Jewett v. Comm'r of Internal Revenue

• Decision Date: 13 June 1978
• Docket Number: Docket No. 3877-76.
• Citation: 70 T.C. 430
• Parties: GEORGE F. JEWETT, JR., and LUCILLE M. JEWETT, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

70 T.C. 430

GEORGE F. JEWETT, JR., and LUCILLE M. JEWETT, PETITIONERS

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 3877-76.

United States Tax Court

Filed June 13, 1978.

T held a 50-percent remainder interest in a testamentary trust established under the will of his grandmother, who died in 1939. T reached the age of majority in 1948. In 1972, when the surviving life tenant of the trust was 72 years old, T executed disclaimers of portions of his remainder interest which were unequivocal and effective under Massachusetts law. Held, the disclaimers were not made within a reasonable time as required by sec. 25.2511-1(c), Gift Tax Regs. Keinath v. Commissioner, 58 T.C. 352,reversed480 F.2d 57 (8th Cir.), followed. Robert J. Richards, Jr., for the petitioners.

Willard J. Frank and Charles W. Maurer, Jr., for the respondent.

OPINION

RAUM, Judge:

The Commissioner determined the following deficiencies in petitioners' Federal gift tax:

+------------------------------------------------------------+
                ¦Petitioner           ¦Calendar quarter ending  ¦Deficiency  ¦
                +---------------------+-------------------------+------------¦
                ¦                     ¦                         ¦            ¦
                +---------------------+-------------------------+------------¦
                ¦George F. Jewett, Jr.¦Sept. 30, 1972           ¦$398,065.39 ¦
                +---------------------+-------------------------+------------¦
                ¦George F. Jewett, Jr.¦Dec. 31, 1972            ¦23,288.48   ¦
                +---------------------+-------------------------+------------¦
                ¦Lucille M. Jewett    ¦Sept. 30, 1972           ¦310,613.94  ¦
                +---------------------+-------------------------+------------¦
                ¦Lucille M. Jewett    ¦Dec. 31, 1972            ¦19,363.06   ¦
                +------------------------------------------------------------+
                

The only issue presented is whether George F. Jewett, Jr., made taxable gifts when he executed disclaimers of portions of his remainder interest in a certain testamentary trust.

Petitioners George F. Jewett, Jr., and Lucille M. Jewett, husband and wife, resided in Ross, Calif., at the time their petition in this action was filed. Petitioner George F. Jewett, Jr., filed his United States gift tax returns for the calendar quarters ending September 30, 1972, and December 31, 1972, with the Internal Revenue Service Center in Fresno, Calif. Petitioner Lucille M. Jewett elected to consent to treat the gifts made by her husband during the taxable year 1972 as having been made by both husband and wife to the extent allowed by law and filed her United States gift tax returns for the calendar quarters ending September 30, 1972, and December 31, 1972, with the Internal Revenue Service Center in Fresno, Calif. Since petitioner Lucille M. Jewett is a party to this action solely by virtue of her consent to treat part of her husband's gifts as her own, George F. Jewett, Jr., will hereinafter be referred to as the petitioner.

Margaret Weyerhaeuser Jewett, petitioner's grandmother, died on January 14, 1939, a resident of Falmouth, Mass. She left a will which was duly admitted to probate (Barnstable Probate No. 27161). Clause Eighth of said will created a trust (the trust) for the benefit of the testatrix's husband, James R. Jewett, during his lifetime and thereafter for the benefit of the testatrix's son, George F. Jewett, and George's wife, the testatrix's daughter-in-law, Mary Cooper Jewett (now Mary J. Gaiser), for their lives. The trust, having been established under the Will of Margaret Weyerhaeuser Jewett, a Massachusetts decedent, has a situs in Massachusetts. The trustee serving at the present time is John F. Cogan, Jr., of Lexington, Mass.

Mary Cooper Jewett (now Mary J. Gaiser), petitioner's mother, is the sole surviving life tenant of the trust, inasmuch as James R. Jewett and George F. Jewett are now deceased. She was born on March 7, 1901, and is still living. Petitioner, her son, was born on April 10, 1927, and is now living.

Under the terms of Clause Eighth of the Will of Margaret Weyerhaeuser Jewett, petitioner was entitled to a share of the trust remainder (the trust remainder) if he survived his mother. If he did not survive his mother, the share to which he would have been entitled if he had survived was to pass to his issue per stirpes.

On August 30, 1972, petitioner executed an instrument entitled “Estate of Margaret Weyerhaeuser Jewett/George F. Jewett, Jr. Disclaimer.” Said instrument was recorded in the Barnstable Probate Court on September 5, 1972. The instrument stated, in part:

WHEREAS, MARGARET WEYERHAEUSER JEWETT, late of Falmouth, County of Barnstable, Commonwealth of Massachusetts, died on January 14, 1939, leaving a will which was proved and allowed by the Probate Court of said County on February 14, 1939, and

WHEREAS, CLAUSE EIGHTH of said will created a trust for the benefit of her husband, JAMES R. JEWETT, during his lifetime and thereafter for the benefit of her daughter-in-law, MARY C. JEWETT (now MARY C. GAISER), and her son, GEORGE F. JEWETT (now deceased), and

WHEREAS, discretionary payments of income are now being made to MARY C. GAISER pursuant to the provisions of Subparagraph 3 of Paragraph B of said CLAUSE EIGHTH by the Trustees of the aforesaid, and

WHEREAS, the undersigned, as a son of MARY C. GAISER and the late GEORGE F. JEWETT, has an interest in fifty percent (50%) of the trust estate, including accumulations of income transferred to principal under the provisions of Paragraph B of CLAUSE NINTH provided that he survives said MARY C. GAISER, and

WHEREAS, the undersigned wishes to renounce his right to receive ninety-five percent (95%) of the aforesaid fifty percent (50%) of the remainder of the trust estate upon the death of MARY C. GAISER (but not including the right to receive fifty percent (50%) of the accumulations of income, if any there be, occurring after the execution of this disclaimer).

NOW, THEREFORE, the undersigned, said GEORGE F. JEWETT, JR., hereby irrevocably renounces and disclaims his right, if any, to ninety-five percent (95%) of the aforesaid fifty percent (50%) of the trust estate upon termination, provided, however, that this disclaimer shall not act upon any interest he may have in any accumulations of income which may occur after the date set forth below.

Petitioner had no interest in that portion of the trust remainder described in the instrument, from and after August 30, 1972.

On December 14, 1972, petitioner executed an instrument, in the same form as that executed August 30, 1972, by which he disclaimed his remaining 5-percent interest in one-half of the trust remainder. This second instrument was recorded in the Barnstable Probate Court on December 21, 1972. The parties have stipulated that petitioner had no interest in the trust remainder from and after December 14, 1972.

The value of the entire trust corpus on August 30, 1972, was $7,912,393.63, and on December 14, 1972, was $8,398,038.37.

On their United States gift tax returns for the calendar quarters ending September 30, 1972, and December 31, 1972, petitioners notified the Commissioner of the execution of the two disclaimers, but did not report as gifts any amount in respect of the trust remainder. The Commissioner determined that petitioner's execution of disclaimers of 95 and 5 percent, respectively, of his 50-percent interest in the trust remainder constituted taxable gifts of those interests in the trust remainder, and determined deficiencies accordingly.

Section 2501, I.R.C. 1954, imposes a tax upon the transfer of property by gift, and the only question presented by this case is whether petitioner's execution of disclaimers of portions of his interest in the trust remainder constituted transfers of property by gift subject to the gift tax. See sec. 2511. The answer to this question is to be found in the proper interpretation of section 25.2511-1(c), Gift Tax Regs., which provides in pertinent part as follows:

Sec. 25.2511-1 Transfers in general.

(c) The gift tax also applies to gifts indirectly made. Thus, all transactions whereby property or property rights or interests are gratuitously passed or conferred upon another, regardless of the means or device employed, constitute gifts subject to tax. * * * Where the law governing the administration of the decedent's estate gives a beneficiary, heir, or next-of-kin a right to completely and unqualifiedly refuse to accept ownership of property transferred from a decedent (whether the transfer is effected by the decedent's will or by the law of descent and distribution of intestate property), a refusal to accept ownership does not constitute the making of a gift if the refusal is made within a reasonable time after knowledge of the existence of the transfer. The refusal must be unequivocable (sic) and effective under the local law. There can be no refusal of ownership of property after its acceptance. Where the local law does not permit such a refusal, any disposition by the beneficiary, heir, or next-of-kin whereby ownership is transferred gratuitously to another constitutes the making of a gift by the beneficiary, heir, or next-of-kin. In any case where a refusal is purported to relate to only a part of the property, the determination of whether or not there has been a complete and unqualified refusal to accept ownership will depend on all of the facts and circumstances in each particular case, taking into account the recognition and effectiveness of such a purported refusal under the local law. In the absence of facts to the contrary, if a person fails to refuse to accept a transfer to him of ownership of a decedent's property within a reasonable time after learning of the existence of the transfer, he will be presumed to have accepted the property. * * * (Emphasis supplied.)

The regulation sets up two criteria by which to judge whether a disclaimer shall be treated as a taxable transfer of property by gift rather than a mere refusal to accept ownership of a tendered gift or...