Flesher v. United States, Civ. A. No. 710-F.

• Decision Date: 19 January 1965
• Docket Number: Civ. A. No. 710-F.
• Citation: 238 F. Supp. 119
• Court: U.S. District Court — Northern District of West Virginia
• Parties: Ora FLESHER, as Executrix under Will of Fred Flesher, deceased, Plaintiff, v. UNITED STATES of America, Defendant.

238 F. Supp. 119

Ora FLESHER, as Executrix under Will of Fred Flesher, deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 710-F.

United States District Court N. D. West Virginia, at Fairmont.

January 19, 1965.

Josephine H. Berry, Clarksburg, W. Va. (Stathers & Cantrall, Clarksburg, W. Va., on brief), for plaintiff.

John H. Kamlowsky, U. S. Atty., Fairmont, W. Va. (Louis F. Oberdorfer, Asst. Atty. Gen., Edward S. Smith, Myron C. Baum, George A. Hrdlicka, Dept. of Justice, Washington, D. C., on brief), for defendant.

CHRISTIE, District Judge.

This is an estate tax case, and it involves the question as to whether the interest in a trust estate taken by plaintiff under her husband's will qualified for the marital deduction under Section 812(e) (1) (F) of the Internal Revenue Code of 1939, as amended by the Technical Amendments Act of 1958, Section 93, 26 U.S.C.A. § 2056(b) (5), as plaintiff contends, or whether it constituted a non-deductible terminable interest under Section 812(e) (1) (B) of the 1939 Code, 26 U.S.C.A. § 2056(b) (1). The case was submitted on agreed facts which are briefly summarized below.

Fred Flesher died testate on October 14, 1953. His will, dated July 7, 1945, was admitted to probate on October 27. 1953. In the will, plaintiff was named executrix of the decedent's estate, and she so qualified. Plaintiff was also named trustee under the provisions of the will. She has since acted in that capacity.

On October 25, 1954, plaintiff filed a United States Estate Tax Return and paid the tax shown thereon in the amount of $19,335.80. In the return the decedent's residuary estate was valued at $137,668.55. This amount was claimed as part of the marital deduction. The Commissioner of Internal Revenue, upon audit of the estate tax return, determined that decedent's residuary estate did not qualify for the marital deduction. The estate tax was accordingly recomputed excluding the residuary estate as part of the marital deduction. The result was a decrease in the amount of the net marital deduction claimed by plaintiff as executrix of $121,877.17. This amount was disallowed by the Commissioner as a part of the estate tax marital deduction. After further minor adjustments, which are not here disputed, the total gross estate was determined by the Commissioner to be $338,959.49. These adjustments resulted in the assessment of an estate tax deficiency of $37,048.77 and interest of $1,992.48, or a total of $39,041.25, which was paid by the executrix on February 13, 1956 ($37,048.77) and on February 27, 1956 ($1,992.48). Plaintiff filed a timely claim for refund in the amount of $32,674.78 on May 11, 1959, which claim was rejected by the District Director of Internal Revenue on April 13, 1960. Plaintiff's claim for refund is based solely on the Commissioner's disallowance of $121,877.17 of the claimed marital deduction. The tax assessed on the amount disallowed was $32,674.78.

In order to understand more fully the problems presented, the pertinent portions of the decedent's will is set out below:

"ITEM TWO: All of the rest and residue of my said personal estate remaining after the payment of debts, funeral expenses and costs and expenses of administration, taxes and other lawful charges as provided in ITEM ONE hereof and all my real estate, I give, devise and bequeath unto my present wife, Ora Flesher, of Jane Lew, West Virginia, as and in the capacity of Trustee, for and during the life of my son, Fred R. Flesher, IN TRUST, for the use, benefit and behoof of my said son; and I hereby authorize and empower the said Ora Flesher, as Trustee, as aforesaid, to assume charge of, and to hold, manage, administer, operate, and to make necessary repairs, replacements and additions to, and to take, have and receive all of the rents, issues, profits and other income from all that part of my estate coming into her hands hereunder, and also to use, consume and expend such portions thereof as she, in her discretion, may deem necessary or proper to adequately support and maintain my said son in a manner comporting with his station in life, so long as he shall live; and if the income from the trust estate hereby created shall at any time be or become inadequate for the purposes aforesaid of the trust hereby created, or in case said Trustee shall find it unprofitable, detrimental or disadvantageous or in any respect to the best interest of the trust not to continue to hold, manage or operate any part or parts of the trust estate, I give full power and discretion to said Trustee from time to time to sell any part or parts of the trust estate, whether the same be real or personal property, or both, at public or private sale, at such prices and upon such terms and conditions as she shall deem proper and to execute, acknowledge and deliver all proper writings, deeds of conveyance and transfers therefor, and to invade and use all or so much or such parts of the proceeds of any sale or sales made by said Trustee as she may consider adequate to provide my said son with support and maintenance consonant with my desires therefor hereinabove expressed, and I also authorize and empower said Trustee to invest and from time to time reinvest the proceeds from property sold by her in other property, real or personal, or both, and from time to time to re-sell and convey or otherwise dispose and make proper transfers of the property so purchased, and to change, convert and substitute investments, and in every instance the said Trustee alone, and not the purchaser, shall be required to see to the proper application of all purchase money derived from all sales made by her under authority hereof;

"PROVIDED, HOWEVER, that as to any and all property belonging to my estate which shall remain at the death of my said son, my said wife, if then living, shall take and is hereby devised and bequeathed a life estate therein;

"PROVIDED, further, that from and after my death, my said wife shall have and is hereby given the unrestricted right, power and authority to take and consume so much of the income of my estate as may be necessary for her proper support and maintenance in a manner comporting with her station in life, so long as she shall live, and if the net income therefrom shall at any time be inadequate to maintain and support her and my said son or her alone, in case she shall outlive him, in the manner above specified, I authorize her to invade, take, use and consume so much of the principal of my estate as may be required for their combined support and maintenance, as aforesaid, and for her sole support and maintenance, in case he shall predecease her, and if sufficient money or other liquid assets shall at any time not be available for that purpose, I authorize, empower and direct my said wife to sell, convey and convert into money so much and such portions of my estate, real or personal, as in her judgment and discretion may be requisite to provide plentifully for the proper support and maintenance of my said wife and child, and the survivor of them.

"Having confidence in the personal integrity of my said wife designated by me as Trustee hereunder and deeming it unnecessary that bond be required of her, I direct that she be permitted to qualify and act as such Trustee and as Executrix of this will under the appointment to that office hereinafter made, without bond or other security being required of her.

"ITEM THREE: I give, devise and bequeath all that may remain of my estate, real, personal and mixed, at the death of the survivor of my said wife, Ora Flesher, and my said son, Fred R. Flesher, unto my two brothers, Edward J. Flesher and Thomas J. Flesher, and unto my two sisters, Mary K. Ward and Emma E. Neely, in fee simple, jointly and equally."

Upon the above-quoted portions of the will of Fred Flesher, deceased, and the agreed facts, the issues as to what interest or estate the plaintiff, Ora Flesher, took under West Virginia law will be decided. After that crucial issue is resolved, the Federal Estate Tax law concerning marital deductions will be applied by this Court.

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