Goldenhersh v. Comm'r of Internal Revenue (In re Estate of Satz)

• Decision Date: 29 June 1982
• Docket Number: Docket No. 687-77.
• Citation: 78 T.C. 1172
• Parties: ESTATE of EDWARD SATZ, DECEASED, ROBERT S. GOLDENHERSH, EXECUTOR, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

78 T.C. 1172

ESTATE of EDWARD SATZ, DECEASED, ROBERT S. GOLDENHERSH, EXECUTOR, PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 687-77.

United States Tax Court

Filed June 29, 1982.

Decedent's former wife, Ruth, brought an action and obtained a judgment against decedent's estate for his failure to name her the beneficiary of certain life insurance policies. Her claim was premised on a separation agreement executed by Ruth and decedent which was incorporated into a divorce decree. Petitioner claims a deduction of $66,675.48 under sec. 2053, I.R.C. 1954, for funds paid to Ruth pursuant to the judgment. Held, petitioner is not entitled to a deduction under sec. 2053 merely because State law may have provided that the separation agreement operated as an equitable assignment to Ruth of the insurance proceeds. Held, further: Ruth's claim was founded on the separation agreement, not on the divorce decree. Thus, the divorce decree exception to the consideration requirement, established by Harris v. Commissioner, 340 U.S. 106 (1950), is not available to petitioner. Held, further: Petitioner has not proved that the insurance provision was contracted in exchange for the support rights of Ruth and the couple's minor children, and sec. 2516 of the gift tax does not provide a substitute for such failure for purposes of the estate tax. Accordingly, Ruth's claim is not deductible. Stanley M. Rosenblum and Carl C. Lang, for the petitioner.

Robert P. Edler, for the respondent.

OPINION

TANNENWALD , Chief Judge:, Judge:

Respondent determined a deficiency of $18,486.66 in petitioner's Federal estate taxes. We must determine whether petitioner is entitled to a deduction of $66,675.48 under section 2053¹ for amounts paid to decedent's former wife because of decedent's failure to name her the beneficiary of certain life insurance policies.²

This case was submitted fully stipulated pursuant to Rule 122. The stipulation of facts is incorporated by this reference.

Petitioner is the Estate of Edward Satz represented by its executor, Robert S. Goldenhersh (Mr. Goldenhersh). At the time he filed the petition in this case, Mr. Goldenhersh resided in St. Louis, Mo.

Edward Satz (decedent) died on December 25, 1973. Decedent and his first wife, Ruth C. Satz (Ruth), were divorced on February 16, 1971. Sometime in February of 1971 prior to their divorce, decedent and Ruth entered into an agreement, entitled “Stipulation,” containing provisions with respect to child custody and support, alimony, the division of certain property, and miscellaneous matters. The stipulation provides in relevant parts as follows:

the parties * * * do mutually stipulate and agree that in the event the Court sees fit to grant Plaintiff [Ruth] a divorce, the various rights and obligations of the parties shall be settled and compromised pursuant to the following Stipulation subject to the approval of the Court, to-wit:

1. CHILD CUSTODY—-Plaintiff shall have the custody of the three (3) minor children * * *

2. CHILD SUPPORT—-It is mutually stipulated and agreed * * * that a reasonable and fair sum for Defendant [decedent] to pay as and for child support is [specifying amounts for each child] * * * aggregating Five Hundred Dollars ($500.00) per month for all three children; said child support shall continue as to each child until such child reaches the age of twenty-one (21) years * * *

3. ALIMONY—-It is mutually stipulated and agreed that Defendant shall pay Plaintiff, as and for permanent alimony, the sum of Five Hundred Dollars ($500.00) per month. This provision is not to be construed as imposing a contractual obligation, and the alimony awarded plaintiff in this instance shall be subject to future modification because of changed conditions in accordance with the laws of the State of Missouri.

4. ADJUSTMENT OF CHILD SUPPORT AND ALIMONY—-The foregoing provisions for child support and alimony are based on present estimates * * * and the parties recognize the right of each party to seek and obtain modification of said provisions * * *

* * *

D. In the event of the death of either party, or in the event plaintiff shall remarry, all alimony shall immediately terminate.

5. COLLEGE EDUCATION—-[Defendant is responsible for providing for the children's college education.]

6. INSURANCE—-Defendant is presently the owner of [four life insurance policies with face values totaling $65,000]. Defendant agrees to maintain said life insurance in full force, and will continue to pay the premiums on same, and will irrevocably constitute Plaintiff as the primary beneficiary and the aforesaid children as secondary beneficiaries. Upon death or remarriage of plaintiff, said insurance will be modified so that the said children shall be the primary beneficiaries. Defendant further agrees not to borrow on the cash value, if any, of said policies without plaintiff's consent. * * * All of the provisions of this paragraph shall terminate when all three of the aforesaid minor children have reached majority and plaintiff has either remarried or become deceased.

7. AUTOMOBILE—-Defendant will * * * transfer title to [a specified automobile] to plaintiff. * * *

8. HOUSE SALE PROCEEDS—-* * * Defendant agrees that [the] proceeds [from the sale of the parties' home] shall belong solely to Plaintiff * * *

9. FURNITURE AND HOUSEHOLD GOODS—-All furniture, housewares, appliances, linens and all other contents * * * which were formerly located in the aforesaid home * * * shall hereafter be the sole property of plaintiff.

* * *

13. DECREE—-It is mutually stipulated and agreed that this Stipulation, when fully executed, shall be attached to and become part of the decree rendered by the Court in the within action.

14. MUTUAL RELEASE—-The parties hereto do mutually release each other from any and all obligations, liabilities, and causes of action which have arisen or may have arisen between them in connection with their marriage to each other, except for the obligations specifically hereinabove set forth.

The divorce decree, entered on February 16, 1971, in the Circuit Court of St. Louis County, Mo., gave Ruth custody of the children and provided for child support and alimony in the amounts set forth in the stipulation. The decree also specifically provided that the provisions for alimony and child support could “be modified as per stipulation filed” and recited “Stipulation filed, marked Plaintiff's exhibit ‘1’ and made part of decree.” The decree made no specific reference to the provisions relating to insurance or other items of property.

As of the date of decedent's death, Ruth had not remarried.

Decedent failed to comply with paragraph 6 of the stipulation in that he failed to name Ruth the primary beneficiary of the policies, and he borrowed against the policies without her consent. After decedent's death, the net proceeds of three of the policies were paid to Mr. Goldenhersh as trustee of a trust established under decedent's will. The net proceeds of the fourth policy were paid to Mr. Goldenhersh as “trustee and executor.” The net proceeds of the four policies totaled $62,189.07.³

After decedent's death, Ruth discovered that he had failed to abide by the terms of the stipulation. On or about March 25, 1974, she filed a petition for declaratory judgment and injunction in the Circuit Court of St. Louis County, invoking that court's equity jurisdiction. Ruth asked that she be determined entitled to the proceeds of the four policies and sought damages in the amount of the unauthorized loans against the policies. On April 8, 1974, Ruth timely filed a claim in the Probate Court of St. Louis County for $65,000, the face amount of the four policies. She later amended that claim, seeking $66,675.48, face amount of the policies plus post mortem dividends and interest. Ruth's claim was allowed by the Probate Court. Mr. Goldenhersh, as executor, appealed the decision to the Circuit Court for St. Louis County. Mr. Goldenhersh's appeal from the Probate Court and Ruth's petition invoking the Circuit Court's equity jurisdiction were consolidated. On February 7, 1975, the Circuit Court heard and sustained Ruth's motion for summary judgment and ordered Mr. Goldenhersh, as executor, trustee, to pay Ruth the net amount of the policies, $62,892.76, and ordered Mr. Goldenhersh, as executor, to pay Ruth the amount of the unauthorized loans, $3,782.72.⁴ On or about March 13, 1975, Mr. Goldenhersh transferred the proceeds of the policies, $62,892.76, plus interest earned thereon, and the amount of the loans, $3,782.72, to Ruth.

On its Federal estate tax return, petitioner claimed a deduction under section 2053 of $66,675.48 for the amounts paid to Ruth. Respondent has disallowed the deduction.

Initially, we note that both parties concede that the net proceeds of the insurance policies were properly included in decedent's gross estate. Respondent concedes that, absent the limitations contained in section 2053(c)(1)(A), petitioner's deduction would be allowable under section 2053(a)(3) or (4).⁵ In support of his denial of the deduction, respondent argues that: (1) Ruth's claim (or the indebtedness with respect to the insurance policies) is founded on an agreement (the separation agreement); (2) with respect to claims founded on an agreement, section 2053(c)(1)(A) limits the deduction “to the extent that [the agreement was] * * * contracted bona fide and for an adequate and full consideration in money or money's worth”; (3) in exchange for decedent's promise to name her as beneficiary of the insurance policies, Ruth relinquished “other marital rights”; (4) section 2043(b) provides that for purposes of the estate tax, a relinquishment “of other marital rights in the decedent's property or estate, shall not be considered to any extent a consideration ‘in money or money's worth’ ”; (5) because of the lack of consideration, section 2053(c)(1)(A) disallows petitioner's deduction. To summarize res...