Estate of Chamberlain v. Commissioner
| Decision Date | 01 June 1999 |
| Docket Number | Docket No. 2999-97. |
| Citation | 77 T.C.M. 2080 |
| Parties | Estate of Theodore J. Chamberlain, Deceased, Dale Chamberlain, Personal Representative v. Commissioner. |
| Court | U.S. Tax Court |
Joseph Wetzel, Portland, Ore., Gary R. DeFrang, and Russell A. Sandor for the petitioner. Gerald W. Douglas, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined a deficiency of $201,551 in Federal estate tax of the Estate of Theodore J. Chamberlain (decedent) and an accuracy-related penalty of $38,423 for negligence under section 6662(b)(1).
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.
After concessions, including respondent's concession of the penalty, the sole issue remaining for decision is whether, for purposes of section 2518, decedent made a qualified disclaimer of property having a value of $455,753, or of any other amount, that otherwise would have passed to him from his predeceased spouse as part of the residue of her estate. We hold that decedent did not make a qualified disclaimer in any amount.
Some of the facts have been stipulated and are incorporated herein by this reference. At decedent's death on February 26, 1994, he resided in Portland, Oregon. When the petition was filed, the personal representative, Dale Chamberlain (Dale), resided in Solana Beach, California.
Decedent was predeceased by his wife of 50 years, June L. Chamberlain, who died on December 7, 1992, at the age of 84. Decedent was appointed personal representative of Mrs. Chamberlain's estate on February 5, 1993. He served in that capacity until his death in February 1994 at the age of 87. Decedent and Mrs. Chamberlain had one child—Dale.
Decedent was a retired engineer who had spent most of his professional career working for the water department of the City of Portland. He had some responsibility for the design of the present Portland water system. Mrs. Chamberlain had been a high school language teacher. Although the Chamberlains were not employed in highly paid positions, they lived frugally, saved, and invested. As a result, they accumulated estates sufficient to justify estate planning.
In 1987, decedent and Mrs. Chamberlain hired the Portland law firm of Meyer & Wyse to handle their estate planning and to address their concerns about estate taxes. Roger Meyer and Joshua Kadish, both partners at Meyer & Wyse, worked on the planning and administration of the Chamberlains' estates, and the firm of Meyer & Wyse was the principal legal counsel for both estates. Mr. Meyer, the firm's senior partner, had known the Chamberlains for many years and used to be their next-door neighbor.
In broad outline, the estate plans of decedent and Mrs. Chamberlain were simple and consistent. Each wished the other to receive all or the bulk of his or her estate, and that, after both their deaths, Dale would inherit their property.
On January 14, 1988, Mr. Kadish wrote to decedent and Mrs. Chamberlain and explained the use of disclaimers as follows:
At your request, we have revised our previous drafts to include a so-called Family Residuary Trust. This trust could also be called a "bypass" or "disclaimer" trust. As I explained to you over the phone, it will allow the surviving spouse to analyze the family financial situation for a 9-month period following the deceased spouse's date of death. The surviving spouse can then make a decision regarding how much money it would be prudent to direct into this trust for tax planning purposes. The 9-month period gives the surviving spouse ample time to consult with us and other financial advisers and to make a decision. This type of arrangement allows maximum flexibility in formulating your estate plan.
What Mr. Kadish was referring to, of course, was the use of a disclaimer by the survivor of the first to die to cause an amount in the predeceasing spouse's estate up to the amount of the unified credit to pass for the benefit of Dale and thus reduce the taxable estate of the survivor for Federal estate tax purposes.
Relying on Mr. Kadish's advice that they did not have to decide during their lifetimes whether to use the unified credit in their wills, on January 25, 1988, decedent and Mrs. Chamberlain executed the mutual wills1 that Meyer & Wyse had prepared for them. These wills were consistent with the points made by Mr. Kadish in his January 14, 1988, letter. In her will, Mrs. Chamberlain made a $75,000 specific bequest to Dale and bequeathed the residue of her estate to decedent, if he should survive her. Her will provided, in the event of a disclaimer by decedent, that the disclaimed portion of the residuary estate would pass to the Family Residuary Trust. Under the terms of the Family Residuary Trust, decedent would be entitled during his lifetime to the trust's net income, as well as "such sums from the principal of the trust as the Trustee deems necessary or advisable for his health, education, support and maintenance to enable him to maintain the standard of living which he maintained in my lifetime" (the Support Power). At his death, the principal of the trust was to be distributed to the descendants of decedent and Mrs. Chamberlain. Mrs. Chamberlain's will provided that, should decedent disclaim his interest in the Family Residuary Trust, the disclaimed property would be distributed as if decedent had predeceased her. With the exception of Mrs. Chamberlain's specific bequest to Dale, decedent's will contained provisions that mirrored the provisions of Mrs. Chamberlain's will.
Within a week after Mrs. Chamberlain's death on December 7, 1992, decedent informed Mr. Meyer of Mrs. Chamberlain's death, and they began a series of conversations concerning Mrs. Chamberlain's estate. In those conversations, decedent expressed to Mr. Meyer his interest in minimizing the estate tax liability of Mrs. Chamberlain's estate in order to maximize the value of the assets that would ultimately go to Dale.
On December 14, 1992, Mr. Meyer wrote the following in a memo (Exhibit 4-D) to Mr. Kadish:
June Chamberlain passed away December 7. I am going to meet with Ted [Chamberlain] on Saturday morning the 19th. Please review the file and let me know what specific information, if any, we need. I will try to get a listing of all property from him and bank accounts. I understand everything is jointly held. * * *
Mr. Kadish wrote his response to Mr. Meyer on Exhibit 4-D, below Mr. Meyer's text. Mr. Kadish asked Mr. Meyer to "Get a precise list of all assets & debts and how they are held", reminded him that "We have 9 mos to disclaim", and advised that "I believe disclaimer of some types of jt property are now possible."
Subsequently, Mr. Meyer accompanied decedent to the bank to help him inventory the contents of decedent's and Mrs. Chamberlain's safe deposit box. Decedent and Mr. Meyer organized the contents of the safe deposit box according to the type of ownership interest in each asset: Assets owned outright by decedent; assets that had been held jointly by decedent and Mrs. Chamberlain; and assets that had been owned outright by Mrs. Chamberlain.
Shortly after Mrs. Chamberlain's death, decedent became preoccupied with his financial security and started taking a very cautious approach to the management of his financial affairs. Decedent became hesitant to take any action concerning his financial affairs; such few actions that he did take were only after extensive consultation with Dale, and decedent made very few changes to his investments. Also, during 1993, decedent's health deteriorated to the point where he could no longer care for himself and required full-time help at home. However, decedent's mental acuity remained unimpaired; he was competent to execute a disclaimer at all relevant times.
In late December 1992 and early January 1993, decedent prepared 12 8 1/2 × 14 inch pages (Exhibit 5-E) on which petitioner primarily relies to support the contention that decedent made a valid disclaimer under Oregon State law and section 2518. Exhibit 5-E was found by Mr. Wetzel, petitioner's trial counsel in this case, in the files of Meyer & Wyse, along with Exhibit 8-H, discussed infra. After this discovery, petitioner asserted that the pages found by Mr. Wetzel constitute decedent's written disclaimer. Only 5 of the 12 handwritten pages in Exhibit 5-E were originals—the remaining 7 pages were photocopies.2 Four of the five original pages were handwritten by decedent on the reverse side of "Meals-on-Wheels" menus; another page was handwritten and initialed by Dale on a sheet of paper from a yellow legal pad. Moreover, although Exhibit 5-E comprises 12 pages, only 8 of the pages were different from each other (and 3 of those pages were photocopies)—the other 4 pages were duplicates.
Exhibit 5-E listed all property (consisting of securities, bank accounts, and the family residence) that decedent: (1) Owned outright; (2) was entitled to as surviving joint tenant; or (3) would receive as part of the residue of Mrs. Chamberlain's estate. Five of the pages contain information on marketable securities, mostly bonds, and are organized by the months in which interest payments were to be received. The first page, for example, was entitled "JANUARY & JULY TALLY 1992". On each page, decedent drew several columns to record information about each security, including columns for the security name, account number, payment date, par value, interest rate, maturity, and location of the security. There was also a column in which decedent marked each asset with a "T" "JT" or "J" to identify the original source of the asset. Under the column headings, decedent grouped the securities into 3 headings: Treasury, coupon, and registered. The succeeding pages followed this same approach but contained two tables on each...
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