Condon Nat. Bank of Coffeyville, Kan. v. United States, Civ. A. No. T-4981.

• Decision Date: 12 July 1972
• Docket Number: Civ. A. No. T-4981.
• Citation: Condon Nat. Bank of Coffeyville, Kan. v. United States, 349 F.Supp. 755 (D. Kan. 1972)
• Parties: The CONDON NATIONAL BANK OF COFFEYVILLE, COFFEYVILLE, KANSAS, a National Banking Association, as Executor of the Estate of Helen F. Brown, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Kansas

349 F. Supp. 755

The CONDON NATIONAL BANK OF COFFEYVILLE, COFFEYVILLE, KANSAS, a National Banking Association, as Executor of the Estate of Helen F. Brown, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. T-4981.

United States District Court, D. Kansas.

July 12, 1972.

Clement Hall, Aubrey Neale, Coffeyville, Kan., for plaintiff.

Robert J. Roth, U. S. Atty., Edward Funston, Asst. U. S. Atty., Topeka, Kan., for defendant.

MEMORANDUM OF DECISION

TEMPLAR, District Judge.

This action was brought by plaintiff to recover estate taxes allegedly erroneously paid. The Court's jurisdiction is invoked under 28 U.S.C. § 1346.

All of the pertinent facts have been stipulated to, and the case has been submitted to the Court on briefs and arguments thereon.

The plaintiff, Condon National Bank of Coffeyville, Coffeyville, Kansas, is the duly appointed, qualified and acting Executor of the Estate of Helen F. Brown, deceased, having been appointed such Executor on April 13, 1966.

Helen F. Brown died testate on April 5, 1966, a resident of Coffeyville, Montgomery County, Kansas, leaving a last will and testament which was duly admitted to probate in the Probate Court of Montgomery County, Kansas, on April 13, 1966.

Douglas R. Brown, the husband of Helen F. Brown, predeceased her. He died testate on September 19, 1951, a resident of Montgomery County, Kansas. His will was admitted to probate and letters testamentary issued to Helen F. Brown as executrix by the Probate Court of Montgomery County, Kansas, in Estate No. 9188, on October 1, 1951. His will provided:

"FIRST: I direct that my just debts and funeral expenses be first paid by my Executrix hereinafter named.

"SECOND: All of the rest and residue of my property, real, personal or mixed, whatsoever and wheresoever situated, in which I may have any interest at the time of my death, I give, devise and bequeath unto my beloved wife, HELEN F. BROWN, with full power to sell or dispose of the same or any part thereof as to her shall seem best: PROVIDED That whatever of my said property, if any, shall remain undisposed of at the time of the death of my wife, HELEN F. BROWN, I give, devise and bequeath the same, one-half to my heirs then surviving, and one-half to the heirs of my wife then surviving.

"THIRD: I hereby nominate and appoint HELEN F. BROWN, to be the EXECUTRIX of this my last Will and Testament and direct that she be permitted to act without bond."

An estate tax return was filed in the Estate of Douglas R. Brown, the original return showing a total gross estate of $289,268.70. Among other things the estate claimed a marital deduction on the return and estate taxes were paid in the sum of $13,279.37. Subsequently, the tax return was adjusted to show a total gross estate of $384,854.28 and, among other adjustments, the marital deduction claimed by the estate was disallowed and an estate tax deficiency in the total amount of $36,860.89 tax and $6,079.52 interest was paid by Douglas R. Brown's estate. The marital deduction was disallowed under § 2056(b)(5) because although Helen F. Brown was given a life estate, she was not given a power of appointment exercisable in all events as required by § 2056.

At the time of the death of Helen F. Brown, her only heir was Maudella F. Overless, her sister, and the only heir of Douglas R. Brown was Helen B. Lyall, his sister.

The plaintiff, as Executor of the Estate of Helen F. Brown, filed an inventory of all property claimed to belong to the estate of the decedent. Total value of said property was $123,015.48. The Executor filed an estate tax return based upon the property inventoried in the estate, and on February 23, 1967, paid estate taxes in the sum of $6,066.42.

In March of 1967, Helen B. Lyall, sister of Douglas R. Brown, deceased, learned of the contents of her brother's will, i. e., specifically that part which left one-half of all the residue of his estate not consumed by Helen F. Brown during her life to his heirs. And she learned that Helen F. Brown had left all property, including property remaining from the estate of Douglas R. Brown to her sister, Maudella F. Overless. Helen B. Lyall employed counsel and filed a petition in the Probate Court of Montgomery County, Kansas, in the Estate of Helen F. Brown, deceased, claiming she was entitled to one-half of the property remaining in accordance with the will of her brother, Douglas R. Brown, deceased.

A petition to transfer to the District Court was denied and an appeal was taken to the District Court of Montgomery County, Kansas, on May 24, 1967. After the case was appealed to the District Court and the allegations of the parties had been submitted, the parties agreed upon a settlement, and on December 15, 1967, the matter was submitted to the court and the court entered an order, designated a journal entry. Upon remand from the District Court, the Probate Court of Montgomery County, Kansas, entered an order on January 9, 1968.

The District Court found, in substance, that under the will of Douglas R. Brown, deceased, Helen F. Brown was given a life estate with a power of disposition only and that said will created a trust in Helen F. Brown for the residuary devisees and legatees of Douglas R. Brown as to any property of her husband remaining at the time of her death. This was in accordance with the interpretation in the assessment of estate taxes by the Government and inheritance taxes by the State of Kansas in the estate of Douglas R. Brown. And the District Court found that Helen B. Lyall was entitled to one-half of any property remaining undisposed of from the estate of Douglas R. Brown, or one-half of the proceeds remaining from any property disposed of by Helen F. Brown which belonged to the estate of her husband at the time of his death, and that Maudella F. Overless was entitled to one-half of any property remaining undisposed of or one-half of the proceeds remaining from any property disposed of by Helen F. Brown which belonged to the estate of Douglas R. Brown at the time of his death.

The court further found that the residue of the estate of Douglas R. Brown included in the inventory of the estate of Helen F. Brown was $46,066.42; that it was held by Helen F. Brown, as trustee, and should not have been included in the inventory of her estate but should be distributed equally between Helen B. Lyall and Maudella F. Overless; that the sum of $20,000.00 in cash and one-half of any refund from estate taxes should be paid to Helen B. Lyall; and that property valued in the sum of $46,066.42 should be stricken from the inventory in the Helen F. Brown estate.

After the court orders were made, the Executor filed a claim for refund of the estate taxes allegedly erroneously paid.

The two stipulated issues are stated to be:

1. Whether plaintiff is entitled to exclude from the value of the gross estate the property received from deceased husband's estate or whether such property should be included in decedent's gross estate under the Internal Revenue Code of 1954, Section 2041, as property subject to a general power of appointment?

2. Whether the interest claimed by Helen B. Lyall represented a deductible claim against the decedent's estate under Internal Revenue Code of 1954, Section 2053.

The decision of the Montgomery County State District Court which became the final decree of the Probate Court had the effect of removing from the inventory of Helen F. Brown's estate any property of her late husband remaining undisposed of by her at the time of her death.

In addition, the state court determined in undertaking to construe the will of Mr. Brown that Helen took a life estate with power of disposition only and that his will, in effect, created a trust for the residuary devisees and legatees as to any property of his remaining undisposed of at the time of her death.

The defendant insists that the decision of the state court (Ex. 5 of Stipulation) of December 15, 1967, is not controlling and is in no way binding on the United States because it was not a party to the state court proceeding and because under Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886, the state court decision is not determinative of the property interest held and transferred by the decedent under state law. Under Bosch this Court must determine the underlying rule of substantive law based on state law as declared by the state's highest court. If there is no decision by that court then the federal court must apply what it finds to be the state law after giving "proper regard" to relevant rulings of other courts of the state.

This Court had the occasion to consider the impact of Bosch in the case of Schmidt v. United States, D.C., 279 F. Supp. 811 (Theis, J.) where it was said at p. 814:

"The identical central issue in Bosch and the Second National Bank cases, both estate tax disputes involving marital deduction under § 2056, was, in the words of the Supreme Court:

`Whether a federal court or agency in a federal estate tax controversy is conclusively bound by a state trial court adjudication of property rights or characteristics of property interests when the United States is not made a party to such proceeding?'

"The high court, answered this question in the negative, stating:

`We hold that where the federal estate tax liability turns upon the character of a property interest held and transferred by the decedent under state law, federal authorities are not bound by the determination made on such evidence by a state trial court.'

"These cases went on to hold that in evaluating the efficacy of a state court judgment, as it affects property rights, from which stem federal tax consequences, the federal court must embark on an independent investigation of the state law as determined by the highest court of the state, and follow such interpretation if it exists, or make its own interpretation if there be no state

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