McLean v. United States, 23095.

• Decision Date: 27 December 1963
• Docket Number: No. 23095.,23095.
• Citation: 224 F. Supp. 726
• Parties: Walter R. McLEAN, Executor Under the Will of Agnes O. McLean, Deceased, Plaintiff, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Michigan

224 F. Supp. 726

Walter R. McLEAN, Executor Under the Will of Agnes O. McLean, Deceased, Plaintiff, v. The UNITED STATES of America, Defendant.

No. 23095.

United States District Court E. D. Michigan, S. D.

December 27, 1963.

John B. DeVine, Ann Arbor, Mich., for plaintiff.

John B. Jones, Jr., Acting Asst. Atty. Gen., Edward S. Smith, David A. Wilson, Jr., Solomon Fisher, Attys., Dept. of Justice, Washington, D. C., Lawrence Gubow, U. S. Atty., Robert F. Ritzenhein, Asst. U. S. Atty., Detroit, Mich., for defendant.

FREEMAN, District Judge.

This is an action for the recovery of that portion of a federal estate tax paid by plaintiff pursuant to a deficiency assessment against the estate of decedent's husband, Warren D. McLean, and is now before the Court on cross-motions for summary judgment based on a stipulation of all pertinent facts.

On March 28, 1955, Warren D. McLean and Agnes O. McLean, husband and wife, executed a joint and mutual will in usual form, each giving all of his or her property to the survivor and further providing "that the survivor of us will not change this will after the death of the other."

On May 3, 1958, Warren D. McLean died and the will was subsequently filed in the Probate Court for Washtenaw County, Michigan, as his last will and testament, but no probate proceedings were requested or had thereon because of an affidavit filed by Walter R. McLean, named therein as the Executor, stating that there was no estate to be probated.

On August 3, 1959, a federal estate tax return was filed on behalf of the estate of Warren D. McLean and the tax of $14,294.51 shown to be due thereon was paid. Subsequently, there was assessed against such estate a deficiency in tax and interest in the amount of $40,814.92 which, together with additional interest of $421.30, or a total of $41,236.22, was paid on November 16, 1960. A claim for refund was disallowed and this suit followed.

Agnes O. McLean died on August 22, 1960, leaving the joint will as her last will and testament, which was admitted to probate and plaintiff was duly appointed Executor thereof.

At the time of his death, Warren D. McLean (hereinafter sometimes referred to as the "taxpayer") owned property for which he had furnished the consideration, classified as follows:

1. Life insurance on his life, with proceeds payable to his wife.

2. Personalty with his wife and third persons as joint tenants with the right of survivorship.

3. Personalty and realty with his wife as joint tenants with the right of survivorship, or as tenants by the entireties.

4. Personalty in his individual name.

The taxpayer's estate claimed that all of the above property, constituting the entire gross estate, qualified for the marital deduction under Section 2056(a) of the 1954 Internal Revenue Code, 26 U.S. C. § 2056(a), but now concedes that the personal property owned by the taxpayer and his wife and third persons as joint tenants with right of survivorship (classification #2) does not qualify. The Government concedes, for the purpose of this trial, that the proceeds of life insurance on taxpayer's life payable to his wife (classification #1) does qualify for the marital deduction.

The Government contends that the District Director properly disallowed the claim for refund for the reason that the interest in the remaining property passing to the surviving spouse, Agnes O. McLean, was a terminable interest under Section 2056(b) (1) of the 1954 I.R.C., 26 U.S.C. § 2056(b) (1), that does not qualify for the marital deduction, which is the sole question presented by these summary judgment motions. The allowable deduction is limited in accordance with the statute to one-half of the adjusted gross estate.

Section 2056(b) (1) of the 1954 I.R.C. in pertinent part provides:

"(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;"

As heretofore stated, the only issue for decision is whether Section 2056(b) (1) applies to the properties in classification 3 consisting of real estate owned by taxpayer and his wife as tenants by the entireties and certain bank accounts in their joint names, according to the schedule of properties in the gross estate of taxpayer, Warren D. McLean, as set forth in the stipulation of facts, all of which were acquired prior to the date of the joint will. In view of the values of such properties and the marital deduction limitation, it is only necessary to determine the applicability of Section 2056 (b) (1) to the real estate owned as tenants by the entireties.

Plaintiff contends that such property passed absolutely to the surviving spouse, Agnes O. McLean, on the death of taxpayer by operation of Michigan law and that the joint will, including the contract provision obligating the survivor not to change the will after the death of the other spouse, did not diminish in any way the absolute title by which she held the property under Michigan law following the death of her husband. Plaintiff argues that the surviving widow received no interest in the entireties property under taxpayer's will, that no interest in such property passed to any other person under his will, that such properties were passed on to the ultimate beneficiaries by the widow's will, and, hence, Section 2056(b) (1) does not apply so as to disallow the marital deduction.

The argument of the Government is vague and unclear, but in essence seems to be that the contractual obligation of the joint will imposed restrictions on all property acquired by Agnes O. McLean upon her husband's death, and, in effect, changed her ownership therein so as to constitute a terminable interest in the nature of a life estate passing to the surviving spouse under the above statute.

In construing and applying Section 2056(b) (1) to the relevant facts, the precise questions are (1) whether Mrs. McLean, the surviving widow, received a terminable interest in the real estate; and (2) whether any interest in such real estate passed to any person other than the surviving spouse.

Under Michigan law, neither the husband nor the wife has an individual, separate interest in entirety property, United States v. Nathanson (D.C. Mich.), 60 F.Supp. 193, Long v. Earle, 277 Mich. 505, 269 N.W. 577, Vinton v. Beamer, 55 Mich. 559, 22 N.W. 40, and neither has an interest in such property which may be conveyed, encumbered or alienated without the consent of the other. Schram v. Burt (CCA 6, 1940), 111 F.2d 557; French v. Foster, 307 Mich. 361, 11 N.W.2d 920; Arrand v. Graham, 297 Mich. 559, 298 N.W. 281, 300 N.W. 16, 136 A.L.R. 1206; Long v. Earle, supra; Hearns v. Hearns, 333 Mich. 423, 53 N.W.2d 315; Schultz v. Silver, 323 Mich. 454, 35 N.W.2d 383. One incident of an estate by the entirety is that the survivor, whether husband or wife, is entitled to the whole, and such right cannot be defeated by a conveyance by one spouse to a stranger. Guldager v. United States (CA 6, 1953), 204 F.2d 487; Lilly v. Schmock, 297 Mich. 513, 298 N. W. 116; Detroit & Security Trust Co. v. Kramer, 247 Mich. 468, 226 N.W. 234. Also, property held as entireties property passes by operation of law and not by will. Webber v. Webber, 217 Mich. 178, 185 N.W. 761; Naylor v. Minock, 96 Mich. 182, 55 N.W. 664; Hubert v. Traeder, 139 Mich. 69, 102 N.W. 283.

In the Webber case, the husband attempted by will to give his wife a life estate in property held at the husband's death by the entireties. At page 180, of 217 Mich., page 761 of 185 N.W. the Michigan Court said: "The death of Mr. Webber ended his estate by entirety in this property, and during his lifetime he could no more devise it by will than he could by deed."

Because of these characteristics of entireties property, it is clear that no interest in the real estate of Warren and Agnes McLean could pass to a third person from the taxpayer, Warren D. McLean, on his death. Such property then passed by operation of law to Agnes McLean and, subsequently, by her will to the ultimate beneficiaries.

It is true that a joint and mutual will constitutes a contract, George v. Conklin, 358 Mich. 301, 100 N.W.2d 293; Kelley v. Dodge, 334 Mich. 499, 54 N.W. 2d 730; Schondelmayer v. Schondelmayer, 320 Mich. 565, 31 N.W.2d 721; Getchell v. Tinker, 291 Mich. 267, 289 N.W. 156; and upon the death of one of the parties, the will becomes irrevocable. George v. Conklin, supra; Getchell v. Tinker, supra; and Phelps v. Pipher, 320 Mich. 663, 31 N.W.2d 836. It is also true that the Michigan courts will enforce a contract to dispose of property in a specified manner, but this does not change the result already stated that no interest passed from Warren McLean to persons other than the widow.

The...