ESTATE OF PEYTON v. Commissioner

• Decision Date: 28 August 1962
• Docket Number: Docket No. 85293.
• Citation: 21 TCM (CCH) 1111,1962 TC Memo 205
• Parties: Estate of Hamilton H. Peyton, deceased, John L. Peyton, executor, and Olive Peyton, executrix v. Commissioner.
• Court: U.S. Tax Court

21 T.C.M. (CCH) 1111 (1962)

T. C. Memo. 1962-205. Estate of Hamilton H. Peyton, deceased, John L. Peyton, executor, and Olive Peyton, executrix v. Commissioner.

Docket No. 85293.

United States Tax Court.

Filed August 28, 1962.

Royal G. Bouschor, Esq., 917 Torrey Bldg., Duluth, Minn., and Patrick J. McNulty, Esq., for the petitioners. Donald W. Geerhart, Esq., and Willard J. Kiser, Jr., Esq., for the respondent.

Memorandum Opinion

SCOTT, Judge:

Respondent determined a deficiency of $31,492.27 in the estate tax of the Estate of Hamilton H. Peyton.

The issues for decision are:

1. Whether the residuary bequest to Olive Peyton, the surviving wife of Hamilton H. Peyton, qualifies for the marital deduction under the provisions of section 2056 of the Internal Revenue Code of 1954.

2. Whether respondent erred in increasing the value, as reported in the estate tax return of the estate of Hamilton H. Peyton, of certain United States Treasury bonds.

The evidence in this case was presented through a stipulation of facts with exhibits attached thereto and one document offered at the trial by respondent and received in evidence without objection by petitioner. The stipulated facts are found accordingly.

On June 15, 1957, Hamilton H. Peyton (hereinafter referred to as decedent) died testate as the result of an automobile accident. At the date of his death decedent was domiciled in and a resident of Duluth, Minnesota. Decedent's estate consisted of real and personal property, all of which was located in the State of Minnesota. The estate tax return was filed on September 15, 1958, with the district director of internal revenue at St. Paul, Minnesota.

On June 24, 1957, a petition to probate decedent's will was filed by Olive Peyton, decedent's surviving spouse, in the Probate Court of St. Louis County, Minnesota (hereinafter referred to as the Probate Court), stating that she and John L. Peyton were named in the will as executrix and executor and requesting that they be so appointed. In this petition Olive Peyton's age was shown as 79 years.

Decedent's will was admitted to probate by the Probate Court on July 22, 1957, and Olive Peyton and John L. Peyton, one of the decedent's sons, were appointed executrix and executor, respectively, of decedent's estate. In addition to his widow, Olive Peyton, and his son, John L. Peyton, decedent was survived by two other sons, Newton H. Peyton and Louis R. Peyton. Decedent's will, after making provision for payment of his debts and certain payments and bequests to Olive Peyton provided as follows:

4th: I give, devise and bequeath all the rest of my property — real, personal, or mixed — now owned or which may hereafter be acquired by me, or in which I may now have or may hereafter acquire any interest, to my beloved wife, Olive Peyton, for and during her natural life.

5th: I hereby authorize my said wife, Olive Peyton, at any time during her life, to sell, assign, transfer, mortgage and convey any and all of said property — real, personal or mixed — upon such terms and to such persons as in her judgment may seem best, and to execute proper deeds, contracts, bills of sale, mortgages, or other written instruments and to invest and reinvest the proceeds thereof using the income derived therefrom during her lifetime; and in the event it should be necessary in her judgment for the comfortable maintenance of my said wife and children, my said wife is hereby authorized from time to time to use portions of the principal monies or such property for such purposes; and I hereby request that my said wife shall consult with my son, John Peyton, one of the executors of this, my last Will and Testament, hereinafter named, before making any investments or changes in investments.

6th: I hereby give, devise and bequeath all the rest, residue, and remainder of my property which is remaining after my wife's death to my three sons: JOHN L. PEYTON, NEWTON H. PEYTON, and LOUIS R. PEYTON, each an undivided one-third ( 1/3 ) thereof, share and share alike.

On June 16, 1958, the attorney for decedent's estate wrote a letter to respondent in which he requested a ruling in regard to the interpretation of decedent's will for the purpose of determining the estate's right of marital deduction under its terms. This letter states in part:

In accordance with the laws of the State of Minnesota, and after consultation with our Judge of Probate Court, all of the property under this Last Will will be decreed to Olive Peyton, surviving spouse, in fee simple. As you will note, paragraph 4 gives this property to the decedent's wife for and during her natural life. This is followed by paragraph 5 which, in my opinion, complies with the 1954 Code, Section 2056, and allows Mrs. Peyton to have marital deduction for purposes of inheritance tax.

On June 27, 1958, Olive Peyton filed in the Probate Court a petition for authority to make election, requesting an extension of time for the purpose of renouncing the will, in which she stated:

2. That under the terms of said will, your petitioner was given all of the property of the decedent for and during her natural life, and that the remainder was given to the three sons of the deceased, namely; John L. Peyton, Newton H. Peyton and Lewis R. Peyton, each an undivided one-third thereof, share and share alike.

3. That on the 7th day of August, 1957, Letters Testamentary were issued to Olive Peyton and John L. Peyton.

4. That at the present time your petitioner does not know what interpretation the Court will place on the terms expressed in said Will, or how the Court will decree the property.

On July 1, 1958, the Probate Court entered an order setting Olive Peyton's petition for hearing on July 21, 1958. On July 3, 1958, notice of the setting of Olive Peyton's petition for hearing was served upon decedent's three sons and the State Commissioner of Taxation. On July 3, 1958, respondent replied to the letter dated June 16, 1958, from the attorney for decedent's estate and ruled that the residuary bequest in decedent's will did not qualify for the marital deduction provided in section 2056 of the Internal Revenue Code of 1954 since the interest passing therein was regarded by respondent as terminable. On July 21, 1958, Olive Peyton filed a petition for interpretation of provisions of will in the Probate Court, requesting the court to give a ruling as to how property will be decreed in accordance with the decedent's will, in which she stated:

That the Last Will and Testament heretofore referred to is filed in the abovenamed Court and is made a part of this petition. That under the terms of said Will, your petitioner does not know how the Court will decree said property.

That in order for your petitioner to file a Federal Estate Tax return and take the proper marital deductions, it is necessary that an intepretation of said Will be given by the Court.

On July 21, 1958, the Probate Court entered an order setting a hearing on this petition for interpretation of provisions of will for August 4, 1958, which order provided that a copy thereof be mailed to the heirs-at-law, devisees, and legatees under the will of decedent and to the Commissioner of Taxation at least 10 days prior to the date set for the hearing.

A hearing was held on August 4, 1958, in the Probate Court at which Olive Peyton was the only witness. Her testimony consisted of stating her name, the fact that she was decedent's wife, that decedent left a will in which he left her a life estate and the remainder to their three sons, that she had not as yet filed a Federal estate tax return, did not know how to take the marital deduction, and wanted an interpretation as to how the property was going to be decreed. At the hearing the court asked the attorney appearing for Olive Peyton, who was the same attorney who had requested a ruling from respondent as attorney for decedent's estate, to file a memorandum as to how he believed the will should be interpreted under Minnesota law, and stated that after receiving this memorandum the court would issue an order as to the interpretation. Such a memorandum was filed, setting forth the savings in estate tax which would result if the will were interpreted as vesting the residual estate in Olive Peyton in fee simple, and submitting that under Minnesota statutes and cases therein cited, the will should be interpreted so as to vest the residual estate absolutely in Olive Peyton. After the filing of this memorandum, the Probate Court, on September 10, 1958, entered an order which stated in part:

IT IS ORDERED that the Last Will and Testament of the above named decedent created no trust but gave to the surviving spouse, Olive Peyton, absolute power of appointment or encroachment of the whole thereof to herself; and that all of the residual estate be decreed to said Olive Peyton, surviving spouse, in fee simple absolute.

At no time during the proceedings with respect to the petition of Olive Peyton for the interpretation of decedent's will were any arguments advanced before the Probate Court in opposition to her position with respect to the interpretation of decedent's will and no formal appearance by any representative in behalf of decedent's three sons was noted on the Probate Court's docket records.

The Probate Court's inheritance tax record and order determining tax was entered on October 29, 1958, showing Olive Peyton as the only legatee, devisee, or heir-at-law receiving a distribution from decedent's estate.

On January 8, 1959, the final decree of distribution of decedent's estate was entered. This decree provided in part as follows:

The representatives of said estate appeared by John L. Peyton and by their attorneys, Messrs. Bouschor & McNulty, and no one appeared in opposition thereto.

Upon said hearing and due consideration of said petition and final account and the evidence produced at said hearing, the arguments of counsel and all persons interested therein, and the

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