Boeving v. United States

• Decision Date: 28 March 1980
• Docket Number: Civ. No. S78-0112C.
• Citation: 493 F. Supp. 665
• Parties: William R. BOEVING, Leo Boeving and Charles M. Cable, Trustees of the Ethyle Boeving Trust; and Joan Boeving, Administratrix of the Ethyle Boeving Estate, v. UNITED STATES of America.
• Court: U.S. District Court — Eastern District of Missouri

493 F. Supp. 665

William R. BOEVING, Leo Boeving and Charles M. Cable, Trustees of the Ethyle Boeving Trust; and Joan Boeving, Administratrix of the Ethyle Boeving Estate, v. UNITED STATES of America.

Civ. No. S78-0112C.

United States District Court, E. D. Missouri, Southeastern Division.

March 28, 1980.

James E. Reeves, Ward & Reeves, Caruthersville, Mo., Charles Sampson Williams, Cable, Seabaugh & Williams, Kennett, Mo., for plaintiffs.

Robert D. Kingsland, U. S. Atty., St. Louis, Mo., James E. Crowe, Jr., Trial Atty., Tax Division, Dept. of Justice, Washington, D. C., for defendant.

MEMORANDUM

MEREDITH, District Judge.

This matter is before the Court on final submission of a claim for refund of a deficiency assessment, statutory penalty and interest on this amount levied against plaintiffs in the amount of $359,412.11.

The entity from which the estate tax liability in issue principally stems is the Estate of Ethyle Boeving. The William Boeving Trust, a transferee of assets deemed includable in the "gross estate" of the Estate of Ethyle Boeving, paid the disputed taxes. Most of the pertinent facts were stipulated by the parties in a Stipulation filed herein on November 12, 1979. The pertinent facts are as hereinafter stated.

Plaintiffs William R. Boeving, Leo Boeving, and Charles M. Cable were trustees of the Ethyle Boeving Trust, and plaintiff Joan Boeving is the administratrix of the Ethyle Boeving Estate. Ethyle Boeving died on September 13, 1973, and her estate was probated in the Probate Court of Butler County, Missouri. Plaintiffs William Boeving and Leo Boeving are the sole surviving trustees of the William Boeving Trust created under the Last Will and Testament of Albert Boeving.

Defendant is the United States of America and this action is for the recovery of federal estate taxes paid on behalf of The Ethyle Boeving Estate by the William Boeving Trust.

This Court has jurisdiction pursuant to the provisions of 28 U.S.C. § 1346(a).

Ethyle Boeving was the wife of Albert Boeving and, during their lives, both were residents of Butler County, Missouri. Ethyle was adjudicated an incompetent in the Probate Court of Butler County on December 1, 1960. Albert died testate on April 19, 1961. In his will, Albert made certain specific bequests, but the vast majority of his property passed to two trusts created in the residuary clause of his will. The two trusts were entitled the "Ethyle Boeving Trust" and the "William Boeving Trust." The Ethyle Boeving Trust was created, in part, to qualify the property passing into it for the marital deduction for federal estate tax purposes. To this end, Albert's will provided that Ethyle, his wife, would have the "absolute right to appoint by her last will and testament the entire remaining principal of . . . the Ethyle Boeving Trust." The will further provided as follows:

"In the event my wife, Ethyle Boeving, shall fail to exercise this power of appointment, the remaining principal of this trust and any undistributed income shall pass into the William R. Boeving Trust and be handled and distributed in accordance with the provisions thereof."

Ethyle died intestate on September 13, 1973. Accordingly, Ethyle did not exercise the power of appointment available to her under the terms of the Ethyle Boeving Trust. As a result, upon Ethyle's death the property remaining subject to that trust passed into the William Boeving Trust.

Subsequent to the filing of the original federal estate tax return on April 7, 1975, the Internal Revenue Service determined that the Ethyle Boeving Trust property was, at her death, subject to Ethyle's power of appointment within the meaning of 26 U.S.C. § 2041, the Internal Revenue Code of 1954, and included that property in the gross estate for federal estate tax purposes.

William Boeving was the adopted son of Ethyle and Albert Boeving. After Ethyle was adjudicated incompetent on December 1, 1960, William was appointed guardian. William served in this capacity, although not satisfactorily, until December, 1972, at which time his wife Joan replaced him as guardian. Her husband had been an alcoholic since 1950, and suffered various physical ailments which required, among other things, treatment for mental disability. It was because of these problems that Joan was appointed guardian and administratrix for Ethyle Boeving and for Ethyle's estate after her death.

It is clear and it is stipulated that the resolution of this case depends on determination of two issues. The first issue is whether Ethyle Boeving, an adjudicated incompetent before the date of her husband's death, ever possessed a "power of appointment," within the meaning of that term under 26 U.S.C. § 2041, over the assets of the Ethyle Boeving Trust created by the will of Albert Boeving so as to require inclusion of the value of its assets in the Estate of Ethyle Boeving.

The second issue to be determined is whether the failure to timely file the federal estate tax return for Ethyle Boeving's Estate and to pay the federal estate tax was due to reasonable cause and not due to wilful neglect within the meaning of 26 U.S.C. § 6651(a)(1) and (a)(2) of the Internal Revenue Code of 1954 so as to render the Estate not liable for the penalty assessed under 26 U.S.C. § 6651.

I.

The federal estate tax is imposed upon the "taxable estate." 26 U.S.C. § 2001. The "taxable estate" is defined in the Internal Revenue Code as the "gross estate" less allowable deductions (e. g., the marital deduction). 26 U.S.C. §§ 2051 and 2056. The first step, then, in determining an estate's federal estate tax liability is to compute the "gross estate." This case involves that computation with respect to Ethyle Boeving's Estate.

Title 26 U.S.C. § 2031 broadly defines the "gross estate" as including "the value at the time of . . . the decedent's death of all property, real or personal, tangible or intangible, wherever situated." 26 U.S.C. § 2041 is one of the statutes which further describes the property comprising the "gross estate."

26 U.S.C. § 2041(a)(2) provides that the gross estate shall include the value of all property with respect to which the decedent has at the time of her death a "general power of appointment" created after October 21, 1942, whether or not the power has been exercised by the defendant. 26 U.S.C. § 2041(b)(1) defines the term "general power of appointment" as a "power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate." The testamentary power possessed by the decedent in the instant case appears to have been exercisable in such a manner on first impression, but the timing and effect of Ethyle Boeving's adjudication of incompetency, before the date of Albert Boeving's death, require a more detailed analysis of whether Ethyle died possessed of a general power of appointment or whether she ever became vested with such a power.

It has long been settled that state law creates legal interests and rights, while the federal Revenue Acts designate what interests or rights, so created, shall be taxed. Morgan v. Comm'r. Internal Revenue, 309 U.S. 78, 60 S.Ct. 424, 84 L.Ed. 585 (1940). Under the law of Missouri, a power of appointment devised by will is a mere personal privilege. This narrow view is consonant with the New York holding on the issue. See In re: Buchanan's Trust, Sup., 142 N.Y.S.2d 502, 504 (Sup.1955), which cited In re: Erwin's Estate, Sur., 117 N.Y.S.2d 871, 873 (1952). The holding in these cases, as adopted by the Missouri Court of Appeals in O'Leary v. McCarty, 492 S.W.2d 124 (Mo.App.1973), established that the power of appointment, as a personal privilege, vests the power in the donee who is the only person entitled to exercise such privilege. These cases also hold that "an adjudication of incompetency has an effect equivalent to the death of the holder of the power." O'Leary, supra, at 129. In this case it appears that when Ethyle's husband, Albert, attempted to give Ethyle a general power of appointment by will after his death on April 19, 1961, her prior adjudication as an incompetent by the Probate Court of Butler County, Missouri, on December 1, 1960, rendered the power of appointment a nullity.

Likewise, in Finley v. United States, 404 F.Supp. 200 (D.C.Fla.1975), the same result was obtained where the donee of a power of appointment was at all times from the devise of the power of appointment to her on October 18, 1971, to the time of her death, December 18, 1971, mentally incompetent and lacked the requisite testamentary capacity to execute a will.

Defendant asserts Joan had a power of appointment by drawing the analogy between an incompetent's capacity to exercise a power of appointment with the Missouri law relating to an incompetent's ability to execute a will. It is true that in Missouri, under King v. Gilson, 191 Mo. 307, 90 S.W. 367 (1905), an adjudicated incompetent may make a will on the theory that such a person may formulate the requisite testamentary intent as, for instance, during a lucid interval, if he is of sound mind at the time the will is executed. However, this analogy is not persuasive in view of the Missouri Appeals Court decision precisely on the point of capacity to exercise a power of appointment at issue in this case.

Further, one seeking to establish the competency of a testator who has been adjudicated incompetent bears the burden of overcoming the presumption of incompetency in the state of Missouri. King v. Gilson, supra. The Court is of the opinion that defendant has failed to overcome this presumption.

The evidence shows that Joan Boeving lived with the decedent, Ethyle Boeving, twenty-four hours a day for the last six years of her life. She lived in the same household with Ethyle, and had been acquainted with her and observed her from 1952 until the date of her death. Joan testified unequivocally to the bizarre behavior of Ethyle, and that in Joan's opinion, Ethyle did...