32 T.C. 1218">*1218 OPINION.

The respondent determined a deficiency in estate tax of petitioner's estate in the sum of $ 27,248.53.

All of the facts are stipulated and they are found accordingly. The parties also stipulate that the sole issue for decision is: "Whether the 255 shares of common capital stock in Semmes Bag Company, Inc., having a value of $ 247,916.10, as bequeathed in Item V of the decedent's [Thomas J. Semmes] last Will and Testament qualifies as a marital deduction."

Thomas J. Semmes, a resident of Shelby County, Tennessee, died testate on March 6, 1956. His will, which had been executed on November 3, 1954, was probated in said county and the Probate Court appointed his widow, Elaine, executrix.

Item V of the will provided, in part, as follows:

I hereby bequeath 255 shares (constituting 51% control) of my common stock in Semmes Bag Company, Inc., to my wife, Elaine P. Semmes, as Trustee for herself and my three children, if my said wife should survive me for three (3) months. My wife shall have sole power of management and control of said trust property, and1959 U.S. Tax Ct. LEXIS 86">*88 shall have sole power of management and control of said trust property, and shall receive for her own benefit during her lifetime all the dividends and other income derived from said trust, and she shall have 32 T.C. 1218">*1219 the right to sell said stock and reinvest the proceeds of sale, at her discretion, provided that she must sell the whole of said stock when she elects to sell, and not retain any of this block of 255 shares. Any reinvestment she may make of the proceeds of the sale, shall be impressed with the same trust herein provided for. She shall have the sole right to vote said stock at any stockholders meeting of the Semmes Bag Company, Inc. My wife shall have the right to encroach upon the principal or corpus of said trust property for her own benefit, at any time she sees fit, without accounting to my children, or their representatives. Upon the death of my wife, said trust property shall be divided equally among my three children, or their direct issue should any child predecease my wife, the children of such deceased child to receive that child's portion. In the event of the death of any of my three children without issue, said trust property is to be divided among1959 U.S. Tax Ct. LEXIS 86">*89 the surviving children. Should all my children and their issue predecease my wife, then this trust shall terminate and the trust property shall belong absolutely and totally to my wife to do with as she pleases. My wife is hereby relieved of making bond either as trustee or as executrix.

The remaining portion of Item V made provision for an alternate trustee if the wife should die before testator's youngest child reached 21 years of age; the division of the trust corpus after the wife's death when the youngest child reached 21 years of age; and the distribution of the stock to his children if the wife did not survive testator for 3 months.

On the return filed for decedent's estate, a marital deduction for the value of stock passing under Item V, in the sum of $ 247,916.10, was claimed.

Respondent agreed with the valuation of the stock but determined the sum did not qualify for a marital deduction under the provisions of section 2056(b), I.R.C. 1954, ¹ and disallowed the marital deduction in the sum of $ 247,916.10.

1959 U.S. Tax Ct. LEXIS 86">*90 Section 2056(a) provides for a deduction from the value of the gross estate of "an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse."

Petitioner's first argument is that under the law of the State of Tennessee the granted powers to Elaine to encroach upon the principal of the trust for her benefit and at any time she saw fit, makes Elaine "the absolute owner of the 255 shares of stock." Petitioner argues that the widow's interest in the trust property "was the equivalent of a fee simple estate under Tennessee law" and petitioner seems to argue the bequest over after Elaine's death, would, under Tennessee law, be void. Petitioner cites Smith v. Bell, 8 Tenn. 301">8 Tenn. 301 (1827); Sevier, et al. v. Brown, 32 Tenn. 112">32 Tenn. 112 (1852); Waller v. Sproles, 160 Tenn. 11">160 Tenn. 11, 22 S.W.2d 4; Haskins v. McCampbell, 189 Tenn. 482">189 Tenn. 482, 226 S.W.2d 88 (1949); and Marsh v. Porch, 35 Tenn. App. 62">35 Tenn. App. 62, 242 S.W.2d 691 (1951).

32 T.C. 1218">*1220 1959 U.S. Tax Ct. LEXIS 86">*91 No detailed discussion of the cited cases is necessary. We have examined them and we do not feel they are in point here. All but the Waller case were situations in which no life estate was involved and the courts were construing whether the language of bequest to the first taker was sufficient to constitute the gift of a fee so that an attempted gift over would be void. In the Waller case where there was a life estate "with an absolute power of disposal" in the life tenant, the Court held "the fee vests in the first taker, and the limitation over is void." However, the opinion recognizes if the life tenant's power of disposition were "restricted, limited, or contingent" the result would be otherwise.

It is doubtful if any of the cited cases would have any application when the gift is to a trust and, apparently, the rule of the Waller case was changed by statute when Tennessee adopted what is now section 64-106, Tenn. Code Ann. (1955). ²

1959 U.S. Tax Ct. LEXIS 86">*92 We cannot conclude that, under the law of Tennessee, the widow was the absolute owner or had the equivalent of a fee interest in the trust corpus.

Petitioner's main argument is that the value of the 255 shares of stock conveyed to the trust by Item V is deductible from the value of the gross estate by virtue of section 2056(b)(5). This section allows a marital deduction for a life estate passing to a surviving spouse with a power of appointment, as follows:

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

(b) Limitation in the Case of Life Estate or Other Terminable Interest. --

* * * *

(5) Life estate with power of appointment in surviving spouse. -- In the case of an interest in property passing from the decedent, if his surviving spouse is entitled for life to all the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), 1959 U.S. Tax Ct. LEXIS 86">*93 and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse --

32 T.C. 1218">*1221 This paragraph shall apply only if such power in the surviving spouse to appoint the entire interest, or such specific portion thereof, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.