The Trustee shall pay to or apply for the benefit of the Surviving Settlor the entire net income from the Marital Deduction Trust in quarter-annual or other convenient installments (but at least annually); however, if the income so payable to the Surviving Settlor shall, at any time or times, exceed the amount which the Trustee deems to be necessary for his or her needs, best interests and welfare, the Trustee may accumulate the same, as the Trustee deems advisable. All income so accumulated and undistributed at the death of the Surviving Settlor shall be paid to the Survivor's Trust. [Emphasis added.]

Respondent posits that the above provision clearly violates the rules defining qualifying income interests, since the trustees are granted the right to accumulate income. On the other hand, petitioner claims that the clear intent of the decedent and Mrs. Ellingson, as set forth in the first amendment to the trust, indicates that the property passing to the trust qualifies for the marital deduction. We agree with respondent.

Section 20.2056(b)-7(c)(1), Proposed Estate Tax Regs., 49 Fed. Reg. 213571991 U.S. Tax Ct. LEXIS 41">*52 (May 21, 1984), in defining what represents a qualifying income interest for life, provides:

In general, the principles outlined in section 20.2056(b)-5(f), relating to whether the spouse is entitled for life to all of the income from the entire interest or a specific portion of the entire interest, are applicable in determining whether the surviving spouse is entitled for life to all the income from the property, regardless of whether the interest passing to the spouse is in trust * * *. [Emphasis added.]

Here, there is no question but that property has passed from the decedent to Mrs. Ellingson in trust. In focusing on the treatment of an interest passing in trust, section 20.2056(b)-5(f)(7), Estate Tax Regs., provides that --

96 T.C. 760">*767 An interest passing in trust fails to satisfy the condition * * * that the spouse be entitled to all the income, to the extent that the income * * * may be accumulated in the discretion of any person other than the surviving spouse * * * [Emphasis added.]

If trust income can be accumulated by the trustees and not distributed annually, then the spouse is not entitled to all the income from the property payable annually or at more frequent1991 U.S. Tax Ct. LEXIS 41">*53 intervals. Here, the Ellingson Trust provides for the possibility of the accumulation of income (Article VII, section B(1), as amended) in the discretion of the trustees of the trust. Thus, Mrs. Ellingson does not have a qualifying income interest for life in the trust property, and the property passing to the trust fails to qualify for QTIP treatment. ²95 T.C. 446">Estate of Doherty v. Commissioner, supra.

We recognize that Mrs. Ellingson, the income beneficiary, is also a 1991 U.S. Tax Ct. LEXIS 41">*54 cotrustee; however, this does not save the QTIP deduction. Mrs. Ellingson's cotrusteeship does not, as petitioner contends, provide Mrs. Ellingson with "such command over the income that it is virtually hers." See sec. 20.2056(b)-5(f)(8), Estate Tax Regs. The other cotrustee, Douglas Ellingson, might wish to accumulate income. Further, pursuant to Article X of the trust, the surviving settlor spouse is not permitted to gain full control and discretion over the trust, since the surviving spouse (here, Mrs. Ellingson) can never become the sole trustee. Pursuant to Article X, Douglas is to become a cotrustee with the surviving settlor upon the death of either settlor. And upon Douglas Ellingson's death or resignation as cotrustee, the First Interstate Bank of Arizona becomes sole trustee.

The possibility that Mrs. Ellingson might be replaced as trustee prevents satisfaction of the requirement that the surviving spouse be "entitled to all the income from the property," sec. 2056(b)(7)(B)(ii)(I), regardless of the probability that Mrs. Ellingson would be replaced as trustee. And, as we stated in a related context, "it is the possibility, not the probability, that an interest will 1991 U.S. Tax Ct. LEXIS 41">*55 terminate or fail that 96 T.C. 760">*768 will determine whether the surviving spouse's interest is a 'qualifying income interest for life'." Estate of Kyle v. Commissioner, 94 T.C. 829">94 T.C. 845; see Estate of Weisberger v. Commissioner, 29 T.C. 217">29 T.C. 217, 29 T.C. 217">220-223 (1957).

The situation involved herein is analogous to that involved in 95 T.C. 446">Estate of Doherty v. Commissioner, supra. In Estate of Doherty, the income beneficiary claimed that his income interest qualified as "a qualifying income interest for life" because, although the will in question allowed the trustee to accumulate income, the income beneficiary was himself the trustee. The income beneficiary/trustee thus argued that he had the unrestricted power to pay all of the income to himself. We did not accept his argument since, under the terms of the will, a successor trustee would become trustee in the event of the resignation of the income beneficiary/trustee. Accordingly, someone other than the income beneficiary/trustee could have discretion to accumulate income prior to the income beneficiary/trustee's death. We stated therein that "This possibility1991 U.S. Tax Ct. LEXIS 41">*56 prevents satisfaction of the requirement that the surviving spouse be 'entitled to all the income from the property' * * * regardless of the probability that Mr. Doherty [the income beneficiary/trustee] will be replaced as trustee." Estate of Doherty v. Commissioner, 95 T.C. 446">95 T.C. 462.

Petitioner attempts to differentiate Estate of Doherty from the instant case by stating that the Ellingson Trust agreement requires income to be distributed at least annually. Such, however, does not save the deduction. The accumulation of income language in the Ellingson Trust modifies the requirement to distribute income at least annually. The apposite language, which was chosen by the settlors in this case, states:

however, if the income so payable to the Surviving Settlor shall, at any time or times, exceed the amount which the Trustee deems to be necessary for his or her needs, best interests and welfare, the Trustee may accumulate the same, as the Trustee deems advisable.

Thus, due to the accumulation of income provision and the possibility of successive trustees, the trust fails to qualify for QTIP treatment under section 2056(b)(7) since the possibility1991 U.S. Tax Ct. LEXIS 41">*57 exists that "the surviving spouse might not receive 96 T.C. 760">*769 distributions of all of the trust income accruing before death." Estate of Doherty v. Commissioner, 95 T.C. 446">95 T.C. 464.

The determination of the nature of the interest that passes to a surviving spouse is made under the law of the jurisdiction under which the interest passes. Estate of Doherty v. Commissioner, 95 T.C. 446">95 T.C. 460; Estate of Nicholson v. Commissioner, 94 T.C. 666">94 T.C. 666, 94 T.C. 666">672-673 (1990); Estate of Bowling v. Commissioner, 93 T.C. 286">93 T.C. 286, 93 T.C. 286">293 (1989). Therefore, here, we look to Arizona law. Arizona follows the general rule for construction of wills, which is to ascertain the intention of the testator. In re Estate of Smith, 119 Ariz. 293">119 Ariz. 293, 580 P.2d 754, 756 (App. 1978).

Petitioner argues that: (1) The trust, read as a whole, shows the decedent's intent was to have the trust qualify for QTIP treatment, and (2) the trustees of the trust have a duty to comply with such intent. The flaw in petitioner's argument is that it ignores the accumulation-of-income 1991 U.S. Tax Ct. LEXIS 41">*58 language which clearly demonstrates that both the decedent and Mrs. Ellingson intended the trustees to have the power to accumulate income if they believed it necessary for the surviving spouse's best interests and welfare.

The generic statements of "intent" in the first amendment to Article V of section B do not override the settlors' intent to allow the trustees to accumulate income if they deem such necessary for the surviving spouse's best interests and welfare. The saving clause states that decedent's personal representative may elect to take a QTIP deduction, but it does not command the personal representative to do so. At most, the saving clause is an indication that one intent of the settlors was to lower estate taxes through the QTIP deduction; the clause, however, is not binding on the trustees.

Petitioner cites State law to show what duties a trustee owes a beneficiary. However, nothing cited by petitioner prevents the accumulation of income in a case where the settlors obviously contemplated it. The settlors could have limited the accumulation of income to specific circumstances, in accordance with section 2056, but they did not. Rather, they permitted the trustees1991 U.S. Tax Ct. LEXIS 41">*59 to use their discretion; such is fatal to the allowance of the deduction sought.

96 T.C. 760">*770 The decedent and Mrs. Ellingson authorized the trustees to have some control over the flow of income to the survivor. Also, they provided in Article IX of the trust, to "invest and reinvest Trust property, both principal and undistributed income." This, in our opinion, further illustrates the intent of the decedent and Mrs. Ellingson to protect the survivor spouse.

We are mindful of the opinion of the Ninth Circuit (the circuit to which an appeal in this case would lie) in Estate of Howard v. Commissioner, 910 F.2d 633">910 F.2d 633 (9th Cir. 1990), revg. 91 T.C. 329">91 T.C. 329 (1988), which involved the accumulation of income in a QTIP trust. The terms in the trust involved therein provided for the payment of trust income to the surviving spouse quarter-annually or at more frequent intervals. The trust provided that "Income accrued or held undistributed by the trustee at the termination of any interest shall go to the next beneficiaries of the trust in proportion to their interests in the trust." Estate of Howard v. Commissioner, 91 T.C. 330, 331.1991 U.S. Tax Ct. LEXIS 41">*60 In that case, we determined that the accumulation provision prevented the trust from qualifying as a QTIP trust for purposes of the marital deduction. Estate of Howard v. Commissioner, 91 T.C. 338. The Ninth Circuit, however, determined that the surviving spouse was entitled to all the trust income even though some of it accumulated between the last quarterly distribution and her death. The Ninth Circuit stated that "As long as the income is payable at least annually and the spouse is entitled to all regular distributions as long as she lives, the statutory test is met." Estate of Howard v. Commissioner, 910 F.2d 633">910 F.2d at 635.

In Estate of Howard, all trust income was required to be distributed at least annually even though accumulation of the income was to occur only between quarterly distributions; here, despite petitioner's argument that the trustees could pay any accumulated income at least annually, the accumulation of income could occur over several years, with no time constraint on distribution. The facts in Estate of Howard differ from those involved herein; thus, the principle established in Golsen v. Commissioner, 54 T.C. 742">54 T.C. 742, 54 T.C. 742">757 (1970),1991 U.S. Tax Ct. LEXIS 41">*61 affd. 445 F.2d 985">445 F.2d 985 (10th Cir. 1971), which mandates that we follow the opinions of the circuit to which a case is 96 T.C. 760">*771 appealable if such opinions are "squarely on point," is not herein applicable. See, e.g., Metzger Trust v. Commissioner, 76 T.C. 42">76 T.C. 42, 76 T.C. 42">72-74 (1981), affd. 693 F.2d 459">693 F.2d 459 (5th Cir. 1982) (significant factual distinctions render a decision not squarely in point).

Estate of Nicholson v. Commissioner, 94 T.C. 666">94 T.C. 666 (1990), also involved the interpretation of trust language under the QTIP provisions of section 2056(b)(7). The terms of the Nicholson trust provided the surviving spouse with "so much of the net income * * * as * * * [she] may from time to time require * * * to maintain * * * her 'usual and customary' standard of living." Estate of Nicholson v. Commissioner, 94 T.C. 666">94 T.C. 674. We held that such provision gave the surviving spouse only such income as she needed, not necessarily all the income she might demand.

A similar interpretation applies to the accumulation of income provision in the Ellingson Trust. The1991 U.S. Tax Ct. LEXIS 41">*62 trustees' power to accumulate income limits the surviving spouse's right to receive income annually from the trust. Where a trust provides the trustees power to accumulate income without consulting the surviving spouse, then the surviving spouse is not entitled to the income payable annually or at more frequent intervals and there is no marital deduction. Wisely v. United States, 893 F.2d 660">893 F.2d 660, 893 F.2d 660">663-664 (4th Cir. 1990).

Petitioner argues that Estate of Todd v. Commissioner, 57 T.C. 288">57 T.C. 288 (1971), should control. There, we examined an annual income clause in the marital deduction section of the trust. The specific language used was the following:

(1) The trustees shall in convenient periodic installments not less frequently than annually pay so much of the net income of this trust to my wife, Jane Jarvis Todd, so long as she shall live, as in their conclusive discretion should be so expended to accomplish the purpose of this trust. [57 T.C. 288">57 T.C. 290.]

The testator in Estate of Todd specified in his will that he wanted the maximum marital deduction available for his estate pursuant to section1991 U.S. Tax Ct. LEXIS 41">*63 2056(b)(5). ³ Therein, we weighed 96 T.C. 760">*772 the testator's intent against the trustees' "conclusive discretion" and found the trustees were commanded to distribute the income at least annually to accomplish the purpose of the trust. Estate of Todd v. Commissioner, 57 T.C. 288">57 T.C. 293. Reading the will as a whole, we held that the surviving spouse possessed an absolute right to the income from the trust, qualifying the trust for a marital deduction. Estate of Todd v. Commissioner, 57 T.C. 288">57 T.C. 293.

Contrary to petitioner's position, we believe that the Ellingson Trust has specific, limiting language that is different from the language in Estate of Todd. The Ellingson Trust allows the accumulation of income if the amount exceeds that which the trustees deem necessary1991 U.S. Tax Ct. LEXIS 41">*64 for the surviving settlor's needs, best interests, and welfare; there is no such provision in Estate of Todd. Further, the accumulation of income provision in the Ellingson Trust does not carry with it any condition "to accomplish the purpose of the trust" as the Estate of Todd language does.

In sum, because Mrs. Ellingson does not have a qualifying income interest for life, petitioner is not entitled to the claimed marital deduction under section 2056(b)(7). For estate taxes, as for income taxes, "Deductions are a matter of legislative grace, and a taxpayer seeking the benefit of a deduction must show that every condition which Congress has seen fit to impose has been fully satisfied." Wisely v. United States, 893 F.2d 660">893 F.2d 660, 893 F.2d 660">666 (4th Cir. 1990), citing Deputy v. duPont, 308 U.S. 488">308 U.S. 488, 308 U.S. 488">493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435">292 U.S. 435, 292 U.S. 435">440 (1934).

In addition to the property claimed by decedent's estate under section 2056(b)(7), the bequest to Mrs. Ellingson included Social Security death benefits, farm equipment, growing crops, and a Federal tax refund. Under decedent's1991 U.S. Tax Ct. LEXIS 41">*65 will, these items do not constitute "personal property"; thus, they did not pass directly to Mrs. Ellingson. Rather, these items constitute part of the residue of decedent's estate; and, as such, they were part of the items passing to the trustees of the Ellingson Trust. As discussed, property passing to the trustees of the Ellingson Trust does not constitute a QTIP interest pursuant to section 2056(b)(7) for which a marital deduction is allowed.

96 T.C. 760">*773 To reflect the foregoing and concessions by petitioner,

Decision will be entered for the respondent.