Burnett v. United States
| Decision Date | 29 June 1970 |
| Docket Number | Civ. A. No. 69-390. |
| Citation | 314 F. Supp. 492 |
| Court | U.S. District Court — District of South Carolina |
| Parties | Clarice S. BURNETT, Executrix of the Estate of Arch P. Burnett, Deceased, Plaintiff, v. UNITED STATES of America, Defendant. |
Wesley M. Walker and Earle G. Prevost, Greenville, S. C., for plaintiff.
Johnnie M. Walters, Asst. Atty. Gen., Myron C. Baum, Charles G. Barnett, Attys., Dept. of Justice, Washington, D. C., and Joseph O. Rogers, Jr., U. S. Atty., Columbia, S. C., and J. D. McCoy, Asst. U. S. Atty., Greenville, S. C., for defendant.
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER
The issue in this case is whether a certain testamentary gift to a surviving spouse qualifies for the marital deduction under Section 2056, 26 U.S.C.
The parties have stipulated the essential facts. Actually the controversy turns on the construction of the will of the testator. The pertinent terms of the will have been agreed to and the only dispute between the parties concerns the construction of such terms.
The language of the testamentary gift in question, which poses the controversy, is:
In the paragraph preceding this gift, the testator had bequeathed his personal property as follows:
The executrix, plaintiff in this action, claimed that the gift under Item III qualified for the marital deduction authorized under Section 2056. The Commissioner concluded that the gift did not qualify and issued a deficiency assessment. The plaintiff thereupon paid the estate tax due as a result of such deficiency assessment and now sues to recover back the payment so made, claiming that the gift did meet the criteria for such marital deduction under the Statute.
At the outset, it should be noted that State law determines the "quality and quantity" of the surviving spouse's title under the testamentary provision involved herein; whether such interest, so determined, qualifies for the marital deduction is, however, controlled by the federal law authorizing the marital deduction. Pierpont v. Commissioner of Internal Revenue (4th Cir. 1964) 336 F. 2d 277, 281, cert. den. 380 U.S. 908, 85 S.Ct. 890, 13 L.Ed.2d 795.
Section 2056(b) (5) authorizes a marital deduction for a testamentary gift of a life estate in favor of the surviving spouse, if accompanied "with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), * * *." Under the Regulations issued pursuant to this Section, five criteria are established for qualification under this deduction. Regulation 20.2056(b)-5. It is agreed that the gift in this case meets all such criteria with the exception of:
To qualify the power given the life estate willed the surviving spouse for the statutory marital deduction, such power, it is plain from the language of the Statute and the Regulations issued thereunder, must vest the surviving spouse with an absolute, unrestricted right of disposition. Though there is some contrary authority, it does not seem necessary that the power of disposition include a right to devise; it is sufficient that it may be exercisable "during life". See, United States v. Spicer (10th Cir. 1964) 332 F.2d 750, 752, note 3; Nettz v. Phillips (D.C.Iowa 1962) 202 F.Supp. 270, 272. But, whether exercisable "during life" or by testamentary gift, the power must include the right to transfer the property absolutely with or without consideration, that is, both the right to sell and to donate, in complete derogation of the rights of the remaindermen; it must represent an "unlimited power to appropriate the property as if she (i. e., the surviving spouse) were the owner." In Re Tarver's Estate (4th Cir. 1958) 255 F.2d 913, 919; Semmes v. Commissioner of Internal Revenue (6th Cir. 1961) 288 F.2d 664, 665; United States v. Lincoln Rochester Trust Company (2d Cir. 1962) 297 F.2d 891, 892-893, cert. den. 369 U.S. 887, 82 S.Ct. 1160, 8 L.Ed.2d 287; Flesher v. United States (D.C.W. Va.1965) 238 F.Supp. 119, 124.1
Often the will gives the surviving spouse the unlimited right to invade the corpus at her will or "as she desires" and to use and consume the same for her own comfort. The authorities are divided, whether such power meets the statutory requirements; but this division arises basically out of the diversity of state law in construing such powers.2 In some states, such a power is regarded as an absolute grant and gives the surviving spouse the right of disposition by gift;3 in others, the power has been held to deny the right to transfer by way of a gift.4 In either event, the right to the marital deduction under such powers has been determined by the applicable state law, fixing the surviving spouse's rights under such a testamentary provision.
The real question thus becomes the power of the widow in this case over the property embraced in Item III under the applicable South Carolina law. In such determination, the intention of the testator, as gleaned from the will taken as a whole and giving effect to all its provisions, controls.5 Unfortunately, the instant will is sparse of language evidencing any intention of the testator as to the true extent of the widow's power under Item III of his will or the testamentary purpose of such provision. Clearly, the testator did not intend to give the widow the same estate in his realty as in his personalty. He gave the widow an absolute title in his personalty under Item II, but he fixed her estate over the realty as "for and during her natural life", with remainders over on her death. To that life estate over the realty, however, he added a power in the widow to sell and convey "in her sole discretion" and to "use the proceeds therefrom as she desires"; and it is this added power which the plaintiff contends qualifies the life estate given the widow for the marital deduction under the terms of Section 2056.
The power to sell and convey even "in her sole discretion", gave the widow no right to make a gift of the property.6 There is no special significance to be given to the use of both "sell" and "convey". They are joined conjunctively, indicating that they are to be taken as integral parts of a completed act; the act of "conveying" is incidental to, and by way of completion of, the act of "selling". The important language is that which follows and directs the use to be made of the "proceeds" of such sale and conveyance. By this subsequent phraseology, the testator indicated indisputably that any sales and conveyances would result in "proceeds", i. e., for a consideration and not in the nature of a gift.7 It is, however, this subsequent language granting the power in the widow to "use the proceeds therefrom as she desires" and limiting the remainders over to "any of said real estate which may remain at her death" which poses the problem and on which the plaintiff rests her claim for the marital deduction.
What specifically is the widow's power under this right to "use the proceeds therefrom as she desires"?8 In construing terms in a will such as those just stated, it has been aptly observed that like words may have different meanings in different wills, dependent upon the intention of the testator as evidenced by the will as a whole. Smith v. Smith (1949) 359 Mo. 44, 220 S.W.2d 10, 12-13. For this reason, each case involving a construction of the provisions of a will must be determined on its own peculiar facts and decided cases may be resorted to only for establishing general rules of construction. Rogers v. Rogers, supra, 221 S.C. 360, 371, 70 S. E.2d 637. Without question, the widow in this case has a right to go beyond merely appropriating the income derived from the use of such proceeds; otherwise, there would be no meaning in the testator's subsequent gift over of only such real estate as "remain(ed) at her death". But, assuming a right of invasion, the question remains whether such right is so absolute as to permit the widow to dispose of any part of the corpus by a gift inter vivos and there the proper construction of the term "to use * * * as she desires", taken in its context, arises.
Thomason v. Hellams (1958) 233 S.C. 11, 18-19, 103 S.E.2d 324, is cited by the defendant as conclusive that, under a power such as that given the widow in Item III, there is no right to make a gift of the property. In that case, the Court, quoting from and relying upon the annotations in 2 A.L.R. and 69 A.L. R., said:
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