Adams v. United States

• Decision Date: 23 July 1975
• Docket Number: No. W-4684.,W-4684.
• Citation: 401 F. Supp. 1142
• Parties: Mark H. ADAMS et al., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Kansas

401 F. Supp. 1142

Mark H. ADAMS et al., Plaintiffs, v. UNITED STATES of America, Defendant.

No. W-4684.

United States District Court, D. Kansas.

July 23, 1975.

COPYRIGHT MATERIAL OMITTED

Mark H. Adams, of Adams, Jones, Robinson & Malone, Wichita, Kan., for plaintiffs.

Irving Shaw, Asst. U. S. Atty., Robert J. Roth, U. S. Atty., Wichita, Kan., Douglas G. Anderson, Yale F. Goldberg, Robert S. Milligan, Trial Atty. Tax Div., Refund Trial Sec. No. 3, Dept. of Justice, Washington, D. C., for defendant.

DECISION OF THE COURT, TOGETHER WITH FINDINGS OF FACT AND CONCLUSIONS OF LAW

THEIS, District Judge.

INTRODUCTORY STATEMENT

This action arose as a suit for refund of federal estate taxes and interest in the stated amount, brought by the Executors of the Will of a substantially wealthy decedent against the Government. There is no dispute between the parties as to venue or jurisdiction of the Court, which is granted jurisdiction under 28 U.S.C. § 1341(a)(1). Trial was had to the Court and the matter submitted. The Court now makes Findings of Fact and Conclusions of Law, followed by "Decision of the Court," setting forth the reasoning and legal authorities applied by the Court in reaching a decision in this matter.

FINDINGS OF FACT

1. This is an action for the refund of federal estate taxes and interest in the amount of $901,088.85, plus interest thereon as provided by law, in which action there were three issues:

(a) Claimed marital deduction free of federal estate tax;

(b) The amount of administrative expense to which the estate is entitled as deduction against federal estate taxes;

(c) What, if any, charitable deduction from federal estate taxes is the estate entitled?

On August 31, 1973, judgment was entered for the plaintiffs on issue (a) above set forth. Presently the parties have filed herein stipulation and agreement for a judgment in favor of the plaintiffs on issue (b) fixing the amount of the deduction against federal estate tax for the estate in the sum of $368,564.62, and for judgment accordingly.

2. Tom Palmer died testate May 19, 1966, and his Will was admitted to probate in the proceedings in the Probate Court of Sedgwick County, Kansas; Mark H. Adams, Hugh S. Edgerton, Jeff C. Lyle and The Union National Bank of Wichita, Kansas, are the duly qualified and acting Executors under such Will and are the duly appointed, qualified, and acting trustees under the two separate and distinct trusts provided for under such Will, a true copy of which is attached to the Pre-Trial Order as Exhibit "A".

3. After certain bequests relating to testator's homestead, household furnishings, automobile and other such items to decedent's wife and certain bequests to certain of decedent's employees, Paragraph Seventh of decedent's Will bequeaths to each of decedent's grandchildren, Dianne Courtney Buller and John Thomas Courtney, the sum of $25,000.00. Under Paragraph Eighth of decedent's Will, all the rest, residue, and remainder of said estate was given, devised and bequeathed unto Mark H. Adams, Hugh S. Edgerton, Jeff C. Lyle, and The Union National Bank of Wichita, Kansas, in trust, to have and to hold the same upon two separate and distinct trusts:

A. TRUST "A"

"1. To have and to hold an undivided one-half (½) of said residuary estate, said trust to be designated as Trust `A'.

2. During the existence of said trust, said trustees shall pay all of the net income from said trust estate to my wife, Daisye Palmer, for and during the period of her natural life, in quarterly or monthly payments, as said trustees shall determine.

3. I specifically direct that my wife, Daisye Palmer, shall have the power, exercisable by her alone and in all events to appoint the entire corpus of said trust or any portion thereof, free of said trust. Said power of appointment may be exercised by her in favor of her estate, or such person or persons as she may direct, and it may be exercised by her by Will.

4. Upon the death of my wife and in event she has not exercised the foregoing power of appointment, I direct that the remaining corpus and undistributed income, if any, in said Trust `A' shall be by the trustees thereof assigned, transferred and distributed to and merged with, and thereafter administered and distributed as a part and in accordance with the terms of Trust `B' hereinafter referred to."

B. TRUST "B"

"1. To have and to hold an undivided one-half (½) of said residuary estate, said trust to be designated as Trust `B'.

2. With respect to the net income from said trust, I direct:

(a) That during the lifetime of my daughter, Eileen Palmer Courtney (now Eileen Hipps), there shall be paid and distributed to her $600 a month.

(b) During the lifetime of my wife, Daisye Palmer, the remainder thereof shall be paid and distributed to her.

(c) Any remainder thereof shall be retained in said trust for reinvestment purposes and ultimate distribution as hereinafter provided.

3. I direct that my trustees shall pay to or expend for the use or benefit of my grandson, John Thomas Courtney, all necessary funds to pay any medical and hospital expenses by him incurred, and to provide for the care, comfort, maintenance, support and general welfare of my said grandson during his lifetime, and at the time of his death provide adequate funeral and burial services. While it is my desire that the trustees liberally provide for my grandson, said trustees shall, in their sole discretion, determine and conclude, from time to time, the extent and amount of care, support and maintenance expenditures from said trust estate.

4. Upon the deaths, respectively, of my wife, Daisye Palmer, my daughter, Eileen Palmer Courtney, and my grandson, John Thomas Courtney, I direct and authorize my trustees to contribute and make distribution of the remainder of such trust estate:

(a) To Hugh S. Edgerton and to Jeff C. Lyle, in equal shares, Lots 41, 43, 45 and 47 on Lawrence Avenue, now Broadway Avenue, in Greiffenstein's Original Town, now City of Wichita, in Sedgwic County, Kansas, as shown by the recorded plat thereof;

(b) The remainder of said trust funds and property shall be paid and distributed to a charitable and educational corporate foundation, to be created by the trustees, to be known and designated as "The Ella Palmer Foundation". That in the formation of such corporate foundation, its trustees shall be empowered to make contributions from either or both the corpus and income of the foundation properties to other educational or charitable corporations in Wichita, Kansas, in each instance for the establishment of a memorial to my mother, Ella Palmer."

Said Will then proceeds under Paragraph Ninth thereof, to provide:

"The trustees of my said Trusts `A' and `B' shall have the following powers, rights, duties and obligations:

. . . . . .

(d) I hereby authorize my said Trustees, irrespective of the provisions for the distribution of my said trust estates, to at any and all times pay from either the income or corpus of these trust estates to any of the beneficiaries hereinabove named or designated, such sum or sums of money as in the opinion and sole discretion of said Trustees shall be deemed necessary, advisable and requisite for their maintenance, support, care and health. Should any payment be made under this provision to any such person, the same shall be charged as an advancement to the share of such person in such trust estates, if such person's interest therein is that of an ultimate beneficiary."

Paragraph Fifteenth of decedent's Will then provides:

"I instruct and direct my executors to establish the trusts in this Will created at the earliest possible date, place therein immediately all assets of my estate, which are not otherwise devised or bequeathed or are necessary for the payment of debts, expenses or taxes which may be chargeable to, or assessed against, my said estate. I specifically authorize and direct the executors acting hereunder to make payments which my trustees may be authorized to make, as hereinbefore provided for, to the beneficiaries named or designated herein, at the time and in the manner hereinbefore set forth, and to continue to make said payments until my trustees shall qualify and receive the assets of the respective trusts created by this Will."

4. At the time of decedent's death, he left a gross estate of a value of approximately $4,290,000.00.

5. After the payment of all specific bequests and estimated state inheritance and federal estate taxes, there remains in said estate and as partially distributed to Trust Estates "A" and "B" property valued as of September 30, 1974, as follows (see Plaintiff's Exhibit 12):

(a) In decedent's estate, property of the approximate value of $175,000.00.

(b) Distributed to Daisye Palmer through Trust Estate "A", property of the approximate value of $975,000.00.

(c) In Trust Estate "B", property of the approximate value of $975,000.00.

The final distribution awaits a final determination of the federal estate taxes ($352,303.77 having been paid with return filed in 1967) and state inheritance taxes due from said estate or by reason of the succession thereof, there having heretofore been paid Kansas succession and inheritance taxes in the sum of $66,224.24; that before the payment of the additional federal estate tax, and interest thereon, complained of, there was in the estate and the trust estates property of a total value of approximately $3,475,000.00, from which (on experience to date) there has accrued net income per annum of in excess of $100,000.00.

6. Under date of June 2, 1969, Articles of Incorporation of the Ella Palmer Foundation, Inc., were issued by the Secretary of State of Kansas, and the same was supplemented by amendment dated June 27, 1969, creating a corporation organized not for profit to comply with the instructions in decedent's Last Will and Testament, the purpose of such corporation being to transact and carry on charitable, scientific or educational...