Juster v. Comm'r of Internal Revenue (In re Estate of Juster), Docket No. 49398.

• Decision Date: 30 December 1955
• Docket Number: Docket No. 49398.
• Citation: 25 T.C. 669
• Parties: ESTATE OF CHARLES JUSTER, DECEASED, LEON JUSTER, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

25 T.C. 669

ESTATE OF CHARLES JUSTER, DECEASED, LEON JUSTER, EXECUTOR, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 49398.

Tax Court of the United States.

Filed December 30, 1955.

Held that the value of the residuary trust to decedent's wife, and therefore the value of the marital deduction, under sections 812(e)(1)(A) and 812(e)(1) (E)(i), Internal Revenue Code of 1939, is to be computed after deduction for the Federal estate tax chargeable to decedent's estate. Robert H. Preiskel, Esq., for the petitioner.

James J. Quinn, Esq., for the respondent.

Respondent has determined a deficiency in estate tax in the amount of $5,285.90.

Although the full amount of the deficiency was placed in issue in the petition, specific error was not raised as to certain of the item adjustments and they were not discussed at the hearing or on briefs and are accordingly deemed conceded.

By amended petition petitioner claims an overpayment of estate tax on the ground that in determining the marital deduction as allowed by section 812(e) (1)(A), Internal Revenue Code of 1939, the value of the residuary trust to decedent's wife is not chargeable with any portion of the Federal estate tax. Claim is also made for a further deduction for attorneys' fees and related expenses incurred, or to be incurred in connection with this proceeding.

The question presented is whether the value of the residuary trust to decedent's wife, and therefore the value of the marital deduction, under sections 812(e)(1)(A) and 812(e)(1)(E)(i) of the Internal Revenue Code of 1939, is to be computed without reduction for any part of the Federal estate tax chargeable to the Estate of Charles Juster.

A recomputation under Rule 50 will be required to make adjustments for any allowable costs of this proceeding.

FINDINGS OF FACT.

The facts were stipulated and are incorporated herein by this reference.

The decedent, Charles Juster, a resident of New York State, died testate September 11, 1949. His son, Leon Juster, was appointed executor by the Surrogate's Court of New York County, New York, on October 13, 1949. Minnie Juster was the wife of decedent at the date of death. Petitioner filed a Federal estate tax return with the collector of internal revenue for the third district of New York.

By paragraph Second through paragraph Twelfth of his will decedent made various specific and general bequests.

In paragraph Thirteenth decedent directed that the residue of his estate be divided into two parts: One to be held in trust for his wife with income to her for life and with an unlimited and unqualified power in her to appoint the remainder to herself or to her estate; the other part to be divided among his children.

Paragraph Twenty-first of decedent's will provides:

I direct that all legacies, bequests and devises by this my last Will and Testament created shall be free from any legacy, succession, transfer, estate or inheritance tax and that every such tax shall be paid out of the principal of my estate.

OPINION.

BRUCE, Judge:

There is no question, nor does the respondent dispute, that the residuary trust to decedent's wife qualifies for the marital deduction under section 812(e)(1)(A) of the Internal Revenue Code of 1939.¹ The question presented is whether the value of the residuary trust to decedent's wife, and therefore the value of the marital deduction, under sections 812(e)(1)(A) and 812(e)(1) (E)(i),² is to be computed without reduction for any part of the Federal estate tax chargeable to the Estate of Charles Juster. The parties are in agreement that the law of the State of New York is determinative of this question. See Estate of Rosalie Cahn Morrison, 24 T.C. 965; Riggs v. Del Drago, 317 U.S. 95; Rogan v. Taylor, 136 F.2d 958.

Petitioner argues that the value of the residuary trust to the surviving spouse is to be determined without taking into account the Federal estate tax chargeable to the estate. Specifically petitioner contends that paragraph Twenty-first of decedent's will contains an ineffective direction against apportionment of tax under section 124 of the Decedent Estate Law (1949) of New York³ in that it is ambiguous and self-contradictory. In such case, petitioner concludes, the residuary trust in question, being entitled to an exemption under the taxing statute, passes free of all taxes. Respondent argues that this paragraph clearly evidences the decedent's intention that the named taxes be paid out of the corpus or body of his estate prior to the distribution of the estate. Both parties have directed their particular attention to the words ‘principal of my estate’ as used in paragraph Twenty-first.

Section 124 of the New York Decedent Estate Law (1949) commands proration of taxes ‘except in a case where a testator otherwise directs in his will.’ The direction by the testator against the apportionment provided by this section must be clear and unambiguous. In re Mills' Estate, 64 N.Y.S.2d 105, affd. 70 N.Y.S.2d 746, affd. 297 N.Y. 1012, 80 N.E.2d 535. In our view paragraph Twenty-first of the decedent's will contains such a direction. Language similar to that used in this paragraph, including the phrase ‘principal of my estate,‘ was held in In re Liebovitz's Estate, 94 N.Y.S.1d 30, to be a clear direction against apportionment, with respect to benefits passing under the will involved. In re Pepper's Estate, 307 N.Y. 242, 120 N.E.2d 807, cited by petitioner, is distinguishable. There the court found the language of the will involved contained inconsistent directions and therefore did not contain a clear and unambiguous direction against the statutory apportionment.

As an alternative petitioner argues that even if paragraph Twenty-first is construed as an effective direction with respect to apportionment under the New York statute, it is to be construed as providing that only specific and general bequests are to pass free of tax and that all taxes are to be paid out of the residue. Thus construed its only effect would be to charge the wife's share with 50 per cent of the taxes attributable to nonresiduary bequests; all taxes attributable to the residue would be chargeable to the nonmarital share of the residue and the net value of the marital share and therefore the marital deduction would be one-half of the residuary estate computed prior to any reduction for tax less 50 per cent of the taxes attributable to the specific and general bequest. In support of this contention petitioner cites In re Bayne's Will, 102 N.Y.S.2d 525; In re Pratt's Estate, 123 N.Y.S.2d 425; In re Campe's Estate, 129 N.Y.S.2d 362, 130 N.Y.S.2d 458; In re Matte's Estate, 130 N.Y.S.2d 270, affd. 137 N.Y.S.2d 836; In re Hoffman's Estate, 138 N.Y.S.2d 492. In each of those cases the court found that the testator therein had directed that all taxes be paid from the residue of the estate. No such construction can be placed on the paragraph here involved.

Decedent has directed his executors to pay all named taxes out of the ‘principal’ of his estate and that all legacies, bequests, and devises go free and clear of those taxes. ‘Princi...