DocketNumber: Docket No. 26200-84.
Citation Numbers: 54 T.C.M. 1, 1987 Tax Ct. Memo LEXIS 566, 1987 T.C. Memo. 379
Filed Date: 8/3/1987
Status: Non-Precedential
Modified Date: 11/20/2020
Decedent and his deceased wife executed a joint and mutual will leaving certain property to the survivor of them, with the remainder to named beneficiaries.
MEMORANDUM FINDINGS OF FACT AND OPINION
FEATHERSTON,
VANDERVORT,
In the notice of deficiency issued to Jesse L. Grimes (hereinafter referred to as "decedent"), who died on November 2, 1985, respondent determined a gift tax liability of $ 164,308.43 for taxable year 1979. The deficiency is attributed to respondent's determination that, pursuant to Illinois law, decedent became contractually bound by the provisions of a joint and mutual will to transfer to his son and three granddaughters, all of decedent's interest in certain personal property and a remainder interest in real property, in which decedent held an interest at the time of the death of his spouse. 1987 Tax Ct. Memo LEXIS 566">*568 On January 2, 1975, decedent and his wife, (Ressie), executed the "Joint and Mutual Last Will and Testament of Jesse L. Grimes and Ressie F. Grimes" (the will). Shortly thereafter, on March 20, 1975, the couple executed the "First Codicil to Joint and Mutual Last Will and Testament of Jesse L. Grimes and Ressie F. Grimes" (the Codicil). On April 17, 1979, Ressie died testate and a domiciliary of the State of Illinois. The Will and Codicil were admitted to probate in the Circuit Court of Piatt County, Illinois, with decedent appointed executor on May 30, 1979.
The couple's holdings at that time consisted of various parcels of real estate and numerous savings accounts held either individually, as tenants-in-common or as joint tenants.
The will contains a prefatory statement which recites that decedent and Ressie:
* * * do each jointly and mutually, in consideration of the other's making his will, of the provisions made herein in each other's behalf, and the sum of ONE DOLLAR ($ 1.00) in hand paid, by each of us to the other, receipt whereof is hereby acknowledged, make this our Joint and Mutual Last Will and Testament, and agree that the same shall not be changed or revoked by either 1987 Tax Ct. Memo LEXIS 566">*569 of us without the written consent of the other and agree that any joint tenancy property owned by us at the date of the death of the first one of us dying shall not be capable of being disposed of by the survivor but shall pass only as hereinafter provided * * *.
Clause Second of the will states:
We give and bequeath to each other respectively, all personal estate of every kind and character, including notes and accounts and choses in action, and including household goods which either of us may own at the time of the one first dying, excepting our Savings & Loan accounts, our life insurance proceeds and our bonds which we each will, devise and bequeath to our son, Charles E. Grimes.
Clause Third of the will contains the instructions regarding the disposition of the couple's real estate.
We hereby give, devise and bequeath to each other respectively, for and during the term of the natural life of the survivor of us, all our respective interests in the real estate hereinafter described in this THIRD clause of our Joint and Mutual Will and which real estate for convenience and brevity is referred to in this Will after the particular description thereof, by tracts numbered from one to 1987 Tax Ct. Memo LEXIS 566">*570 nine inclusive * * *.
This devise is on condition that the survivor * * * is further required to keep the buildings on said premises insured for their fair insurable value. Provided that in case any of said buildings should become damaged or destroyed by fire or other inevitable accident, that any money collectible by such survivor under any policies of insurance on said building or buildings shall be used by such survivor in rebuilding said destroyed or damaged buildings or otherwise expended in the improvement of said real estate.
Clauses Fourth and Fifth are specific bequests of the real property mentioned in Clause Third.
FOURTH: Subject to the life estate herein by the THIRD clause of this our Joint and Mutual Will given to the survivor of us, we hereby give and devisee [sic] Tracts #1, #2, #3, #4, #5, #6, and #7 to our beloved son, CHARLES E. GRIMES, in fee simple.
FIFTH: Subject to the life estate herein by the THIRD clause of this our Joint and Mutual Will given to the survivor, we hereby give, devise and bequeath Tracts #8 and #9 to be divided equally between the three daughters of our deceased daughter, Lucile Hawthorne, namely: JEAN SWANSON, KAREN HAWTHORNE AND JANE HAWTHORNE. 1987 Tax Ct. Memo LEXIS 566">*571
The balance of the will outlines the direction of any rest, residue and remainder, sets forth a plan for disposition upon the untimely death of all the beneficiaries under the Will and contains instructions regarding the appointment of an executor. The Codicil provides for a change in a specific bequest of a tract of real property and is not pertinent to the resolution of the issues presented in this motion.
Respondent argues that the provisions of the will effected a present gift, by descendent to his son, of all decedent's interest in savings accounts held by him at his wife's death. Additionally, respondent argues that, at Ressie's death, decedent had only a life estate in the real property specified in the will, thereby creating a present gift of the remainder interest in the real property to decedent's son and granddaughters. In support of this position respondent maintains that, at the time of Ressie's death, decedent relinquished all dominion and control over the savings accounts and real property. Thus, the obligation to transfer the property constituted a transfer subject to Federal gift tax under the provisions of
In its cross-motion, petition maintains 1987 Tax Ct. Memo LEXIS 566">*572 that decedent did not give up dominion and control over the savings accounts or the real property specified in the will. Petitioner further argues that decedent had the power to consume the subject property, thereby making the valuation of a present gift of a remainder interest impossible, resulting in no present transfer subject to Federal gift tax.
Upon careful consideration of the record before us, we find that the facts of this case are not in dispute, and that as a matter of law decedent did not make a present gift of the savings accounts in which he had an interest at the time of the death of his spouse. We do find, however, that as a matter of law decedent did make a present 1987 Tax Ct. Memo LEXIS 566">*573 gift of the remainder interest in
The regulations under section 2511 state that "As to any property or part thereof or interest therein, of which the
In determining whether decedent gave up control over the property we look to Illinois state law. The nature and extent of an interest or right in property is controlled by state law.
Under Illinois law a joint and mutual will is a single testamentary instrument which contains the wills of two or more persons. It is executed jointly and can dispose of property owned in every fashion by the testators.
Agreements to make joint and mutual wills are, in general, valid under Illinois law.
The will in the present case is entitled "
Having found a joint and mutual will, we turn to respondent's first contention that under Clause Second of the will, decedent was required to transfer his interest in all savings accounts, to his son, at the time of the death of his spouse. The resolution of this issue does not rest on the fact that this is a joint and mutual will, but on the fact that the provisions of the will must be given their plain and unambiguous meanings.
In examining Clause Second of the will, it is clear that the savings accounts in which Ressie 1987 Tax Ct. Memo LEXIS 566">*577 had an interest at her death were disposed of in two ways. Those accounts which she held in joint tenancy with decedent passed outside of the will to decedent at the instant of Ressie's death.
However, decedent's interest in the savings accounts, whether held prior to his spouse's death or received on account of Ressie's death, did not pass concurrently to decedent's son, nor does Clause Second require such a result. The provision plainly provides that upon the death of either spouse, the decedent spouse shall pass
Joint and mutual wills create a life estate in the surviving spouse of all property passing under the will and agreement.
Therefore, without express language to the contrary, the life tenant is severely constrained in the use of the property passing under a joint and mutual will. 1987 Tax Ct. Memo LEXIS 566">*582
In the current case, the will grants no authority or discretion to the survivor to convey, consume or otherwise dispose of the subject property. Furthermore, Clause Third of the will, which expressly creates a life estate in the survivor, also requires that the survivor conserve the property for the beneficiaries by keeping the premises properly insured and by rebuilding, repairing or improving any destroyed or damaged buildings.
In addition to the limitations placed on the life estate holder, Illinois recognizes certain defined rights in the remaindermen designated in a joint and mutual will. These rights have their origin in the fact that Illinois courts agree that the contractual obligation created by a joint and mutual will made pursuant to an agreement is enforceable.
The remaindermen under a joint and mutual will, although not able to get immediate possession of property bequeathed in the will, are "entitled to a specific enforcement of that contract in a court of equity. This right arises upon the death of the first testator under a joint and mutual will."
In light of the restrictions placed upon decedent and the rights granted to the remaindermen under the will by Illinois jurisprudence, we find that decedent parted with dominion and control so as to complete a present gift of a remainder interest in the savings accounts and real property at the time of Ressie's death. By entering into the contract underlying the will, decedent contracted away his ability to convey, gift or consume the property. To decide otherwise, would be to ignore the intent and purpose of the instant and mutual will. At the death of decedent's spouse, the scheme for disposition 1987 Tax Ct. Memo LEXIS 566">*584 of the couple's property crystallized; we will not at this time change the contract or the provisions of the will simply for tax purposes.
In the recent case of
In an earlier case in this Court, we recognized the potential gift taxability arising from the use of the joint and mutual will. In
It is without question in the current case that at the death of the first to die, all of the couple's property came under the provisions of the Will and agreement. Neither party reserved any right to control the disposition of the property, but agreed that it would pass as provided in the will. As a result, the survivor gave up dominion and control over all property passing under the Will. Therefore, decedent's gift of the remainder interest, in the property in which he had a life estate pursuant to the Will, was complete for gift tax purposes.
1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise indicated. All rule references are to the Tax Court Rules of Practice and Procedure unless otherwise noted. ↩
2. The property at issue consists of eleven separate savings accounts and eight parcels of real estate as follows:
Interest of | Balance at | |
Account | Petitioner | April 17, 1979 |
Acct. #30,650-26 | Tenant in common | |
Bloomington Federal | with Ressie F. | |
Savings and Loan | Grimes | $ 5,769.97 |
Acct. # 35,064-26 | Tenant in common | |
Bloomington Federal | with Ressie F. | |
Savings and Loan | Grimes | $ 19,107.28 |
Acct. #07 008833 0, | ||
Citizens Savings and | Owned individually | |
Loan Association | by decedent | $ 8,036.16 |
Acct. # DDD4-431, | ||
Leroy Savings and | Owned individually | |
Loan Association | by decedent | $ 18,227.50 |
Acct. # DDD4-432, | Tenant in common | |
Leroy Savings and | with Ressie F. | |
Loan Association | Grimes | $ 18,227,50 |
Acct. # DDD4-437, | Joint tenant | |
Leroy Savings and | with Ressie F. | |
Loan Association | Grimes | $ 4,523.44 |
Acct. # DDD4-438 | Joint tenant | |
Leroy Savings and | with Ressie F. | |
Loan Association | Grimes | $ 4,523.44 |
Acct. # DDD4-325, | Joint tenant | |
Leroy Savings and | with Ressie F. | |
Loan Association | Grimes | $ 5,828.88 |
Acct. # DDD4-326, | Joint tenant | |
Leroy Savings and | with Ressie F. | |
Loan Association | Grimes | $ 5,828.88 |
Acct. # DDD4-329, | Joint tenant | |
Leroy Savings and | with Ressie F. | |
Loan Association | Grimes | $ 5,788.02 |
Acct. #DDD4-330, | Joint tenant | |
Leroy Savings and | with Ressie F. | |
Loan Association | Grimes | $ 5,788.02 |
Tract | |
Number | Interest of Decedent |
1 | Tenant in common with Ressie F. Grimes |
2 | Joint tenant with Ressie F. Grimes |
3 | No interest: property disposed of |
prior to April 17, 1979 | |
4 | Tenant in common with Ressie F. Grimes |
5 | Tenant in common with Ressie F. Grimes |
6 | Tenant in common with Ressie F. Grimes |
7 | No interest: owned by Ressie F. Grimes |
in fee simple | |
8 | No interest: owned by Ressie F. Grimes |
in fee simple | |
9 | Owned by decedent in fee simple |
3. Not only does this interpretation strain the plain meaning of the language in the Will, it dictates a ludicrous result. Decedent would have, in effect, given away all of his savings, at the time of his wife's death, leaving neither interest nor principal at his disposal for the remainder of his years. "Tortured constructions will not negate the intention expressed on the face of the Will."
4. Clauses Fourth and Fifth of the will make it quite clear that the couple's intention was to provide the survivor with only a life estate interest in the real property remaining at the death of the first to die.
Clause Third: We hereby give, devise and bequeath to each other respectively, for and during the
In addition, Clauses Fourth and Fifth both start with the language "subject to the
5. Although the court in
6. Petitioner relies heavily on the general statement of the power of a life tenant found in 97 C.J.S., Wills, section 1367(2), at 309 (1957), for support of its position that decedent had absolute dominion and control over the contested assets. However, the principles enunciated there are not derived from Illinois jurisprudence. Illinois does recognize a life estate with a power to convey
Petitioner also relies on
7. In addition, Illinois law imposes several duties upon the life tenant. These duties are to "prevent waste, not to manipulate the title so as to defeat the remaindermen, and not to transfer the property for an inadequate consideration."
8. Petitioner relies on
9. The surviving spouse in
Gaston v. Hamilton , 108 Ill. App. 3d 1145 ( 1982 )
Peck v. Drennan , 411 Ill. 31 ( 1951 )
Adickes v. S. H. Kress & Co. , 90 S. Ct. 1598 ( 1970 )
Moline National Bank v. Flemming , 91 Ill. App. 3d 398 ( 1980 )
Helms v. Darmstatter , 34 Ill. 2d 295 ( 1966 )
Tontz v. Heath , 20 Ill. 2d 286 ( 1960 )
Bonczkowski v. Kucharski , 13 Ill. 2d 443 ( 1958 )
Rauch v. Rauch , 112 Ill. App. 3d 198 ( 1983 )
Estate of William A. Lidbury, Deceased, Harry Lidbury, ... , 800 F.2d 649 ( 1986 )
Jusko v. Grigas , 26 Ill. 2d 92 ( 1962 )
Grubmeyer v. Mueller , 385 Ill. 529 ( 1944 )
First United Presbyterian Church v. Christenson , 64 Ill. 2d 491 ( 1976 )
Grace S. Pyle, a Disabled Adult, by Carolyn Straub, ... , 766 F.2d 1141 ( 1985 )
Illinois Masonic Children's Home v. Flynn , 109 Ill. App. 3d 744 ( 1982 )
Thomas v. First National Bank , 134 Ill. App. 3d 192 ( 1985 )