Radel v. Comm'r of Internal Revenue (In re Estate of Radel)
| Decision Date | 04 May 1987 |
| Docket Number | Docket No. 29631-84. |
| Citation | 88 T.C. 1143,88 T.C. No. 64 |
| Parties | ESTATE OF HARLIN A. RADEL, DECEASED, LORRAINE L. RADEL, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Decedent (D) died intestate and was survived by his wife and three adult children. D's property interests, including the homestead, passed to his spouse and children pursuant to Minnesota laws of descent and distribution. During the administration of the estate, D's spouse petitioned for and received a ‘spouse allowance‘ pursuant to sec. 5 5.15(4), Minn. Stat. Ann. (West 1975). She also disclaimed her life estate in the homestead.
Genelle F. Forsberg, for the respondent.
GERBER, JUDGE: Respondent, by statutory notice dated May 21, 1984, determined a deficiency of $19,975.94 in Federal estate tax of the Estate of Harlin A. Radel. The issues for our consideration are (1) whether under Minnesota law the ‘spouse allowance‘ is a terminable interest for purposes of determining the marital deduction pursuant to section 2056, 1 and (2) whether any portion of the homestead interest qualifies for the marital deduction where the surviving spouse disclaims her life estate and the remainder interest is held by the children.
This case has been submitted fully stipulated pursuant to Rule 122. The stipulation of facts and accompanying exhibits are incorporated herein by reference.
Lorraine L. Radel (Lorraine) is the personal representative of the petitioner, and wife of Harlin A. Radel (decedent). She resided in Owatonna, Minnesota, at the time the petition was filed. The Federal estate tax return for decedent's estate was timely filed with the Internal Revenue Service Center, Ogden, Utah.
Decedent died intestate on September 15, 1980. He was survived by his wife and their three adult children. At the time of his death, decedent individually owned approximately 115 acres of farmland located in Steele County, Minnesota. The farmland was included in decedent's gross estate at a value of $210,000 2 of which $158,400 was attributable to the homestead of decedent and Lorraine. 3 The gross estate included other property totaling $86,241.04.
On November 14, 1980, two months after decedent's death, Lorraine petitioned the Probate Court for a ‘spouse allowance‘ 4 under Minnesota law. On December 2, 1980, the court issued an order directing the estate to pay to petitioner the sum of $27,000 as a ‘spouse allowance.‘ This allowance was directed to be paid in installments of $1,500 per month. 5
On March 17, 1981, Lorraine filed a disclaimer with the Probate Court /6/ disclaiming her life estate in the homestead which passed to her pursuant to section 525.145, Minn. Stat. Ann. (West 1975). 7
Decedent's property interests passed to his wife and their children, pursuant to Minnesota laws of intestacy, as follows:
PERSONAL PROPERTY: one-third to surviving spouse, the remainder in equal shares to the three children. See secs. 525.16(1) and (4)(a), Minn. Stat. Ann.
REAL PROPERTY (excluding the homestead): 8 an undivided one- third to surviving spouse, the remainder in equal shares to the three children. See secs. 525.16(2) and (4)(a), Minn. Stat. Ann.
HOMESTEAD: to surviving spouse for the term of her natural life; remainder in equal shares to the three children. See sec. 525.145, Minn. Stat. Ann.
Among the deductions taken on decedent's estate tax return was $27,000 attributed to the ‘spouse allowance‘ and $52,800, attributed to the value of a one-third fee interest in the homestead. 9 Respondent disallowed two-thirds of the ‘spouse allowance‘ 10 and the deduction for a one-third interest in the homestead.
Respondent argues that the ‘spouse allowance‘ as provided under Minnesota law is a terminable interest within the meaning of section 2056. Consequently, this allowance cannot qualify for the marital deduction. Petitioner strongly urges us to construe the ‘spouse allowance‘ as a nonterminable interest within the meaning of section 2056. Petitioner contends that under Minnesota law the ‘spouse allowance‘ is mandatory and contains no stated contingencies or conditions, therefore, it absolutely vests upon the decedent's death.
Section 2056(a) allows a marital deduction from the gross estate in an amount equal to the value of any interest in property which passes or has passed from the decedent to a surviving spouse. Section 2056(b), however, disallows the deduction if the interest passing to the surviving spouse will terminate or fail ‘on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur.‘ 11 This is referred to as the terminable interest rule.
Whether the ‘spouse allowance‘ as provided under Minnesota law constitutes a terminable interest within the meaning of section 2056 must be determined as of the date of decedent's death. Jackson v. United States, 376 U.S. 503, 508 (1964); Allen v. United States, 359 F.2d 151, 154 (2d Cir. 1966); see also Estate of Snider v. Commissioner, 84 T.C. 75, 79 (1985). Petitioner's right to the ‘spouse allowance‘ as of the date of decedent's death must be determined under the law of Minnesota. Estate of Abely v. Commissioner, 60 T.C. 120, 123 (1973), affd. 489 F.2d 1327 (1st Cir. 1974). If under Minnesota law the surviving spouse's right to a ‘spouse allowance‘ vests upon the decedent's death but terminates or fails upon the occurrence of stated contingencies such as death or remarriage of such spouse, then the ‘spouse allowance‘ is a terminable interest within the meaning of section 2056(b)(1). Estate of Abely v. Commissioner, supra at 123; Hamilton National Bank of Knoxville v. United States, 353 F.2d 930, 932 (6th Cir. 1965); see Estate of Green v. United States, 441 F.2d 303, 305 (6th Cir. 1971).
The parties do not dispute that Minnesota law governs this issue; they disagree about the interpretation that should be applied to the relevant statute. The statute provides, in pertinent part, as follows:
(1) The surviving spouse SHALL BE ALLOWED from the personal property of which the decedent was possessed or to which he was entitled at the time of his death, the wearing apparel, and, as selected by him, furniture and household goods not exceeding $2,000 in value, and other personal property not exceeding $1,000 in value;
* * *
(4) During administration, but not exceeding 18 months, unless an extension shall have been granted by the court, or, if the estate be insolvent, not exceeding 12 months, the SPOUSE or children, or both, constituting the family of the decedent SHALL BE ALLOWED reasonable maintenance;
The grant language of section (1) of this statute has been interpreted numerous times by the Minnesota courts, however, this same language has never been construed within the context of section (4). Petitioner urges us to apply the Minnesota Supreme Court's interpretation of this language as used in section (1) to the grant language of section (4). Respondent, on the other hand, contends that the grant language of section (4) cannot be given the same interpretation as the grant language of section (1). Rather, respondent argues that a correct interpretation of section (4) requires us to find that unlike the interest granted under section (1) the ‘spouse allowance,‘ created by the grant language of section (4), is a terminable interest within the meaning of section 2056.
Because the underlying law involved is Minnesota law we look to the Minnesota Supreme Court for its appropriate interpretation. We would be bound by the Minnesota Supreme Court's interpretation of the statute involved, but they have not specifically interpreted section (4). Commissioner v. Estate of Bosch, 387 U.S. 456, 465 (1967).
In In re McBride's Estate, 195 Minn. 319, 263 N.W. 105 (1935), the Supreme Court of Minnesota was asked to interpret the grant language of the predecessor of section 525.15(1) which provided that —
THE WIDOW SHALL BE ALLOWED the wearing apparel of her deceased husband, his-household furniture not exceeding five hundred dollars in value, and other personal property not exceeding the same amount, both to be selected by her; and she shall receive such allowances when she takes the provisions made for her by her husband's will as well as when he dies intestate. (Emphasis added.)
There the court held that the surviving spouse's right to the personal property of the deceased spouse, as statutorily provided, was an absolute vested right at the date of the spouse's death. 12 In Sevcik v. Commissioner of Taxation, 257 Minn. 92, 100 N.W.2d 678 (1959), the Supreme Court of Minnesota again held that under section 525.15(1), Minn. Stat. Ann., a surviving spouse has, at the date of the spouse's death, an absolute vested right to the wearing apparel, fixtures, furniture and household goods in the amount limited by statute. 13 The court, in reaching this conclusion, determined that the statutory language that created this right was mandatory and contained no stated contingencies. We are aware that section (1) creates a right in tangible property whereas section (4) creates a property right closely akin to a ‘chose in action‘ or an intangible property right. We cannot, however, overlook the court's analysis of the same grant language when the...
To continue reading
Request your trial
-
Watson v. Comm'r of Internal Revenue (In re Estate of Watson), Docket No. 31911-85.
...2056 must be determined as of the date of the decedent's death. Jackson v. United States, 376 U.S. 503, 508 (1964); Estate of Radel v. Commissioner, 88 T.C. 1143, 1146 (1987); Estate of Abely v. Commissioner, 60 T.C. 120, 123 (1973), affd. 489 F.2d 1327 (1st Cir. 1974); see also Estate of S......