Hamelsky v. Comm'r of Internal Revenue (In re Estate of Hamelsky), Docket No. 7511-70.
| Citation | 58 T.C. 741 |
| Decision Date | 07 August 1972 |
| Docket Number | Docket No. 7511-70. |
| Parties | ESTATE OF ABRAHAM HAMELSKY, DECEASED, SAMUEL HAMELSKY, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Morris Spritzer, for the petitioner.
John O'Toole and Frank J. Smith, for the respondent.
Decedent's will provided that his executor could distribute assets in kind at their values as finally determined for Federal estate tax purposes in satisfaction of the marital bequest. Held, in accordance with Rev. Proc. 64-19, sec. 2.02, the marital deduction does not fail under the terminable interest provisions of sec. 2056(b)(1), I.R.C. 1954.
In this proceeding the Commissioner has determined a deficiency in the estate tax of the petitioner in the amount of $131,010.34. The petitioner contests that determination. Concessions having been made by the parties, the sole question for decision is whether a bequest to his wife by Abraham Hamelsky, the decedent, qualifies for the marital deduction under section 2056.1 The matter was submitted upon a stipulation of facts pursuant to Rule 30 of the Tax Court Rules of Practice.
The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
The decedent died a resident of East Brunswick, N.J., leaving a last will and testament which was executed on January 30, 1965, and duly admitted to probate. Samuel Hamelsky was duly appointed and qualified as executor of the estate. At all times material herein, he was a resident of Highland Park, N.J.
The decedent was survived by his wife, Dorothy Hamelsky, a son, Marc Ira Hamelsky, and a daughter, Marilyn Ruth Edelstein.
In the decedent's will, provision was made for a division of his estate between his wife, if surviving, and his children. Accordingly, paragraph Fourth of the will provided as follows:
If my wife, DOROTHY, survives me, I give and bequeath to her, absolutely and forever, an amount equal to the maximum estate tax marital deduction allowable in determining the Federal Estate Tax on my estate for Federal Estate Tax purposes, less the value for Federal Estate Tax purposes of all other items which pass or have passed to my wife under other provisions of this will, or otherwise, but only to the extent that such items are included in my gross estate and are allowable as a marital deduction for Federal Estate Tax purposes. In making the computations necessary to determine the amount of this bequest, the final determination of values for Federal Estate Tax purposes, whether determined by agreement, litigation, or otherwise, shall control. In the sole power and discretion of the Executor, the payment of this amount may be made wholly or partly in cash or property as selected by him, provided, however, that all such property so selected shall be valued at the value as finally determined for Federal Estate Tax purposes in my estate; provided, further, that in exercising this power and discretion, the Executor shall first allot to this gift and bequest the more liquid and salable assets of my estate; and provided further, that in no event shall there be included in this gift and bequest any asset, or the proceeds of any asset which will not qualify for the marital deduction for Federal Estate Tax purposes. The exercise of the foregoing power and discretion by the Executor shall not be subject to question by any beneficiary, even though the result may be to distribute to my wife property which at the time of distribution is worth more or less than the amount of this gift and bequest or the part thereof which is satisfied by such distribution.
In paragraph Fifth of the will, decedent then provided that all the residue and remainder of his profit should pass to his two children, Marc Ira Hamelsky and Marilyn Ruth Edelstein, in equal shares.
In the estate tax return, as filed, petitioner claimed a marital deduction in the amount of $414,901.88, asserting that under the provisions of the will that amount was fixed as a pecuniary bequest to the widow. Respondent determined that the pecuniary bequest to the widow was not determinable because of the discretion given to the executor to make distribution of the bequest in kind at estate tax valuations without regard to appreciation or depreciation.
The form of bequest by the decedent to his wife has been described as a ‘pecuniary bequest.’ The respondent contends that such a bequest constitutes a ‘terminable interest’ as defined in section 2056(b) and that the executor is empowered thereby to make a division of the estate as between the surviving spouse and these residuary legatees upon the basis of the values of the assets of the estate, as of the date of death (or the valuation date), irrespective of the values as of the date of distribution. Since the executor is empowered to distribute to the wife assets which have depreciated in value, the legacy to the wife was not determinable as of the date of death.
Insofar as material herein, section 2056(b)(1) defines a terminable interest, as follows:
(b) LIMITATION IN THE CASE OF LIFE ESTATE OR OTHER TERMINABLE INTEREST.—
(1) GENERAL RULE.— Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed under this section with respect to such interest—
(A) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse); and
(B) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse; and no deduction shall be allowed with respect to such interest (even if such deduction is not disallowed under subparagraphs (A) and (B))—
(C) if such interest is to be acquired for the surviving spouse; pursuant to directions of the decedent, by his executor or by the trustee of a trust.
For purposes of this paragraph, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term.
On March 19, 1964, the respondent promulgated Rev. Proc. 64-19, 1964-1 C.B. (Part 1) 682, outlining certain conditions pursuant to which a pecuniary bequest would be deemed to...
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