Countryman v. Comm'r of Internal Revenue (In re Estate of Stevens)
| Decision Date | 28 April 1961 |
| Docket Number | Docket No. 77545. |
| Parties | ESTATE OF HOWARD E. STEVENS, DECEASED, M. L. COUNTRYMAN, JR., AND MABEL B. STEVENS, EXECUTORS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
William C. Canby, Jr., Esq., and William H. Oppenheimer,
Esq., for the petitioner.
Leonard A. Hammes, Jr., Esq., for the respondent.
The probate estate of a Minnesota decedent was insufficient, after provisions for satisfaction of debts, taxes, and administration expenses, to permit payment in full of all legacies; and the will did not make provision for such situation. Held: That in such circumstance, the amount of the marital deduction claimed in the estate tax return should be reduced, to reflect the effect on the value of the property passing to the surviving spouse, of State inheritance tax, Federal estate tax, and debts and administration expenses which could not be satisfied out of the residue of the probate estate. Computation of adjustments to the marital deduction, based on the generally applied Minnesota rule respecting abatement of legacies, approved.
The respondent determined a deficiency in the estate tax of the above-named estate, in the amount of $11,522.52 before credit for State inheritance taxes. Respondent has now conceded that the petitioners are entitled to the maximum State inheritance tax credit, by reason of their having filed subsequent to the issuance of the notice of deficiency, evidence of payment of the inheritance taxes.
The sole issue for decision is whether the amount of the marital deduction claimed in the estate tax return should be reduced, by adjusting the value of the interests passing to the surviving spouse, to reflect the effect thereon of State inheritance tax, Federal estate tax, and debts and administration expenses which could not be satisfied out of the residue of the probate estate, because of the insufficiency of such residue.
Most of the facts have been stipulated. The stipulation of facts, together with the exhibits identified therein, is incorporated herein by reference.
Howard E. Stevens (herein called the decedent) died testate on May 26, 1954, a resident of St. Paul, Ramsey County, Minnesota. He left him surviving: His widow, Mabel B. Stevens; two adult children by an earlier marriage, Howard E. Stevens, Jr., and Dorothy Stevens Weber; and also issue of his son Howard. At all times were material, the widow resided in St. Paul; and the daughter, the son, and the son's children all resided in the State of California.
Decedent's last will and testament was admitted to probate in the Probate Court of Ramsey County, Minnesota, on July 20, 1954. And on the same date, the decedent's widow and M. L. Countryman, Jr., of St. Paul, became the duly qualified, acting, and appointed executors of said will. They have, at all times since, continued to act in such capacity.
The decedent created, during his lifetime, two inter vivos trusts which are mentioned in articles Second and Third of his will, and which continued to be in force and effect at the time of his death. One of these trusts was created for the principal benefit of the daughter, Dorothy; and the other was for the principal benefit of the son, Howard. The decedent was both the grantor and trustee of each of these trusts; and he had power thereunder to terminate and cause distribution to the respective beneficiaries. Upon the decedent's death, said son and daughter became the successor trustees.
The decedent's will provided, so far as is here material, as follows:
I, HOWARD E. STEVENS, of the City of Saint Paul, County of Ramsey and State of Minnesota, hereby make, publish and declare this my last will and testament, hereby revoking all wills and codicils heretofore made by me.
FIRST, I direct my executors, hereinafter named, to pay from the principal of my estate my just debts, funeral expenses, expenses of last illness, expenses of administration, and also all estate legacy and inheritance taxes incident to the administration and distribution of my estate as soon as may be convenient after my death.
SECOND, My daughter, Dorothy Stevens Webber (sic.), has been provided for by a Trust Deed created February 21, 1936, modified on March 25, 1937, and again modified on January 10, 1946.
In addition, I hereby give and bequeath to her Five Thousand Dollars ($5,000.00) in cash.
THIRD, My son, Howard E. Stevens, Jr., has been provided for by a Trust Deed created February 21, 1936, and modified March 25,1937, and again on December 24, 1946.
From time to time I have made and may hereafter make advancements of sums of money to said trust to cover payments from said trust to my son in excess of the trust income, and there are now considerable sums of money due and owing to me from said trust for such advances. I do hereby direct that immediately upon my death all indebtedness of said trust to me or my estate for such advances, except such part thereof as may exceed the sum of Twelve Thousand Dollars ($12,000.00), shall be cancelled; and I hereby release and discharge said trust and my said son from the payment of all debts due and owing to me or my estate aggregating not more than said sum of Twelve Thousand Dollars ($12,000.00).
FOURTH, I direct that all stocks and bonds belonging to me or to which I may be entitled or in which I may have an interest at the time of my death, other than U.S. Savings Bonds, Series ‘E’, be divided into two parcels of substantially equal value. One of such parcels I give and bequeath to my wife, Mabel Benson Stevens, absolutely. The other of said parcels I hereby give and bequeath unto my executors and trustees, hereinafter named, and to their successors and assigns forever.
In Trust, nevertheless, for the uses and purposes in this article Fourth set forth.
(The remaining unquoted portions of this article Fourth contained various provisions pertaining to the administration of said testamentary trust; and provided also, in substance and so far as here material: That the net income of said trust should be paid to the testator's widow, Mabel B. Stevens, during her life or until such time as she remarried; that upon her death or remarriage, the entire principal of the trust fund should be divided into two equal portions or shares; and that thereupon, one of such shares or portions should be set off to each of decedent's children then living, or if not living to his or her lawful issue then living, or otherwise in the manner specifically provided.)
SIXTH, All of the rest, residue and remainder of my property of every kind, nature and description, whether now owned or hereafter acquired by me and wheresoever situated, I hereby give, devise and bequeath to my wife, Mabel Benson Stevens, if she shall survive me * * * .
NINTH, The provisions made for the benefit of my wife are in lieu of, and not in addition to the rights conferred upon her under the statutes of any State in which I may own property at the time of my death.
Said will was executed by the decedent on March 17, 1949.
The decedent's widow did not renounce or refuse to accept the provisions of the decedent's will, either in the manner provided by the Minnesota statutes (Minn. Stat., sec. 525.212 (1953)) or otherwise. Also, she did not remarry.
The widow and Countryman became the trustees of the testamentary trust provided for in the decedent's will; but the evidence does not establish when they, as two of the three nominees under the will, accepted the trust and qualified to act as such trustees. They received no trust assets until after most of the administration of the estate had been completed.
The value of the decedent's gross probate estate (as distinguished from his gross estate for Federal estate tax purposes) was insufficient, after provision for satisfaction of debts, administration expenses, taxes, and other preferred charges, to permit payment in full of all bequests.
The Federal estate tax return for the decedent's estate was filed by the executors with the district director of internal revenue for the district of Minnesota, on August 26, 1955. In said return, the executors elected not to have the gross estate of the decedent valued as of a date or dates subsequent to decedent's death, under section 811(j) of the 1939 Code; and they reported in said return, gross estate, deductions, and net estate tax payable as follows:
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