Rubinow v. Comm'r of Internal Revenue (In re Estate of Rubinow)

• Decision Date: 30 December 1980
• Docket Number: Docket No. 8333-75.
• Citation: 75 T.C. 486
• Parties: ESTATE of WILLIAM RUBINOW, DECEASED, MERRILL B. RUBINOW and CHARLOTTE GOLTZ, EXECUTORS, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

75 T.C. 486

ESTATE of WILLIAM RUBINOW, DECEASED, MERRILL B. RUBINOW and CHARLOTTE GOLTZ, EXECUTORS, PETITIONERS

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 8333-75.

United States Tax Court

Filed December 30, 1980.

Under Connecticut law, the Probate Court judge has discretion, when determining whether to grant a widow's allowance to a surviving spouse, to include a provision vesting the allowance retroactively and preventing its termination in the event of her death or remarriage. By his will, decedent left bequests to his wife, children, and various educational institutions. The wife and children disclaimed their interests under the will, but the institutions made no disclaimers. The wife made no election to take her statutory share against the will. Held, the Connecticut widow's allowance fails to qualify for the marital deduction under sec. 2056, I.R.C. 1954. Jackson v. United States, 376 U.S. 503 (1964), followed. Held, further: Under Connecticut law, the widow at most received a life estate in one-third of the estate following her disclaimer. As such, the interest is a terminable interest for which no marital deduction is allowed. Sec. 2056(b). Charles D. Gersten, for the petitioners.

William F. Halley, for the respondent.

WILBUR, Judge:

Judge: Respondent determined a deficiency in petitioners' Federal estate tax of $112,188.95. Two issues are presented here for our decision: (1) Whether the widow's allowance provided by a Connecticut statute qualifies for the marital deduction under section 2056,¹ and (2) whether the share of the estate received by the widow following disclaimer of her interest under the will qualifies for the marital deduction under section 2056.

All of the facts have been stipulated. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time of the filing of the petition in this case, executor Merrill B. Rubinow had his legal residence in Manchester, Conn., and executrix Charlotte Goltz resided in Haverhill, Mass.

FINDINGS OF FACT

William Rubinow died on January 19, 1972. He was survived by his wife, Mary Rubinow, and three children. His will and a codicil were admitted by the Probate Court, District of Manchester, Conn., and the plaintiffs were appointed as coexecutors. Insofar as is relevant here, the will and codicil disposed of the decedent's property as follows:

(1) Specific devises were made to various educational institutions.

(2) The widow received a life estate in the family home (to be disposed of upon her death in the same manner as the residuary estate).

(3) A trust was established and funded with one-third of the estate. The widow was to receive $200 per month plus operating costs of the home, and such additional amounts as the trustees determined in their discretion to be necessary for the widow's support, payable from both the principal and income of the trust. Upon the widow's death, the undistributed trust assets were to be paid to whomever the widow appointed by will, and in default of appointment, to be paid over in the same manner as the residuary.

(4) The residuary was devised to the children in three equal parts.

On March 6, 1972, Mary Rubinow applied to the Probate Court for a surviving spouse's allowance. The court granted an allowance of $20,000 and ordered that it be paid in a lump sum out of the principal of the estate. The order further stated that the allowance vested in the widow retroactively as of the moment of the decedent's death and does not terminate upon the subsequent death or remarriage of the widow or for any other reason.

Mary Rubinow did not file an election with the Probate Court to take a life use in one-third of the decedent's property, in lieu of the provisions of the will and codicil, as permitted by Conn. Gen. Stat. Ann. sec. 46-12 (West 1978).² Instead, on March 16, 1972, the decedent's widow and three children each filed a disclaimer with the Probate Court, District of Manchester, Conn., but reserved any rights they might have under the laws governing succession to intestate property.

Petitioners' estate tax return claimed a deduction for bequests, etc., to the surviving spouse of $355,013.38. The respondent disallowed the entire deduction.

OPINION

Issue 1. Widow's Allowance

Mary Rubinow petitioned the Probate Court for the District of Manchester, Conn., for a surviving spouse's allowance pursuant to Conn. Gen. Stat. Ann. sec. 45-250 (West Cum. Supp. 1980). The Probate Court granted an allowance of $20,000 to be paid in a lump sum out of the principal of the estate. The Court order vested the allowance retroactively as of the date of the decedent's death and prevented its termination by the subsequent death or remarriage of the widow or for any other reason.

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 from the decedent to a surviving spouse. Petitioners claimed that the $20,000 allowance was such an interest. Section 2056(b), however, disallows the marital deduction “Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail.” This is the “terminable interest rule.”³

Whether or not the terminable interest rule is properly invoked depends on the application of State law to the facts and circumstances. Hamilton National Bank of Knoxville v. United States, 353 F.2d 930, 932 (6th Cir. 1965). There are, however, some ground rules to guide us. The terminability of the interest must be determined as of the date of the decedent's death. Jackson v. United States, 376 U.S. 503, 508 (1964). “If, viewed at the time of the death, the interest bequeathed to the spouse might terminate under some circumstances, that interest is terminable for the purposes of section 2056(b)(1) regardless of what subsequent events came to pass.” Allen v. United States, 359 F.2d 151, 154 (2d Cir. 1966).

Examining Connecticut law, we find that the allowance for support of the surviving spouse is a terminable interest in that the allowance does not vest indefeasibly at the date of the deceased spouse's death. Connecticut has provided by statute for an allowance to a surviving spouse. Connecticut General Statutes Annotated section 45-250 (West Cum. Supp. 1980),⁴ provides in relevant part:

Allowance for support of surviving spouse and family. * * *

(a) The court of probate may allow out of any real or personal estate of a deceased person in settlement before such court such amount as it may judge necessary for the support of the surviving spouse or family of the deceased during the settlement of the estate.

(b) In making such allowance the court may in its discretion include in its decree ordering such allowance any one or more of the following provisions, to the extent they are not mutually inconsistent:

(1) A provision that such allowance shall run (A) for the entire period the estate is in settlement, or (B) for a fixed period of time not to exceed the period of settlement, in which case such allowance shall be subject to renewal by the court in its discretion;

(2) a provision that such allowance is to be paid in a lump sum;

(3) a provision that such an allowance made for surviving spouse shall vest in such spouse retroactively as of the moment of death of his spouse so that it will be a fixed sum certain as of said date of death and shall not terminate with the subsequent death or remarriage of the surviving spouse, such allowance to be the absolute property of the surviving spouse, or, if deceased, of the estate of such surviving spouse, without restriction as to use, encumbrance or disposition and for the purpose of this section, the right to seek such a vested allowance shall be a vested right as of the date of death of the deceased spouse, and

(4) a provision that such allowance shall be charged ultimately in whole or in part against any right the surviving spouse or other family member for whom an allowance is ordered may have to the income of the estate earned during the period of settlement. * * *

[Emphasis added.]

On the face of the statute, the Connecticut Probate Court has several crucial decisions to make: whether or not to grant the allowance, the amount of the allowance, the time period during which the allowance is to run, whether the allowance is to be paid in a lump sum, whether the allowance is to vest in the spouse retroactively as of the moment of death and not terminate with the subsequent death or remarriage of the surviving spouse, and whether the allowance shall be charged against the recipient's right to any income earned by the estate during settlement.

Connecticut decisions make it clear that the Probate Court has discretion to determine whether to make the allowance, and, if it is made, its amount and duration. Baldwin v. Tradesmen's National Bank, 147 Conn. 656, 165 A.2d 331, 333 (1960). The determination as to whether to grant the allowance depends on a showing that an allowance is necessary for the widow's support during the settlement of the estate. Barnum v. Boughton, 55 Conn. 117, 10 A. 514 (1887); Appeal of Havens, 69 Conn. 684, 38 A. 795 (1897). This discretion in the Probate Court has recently been reconfirmed in Sklar v. Estate of Sklar, 168 Conn. 101, 357 A.2d 900, 903 (1975): “the award by order of the Probate Court ‘[is] a discretionary act * * *’ [it being] ‘a matter wholly for the probate court to determine * * *.’ Lawrence v. Security Co., 56 Conn. 423, 443, 15 A. 406, 411 [(1888)].”

Under an earlier version of the statute which was effectively the same as present subsection (a), it was held that the Connecticut survivor's allowance was a terminable interest. Second National Bank of New Haven v. United States, 222 F. Supp. 446 (D. Conn. 1963), revd. on other grounds 351 F.2d 489 (2d Cir. 1965), affd. 387 U.S. 456 (196...