1975 U.S. Tax Ct. LEXIS 25">*25
Decedent and his former wife while domiciled in Pennsylvania in 1950 entered into a separation agreement which was binding whether or not a divorce was later obtained by either. The agreement provided for monthly payments to the wife for her life or until her remarriage, these payments to be secured by a trust created by decedent the income of which was payable to decedent so long as he was not in default with the monthly payments and the corpus of which was to be distributed to decedent upon the death or remarriage of his former wife. After the execution of the agreement and the creation of the trust the wife filed an action for an absolute divorce from decedent as it was contemplated she would do when the agreement was entered into. The divorce decree made no reference to the separation agreement. After decedent's death the trustee continued the monthly payments to the wife even though the Pennsylvania Common Pleas Court held the payments to be a liability of the estate and not secured solely by the trust.
65 T.C. 391">*392 OPINION
Respondent determined a deficiency of $ 225,446.01 in the Federal estate tax of the Estate of Robert F. Iversen. The issues for decision are (1) whether any consideration in money or money's worth was received by decedent for the creation of a trust to secure payments to his former wife so that the value of the trust assets includable in the gross estate should be reduced by the value of such consideration under
All facts have been stipulated and are found accordingly.
Robert F. Iversen (Robert or decedent), a resident of Florida, died testate on May 24, 1969. By his will dated December 20, 1966, he appointed his brother, John D. Iversen (John) his executor. The will was admitted to probate on June 4, 1969, and letters testamentary were issued to John by the County Judge's Court, Charlotte County, Fla. John appointed Pittsburgh National Bank (Bank) as his agent in carrying out his responsibilities as executor of Robert's estate. At the time of the filing of the petition in this case the legal residence of John was Pittsburgh, Pa. On August 11, 1970, a United States Estate Tax Return (Form 706) for decedent's estate was filed with the District Director of Internal Revenue, Jacksonville, Fla.
Robert married Mary Elizabeth McKeever (Mary) on April 2, 1938, in Massachusetts. No children were born of this marriage.
In early 1950 Robert and Mary, then residents of 1975 U.S. Tax Ct. LEXIS 25">*32 Pennsylvania, separated. Each retained local counsel for representation with respect to their marital difficulties. Both parties were desirous of obtaining a divorce and settling their property interests. During the separation period Mary continued 65 T.C. 391">*393 to live in the family home and Robert paid for the upkeep and maintenance of the home as well as living expenses for Mary.
On September 8, 1950, Robert and Mary entered into an agreement (the separation agreement). This agreement which was executed in Pennsylvania provided in part as follows:
Whereas, they are no longer living together, and realizing that it will no longer be possible for them to live together as husband and wife, they have hereunto entered into this Agreement in order to settle their marital and property rights without resorting to legal proceedings, except as hereinafter provided; and
Whereas, the parties hereto have agreed upon the sums to be paid by the husband to the wife and the manner of payment in full satisfaction of any claim or demand which the wife now has or had or in the future may have against the husband for the wife's support and maintenance; and
Whereas, the husband and wife have agreed upon1975 U.S. Tax Ct. LEXIS 25">*33 the discharge of the wife's marital rights and the sums and manner of payment, and have agreed upon the discharge of the husband's marital rights; and
Whereas, it is intended that the wife will proceed in a diligent manner to obtain a divorce a vinculo matrimonii promptly after the execution of this Agreement; and
Whereas, it is intended that this Agreement be incident to a decree in any divorce proceedings, whether instituted by the wife or by the husband;
Now, Wherefore, in consideration of the premises and the covenants hereinafter contained, the parties hereunto each intending to be legally bound hereby agree as follows:
* * *
65 T.C. 391">*394
* * *
This Agreement shall be binding upon the parties hereto, their respective heirs, executors, administrators and assigns.
Pursuant to the sixth paragraph of the separation agreement, Robert entered into an agreement of trust (the trust agreement) dated September 8, 1950, and created a trust (the Mary Iversen Trust or the trust) with the Commonwealth1975 U.S. Tax Ct. LEXIS 25">*37 Trust Co. of Pittsburgh as trustee. The Union National Bank of Pittsburgh (Union) was the successor by consolidation to Commonwealth Trust Co. of Pittsburgh. The trust agreement provided in part as follows:
That one of the primary intentions of the parties concerned in this matter is that the fund, or securities hereinafter mentioned, shall be available in the nature of protection and security for Mary Elizabeth Iversen with reference to the monthly payments of One Thousand Dollars ($ 1,000.00) hereinafter 65 T.C. 391">*395 mentioned and the lump sum of $ 75,000.00 which she is to receive upon remarriage, all as set forth in a Separation Agreement between the Settlor and the said Mary Elizabeth Iversen (hereinafter called "the wife" or "Mrs. Iversen"), executed contemporaneously with the execution of this agreement and dated the same day and of which this agreement is made a part.
* * *
To Have and to Hold in Trust Nevertheless for the uses and purposes and upon the terms, trusts and conditions with the powers and authority hereinafter mentioned and expressed.
1. The Trustee shall collect the income of the securities held hereunder and, after deducting therefrom any charges and expenses1975 U.S. Tax Ct. LEXIS 25">*38 properly chargeable to income in the administration of the Trust, shall pay the net income therefrom as and when received to the Settlor during the term of this Trust except as hereinafter provided.
2. In the event the Settlor is in default for more than thirty days in any manner respecting the monthly payments to his present wife, Mary Elizabeth Iversen, the Trustee shall pay to the said Mrs. Iversen or her authorized representative the sum of One Thousand Dollars ($ 1,000.00) per month for as long as she lives or until her remarriage, or any portion thereof not paid to the said Mrs. Iversen by the Settlor. Said payment or payments shall first be made from income and then from corpus. The Trustee shall make said payment ten days after receiving written notice, verified by affidavit, of such default, signed by Mrs. Iversen or her authorized representative. Upon receipt of such notice of default the Trustee shall mail a copy thereof to Settlor and to Fidelity Trust Company, Settlor's agent, as long as said Trust Company continues to be said agent. After receipt of the first notice of default, the Settlor shall be considered to be continually in default, and the Trustee shall continue1975 U.S. Tax Ct. LEXIS 25">*39 to make said payments until Mrs. Iversen has been paid in full to that date. No payments shall be made by the Trustee to the Settlor while he is in default.
* * *
3. (a) This trust shall terminate upon the occurrence of either of the following events, namely (1) the death of Mrs. Iversen or (2) her remarriage.
(b) If the Settlor, within thirty days after written notice from Mrs. Iversen of her remarriage, given to the Trustee and the Settlor, has not paid Mrs. Iversen the sum of $ 75,000.00 as provided in the Third paragraph of the separation Agreement above mentioned, Mrs. Iversen at her option, at any time more than ten days after the expiration of said thirty-day period, may demand and receive from the Trustee said sum of $ 75,000.00 which the Trustee shall pay to her out of principal or accumulated income. Mrs. Iversen covenants and agrees that upon her remarriage she promptly will notify the Settlor thereof; if she fails to do so, any of the $ 1,000.00 payments which she may receive as owing to her for the period after her remarriage shall be credited against the said lump sum payment herein mentioned.
(c) Upon the termination of this trust and the satisfaction of all payments1975 U.S. Tax Ct. LEXIS 25">*40 due to Mrs. Iversen, the remainder of the principal and any accumulated income shall forthwith be paid over by the Trustee to the Settlor or to the personal representative of the Settlor, if the Settlor is deceased, less reasonable compensation, charges and expenses of the Trustee.
65 T.C. 391">*396 * * *
5. Neither the principal nor the income of the trust estate or estates created hereunder, or any part thereof, shall or may at any time be liable or subject in any manner whatsoever to the contracts, debts, engagements, liabilities or torts now or hereafter made, contracted, incurred, or committed, by Mrs. Iversen; nor shall the principal or income of the trust estate or estates be subject to execution, attachment, sequestration, judgment, or other process; nor shall any assignment or order, either of principal or income, given by Mrs. Iversen be valid; but the principal and income payable to Mrs. Iversen shall be paid by the Trustee direct to or for the use of Mrs. Iversen, without regard to any assignment, order, attachment or claim whatever; and all of the principal and income shall remain a part of the trust estate until paid over direct to or for the use of Mrs. Iversen.
On September1975 U.S. Tax Ct. LEXIS 25">*41 14, 1950, Mary filed a complaint seeking an absolute divorce from Robert in the Court of Common Pleas of Allegheny County, Pa.Robert did not answer the complaint. After a hearing the Court of Common Pleas of Allegheny County, Pa., entered its decree on December 12, 1950, granting Mary an absolute divorce from Robert. The divorce decree made no reference to either the separation agreement or the trust agreement.
Robert remarried on January 12, 1951. Mary never remarried. During the period of their marriage both Robert and Mary were sane.
At the time the separation agreement was executed Mary had little or no separate property of her own, nor did she have an income of her own, from employment or otherwise. Robert was discharged from the United States Navy in 1945 and from that time the only income he received was from assets which he owned and from trusts of which he was a beneficiary. For 5 years prior to the date of the execution of the separation agreement Robert's annual average income after taxes was $ 33,000. At the time the separation agreement was executed Robert owned in his own name securities valued at approximately $ 514,014 and the family home valued at approximately1975 U.S. Tax Ct. LEXIS 25">*42 $ 50,000.
On September 8, 1950, Robert was the beneficiary of a trust established by his father (the Robert Iversen Trust), the corpus of which had an approximate value of $ 238,597. This trust agreement generally provided that any current or accumulated income was distributable to Robert in the discretion of the trustee and any undistributed income and the principal of the trust were distributable to Robert after his father's death as 65 T.C. 391">*397 follows: One-third at age 33, one-half of the balance at age 38, and the balance at age 45. If Robert predeceased his father, Robert's estate or his legatee designated by will was to receive as of the time of his father's death the trust estate. On September 8, 1950, Robert along with his four brothers and sisters and his mother were beneficiaries of another trust established by Robert's father (the insurance trust), the total value of which was approximately $ 388,969. The trust agreement generally provided that after the death of Robert's father the income of the trust was to be applied as determined in the trustee's discretion to support Robert's mother for her lifetime with any excess to be divided equally or as otherwise deemed appropriate1975 U.S. Tax Ct. LEXIS 25">*43 by the trustee among her five children including Robert. Upon the death of Robert's mother, the trust estate was to be divided into five shares with each child currently receiving the income attributable to his share. Upon the death of Robert's father the principal of the trust was to be distributed with the following limitations with respect to Robert: Not more than one-sixth of his undivided one-fifth interest before age 30, not more than one-third of such interest before age 35, and not more than two-thirds of his interest before age 60. If Robert predeceased his father, his share upon his father's death was to be distributed to his estate or to his legatees by will. On September 8, 1950, Robert was a beneficiary of another trust established by his two sisters (the Mayer-Dixon Trust), the trust estate having an approximate value of $ 978,639. Pursuant to this trust agreement the income was to be accumulated and upon the death of Robert's father the accumulated income and principal were to be distributed equally to each of the five children including Robert but with the same limitations with respect to Robert as were contained in the insurance trust. Robert was born on April1975 U.S. Tax Ct. LEXIS 25">*44 16, 1916, and was 34 years old at the time of the execution of the separation agreement. Robert's father died on April 12, 1967.
Pursuant to the first paragraph of the separation agreement Robert paid Mary $ 50,000. Robert filed a Federal Gift Tax Return reflecting this transfer on March 14, 1951.
Pursuant to the second paragraph of the separation agreement Robert paid Mary $ 1,000 per month from October 1950 until his death in May 1969. Mary was born on December 24, 1914, and was 54 years old at the time of Robert's death. Union as trustee continued the monthly payments in the amount of $ 1,000 to 65 T.C. 391">*398 Mary until her death on February 2, 1973. The total amount paid to Mary by Union as trustee was $ 46,000.
Mary never filed a formal claim against Robert's estate.
On May 15, 1970, John filed with the Court of Common Pleas of Allegheny County, Pa., Orphans' Court Division, a petition for the proration of Federal estate tax due by reason of Robert's death. The petition requested that the estate tax be prorated among five entities: Robert's probate estate, the Mary Iversen Trust, the Mayer-Dixon Trust, the insurance trust, and a revocable trust established by Robert on January1975 U.S. Tax Ct. LEXIS 25">*45 29, 1951. After a hearing on July 1, 1970, the Allegheny County Court entered its order dated July 9, 1970, prorating the Federal estate tax among the above-mentioned entities. For such order it was decreed that the Mary Iversen Trust "which is being held as security for monthly payments to Mrs. Iversen and a lump-sum payment upon remarriage, is not the sole asset of the estate securing said payments, but the payments are also liabilities of the balance of the Estate of the Decedent."
The Federal estate return filed by John reported a taxable estate of $ 2,158,807.07. Included in the gross estate on Schedule G of this return was the amount of $ 283,209.33 explained as the value of the Mary Iversen Trust estate in the amount of $ 447,945.89 reduced by commuted value of the $ 1,000 monthly sums payable to Mary as provided by the separation agreement in the amount of $ 164,736.56. The executor elected to have the gross estate valued as of a date subsequent to decedent's death pursuant to section 2032.
In his notice of deficiency respondent disallowed the claimed reduction in the value of the trust on the grounds that the reduction was not deductible under
1975 U.S. Tax Ct. LEXIS 25">*47
65 T.C. 391">*399 If a decedent has made an inter vivos transfer of property other than by a bona fide sale for adequate consideration under circumstances described in
1975 U.S. Tax Ct. LEXIS 25">*49 Marital rights in decedent's property or estate are not considered to be consideration in money or money's worth with respect to transfers of property otherwise includable in the gross estate under
The parties agree that the value of the assets of the Mary Iversen Trust totaled $ 447,945.89 at the optional valuation date under section 2032 which was selected by the executor in filing the estate tax return and that such value was includable in decedent's gross estate.
Petitioner's primary position is that the amount includable in decedent's gross estate by virtue of the trust which had been established by Robert in accordance with the separation agreement should be reduced under
It is respondent's position that under the facts of this case decedent's gross estate is not reduced under
1975 U.S. Tax Ct. LEXIS 25">*54 The separation agreement provided that Robert immediately pay Mary the sum of $ 50,000 and pay the sum of $ 1,000 per month until her death or remarriage and that if Mary remarried, pay her the sum of $ 75,000 in discharge of her marital rights other than her right to support. The agreement further provided that "to provide for the true and faithful performance of the above covenants" Robert at the time of or prior to the execution of the separation agreement transfer stocks or security with at least a value in the amount of $ 220,000 to a trust to be set up pursuant to a written agreement, a copy of which was attached. The trust agreement stated that one of the primary intentions of the parties was that the trust fund was "in the nature of protection and security" for Mary with reference to the monthly payments in the amount of $ 1,000 and the lump sum payment in the amount of $ 75,000. The trustee was to currently pay the income of the trust to Robert unless Robert defaulted in making the monthly payments and notice of such default was presented by or on behalf of Mary to the trustee, in which event the trustee was to pay Mary from the trust estate such sums not paid to Mary 1975 U.S. Tax Ct. LEXIS 25">*55 by Robert. Further if Robert failed to pay Mary the sum of $ 75,000 upon notice from Mary of her remarriage, Mary at her option could receive payment of such amount from the trustee. However, the separation agreement provided that Mary's rights to the monthly and lump-sum payments were not limited "to the security provided" for in the trust.
65 T.C. 391">*403 In light of these facts in this fully stipulated case, we conclude that the record fails to show that any independent consideration was exchanged for Robert's transfer of assets to the Mary Iversen trust. That trust was created as security for the payment to Mary to be made in return for the release of Mary's marital rights, including her right to support. The transfer of assets to the trust was not made in exchange for Mary's marital rights including her right to support inasmuch as these marital rights were exchanged for the payments specified in the separation agreement for which Robert or his estate was liable and remained liable with the trust estate merely a security arrangement. While we recognize that an unsecured payment may be less valuable than a secured payment and that the separation agreement and trust agreement were1975 U.S. Tax Ct. LEXIS 25">*56 both part of one integrated transaction in settlement of Mary's marital rights including her right to support, there is no evidence in this record to indicate that Mary demanded any less for her marital rights by virtue of the security that was provided by the trust. Since Robert possessed at the time of the separation agreement a substantial estate, it would be unrealistic to assume, without proof, that any portion of the marital rights relinquished by Mary was attributable to Robert's transfer of assets to the trust. See
Our determination that under the facts of this case decedent's gross estate is not reduced pursuant1975 U.S. Tax Ct. LEXIS 25">*57 to
The more difficult question is whether the value of Mary's claim under the separation agreement against decedent's estate to the monthly sums for her lifetime or until her earlier remarriage is deductible as a claim against the estate under
1975 U.S. Tax Ct. LEXIS 25">*59 Transfers of property made pursuant to a decree of the divorce court and not pursuant to an agreement negotiated between the parties prior to divorce have been held not to be founded upon a "promise or agreement" but upon the divorce decree which is deemed to provide a consideration in money or money's worth for the transfers of property to the wife, and consequently, the claim is deductible from the gross estate under
The type of consideration flowing to the transferor of property that is considered a consideration in money or money's worth and not proscribed by
While Mary at the time of the execution of the separation agreement had no presently enforceable claim under Pennsylvania law to an outright portion of Robert's estate upon divorce, 8 she did have the right to support and maintenance under Pennsylvania law while she was Robert's wife.
1975 U.S. Tax Ct. LEXIS 25">*63 Respondent argues that the second paragraph of the separation agreement provided that Robert pay Mary monthly the amount of $ 1,000 as long as she remained his wife and that, should she no longer remain his wife but obtain a divorce a vinculo matrimonii, he pay her the same amount each month in effect for his right to remarry. Respondent asserts that his interpretation of the separation agreement is buttressed by the conduct of the parties to the agreement insomuch as Mary filed for a divorce from the bonds of matrimony on September 14, 1950, a decree of absolute divorce was granted on December 12, 1950, and Robert remarried on January 12, 1951.
Robert and Mary entered into the separation agreement on September 8, 1950. Robert and Mary agreed that he pay her monthly the amount of $ 1,000 for maintenance and support as long as she remained his wife and "in the event a decree of divorce is obtained" by either Robert or Mary, Robert pay Mary such monthly amount "in lieu of alimony and in settlement of such legal obligation imposed upon him because of the marital relationship now existing between the parties." Further Mary agreed to release Robert from any right to additional support1975 U.S. Tax Ct. LEXIS 25">*64 "she now has, has had, or hereinafter may have." Lastly Robert and Mary agreed that the separation agreement was not to be abrogated nor its terms affected, except as expressly provided, by "any decree of divorce, a vinculo matrimonii or a mensa et thoro, which may hereafter be entered" and that the agreement was binding upon the parties, their respective heirs, executors, administrators, and assignees.
In our view the facts do not support respondent's premise that for her claim against the estate Mary relinquished only her right to support after an absolute divorce. While the separation agreement is not unambiguous, in our view the intent of the parties as expressed therein was that Mary would promptly proceed "to obtain an absolute divorce," but the agreement was to be binding upon them whether in fact she obtained such a divorce or obtained a decree of divorce from bed and board. The 65 T.C. 391">*407 agreed-upon monthly payments were in satisfaction of Mary's right to support and maintenance that existed under Pennsylvania law at the time the separation agreement was executed or which would accrue to her under Pennsylvania law should a decree of divorce from bed and board be granted. 1975 U.S. Tax Ct. LEXIS 25">*65 See
The preamble to the separation agreement provided that the parties had agreed to the amount and manner of Robert's payments in full satisfaction of any claim which Mary then had or had had or in the future may have against Robert for her support. The second paragraph of the separation agreement dealt principally with the amount and timing of Robert's payments to Mary. The seventh and eighth paragraphs of the separation agreement dealt more directly with Mary's release of her right to support. Pursuant to the second paragraph of the separation agreement, Robert was to pay the monthly amounts while Mary remained his wife and in the event a divorce decree was obtained by either of them Robert would continue to make the payments. While an absolute divorce is the only divorce which severs the bonds of matrimony, we do not construe the words "a decree of divorce" as used in the second paragraph of the separation agreement to refer only to a decree of absolute divorce. It is more reasonable that "a decree of divorce" referred to either a decree of an absolute divorce or of a divorce from bed and board. As 1975 U.S. Tax Ct. LEXIS 25">*66 stated in the preamble to the agreement, Robert and Mary intended that Mary obtain an absolute divorce and if they had meant "a decree of divorce" as used in the second paragraph to mean only an absolute divorce decree they would have stated "the decree of divorce" as the parties did with reference to their anticipated absolute divorce in the first paragraph of the separation agreement which provided that Robert pay Mary the amount of $ 50,000 before the entry of "the decree of divorce." Further, the separation agreement in the 12th paragraph made reference to "any decree of divorce, a vinculo matrimonii or a mensa et thoro" which infers that "a decree of divorce" in the 2d paragraph intended either such decree. If the parties had intended "a decree of divorce" to mean only absolute divorce, in our view they would not have provided for either of them obtaining a divorce decree as they did in the 2d paragraph and the 12th paragraph, insomuch as they intended that Mary promptly proceed in a diligent manner to obtain an absolute 65 T.C. 391">*408 divorce. Further, the interpretation of "a decree of divorce" to encompass only an absolute divorce would render meaningless the provision that the1975 U.S. Tax Ct. LEXIS 25">*67 monthly payments after a divorce decree were "in lieu of alimony and in settlement of such legal obligation imposed upon him because of the marital relationship now existing between the parties" as under Pennsylvania law, the State in which both parties resided at the time of the execution of the separation agreement and in which that agreement was executed, Robert had no legal obligation to pay alimony after a decree of absolute divorce.
In our view the characterizing of Robert's payments as "in lieu of alimony" and the reference to "in settlement of such legal obligation" were viewed by the parties as necessary to protect Robert from having to make additional alimony payments to Mary in the event that she later sought and obtained a divorce from bed and board with an award of alimony.
To accept respondent's construction of the separation agreement requires the conclusion that Mary exacted1975 U.S. Tax Ct. LEXIS 25">*68 a considerable sum from Robert for her release of a right to support that did not exist under Pennsylvania law. It is more reasonable to conclude that under the separation agreement Mary received the substantial monthly payments in exchange for her release of existing rights to support that had substantial value. The absolute divorce of Robert and Mary after the time of the execution of the separation agreement, is not determinative or helpful in construing the terms of the separation agreement. The agreement was effective upon its execution irrespective of whether any decree of divorce was obtained. In fact Mary's filing of her complaint seeking an absolute divorce upon the execution of the separation agreement suggests that the payments under it were for her existing support rights under Pennsylvania law. We conclude that under the separation agreement Robert made the payments to Mary in return for the discharge of her claim against him to support that existed at the time of the separation agreement under Pennsylvania law by reason of her being at that time his wife. We have held a release by a wife of her existing right to support is "consideration in money or money's worth" 1975 U.S. Tax Ct. LEXIS 25">*69 65 T.C. 391">*409 under
Having concluded that there was consideration for Robert's agreement to pay Mary $ 1,000 each month for her lifetime or until her earlier remarriage, it becomes necessary to determine whether the claim against Robert's estate based on this agreement which at the time of Robert's death had a commuted value of $ 159,343.33 was "contracted bona fide and for an adequate and full consideration in money or money's worth." The fact that there was consideration for the agreement of Robert to pay to Mary $ 1,000 for her life or until her remarriage which bound his estate to pay the amount if he predeceased Mary, does not answer the question of the amount if any of consideration in money or money's worth received by Robert for binding his estate to make the payments. It is the value of this part of the agreement that constitutes the claim against Robert's estate and that claim is deductible by the estate only to the extent that the part of the agreement creating the claim was contracted for a consideration of monetary value.
1975 U.S. Tax Ct. LEXIS 25">*71 65 T.C. 391">*410 To determine whether at the time the separation agreement was executed Robert received equivalent money value for the monthly payments, to be paid by his estate for Mary's lifetime, or until her remarriage, it is necessary to find the monetary consideration of the support rights that existed in 1950 under Pennsylvania law that Mary released in exchange for the monetary consideration of the periodic payments that Robert agreed to pay Mary. Cf.
In the instant case even though Pennsylvania1975 U.S. Tax Ct. LEXIS 25">*72 law does not provide for alimony after an absolute divorce there are 65 T.C. 391">*411 circumstances under which a wife may obtain support that we may consider in ascertaining the amount to which Mary might have been entitled under Pennsylvania law. If Robert, being of sufficient ability to support Mary, had deserted her without reasonable cause and had refused to provide suitable maintenance for her, she would have been entitled to obtain court-ordered support.
Robert had received an average income of $ 33,000 after taxes for each of the 5 years preceding the date of the execution of the separation agreement. There is no indication in the record whether Robert deducted any amounts to compute his net taxable income that did not represent actual expenses. There is no evidence as to whether Robert had the ability to1975 U.S. Tax Ct. LEXIS 25">*74 earn a salary as of 1950 and, if so, in what amount. The record does not reveal any information as to the nature of Robert's taxable income, such as whether any part thereof was capital gains. There is no adequate basis in this record to support a determination that Robert's after-tax annual income of $ 33,000 was not an accurate reflection of his earning capacity in 1950 to which Mary could 65 T.C. 391">*412 look for support under Pennsylvania law. 101975 U.S. Tax Ct. LEXIS 25">*76 Therefore, because of failure of petitioner to show otherwise, we conclude that Mary was entitled under Pennsylvania law to no more than one-third of Robert's $ 33,000 5-year average income for her support or the amount of $ 11,000 per year while both were living. See
Since evidence as to the reason for Robert's agreeing to pay more than the amount we compute would be due under Pennsylvania law to Mary as alimony only while both were living, or until Mary's earlier remarriage, and evidence as to whether in fact the stipulated average 5-year income of Robert of $ 33,000, after taxes, was an adequate reflection of his current income when the agreement was entered into is lacking in this record, we have sought other methods of determining whether Robert received any consideration1975 U.S. Tax Ct. LEXIS 25">*77 for agreeing to have payments made 65 T.C. 391">*413 to Mary after his death. We looked at the tables in respondent's Estate Tax Regulations (secs. 20.2031-7(f) and 20.2031-10(f)) to determine whether a $ 1,000-a-month payment to a woman aged 36 for her life would be less than a $ 1,000 a month payment for the life of a male aged 34 and found that the former was more, not less. See
Petitioner apparently recognizes that no evidence was presented to show any specific value to the payments which were to extend after Mary's life apart from the value which Robert received for Mary's relinquishment of her support rights for her lifetime or until her remarriage. On brief, petitioner states with respect to
We have, of course, considered the fact that Mary might have felt more comfortable to know that if she did not remarry she would receive the $ 1,000 monthly payment for life, but this is not consideration to Robert, the decedent-transferor, which is required, see
Petitioner's reliance on
The absence of donative intent is immaterial * * * and * * * it is not necessary for us to decide in a case such as this "whether the relationship between husband and wife reflects the romantic waltz or the violent apache dance" since "The gift and estate tax provisions of the Internal Revenue1975 U.S. Tax Ct. LEXIS 25">*80 Code set forth an objective standard by which consideration is to be measured." The fact that our findings reflect the cacophony and erratic tempo adapted to an apache dance cannot preclude the application of
Applying the external test of measuring the equivalent monetary value of what the transferor at the time received for what he exchanged to the facts of this case, we find that decedent received no money value for Mary's right to the monthly payments to be made after his death and that the estate is not entitled to a deduction under
1975 U.S. Tax Ct. LEXIS 25">*82 In conclusion we hold that decedent's gross estate is not reduced under
Because of uncontested adjustments,
1. All references are to the Internal Revenue Code of 1954.↩
2. The parties have stipulated that "if the value of the annuity payable to Mrs. Iversen is deductible under Code
3.
(a) In General. -- If any one of the transfers, trusts, interests, rights, or powers enumerated and described in
(b) Marital Rights Not Treated as Consideration. -- For purposes of this chapter, a relinquishment or promised relinquishment of dower or curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, shall not be considered to any extent a consideration "in money or money's worth."↩
4.
(a) General Rule. -- For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts -- (1) for funeral expenses, (2) for administration expenses, (3) for claims against the estate, and (4) for unpaid mortgages on, or any indebtedness in respect of, property where the value of the decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate,
* * *
(c) Limitations. -- (1) Limitations applicable to subsections (a) and (b). -- (A) Consideration for claims. -- The deduction allowed by this section in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded on a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth; except that in any case in which any such claim is founded on a promise or agreement of the decedent to make a contribution or gift to or for the use of any donee described in section 2055 for the purposes specified therein, the deduction for such claims shall not be so limited, but shall be limited to the extent that it would be allowable as a deduction under section 2055 if such promise or agreement constituted a bequest,
* * *
(e) Marital Rights. -- For provisions that relinquishment of marital rights shall not be deemed a consideration "in money or money's worth," see
5. Petitioner does not contend that
6. Respondent relies on
7. Petitioner does not contend that the amount of $ 75,000 payable under the separation agreement to Mary upon her remarriage is deductible as a claim against the estate under
8. Petitioner's reliance on
9. Respondent relies on his
It is to be noted that a wife's support rights are generally limited to the period of the joint lives of herself and her husband or until her earlier remarriage. Thus, where, as here, the support payments are to continue beyond the period of their joint lives, a determination must be made whether the lifetime payments were less than that to which she would have been entitled to receive as support under state law. It is the value of the postponed support rights to which the deduction allowable under
The example below illustrates the computation of the values of the wife's postponed support rights and her claim against the estate. For this purpose, it is assumed that under local law the wife would have been entitled to receive $ 10,000 per year as support until her husband's death. The present worth of the right to receive an annuity of $ 1.00 per year during the joint lives of two persons aged 45 and 57 is $ 11.1080. The present worth of the right of a woman aged 61, just widowed, to receive an annuity of $ 1.00 per year until her death or remarriage is $ 10.6351. These factors are based on U.S. Life Table 38, with interest at 3 1/2 percent and the American Remarriage Table.
(1) Annual support rights | $ 10,000.00 | |
(2) Less: Contract payment | 7,500.00 | |
(3) Excess | 2,500.00 | |
(4) Multiply: Annuity factors | ||
for joint lives | 11.1080 | |
(5) Value of postponed | ||
support rights | 27,770.00 | |
(6) Contract payment | 7,500.00 | |
(7) Multiply: Age 61 | ||
remarriage annuity factor | 10.6351 | |
(8) Value of widow's claim | 79,763.25 | |
(9) Allowable deduction | ||
(lesser of 5 or 8) | 27,770.00 |
Any factors to be computed as of a date after December 31, 1970, are to be computed on the basis of interest at the rate of six percent a year, compounded annually, life contingencies determined as to each male and female life involved, from the values of 1x that are set forth in columns 2 and 3, respectively, of Table LN of paragraph (f), section 20.2031-10 of the Estate Tax Regulations, and the American Remarriage Table, if applicable.↩
10. Although under Pennsylvania law permanent alimony may be subsequently increased or decreased by the divorce court to reflect the equitable rights of the parties,
Petitioner's reliance on
11. The circuit court's reversal of our decision in the
12. Under Pennsylvania law in 1950, no issue having survived Robert, Mary, as Robert's surviving spouse, was entitled to the amount of $ 10,000 and one-half of the balance of Robert's estate if he died intestate and to one-half of his real and personal estate if he died testate and she elected against his will. (