Robertson v. United States

• Decision Date: 01 November 1961
• Docket Number: Civ. A. No. 9500.
• Citation: 199 F. Supp. 78
• Parties: Nan W. ROBERTSON, as Executrix of the Estate of James B. Robertson, deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Alabama

199 F. Supp. 78

Nan W. ROBERTSON, as Executrix of the Estate of James B. Robertson, deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 9500.

United States District Court N. D. Alabama, S. D.

November 1, 1961.

Lee C. Bradley, Jr., Edward M. Selfe, and Hobart A. McWhorter, Jr. (of White, Bradley, Arant, All & Rose), Birmingham, Ala., for plaintiff.

W. L. Longshore, U. S. Atty., and M. L. Tanner, Asst. U. S. Atty., Birmingham, Ala., Louis F. Oberdorfer, Asst. Atty. Gen., and James P. Garland, Charles Mehaffy, Thomas A. Frazier, Jr., and William C. Golden, Attys., Dept. of Justice, Washington, D. C., for defendant.

LYNNE, Chief Judge.

Plaintiff is the surviving spouse and executrix of the last will and testament of James S. Robertson, who died on April 7, 1952. Suing to recover the sum of $31,308.77, together with interest as allowed by law, plaintiff contends that the Commissioner erred in disallowing the claim of a marital deduction in the amount of $90,496.52, representing the interest passing to the wife under such will, insisting that such interest qualified under the provisions of Section 812(e) of Internal Revenue Code of 1939, 26 U.S. C.A. § 812(e). The defendant, joining issue, insists that a non-decuctible terminable interest within the purview of Section 812(e) (1) (B) of the Act passed to the surviving spouse under the terms of the will and that it did not qualify for treatment as a marital deduction.

Stated in the alternative, plaintiff plants her case squarely upon these propositions:

(1) The gift over on the death of the spouse before final settlement of the estate was void for repugnancy, the spouse thereby acquiring an absolute fee simple in part of the decedent's estate which qualified for the marital deduction.

(2) The decedent's will grants to the surviving spouse, as a beneficiary of the estate, a power of invasion, sale or disposition which constitutes a power of appointment qualifying for the marital deduction under Section 812(e) (1) (F) of the 1939 Act.

(3) The right of the surviving spouse, as executrix, to distribute her one-half interest in the estate to herself, as beneficiary, and to divide and settle the estate at any time creates in the surviving spouse such a power as will qualify for the marital deduction under Section 812 (e) (1) (F) of the 1939 Act.

(4) The surviving spouse, as a beneficiary, was entitled for her life to all the income from her one-half of the estate and such income was payable at least annually.

Because the court, for reasons hereinafter to be stated, resolves the first three contentions against the plaintiff, discussion of the fourth is pretermitted.

Section 812(e) (1) (B) provides, as the general rule, that an interest is "terminable" and the marital deduction disallowed if (1) the interest "passing to the surviving spouse will terminate or fail" upon the occurrence or non-occurrence of a stipulated contingency or event, and (2) the interest passes for inadequate consideration from the testator to a person other than the surviving spouse, and such other person may thereby enjoy or possess an interest in the property after the failure or termination of the interest passing to the surviving spouse.

Thus a terminable interest obviously may be either a contingent interest (i. e., where vesting is subject to a condition precedent) or a vested interest subject to defeasance (i. e., where a vested interest may be divested by the occurrence of a condition subsequent). The critical factor which defeats the deduction is the defeasibility of an interest which will cause it to pass from the decedent to a third person. In order to determine whether in the present case the interest of the surviving spouse is a terminable interest, it is therefore necessary to ascertain the quantum of the estate conferred by the will under the applicable state law. See McGehee v. Commissioner, 260 F.2d 818, 821 (5th Cir., 1958); Helvering v. Stuart, 317 U.S. 154, 63 S. Ct. 140, 87 L.Ed. 154 (1942).

The dispositive portions of the will here involved state in part in Item III:

"I give, devise and bequeath to my Executor and Trustee, in trust, for the benefit of my wife and daughters, all of my property, real, personal and mixed * * * to be divided among my wife and two daughters in the following proportions,—one half to my wife and one fourth to each daughter * * *. If my wife dies before final settlement of my estate, all my estate shall go to my heirs subject to all the terms and conditions of trust herein contained."

Under the Alabama authorities, this provision, standing alone, creates in the surviving spouse a defeasible fee simple (or "qualified", "determinable", or "base" fee). It is the rule in Alabama, employed generally in the case law to determine qualification for the marital deduction, that where technical words of limitation are not used in an instrument creating an estate, a construction which will confer a fee simple is preferred and will be given effect unless it clearly appears from the entire instrument that an inferior estate was intended. Dozier v. Dozier, 201 Ala. 174, 77 So. 700 (1918); Smith v. Nelson, 249 Ala. 51, 29 So.2d 335 (1947); Ala.Code, Title 47, § 14 (1940); Estate of Stallworth v. Commissioner, 260 F.2d 760, 763-64 (6th Cir., 1958).

It has been held in Alabama and in other jurisdictions that a dispositive provision such as that in this case—i. e., a gift in general terms only, followed by a gift over in the event of the death of the first taker before settlement of the estate —creates a defeasible fee at the time of the testator's death. In Pearce v. Pearce, 199 Ala. 491, 74 So. 952, 956 (1917), Item 4 of the will there involved conferred in general terms one-fourth of the residuary estate to Joe Pearce and one-fourth to Clovis Pearce, while item 5 stated as follows:

"In the event of the death of my grandson, Joe Pearce, without issue born to him, before the settlement of my estate, I will and bequeath the interest in my estate hereby willed to him to my grandson, Clovis Pearce. In the event of the death of my grandson, Clovis Pearce, without issue born to him, before the settlement of my estate, I will and bequeath the interest willed and bequeathed to him herein, to my son, Marvin Pearce."

With respect to the nature of the interests given the grandson, the court stated in 199 Ala. at 499, 74 So. at 956:

"The devises and bequest to Joe and Clovis, respectively, were of estates that may be defeated by the provisions of item 5. * * * The estates of Joe Pearce and Colvis Pearce in the residuum were qualified, in that they were subject to be defeated by the happening of the respective contingencies provided for in said item."

To the same effect are In re Wraught's Estate, 347 Pa. 165, 32 A.2d 8; Cooper v. Harkness, 188 Ga. 121, 2 S.E.2d 918; and Rust v. Rust, 211 S.W.2d 262 (Tex. Civ.App.), affirmed 147 Tex. 181, 214 S.W.2d 462.

That in the instant case it was the intent of the testator to impose such a qualification is further indicated by similar provisions in Item III made with respect to the daughters' shares. Whether other provisions of the will, particularly Item X, might indicate an intention to make settlement of the estate a condition precedent to vesting of the beneficiaries' interests rather than a condition subsequent which divests them as in Pearce is unnecessary to decide. For, in either event, the interest of the surviving spouse is a terminable interest under Alabama law unless it is enlarged into an absolute interest or is within the exception contained in Section 812(e) (1) (D).

Item IV of the will states in part:

"My wife or either of my daughters may convey and dispose of any part or all of her share in my estate during her lifetime * * *. Any adult beneficiary of my will shall always have the right, power and authority to sell and convey and fully dispose of any part or all of her interest in my estate and give full and complete title thereto, during her lifetime, but until division or partition or allotment of my estate or shares therein to the beneficiaries of my will, my Executor and Trustee shall have full and complete charge of my estate and the management and handling thereof."

(Emphasis added.)

Item X provides:

"During the existence of my trust estate, no individual beneficiary of my will shall take any title to or right to possession or sale or partition of any part of my estate or property, but complete possession and right to conduct and handle and exclusive right of sale, partition, division and handling shall be in my Executor and Trustee. However, my Executor and Trustee may at any time convey and deliver to any beneficiary of my will complete possession of and title to any part of my property as or on account of the share of such beneficiary in my estate, thereby making such conveyance full, complete and final, as to the property or assets therein included."

It will be assumed for purpose of discussing the contention that the surviving spouse's defeasible fee was enlarged into an absolute and indefeasible interest by a power of disposition given the widow in the will that these provisions do intend to confer an absolute power of disposition on the beneficiaries during the period prior to settlement.

At common law in Alabama, one who took an estate less than a fee simple absolute in realty or an absolute interest in personalty and who was also given an absolute power of disposition over such property was held to possess an absolute interest. E. g., Allen v. White, 16 Ala. 181 (1849); Flinn v. Davis, 18 Ala. 132 (1850). In several early cases this rule appears to have been applied not only to a life estate but also to a defeasible fee coupled with an absolute power of disposition. In Flinn, the testator willed to his daughter certain property over which she was given a power of disposition, but added a limitation over of property undisposed of by the daughter in the event she...