1967 U.S. Tax Ct. LEXIS 131">*131
47 T.C. 641">*642 The respondent determined a deficiency in estate tax in the amount of $ 29,844.54 in respect of the Estate of S. Wentworth Horton. The sole question for our determination is whether the surviving spouse's interest in real property that passed under Horton's will qualifies for the marital deduction under
1967 U.S. Tax Ct. LEXIS 131">*133 FINDINGS OF FACT
All of the facts have been stipulated.
S. Wentworth Horton, hereinafter referred to as the decedent, died on October 2, 1960, 12 days before his 75th birthday, a resident of the State of New York.
On October 9, 1960, Gertrude I. Warner was appointed executrix of decedent's estate.
She filed an estate tax return on January 2, 1962, with the district director of internal revenue, Brooklyn, N.Y.
The decedent was survived by his wife, Martha M. Horton, and his two sons, David Barnabas Horton and Stewart Woodford Horton.
The decedent's will, dated February 16, 1950, was duly admitted to probate on October 9, 1960. It had been drawn by the decedent's brother-in-law, who was an insurance agent.
The third and fourth paragraphs of decedent's will are as follows:
THIRD: All the rest, residue and remainder of my estate, real, personal and mixed, of whatsoever kind and wheresoever situate, to which I may be entitled, or of which I may have power to dispose at my demise, I give, devise and bequeath absolutely to my beloved wife, MARTHA M. HORTON.
FOURTH: Should my said wife predecease me, or should she die before said residuary estate shall have been distributed to her, then 1967 U.S. Tax Ct. LEXIS 131">*134 and in such event I give, devise and bequeath said residuary estate, in equal shares, to our two sons, DAVID BARNABAS HORTON and STEWART WOODFORD YOUNG HORTON, absolutely.
The petitioner claimed a marital deduction of $ 150,890.50, an amount equal to 50 percent of the value of the adjusted gross estate.
The deduction consisted of $ 57,030.39 attributable to assets that passed outside the will and $ 93,860.11 attributable to the wife's interest in real estate that passed under the residuary clause quoted above.
The respondent determined that a marital deduction was allowable in the amount of $ 57,030.39.
47 T.C. 641">*643 OPINION
The respondent's position is that the wife's interest in real property that passed under the will was a nondeductible, terminable interest. The petitioner argues that under New York law the real property vested indefeasibly in the wife at the decedent's death and therefore the wife's interest in such property qualifies for the marital deduction.
(b) Limitation in the Case of Life Estate or Other Terminable Interest. -- (1) General rule. -- Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of1967 U.S. Tax Ct. LEXIS 131">*135 an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed under this section with respect to such interest -- (A) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse); and (B) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse; * * *
The nature of the interest that passed to the wife under the decedent's will is a question of State law.
1967 U.S. Tax Ct. LEXIS 131">*137 The petitioner relies on
Upon the death of a testator title to his real property vests in the devisees named in his will.
In the use of the terms "possession of" and "title to" with reference to any funds or property under his will, the testator evidently had in mind the distinction between property which descends immediately and property which is transferred only after the estate is administered. In respect of his personal property the legal title would be in his executors and the legatees would not be entitled to possession until the administration of the estate had proceeded to such a point that the executors could make distribution. The title to the real estate would devolve upon the devisees immediately without any act on the part of the executors. In one case there1967 U.S. Tax Ct. LEXIS 131">*140 would be distribution only when the executors had acted to distribute the property and in the other case there would be distribution immediately.
The petitioner argues that in the instant case the decedent, by conditioning the wife's bequest upon her survival to the date of "distribution," had in mind the same distinction between the devolution of real and personal property and therefore the effect of the fourth paragraph of the will, as to decedent's real property, was merely to require that the wife be living at his death.
47 T.C. 641">*645 We do not think that a New York court would place such a construction upon the will. The language of the will in the
FOURTH: Should my said wife predecease me,
Also, the petitioner, in arguing for a liberal construction of the will with respect to tax consequences, points out that the will was drafted by a nonlawyer. In our view that fact undercuts the contention that the testator intended, by using the word "distribution," to embody the rather subtle double meaning given to that term by the
The decedent might have intended in some general way to insure that the wife's interest would not vest indefeasibly until she was able personally to possess and enjoy the assets passing under the residuary clause. If that had been his intention it would not follow that, as to realty, he intended his wife's interest to vest indefeasibly at death. His death may have caused title to pass to her, but his will provided, "My Executrix, or Executor, shall have full power to sell, 1967 U.S. Tax Ct. LEXIS 131">*142 lease, mortgage or otherwise dispose of, all or any part of my estate, as she, or he, may deem advisable, in the administration thereof." 3 Thus, the death of the testator did not of itself enable the wife to possess or enjoy real property passing under the residuary clause.
1967 U.S. Tax Ct. LEXIS 131">*143 The term "distribution," in addition to the meaning relied upon by the petitioner, could refer to the actual distribution of estate assets or to the entry of a decree of partial or final distribution. See 12 47 T.C. 641">*646 Carmody-Wait, Cyclopedia of New York Practice, sec. 2152. We think these are the more common meanings of the word and therefore more likely to have been intended by the decedent. We think it unlikely that the decedent had in mind the time at which his wife would have been entitled to bring an action to require the executrix to pay over the wife's distributive share. See N.Y. Surr. Ct. Act sec. 217; N.Y. Decedent Estate Law sec. 146. Cf. sec. 2102(5), Surr. Ct. Proc. Act, Laws 1966, ch. 953 (effective Sept. 1, 1967). If our assumptions are correct, it follows that respondent's determination must be upheld since neither sort of "distribution" would necessarily occur within 6 months after the death of the decedent. 4
1967 U.S. Tax Ct. LEXIS 131">*144 We have considered the New York cases containing statements to the effect that an estate given in one part of a will, in clear and decisive terms, cannot be taken away or cut down by raising a doubt upon the extent or meaning or application of a subsequent clause, nor by inference therefrom nor by any subsequent words that are not as clear and decisive as the words giving that estate. See, e.g.,
1967 U.S. Tax Ct. LEXIS 131">*146 The court held that the quoted provision did not apply to those who took under the residuary clause. That was sufficient to dispose of the distributee's contention regardless of the meaning given to the word "received" in the provision conditioning the legacies, as the court pointed out. Nevertheless the court also ventured upon a construction of the word "received." It stated (
The gifts of the general legacies of money are * * * made in language that creates an absolute gift to each legatee. * * * The rule is established that the courts refuse to cut down an estate already granted unless such terms of limitation in themselves show a clear intention to do so by use of words definite in their meaning. * * *
The highly important word in paragraph 16 is the word "received." What did the testatrix intend by the use of that word? Did she mean to divest the objects of her bounty if they should die before a certain time? And, if so, what time did she choose? The word "received," coupled with other words of intent, may be construed to relate to several periods when the general legatees may "receive" 1967 U.S. Tax Ct. LEXIS 131">*147 the gifts: (1) When the legacies were vested at the time of death or the probate of the will * * * (2) when the legacies are enforceable, which may be seven months after the grant of letters * * * (3) when part payment of the legacy may be made; (4) when the legacies are actually "received," which may be some distant time at the whim or caprice of the executors. * * *
Which time did she intend to have the legacies "received?" Evidence is necessary to establish in what sense the decedent used the ambiguous word in question, but extraneous evidence was not forthcoming to assist in deciding the question as an issue of fact. There is nothing in the language of the will to indicate what the will-maker intended by the use of the word "received." * * *
* * * *
The word "received" as used in paragraph 16 is indefinite, inconsistent, and repugnant to the words of absolute gift and I hold the paragraph is void for ambiguity. It should be wholly disregarded as meaningless and nugatory. * * *
The
Congress has carved out a specific exception to the terminable interest rule permitting persons to take advantage of the marital deduction while at the same time 1967 U.S. Tax Ct. LEXIS 131">*149 providing for an alternative gift in the event of the death of the surviving spouse soon after the death of the other. As the Supreme Court has stated, "The achievement of the purposes of the marital deduction is dependent to a great degree upon the careful drafting of wills * * *."
1. All statutory references are to the Internal Revenue Code of 1954 unless otherwise noted.↩
2. Two Circuit Court of Appeal cases, applying the law of Oklahoma and Missouri, have upheld denials of a marital deduction where the interest of the surviving spouse was conditioned upon surviving the administration of the testator's estate.
Marital deductions have been allowed in two cases involving interests conditioned on survival to the date of distribution.
In two cases Federal courts have accepted State court determinations that the interest of the surviving spouse vested indefeasibly at death.
3. The will also provided:
"SEVENTH: If my Executrix, or Executor, decides to sell any or all of my estate, real or personal, she, or he may do so, at public or private sale, for such price or prices as she, or he, may deem expedient, giving good and sufficient title thereto, without responsibility on the part of the purchaser or purchasers thereof for the mis-application or the non-application of the purchase price paid for such property. Neither of said appointees shall be required to file a bond for faithful performance of her, or his duties."
If the will had been silent on the powers of the executrix she would have had the power under New York law to take possession of, collect the rents from, manage, sell, lease, or mortgage the real property passing under the residuary clause. See former sec. 13, N.Y. Deced. Est. Law, Laws 1929, ch. 229, sec. 1; amended, Laws 1947, ch. 722, effective Sept. 1, 1947; repealed, Laws 1964, ch. 681, sec. 1, effective June 1, 1965. The present provision is sec. 127(2)(f), N.Y. Deced. Est. Law. Cf.
4.
(3) Interest of spouse conditional on survival for limited period. -- For purposes of this subsection, an interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if -- (A) such a death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedent's death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event; and (B) such termination or failure does not in fact occur.
Sec. 20.2056(b)-3(d), Estate Tax Regs., states:
5. The case cited for the canon quoted in the text contains and has been cited for a counter-canon, i.e., that an instrument is to be construed, if possible, so as to avoid repugnancies and contradictions, and to give effect to all of its words and provisions. See 1 Davids, New York Law of Wills, sec. 465, fn. 22.↩
