Poinier v. Comm'r of Internal Revenue (In re Estate of Halbach) , Docket No. 7099-76.

• Decision Date: 09 November 1978
• Docket Number: Docket No. 7099-76.
• Citation: 71 T.C. 141
• Parties: ESTATE of HELEN WODELL HALBACH, DECEASED, JOHN POINIER, EXECUTOR, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

71 T.C. 141

ESTATE of HELEN WODELL HALBACH, DECEASED, JOHN POINIER, EXECUTOR, PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 7099-76.

United States Tax Court

Filed November 9, 1978.

Decedent received a remainder interest in a trust established in 1937 by her father's will. On Apr. 14, 1970, the life tenant of the trust died. On Apr. 19, 1970, decedent disclaimed her interest. Held, decedent's delayed renunciation had the effect of a transfer for purposes of sec. 2035. Coleman Burke, Wallace B. Liverance, Jr., Kenneth M. Hart, and Geoffrey J. O'Connor, for the petitioner.

Gerald J. O'Toole, for the respondent.

STERRETT, Judge:

Respondent, on April 30, 1976, determined a deficiency in petitioner's estate tax in the amount of $9,619,033.53.¹ Due to a severance of the issues raised by petitioner, the sole question for our determination is whether the disclaimer made by Helen Wodell Halbach of her remainder interest in a trust corpus constituted a transfer of property within the meaning of section 2035, I.R.C. 1954.

FINDINGS OF FACT

This case was submitted under Rule 122, Tax Court Rules of Practice and Procedure, hence all of the facts have been stipulated and are so found.

Helen Wodell Halbach (hereinafter decedent), a resident of Short Hills, N. J., died August 5, 1972. John Poinier (hereinafter petitioner), a resident of Gladstone, N. J., whose principal place of business was Summit, N. J., was appointed executor of decedent's estate. Petitioner timely filed a Federal estate tax return with the District Director, Internal Revenue Service, Newark, N. J., and paid $320,066.89, the tax shown to be due on the return.

Decedent's father, Parker Webster Page, died January 22, 1937, domiciled in Essex County, N. J. His will, dated January 12, 1935, was admitted to probate on February 10, 1937, by the Surrogate's Court of Essex County. Article Third thereof provided, in pertinent part, as follows:

If my wife, Nellie A. Page, survives me, I give, devise, bequeath and appoint all of said residue of my estate to my Trustees, hereinafter named, IN TRUST, to hold the same during the life of my wife, Nellie A. Page and to invest and reinvest the principal and to apply the net income to her use. Upon her death I give, devise, bequeath and appoint the principal in equal shares to my daughters Helen Page Wodell and Lois Page Cottrell and if either of my daughters should then be dead to such persons and in such proportions as such daughter may by will duly admitted to probate legally appoint and in default of such appointment to such daughter's issue then surviving in equal shares per stirpes.

By Article Tenth, Parker Webster Page appointed his wife, Nellie A. Page, and his daughters, as trustees. Nellie A. Page renounced her right so to act, and decedent and Lois Page Cottrell served as trustees until December 16, 1965, when Summit & Elizabeth Trust Co., of Summit, N. J., qualified as their cotrustee. The trustees had the power, in their absolute discretion, to invade corpus for the benefit of the life tenant in an amount not to exceed $10,000 in any one calendar year. The will contained no authorization for the use of principal during the term of the trust for the benefit of any other party.

Under date of October 11, 1945, the decedent executed a document under seal which read in pertinent part as follows:

I, the undersigned, HELEN PAGE WODELL, do hereby forever renounce, surrender and release any and all power or powers of appointment given to me under and by virtue of Article Third of the Last Will and Testament of Parker Webster Page, Deceased, dated January 12, 1935, except that I hereby reserve and retain the power to appoint any property subject to such power of appointment within a class which does not include any others than my descendants and their spouses, being a class within the provisions of Section 811(f)(2)(A) of the Internal Revenue Code, as amended, at the date hereof.

This release and renunciation is irrevocable.

Nellie A. Page died on April 14, 1970, whereupon the trust terminated and decedent and Lois P. Cottrell, who both survived Mrs. Page, were each then entitled to possession of one-half the remainder of the trust corpus. On April 19, 1970, decedent, being legally competent in all respects, executed a document entitled “Disclaimer and Renunciation” which provided as follows:

I, Helen Page Halbach (formerly Helen Page Wodell), residing at 49 Forest Drive, Short Hills, New Jersey, do hereby irrevocably disclaim and renounce all my right, title and interest as a remainderman of the trust established by my father, Parker Webster Page, in Paragraph THIRD of his Last Will and Testament, dated January 12, 1935, and admitted to probate by the Essex County Surrogate's Court on February 10, 1937.

The fair market value of the assets comprising the remainder interest disclaimed by the decedent on April 19, 1970, was $10,954,717.60.

The Disclaimer and Renunciation was delivered to Summit & Elizabeth Trust Co., as cotrustee, on May 4, 1970, and was filed in the Surrogate's Court of Essex County, N. J., on June 15, 1970. In an action brought by the trustees for settlement of their account and for a determination of the validity and effect of the Disclaimer and Renunciation, the Superior Court of New Jersey held that the Disclaimer and Renunciation was timely executed and filed and was valid and effective under New Jersey law. In re Estate of Page, 113 N.J. Super. 582, 274 A.2d 614 (Ch. Div. 1970).

Under the above judgment, dated December 23, 1970, the Superior Court directed distribution of decedent's disclaimed remainder interest to the alternate takers, decedent's issue living at the time of death of Nellie A. Page. The trustees' accounting thereunder listed no distribution of corpus or income of the trust to any person at any time, other than periodic distribution of income to Nellie A. Page, the life income beneficiary. However, the trustees' accounting did show that on February 10, 1958, the trustees effected a loan of $6,000 to decedent, evidenced by a demand note order of the trustees and signed by decedent. Said note was listed among the assets comprising the corpus on hand in the trust on April 14, 1970, the closing date of the account. Distribution of the assets, including the above note, was effected in kind in 1971 in accordance with the terms of the Superior Court judgment.

On decedent's Federal estate tax return petitioner disclosed decedent's Disclaimer and Renunciation but did not include the value of the disclaimed remainder interest as part of the gross estate subject to Federal estate tax. As of August 5, 1972, the fair market value of the trust assets constituting the remainder interest disclaimed by decedent was $13,954,034.28.

In his notice of deficiency, dated April 30, 1976, respondent determined that decedent's disclaimer effected a transfer subject to Federal estate tax under section 2035. Accordingly, he increased decedent's taxable estate by the fair market value of the remainder interest at date of decedent's death.²

OPINION

Section 2001³ imposes a tax on the decedent's privilege of transferring his taxable estate. See Chase Nat. Bank v. United States, 278 U.S. 327, 334 (1927). The gross estate includes any interest in property that the decedent holds at the time of his death. Secs. 2031⁴ and 2033. ⁵ Section 2035, as written on decedent's date of death, ⁶ further expanded the gross estate to include “the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer * * * in contemplation of death.” (Emphasis added.) Sec. 2035(a). ⁷ Due to the severance of issues by petitioner only the limited issue of whether decedent's disclaimer resulted in a transfer is before the Court at this time. If we do find that the disclaimer resulted in a transfer the petitioner has reserved for another day his right to argue that such transfer was not made in contemplation of death.⁸

When a decedent has, within a reasonable time, made an effective renunciation of a legacy under local law, such property will not be included in the gross estate. A decedent's renunciation merely exercises his right to disclaim his interest. Brown v. Routzahn, 63 F.2d 914, 917 (6th Cir. 1933), cert. denied 290 U.S. 641 (1933). This exclusion is based on the property law theory that the property passes directly from the legator to the takers in default because it was never owned or controlled by the decedent.

Petitioner contends that, because the decedent's renunciation of her remainder interest was found to be both timely and effective by a New Jersey court (In re Estate of Page, supra), such interest should not be included in her gross estate. Respondent accepts petitioner's contention that the renunciation was effective under local law. However, he takes issue with the timeliness of that disclaimer. We do not question that the renunciation was both timely and effective for the purpose of preventing the vesting of legal title to the subject property in decedent. However, we find that the disclaimer was not timely for our purposes. See Jewett v. Commissioner, 70 T.C. 430, 436-437 (1978).

In Commisioner v. Estate of Bosch, 387 U.S. 456 (1967), the Supreme Court considered the impact of a State court's interpretation of local law. It noted that the Commissioner of Internal Revenue was not a party to the State court's proceeding and questioned whether any party thereto was a bona fide adversary. The Supreme Court found that the State court's decision did not have the effect of res judicata...