DocketNumber: Docket No. 5102-70
Citation Numbers: 58 T.C. 348, 1972 U.S. Tax Ct. LEXIS 120
Judges: Goffe
Filed Date: 5/18/1972
Status: Precedential
Modified Date: 1/13/2023
*120
Decedent bequeathed to his wife the unrestricted right to use any part of the whole of the residuary estate during her lifetime and upon her death any portion not used or disposed of by her would go to his son and his son's heirs.
*348 OPINION
The respondent determined a deficiency of $ 10,212.32 in the Federal estate tax against the Estate of Walter L. Edwards, deceased. Petitioner is executor of the estate.
The sole issue is whether the interest in property passing to decedent's widow under his last will and testament qualifies for the marital deduction or constitutes a terminable interest under section 2056(b) of the Code. 1
All of the facts in this case have been stipulated. The stipulation of facts and exhibits attached are incorporated herein and adopted as our findings of fact.
Walter L. Edwards (hereinafter referred to as testator or decedent) died a resident of Union, Union County, N.J., on February 20, 1968, leaving a last will and testament which was admitted to probate in the Surrogate's Court of Union County, N.J.
*349 On March 5, 1968, Robert*122 L. Edwards was appointed executor of the estate and at the time of filing the petition herein, he was a resident of Springfield, N.J.
The decedent was survived by his wife, Lottie M. Edwards (hereinafter referred to as Lottie), and one son, Robert, the petitioner herein, both of whom are still living.
The controversy herein centers around paragraph Second of the decedent's will which is as follows:
SECOND. -- All the rest, residue and remainder of my estate, whether real, personal or mixed, of whatsoever kind, character or description and wheresoever situated, I give the unrestricted right to use any part or the whole thereof to my wife, LOTTIE M. EDWARDS, during her lifetime. So much of my residuary estate as remains unused or undisposed of by my wife at the time of her death, I direct shall go to my son, ROBERT L. EDWARDS, to him, his heirs and assigns forever.
Should my wife predecease me, my residuary estate is to go to my son, ROBERT L. EDWARDS, to him, his heirs and assigns forever.
The Federal estate tax return for the Estate of Walter L. Edwards was filed by the petitioner with the district director of internal revenue at Newark, N.J., on November 21, 1968. In the estate*123 tax return, the petitioner claimed a marital deduction in the amount of $ 73,654.51, consisting of $ 20,786.62 in value of joint and survivor property, and $ 52,867.89 representing the value of property passing under paragraph Second of the will.
Respondent disallowed the marital deduction claimed on the return to the extent of $ 52,867.89, by his determination that the property interest passing to the widow under the provisions of paragraph Second of the will constituted a terminable interest as defined in section 2056(b).
The Transfer Inheritance Tax Bureau of the State of New Jersey levied an inheritance tax against the surviving spouse, Lottie M. Edwards, on the basis that the bequest to her was equivalent to a fee interest.
Petitioner contends that the widow receives under paragraph Second of the will a fee simple interest.
Respondent contends that the interest of the widow is not a fee simple, and further that the interest does not qualify for the marital deduction as a life estate coupled with a power of appointment, as the power is not exercisable by the widow in all events as required by section 2056(b)(5) because New Jersey law imposes on the widow a limitation that she *124 may exercise the power of appointment only in good faith and that as a life tenant she holds the property as a trustee for the remainderman.
The parties agree that New Jersey law is controlling.
*350 Under New Jersey law, if a testator uses language indicating an intent to create a life estate, nothing more is created, even though the lifetime beneficiary is also given an absolute, unrestricted, and unlimited power of disposition.
If, however, the bequest is in general terms, expressing neither a life estate nor a fee simple interest, and also gives to the life tenant an absolute, unrestricted, and unlimited power of appointment, under New Jersey law the testator is deemed to have created a fee simple interest.
The absence or presence of a power of disposition in the grantee is not determinative of whether a life estate or fee simple interest is created.
*125 We conclude that the language in paragraph Second of the testator's will clearly expresses an intent to give a life estate. The interest is described in terms of the lifetime of Lottie. Similar language has been construed by the New Jersey courts to create life estates.
It is immaterial that the State of New Jersey taxing authorities determined the interest to be fee simple and levied an inheritance tax thereon.
We conclude that paragraph Second of the will created a life estate in the widow; therefore, we must determine whether it qualifies under section 2056(b)(5) as an exception to the definition of a terminable interest.
Section 2056(b)(5) specifies five conditions which must be satisfied in order for a power of appointment to qualify as an exception to the terminable interest*126 definition. Respondent does not question that the power of appointment contained in paragraph Second of the will satisfies four of the five requirements. He urges, however, that Lottie does not possess the power to appoint in all events. In order for the power to be exercisable in all events, the surviving spouse must have the unrestricted power exercisable at any time during her lifetime to use any or all of the property, subject to the power and to dispose of the property in any manner including the power to dispose of it by gift. Sec. 20.2056(b)-5(g)(3), Estate Tax Regs.
Respondent contends that Lottie does not possess an unrestricted power to dispose of the property during her lifetime because New Jersey law imposes upon her a standard that she may exercise the power only in good faith and that she holds the property in trust for the *351 remainderman. Such restrictions, argues respondent, fall short of the requirement that a power of appointment in the life tenant, in order to qualify for the marital deduction, must be exercisable by the life tenant "in all events." Sec. 20.2056(b)-5(g)(3), Estate Tax Regs.
Respondent relies upon
We likewise do not find respondent's argument persuasive that the life tenant is a trustee for the remainderman and, therefore, restricted in disposing of the property during her lifetime. Respondent relies upon
In
Neither the occasion nor the carrying out of the intents and purposes of paragraph Sixth presently require the appointment of a trustee. The unrestricted use of the
Imposing the trust upon a life tenant does not alter his power to invade the corpus granted him by the will. As the clear language of the opinion demonstrates, the life tenant is a trustee for the remaindermen whether he possesses the power of disposal or not. The trusteeship of the life tenant is directed toward the question of appointment of a trustee. In
We hold, therefore, that Lottie possesses a power of appointment exercisable in all events as contemplated by section 2056(b)(5) of the Code, and section 20.2056(b)-5(g)(3), Estate Tax Regs.
The property passing to the widow under*131 the provisions of paragraph Second of the will qualifies for the marital deduction.
1. All statutory references are to the Internal Revenue Code of 1954, as amended, unless otherwise indicated.↩