Ahlstrom v. Comm'r of Internal Revenue (In re Estate of Ahlstrom) , Docket No. 6182-66.

• Decision Date: 12 May 1969
• Docket Number: Docket No. 6182-66.
• Citation: 52 T.C. 220
• Parties: ESTATE OF WILLIAM JOHN AHLSTROM, DECEASED, KATRINA AHLSTROM MILLER, ADMINISTRATRIX, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

52 T.C. 220

ESTATE OF WILLIAM JOHN AHLSTROM, DECEASED, KATRINA AHLSTROM MILLER, ADMINISTRATRIX, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 6182-66.

Tax Court of the United States.

Filed May 12, 1969.

Roger L. Davis, for the petitioner.

Susan Stivers, for the respondent.

Under decedent's will his widow was left certain property outright and she was given a fractional interest in certain trust income. Four years after his death the widow decided to elect dower in lieu of the share of her husband's estate provided for her by the will. She, however, had failed to file timely election to take dower as required by State statute. The Probate Court subsequently permitted the untimely election, and a State trial court entered an order approving the Probate Court's action, albeit out of time, upon petition of the testamentary trustee for instructions. Held: The election to take dower which was recognized by the Probate Court was not in accordance with State law, and is not recognized for Federal tax purposes. Since no interest in property ‘passed’ to the surviving spouse as required by sec. 2056, I.R.C. 1954, the property comprising the belatedly elected dower share does not qualify for the marital deduction.

HOYT, Judge:

The respondent determined a deficiency in the petitioner's estate tax in the amount of $4,481.64. Petitioner conceded two issues, and a third is to be settled in a Rule 50 computation. The only issue remaining for adjudication is whether the estate is entitled to a marital deduction for the value of property passing to the decedent's widow after the surviving spouse was belatedly awarded what was called dower in an equitable State court proceeding instituted 4 years after decedent's death.

FINDINGS OF FACT

Those facts which were stipulated are found accordingly and incorporated herein by this reference.

Petitioner is the administratrix c.t.a. of the Estate of William John Ahlstrom, deceased, Katrina Ahlstrom Miller, and she will sometimes be referred to hereinafter as petitioner. On the date the petition herein was filed, petitioner's legal residence was within the State of Florida. The U.S. Estate Tax Return was filed with the district director of internal revenue at Jacksonville, Fla.

The decedent died testate on August 27, 1962. He was survived by his spouse, Marie A. Ahlstrom, and his daughter, Katrina Ahlstrom Miller.

Administration of the estate was initiated in the County Judge's Court in and for Palm Beach County, Fla., on September 7, 1962. The first notice to creditors was dated October 1, 1962, and the first publication of such notice was on October 3, 1962. Subsequent republications occurred on October 10, 1962, October 17, 1962, and October 24, 1962.

One of the principal assets of the estate was an interest in the Mary White Trust, hereinafter sometimes referred to as trust No. 1. The agreement which created the trust was made and executed on June 27, 1946, between Mary A. White as settlor, and Carl F. Ahlstrom, Mary A. White, and Lucius P. Wasserman as trustees. The trust provided for the payment of income in equal parts to Mary A. White, Carl F. Ahlstrom, and William John Ahlstrom during Mary's life. In addition, Mary was to be paid out of principal such sum as would guarantee her total payments of $6,000 per year. Upon Mary's death the trust was to terminate and the decedent was to receive one-half of the principal. The trust instrument further provided that if the decedent should predecease Mary A. White, his share of income and principal would be paid as directed in his will or to his estate in case of intestacy. Although the trust was subsequently modified, such modification does not affect the facts or issues presented herein.

The decedent did, in fact, predecease Mary A. White; she died on March 29, 1965. At the date of decedent's death, August 27, 1962, his interest in the trust was worth $325,052.30. His will provided that his interest in the corpus of trust No. 1 was to be placed in another trust, thereby created, hereinafter referred to as trust No. 2. According to the terms of the will, the decedent's income from trust No. 1 was to be distributed two-thirds to the surviving spouse, Marie A. Ahlstrom, and one-third to decedent's daughter, Katrina Ahlstrom Miller, during the lifetime of Mary A. White. Upon her death, decedent's one-half share of the corpus of trust No. 1 was to pass into trust No. 2 and the income therefrom was to continue to be paid as described above. The entire corpus of trust No. 2 was to be distributed to Katrina after the death of Marie, and in the event of Katrina's prior death to her issue per stirpes.

The original inventory and an amended inventory filed by the estate in the Probate Court did not include decedent's interest in trust No. 1 among the listed estate assets, except for accrued trust income to date of death. A final amended inventory, however, filed February 5, 1964, did include the entire trust interest, it being valued in excess of $315,000 at that time. Decedent's share of the corpus of trust No. 1 was finally distributed to the testamentary trustee named in Ahlstrom's will in May of 1966, approximately 1 year after Mary White's death.

During the 17-month period between William John Ahlstrom's death and the filing of the final inventory, neither the administratrix nor her attorney believed that decedent's interest in trust No. 1 was a probate asset of the estate or subject to a dower election by the widow. It was, however, shown as an estate asset in the preliminary notice filed for estate tax purposes on December 10, 1962, just a few months following Ahlstrom's death. Petitioner executed that notice as administratrix c.t.a. The decedent's interest in trust No. 1 was included as an asset of the estate in the estate tax return executed by Katrina as administratrix on November 27, 1963.

Marie depended entirely upon Katrina for financial advice and, if she considered it at all, she also believed that decedent's interest in trust No. 1 was not a part of his estate. However, in mid-June of 1965 she was advised otherwise. The petitioner had discussed the matter with a friend who was an accountant and recognized that tax savings might result if the surviving spouse exercised and elected dower rights in that interest.

In May of 1966, the decedent's share of trust No. 1 was distributed to the First National Bank of Palm Beach, the trustee named in decedent's will as trustee of trust No. 2. On June 20, 1966, Marie executed a petition to the County Judge's Court in and for Palm Beach County, Fla., to permit her to elect dower rather than take under her husband's will. Although the petition was filed nearly 4 years after the decedent's death and more than 3 years after the statutory period fixed for filing such election, she alleged that the late filing was because she had not been informed that decedent's interest in trust No. 1 was subject to dower claim. She therefore averred that she did not elect dower within the statutory 9-month period because of her erroneous belief that dower, if elected, would decrease rather than increase her share of the estate. She further alleged in her petition that it was not until June 15, 1965, about 3 months after Mary White's death, that she became aware of the true value of decedent's interest in trust No. 1 and the corresponding value of her possible dower interest in his estate; on that date, she allegedly realized that an election to take dower would greatly increase her share of the estate. This petition was filed in the Probate Court on July 8, 1966.¹

On July 8, 1966, the County Judge's Court entered a judgment and order of dower in favor of Marie Ahlstrom, the material part of which reads as follows:

2. Marie A. Ahlstrom, as the widow of William J. Ahlstrom, is entitled to have a one-third (1/3) interest set apart to her as her dower interest in the above-named estate, and the executrix is hereby ordered and authorized to pay to Marie A. Ahlstrom a one-third (1/3) interest in all the property, both real and personal, of which decedent died seized, including a one-third (1/3) interest in the corpus of the aforementioned testamentary trust (trust No. 1), such interests to be computed as of the date of decedent's death.

Also on the same day Katrina and Marie entered into a written agreement. Katrina assigned to Marie her income interest in trust No. 2. The widow in turn transferred her dower interest in trust No. 2 to the same trustee, to be held in separate trust, hereinafter referred to as trust No. 3. The income from trust No. 3 was to be paid to the daughter during the life of the surviving spouse. Upon her death, the principal and accumulated income were to be paid to the daughter or if she was then dead to her issue per stirpes. This concurrent reassignment of the claimed dower interest put the parties back in the exact positions they occupied prior to the election insofar as their respective interests in the decedent's trust estate were concerned.

The First National Bank in Palm Beach, Fla., had been appointed by the decedent's will as trustee of trust No. 1. On October 17, 1966, the bank filed a petition for instructions in the Circuit Court of the Fifteenth Judicial Circuit of Florida in and for Palm Beach County, in chancery, to determine the effectiveness of Marie Ahlstrom's election to take dower, and to obtain court sanction and orders to proceed to recognize the agreement made by Marie and Katrina.

On April 24, 1967, that court entered its findings of fact, opinion, order, and instructions pursuant to the bank's petition. The court held that no timely dower election was possible because the initial inaccurate inventories prevented an ascertainment of the value of the dower interest, and that where legal procedures prevent accurate ascertainment of dower an extension of the period for electing dower is justified. Although the 9-month period fixed...