The opinion of the court was delivered by: WATSON
This action comes before the Court for disposition upon plaintiffs' motion for summary judgment as provided under Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C. Counsel have entered into a stipulation which sets forth the material facts of the case and the Court will base its conclusions of law upon the facts so stipulated.
Plaintiffs seek the refund of federal estate taxes in the amount of $ 31,044.11 which, they allege, represents an overpayment by the estate of John Richard Geary to the United States of America. Defendant denies plaintiffs' allegations and asks for judgment in its favor on the motion for summary judgment. The parties, through their attorneys, have entered into a stipulation of facts which have been made a part of the record in this action. There has been no other evidence presented to the Court and, therefore, the Court will treat the stipulation and the material facts contained therein as its findings of fact.
1. John R. Geary, hereinafter referred to as the decedent, and Camille McCollum were married in New York City on September 4, 1918. Camille McCollum was then a citizen of the United States domiciled in the State of New York. From 1903 until subsequent to 1938, the decedent was a non-resident citizen of the United States, domiciled in Japan until subsequent to 1933.
2. After their marriage, the decedent and his wife returned to Japan, where two children were born to them. John Richard Geary, Jr., was born in Yokahama on July 12, 1919, and William Joseph Geary was born in Yorkahama on May 25, 1921. In November, 1931, Mrs. Geary left Japan, taking the children with her, and returned to her former home in Lockport, New York, where she continued to reside with the two boys until subsequent to 1938.
3. In 1932, after Mrs. Geary's departure from Japan, the decedent instituted divorce and custody proceedings in Tokyo. In January, 1933, the Tokyo District Court awarded a divorce decree to the decedent, and in July, 1933, it awarded him the custody of the two boys.
4. Shortly after returning to New York, Mrs. Geary instituted separation and custody proceedings in the Supreme Court of the State of New York, which Court, on March 27, 1933, awarded separate maintenance and support and the custody of the children to her. In connection with this proceeding the court, on April 7, 1932, entered an order appointing a receiver for the decedent's personal property within the state for the purpose of applying the property, which consisted of a pension of $ 8,691.96 per annum from the General Electric Company at Schenectady, New York, toward the alimony, support of the children, and attorneys' fees.
5. On August 23, 1933, Mrs. Geary filed a bill of complaint in the Chancery Court of New Jersey against the decedent and his wholly owned investment corporation, the Eastern Union Investment Company, to enjoin them from disposing of any of the assets held by the Company, on the grounds that the assets had been obtained from her by fraud and deceit. A restraining order was issued by the state court in which the suit was commenced, which was continued by the Federal District Court to which the suit was removed.
6. The decedent and his former wife each bitterly contested any move which the other took. There was a great deal of correspondence between the respective attorneys for the decedent and his former wife regarding settlement of the various issues which had arisen between them. All of the matters were ultimately settled by an agreement, hereinafter referred to as the March 15, 1937, settlement, consisting of several documents.
7. As a part of the March 15, 1937, settlement, the decedent agreed to establish a trust, a portion of the income and corpus of which would inure to the benefit of his two children. The Commissioner asserted a gift tax liability as to a part of the benefits accruing to the children, on the grounds that the provisions for the sons were solely the idea of the decedent, and that no part of the consideration moving from Mrs. Geary to the decedent supported these provisions. The decedent petitioned the Tax Court to order the abatement of the proposed gift tax liability, and it did so on May 31, 1943, holding that the transfer in trust for the two boys was based on an adequate and full consideration in money or moneys' worth. Comm. v. John R. Geary, 2 T.C.M. 202-206, CCH Dec. 13, 245(M).
8. In addition to his agreement to establish the inter vivos trust above mentioned, Mr. Geary also agreed in the settlement agreement of March 15, 1937.
'1. Mr. Geary will execute and deliver an instrument which will obligate him to leave one-quarter of his net estate available for distribution to each of his two children who shall survive him, or to the issue of either child who shall predecease him leaving issue who shall survive Mr. Geary. The agreement will be so drafted and executed as to bind Mr. Geary's estate whether or not a will is made in accordance with its provisions. He will, however, make a will as required by the agreement.'
On March 30, 1938, Mr. Geary executed and delivered to Camille Geary a written instrument or agreement by which he agreed to carry out these conditions.
9. On December 10, 1947, decedent executed his last will and testament, and upon probate of the same following decedent's death on March 17, 1948, letters testamentary were issued to Sanford D. Beecher and to Henry L. Geary. William White, Jr., was appointed succeeding and substitute co-executor on December 22, 1954 following a decree dated December 16, 1954, approving the resignation and granting the removal of Henry L. Geary. The provisions carrying out the conditions of the settlement agreement of March 15, 1937 are found in paragraph Fourth (a), (b) and (c) of the will, which provide:
'Fourth: (a) Provided he shall survive me, I give, devise and bequeath to my son, John Richard Geary, Jr., absolutely and forever, an amount equal to one-quarter of all the net estate and property, excepting the personal items mentioned in sub-paragraphs (a), (b) and (c) of paragraph Third herein, of whatsoever nature and wheresoever situated, of which I shall die seized and possessed which shall remain after paying all debts, expenses of administration, executors' and counsel fees, and all taxes or other governmental impositions payable by law out of my estate. In the event that my said son, John Richard Geary, Jr., shall not survive me and shall leave lawful issue me surviving, then and in that event, I give, devise and bequeath the amount which would have been payable hereunder to John Richard Geary, Jr., had he survived me, ...