Estate of Honore V. De St. Aubin v. Commissioner
| Decision Date | 14 September 1998 |
| Docket Number | Docket No. 32996-88.,Docket No. 32995-88.,Docket No. 32994-88.,Docket No. 32808-88.,Docket No. 32926-88.,Docket No. 32807-88.,Docket No. 39493-87.,Docket No. 32811-88.,Docket No. 32809-88. |
| Citation | 76 T.C.M. 409 |
| Parties | Estate of Honore V. de St. Aubin, Deceased, Ovide E. de St. Aubin, Executor, et al<SMALL><SUP>1</SUP></SMALL> [VV] v. Commissioner. |
| Court | U.S. Tax Court |
Pursuant to Rule 121, this matter is before the Court on petitioners' motion for partial summary judgment and respondent's cross-motion for partial summary judgment. The motions raise three issues: (1) Whether Honore V. de St. Aubin, as the income beneficiary of both the marital trust and the residuary trust to be established under her husband's will, possessed a claim to a portion of the proceeds from the sale of certain stock holdings of his estate; (2) whether the marital trust established for the benefit of Honore V. de St. Aubin is entitled to share in the appreciation of the undistributed assets of her husband's estate; and (3) whether Honore V. de St. Aubin or her estate had a right to compel funding of the marital trust with interest at the legal rate. At issue are purported claims of decedent and her estate against her husband's estate and against the trusts established under her husband's will, which was executed in 1966. If any of these purported claims is valid, the value of decedent's estate will rise and thus also the estate tax liability of her estate. To determine the Validity of these claims, we must examine Mr. de St. Aubin's will, his estate, and the trusts created under the will.
Honore V. de St. Aubin (decedent) died December 27, 1983. Sixteen years earlier, on November 18, 1967, her husband, Ovide de St. Aubin, Jr. (Mr. de St. Aubin), died, survived by decedent and their four adult children, Ovide E. de St. Aubin (the younger Mr. de St. Aubin), Honore O'Brien, Corinne Shaw, and Celeste Schettig.
Decedent's husband provided for her in his will. Under Article Fourth of his will, he devised to Honore his house and land located in New Rochelle, New York, which had an estate tax value of $73,500. Under Article Fifth of his will, he bequeathed to Honore all of his personal property, including a yacht and two automobiles. The personal property had an aggregate estate tax value of $145,749. Decedent's husband had also designated her as beneficiary of insurance policies on his life, with an aggregate value of more than $175,000. In addition, decedent owned insurance on her husband's life, which paid her a death benefit of more than $100,000.
Mr. de St. Aubin's will establishes two trusts for the benefit of decedent. Article Sixth of the will creates a marital trust. The will names decedent as the income beneficiary of that trust, and it grants her a testamentary power of appointment over the assets of the marital trust. Article Sixth directs that the marital trust be funded with an amount equal to 50 percent of the adjusted gross estate less the aggregate value of all interests in Mr. de St. Aubin's property that pass to decedent outright through her husband's will, or "otherwise than under [his] will, by operation of law, through life insurance policies, or otherwise". With respect to funding, Article Sixth provides:
My executors, hereinafter named, shall have the power and sole discretion to satisfy this bequest wholly or partly in cash or in kind and to select the assets to be included therein, provided, however, that all such assets included shall be valued at the value thereof as finally determined for Federal estate tax purposes, and that the total value of such cash and/or property at the time of distribution to my said trustees shall be at least equal to the amount of this bequest.
Article Sixth directs that the entire net income be paid to decedent at least quarterly. The will does not authorize invasion of the principal of the marital trust for decedent's benefit. Under Article Sixth, the marital trust was to be undiminished by estate taxes, which were to be paid from the residuary trust established under Article Seventh.
Article Seventh of Mr. de St. Aubin's will directs that the remainder of his estate be placed in a residuary trust with decedent as the income beneficiary. The will provides no guidance regarding the frequency of payments of income. He granted the trustees discretion to invade the principal of the residuary trust for decedent's benefit, up to a total of 50 percent of the value of the corpus. Decedent held no power of appointment over the residuary trust. Rather, Article Seventh provides that upon her death, the remaining principal would be equally divided and placed in four separate residuary trusts, with the income therefrom paid to their four children. The trust principal would eventually devolve to the descendants of the children.
Article Eleventh of Mr. de St. Aubin's will applies to the sale of property that forms a part of the estate principal or a part of the corpus of any trust created under the will. This article provides as follows:
All profits and losses realized upon the sale of any real or personal property forming a part of the principal of my estate or any such trust shall be added to, or charged against, the principal thereof. * * *
Article Twelfth of Mr. de St. Aubin's will authorizes the retention, sale, and investment of property that he owned at the time of his death. This article provides as follows:
I authorize and empower my executors and trustees * * * to sell and convey the whole or any part of the property, real, personal, or mixed, belonging to my estate or to any such trust estate, at public or private sale, on such terms and conditions as may seem to them expedient, * * * [to] invest and reinvest any or all such personal property; * * * to retain as part of my estate or any trust estate hereby created any real estate, stocks, bonds, loans or other investments which I may own at the time of my decease; to invest and reinvest the funds of my estate or any such trust estate in such securities or investments, including common and preferred stocks and bonds, as they, in their absolute discretion, may deem advisable * * *.
Mr. de St. Aubin's will named decedent and their son as executors.
At the time of Mr. de St. Aubin's death, his estate included two parcels of real property located in Hempstead, New York. One is known as the Malibu Beach property, which has an estate tax value of $1,500,580. The other is known as the Channel Land, which has an estate tax value of $1,310,100. The other principal assets of his estate included: 52 percent of the outstanding common stock of Vesta Underwear Co. (Vesta Underwear), a clothing manufacturer subsequently renamed Modern Globe, Inc., with an estate tax value of $371,500; 49 percent of the common stock of Pohatcong Hosiery Mills, Inc. (Pohatcong Hosiery), a personal holding company with an estate tax value of $812,918; 4 percent of the common shares of Vesta Corp., a personal holding company, with an estate tax value of $15,756; and 25 percent of the common stock of Fairlee Textile Co. (Fairlee), a personal holding company with an estate tax value of $52,760. On audit, respondent determined the Federal estate tax value of Mr. de St. Aubin's gross estate to be $5,699,575.48 and the value of the adjusted gross estate to be $3,848,912.65. Respondent allowed an estate tax marital deduction of $1,924,456.33.
On May 15, 1968, the town of Hempstead, New York, condemned the Malibu Beach property. Mr. de St. Aubin's estate engaged the town in protracted litigation regarding the value of the property. The estate received interim payments against the condemnation award in 1969 and 1972, totaling $939,000. The estate used these interim payments to pay at least a portion of its expenses. The town paid the estate interest of $141,800 on the interim payments in 1973. In 1985, the parties reached a settlement in which the estate accepted an additional $975,000 as full compensation for the property.
The executors determined that to obtain what they felt was a reasonable sales price for the Channel Land, the property had to be filled and zoned for multiple family dwellings. In 1972, the estate requested a zoning variance. Effective September 1, 1973, pursuant to the New York Tidal Wetlands Act, N.Y. Envtl. Conserv. Law, secs. 25.0101 through 25.0601 (McKinney 1997), a portion of the Channel Land was classified as wetlands, and its development was prohibited. At the time of these motions, in a pending State court action, Mr. de St. Aubin's estate was seeking compensation from the State of New York for the loss of the development rights for this property. By the time of these motions, his estate had incurred significant expenses in connection with the litigation involving the Malibu Beach property and the Channel Land.
On or about March 31, 1969, by operation of a trust established by Mr. de St. Aubin's father, 48 percent of the shares of Vesta Corp. passed to Ms. Lorraine O'Hayer, Mr. de St. Aubin's sister, and 48 percent passed to decedent. Each woman received 624 shares of Vesta Corp. The record supplies no indication of the 1969 value of these shares. However, based on values used in Mr. de St. Aubin's estate tax return, this distribution had a value of $303 per share for a total of $189,072 per block at the time of his death in 1967.
Prior to Mr. de St. Aubin's death, there developed friction between his immediate family and that of his sister, Ms. O'Hayer. As a result of this ongoing friction, decedent's husband had been attempting to attain 100 percent St. Aubin control of Vesta Corp. and Vesta Underwear. At the time of his death, litigation was pending between Mr. de St. Aubin...
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