Poinier v. Comm'r of Internal Revenue

Decision Date27 March 1986
Docket Number23882-81,23883-81.,Docket Nos. 23881-81
Citation86 T.C. 478,86 T.C. No. 32
PartiesLOIS W. POINIER, AS TRANSFEREE OF HELEN WODELL HALBACH ET AL., 1 Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

Decedent held a remainder interest in a testamentary trust created in 1937 by the will of her father. On April 19, 1970, only five days after the death of the life tenant, decedent executed a disclaimer of her remainder interest. HELD, the disclaimer was not made within a reasonable time as required by sec. 25.2511-1(c), Gift Tax Regs., and thus constituted a taxable transfer under sec. 2511, I.R.C., 1954. Jewett v. Commissioner, 455 U.S. 305 (1982). HELD, FURTHER, decedent's children are liable as donee-transferees under sec. 6324(b), I.R.C. 1954, for the deficiency in gift tax due from decedent. HELD, FURTHER, under sec. 6324(b), donee-transferees' liability is limited to the value of the assets they received, EXCEPT that this limitation does not apply to the interest that has accrued since the issuance of their respective notices of transferee liability. HELD, FURTHER, any appropriate adjustments to which petitioner in docket No. 23883-81 may be entitled to with respect to estate tax refunds will be considered in the estate tax proceedings presently pending before the Court in docket No. 7099-76. HELD, FURTHER this Court is without jurisdiction either to offset the donee-transferees' liabilities by refunds of income taxes claimed to be due by them for previously paid income taxes, or to take into account in entering decisions herein certain prepayments made to respondent after the commencement of these proceedings. Geoffrey J. O'Connor, for the petitioners.

Leslie J. Spiegel, for the respondent.

TANNENWALD, JUDGE:

Respondent determined the following deficiencies/liabilities in petitioners' Federal gift taxes:

+----------------------------------------+
                ¦Docket No.¦Year¦Deficiencies/liabilities¦
                +----------+----+------------------------¦
                ¦23881-81  ¦1970¦$5,172,500.92           ¦
                +----------+----+------------------------¦
                ¦23882-81  ¦1970¦5,172,500.92            ¦
                +----------+----+------------------------¦
                ¦23883-81  ¦1970¦5,172,500.92            ¦
                +----------------------------------------+
                

The issues for decision are: (1) whether the disclaimer and renunciation made by decedent in 1970, of a remainder interest in the testamentary trust created by her father's will in 1937, constituted a taxable transfer under section 2511; 2 (2) in the event we find that a taxable transfer did take place, whether decedent's children who took by default under the terms of the trust because of decedent's disclaimer, are each liable as a donee-transferee of the assets of decedent under section 6324(b), for the deficiency in gift tax due from her for the calendar year 1970; (3) in the event we find such liability does exist, whether the total liability of each donee- transferee, including interest under section 6601 on the underlying deficiency for the period subsequent to the issuance of their respective notices of liability, is limited to the value of the assets transferred to each, pursuant to section 6324(b); and (4) in the event that we find liability does exist, (a) whether this Court has jurisdiction to offset the gift tax deficiency determined against decedent's estate, and in turn the transferee liability of the donee-transferees, by estate tax refunds claimed to be due by the estate, (b) whether this Court has jurisdiction to offset the transferee liability of the donee-transferees by individual income tax refunds claimed to be due by them, and (c) whether this Court has jurisdiction to take into account in entering its decisions herein certain prepayments made to respondent after the commencement of these proceedings.

FINDINGS OF FACTS

These cases were submitted fully stipulated under Rule 122. This reference incorporates herein the stipulation of facts and attached exhibits.

Petitioner in docket No. 23883-81 is John Poinier, as Executor of the will of Helen Wodell Halbach (formerly Helen Page Wodell), deceased (the ‘decedent ‘). Mr. Poinier resided in Gladstone, New Jersey, at the time he filed his petition in this case. Petitioners in docket Nos. 23881-81 and 23882-81 are Lois W. Poinier and W. Page Wodell, respectively, as donee-transferees of the decedent. 3 At the time they filed their petitions in this case, Mrs. Poinier resided in Gladstone, New Jersey and Mr. Wodell resided in Lyme, Connecticut.

Decedent was born on August 29, 1890 to Parker Webster Page and Nellie A. Page. Decedent's father died January 22, 1937, domiciled in Essex County, New Jersey. His will was admitted to probate on February 10, 1937, by the Surrogate's Court of Essex County. Article Third of that will provided in relevant part:

If my wife, Nellie A. Page, survives me, I give, devise, bequeath and appoint all of said residue of my estate to my Trustees, hereinafter named, IN TRUST, to hold the same during the life of my wife Nellie A. Page and to invest and reinvest the principal and to apply the net income to her use. Upon her death I give, devise, bequeath and appoint the principal in equal shares to my daughters Helen Page Wodell and Lois Page Cottrell and if either of my daughters should then be dead to such persons and in such proportions as such daughter may by will duly admitted to probate legally appoint and in default of such appointment to such daughter's issue then surviving in equal shares per stirpes.

The trust was subject to, governed by, and interpreted pursuant to the laws of the State of New Jersey.

Nellie A. Page died on April 14, 1970 at the age of 100. She was survived by her two daughters, decedent, age 79, and Lois Page Cottrell, age 74, and by decedent's two surviving children, Lois W. Poinier and W. Page Wodell, petitioners in docket Nos. 23881-81 and 23882-81, respectively. Upon the death of Nellie A. Page, the trust terminated and decedent and her sister Lois Page Cottrell each became entitled to possession of half the remainder of the trust corpus.

On April 19, 1970, the decedent, being legally competent in all respects, executed (her signature being acknowledged before Coleman Burke, an attorney-at-law of the State of New Jersey) a document entitled ‘Disclaimer and Renunciation‘ (the ‘Disclaimer‘), which provided:

I, HELEN PAGE HALBACH (formerly Helen Page Wodell), residing at 49 Forest Drive, Short Hills, New Jersey, do hereby irrevocably disclaim and renounce all my right, title and interest as a remainderman of the trust established by my father, Parker Webster Page, in Paragraph THIRD of his Last Will and Testament, dated January 12, 1935, and admitted to probate by the Essex County Surrogate's Court on February 10, 1937.

As a result of the Disclaimer, W. Page Wodell and Lois W. Poinier each became entitled to receive half of the assets comprising decedent's remainder interest in the trust. The fair market value on April 19, 1970 of the remainder interest disclaimed by decedent was $10,450,623.41. 4 In the event that we find that decedent's Disclaimer constituted a transfer subject to Federal gift tax, the fair market value of the assets transferred to Lois W. Poinier on April 19, 1970 was $5,225311.71, and the fair market value of the assets transferred to W. Page Wodell on that date was also $5,225,311.71. On April 30, 1970, Lois Page Cottrell also executed a ‘Disclaimer and Renunciation,‘ similar to the document executed by decedent.

On May 4, 1970, decedent's Disclaimer and the ‘Disclaimer and Renunciation‘ of Lois Page Cottrell were delivered to the Summit and Elizabeth Trust Company, as co-trustee, 5 and were filed in the Surrogate's Court of Essex County on June 15, 1970. In an action brought by the trustees for settlement of their account and for a determination of the validity and effect of decedent's Disclaimer and the ‘Disclaimer and Renunciation‘ of Lois Page Cottrell, the Superior Court of New Jersey held that the Disclaimer was timely executed and filed, and was valid and effective under New Jersey Law. In re Estate of Page, 113 N.J. Super. 582, 274 A.2d 614 (Ch. Div. 1970). The decision was not appealed and became final and binding on the parties thereto. In its judgment dated December 23, 1970, settling the trustees' account in the above action, the Superior Court of New Jersey directed distribution of the remainder interest disclaimed by decedent to W. Page Wodell and Lois W. Poinier, and directed distribution of the remainder interest disclaimed by Lois Page Cottrell to her three children.

On April 14, 1971, decedent timely filed a Federal gift tax return, Form 709, for the calendar year 1970. Decedent did not include the value of the disclaimed remainder interest as a gift to her daughters on this return. Decedent died on August 5, 1972. Petitioner John Poinier timely filed a Federal estate tax return, Form 706, for decedent's estate on May 3, 1973, with the Office of the District Director, Internal Revenue Service, Newark, New Jersey. On that return, decedent's Disclaimer was disclosed, but the gross estate did not include the value of the disclaimed remainder interest. Petitioner John Poinier, however, did pay to the Internal Revenue Service the total sum of $320,066.89, the tax shown to be due on the return.

By notice of deficiency, dated April 30, 1976, respondent determined that decedent's Disclaimer constituted a transfer made in contemplation of death under section 2035, as in effect on the date of decedent's death. This Court determined that the Disclaimer constituted a ‘transfer‘ within the meaning of that term as used in section 2035, Estate of Halbach v. Commissioner, 71 T.C. 141 (1978) (docket No. 7099-76), but that such transfer was not made in contemplation of death, Estate of Halbach v. Commissioner, T.C. Memo. 1980-309 (docket No. 7099-76). Pursuant to a joint motion by the parties and an order of this Court no final...

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