Fuller v. Comm'r of Internal Revenue, Docket No. 79728.
| Decision Date | 31 October 1961 |
| Docket Number | Docket No. 79728. |
| Citation | 37 T.C. 147 |
| Parties | KATHRYN S. FULLER, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Warren W. Grimes, Esq., for the petitioner.
Max J. Hamburger, Esq., for the respondent.
Renunciation by petitioner of portion of testamentary income
in 1956, many years after testator's death in 1931, held subject to gift tax for 1956 as not having occurred prior to acceptance and within a ‘reasonable time’; and petitioner's portion of estate income for prior year held, further, taxable to petitioner as subject, during such year, to her unfettered command; notwithstanding subsequent approval of renunciation in State court decree in accounting proceeding.
The respondent determined the following deficiencies in petitioner's income and gift taxes:
It is stipulated that the petitioner does not contest the income tax deficiencies for 1956 and 1957. The issue is whether the petitioner made a gift in 1956 to her three sons of a portion of her life income interest under a testamentary trust when she executed a renunciation and disclaimer of this portion in 1956.
Some of the facts have been stipulated and they are herein included by this reference.
Kathryn S. Fuller, hereinafter called petitioner, is a resident of Dalton, Pennsylvania. She filed her income tax returns for the years here involved with the district director of internal revenue at Scranton, Pennsylvania.
Petitioner is the widow of Mortimer B. Fuller who died testate on September 7, 1931, leaving surviving him the petitioner and three sons, Edward, mortimer B., Jr., and Henry S. Fuller. Decedent's will and codicils were admitted to probate and recorded by the Orphans' Court for Lackawanna County, Pennsylvania, on September 11, 1931, and letters testamentary were then issued to petitioner and her three sons as executors of the decedent's estate.
After certain cash legacies to nonrelatives, paragraph 4 of the will devised to petitioner ‘for and during the term of her natural life my * * * home * * * together with the grounds and other appurtenances thereto and the equipment thereof.’ The decedent's home in Dalton was known as Overlook, a 30-room house, situated on an estate of some 500 acres, with a greenhouse, a tennis court, a lake, a boathouse, and various livestock.
Paragraph 5 of the will provided as follows:
5. All the rest, residue and remainder of my estate of whatsoever nature, real, personal or mixed, and wheresoever situate, I give, devise and bequeath to my wife, Kathryn S. Fuller, and my son, Edward L. Fuller, their heirs and assigns forever, upon the following trusts:
(a) To separate and set aside from the rest of my estate one portion thereof sufficient to produce an income of Fifty Thousand ($50,000.00) dollars annually, and to use said income or so much thereof as may be needed for the maintenance and operation of my home known as ‘Overlook’ situate partly in the Borough of Dalton and partly in the Township of North Abington, as aforesaid, including the grounds and other appurtenances and all things incident thereto, for and during the term of the life of my wife, Kathryn S. Fuller. It shall be so maintained and conducted after the death of my wife out of said fund also as long as any one of my sons may so desire, but if one of my three sons should not desire it so maintained and conducted only two-thirds (2/3) of said fund shall be used annually for said purpose and the remainder shall become part of the trust funds hereinafter mentioned; and if two of my three sons do not desire it so maintained and conducted only twenty-five thousand ($25,000.00) dollars of said income shall be used annually for said purpose and the remainder shall become part of the trusts funds hereinafter mentioned;
(b) If at any time during the life of my wife, Kathryn S. Fuller, she and all my sons shall desire that said home, together with the grounds and appurtenances and things incident thereto, be sold, she and my trustees shall sell the same and the proceeds of said sale shall become part of my trusts funds hereinafter mentioned, in the same proportions as hereinafter set forth;
(c) If after the death of my wife at any time my three sons, or they or he then surviving, shall decide to sell said home and grounds and appurtenances and things incident thereto, my trustees shall sell the same and divide and distribute the proceeds equally among my son or sons then living and the children of any surviving son or sons per stirpes;
(d) The remainder of my estate, real, personal and mixed, shall be divided and held by my trustees in eight (8) separate and equal parts. The income from five (5) of said parts shall be paid to my wife, Kathryn S. Fuller, during the term of her natural life. My three sons shall each receive during the life of my wife, the income of one of said other three (3) parts of my trust estate. Should any of my said three sons die before me or before their mother, the income which would be paid to him if living shall be paid, during the life of my wife, to his children, share and share alike, if any, otherwise said income shall be paid to the other son or sons surviving, and the issue of any deceased son per stirpes. On the death of my wife, Kathryn S. Fuller, the principal and unpaid income of all of said eight (8) separate trusts shall be distributed, transferred and conveyed absolutely to any of my said three sons that may be then living, and to the children of any deceased son or sons, if any, equally and per stirpes.
By subsequent codicils, the cash legacies were eliminated and decedent's other two sons were added as executors and trustees.
An inventory of decedent's estate as of December 7, 1931, showed the following items:
+-----------------------------------------------------------------------------+
¦Personalty consisting of cash, stocks and bonds, life ¦ ¦
¦insurance, ¦ ¦
+---------------------------------------------------------------+-------------¦
¦jewelry, machinery, livestock, etc______________________ ¦$3,244,236.60¦
+---------------------------------------------------------------+-------------¦
¦Real estate_ ¦60,570.00 ¦
+---------------------------------------------------------------+-------------¦
¦ ¦ ¦$3,304,806.60¦
+----------------------------------------------+----------------+-------------¦
¦Notes and accounts payable_ ¦$1,822,753.05 ¦ ¦
+----------------------------------------------+----------------+-------------¦
¦Fees, commissions, and misc. expenses_ ¦227,963.06 ¦ ¦
+----------------------------------------------+----------------+-------------¦
¦Bequests to employees_ ¦39,250.00 ¦ ¦
+----------------------------------------------+----------------+-------------¦
¦ ¦ ¦$2,089,966.11¦
+-----------------------------------------------------------------------------+
Decedent owned a substantial block of stock in the International Salt Company at the time of his death. Petitioner also owned independently a substantial block of stock in the same corporation. Decedent had been the first president of the corporation and his three sons were officers and directors of the corporation at the time of this trial.
Since it would have been necessary for the estate to liquidate a substantial amount of the International Salt Company stock in order to pay the outstanding notes and accounts payable liability in the amount of $1,822,753.05, it was decided at a meeting of the Fuller family, at which petitioner was present, that it would be advisable to use the income from the estate for the reduction of these liabilities. Petitioner agreed to this plan.
As of June 13, 1956, the notes and accounts payable of $1,822,753.05 had been reduced to a total of $133,200.61.
Petitioner at no time filed any election to take against the will and codicils. Prior to December 31, 1955, no trusts were set up as provided in paragraph 5 of the will.
During the period of September 11, 1931 through 1956, the petitioner continued to reside in Overlook and substantial sums were used by the executors for the operation and maintenance of Overlook. In addition to the main house, there were three other houses on the grounds at the time of decedent's death, and these have been used by the three sons as their respective family residences. During the years 1931 through 1955 no annual computation was made of the amounts spent by the decedent's estate on the maintenance and operation of Overlook. These expenditures were not segregated on the books and records of the estate but were commingled with the general expenditures made by the estate for all purposes during that period.
The estate income was the subject of prior litigation in the Tax Court. 9 T.C. 1069 (1947), affirmed per curiam171 F.2d 704 (C.A. 3, 1948), certiorari denied336 U.S. 961.
About May 12, 1955, an attorney, Edward W. Warren, was notified that petitioner had made up her mind to renounce a three-eights interest in the annual income under the decedent's will and to keep only two-eighths interest. After some research on the problem, Warren's law firm prepared a draft of the renunciation early in September 1955.
No account for the estate during the period from September 11, 1931, when the will was probated, through 1955, had ever been prepared or filed...
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