Estate of Barrett v. Comm'r of Internal Revenue, Docket No. 44830.

• Decision Date: 22 June 1954
• Docket Number: Docket No. 44830.
• Citation: 22 T.C. 606
• Parties: ESTATE OF GERTRUDE P. BARRETT, ALROY S. PHILLIPS, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

22 T.C. 606

ESTATE OF GERTRUDE P. BARRETT, ALROY S. PHILLIPS, EXECUTOR, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 44830.

Tax Court of the United States.

Filed June 22, 1954.

A settlement payment made by the executor of decedent's estate to the surviving husband to compromise his claim to a share in the estate and permit the decedent's will to be probated without contest is allowable as a marital deduction. Owen T. Armstrong, Esq., for the petitioner.

Marvin Hagen, Esq., for the respondent.

This proceeding involves a deficiency in estate tax in the amount of $6,887.63. Concessions have been made on both sides so that, of the original issues, only one remains, viz., whether $10,250 paid by the executor to the surviving spouse in settlement of claims against the decedent's estate is allowable as a marital deduction in determining the net estate. The facts which have been stipulated are incorporated by this reference.

FINDINGS OF FACT.

Alroy S. Phillips is the duly qualified executor of the estate of his sister, Gertrude P. Barrett, deceased. Gertrude Barrett died on November 1, 1948, a resident of St. Louis, Missouri. She was survived by her husband, William N. Barrett, two daughters, and a stepson. The estate tax return was filed with the collector for the first district of Missouri.

On July 12, 1939, the decedent, then unmarried and known as Gertrude P. Meston, and William N. Barrett entered into a written ante nuptial agreement whereby each renounced all rights, present and future, in and to any and all property of the other ‘whether such rights be by way of courtesy, dower, widower's or widow's allowances, child's portion, or absolute rights given by law to the living or surviving spouse, and whether said property be separate estate or community property, principal or income, the part disposable of by will or the part not disposable of by will, or acquired by gift or otherwise.’

On the same date, July 12, 1939, the decedent created a trust by transferring certain intangible personal property to Alroy Phillips, as trustee, upon terms which, generally, reserved the income to her for life, with remainder in her two daughters and stepson. No provision was made for Barrett. The value of the personalty transferred in trust was approximately $240,000.

Barrett cooperated in the signing of the antenuptial agreement and was advised of the creation of the trust, but he was not told of the value of decedent's personal property.

These agreements were drafted by Phillips who is an attorney and who had managed his sister's affairs and advised her for many years. These arrangements were made on Phillips' advice to accomplish Gertrude Barrett's desire to provide for the security of her daughters and stepson in advance of her prospective marriage to Barrett.

After the couple were married in the summer of 1939, they established residence in Virginia. On September 27, 1939, the decedent executed a will in which she bequeathed the sum of $5,000 to Barrett. On the same date, she modified her trust indenture of July 12 by providing, in part, that at any time after 1 year she might terminate the trust without the consent of the trustee, Phillips, upon 1 month's notice to him.

On May 4, 1943, Gertrude Barrett modified the trust arrangement a second time by providing that her husband, after her death, should receive one-fourth of the income of the trust for life.

On August 19, 1947, Gertrude Barrett again amended her trust indenture by eliminating therefrom the provisions for the benefit of her husband which she had inserted in her second modification described immediately above.

Marital difficulties developed and in July 1948, the decedent separated from her husband, but no formal or legal separation was obtained and on the date of her death, November 1, 1948, the couple, though living apart, were still legally married.

On November 6, 1948, letters testamentary were issued by the Probate Court of the City of St. Louis, Missouri, to Alroy S. Phillips, as executor of the will of the decedent. On January 6, 1949, Joseph F. Moore, of Berryville, Virginia, qualified in the Circuit Court of Clarke County, Virginia, as administrator with the will annexed of decedent's property in Virginia.

Decedent's surviving husband retained counsel on November 16, 1948, and on the advice of his counsel that he had a valid claim against the estate left by his wife, Barrett in good faith made claim therefor. The claim was presented by counsel for Barrett on November 18, 1948, to Phillips, as executor, and in the claim demand was made for one-third of the decedent's personal estate, including the trust property, as provided under the Missouri statutes.

Most of the decedent's personal property passed according to the terms of her trust. Decedent's gross estate, as reported on the estate tax return, was $390,637.27, of which the trust property comprised $297,278.16. Barrett, through his attorney, claimed that the trust arrangement, which at the time of his wife's death no longer contained any provisions for his benefit, was invalid because it had been contrived under the influence of his wife's brother and lawyer, in order to keep the decedent's property away from him, Barrett. Also, he claimed that the third modification which had eliminated the provisions in the trust allowing one-fourth of the income to him for life specified in the second modification, was invalid.

No formal legal proceeding was commenced on Barrett's claim but his attorney did confer with Phillips and a memorandum of authorities and precedents supporting Barrett's position was submitted. Recognizing the substantial nature of Barrett's claim, negotiations looking to a settlement were undertaken and, on January 3, 1949, an agreement in settlement of Barrett's claims against decedent's estate was effected. The agreement provided that, in consideration for a total cash payment of $10,250, Barrett agreed to release the estate from any claims, to permit the will to be probated without contest and renounce his claim to his bequest of $5,000 therein, and to do certain other acts and make other releases and conveyances to facilitate the administration of his wife's estate. Payment in full through Barrett's attorney was made in February 1949.

On December 1, 1949, Phillips, as executor, filed an application for approval of the settlement with Barrett in the Probate Court of the City of St. Louis, Missouri. The court entered an order approving the settlement on December 14, 1949.

In the return for the estate of Gertrude Barrett, the sum of $10,250 the amount of the settlement paid to William Barrett, plus $36.92 paid to his attorney to facilitate the settlement, a total of $10,286.92 minus $473.84 for other deductions taken elsewhere in the return which were permitted by the settlement, left a net amount of $9,813.08 under the settlement which was claimed as a marital deduction. The respondent disallowed all except $420 of this amount.

OPINION.

ARUNDELL, Judge:

The question here is whether an amount paid to decedent's surviving husband pursuant to a settlement of his claims to a share of his wife's estate is deductible from her gross estate under the provisions of section 812(e)¹ of the Internal Revenue Code—the so-called ‘marital...