subparagraphs (a) and (b), shall constitute a first charge upon my net estate available for distribution, and that any other legacies of any nature in this Will contained (excepting those provided in paragraph Third, subparagraphs (a), (b) and (c)) shall in no wise diminish the amount thereof.'
After decedent's death, his executors filed a federal estate tax return which included two deductions of $ 56,242.50 each which represented one-fourth of decedent's estate payable to each of his sons under the terms of the will and in accordance with the March 15, 1937 settlement. The Commissioner disallowed the deductions on the grounds that they were bequests. The executors paid the deficiency tax and filed a claim for refund of the amounts paid. The claim for refund was disallowed and the executors commenced the instant suit within two years thereafter.
The sole question before the Court is whether the provisions of decedent's will in which he left one-fourth of his estate to each of his two sons constitute bequests or are in satisfaction of claims against the estate. The Internal Revenue Code of 1939, Section 812, which is here controlling, provides as follows:
'For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate --
'(b) Expenses, losses, indebtedness, and taxes. Such amounts --
'(3) for claims against the estate,
as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, * * *. The deduction herein allowed in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded upon 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; * * *.
'For the purposes of this subchapter, a relinquishment or promised relinquishment of dower, 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.' * * *' 26 U.S.C.1952 ed., § 812.
Plaintiffs contend that the obligation imposed upon the estate of the decedent is in the nature of a debt and, therefore, should be imposed upon the gross estate prior to the determination of the value of the estate for estate tax purposes.
In the case of Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S. Ct. 715, 92 L. Ed. 898, the Supreme Court stated clearly that the doctrine of res judicata is limited to suits involving the same cause of action. Therefore, the determination by the Tax Court that the corpus of a trust established by decedent during his lifetime for the benefit of his sons was not a gift but, rather, a transfer based upon an adequate consideration in money or money's worth does not affect the result of this lawsuit even though the creation of that trust was provided for in the agreement of March 15, 1937.
Exhaustive research has failed to reveal a case which is directly in point. This Court believes that the obligations assumed by the decedent were '* * * bona fide' and were contracted '* * * for an adequate and full consideration in money or money's worth.'
In addition to the above requirement, which merely prescribes the type of consideration which must be present in order to qualify a claim as a deduction against the gross estate, we must also determine exactly the nature and extent of the decedent's obligation.
A reading of the agreement between decedent and Mrs. Geary discloses that the decedent had agreed to leave one-half of his 'net estate' to his two children. Decedent's will was prepared and executed in exact compliance with that portion of the agreement. Nowhere, either in the agreement or the will, did decedent indicate that he was thereby subjecting his estate to a claim of one-half of its gross value.
Let us assume, arguendo, that there had been no agreement of March 15, 1937. We would have been only the provisions in the will of the decedent and it would be futile to describe such provisions as anything but bequests or devises and, as such, would total an amount equal to one-half of decedent's estate after deductions, including federal estate taxes. Let us now consider what the situation would be had decedent neglected or refused to make provision for his sons in his will as provided by the agreement. And let us also assume that the agreement was supported by adequate consideration '* * * in money or money's worth.' It is clear that there would be an enforceable claim against the estate of decedent but it would be a claim to one-half of decedent's net estate and not to one-half of his gross estate as contended by plaintiffs. The agreement and the will speak for themselves and are illustrative of the intent of the parties. Decedent, in reference to the portion of his estate to be left to his sons, directed in his will that '* * * any other legacies of any nature in this will * * * shall in no wise diminish the amount thereof.' Thus decedent made it clear that he did not regard as debts his sons' interests in his estate, for if he had done so, the direction in the will that other 'legacies' were not to diminish the amount of such interests would be mere surplusage.
As the Court has stated heretofore, it believes that decedent's obligations to his sons were enforceable and that they were based upon consideration in 'money or money's worth.' But the Court also believes that decedent had obligated himself only to the extent that he would provide for his children in his will and, had he failed to do so, then by virtue of the agreement his sons would have shared in the estate as legatees or devisees with priority over others of the same class when distribution was made.
The Court, therefore, will enter judgment for the defendant and against the plaintiffs in this action.
Conclusions of Law
1. The Court has jurisdiction of this action and of the parties thereto.
2. The Commissioner of Internal Revenue did properly impose and collect the federal estate tax on the estate of John Richard Geary as provided in he Internal Revenue Code of 1939.
3. The disallowance by the Commissioner of Internal Revenue of the claim for refund of estate taxes in this action was proper and was done in accordance with the law as set forth in the Internal Revenue Code of 1939.
© 1992-2004 VersusLaw Inc.