Robertson v. United States, Civ. A. No. 64-515.

• Court: United States District Courts. 11th Circuit. United States District Court of Northern District of Alabama
• Writing for the Court: LYNNE
• Citation: 281 F. Supp. 955
• Docket Number: Civ. A. No. 64-515.
• Decision Date: 21 February 1968
• Parties: John C. ROBERTSON, as Executor of the Estate of Thomas H. Robertson, Jr., Deceased, Plaintiff, v. UNITED STATES of America, Defendants.

281 F. Supp. 955

John C. ROBERTSON, as Executor of the Estate of Thomas H. Robertson, Jr., Deceased, Plaintiff,
v.
UNITED STATES of America, Defendants.

Civ. A. No. 64-515.

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

February 21, 1968.

281 F. Supp. 956

COPYRIGHT MATERIAL OMITTED

281 F. Supp. 957

Allen D. Rushton and William G. Somerville, Jr., of Lange, Simpson, Robinson & Somerville, Birmingham, Ala., for plaintiff

Macon L. Weaver, U. S. Atty., Birmingham, Ala., and Richard M. Roberts, Acting Asst. Atty. Gen., Stanley F. Krysa and Jan Tyler, Attys., Dept. of Justice, Washington, D. C., for defendant.

OPINION

LYNNE, Chief Judge.

Suing to recover a refund of federal estate taxes paid as the result of a deficiency assessment, plaintiff as executor of the will of his brother, Thomas H. Robertson, Jr., deceased, contends that the Commissioner erred in disallowing the marital deduction claimed under the provisions of 26 U.S.C.A. § 2056.

Thomas H. Robertson, Jr. died in November, 1955, leaving surviving him his widow and a minor son. By his will, duly admitted to probate, he devised and bequeathed to his widow, Evelyn W. Robertson, the homestead and all adjoining lands, the furniture, fixtures and household effects contained therein and his personal bank account. The remainder of his property was to be held in trust, one-half of the income from which was payable to her and one-half to his son. The bequest of the remainder was introduced by the following language:

"My estate, with the exception of my home, personal effects and personal

281 F. Supp. 958

bank account, consisting principally of real estate and property held and owned jointly by me and my brother, John C. Robertson, share and share alike * * *."

At the time of his death, decedent and his brother were in possession of certificates of corporate stock of a value of $584,148.98, registered in the names of Thomas H. Robertson, Jr. and John C. Robertson, as joint tenants with rights of survivorship. In addition, they held Government bonds of the approximate value of $44,000, registered in the names of (1) "Thomas H. Robertson, Jr., or Mrs. Mary F. England" (sister), (2) "Thomas H. Roberston, Jr., or Mrs. Augusta R. Cotten" (sister), and (3) "Thomas H. Robertson, Jr. or John C. Robertson."

Prior to the filing of the federal estate tax return, two significant events occurred. The widow filed a dissent from the will under the provisions of Code of Alabama, tit. 61, § 18 (1940) (Recomp. 1958) and John C. Robertson claimed only one-half of the securities, disclaiming the remaining one-half.

On the federal estate tax return the executors (co-executor Tom Lindsay died before the institution of this action) included in the gross estate one-half of the total value of the common stocks, or approximately $292,000 and one-half of the total value of the Government bonds, or approximately $22,000. In computing the marital deduction for determining the net taxable estate, the executors included in the deduction the sum of $146,000, representing the widow's one-half of the corporate securities in the probated estate, and the sum of $11,000, representing her one-half of the Government bonds. These were disallowed by the Commissioner. Plaintiff filed a claim for refund, which was rejected, and thereafter instituted this action.

Four questions are posed to channel the ensuing discussion:

1. Whether the corporate securities registered in the name of decedent and his brother as joint tenants with rights of survivorship qualify for the marital deduction.

2. Whether Government bonds registered in the name of decedent or his brother or his sisters qualified for the marital deduction.

3. Whether the value of property passing to the surviving spouse which qualifies for the marital deduction should be reduced by one-half of the federal estate taxes in determining the amount of the allowable marital deduction.

4. Whether the issue relating to such reduction was embraced in plaintiff's timely claim for refund.

First. With respect to the common stocks, if there were no relevant facts in addition to those stated hereinabove, this issue would be resolved by the clear language of the statute.¹ Under 26 U.S.C.A. § 2056(a) for property to qualify for the marital deduction it must have passed "from the decedent to his surviving spouse" and under 26 U.S.C.A. § 2056(d) where a disclaimer of an interest in property is made by any person other than the surviving spouse, that interest is deemed to have passed from the decedent to the person who made the disclaimer and not from the decedent to the surviving spouse.

Furthermore, the statute provides that a property interest devolving upon any person through survivorship-ownership is considered as having passed from the decedent to such survivor. Thus, in computing the marital deduction, the value of the securities actually received by the surviving spouse is considered as having been received from the surviving co-owner and not from the decedent and cannot qualify as part of the marital deduction.²

281 F. Supp. 959

But the matter does not rest there. Plaintiff's contention that the beneficial, as opposed to the legal, interest in one-half of the common stock passed from the decedent to his surviving spouse, thereby qualifying for the marital deduction under the statute and regulations,³ on principles either of a constructive or resulting trust, requires an evaluation of the facts in depth. And, since neither the statute nor the regulations define when or under what circumstances an interest will be considered as held in joint ownership with right of survivorship, it becomes necessary to resort to local law to determine the character of the interests of the two brothers in the stock and specifically whether at the time of decedent's death it was held in joint tenancy with right of survivorship.⁴

The evidence unfolds a saga of rugged individualism in rural America. The grandfather of the brothers opened a general mercantile store in the little town of Fayette, Alabama, in 1843. After his death, their father continued its operation. When the brothers became of age, their father took them into a partnership with him under the name of T. H. Robertson & Sons. He had also organized a small state bank in Fayette.

Upon the death of their father in 1936, the two brothers inherited equally their father's interest in the mercantile business and the stock in the bank.⁵ Thenceforth,

281 F. Supp. 960

they conducted all of their business as equal partners. They established two partnership bank accounts at their bank, described respectively as "T. H. Robertson Mercantile Account" (store account) and "T. H. and J. C. Robertson Account" (non-store account). They deposited their mercantile store receipts in the store account and their receipts from farming, timber sales, and, later, from sales of common stock in the non-store account. Neither of these partnership checking accounts was in such form as to create a joint tenancy with right of survivorship. From time to time funds were transferred from one account to the other. For example, in the fall of the year, in order to finance substantial purchases of cotton, funds were transferred from the non-store account to the store account. When the cotton was sold the proceeds were restored to the non-store account

In 1942 the brothers opened a trading account with Merrill Lynch, Pierce, Fenner & Beane. Upon the recommendation of their broker, this account was opened as a joint one with the right of survivorship. All stocks purchased through such account were issued to "T. H. and J. C. Robertson, joint with right of survivorship." Such purchases were made by checks or drafts drawn upon the non-store account and proceeds realized from the sales thereof were deposited in such account.

All stock certificates were reflected on the partnership books as partnership assets and were kept in the partnership safe with other partnership property of value. All dividends from the stocks and all gains and losses on the sales of the stocks were reported on their federal partnership income tax returns and the expenses of such sales were deducted thereon as partnership expenses. The decisions jointly made by the brothers as to when to buy and sell stock and how much to invest therein through their trading account were based both on partnership business and market considerations.

The amount of assets which the two brothers had in their stock account fluctuated. At times a large part of their assets consisted of jointly held stock while at other times they had little or nothing invested in such stocks. This pattern of fluctuation continued to the date of Thomas' death. At the time of his death he had been extremely ill for more than one year and realized that he could not recover. At the time he executed his will in April, 1954, containing the language set forth hereinabove, and again in September, 1955, when he executed a new will, identical in all respects except for the nomination of Tom Lindsay as a co-executor at the request of his brother, John, the principal asset of his estate was the stock purchased through the above-described account.

John read both wills at his brother's request and signified his understanding of their terms and the intentions expressed thereby. His own will was identical

281 F. Supp. 961

in all substantial respects. Each brother was fully informed of the property holdings of the other and each clearly intended that his devisees would inherit one-half interest in property, including stock, owned jointly by them. Neither the brothers nor their father consulted a lawyer about any of the wills or conveyances described above. All, except the stock certificates, were prepared by Tom Lindsay, a layman. Neither brother had any conception of the difference between a tenancy in common and a joint tenancy with right of survivorship. At the conclusion of the oral testimony, the court...