1 F.3d 830 (9th Cir. 1993), 91-55692, Wells Fargo Bank v. United States

Docket Nº:91-55692.
Citation:1 F.3d 830
Party Name:WELLS FARGO BANK, Trustee of that Certain Testamentary Trust Established Under the Will of Anita Johnson Wand, Now Deceased, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant; Occidental College, Charity Remainderman of that Certain Testamentary Trust Established Under the Will of Anita Johnson Wand, Now Deceased, Real-Party-In-I
Case Date:July 27, 1993
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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1 F.3d 830 (9th Cir. 1993)

WELLS FARGO BANK, Trustee of that Certain Testamentary Trust

Established Under the Will of Anita Johnson Wand,

Now Deceased, Plaintiff-Appellee,

v.

UNITED STATES of America, Defendant-Appellant;

Occidental College, Charity Remainderman of that Certain

Testamentary Trust Established Under the Will of

Anita Johnson Wand, Now Deceased,

Real-Party-In-Interest-Appellee.

No. 91-55692.

United States Court of Appeals, Ninth Circuit

July 27, 1993

Argued and Submitted July 8, 1992.

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Arlen D. Woffinden and Dominic T. Holzhaus, Latham & Watkins, Los Angeles, CA, for plaintiff-appellee and for the real-party-in-interest-appellee.

Ann Belanger Durney, U.S. Dept. of Justice, Washington, DC, for defendant-appellant.

Appeal from the United States District Court for the Central District of California.

Before: FLETCHER, O'SCANNLAIN, and KLEINFELD, Circuit Judges.

KLEINFELD, Circuit Judge:

This case involves estate tax deductibility of a charitable remainder pursuant to 26 U.S.C. Sec. 2055. The testatrix, Anita Wand, provided in her will for a life interest for her employee James Fuller, and a remainder for Occidental College. The trustee under the will, Wells Fargo, seeks a tax refund of approximately $1.4 million. The issues are whether Wand's will was executed before 1979 despite a 1982 codicil, and whether Occidental College's remainder was "presently ascertainable." The district court determined that both conditions were met. We affirm.

I. Facts

The case comes up on stipulated facts and summary judgment. On April 5, 1971, Anita Wand executed a will creating a trust for two beneficiaries, her long time employee James Fuller, and Occidental College, an educational institution qualifying for tax treatment as a charity. Mr. Fuller was to receive $250.00 per month for life, use of Mrs. Wand's house,

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and medical expenses and payment from the Wand Estate of his personal income taxes.

Mrs. Wand executed codicils to her will in 1972, 1977, and 1982, each changing Mr. Fuller's life interest. Mrs. Wand died September 4, 1985. Mr. Fuller, an 83 year old man with an independent annual income of $82,920, frugal, healthy and with modest needs, began receiving his benefits under the will. The estate obtained a reformation of the will in state court on January 25, 1988, changing Mr. Fuller's interest to a flat $122,000 per year and nothing else. This reformation eliminated payment of medical expenses, taxes and maintenance and improvements to the residence, in order to qualify for the estate tax charitable deduction under Internal Revenue Code Sec. 2055. The estate then applied for a refund of the taxes paid on the remainder interest.

The IRS denied the claim because it determined that the remainder interest was not a "reformable interest" under the Tax Code, so the conversion of the interest to a remainder annuity trust by the state court reformation could not qualify the remainder for a charitable deduction. The district court concluded on summary judgment that the remainder interest was a reformable interest, that the will was executed prior to 1979, and that the charitable remainder's interest was "presently ascertainable" at the time of Wand's death.

The government argues, first, that the will was republished by a 1982 codicil, so it cannot be treated as executed before 1979. Execution has to have been before 1979 to qualify. Second, the government argues that the value of the remainder was not ascertainable at the time of Mrs. Wand's death, so it cannot qualify for the charitable deduction. We review the summary judgment de novo. Johnson v. Moore, 948 F.2d 517, 519 (9th Cir.1991). We review the district court's interpretation of state law de novo. Matter of McLinn, 739 F.2d 1395, 1397 (9th Cir.1984) (en banc).

II. Date of Publication

The statute on charitable remainders, 26 U.S.C. Sec. 2055, was amended in the 1969 Tax Reform Act, Pub.L. No. 91-172, Sec. 201(d)(1), 83 Stat. 487. The amendments imposed more demanding requirements on the charitable remainder, to assure that the estate could not get the benefit of the deduction if the will did not provide a sufficiently certain interest for the charitable remainderman. The new requirements would of course thwart the purposes of some wills drafted according to the old standards. Since people often live for many years after making their wills, the 1969 revisions created potential problems for people who made their wills before the 1969 reform but died afterward. Congress ameliorated these problems by providing for reformation of a will, even after the testator's death, to change a "reformable interest" into a "qualified interest." 26 U.S.C. Sec. 2055(e)(3). See H.R.Rep. No. 432, 98th Cong., 2nd Sess., 1516 (1984), reprinted in 1984 U.S.C.A.A.N. 697, 1156 (making permanent provisions that allow reformation of "split interest charitable contributions which do not meet the requirement ... of the Tax Reform Act of 1969") The standards for a "reformable interest" are less stringent for wills executed before 1979:

(iv) SPECIAL RULE FOR WILL EXECUTED BEFORE JANUARY 1, 1979, ETC.--In the case of any interest passing under a will executed before January 1, 1979, or under a trust created before such date, clause (ii) [requiring that beneficiary's interest be fixed] shall not apply.

26 U.S.C. Sec. 2055(e)(3)(C)(iv). Mrs. Wand's will was executed in 1971, but her third codicil was executed in 1982. Does the third codicil prevent the estate from relying on the special rule quoted above, thus depriving the will of reformability?

The 1982 codicil leaves the will substantially as it was before, and does not change the identity of the person holding the life interest, or of the charitable remainderman, so we need not reach the question of whether a more extensive 1982 change in the substance of the will would affect the deduction. All the 1982 codicil does is increase Mr. Fuller's monthly cash amount by $250. The codicil recites that "I confirm and republish" the 1971 will and the earlier codicils.

The government argues that the republication of the will in 1982 amounts to

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execution in 1982. Under California law, republication of the will is "tantamount" to making and executing the will...

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