ESTATE OF PROX v. Commissioner

• Decision Date: 21 July 1976
• Docket Number: Docket No. 10091-74.
• Citation: 35 TCM (CCH) 1003,1976 TC Memo 229
• Parties: Estate of Robert F. Prox, Deceased, Aimee M. Prox, Executrix v. Commissioner.
• Court: U.S. Tax Court

35 TCM (CCH) 1003

1976 TC Memo 229

T.C. Memo. 1976-229. Estate of Robert F. Prox, Deceased, Aimee M. Prox, Executrix v. Commissioner.

Docket No. 10091-74.

United States Tax Court.

Filed July 21, 1976.

Benjamin G. Cox, 700 Merchants National Bank Bldg., Terre Haute, Ind., for the petitioner. Robert P. Ruwe, for the respondent.

Memorandum Findings of Fact and Opinion

TANNENWALD, Judge:

Respondent determined a deficiency of $8,504.56 in the estate tax of the estate of Robert F. Prox. The parties have settled certain issues, leaving for our determination whether an interest in the decedent's residuary estate passing under his will to his surviving spouse may be deducted under section 2056¹ or is a nondeductible terminable interest.

Findings of Fact

Some of the facts are stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein by this reference.

Petitioner is the executrix of the Estate of Robert F. Prox. Her legal residence was in Terre Haute, Indiana at the time of the filing of the petition herein. The estate tax return was filed with the office of the Internal Revenue Service at Indianapolis, Indiana.

Robert F. Prox (hereinafter referred to as decedent) died a resident of Indiana on September 3, 1970. He was survived by Aimee M. Prox, his widow, and by their three adult children.

Decedent's last will and testament provided, in material part:

ITEM TWO

In the event my wife, Aimee M. Prox, survives me, then and in such event, I hereby give, devise and bequeath unto my said wife, Aimee M. Prox, all the rest, residue and remainder of the property, real, personal and/or mixed wherever situate of which I may die possessed, together with the use and proceeds thereof during her lifetime for her sole use and maintenance for and during her natural life, with full power to use, dispose of, sell and convey any or all of said property as she may desire, the same as I might do if living.

ITEM THREE

In the event my said wife survives me, then and in such event I give, devise and bequeath whatever may remain in my estate and the proceeds thereof upon the death of my wife as follows:

(a) I hereby give and bequeath to my son, Robert F. Prox, Jr., all of the stock of Frank Prox Company, Inc., which I may own at the time of my death, remaining undisposed of by my wife at the time of her death, to be his absolutely and forever.

(b) All the rest, residue, and remainder of my estate, real, personal and/or mixed and wherever situate, of which I die possessed or which I have the power to dispose of by will, remaining undisposed of by my wife at the time of her death, I hereby will, devise and bequeath as follows:

(1) to my son, Robert F. Prox, Jr., one-third ( 1/3 ) of such rest, residue, and remainder after deducting from said one-third thereof an amount equal to the aggregate par value of the stock of Frank Prox Company, Inc. given and bequeathed to my said son by paragraph (a) of this Item.

(2) to my daughters, Dorothy C. Williamson and Betty M. Parish, in equal parts, all of said rest, residue, and remainder of my estate not herein given, devised and bequeathed to my son, Robert F. Prox, Jr.

* * * It is my wish that all of my stock in the said Frank Prox Company, Inc., in any event, shall be and become the property of my said son, Robert F. Prox, Jr., as set out hereinabove. It is also my wish that that residue, if any, of my estate be divided so as to equalize, as nearly as I have deemed practicable in view of the fact that I desire my said son to have said stock, the gross amounts which each of my children are to receive from my estate * * *.

ITEM FOUR

In the event my said wife, Aimee M. Prox, shall predecease me, or shall die simultaneously with me * * * then in either of such events:

(a) I hereby give and bequeath to my son, Robert F. Prox, Jr., all of the stock of Frank Prox Company, Inc., which I may own at the time of my death to be his absolutely and forever.

(b) All the rest, residue, and remainder of my estate, real, personal and/or mixed and wherever situate, of which I die possessed or which I have the power to dispose of by will, I hereby will, devise and bequeath as follows:

(1) to my son, Robert F. Prox, Jr., one-third ( 1/3 ) of such rest, residue, and remainder after deducting from said one-third thereof an amount equal to the aggregate par value of the stock of Frank Prox Company, Inc. given and bequeathed to my said son by paragraph (a) of this Item.

(2) to my daughters, Dorothy C. Williamson and Betty M. Parish, in equal parts, all of said rest, residue and remainder of my estate not herein given, devised and bequeathed to my son, Robert F. Prox, Jr.

* * *

At his death, decedent owned property (not including insurance or property in which his wife had a survivorship interest) consisting of real estate having a fair market value of $37,832.55, stock of Frank Prox Company, Inc. (hereinafter "Prox Company") having a fair market value of $22,110.00, and miscellaneous personal effects having a fair market value of $100.00.

Decedent was born on August 2, 1895. He was active in the operation of the Prox Company until his retirement in 1965. At the beginning of 1965, Robert F. Prox, Jr., owned 100 shares of Prox Company stock and had been president of Prox Company since about 1960. Decedent made the following gifts of Prox Company stock to Robert F. Prox, Jr.:

                    Calendar              Number of
                     Year                  shares
                     1965 .................. 150
                     1967 .................. 100
                     1968 .................. 100
                     1969 .................. 100
                     1970 .................. 100
                

The last four gifts were reported as part of the gross estate on the estate tax return.

In 1965, Aimee M. Prox gave Robert F. Prox, Jr., 449 shares of Prox Company stock. On the date of decedent's death, Robert F. Prox, Jr., owned a total of 1,199 out of 2,900 outstanding shares.² Decedent owned 201 shares, and decedent's widow owned one share. Certificates for the 201 shares included in decedent's estate were issued to decedent's widow, who subsequently made the following transfers of shares to Robert F. Prox, Jr., without consideration:

                                           Number of
                  Date                      shares
                  April 20, 1972 ............ 60
                  January 2, 1973 ........... 60
                  January 2, 1974 ........... 60
                  January 2, 1975 ........... 22
                                             ___
                                             202
                

It was decedent's desire that his son have control of the Prox Company. At the time of trial, Robert F. Prox, Jr., owned 1,750 Prox Company shares, having acquired 349 additional shares from the Estate of Adelaide C. Prox on February 10, 1975.

In early October, 1970, the three children of decedent, together with their spouses, executed separate documents, each entitled "QUIT CLAIM DEED," by which each conveyed to Aimee M. Prox:

All right, title, and interest of the Grantors in and to the real estate of Robert F. Prox, deceased, * * * which he may have owned at the time of his death * * *, either as an heir of or as a legatee and devisee under the Last Will and Testament of the said Robert F. Prox, including any and all right, title and interest in and to said child of Robert F. Prox in and to the personal property or any other properties of the said Robert F. Prox whatsoever in order that the Grantee, Aimee M. Prox, * * * shall be deemed to be the sole and only heir, devisee and legatee of her husband * * *.

One purpose for the execution of these instruments was to clarify title to certain real estate owned by decedent at his death which was about to be sold under threat of condemnation. There was no consideration for the execution of the documents.

Although it was generally understood within the family that Robert F. Prox, Jr., would acquire control of Prox Company, there was never an understanding among Mrs. Prox and her children that any property she received from her husband's estate would be held by her and passed on to the children at her death. The children did expect, however, that the daughters would receive a larger share of Mrs. Prox' estate to compensate for her transfer of Prox Company stock to her son.

Opinion

Respondent determined that interests passing to Aimee M. Prox under decedent's will were not deductible under section 2056 because they were "terminable interests" within the meaning of section 2056(b).³ He claims that she received only a life estate in the residuum under Item Two of decedent's will, and that any power she had to dispose of the property was neither exercisable in all events nor in favor of herself or her estate. Finally, he contends that the quitclaim deeds executed by decedent's children in favor of their mother did not constitute disclaimers within the meaning of section 2056(d)(2). Petitioner disputes each of these points.

The threshold issue is the nature of the interest which passed from the decedent to his widow. If we determine that she received that interest either outright or as a life estate with an unrestricted power to appoint in favor of herself or her estate, the marital deduction is allowable. The parties agree (and correctly so) that resolution of this issue is dependent upon state law, in this case the law of Indiana. Estate of Yale C. Holland Dec. 33,291, 64 T.C. 499 (1975); Estate of Wilhelmina L. Benjamin Dec. 27,486, 44 T.C. 598, 604 (1965); sec. 20.2056(b)-5(e), Estate Tax Regs.

As is usually the situation, when we examine relevant state law, we find no case which is so similar in terms of language and surrounding circumstances that it can be considered controlling. Indeed, the Indiana courts at an early date recognized that each case is sui generis. Curry v. Curry, 58 Ind. App. 567, 105 N.E. 951, 957 (1914). See also Semmes v. Gary National Bank, 144 Ind. App. 25, 242 N.E. 2d 517, 520 (1968). Cf. Estate of Wilhelmina L. Benjamin, supra, 44 T.C. at 606-608. In short, there is no absolute rule...