89 T.C. 550 (1987), 11774-85, Estate of Dancy v. C.I.R.

Docket Nº:11774-85
Citation:89 T.C. 550
Opinion Judge:KORNER, JUDGE:
Party Name:ESTATE OF JOSEPHINE O'MEARA DANCY, DECEASED, JOHN J. PECK, EXECUTOR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Newman A. Townsend Jr. and Maria M. Lynch, for the petitioner. Edwina L. Charlemagne, for the respondent.
Case Date:September 14, 1987
Court:United States Tax Court
 
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Page 550

89 T.C. 550 (1987)

ESTATE OF JOSEPHINE O'MEARA DANCY, DECEASED, JOHN J. PECK, EXECUTOR, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 11774-85

United States Tax Court

September 14, 1987

D's executor, on her behalf, undertook to renounce and disclaim her survivorship rights in certain personal property which D had acquired as joint tenant with right of survivorship from her husband, who had predeceased her by eight days. Such interests were excluded from D's Federal estate tax return.

HELD: (1) The disclaimers were invalid for Federal estate tax purposes because they were invalid under applicable state law (North Carolina).

(2) As to joint interests created after December 31, 1981, the disclaimers did not qualify under the provisions of I.R.C. sec. 2518(c)(3), so as to avoid the applicability of state law.

Page 551

Newman A. Townsend Jr. and Maria M. Lynch, for the petitioner.

Edwina L. Charlemagne, for the respondent.

KORNER, JUDGE:

Respondent determined a deficiency in petitioner's Federal estate tax in the amount of $70,173.22. After concessions by both sides, the issue which we must decide is whether petitioner's executor, on behalf of Josephine O'Meara Dancy, Deceased, made a qualified disclaimer, for Federal estate tax purposes, with respect to certain undivided interests which decedent owned as joint tenant, with rights of survivorship, at the time of the death of her husband (who predeceased her) in certain stocks and bonds, certificates of deposit, and a money market fund.

FINDINGS OF FACT

Petitioner herein, the Estate of Josephine O'Meara Dancy, acting by and through John J. Peck, Executor, was a resident of Jacksonville, North Carolina, at the time the petition herein was filed. Petitioner's decedent, Josephine O'Meara Dancy (hereinafter ‘ decedent‘ ), died testate on August 22, 1982. Her last will and testament was duly probated in the North Carolina State Courts. Decedent's will left all her property to her husband, John Spencer Dancy, if he survived her. If he predeceased her, decedent's will then left $10,000 in trust for one individual and the balance to her nephew, John J. Peck (the executor herein).

In fact, decedent's husband, John Spencer Dancy (hereinafter ‘ Dancy ‘ ), predeceased decedent, dying on August 14, 1982. His will was likewise probated in the North Carolina Courts. Under his will, Dancy left all his property to his wife, decedent herein, if she survived him, and otherwise left $20,000 for two individuals and the remainder to the same John J. Peck.

At the time of Dancy's death, he and decedent owned various stocks and bonds as equal joint tenants with rights of survivorship. Those securities, together with their dates of acquisition and their fair market values at the time of decedent's death, are as follows:

Fair market
value
at time of
Date purchased decedent's
Item or issued death
1. 400 Shares of Reliance Insurance Co.,
$2.68 cumulative preferred series A 09/02/76 $3,650.00
2. $3,000 Carolina Tel & Tel convertible
sub. debenture 5.75% due 1/15/88 (1) 2,287.00
3. $3,200 AT& T unredeemed 8 3/4%
due 5/15/2000 11/25/77 2,311.00
4. 200 Shares Interstate Power Co.
$2.28 preferred stock (1) 3,300.00
5. 300 Shares VEPCO (1) 4,284.38
6. 8 Shares Chrysler Corp. (1) 65.00
7. 1,000 Shares Duke Power Co. 04/02/79;
04/12/77;
05/09/78 22,718.75
8. 1,000 Shares CP& L (1) 22,187.50
9. 5,604 Shares Continental Telecom,
Inc. (1) 92,466.00
10. 5,303 Shares United
Telecommunications, Inc.,
$1.50 cumulative convertible
preferred 2d series (1) 121,969.00
11. 50 Shares AT& T, $4 convertible Prior to
preferred 01/01/77 2,951.56
12. 706 Shares AT& T Prior to
01/01/77, with
exception of
138 shares
on 11/17/77 39,933.13
13. 54.641 Shares Duke Power Co. under
dividend-reinvestment program (1) 1,241.38
Page 552 No stocks and bonds were acquired by decedent and her spouse during the nine-month period preceding the February 2, 1983, filing of the Statement of Renunciation. At the time of Dancy's death, he and decedent also owned, as equal joint tenants with rights of survivorship, certain certificates of deposit. A description of those certificates of deposit, together with the dates when issued and the fair market value of each at the time of decedent's death is as follows:
Fair market value
at time of
Item Date issued decedent's death
1. Certificate of deposit No. 25082 - Peoples
Bank & Trust Co., original principal
amount of $10,000 10/11/76 $13,565.44
2. Certificate of deposit No. 1864 - Home
Federal Savings & Loan Association,
Dunn, N.C., original principal amount
of $45,000 11/04/81 45,000.00
3. Certificate of deposit No. 655033454 -
Home Federal Savings & Loan
Association, Charlotte, N.C., original
principal amount of $10,000 02/04/82 10,594.00
4. Certificate of Deposit No. 655022713 -
Home Federal Savings & Loan
Association, Charlotte, N.C., original
principal amount of $17,192.85 01/05/82 18,407.18
5. Certificate of Deposit No. 655042166 -
Home Federal Savings & Loan
Association, Charlotte, N.C., original
principal amount of $10,000 03/05/82 $10,466.08
Page 553 At the time of Dancy's death, decedent, Dancy and John J. Peck, as equal joint tenants with rights of survivorship, owned an account with the Vanguard Money Market Trust, which had a balance of $5,404.39 at the date of decedent's death. All contributions by John J. Peck to this account came from gifts made by decedent and Dancy to him. The date this account was created is not disclosed in this record. On February 2, 1983, John J. Peck, as decedent's executor and on her behalf, executed and filed in Dancy's probate proceedings a notarized ‘ Statement of Renunciation.‘ In that document, inter alia, Mr. Peck undertook to renounce decedent's right to succeed, as surviving joint tenant, to the interests in the property described above which had been Dancy's at the time of his death. After describing the various properties to be covered by the renunciation, including the property interests in issue here, the ‘ Statement of Renunciation‘ made the following declarations: IX. That the undersigned does hereby declare her intent to renounce in whole the said property or interest in said property, as described above, which she would otherwise receive from the Estate of John Spencer Dancy. X. That this Statement of Renunciation is filed within the time provided by statute. XI. That the undersigned has not taken or done, nor contracted to take or do, any act which would waive or bar her right of renunciation. XII. That a copy of this Statement of Renunciation has been delivered in person to the personal representative or other fiduciary of the decedent, John Spencer Dancy. Page 554 In decedent's Federal estate tax return, as amended, one-half of the claimed value of the stocks, bonds, and certificates of deposit owned by decedent and Dancy as joint tenants with rights of survivorship was included in decedent's gross estate. As to the Vanguard Money Market Trust account, the amended return reported one- third of the date of death balance in decedent's gross estate. In his notice of deficiency, inter alia, respondent determined that the full fair market value of the property owned by decedent and her spouse as joint tenants with right of survivorship was includable in decedent's gross estate. Likewise, with respect to the Vanguard Money Market Trust account, respondent determined that the full amount of funds contained therein at the date of decedent's death was includable in her gross estate. FN1 OPINION In this case, we are called upon to determine the validity, for Federal estate tax purposes, of certain disclaimers or renunciations which decedent's executor made on behalf of his decedent in 1983, with respect to the joint and survivorship interests which decedent had, at the time of Dancy's death in 1982, in certain stocks, bonds, certificates of deposit and a money market account. Because of Federal statutory and regulatory changes which took place during the relevant periods of time, we must examine the legal requirements for several different periods separately. Prior to 1977, and the enactment of what is now section 2046 [2] the validity of disclaimers for estate tax purposes was determined under the provisions of section 2056(d) and/or section 2511, as appropriate. Estate of Halbach v. Commissioner, 71 T.C. 141 (1978); see Estate of Caswell v. Commissioner, 62 T.C. 51, 55-56 (1974). After 1976, pursuant to the provisions of what was originally section 2045 and now is section 2046, such disclaimers are governed by the provisions of section 2518. Page 555 Where a joint tenancy is created before January 1, 1977, a disclaimer or renunciation of such interest must be made in accordance with local law. Keinath v. Commissioner, 58 T.C. 352 (1972), revd. on other grounds 480 F.2d 57 (8th Cir. 1973); see Griswold v. Commissioner, 81 T.C. 141, 149, 154 (1983), affd. without published opinion 812 F.2d 712 (2d Cir. 1987); see Cottrell v. Commissioner, 72 T.C. 489 (1979) revd. on other grounds 628 F.2d 1127 (8th Cir. 1980); sec. 25.2511-1(c)(2), Gift Tax Regs. Where the joint tenancy is created after December 31, 1976, and before January 1, 1982, the requirements of section 2518 apply, but this still includes the...

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