Estate of Wilson v. Commissioner
| Decision Date | 24 August 1992 |
| Docket Number | Docket No. 3524-90. |
| Citation | 64 T.C.M. 576 |
| Parties | Estate of Irvin I. Wilson, Jr., Deceased, Catherine L. Wilson, Personal Representative v. Commissioner. |
| Court | U.S. Tax Court |
Jay I. Bartz, 7373 N. Scottsdale Rd., Scottsdale, Ariz., Yale F. Goldberg, Michael W. Murphy, and David R. Frazer, for the petitioner. Mary P. Kimmel, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency of $3,099,426 in petitioner's Federal estate taxes. After a concession by petitioner, the sole issue for decision is whether decedent's interest in a trust, which passed to his wife upon his death, qualifies for the marital deduction under section 2056(a).1
Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. The petitioner is the Estate of Irvin Ivy Wilson, Jr., deceased, Catherine L. Wilson, personal representative. Irvin Ivy Wilson, Jr. (decedent), died on April 28, 1986. Decedent was a farmer in Phoenix, Arizona, at the time of his death. Petitioner timely filed a Federal estate tax return on January 28, 1987, with the Ogden Service Center.
Prior to his death, decedent executed a series of documents for the purpose of estate administration. The first document relevant to this proceeding is a will entitled "Last Will and Testament of Ivy Wilson, Jr." This will was executed on January 20, 1981, and provides in pertinent part:
SIXTH: All the rest, residue and remainder of the property [after payment of all estate taxes], both real and personal, of whatsoever nature and wheresoever situate, which I may own or otherwise have the right to dispose of by Will at the time of my death, I give, devise and bequeath to my Trustee hereinafter named, and to his or her successor, IN TRUST NEVERTHELESS, for the following uses and purposes:
(a) During the lifetime of my wife, CATHERINE L. WILSON, I direct my Trustee to pay to her the net income from the Trust Estate and such sums from the principal as my Trustee shall deem necessary or advisable in addition to such net income for her support, comfort and welfare.
The second document relevant to this proceeding is a codicil to the aforementioned last will and testament. This document, executed on December 22, 1983, states in pertinent part:
I give, devise and bequeath all of my property, whether real or personal and wheresoever situated, to my wife, CATHERINE L. WILSON.
The aforesaid is subject to the exception that the portion of my estate to which there can be applied the Statutory Credit shall be distributed In Trust as provided in Paragraph SIXTH of my Last Will and Testament of January 20, 1981. This provision applies to the Statutory Credit only.
Wherever the provisions of my Last Will and Testament of January 20, 1981, conflicts with this Codicil, this Codicil shall control.
By November 1985, decedent's health had declined, and he believed that his life would end soon. At this time, decedent, his family, and his advisers held several meetings to review decedent's estate plan and determine if it needed to be changed. Decedent understood that under his estate plan, all his assets would pass outright to his spouse, save an amount which would qualify for the unified estate tax credit. Although decedent was generally satisfied that this plan reflected his intent, he had several ancillary concerns, such as his desire to avoid probating his property, which he did not feel his plan addressed.
On December 2, 1985, decedent and his wife executed a document entitled "Revocable Trust for Irvin Ivy Wilson, Jr." This document was intended to address decedent's ancillary estate planning concerns. In pertinent part, this document provides:
Attached to the trust was a separate document which was also executed by decedent and Mrs. Wilson. This document is the "Duties, responsibilities and powers of the Trustee(s)" document (duties document) referred to in paragraph 9 of the trust. In pertinent part, this document provides:
The following are the duties, responsibilities, and powers of the Trustee of the REVOCABLE TRUST FOR IRVIN IVY WILSON, JR.
SECTION 1: The trustee shall hold, manage, care for and protect the trust property and shall have the following powers and, except to the extent inconsistent herewith, those now or hereafter conferred by law:
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(f) To borrow money from any lender, extend or renew any existing indebtedness and mortgage or pledge any property in the trust;
(g) To sell at public or private sale, contract to sell, convey, exchange, transfer and otherwise deal with the trust property and any reinvestment thereof, and to sell put and covered call options, from time to time for such price and upon such terms as the trustee sees fit;
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(j) To distribute income and principal in cash or in kind, or partly in each, and to allocate or distribute undivided interests or different assets or disproportionate interests in assets, and no adjustment shall be made to compensate for a disproportionate allocation of unrealized gain for federal income tax purposes; to value the trust property and to sell any part or all thereof in order to make allocation or distribution; no action taken by the trustee pursuant to this paragraph shall be subject to question by any beneficiary;
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(p) To perform other acts necessary or appropriate for the proper administration of the trust, execute and deliver necessary instruments and give full receipts and discharges.
Shortly after executing the trust instrument, decedent and Mrs. Wilson transferred community property, consisting of valuable farmland, to the trust. The trust instrument identifies only decedent as the trust grantor. On brief, the parties agree that both decedent and Mrs. Wilson were the grantors of the trust.
Decedent and Mrs. Wilson intended the trust to be revocable by decedent and Mrs. Wilson during their lives and to be fully revocable by Mrs. Wilson upon decedent's death. Decedent and Mrs. Wilson also intended that Mrs. Wilson would be the sole income beneficiary after decedent's death. The trust of December 2, 1985, and the attached duties document were not intended to alter decedent's basic estate plan.
OpinionThe issue for decision is whether decedent's interest in the revocable trust qualifies for the marital deduction under section 2056(a). Petitioner's position is that the trust was entirely revocable by Mrs. Wilson after the death of her husband and therefore qualifies for the marital deduction under section 2056(a). Respondent's position is that the trust instrument only allows Mrs. Wilson to revoke the trust with respect to her half of the community property which funded the trust. Respondent argues that Mrs. Wilson had only a terminable interest in the other half of the trust corpus.
The positions of the parties are based on divergent interpretations of the trust instrument. We must interpret the trust instrument under State law and determine the rights and duties flowing from it. Estate of Ellingson v. Commissioner, 964 F.2d 959 (9th Cir. 1992); Estate of Nicholson v. Commissioner [Dec. 46,556], 94 T.C. 666, 672-673 (1990). Under Arizona law, when a trust is created by a written instrument, the grantor's intent is ascertained from the express language of the instrument, and a court will not go outside the instrument in an attempt to give effect to what it conceives to be the grantor's actual intent or motive. State ex rel. Goddard v. Coerver, 412 P.2d 259, 262 (Ariz. 1966). If, however, the grantor does not plainly express his intent, or if he uses ambiguous language, a court may construe the instrument consistent with the grantor's intent. Id. at 262-263. The grantor's intent...
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