Nettz v. Phillips

• Decision Date: 12 February 1962
• Docket Number: Civ. No. 4-1066.
• Citation: 202 F. Supp. 270
• Parties: Frances Ann NETTZ, Executrix of the Estate of H. L. Nettz, Deceased, Plaintiff, v. V. Lee PHILLIPS, District Director of Internal Revenue, Defendant.
• Court: U.S. District Court — Southern District of Iowa

202 F. Supp. 270

Frances Ann NETTZ, Executrix of the Estate of H. L. Nettz, Deceased, Plaintiff, v. V. Lee PHILLIPS, District Director of Internal Revenue, Defendant.

Civ. No. 4-1066.

United States District Court S. D. Iowa, Central Division.

February 12, 1962.

John H. Raife, Des Moines (of Dickinson, Throckmorton, Parker, Mannheimer & Raife), and J. R. Larson, Atlantic, Iowa, for plaintiff.

Donald A. Wine, U. S. Atty., Des Moines, Iowa, and John T. Piper, Dept. of Justice, Washington, D. C., for defendant.

STEPHENSON, Chief Judge.

This matter came on for hearing after the parties hereto filed stipulations of facts herein followed by motions for summary judgment on behalf of each. The facts are not in dispute. The issue before the court involves a determination of whether property passing from decedent to surviving spouse by will qualified for the marital deduction permitted under the Federal Estate Tax laws. (Section 812(e) of the Internal Revenue Code of 1939, as amended by Section 93(a) of the Technical Amendments Act of 1958).

H. L. Nettz died April 16, 1954, leaving as his will an instrument entitled "Joint and Reciprocal Last Will and Testament of H. L. Nettz and Frances Ann Nettz," which was probated in Cass County, Iowa. His surviving spouse, Frances Ann Nettz, was appointed executrix of his estate. She filed a federal estate tax return showing no tax due. Upon audit the government assessed a deficiency of $2,328.58 plus interest thereon of $271.29 which plaintiff paid and now seeks to recover. The tax in dispute was computed on property of a value in excess of $25,204.12 which the government contends does not qualify for the marital deduction. Said property passed from decedent to his wife under the provisions of his will.

The court has jurisdiction of the parties and of the subject matter of this action by virtue of Title 28, Section 1340.

The relevant portions of decedent's will are as follows:

"Paragraph 1.

"It is our joint will and the will of each of us that this instrument shall be probated and shall operate as the Last Will and Testament of he or she of us who shall first die, and that this instrument shall also be probated and shall operate as the Last Will and Testament of the survivor of us. Once executed by both of us this will may not thereafter be revoked or made inoperative by the act of one of us without the consent and joint action of the other of the undersigned testator and testatrix."

"Paragraph 2.

"Subject only to the payment of the just debts and the expenses of the estate of the first of us to depart this life, we do each hereby give, devise and bequeath to the other all of the property of which we die seized or possessed or to which we are entitled at the time of our death, real, personal and mixed and wheresoever located, absolutely and in fee simple, it being the will and intention of each of us that all of the property owned by him or her of us who shall first die shall pass, absolutely and in fee simple, to the other."

"Paragraph 6.

(As modified by Par. 3 of Second Codicil)

"It is the joint and mutual will of undersigned testator and testatrix, and the will of the survivor and of each of us, that upon the death of the survivor of undersigned testator and testatrix all of the real estate owned by such survivor at the time of his or her death shall be sold by our hereinafter named alternate executor, or by any successor or substitute then acting and the net proceeds of all such sale or sales of real estate, after payment of the debts and all necessary expenses of the estate of such survivor, and also all moneys and personal property owned by or remaining in the possession of such survivor, shall be divided, paid and delivered to the following named persons and organizations in the proportions and percentage shares following, to-wit: listing 27 named beneficiaries with varying percentages from ½% to 27%"

The government contends the marital deduction is not available to the Estate of decedent because the surviving spouse received only a terminable interest in his property. The plaintiff contends the interest passing to the spouse by the will qualified under Section 812(e) (1) (F), Internal Revenue Code of 1939 as amended by Section 93(a) of P.L. 85-866, effective as to estates of decedents dying before August 17, 1954, which is as follows:

"(F) Life estate with power of appointment in surviving spouse. — In the case of an interest in property passing from the decedent, if his surviving spouse is entitled for life to all the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse —

"(i) the interest or such portion thereof so passing shall, for purposes of subparagraph (A), be considered as passing to the surviving spouse, and

"(ii) no part of the interest so passing shall, for purposes of subparagraph (B) (i), be considered as passing to any person other than the surviving spouse.

This subparagraph shall apply only if such power in the surviving spouse to appoint the entire interest, or such specific portion thereof, whether exercisable by will or during life, is exercisable by such spouse alone and in all events."

Since the will was executed and probated in Iowa the law of Iowa...