr. Newman acknowledged receiving decedent's letters dated February 19 and 22. Mr. Newman briefly reviewed the 1988 proposed will. Mr. Newman raised one major problem with the 1988 proposed will -- some of the witnesses were beneficiaries under the 1988 proposed will and the 1988 proposed will might not be upheld under New York law. Mr. Newman recommended that two "uninvolved" witnesses be used when the new wills were executed. Mr. Newman also informed decedent that he would "have the estate reducing figures and possible tax related suggestions" to decedent soon. Mr. Newman provided decedent with his tax identification number.
On February 25, 1988, decedent wrote a letter to Mr. Newman. Decedent advised Mr. Newman that he (decedent) wrote the 1988 proposed will in order to "cancel" his then-current will drafted by the law firm in Buffalo, New York, and so he could wave it in the law firm's face. Decedent wrote: "I do not pretend to teach anyone Law. But, protected as I am from an avalanche of law books, it is sometimes easier for me to see Justice and Intent than might be true of a lawyer." Decedent*199 continued by "explaining" the law to Mr. Newman. Decedent concluded the letter:
As I say, I do not want us to get into a debate about Law.
Frankly, it is too disgusting a subject for an old man to waste
time on. And I wanted mainly to void the Wills MacLeod had, and
I think I did just that.
Bob, let's quickly get good, binding, incontestable Wills
affectuated [sic] quickly, or, if you like, add lines to what I
made and bring * * * legal witnesses and Jo and I will sign
again. * * * dash up to the Big House and we'll make it all
legit. If that will do it for us all. I still want Newmanmade
Wills ASAP.
On March 6, 1988, decedent wrote a letter to Mr. Newman. Decedent was disappointed in what seemed to him "much too long to look in the statute books and write to us what the Federal and State taxes will be, and the fees and commissions as spelled out by law." Given that at the time he was 75 years old, decedent wanted his will completed, witnessed, and safely stored in his "safe room" as quickly as possible.
On March 7, 1988, Mr. Newman wrote a letter to decedent. Mr. Newman listed*200 the expenses that would be incurred on an estate of $ 4 million. Mr. Newman explained that the delay was not in computing the figures "but rather trying to come up with an acceptable way of avoiding the estate tax which is quite significant." Mr. Newman listed the potential Federal estate tax as $ 1,302,600 and potential New York estate tax as $ 392,500. Mr. Newman wrote that he had "some ideas that I would like you to examine, but I will present these to you at a later time." Mr. Newman advised decedent that he had a draft of the will which would be sent to decedent that Friday for his examination.
On March 8, 1988, decedent wrote a letter to Mr. Newman. He wrote:
Yes, the taxes are confiscatory. I'm not wearing a closed
mind about ideas but I do have limitations. In no way will I
ever give up any direct control of my assets. I have been
through a lot of this and it appears to me that any tax saved
tends to end up as fees and commissions to the people who
"save" me the taxes.
On March 11, 1988, Mr. Newman mailed decedent a copy of a draft will for decedent to review. Mr. Newman kept as much of the original language, written*201 by decedent, from the 1988 proposed will as possible in the new draft.
On March 14, 1988, decedent wrote a letter to Mr. Newman. The new draft looked good and right to decedent, and he thanked Mr. Newman for providing him with "information on the costs of dying with property." Decedent instructed Mr. Newman to come up to the Big House with witnesses as soon as possible so he could execute his new will.
On March 16, 1988, Mr. Newman wrote a letter to decedent. Mr. Newman enclosed executed proofs of will with the letter. Mr. Newman recommended that decedent make available to Barney his original adoption papers in order that the new will would withstand challenges. Mr. Newman also suggested that decedent should destroy his prior wills.
On March 18, 1988, decedent wrote a letter to Mr. Newman. 4 Decedent expressed his satisfaction with Mr. Newman's work. Decedent advised Mr. Newman that no one had the original adoption papers for Barney. Decedent instructed Mr. Newman to obtain copies of the adoption papers.
*202 On March 19, 1988, decedent wrote a letter to Barney and Bar. Decedent expressed a clear understanding of finances and the stock market. Decedent advised Bar and Barney that decedent's C.P.A. was Norman C. Joseph at Seidman & Seidman in Buffalo, New York. Decedent also gave Barney and Bar several instructions including: (1) Bar should have Jo show him (Bar) where her "squirreled-away caches" were; (2) to keep decedent's "custodial account" after he died; (3) to transfer his two "NOW Accounts" to a new "NOW Account" after he died; (4) if in their opinion a property asset had been valued too high, then have Mr. Newman fight it; (5) that Mr. Newman should probate his will and act as the estate's attorney; (6) if they had any questions they should put them in writing and decedent would write another letter to them; (7) to cremate decedent as soon after his death as possible; (8) not to save the ashes from his cremation; (9) there was to be no funeral, ceremony, no viewing of decedent; (10) not to make his death public (no obituary or publicity) and not tell anyone of his death -- especially the media; (11) not to obtain a headstone or "stainless steel cross" for decedent to mark his death; *203 (12) the family, and no one else, should gather at the Big House after his death, except grandson Lars who could come only if Jo predeceased decedent -- otherwise he was not permitted on Hundred Acres. Decedent directed Bar to use Mr. Newman because decedent trusted Mr. Newman.
On April 7, 1988, Mr. Newman wrote a letter to decedent. Enclosed with the letter were two certified copies of the Order of Adoption of Barney. Mr. Newman also apprised decedent that he had had an additional opportunity to examine the estate tax situation; however, in order to reduce the taxes Mr. Newman advised decedent that he (decedent) was going to have to divest himself of control over his property. Mr. Newman also informed decedent that he could make gifts in the amount of $ 10,000-per-year to reduce his estate, but "we get back to the same problem that you must give up control. Basically the amount of the tax is the cost of this control."
On April 9, 1988, decedent wrote a letter to Mr. Newman. He thanked Mr. Newman for the copies of Barney's adoption papers. Decedent further wrote:
Yeah. I know all about $ 10,000 to a slew of folks, no gift
tax and it saves me taxes. I have*204 a one-word response to that
and it has only four letters, the first two are n u and the last
two are t s. I'm not saying nuts to you, Bob, but to the idea,
which has been given to me by a lot of folks.
I like your succinctness. 'The only way to reduce the taxes
on my estate is for me to divest myself of control over the
property. ' That same four-letter word applies here, too. I've
spent 75 years -- less a few years as a crawling baby -- working
hard, diligently, totally honestly, in The Golden Rule Way, to
acquire what I have, and if my total wealth is incinerated with
me when I'm dead, that's all right with me, compared to giving
anyone any control at all over what I have earned.
On May 6, 1988, Mr. Joseph, from Seidman & Seidman, wrote a letter to decedent. Mr. Joseph, in response to decedent's request, informed decedent that the consequences of a tax-free gift of $ 10,000 per year would be to reduce decedent's taxable income and would "serve to reduce your estate and save the very high estate taxes on each $ 10,000 that you give away. The estate tax rates start at 37% for assets*205 over $ 600,000." Mr. Joseph recommended that decedent make these gifts.
On May 25, 1988, Mr. Joseph wrote another letter to decedent. Mr. Joseph further explained the estate and gift tax, and that the tax rate of 37 percent rapidly accelerated to 55 percent. Mr. Joseph also informed decedent that in addition to estate and gift taxes:
we now have a new tax a "generation skipping transfer
tax." The tax basically is imposed to discourage the gifting
of assets to a second generation below the transferor. Thus, it
is an attempt to prevent a grandparent from giving his assets to
his grandchild while leaving his children to enjoy the benefits
of ownership of the property without having the property
included in their estates on their death, or when they transfer
the property by gift to their children.
On June 1, 1988, decedent wrote a letter to Mr. Newman. Decedent wanted to make a codicil to his will. Decedent decided to make a $ 10,000 gift each year to Barney, Barney's wife, "Ruth M.", and Bar. Decedent informed Mr. Newman that Mr. Joseph, who decedent identified as his C.P.A., had explained the $ 10,000-per-year gifts*206 and the tax consequences to him. Bar intended to use the $ 10,000-per-year gift to help him (Bar) maintain Hundred Acres after decedent died. Decedent, however, felt that the $ 10,000-per-year gift would not give Bar enough money to maintain Hundred Acres. Decedent decided that the other "heirs" did not deserve equal shares of his estate, so he wanted to change his will to distribute his residuary estate as follows: 25 percent each to Bar and Barney, 10 percent each to two of decedent's other grandchildren, and 7.5 percent each to four of decedent's great-grandchildren. Decedent decided on these amounts because: "As of now, there will be approximately $ 2,000,000 left after taxes and costs. This is $ 2,000,000 'residual estate. ' Barney and Bar get 25%, or $ 500,000." Decedent believed that Bar could invest his inheritance in a bond yielding 7 to 8 percent, and this would provide Bar enough money to pay the taxes and upkeep on Hundred Acres.
On June 17, 1988, decedent wrote a letter to Mr. Newman. Decedent wrote:
It struck me that Bar's wife Charlene remodeled The Little
House and ruined it and when her husband owns Hundred Acres and
The Big House*207 she is likely to rip out all the Pittsburgh
Twindows and put in sash windows, as she did in the Little
House.
I know the implication of 'the dead hand. ' BUT. The Big
House is more my monument than the Washington Monument is
George's . . I designed and built my monument. Charlene
would somehow hang lace curtains on the Washington Monument if
she could. Or put up awnings where there aren't any windows.
In light of this, decedent wanted his will to include the following language: "No changes or alterations in the Structure or the General Make-up of the Big House on Hundred Acres shall ever be made." Decedent further wrote:
I know that when I am dead, 'they' can do things to the Big
House and I'll never know it. But lying in bed trying to go to
sleep at night while I live, and visualizing the horrors that
woman can perpetrate on My Monument keeps me awake and in
terror. Knowing that my Family Lawyer has made it impossible for
any such desecration will be a welcome and effective soporific.
On June 24, 1988, Mr. Newman wrote a letter to decedent. Mr. Newman informed*208 decedent that he had made changes to decedent's will regarding restricting changes to the Big House and the percentage inheritances of the residuary estate. Mr. Newman advised decedent that when the new wills were typed, he would forward them to decedent for him to review.
On June 28, 1988, Mr. Newman mailed decedent a revised draft of decedent's new will for decedent's review and approval.
On July 5, 1988, decedent executed the revised will (July 1988 will). The July 1988 will revoked all former wills and codicils and provided, in relevant parts, as follows:
SECOND: I hereby give, devise and bequeath my real property
(which shall include my residence which I refer to as
"Hundred Acres" should my wife, Josephine R. Aronson,
hereinafter referred to as "Jo," predecease me) my
vehicles and machinery to my grandson, BARNEY P. ARONSON. It is
hereby stipulated that no changes or alterations in the
structure or the general make-up of the "Big House" on
Hundred Acres shall ever be made.
THIRD: I hereby create a Trust and give into it all the
rest, residue and remainder of my property of*209 every kind and
nature and wheresoever situate, such to be held secure for
division among "Jo's" biologic descendants as described
below, if she survives me, and if so, "Jo" is to receive
all the dividends and interest income from such assets as long
as she lives, and upon her death this Trust will then be
liquidated and the proceeds divided as described below among
"Jo's" biologic surviving descendants as administered by
the two Executors, Barney R. Aronson and Barney P. Aronson, or
if one is dead, the remaining named Executor may name a
replacement, and these Executors will have arranged the Trust to
be effectuated at Central Trust, Arcade, or such as they choose,
and the distribution of assets made as follows:
25% of residual estate to my son, BARNEY R. ARONSON;
25% of residual estate to my grandson, BARNEY P. ARONSON;
10% of residual estate to my grandson, SCOTT HALEY ARONSON;
10% of residual estate to my grandson, CHARLES J. ARONSON;
7
7
7
*210 7
or if "Jo" predeceases me division will proceed as
ordered above.
On August 9, 1991, decedent executed a new will (1991 will). The 1991 will revoked all former wills and codicils, and it provided for the distribution of the residuary estate as follows: 35 percent to Barney, 35 percent to Bar, 15 percent to Scott Haley Aronson, and 15 percent to Charles J. Aronson. By eliminating his great-grandchildren, decedent also removed the sections of the July 1988 will that dealt with distributions to minors. In all other respects, the 1991 will was essentially identical to the July 1988 will. Decedent did not care whether the estate would be able to claim a marital deduction under the terms of the 1991 will because decedent did not want to relinquish control over his assets.
On March 16, 1993, decedent wrote a letter to Mr. Newman. Decedent wanted a new will. Decedent wanted Bar to inherit Hundred Acres and to be able to earn enough income from his inheritance so that Bar could maintain Hundred Acres. Decedent asked Mr. Newman some questions regarding the generation-skipping transfer (GST) tax, selling his art collection to Bar (in order to remove the*211 art collection from his estate), and the amount of estate tax on a $ 5 million taxable estate. Decedent told Mr. Newman that when decedent had the answers to his questions he (decedent) would prepare a new will.
On April 3, 1993, decedent wrote a letter to Mr. Newman. Decedent understood that there would be GST tax if he made Bar his "sole heir" and that there would be gift taxes associated with giving his art to Bar (so he decided not to do this). Decedent's C.P.A. had given decedent round numbers on what Bar would inherit after taxes. On the basis of the numbers his C.P.A. provided, decedent felt that Bar would be able to generate enough income from his inheritance after taxes to maintain Hundred Acres, its buildings, and its contents. Decedent, however, wanted a second opinion from Mr. Newman on how much Bar would inherit after taxes to make sure Bar would have enough to maintain Hundred Acres. Decedent wanted a new will as soon as possible to ensure that Hundred Acres would not "be lost".
On April 8, 1993, decedent wrote a letter to Mr. Newman. Decedent wrote: "I'll sure be glad when we have our two Wills finalized so Bar can keep Hundred Acres and the Big House a kind of monument*212 to me. Instead of a stone in a cemetery."
On April 13, 1993, decedent wrote a document entitled "My Will -- An Explanation". This document is similar to his March 19, 1988, letter to Bar and Barney. It stated as follows:
I have been an asset to everyone who has been associated
with me in any way. I have been good for the world. I am more
than average. And I want a more than average monument to my
life. More than a slab in a cemetery.
Aronson Machine Company is not a monument to me. The
Big House on Hundred Acres is. I designed the Big House --
invented it -- and was its architect and builder. It is unique.
It is my monument.
It is my wish that my monument, the Big House and Hundred
Acres, be preserved pretty much as it is as long as possible. No
changes shall be made in the Big House that would alter its true
basic concept.
Bar (Barney Peter Aronson) has been my back up and right
hand man since April 1982. I have been training him to manage my
estate after my death. No other family member has done anything
for*213 me and my monument. ,
Therefore, I leave all my worldly goods after Death Taxes
to Barney Peter Aronson.
This involves skipping a generation and adds to the tax
burden. My son, Barney Roman Aronson, is only 11 years 9 months
younger than I and won't live long enough to preserve my
monument very long after my death. Barney Peter Aronson is 42
years younger than I & can be expected to preserve my monument a
long time after my death.
Death Taxes will take so much of my estate that Bar
inheriting Hundred Acres will not have enough income to maintain
Hundred Acres and the Big House if my estate is divided among
several members of the family.
If my estate amounts to $ 5,500,000 when I die * * * and Bar
is my sole heir, he will inherit approximately $ 2,200,000
including Hundred Acres, building and contents. * * *
* * * * * * *
Thus, to assure preservation of my monument for a fairly
long term, Barney Peter Aronson is my sole heir.
On May 10, 1993, Mr. *214 Newman wrote a letter to decedent. Mr. Newman had redrawn decedent's will, per decedent's request, and enclosed a copy for his review.
On May 12, 1993, decedent wrote a letter to Mr. Newman. Decedent wrote: "I was trying to show how and why grandson Barney Peter Aronson (let's use his full name instead of his middle initial) would inherit so as to maintain my monument. The previous Wills -- 1991 -- needed to be changed to show one Executor and one inheritor, grandson Barney Peter Aronson." Decedent enclosed a revised copy of the 1991 will, with alterations decedent made to the language of the 1991 will, as a guide for Mr. Newman. Decedent instructed Mr. Newman to prepare him a new will, incorporating decedent's changes, and to submit it to him to review. Decedent's revisions to the 1991 will, in relevant part, were as follows:
SECOND: I hereby give, devise and bequeath my real property
(which shall include my residence which I refer to as
"Hundred Acres" should my wife, JOSEPHINE R. ARONSON,
hereinafter referred to as "JO," predecease me), my
vehicles and machinery to my grandson, BARNEY P. ARONSON. It is
hereby stipulated*215 that no changes or alterations in the
structure or the general make-up of the "Big House" on
Hundred Acres shall ever be made.
THIRD: I hereby create a Trust and give into it all the
rest, residue and remainder of my property of every kind and
nature and wheresoever situate, such to be held secure for
[ST>division among "JO's" biologic descendants as
described below<ST], if she survives me, and if so,
"JO" is to receive [ST>all the dividends and interest
income from such assets<ST] as long as she lives, and upon her
death this Trust will then be liquidated and the proceeds
[ST>divided as described below among "JO's" biologic
surviving descendants as administered by the two Executors,
BARNEY R. ARONSON and BARNEY P. ARONSON, or if one is dead, the
remaining named Executor may name a replacement, and these
Executors will have arranged the Trust to be effectuated at
Central Trust, Arcade, or such as they choose, and the
distribution of assets made as follows:
35% of residual estate to my son, BARNEY R. ARONSON;
*216 35% of residual estate to my grandson, BARNEY P. ARONSON;
15% of residual estate to my grandson, SCOTT HALEY ARONSON;
15% of residual estate to my grandson, CHARLES J.
ARONSON<ST].
The remainder of the third article of the 1991 will had a line through it and the word "redone" written next to it. Decedent also attached a sheet of paper with the following language to the revised copy of the 1991 will:
THIRD: I hereby create a Trust and give into it all the
rest, residue and remainder of my property of every kind and
nature and wheresoever situate, such to be held secure for my
grandson Barney Peter Aronson, if she [sic] survives me, and if
so, "Jo" is to receive as much income from such assets
as she needs, for as long as she lives, and upon her death this
Trust will then be liquidated and the proceeds given to my
grandson, Barney Peter Aronson, as administered by the Executor,
Barney Peter Aronson, or if he be dead, by alternate Executor,
son Barney Roman Aronson, or third, if he also be dead, by
grandson, Scott Haley Aronson, *217 or if Barney Peter Aronson
predecease me, Scott Haley Aronson shal [sic] take his place as
my heir and as Executor, or if "Jo" predeceases me,
division will proceed as ordered above.
A. The Executor will be paid the established legal
Executors Commission, which at this writing is understood
to be 5% of the first $ 100,000, 4% of the next $ 200,000, 3%
of the next $ 700,000, and 2
B. The Executor will see that "Jo", if she
survives me, receives interest and dividend income
sufficient to her needs.
C. If an emergency requires "Jo" to have some
of the assets in the Trust, the Executor will allot such
funds as he determines "Jo" needs.
D. Upon "Jo's" death, if she survives me, all
the estate shall go to Barney Peter Aronson as described
above.
E. In my personal effects are "Chuck Aronson's
Journals" which the Executor will keep safe and secure
in perpetutity, *218 [sic] to be used as seen fit, but in no way
destroyed.
On May 18, 1993, Mr. Newman wrote a letter to decedent. Mr. Newman wrote: "I have received your letter to me dated May 12th and have redrawn your wills per your request, copies of which I have enclosed. Please advise if they are satisfactory with you."
On May 20, 1993, decedent wrote a letter to Mr. Newman. Decedent pointed out a few typographical errors in the new draft of his will and instructed Mr. Newman to correct them. The new will otherwise looked fine to decedent, but decedent noted that he was not an expert about estates and the law; for that he depended on Mr. Newman. Decedent continued: "I am satisfied with the Wills (after the typos are corrected) and if you, too, are satisfied these Wills will go through Probate and all with no trouble or successful contesting, please have the final Wills prepared and witnessed and all as we did before."
On May 24, 1993, Mr. Newman wrote a letter to decedent. Mr. Newman informed decedent that he had finalized decedent's new will and wanted to come to the Big House on May 28, 1993, for decedent to execute the new will.
On May 28, 1993, decedent executed a new will*219 (1993 will). The 1993 will revoked all former wills and codicils and provided, in relevant parts, as follows:
SECOND: I hereby give, devise and bequeath my real property
(which shall include my residence which I refer to as
"Hundred Acres" should my wife, JOSEPHINE R. ARONSON,
hereinafter referred to as "JO", predecease me), my
vehicles and machinery to my grandson, BARNEY PETER ARONSON. It
is hereby stipulated that no changes or alterations in the
structure or the general make-up of the "Big House" on
Hundred Acres shall ever be made.
THIRD: I hereby create a Trust and give into it all the
rest, residue and remainder of my property of every kind and
nature and wheresoever situate, such to be held secure for my
grandson, BARNEY PETER ARONSON, if he survives me, and if so,
"JO" is to receive as much income from such assets as
she needs, for as long as she lives, and upon her death this
Trust will then be liquidated and the proceeds given to my
grandson, BARNEY PETER ARONSON, as administered by the Executor,
BARNEY PETER ARONSON, *220 or if he be dead, by alternate Executor,
my son BARNEY ROMAN ARONSON, or third, if he also be dead, my
grandson, SCOTT HALEY ARONSON, or if BARNEY PETER ARONSON
predecease me, SCOTT HALEY ARONSON shall take his place as my
heir and as Executor, or if "JO" predeceases me,
division will proceed as ordered above.
* * * * * * *
B. The Executor will see that "JO", if she
survives me, receives interest and dividend income
sufficient to her needs.
C. If an emergency requires "JO" to have some
of the assets in the Trust, the Executor will allot such
funds as he determines "JO" needs.
D. Upon "JO's" death, if she survives me, all
the estate shall go to BARNEY PETER ARONSON as described
above.
E. In my personal effects are "Chuck Aronson's
Journal's", which the Executor will keep safe and
secure in perpetutity, [sic] to be used as seen fit, but in
no*221 way destroyed.
* * * * * * *
FIFTH: I hereby direct that all inheritance, estate,
transfer, succession or other taxes (including any interest or
penalties) shall be paid out of my residual estate and that all
beneficiaries under this Will shall receive legacies, bequests
and devises free and exempt from any and all such tax payment.
LASTLY: I hereby nominate and appoint my grandson, BARNEY
PETER ARONSON, to be the executor of this my Last Will and
Testament, and the trustee of any trust herein created. I
further direct that the said executor and trustee shall act as
such without bond or other security in either event, and have
all the powers contained in the
Mr. Newman provided a proof of will to decedent.
On December 20, 1996, decedent died testate.
On January 9, 1997, Mr. Newman probated the 1993 will in the Surrogate's Court, State of New York, County of Cattaraugus (Surrogate's Court). Around this time, Mr. Newman advised Bar that once decedent had died and the 1993 will had been*222 probated, it could not be changed.
On January 25, 1997, Bar wrote a letter to Mr. Newman. Bar wrote: "Due to the complexities of the interpretation of my grandfather Chuck's will and the need for creative estate planning I have retained the services of an estate specialist: Mr. Roger Simon".
Mr. Simon was more experienced in estate planning than Mr. Newman. Decedent had not known Mr. Simon. Seidman & Seidman referred Bar to Mr. Simon. After talking to Mr. Simon, Bar thought there was a possibility that the 1993 will could be changed.
Mr. Simon suggested that Bar file a petition in the Surrogate's Court. Bar petitioned the Surrogate's Court in order to decrease the amount of estate tax owed.
On February 5, 1998, Bar filed a "PETITION UNDER SPCA 1420(A) FOR CONSTRUCTION AND REFORMATION OF WILL" regarding the 1993 will (1998 petition) in the Surrogate's Court. The 1998 petition referred to the 1993 will as "home-drawn" and "drawn by the Testator himself". The 1998 petition sought to reform and construe the third article of the 1993 will as requiring that all income of the trust be paid to Jo and to sever the trust holding the residue of decedent's estate into three separate trusts*223 -- a credit shelter trust, a reverse QTIP trust, and a residuary trust. The 1998 petition states: "The sole purpose and effect of the proposed construction, restructuring and severing of the Trust would be to insure that decedent's estate receives a full marital deduction, fully utilizes the decedent's credit shelter amount and reduces substantially the generation-skipping transfer ("GST") tax that will be payable by reason of distributions from the Trust." The 1998 petition asserts that decedent always intended to minimize the estate tax and GST tax on his estate. The 1998 petition further states: "Your Petitioner believes that if this Court will reform and construe Article THIRD of the Will to sever the residue of Decedent's estate into three trusts as set forth, this will insure the foregoing potentially considerable estate tax and GST tax savings."
On February 10, 1998, Jo filed a waiver and consent to the 1998 petition waiving service and consenting in full to the relief requested in the 1998 petition.
On February 17, 1998, Scott Haley Aronson filed a waiver and consent to the 1998 petition waiving service and consenting in full to the relief requested in the 1998 petition.
*224 On March 5, 1998, Bar filed an "AMENDED PETITION UNDER SPCA 1420(A) FOR CONSTRUCTION AND REFORMATION OF WILL" regarding the 1993 will (1998 amended petition) in the Surrogate's Court. The 1998 amended petition was virtually identical to the original petition and contained only a few changes -- such as adding Scott Haley Aronson as a beneficiary if Bar predeceased Jo.
On March 13, 1998, Jo and Scott Haley Aronson each filed a waiver and consent to the 1998 amended petition waiving service and consenting in full to the relief requested in the 1998 amended petition.
On March 16, 1998, the Surrogate's Court entered a decree granting the relief sought in the amended petition (Surrogate's Court decree). The Surrogate's Court construed the 1993 will to require that all income of the trust be paid to Jo at least semi-annually. The Surrogate's Court further ordered and decreed:
that Article THIRD of the said Last Will and Testament of
CHARLES N. ARONSON be reformed to read as follows:
THIRD
A. In the event that my wife, JOSEPHINE R. ARONSON,
survives me, I give and bequeath an amount equal to the
*225 exemption equivalent amount, as hereinafter defined, to my
Trustee hereinafter named, IN TRUST, for the following uses
and purposes:
1. My Trustee shall invest and reinvest the same
and shall collect and receive the income thereof and,
after deducting the necessary and proper expenses
therewith, shall pay over said net income to my wife,
JOSEPHINE R. ARONSON, in monthly, quarterly, or other
convenient payments of nearly equal amounts as
possible during her lifetime, provided, however, that
in no event shall such payments be made less
frequently than semi-annually.
2. I hereby authorize my Trustee, in his sole
discretion, in the event that both the principal of
the residuary trust and the principal of the reverse
Q-Tip trust shall at any time become exhausted, to
withdraw from the principal of this trust and*226 pay over
to my said wife, JOSEPHINE R. ARONSON, or for her
benefit, such amount or amounts as may be deemed
necessary or desirable for medical, surgical,
hospital, nursing or other expenses relating to any
illness of, accident to or emergency affecting my said
wife, or as may be determined necessary or desirable
for her maintenance and support.
3. Upon the death of my said wife, JOSEPHINE R.
ARONSON, after my death, or if she shall have
predeceased me, then at the time of my death, the then
remaining principal of this trust or the amount which
would have constituted the principal of this trust, as
the case may be, shall be paid over and distributed to
my grandson, BARNEY P. ARONSON, if he is living at the
time, to be his absolutely. In the event that the said
BARNEY P. ARONSON shall predecease the said JOSEPHINE
*227 R. ARONSON, the same shall be paid over and
distributed to my grandson, SCOTT HALEY ARONSON.
4. The exemption equivalent amount referred to
above shall equal the largest amount, if any, by which
my taxable estate for federal estate tax purposes
(determined without regard to this Article) could be
increased without increasing the federal estate taxes
payable by reason of my death after taking into
account the unified credit and credit for state death
taxes available against such tax (provided that the
credit for state death taxes shall not be taken into
account if I die a resident of a state whose estate or
other death tax is limited to the federal estate tax
credit for state death tax).
5. I direct my Executor to make the special
election under
*228 Code with respect to this trust so that I shall be
treated as the transferor of such trust for GST tax
purposes.
B. In the event that my wife, JOSEPHINE R. ARONSON,
survives me, I give and bequeath an amount equal to the
excess GST exemption amount, as hereinafter defined, to my
Trustee hereinafter named, IN TRUST, * * * for the
following uses and purposes:
1. My Trustee shall invest and reinvest the same
and shall collect and receive the income thereof and
after deducting the necessary and proper expenses
therewith, shall pay over said net income to my said
wife, JOSEPHINE R. ARONSON, in monthly, quarterly, or
other convenient periodic payments of as nearly equal
amounts as possible during her lifetime, provided,
however, that in no event shall such payments be made
less frequently than semi-annually.
*229 2. I hereby authorize my Trustee, in the event
that the residuary trust set forth hereinafter shall
be exhausted, to withdraw from the principal of this
trust and pay over to my said wife, JOSEPHINE R.
ARONSON, or for her benefit, such amount or amounts
as, in the sole discretion of my Trustee, may be
deemed necessary or desirable for medical, surgical,
hospital, nursing or other expenses relating to
illness of, accident to or emergency affecting my said
wife, or as may be determined necessary, desirable for
her maintenance and support.
3. In the event that the principal of this trust
contains unproductive property not likely to produce
income during her lifetime, my said wife, JOSEPHINE R.
ARONSON, shall have the power to require the Trustee
either to make such property productive or to convert
it*230 within a reasonable time to income producing
property. A written statement signed by my said wife
and delivered to my Trustee shall be sufficient for
this purpose.
4. Upon the death of my said wife, JOSEPHINE R.
ARONSON, after my death, or in the event my said wife
has predeceased me, then at the time of my death, the
entire remaining principal of this trust, or the
amount which would have constituted the principal of
this trust, as the case may be, shall be paid over and
distributed to my said grandson, BARNEY P. ARONSON, if
he is living at the time, to be his absolutely. In the
event that the said BARNEY P. ARONSON shall predecease
the said JOSEPHINE R. ARONSON, the same shall be paid
over and distributed to my grandson, SCOTT HALEY
ARONSON.
5. I hereby authorize my Executor, in his sole
*231 discretion, to elect that any part or all of the
amount passing under this Article THIRD (B) be treated
as qualified terminable interest property for the
purposes of qualifying for the marital deduction
allowable in determining the federal estate tax upon
my death.
6. The excess GST exemption amount shall equal
the amount by which my unused GST exemption (as that
term is used in
Code) available at the time of my death exceeds the
value of the property disposed of under Articles
SECOND and THIRD (A) above of this, my Last Will and
Testament.
7. I direct my Executor to make the special
election under
Code with respect to this trust so that I shall be
treated as the transferor of such trust for GST tax
*232 purposes.
C. All of the rest, residue and remainder of my
estate, real, personal and mixed, of whatever nature and
wherever situate, which I may own or have the right to
dispose of at the time of my death (hereinafter referred to
as "my residuary estate"), I give, devise and
bequeath to my Trustee hereinafter named, IN TRUST
(hereinafter referred to as "the residuary trust")
for the following uses and purposes:
1. My Trustee shall invest and reinvest the same
and shall collect and receive the income thereof and,
after deducting the necessary and proper expenses
therewith, shall pay over said net income to my said
wife, JOSEPHINE R. ARONSON, in monthly, quarterly, or
other convenient periodic payments of nearly equal
amounts as possible during her lifetime, provided,
however, that in no event shall such payments be made
*233 less frequently than semi-annually.
2. I hereby authorize my Trustee to withdraw from
the principal of this trust and pay over to my said
wife, JOSEPHINE R. ARONSON, or for her benefit, such
amount or amounts as, in the sole discretion of my
Trustee, may be deemed necessary or desirable for
medical, surgical, hospital, nursing or other expenses
relating to illness of, accident to or emergency
affecting my said wife, or as may be determined
necessary, desirable for her maintenance and support.
3. In the event that the principal of this trust
contains unproductive property not likely to produce
income during her lifetime, my said wife, JOSEPHINE R.
ARONSON, shall have the power to require the Trustee
either to make such property productive or to convert
it within a reasonable time to income producing
*234 property. A written statement signed by my said wife
and delivered to my Trustee shall be sufficient for
this purpose.
4. Upon the death of my said wife, JOSEPHINE R.
ARONSON, after my death, or in the event my said wife
has predeceased me, then at the time of my death, the
entire remaining principal of this trust, or the
amount which would have constituted the principal of
this trust, as the case may be, shall be paid over and
distributed to my said grandson, BARNEY P. ARONSON, if
he is living at the time, to be his absolutely. In the
event that the said BARNEY P. ARONSON shall predecease
the said JOSEPHINE R. ARONSON, the same shall be paid
over and distributed to my grandson, SCOTT HALEY
ARONSON.
5. I hereby authorize my Executor, in his sole
discretion, to elect that any part or all of the
*235 amount passing under this Article THIRD (C) be treated
as qualified terminal [sic] interest property for the
purposes of qualifying for the marital deduction
allowable in determining the federal estate tax upon
my death.
D. I hereby direct that the for the purpose of
calculating annual Trustee commissions hereunder (and
solely for that purpose), the trusts created under
Paragraphs A, B, and C above shall be aggregated and
treated as one trust and such commissions shall be charged
to each such trust on a pro-rata basis.
The Surrogate's Court entered the Surrogate's Court decree without holding any hearings -- no witnesses were called to testify, no affidavits were submitted, and no evidence was received by the Surrogate's Court.
On May 14, 1998, Bar, as executor, timely filed a Federal estate tax return on behalf of decedent's estate (the return). On page 2 of the return, in the schedule for individuals (other than the surviving spouse), trusts, and estates who received*236 benefits from the estate, the sole person listed was Bar in the amount of $ 1 million. Schedule E, Jointly Owned Property, of the return listed $ 1,065,420.63 of qualified joint interests. Schedule F, Other Miscellaneous Property Not Reportable Under Any Other Schedule, of the return listed two safe deposit boxes that decedent and Jo held jointly. On Schedule M, Bequests, etc., to Surviving Spouse, of the return, the "No" box was checked next to "Election Out of QTIP Treatment of Annuities". On Form 712, Life Insurance Statement, attached to the return, Jo was listed as the owner and beneficiary of life insurance on decedent's life.
OPINION
*238 Pursuant to
The Economic Recovery Tax Act of 1981 (ERTA),
*240 A QTIP interest must meet the requirements of
An interest passing in trust, however, does not provide that the surviving spouse is entitled to "all the income" to the extent that the income may be accumulated in the discretion of any person other than the surviving spouse or to the extent that the consent of any person other than the surviving spouse is required for distribution of the income.
A determination of the nature of the interest that passes to the surviving spouse is made pursuant to the law of the jurisdiction under which the interest passes.
"[I]n construing a will, *242 the intention of the testator must be our 'absolute guide'".
The testator's intent is to be ascertained not from a single word or phrase, but from a sympathetic reading of the will as an entirety and in view of all the facts and circumstances under which the provisions of the will were framed.
Under the terms of the trust at issue (i. e., in the 1993 will), Jo is not "entitled to all the income from the property, payable annually or at more frequent intervals" as is required by
In the context of the trust at issue, the provision for "as much income from such assets as she needs, for as long as she lives" gives Jo only such income as she may reasonably need, but not necessarily all the income that she may demand. See
The fact that the 1993 will does not make specific provision for the disposition of the income in excess of the amount Jo needed does not establish decedent's intention that there would be no excess income. See
The 1993 will, as executed by decedent, and as in existence at the time of his death, fails to establish that Jo is "unqualifiedly designated as the life beneficiary". Furthermore, the 1993 will does not designate Jo as the "sole income beneficiary for life."
The estate contends that the language of the 1993 will is ambiguous. Even if the estate is correct, and we are permitted to look at extrinsic evidence, the extrinsic evidence does not support the estate's contention that decedent intended (1) to leave his wife all the income from the trust, (2) to enable the estate to qualify for the marital deduction under the terms of the 1993 will, or (3) to minimize the estate's tax liability.
Before the time that decedent executed the 1993 will, the record shows that decedent was aware of the QTIP provisions and the marital*247 deduction. Before the 1993 will, decedent had a will which contained a QTIP provision. Mr. Newman was aware of the marital deduction when he prepared decedent's wills.
Mr. Newman received specific directions from decedent regarding the provisions and language to be used in the 1993 will (as well as decedent's prior wills that Mr. Newman worked on). The directions were detailed and explicit. In order to follow decedent's directions, Mr. Newman was careful to make sure he used decedent's words. Mr. Newman did not draft the following language contained in the 1993 will: "' Jo' is to receive as much income from such assets as she needs, for as long as she lives". The language was chosen by decedent and reflected his directions; Mr. Newman merely had the words decedent chose typed.
Bar testified that during decedent's later years, many of decedent's investment decisions were made to ensure Bar would be able to maintain Hundred Acres and the Big House. Decedent's intent that Hundred Acres and the Big House be maintained after his death is also evident from the succession of wills he had prepared and the letters he wrote accompanying the preparation of those wills.
In the 1980 will, decedent*248 did not leave Bar the Big House or the Little House. After Bar moved to Hundred Acres, decedent changed his will (the 1982 will) to leave Bar the use of the Little House. In the 1988 proposed will, the Big House was distributed to decedent's eight descendants per capita. Later in 1988, decedent decided to give Hundred Acres and the Big House solely to Bar. At that time, decedent was also concerned that changes would be made to the Big House, so he had his will rewritten (the July 1988 will) to prevent that from happening. In 1991, decedent eliminated his great- grandchildren from his will and increased Bar's share to make sure Bar would have enough money to maintain Hundred Acres and the Big House. In 1993, decedent eliminated his only child and all his grandchildren other than Bar to make sure Bar would have enough money to maintain Hundred Acres and the Big House. Decedent also repeatedly asked Mr. Newman, and his C.P.A., to provide him figures on what his estate would be worth after taxes to ensure that there would be enough money left over after taxes for Bar to maintain Hundred Acres and the Big House.
Additionally, the language of the 1980 will, 1982 will, 1988 proposed will, *249 July 1988 will, and 1991 will provided that all the income from the trusts created in those wills was to be paid to Jo. Decedent, when drafting the 1993 will, specifically deleted the language providing that all the income from the trust was to be paid to Jo. Decedent, when drafting the 1993 will, substituted the language limiting the distributions from the trust to the amount of income Jo needed.
Furthermore, decedent specifically contemplated, and expressly indicated, that estate taxes would be paid. He asked numerous questions about the estate tax. He was informed of the GST tax. Decedent repeatedly, and explicitly, indicated that he would rather pay estate tax than give up control over how his estate was distributed. Decedent repeatedly, and explicitly, indicated that he expected that estate taxes would be paid. The fact that the 1993 will made provisions for the payment of estate taxes reflected decedent's expectation that there would be estate taxes that would need to be paid. Decedent's April 13, 1993, explanation of the 1993 will also contemplated a sizable estate tax and GST tax "burden".
Decedent's other major concern (other than maintaining Hundred Acres and the Big House*250 as a monument to him) was that his estate pass through probate with no difficulties. Decedent included language in the 1988 proposed will, which he wrote, for Mr. Newman to sign indicating that the will would pass through probate with no difficulties. Decedent restated this concern in 1993 when he wrote to Mr. Newman and sought assurance that his will would go through probate successfully and would withstand any challenges.
The extrinsic evidence shows that Mr. Newman did exactly as decedent wished: He used the language decedent wanted, he prepared a will that was probated successfully, and he prepared a will in which decedent set aside money after taxes for Bar to maintain Hundred Acres and the Big House. Decedent specifically did not have the 1993 will drafted with an intention to maximize the marital deduction or minimize the estate tax. Accordingly, there is no reason to contort the language decedent used to achieve that result. See
Accordingly, the extrinsic evidence fails to show that decedent intended*251 that Jo be "entitled to all the income" from the trust.
The estate argues that after giving proper regard to the Surrogate's Court decree, the trust qualifies as a QTIP interest. We disagree.
The Surrogate's Court decree did not merely clarify the 1993 will. The 1993 will did not require that all the income go to Jo; the Surrogate's Court decree, however, required all the income to go to her. The 1993 will did not require payments to be made at any specific time; the Surrogate's Court decree, however, mandated "monthly, quarterly, or other convenient payments of nearly equal amounts as possible during her lifetime, provided, however, that in no event shall such payments be made less frequently than semi- annually." The Surrogate's Court decree also made voluminous other changes to the trust provided for by decedent in the 1993 will. The Surrogate's Court decree is more than a mere clarification; it is a substantial change in the 1993 will (and the trust created therein) made after respondent had secured rights under the 1993 will. Accordingly, we will not give it effect. See
Additionally, the Surrogate's Court decree was not a bona fide evaluation of the rights of Jo because there was not a "genuine and active contest" in the Surrogate's Court -- the decree was rendered by consent. See
Furthermore, the Surrogate's Court decree was based on incorrect information (i. e., that decedent intended to minimize the estate tax and GST tax on his estate) provided by Bar. 8 Had the Surrogate's Court heard the testimony of Mr. Newman or been provided the letters that decedent wrote, it would have been clear to the Surrogate's Court that decedent's intention was not to minimize the*253 estate taxes or GST taxes on his estate.
The estate contends that New York law and public policy favor the marital deduction and presume that taxpayers wish to take advantage of it. The estate relies on
Even so,
The estate also cites
N.Y.
Furthermore, the estate relies on a presumption. Even if the law and public*255 policy favor the marital deduction and presume that taxpayers wish to take advantage of it, the taxpayer's express direction overrides this presumption. Decedent expressly stated on numerous occasions that he would rather pay tax than give up control of his estate. Whereas decedent indicated in 1988 that Bar should fight any valuation of the estate that he felt was excessive and decedent was willing to make $ 10,000-per-year gifts (although it is not clear that decedent still felt this way when he drafted the 1993 will), decedent wanted control over the property each beneficiary would receive and was not willing to give up this control in order to minimize estate tax. Decedent, when he rewrote his own will, eliminated language referring to the marital deduction and eliminated QTIP provisions from his wills.
The estate also argues that N.Y.
Except in the case of a trust which is revocable by such person
during lifetime, a power conferred upon a person in his or her
capacity as trustee of an*256 express trust to make discretionary
distribution of either principal or income to himself or herself
or to make discretionary allocations in his or her own favor of
receipts or expenses as between principal and income, cannot be
exercised by him or her. * * * If there is no trustee qualified
to execute the power, its execution devolves on the supreme
court or the surrogate's court, except that if the power is
created by will, its execution devolves on the surrogate's court
having jurisdiction of the estate of the donor of the power.
The trust in the 1993 will did not give Bar discretionary power to make distributions of income or principal to himself or allocations in his own favor. Even if it did, this power would devolve on the Surrogate's Court. Furthermore, N.Y.
*257 We conclude that the interest in the trust created by the 1993 will does not qualify for the estate tax marital deduction as "qualified terminable interest property" within the meaning of
To reflect the foregoing,
Decision will be entered for respondent.
1. Around 1981, Bar had moved into the Little House on Hundred Acres.↩
2. Additionally, because decedent and Jo were recluses, decedent wanted someone close by who could come to Hundred Acres.↩
3. Decedent included this language at the end of the 1988 proposed will along with a space underneath it for Mr. Newman to sign.↩
4. Although this letter is dated Mar. 18, 1987, it is clear from the testimony at trial, the contents of the letter, and the fact that the letter bears a "received" stamp dated Mar. 21, 1988, that this date is merely a typographical error and the letter was written in 1988.↩
5. For the first time in the reply brief, the estate raises the issue of respondent's bearing the burden of proof pursuant to
We note, however, because we make our determination on the basis of the evidence in the record rather than on a failure to carry the burden of proof by a party bearing the burden, our decision in this case does not depend on which party bears the burden of proof.↩
6.
(7) Election with respect to life estate for surviving
spouse. --
* * * * * * *
(B) * * * For purposes of this paragraph --
(i) In general. -- The term "qualified
terminable interest property" means property --
(I) which passes from the decedent,
(II) in which the surviving spouse has a
qualifying income interest for life, and
(III) to which an election under this
paragraph applies.
(ii) Qualifying income interest for life. -- The
surviving spouse has a qualifying income interest for
life if --
(I) the surviving spouse is entitled to all
the income from the property, payable annually or
at more frequent intervals, * * * and
(II) no person has a power to appoint any
part of the property to any person other than the
surviving spouse.↩
7. In light of our holding, we need not address the issue of whether the trust fails to qualify as a QTIP interest, and for the marital deduction, because Jo was not entitled to receive distributions payable annually or at more frequent intervals.↩
8. We make no finding regarding whether Bar intentionally provided information he knew to be incorrect to the Surrogate's Court in order to obtain a result that would significantly reduce the amount of taxes owed by the estate (and thereby increase the amount of his inheritance). That does not change the fact, however, that the Surrogate's Court based its actions on incorrect information.↩
9. Even if
Frank F. And Judith J. Foil v. Commissioner of Internal ... , 920 F.2d 1196 ( 1990 )
Estate of Carl I. Heim, Deceased, Isabelle J. Heim v. ... , 914 F.2d 1322 ( 1990 )
In re the Estate of Choate , 141 Misc. 2d 489 ( 1988 )
Commissioner v. Estate of Bosch , 87 S. Ct. 1776 ( 1967 )