Iowa-Des Moines National Bank v. United States

• Decision Date: 13 October 1969
• Docket Number: Civ. No. 8-2185-C-1.
• Citation: 306 F. Supp. 320
• Parties: IOWA-DES MOINES NATIONAL BANK and Nina Helen Wilson, Executors of the Estate of James A. Wilson, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Iowa

306 F. Supp. 320

IOWA-DES MOINES NATIONAL BANK and Nina Helen Wilson, Executors of the Estate of James A. Wilson, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. No. 8-2185-C-1.

United States District Court S. D. Iowa, C. D.

October 13, 1969.

Shirley A. Webster, Winterset, Iowa, for plaintiffs.

Daniel Power, Dept. of Justice, Washington, D. C., and Allen L. Donielson, U. S. Atty., Des Moines, Iowa, for defendant.

MEMORANDUM AND ORDER

STEPHENSON, Chief Judge.

This is an action for refund of federal estate tax paid by the plaintiffs. The jurisdiction of the Court pursuant to 28 U.S.C. § 1346(a) (1) is established. There being no dispute as to the facts, they have been stipulated by counsel and are found accordingly.

The plaintiff Iowa-Des Moines National Bank is a corporation licensed and incorporated in the State of Iowa with its principal place of business in Des Moines, Iowa. The plaintiff Nina Helen Wilson is the widow of James A. Wilson and resided at all times pertinent to this action at Lorimer, Iowa. Both plaintiffs were duly appointed executors of the estate of James A. Wilson. The defendant is the United States of America.

James A. Wilson died testate at the age of eighty-five years. He was survived by his wife, one of the plaintiffs herein, and by a son and two daughters. In November of 1964, plaintiffs applied to the Union County Iowa District Court for an order pursuant to Section 633.374 of the Code of Iowa, to fix a widow's allowance to provide for the support of Nina Helen Wilson for a period of twelve months following the death of James A. Wilson. That Court duly fixed the allowance in the amount of $3,000 and directed the plaintiffs herein to pay the same on November 19, 1964. The allowance was paid to Nina Helen Wilson in equal installments of $1,500 each on December 1, 1964 and June 29, 1965.

On August 26, 1965, the plaintiffs, as executors of the estate of James A. Wilson, filed the estate tax return for the estate. The gross estate of the decedent as reported on the return was in the amount of $123,940.39. In February of 1967, the Commissioner of Internal Revenue made a deficiency assessment against the plaintiffs, as executors, in the amount of $525.68. The assessment was duly paid. On June 19, 1967, plaintiffs filed a claim for refund in the amount of $240.00. Subsequently, the District Director of Internal Revenue gave statutory notice disallowing the claim and on May 2, 1968 plaintiffs filed this action.

The controversy between the parties here arises as a result of the Commissioner's disallowance of the marital deduction provided by I.R.C. § 2056 as to funds distributed to Nina Helen Wilson in the amount of $3,000 as a widow's allowance under Iowa Code § 633.374. The disallowance rests on the contention property passing to a surviving spouse via Iowa Code § 633.374 amounts to a terminable interest within the language of I.R.C. § 2056(b) (1)¹ and therefore not property to which the marital deduction applies.

The general history of the marital deduction is well known. The deduction was enacted in 1948 for the purpose of equalizing the incidence of the estate tax in community property and common-law jurisdictions. The marital deduction allows transfer of up to one-half of noncommunity property to the surviving spouse free of the estate tax. It was the intent of Congress to afford a liberal estate-splitting possibility to married couples where the deductible half of the decedent's estate would ultimately be taxable in the estate of the survivor. Restrictive provisions should not be construed so as to impose unwarranted restrictions upon the availability of the deduction. Northeastern Pennsylvania National Bank & Trust Co. v. United States, 387 U.S. 213, 87 S.Ct. 1573, 18 L.Ed.2d 726 (1967).

Nevertheless, it has been said that "the device of the marital deduction which Congress chose to achieve uniformity was knowingly hedged with limitations, * * *." Jackson v. United States, 376 U.S. 503, 84 S.Ct. 869, 11 L.Ed.2d 871 (1964). The conditions and limitations of the marital deduction are several. Sec. I.R.C. § 2056 (1954); Jackson v. United States, supra. In reference to the terminable interest rule—the restriction here in question—it has been noted that the Supreme Court has taken a technical approach not fully in accord with the general goal in enacting the marital deduction provisions. Estate of Joseph Nachimson, 50 T.C. 452 (1968). With these thoughts in mind, attention is turned to the issue at hand.

It is well settled that if under state law the right to receive an allowance as a surviving spouse terminates upon the occurrence of such contingencies as the death or remarriage of the survivor, the interest is a terminable one within the meaning of I.R.C. § 2056 (b) (1) and the marital deduction cannot be allowed. Jackson v. United States, supra; Hamilton National Bank of Knoxville v. United States, 353 F.2d 930 (6th Cir. 1965); United States v. Quivey, 292 F.2d 252 (8th Cir. 1961). In the alternative, where, under the law of the state, the widow has an absolute right at the date of her spouse's death to support for a fixed period of time, and the right is not extinguished by death or remarriage, the allowance for support has been held not to be a terminable interest and therefore qualifies for the marital deduction. Hamilton National Bank of Knoxville v. United States, supra; Estate of Avery v. Commissioner of Internal Revenue, 40 T.C. 392 (1963); Molner v. United States, 175 F.Supp. 271 (D.C.Ill.1959); Estate of Reynolds v. United States, 189 F.Supp. 548 (D.C. Mich.1960). Although there may have at one time been a difference of opinion;² it is now established that the right to support for purposes of the terminable interest rule must be determined as of the date of the death of the decedent. A determination that the right has become indefeasible at some later date will not suffice. Jackson v. United States, supra; Hamilton National Bank of Knoxville v. United States, supra; United States v. Quivey, supra.

Thus, the real question to be decided here is whether the Iowa statutes creating the allowance for the surviving spouse create a vested or contingent right at the time of the decedent's death. If the former result obtains, property passing thereunder qualifies for the marital deduction. If the latter alternative obtains, the interest is terminable and the marital deduction is not available. A determination of which type of interest obtains requires a rather extended review of the relevant Iowa statutes and their history.

On January 1, 1964, an Act entitled the Iowa Probate Code became the effective law regulating the administration of decedent's estates in the State of Iowa. The Act was intended as a complete overhaul and revision of the then existing Iowa probate law. See Comments of Special Committee on Probate Law of the Iowa Bar Association, Iowa Probate Manual, pp. i et seq. As a part of this overhauling and revision, provisions relating to the allowance to the surviving spouse, see Iowa Code §§ 635.12 et seq. (1962), were drastically revised. The revised statutes now appear as Iowa Code §§ 633.374 et seq. (1966). The revisions were made for the express purpose of qualifying the allowance to the surviving spouse—commonly called the widow's allowance—for the marital deduction for federal estate tax purposes under I.R.C. § 2056. Bar Committee Comments, §§ 374, 375, Iowa Probate Manual, p. 89. Clearly, it was recognized that the provisions of the then existing Iowa law did not qualify the property passing thereunder for the marital deduction due to the strictures of I.R.C. § 2056(b) (1).

The new Iowa statutes relating directly to the allowance for the surviving spouse are entitled § 633.374, Allowance to surviving spouse and § 633.375, Review of allowance to surviving spouse. Since the decision here must rest on the construction given these statutes, they are reproduced below in their entirety.

"§ 633.374, Allowance to surviving spouse. The court shall, upon application, set off and order paid to the surviving spouse, as part of the costs of administration, sufficient of the decedent's property as it deems reasonable for the proper support of the surviving spouse for the period of twelve months following the death of the decedent. When said application is not made by the personal representative, notice of hearing upon the application shall be given to the personal representative. The court shall take into consideration the station in life of the surviving spouse and the assets and condition of the estate. The allowance shall also include such additional amount as the court deems reasonable for the proper support, during such period, of dependents of the decedent who reside with the surviving spouse. Such allowance to the surviving spouse shall not abate upon the death or remarriage of such spouse."

"§ 633.375, Review of allowance to surviving spouse. The court may, upon the petition of the spouse, or other person interested, and after hearing pursuant to notice to all interested parties, review such allowance and increase the same."

By way of contrast, the...