Bone v. United States

• Decision Date: 16 February 1965
• Docket Number: Civ. A. No. 521.
• Citation: 238 F. Supp. 97
• Parties: Lenora Anna BONE, Executrix of the Estate of Clarence W. Bone, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Arkansas

238 F. Supp. 97

Lenora Anna BONE, Executrix of the Estate of Clarence W. Bone, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 521.

United States District Court W. D. Arkansas, Fayetteville Division.

February 16, 1965.

Greenhaw & Greenhaw, Fayetteville, Ark., Smith, Williams, Friday & Bowen, Little Rock, Ark., for plaintiff.

Stanley F. Krysa, Tax Division, Dept. of Justice, Robert L. Waters, Atty., Dept. of Justice, Washington, D. C., Charles M. Conway, U. S. Atty., Fort Smith, Ark., for defendant.

JOHN E. MILLER, Chief Judge.

Statement

On March 27, 1964, plaintiff commenced this action seeking to recover $15,587.42, together with interest and costs, because of an alleged erroneous disallowance of marital deduction in the estate tax return of Clarence W. Bone, deceased. The defendant filed its answer May 28, 1964, in which it admitted the filing of the estate tax return and the disallowance of the marital deduction claimed for the residue of the deceased's estate devised to Lenora Anna Bone and alleged that the determination of the Commissioner of Internal Revenue was correct. On December 5, 1964, the defendant and plaintiff, through their respective attorneys, filed a stipulation containing facts and procedures to be followed in the event the court reached certain conclusions.

In clarification of the facts set forth in the stipulation, the court makes the following findings of fact:

No. 1

The deceased, Clarence W. Bone, died testate May 4, 1961. His will was duly admitted to probate by the Probate Court of Washington County, Arkansas. The plaintiff, Lenora Anna Bone, surviving wife, qualified as Executrix and was granted letters testamentary May 22, 1961.

No. 2

An estate tax return for the estate of Clarence W. Bone was filed July 30, 1962, reflecting an adjusted gross estate of $187,142.94. The estate tax return claimed deduction for bequests to the surviving spouse in the amount of $93,571.47, and the estate tax as reflected by that return was paid at that time.

No. 3

The Internal Revenue Service readjusted the gross estate and determined it to be $192,893.80. The deduction for bequests to the surviving spouse was decreased from $93,571.47 to $34,379.19. The reduction was based upon a disallowance of the value of the property passing to the surviving spouse under the residuary clause of Clarence W. Bone's will in the amount of $96,446.90. The tax as computed after adjustment has been paid, and a timely request for refund was made but denied by the Internal Revenue Service.

No. 4

The will of Clarence W. Bone in the third clause provided:

"Third. All of the rest and residue of my estate, real, personal and mixed, of every nature and kind and wheresoever located, I hereby give, devise and bequeath the same to my wife, Lenora Anna Bone, for and during her natural life, with the right to my said wife to use the same as she deems best and proper without limitation, giving unto my said wife the right and power of selling conveying and converting any of my property. Upon the death of my said wife, the balance and residue of my estate which has not been consumed, I give, devise and bequeath to and the same shall vest absolutely in, my five children in fee simple, in the proportions hereinafter set forth * * *."

DISCUSSION

As the court views the pleadings, the stipulation, the facts and contentions of the parties as set forth in their briefs, the issue presented is: Whether the estate of Clarence W. Bone is entitled to a marital deduction for the value of the property devised to Lenora Anna Bone in the residuary clause of Clarence W. Bone's will as provided in Sec. 2056 (b) (5) of the Internal Revenue Code, 26 U.S.C. § 2056(b) (5). In determining this question, the court must examine the extent and nature of the spouse's interest as devised in the residuary clause of the decedent's will.

Section 2056(b) (5) and the regulations promulgated by the Internal Revenue Service grant a marital deduction to the estate for a devise to a surviving spouse of a life estate with a power of appointment if it meets certain criteria. The regulations provide that five conditions have to be satisfied to entitle the estate to a marital deduction under this section:

"(1) The surviving spouse must be entitled for life to all of the income from the entire interest or a specific portion of the entire interest, or to a specific portion of all the income from the entire interest.

"(2) The income payable to the surviving spouse must be payable annually or at more frequent intervals.

"(3) The surviving spouse must have the power to appoint the entire interest or the specific portion to either herself or her estate.

"(4) The power in the surviving spouse must be exercisable by her alone and (whether exercisable by will or during life) must be exercisable in all events.

"(5) The entire interest or the specific portion must not be subject to a power in any other person to appoint any part to any person other than the surviving spouse." Regs. Sec. 20.2056(b)-5(a).

An examination of these regulations disclose that conditions (1) and (2) are satisfied because the devisee spouse is given the entire interest, and there is no division of principal and income. Condition (5) is also met upon an examination of the applicable provision of the testator's will quoted above as no power of appointment was given by the testator to any person other than the devisee spouse.

Whether or not the estate is entitled to the marital deduction thus resolves itself to a determination of whether or not conditions (3) and (4) quoted above have been satisfied.¹ Although the deduction and the conditions under which it may be taken are determined by the Internal Revenue Code, the nature and extent of the devisee spouse's interest is a matter of state law. In other words, whether or not (a) the surviving spouse has the power to appoint the entire interest, and (b) whether or not the power to appoint the entire interest is exercisable by the surviving devisee spouse alone, and (c) whether or not the power to appoint the entire interest by the surviving spouse alone is exercisable in all events, are all questions of state law as the nature and extent of these interests are determined by state law. See: Bookwalter v. Phelps, (8 Cir.1963) 325 F.2d 186; Hoffman v. McGinnes, (3 Cir.1960) 277 F.2d 598, 90 A.L.R.2d 405; Darby's Estate v. Wiseman, (10 Cir.1963) 323 F.2d 792; Estate of Edward A. Cunha v. Comm., (9 Cir.1960), 279 F.2d 292; Jackson v. United States, 376 U.S. 503, 84 S.Ct. 869, 11 L.Ed.2d 871 (1963).

The plaintiff in her brief in support of her contention that as the devisee spouse under the residuary clause of the decedent's will, she has a life estate with an absolute power of appointment which entitles the estate to a marital deduction, cites Archer v. Palmer, 112 Ark. 527, 167 S.W. 99 (1914); Johnson v. Lehr, 192 Ark. 1004, 96 S.W.2d 20 (1936); Thurman v. Symonds, 126 Ark. 216, 190 S.W. 106 (1916); Union & Mercantile Trust Co. v. Hudson, 143 Ark. 519, 220 S.W. 820 (1920); Reddin v. Cottrell, 178 Ark. 1178, 13 S.W.2d 813 (1929); Little Rock v. Lenon, 186 Ark. 460, 54 S.W.2d 287 (1932); and Piles v. Cline, 197 Ark. 857, 125 S.W.2d 129 (1939).

In Archer v. Palmer, supra, the testator in his will granted his spouse a life estate with remainder over, and in a subsequent clause granted the spouse absolute power to dispose of the property. The Supreme Court held that a deed executed by the devisee spouse conveyed the fee title to property devised to her as she had the absolute power of appointment. The will, in granting this power, stated as follows at page 529 of 112 Ark., page 99 of 167 S.W.:

"Fourth. I hereby direct, that my beloved wife, Laura O. L. Archer, shall have full power and authority to sell and dispose of any and all property, both real, personal and mixed in such manner as she may desire of which I may die seized."

In Thurman v. Symonds, supra, the testator devised all his property to his spouse, and the will recites as follows at page 217 of 126 Ark., page 107 of 190 S.W.:

"III. I also bequeath to my beloved wife the right and power to sell and make warranty deed to any real estate that I may be possessed of at the time of my death and to use the proceeds for her own personal use and benefit without bond or process of court or accountability to any person or persons. Now in the event that I survive my said beloved wife then in that event this will and testament shall be null, void and remain my property as heretofore."

The Supreme Court, in construing the decedent's will, referred to the Archer case, supra, and at page 218 of 126 Ark., page 107 of 190 S.W. stated:

"What was said there is applicable to the construction of this will, and in so far as this case differs from the instant case this is a stronger one for the application of this principle; for in the Archer v. Palmer Case the power was granted to one who had only a life estate, whereas here the will vests the fee in the widow and her heirs by the testator begotten.

"Nor do we think the conveyances executed by Mrs. Meadors are void because they were executed by her in her individual capacity, rather than as executrix of the estate of her husband. Under the second clause of the will she might have conveyed as executrix for purposes of administration upon this estate, but, however that may be, the grant of the power to convey contained in the third clause of the will was to her as wife, and not as executrix, and the conveyances in question were made pursuant to this power, and for the reasons stated will be upheld."

In Union & Mercantile Trust Co. v. Hudson, 143 Ark. 519, 220 S.W. 820 (1920), the testator by will devised the residue of his property to his mother by the following language: "* * * to have, hold, use and enjoy during her natural life, it being my desire that she shall have the absolute right to sell or incumber it without any...