OLD KENT BANK AND TRUST COMPANY v. United States
| Decision Date | 27 August 1964 |
| Docket Number | Civ. A. No. 4286. |
| Citation | 232 F. Supp. 970 |
| Parties | OLD KENT BANK AND TRUST COMPANY, a Michigan banking corporation, Mildred M. Campbell and Charles R. Sligh, Jr., Co-Executors of the Estate of Kenneth H. Campbell, Deceased, Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Western District of Michigan |
Warner, Norcross & Judd, Grand Rapids, Mich., for plaintiffs, Peter Van-Domelen, Grand Rapids, Mich., of counsel.
Louis F. Oberdorfer, Asst. Atty. Gen., C. Moxley Featherston, David A. Wilson, Jr., Robert F. Sama, Dept. of Justice, Washington, D. C., George E. Hill, U. S. Dist. Atty., Grand Rapids, Mich., for defendant.
By dint of stipulation between the parties, the sole issue to be determined by the Court in this case is the amount to be allowed as a marital deduction under Section 812(e) of the Internal Revenue Code of 1939, as amended.
More specifically, the parties have stipulated that in the event the Court should find the amount to be allowed as a marital deduction is $173,771.81, or some lesser amount, a judgment would be entered in favor of defendant, and this cause would be dismissed forthwith with prejudice; but if, on the other hand, the Court should find that the amount to be allowed as a marital deduction is in excess of $173,771.81, the parties would endeavor to agree upon the amount of the judgment to be entered in favor of plaintiff; provided, however, that there should be taken into account in computing the judgment such further deduction as allowed by law for reasonable attorney fees and expenses incurred by plaintiffs in the prosecution of this action; and provided further, that if they should be unable so to agree, the amount of the judgment would be submitted to the Court.
The dispute over the amount to be allowed as a marital deduction arises out of these facts:
Kenneth H. Campbell, a resident of Ottawa County, Michigan, died testate on May 18, 1954. The plaintiff Old Kent Bank and Trust Company, of Grand Rapids, Kent County, Michigan, the successor by consolidation and merger to The Michigan Trust Company, and the plaintiffs Mildred M. Campbell and Charles R. Sligh, Jr., citizens of Ottawa County, Michigan, were duly appointed as Co-Executors of Kenneth H. Campbell's estate by the Probate Court for Ottawa County, Michigan.
The will and codicils, in pertinent part, are set out in the footnote below.1
On June 8, 1943, Kenneth H. Campbell entered into a Trust Agreement with The Superior National Bank and Trust Company, of Hancock, Michigan, as Trustee which agreement was subsequently amended on May 15, 1948.
On March 4, 1955, The Michigan Trust Company replaced the Superior National Bank and Trust Company, of Hancock, Michigan, as Trustee of the Trust. The Trust, in pertinent parts, is set out in the footnote below.2
At the time of his death, the testator left surviving him his wife, Mildred M. Campbell, a brother, Malcolm G. Campbell, a brother, Holly E. Campbell, and five nieces and nephews; namely, Nancy Y. Campbell, Carol J. Campbell, Gordon H. Campbell and Sally Jo Campbell, all being children of Malcolm G. Campbell, and Mary Lou DuSold, being the child of Holly E. Campbell.
Plaintiffs filed a timely federal estate tax return for the estate of Kenneth H. Campbell, with the District Director of Internal Revenue at Grand Rapids, Michigan, on August 16, 1955. The federal estate tax of $77,821.77 shown to be due, was paid on August 16, 1955. Included as a part of the gross estate shown on the federal estate tax return were the assets of the inter vivos trust, which at the death of Kenneth H. Campbell amounted to $341,176.60. A federal estate tax deficiency in the sum of $38,527.36, plus interest of $6,952.92, for a total of $45,481.28, was paid to the District Director of Internal Revenue on September 23, 1958.
The plaintiffs filed a claim for a refund on December 23, 1958, seeking a refund of $38,358.40, or such greater amount, plus interest, as provided by law. By letter of March 17, 1960, the defendant proposed to deny the claim for the refund and by letter of April 28, 1960, the defendant denied that same claim.
On August 28, 1956, plaintiffs, as Co-Executors of the estate of Kenneth H. Campbell, filed a petition in the Ottawa County Probate Court for the construction of the decedent's will. Waivers of notice and consents to the petition were filed by Malcolm G. Campbell, Holly E. Campbell, and The Kenneth H. Campbell Foundation for Neurological Research. The waiver of notice and consent filed on behalf of The Kenneth H. Campbell Foundation for Neurological Research was executed by Siegel W. Judd, who was a member of the law firm which represented the estate of Kenneth H. Campbell. On October 17, 1956, the Ottawa County Probate Court entered an order construing the will of the decedent.
The question placed before that court for construction was whether or not the word "estate" as used in Paragraph V of said will was intended to include assets held by the Superior National Bank and Trust Company under a Trust Agreement with said deceased. The court realized that if the word "estate" as used in said Paragraph V was construed to include said trust assets, nothing would pass under Paragraph VI of said will to the residuary legatees, Malcolm G. Campbell, Holly E. Campbell, and The Kenneth H. Campbell Foundation for Neurological Research. Upon this question, the court determined that the correct construction of said will, in light of the circumstances set forth in the petition, required "that the word `estate' as used in Paragraph V of said will include said trust assets."
The court's order was never appealed, and the time for any appeal therefrom has expired.
On August 17, 1955, The Michigan Trust Company, as successor Trustee of the trust described above, paid over to the estate of Kenneth H. Campbell the sum of $72,610.44. The first annual account of The Michigan Trust Company states that this sum represented the trust's "share of the federal estate tax assessed against the above estate on account of inclusion of the assets of this trust in the federal estate tax return." On or about August 27, 1956, The Michigan Trust Company as successor trustee of the Trust, filed with the Circuit Court of Kent County, Michigan, its first annual account for the period March 4, 1955 to March 4, 1956. Included in the account was the payment of the sum of $72,610.44 to the estate of Kenneth H. Campbell. Waivers of notice and consents to the allowance of the account were filed by Malcolm G. Campbell, Mary Lou DuSold, Nancy Campbell Dickinson and Walter K. Schmidt, Jr., as guardian ad litem appointed by the Kent County Circuit Court to act on behalf of Carol J. Campbell, Gordon H. Campbell and Sally Jo Campbell, minors.
On October 5, 1956, the Circuit Court for Kent County, Michigan, entered an order allowing the Trustee's first annual account. This order was never appealed, and the time for any appeal therefrom has expired.
Plaintiffs, as Co-Executors of the estate of Kenneth H. Campbell, have filed with the Ottawa County Probate Court five annual accounts and a final account. All the necessary waivers of notice and consents thereto, have been filed and the orders of the Ottawa County Probate Court allowing the annual accounts and approving the final account have been entered. The orders of the Ottawa County Probate Court have never been appealed, and the time for any appeal therefrom has expired.
The Old Kent Bank and Trust Company, successor by consolidation and merger to The Michigan Trust Company, filed annual accountings for the trust referred to above, with the Circuit Court for Kent County, Michigan. All of those documents have been allowed by the court. No appeals have been taken, and the time for any appeal therefrom has expired.
On December 28, 1960, all of the assets of the estate of Kenneth H. Campbell, as shown by the final account of May 20, 1960, plus all income therefrom from May 20, 1960 to December 28, 1960, were distributed to the decedent's widow, Mildred M. Campbell, with the exception of $3,410.77, which was paid to the Internal Revenue Service on account of federal income taxes of said estate for the year ended April 30, 1960, $440.22 which was paid to the Michigan Department of Revenue on account of Michigan Intangibles Tax for the period from May 17, 1959 to May 20, 1960, and $6,649.81 cash which was withheld and retained as an asset of the estate.
Upon all these facts, there is predicated the single question in this case as to the amount to be allowed as a marital deduction under Section 812(e) of the Internal Revenue Code of 1939, as amended. For the purpose of this discussion, that single question can be subdivided into two issues, the first concerning the computation of the amount of property passing to the decedent's surviving widow under Paragraph V of the will, and the second concerning the question of whether the property so passing to the decedent's widow under Paragraph V is to be reduced by the death taxes assessed against the estate.
I shall deal initially with the first issue concerning the computation of the amount of property passing to the decedent's surviving widow under Paragraph V of the will.
The provisions of Paragraph V, as the plaintiffs admit in their brief, may conceivably be subject to more than one interpretation. For although the widow's legacy is to be satisfied out of the probate assets, the question arises as to whether the amount of the legacy is to be computed by reference to the probate assets alone, or by reference to other assets of the decedent as well. If the amount of the bequest is computed by reference to the probate assets alone, the sum passing to the widow under Paragraph V is $117,688.85. If the amount of the widow's legacy is computed by reference to both the probate assets and the trust assets, the sum passing to the widow under Paragraph V is $254,159.49....
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Old Kent Bank and Trust Company v. United States
...and pertinent parts of the trust instrument involved, reference is made to the opinion of the District Court, which is reported at 232 F.Supp. 970. Kenneth H. Campbell, a resident of Ottawa County, Michigan, died testate May 18, 1954. His widow survived Paragraph V of his will provided: "If......