Chemical Bank New York Trust Company v. United States

• Decision Date: 05 January 1966
• Parties: CHEMICAL BANK NEW YORK TRUST COMPANY, as Executor of the Estate of William Deering Howe, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of New York

249 F. Supp. 450

CHEMICAL BANK NEW YORK TRUST COMPANY, as Executor of the Estate of William Deering Howe, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

United States District Court S. D. New York.

January 5, 1966.

COPYRIGHT MATERIAL OMITTED

Shearman & Sterling, New York City, for plaintiff; Thomas P. Ford, W. Foster Wollen, New York City, of counsel.

Robert M. Morgenthau, U. S. Atty., for Southern District of New York, for defendant; Laurence Vogel, Bruno Lederer, Asst. U. S. Attys., of counsel.

LEVET, District Judge.

This is an action for the recovery of federal estate taxes alleged to have been illegally and erroneously collected. Jurisdiction is premised on 28 U.S.C. § 1346(a)(1). Each side has moved for summary judgment. Certain facts have been stipulated.

1. William Deering Howe (hereinafter called "the decedent") married Polly Brooks Howe in New York, New York, on June 27, 1921. Two children were born of the marriage, to wit, Cynthia Brooks Howe, born July 27, 1923, and Priscilla Cotton Howe, born September 15, 1927.

2. In early 1940, certain disputes arose between the decedent and his wife. The decedent and his wife separated and began negotiations in an effort to arrive at a property settlement.

3. After protracted negotiations, on August 14, 1941, in New York City, an agreement (hereinafter called "the separation agreement") was entered into by decedent and his wife, Polly Brooks Howe.

4. Approximately one week after the signing of the separation agreement Mrs. Howe moved to Crystal Bay, Washoe County, Nevada, for the purpose, among others, of initiating a divorce proceeding against the decedent.

5. A divorce proceeding was initiated by Mrs. Howe in the Second Judicial District Court, Washoe County, Reno, Nevada, in which the decedent appeared personally by his attorney. These proceedings culminated in a decree of absolute divorce entered on or about October 3, 1941.

6. The agreement of August 14, 1941 began with the declaration that:

"It shall be lawful for each of the Parties at all times hereafter to live separate and apart from one another, free from all marital obligations so far as legally permissible, as if each were single, sole and unmarried."

The agreement then provided that the custody of the children during minority be in Polly Brooks Howe and that substantial payments to Polly Brooks Howe be made during the life of decedent's father, Richard F. Howe, both for the use of Polly Brooks Howe herself and for the "support, maintenance and education" of the children. The payments for the children were to be $25,000 per year for each child. There was no time limit, such as "within minority," specified for such payments. The agreement provided for the amendment of an instrument which had been executed by decedent, William Deering Howe, some years before and which had created a substantial trust. The amendment of the trust instrument was for the purpose, among others, of providing payments to Polly Brooks Howe and the children after the death of Richard F. Howe, at which time the substantial fixed payments mentioned above would cease. The amended trust instrument provided for the division of the corpus of the trust upon the death of Richard F. Howe, in equal shares for each of the daughters of William Deering Howe who survived said Richard F. Howe. The instrument then, in part, provided:

"(1) During the life of each of the said daughters of the Settlor who shall survive the said Richard F. Howe, to apply six-elevenths of the income of the share set aside for her to the use of Polly Brooks Howe, and to apply the other five-elevenths of the income thereof, — or the whole thereof in case of the death of the said Polly Brooks Howe, — to the use of the daughter of the Settlor for whom the said share was set aside, provided, that the said Polly Brooks Howe shall be entitled to receive not less than $25,000 in each Fiscal Year * * * out of the income of such share, — or if one of the said daughters of the Settlor shall not have survived the said Richard F. Howe and shall have left no lineal descendant him surviving, then $50,000 in each Fiscal Year out of the income thereof, — and in the event that the six-elevenths of the income hereinbefore directed to be applied to her use shall be less than such amount, then the income so applicable shall be increased to such amount and the income applicable to the use of the daughter for whom such share was set apart shall be decreased accordingly."

The daughters' shares were specifically designated to be used for "the education, care and maintenance" of each daughter until she "shall have come of age".

Various provisions for the trust corpus, not relevant here, were made upon the death of both daughters.

Then the agreement recited:

"The First Party the decedent, William Deering Howe will provide by his will that one-third of all the property of which he may die possessed, after payment of all proper charges against his estate * * * shall go to their said children in equal shares * * *."

Among other provisions contained in the agreement, each party waived all rights in the estate of the other.

The agreement also provided that "should either party commence proceedings for divorce, she Polly Brooks Howe will make no demand or claim in such proceedings for alimony * *." It was also agreed that:

"11. Legal proceedings for a divorce of the Parties hereto in any jurisdiction on any lawful ground existing before the date of this agreement or arising subsequently shall not impair the validity of this agreement or any lawful term thereof. The terms of this agreement shall at all times remain in force in so far as they do not conflict with any order or decree made by any court of competent jurisdiction in the premises."

There is no contention by either side that the agreement was not to take effect immediately upon signing.

The instrument was signed by both the decedent and Polly Brooks Howe. It was not acknowledged, as required for some purposes by New York Decedent Estate Law, § 18(9), McKinney's Consol.Laws, c. 13.

7. The Nevada divorce court, after finding that the August 14, 1941 agreement was "fair, just, and equitable" and entitled to be "approved, ratified, confirmed and adopted," included in its divorce decree the following paragraph:

"IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the agreement between the parties dated the 14th day of August, 1941, settling all property rights and all matters concerning the care, custody and control of the two minor children, to-wit: CYNTHIA BROOKS HOWE and PRISCILLA COTTON HOWE, a copy of which agreement was introduced in evidence in this cause and marked Exhibit `A', be, and the same is hereby, approved, ratified, confirmed and adopted and by reference is hereby made a part of this judgment and decree."

8. Decedent, William Deering Howe, died on November 7, 1948, a resident of Brookville, Nassau County, New York. By will dated January 31, 1944 and codicil dated December 31, 1947, decedent devised securities of a value equivalent to one-third of his net estate in equal portions to his two daughters. This will and codicil were duly admitted to probate in Surrogate's Court, Nassau County, New York on November 24, 1948.

DISCUSSION

It is the contention of the plaintiff that the estate of William Deering Howe is entitled, in computing the estate tax due, to deduct from the gross estate the value of the securities devised to the two daughters. This deduction is claimed under Section 812(b) of the Internal Revenue Code of 1939.¹

Plaintiff argues that the devise to the daughters is in fact a claim against the estate based upon the divorce decree, as distinguished from the separation agreement, and that thus the estate is entitled to a deduction whether or not consideration was furnished for such devise. The government, on the other hand, contends that the claim is founded upon the separation agreement and that no "adequate and full consideration in money or money's worth" can be found for it. Hence, the government concludes that the estate is entitled to no deduction.²

Before we reach these issues of construction of the federal revenue statutes and their application to the case at hand, however, we are confronted by the government's first contention, that the taxpayer is collaterally estopped from litigating any of the issues in this case. The government points out that New York State has estate tax provisions very similar to the federal provisions contained in Section 812(b). Internal Revenue Code of 1939, set out above.³ The government further points out that the plaintiff in the current proceedings advanced the same theory espoused here in an effort to obtain a deduction on the state estate tax assessed against this estate, that such claim under the statute was fully litigated in the courts of New York and was determined against the plaintiff.⁴ The government argues that since the "same issue" was determined in the litigation under the similar state statute, the plaintiff is foreclosed by the doctrine of collateral estoppel from relitigating it here.

While it might be appropriate in a case like this to apply collateral estoppel to the facts found in the state court action,⁵ I need not decide that issue here, since the facts as stipulated are the same in all material portions as those found by the New York courts. More difficulty arises as to the legal issues determined by the New York courts. The present action requires a determination as to whether for federal estate tax purposes the claim of the daughters is "founded upon a promise or agreement," and, if so founded, whether "an adequate and full consideration in money or money's worth" was given therefor. This court has concluded that it is neither appropriate nor desirable to give collateral estoppel effect to a state court determination that for state estate tax purposes the claim is so founded and such consideration is absent. This...