First Nat'l Bank in Dallas v. Comm'r of Internal Revenue

Decision Date17 October 1960
Docket NumberDocket No. 75855.
Citation35 T.C. 50
PartiesESTATE OF LELA BARRY VARDELL, DECEASED, FIRST NATIONAL BANK IN DALLAS, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

1. The decedent, Lela Barry Vardell, and T. W. Wardell were husband and wife, and all their property, under Texas law, was community property. The husband died February 27, 1934, leaving a will which put his wife to an election either to take her community one-half of the property or to take the income from the entire property for life with the remainder passing to a trust for their children and grandchildren. The will provided as to Lela that ‘so long as she shall remain a widow, she is to have, during such time, full and absolute authority to handle, manage, sell, and in any manner dispose of said properties, or any part thereof.’ She elected to take under the will and during her lifetime received the entire income from the community assets. At her death the remaining community assets passed to the testamentary trust provided in her husband's will. In decedent's estate tax return no part of the community property disposed of by her husband's will was included in her gross estate. The Commissioner in his determination of the deficiency in estate tax included as a part of decedent's gross estate her proportion of the value of the community property. Held: The Commissioner is sustained. Decedent's interest in the community property is includible in her gross estate under the provisions of sections 2036, I.R.C. 1954.

2. On March 10, 1955, Lela made a gift to one of her daughters of 1,000 shares of Southwestern Life Insurance Company stock which stock was a part of the community estate of Lela and her husband and in which she had been conveyed a life estate with power of disposition during her lifetime under her husband's will. No part of this property was reported in decedent's estate tax return. The Commissioner in his determination of the deficiency in estate tax included in decedent's gross estate the same proportion of the value of said property as he used in the property involved under ‘issue 1 on the ground that the gift was made in contemplation of death. Held, the gift was not made in contemplation of death and no part of the value of the property is includible in decedent's gross estate. Henry C. Coke, Jr., Esq., James K. Rushing, Esq., and Leland E. Fiske, Esq., for the petitioner.

John P. Higgins, Esq., for the respondent.

The Commissioner has determined a deficiency in estate tax against the estate of Lela Barry Vardell of $873,279.44. The deficiency is due to the additions to gross estate as disclosed by the return of ‘Schedule G— Transfers $2,217,983.48.’ This adjustment is explained in the deficiency notice as follows:

It is determined the total value of trust assets was $4,119,582.99 as of the date of death. The proportionate value, 53.84% of this amount, or $2,217,983.48, is included in the gross estate. This determination is occasioned by the decedent making an election to give up the remainder value of her one-half of the community on hand at the time of the death of her husband, T. W. Vardell, on February 27, 1934, under the terms of the husband's will, and because of the retention of the income from the property for life.

By appropriate assignments of error petitioner contests the foregoing determination of the Commissioner. Included in petitioner's assignments of error is the following:

(f) In determining the gross estate of said Lela Barry Vardell, deceased, the Commissioner erroneously included in said gross estate Fifty-three and eighty-four/one hundredths per cent (53.84%) of One Hundred Forty-Seven Thousand Dollars ($147,000.00), which is Seventy-Nine Thousand, One Hundred Forty-Four and 80/100 Dollars ($79,144.80), or any part thereof, because the amount of One Hundred Forty-Seven Thousand Dollars ($147,000.00) represents the value of fifteen hundred (1,500) shares of Southwestern Life Insurance Company stock, one thousand (1,000) shares of which decedent gave her daughter, Mrs. Lela Vardell Ellis, on March 10, 1955, and five hundred (500) shares of which are a fifty per cent (50%) stock dividend received by said daughter on said one thousand (1,000) shares on April 5, 1956, making a total of fifteen hundred (1,500) shares owned by said daughter, no part of which was owned by decedent at the date of her death, and no part of which should be included in decedent's gross estate.

FINDINGS OF FACT.

Most of the facts have been stipulated and are incorporated herein by this reference.

The decedent, Lela Barry Vardell, died of a cerebral hemorrhage on September 12, 1955, while visiting her daughter Lela Vardell Ellis in Virginia. A timely Federal estate tax return for her estate was filed by her executor, in which it was elected to value the assets of her estate on a date 1 year after the date of her death.

Issue 1.

The decedent and T. W. Vardell, hereinafter sometimes referred to as Vardell, were husband and wife living in Texas. At the time of his death on February 27, 1934, all of their property was community property. Vardell left a will which contained the following pertinent provisions:

ITEM TWO:

I give, devise and bequeath to my wife, Lela Barry Vardell, all property, real, personal and mixed, of which I may die seized and possessed, or in which I may have an interest at the time of my death, for the term of her life, and so long as she shall remain a widow, she to have, during such time, full and absolute authority to handle, manage, sell, and in any manner dispose of said properties, or any part thereof, and to invest and re-invest any proceeds received from the sale of any part of said properties, and no purchaser of any part of said properties shall have any obligation or duty to see to the application of the proceeds received from such sale.

If my said wife shall remarry then it is my desire, and I direct, that all of the properties owned by me, or in which I may have an interest, at the time of my death, and then remaining undisposed of, together with the proceeds then on hand received from the sale of any part thereof, and also any property purchased from any such proceeds and then in her possession, (but not including her interest in our community property), shall pass immediately to the trustees named in Item Three, and constitute a trust fund to be held, managed, administered, disposed of and distributed in accordance with the provisions of said Item Three Hereof.

ITEM THREE:

At the death of my said wife, if she shall survive me, I give and devise all of my separate property not theretofore sold or otherwise disposed of by my said wife, and all proceeds then on hand received from the sale or other disposition of any portion thereof, and all properties then on hand purchased from such proceeds, and also all community property belonging to my said wife and myself at the time of my death, and the proceeds then on hand received from the sale or other disposition of any portion thereof, and all properties then on hand purchased from any such proceeds, to the First National Bank in Dallas, Texas, and Charles F. O'Donnell, of Dallas, Texas, joint trustees, to have and to hold the same in trust, for the uses and purposes, and with the powers, hereinafter expressed. * * *

ITEM SIX:

It is my intention by this will to dispose of, and I do dispose of, all of my separate property, and also the community property of myself and wife, Lela Barry Vardell, including her interest therein as well as my own, and should my said wife survive me, then she will be required to elect whether she will accept this will and take under its provisions, * * * and if she so elects to accept under the terms hereof, then this will shall operate to include and dispose of, after her death, her interest in our community properties, as well as all properties owned by me at my death, and such election shall be irrevocable, * * *

Decedent elected to take under the will on April 27, 1934; there is no issue between the parties that she made a valid election. At the conclusion of the administration of Vardell's estate in 1935, all of the community assets were turned over to the decedent. Thereafter, during her lifetime, she managed the community assets and received all of the income therefrom. Decedent did not remarry.

Decedent was 56 years old when she elected to take under the will. She lived 21 years after the date of her election.

At the date decedent elected to take under the will the total value of the community assets placed under her management was $2,304,546.68, of which amount $1,240.783, or 53.84 per cent, was attributable to her interest in the community and $1,063,781.68, or 46.16 per cent, was attributable to her husband's interest.

Based upon her age of 56 years at the date of her election, the value at such date computed from Table A in section 81.10(j), Regs. 105, of the remainder interest, to take effect at decedent's death, in the share of the community assets attributable to her, was $683,869.96. Based upon the same age and table, the value at such date of decedent's right to receive the income during her life from the share of the community assets attributable to her husband was $454,014.36; and the value at such date of decedent's right to receive the income during her life from the total community assets was $983,571.61.

The value of the community property of decedent and her husband remaining at her death and valued on a date 1 year after her death was.$3,972,582.99, of which 53.84 per cent, or $2,138,838.68, was attributable to decedent's share of such property. None of this value was included in her gross estate on decedent's Federal estate tax return.

Issue 2.

On March 10, 1955, decedent made a gift to her daughter Lela Vardell Ellis of 1,000 shares of Southwestern Life Insurance Company stock, which stock was a part of the community property of...

To continue reading

Request your trial
8 cases
  • Vardell's Estate v. CIR
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • July 11, 1962
    ...GRIFFIN B. BELL, Circuit Judge. This is an estate tax case.1 It is an appeal by the taxpayer from an adverse decision of the Tax Court. 35 T.C. 50. Lela Barry Vardell died on September 12, 1955. Her husband, T. W. Vardell, died testate on February 27, 1934. They were domiciled in Texas and ......
  • Robinson v. Comm'r of Internal Revenue , Docket No. 2384-79.
    • United States
    • U.S. Tax Court
    • December 8, 1980
    ...480 F.2d 171 (9th Cir. 1973), affg. 54 T.C. 493 (1970); Vardell's Estate v. Commissioner, 307 F.2d 688 (5th Cir. 1962), revg. 35 T.C. 50 (1960). Vardell involved the estate of a widow who elected to accept the disposition of her community property share according to her husband's will and r......
  • Rocker-Citizens Nat'l Bank v. Comm'r of Internal Revenue (In re Estate of Sparling) , Docket Nos. 1307-70
    • United States
    • U.S. Tax Court
    • June 5, 1973
    ...8. Neither party has referred to Vardell's Estate v. Commissioner, 307 F.2d 688, 693 (C.A. 5, 1962), reversing on another issue 35 T.C. 50 (1960). In that case the precise time for valuation was uncontested. In somewhat similar circumstances as the case at bar, the Tax Court and the Court o......
  • Estate of Magnin v. Commissioner
    • United States
    • U.S. Tax Court
    • January 24, 1996
    ...USTC ¶ 12,317], 347 F.2d at 14; Estate of Vardell v. Commissioner [62-2 USTC ¶ 12,089], 307 F.2d 688, 693 (5th Cir. 1962), revg. [Dec. 24,405] 35 T.C. 50 (1960); Estate of Davis v. Commissioner [Dec. 29,236], 51 T.C. 269, 280-281 (1968), revd. and remanded 440 F.2d 896 (3d Cir. 1971); Estat......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT