McKeon v. Comm'r of Internal Revenue (In re Estate of McKeon), Docket No. 44914.

• Decision Date: 13 January 1956
• Docket Number: Docket No. 44914.
• Parties: ESTATE OF ROBERT MANNING McKEON, DECEASED, DANIEL MANNING McKEON, ET. AL., EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

25 T.C. 697

ESTATE OF ROBERT MANNING McKEON, DECEASED, DANIEL MANNING McKEON, ET. AL., EXECUTORS, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 44914.

Tax Court of the United States.

Filed January 13, 1956.

The decedent and his wife were separated but were not divorced. They entered into a separation agreement under which the decedent established a trust, known as Trust B, the income of which was to be used for the support of his wife and their two children. In the separation agreement. there was settlement of property interests; the wife relinquished all her interest in the decedent's estate and she accepted the provisions made under the trust as full satisfaction of her right to claim support from the decedent. Held:

1. The value of the corpus of Trust B is includible in decedent's estate under section 811(c)(1)(B) of the 1939 Code because the income was used to discharge decedent's legal obligation to support his wife and children for a period which in fact did not end before his death, so that decedent retained the right to and the enjoyment of the trust income for such period. Estate of Ambrose Fry, 9 T.C. 503, followed.

2. Part of the property transferred to Trust B was for the support of decedent's minor children and was used to discharge his legal obligation to support them. Such transfer was for an adequate and full consideration in money's worth under section 811(i) of the Code. The prospective value of the children's support is determined. Only the excess of the value of the trust corpus at the time of death over the combined value of the children's support should be included in the gross estate under section 811(i). D. G. McDonald Trust, 19 T.C. 672,affd. 225 F.2d 621, followed.

3. The wife's relinquishment, under the separation agreement, of her right to support and other rights are ‘other marital rights in the decedent's property or estate’ within the meaning of section 812(b), the relinquishment of which does not constitute consideration in money's worth under section 811(i). William Weiser, Executor, 39 B.T.A. 1144, and Meyer's Estate Estate v. Commissioner, 110 F.2d 367, followed. Ethan Allen, Esq., and Sandow Holman, Esq., for the petitioners.

Richard D. Maloney, Esq., for the respondent.

The Commissioner determined a deficiency in estate tax in the amount of $81,732.69. The petitioners claim that estate tax has been overpaid to the extent of $58,960.74.

The questions to be decided are whether the value of Trust B, created by the decedent on November 14, 1941, pursuant to a separation agreement, the income of which was paid to the decedent's wife for her support and the support of two minor children, is includible in decedent's gross estate under section 811(c) (1)(B) of the 1939 Code; and whether all or part of the value of the trust corpus properly is to be excluded from decedent's gross estate under section 811(i) of the 1939 Code.

FINDINGS OF FACT.

The stipulated facts are found. The stipulation is incorporated herein by reference.

Robert Manning McKeon, hereinafter referred to as the decedent, died on May 13, 1948, at the age of about 44 years. He was survived by his wife, Margot, McKeon, and their two children, Robert and Alexander. The petitioners are the executors of his estate. They filed the estate tax return with the collector of internal revenue at Albany, New York, on August 12, 1949. Estate taxes have been paid in the amount of $144,022.98.

The decedent and Margot McKeon were married on November 12, 1929. The decedent was born on January 16, 1904. Margot McKeon was born on September 10, 1908. The issue of their marriage are Robert Manning McKeon, Jr., born on February 19, 1932, and Alexander Bonnyman McKeon, born on December 17, 19-3. Margot McKeon is sometimes referred to hereinafter as Margot, or Mrs. McKeon. At the time of the decedent's death, both children are minors.

On or about September 10, 1941, Margot McKeon initiated an action for a separation in the Supreme Court of the State of New York, County of New York, by serving a summons and complaint on the decedent. The action for a separation was discontinued and simultaneously therewith the decedent and Margot, on November 14, 1941, entered into a separation agreement. It is incorporated herein by reference.

The separation agreement provided, inter alia, that the parties agreed to live separate and apart during their respective lives; that the parties ‘are prepared to define and to settle their property rights and interests for their mutual welfare’; that Robert desires to make provision for the support and maintenance of his wife, Margot, and for the support, maintenance, and education of their children, Robert and Alexander; and that the parties desire to settle and fix the care, custody, and control of their children.

The consideration is stated in the separation agreement to be as follows:

NOW, THEREFORE, in consideration of the premises, and the sum of One Dollar ($1.00) by each of the parties to the other in hand paid, receipt whereof is hereby duly acknowledged, and in further consideration of the mutual promises, covenants, agreements and undertakings hereinafter set forth, and other good and valuable considerations moving from each party to the other, it is hereby covenanted, promised and agreed by each of the parties hereto, and with the other party hereto, as follows, i.e.:

The parties agreed that each could live separate and apart from the other for the rest of his and her life; that Margot should have the sole custody and control of the children, Robert and Alexander, during their respective minorities; that the children should live with their mother; that the mother should direct the education of the children, with stated qualifications; that the mother could apply at any time for appointment of herself as guardian of each child during his minority.

The parties made division of personal property in the separation agreement. Robert agreed that Margot should henceforth hold for her sole and separate use all and singular the real and personal property of which she was or later became possessed. Margot agreed that Robert should henceforth possess for his separate use all and singular real and personal estate and property of which he was or later became possessed, except as in the agreement provided; and Margot released Robert from all claims, debts, and causes of action except as in the agreement provided. Each party released to the other or to the other's executors, distributees, and representatives, all title and interest in the nature of curtesy or dower and rights or claims to the distributive share of the other's estate, real and personal, and each agreed to waive any right of election to take against any will of the other.

The separation agreement also provided as follows, the first party being Robert McKeon, and the second party being Margot McKeon:

NINTH: For the support and maintenance of the second party, and for the support, maintenance and education of the said Robert Manning McKeon, Jr. and the said Alexander Bonnyman McKeon, the first party has executed and delivered, simultaneously with the execution of this agreement, a trust agreement with City Bank Farmers Trust Company, as Trustee, a copy of which trust agreement is annexed hereto, marked Exhibit A, and made a part hereof, and the first party has delivered to the said Trustee the property referred to in the said trust agreement upon the trusts therein set forth.

TENTH: As long as, and only as long as, the first party is required by law to pay income taxes, either Federal or State, upon the income payable to the second party from the trusts above referred to, the following provision shall be operative:

In the event that in the calendar year nineteen hundred and forty-two, or in any subsequent calendar year, the total of all income taxes, both Federal and State, paid by the first party during said year shall be so large that the income enjoyed by the first party from all sources during said year, after payment of said income taxes, shall be less than $6,000, then in that event the second party shall pay to the first party, on February first of the following year, a sum equal to the difference between the said income of the first party and $6,000, provided that in no event shall the second party be required to pay to the first party a sum greater than the amount by which the total income taxes for said year payable by the second party would have been increased if the second party were required by law to pay all income taxes upon the income received by her from said trusts.

ELEVENTH: The second party does and shall accept the full performance of the provisions hereto made, in full satisfaction for her support and maintenance, and the support, maintenance and education of Robert Manning McKeon, Jr., and Alexander Bonnyman McKeon, and agrees that so long as the first party shall duly keep and perform the said covenants, agreements and conditions to be kept and performed by him hereunder, she will not at any time hereafter contract any debt or liability whatsoever for which the first party, or his property or estate shall or may be liable. The second party warrants that she has not heretofore incurred any debt or liability for which the first party is or may be liable, and the second party agrees to indemnify the first party against any such debt or liability.

NINETEENTH: Nothing herein contained shall be deemed to preclude or bar either of the parties from maintaining an action for absolute divorce against the other in any competent jurisdiction upon any lawful grounds whatsoever, but, as far as legally permissible, this agreement shall survive any decree of divorce and shall continue in full force and effect.

TWENTIETH: This agreement shall be governed by and interpreted under and construed in all respects in accordance with the laws of the State of New York, irrespective of the place of domicile...