Second National Bank of New Haven v. United States

Decision Date25 July 1963
Docket NumberCiv. No. 9435.
Citation222 F. Supp. 446
CourtU.S. District Court — District of Connecticut
PartiesThe SECOND NATIONAL BANK OF NEW HAVEN, Executor of the Will of Frederick F. Brewster, Late of Hamden, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Curtiss K. Thompson and John H. Weir, of Thompson, Weir & Barclay, New Haven, Conn., for plaintiff.

L. Lee Phillips, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., Edward S. Smith and David A. Wilson, Jr., Washington, D. C., Robert C. Zampano, U. S. Atty., New Haven, Conn., on the brief), for defendant.

TIMBERS, District Judge.

Plaintiff's motion for partial summary judgment on the issue of liability, pursuant to Rule 56(c), Fed.R.Civ.P., in this action to recover federal estate taxes in excess of $1,600,000 claimed to have been erroneously assessed and collected, raises questions of importance in the administration of the federal estate tax.

FACTS

September 16, 1958 decedent died a resident of Connecticut, leaving a will and codicil. October 6, 1958 they were admitted to probate by the Probate Court for the District of Hamden, Connecticut.

Plaintiff, named as co-executor in the will, was appointed co-executor by the Probate Court and is now serving as sole executor, the co-executor having resigned May 7, 1962.

Decedent's will, executed June 5, 1958 and modified by a codicil executed July 1, 1958, after providing for certain specific bequests, left the residue in trust, one-third for the benefit of his widow and two-thirds for the benefit of his grandchildren surviving at his death.

January 5, 1959 an application was filed with the Probate Court for an allowance for the support of decedent's widow during settlement of the estate. February 2, 1959, after hearing, the Probate Court entered an order granting such allowance in amount of $350,000. March 13, 1959, in compliance with the order, the executors paid to the widow the allowance in one lump sum.

December 16, 1959 a federal estate tax return was filed showing an estate tax liability of $4,028,613.85 based on a gross estate of $13,201,347.90 and a taxable estate of $8,392,892.80.

The federal estate tax return showed, as part of the marital deduction,1 the widow's allowance granted by the Probate Court and one-third of the decedent's residuary estate bequeathed to the widow in trust under the will, the latter computed without reduction by the amount of federal estate tax attributable to the residuary estate.

October 18, 1961, following an IRS audit of the estate tax return, there was forwarded to the executors a report of the examination showing a deficiency due in amount of $1,336,468.40. This deficiency resulted principally from two determinations made by the IRS: (1) disallowance of the $350,000 widow's allowance as part of the marital deduction (but allowance of a marital deduction for this payment in amount of $116,666.67); and (2) decreasing the marital deduction claimed by the estate from $3,630,243.95 to $1,682,846.59. The latter determination was based on the IRS' computation of the widow's share of the residuary estate after state and federal estate taxes had been paid, whereas the executors had computed the widow's share of the residue before estate taxes were taken into consideration.

November 10, 1961 the executors applied to the Probate Court for a determination of the proration of the federal estate tax.2 Notice of the application and hearing thereon was given to the widow, two trust beneficiaries, the guardian ad litem for minor residuary trust beneficiaries and the District Director of Internal Revenue at Hartford. December 26, 1961, after hearing, the Probate Court filed a memorandum of decision and order directing, pursuant to the executors' application, that the federal estate tax on the pre-residuary bequests be deducted from the residuary estate before determining the amount of the widow's one-third part of the residue and that the federal estate tax attributable to the residuary bequests be prorated between those bequests.

April 6, 1962 the Commissioner sent to the executors a 90-day letter indicating that a deficiency of $1,333,194.35 in estate tax had been determined.

May 25, 1962 an assessment in amount of $1,333,194.35, plus interest of $195,285.58, was made against the estate.

May 29, 1962 the taxes and interest as assessed were paid.

June 7, 1962 a claim for refund in amount of $2,500,000 was filed.

August 14, 1962 the claim for refund was disallowed.

August 29, 1962 this action was commenced, pursuant to 28 U.S.C. § 1346(a) (1), to recover federal estate taxes claimed to have been erroneously assessed and collected.

By the instant motion for partial summary judgment on the issue of liability, plaintiff seeks a determination on certain questions of law, upon the resolution of which the amount of plaintiff's recovery, if any, in this tax refund action depends.

QUESTIONS PRESENTED

Three questions are presented, the answers to which are believed to be dispositive of this motion for partial summary judgment:

(1) Whether the widow's allowance under Connecticut law is a "terminable" interest and therefore not deductible from the gross estate as a marital deduction?
(2) Whether the widow's one-third share of the residuary estate, under the terms of the will, is to be deducted from the residue before the federal estate tax attributable to the residuary bequests is prorated among the residuary legatees?
(3) Whether the Connecticut Probate Court's determination with respect to the widow's allowance and its interpretation of the will with respect to proration of estate taxes are determinative of the rights of the federal government under the revenue laws?

The Court holds that questions (1) and (2) must be answered in the affirmative, question (3) in the negative.

I WIDOW'S ALLOWANCE

A widow's allowance granted pursuant to state law during administration of the estate is a "property interest passing from the decedent to his surviving spouse"3 and qualifies as a marital deduction which may be deducted from the gross estate to determine the taxable estate.4 A limitation upon the widow's allowance as a marital deduction, claimed by defendant to be applicable here, requires that the allowance, to be deductible, must be one which will not terminate or fail.5

Whether the widow's allowance is an interest which will terminate or fail, is to be determined by state law.6

Plaintiff contends that under Connecticut law a lump sum allowance to a widow becomes absolute and indefeasibly vested as soon as the order of the Probate Court directing payment becomes final. Defendant contends that since the right to receive the allowance terminates upon the occurrence of such contingencies as the remarriage or death of the widow and the Probate Court decree may be modified, revoked or set aside on appeal, any award, whether lump sum or installment, is terminable.

By statute7 Connecticut provides for an allowance to the surviving spouse during settlement of the estate. Under this statute, the Probate Court exercises "a primary jurisdiction, in that discretion is reposed in it to determine whether to make the allowance, and, if it is made, its amount and duration."8 Among the important considerations to be weighed by the Probate Court in exercising its discretion is the estimated length of time for settlement of the estate and the advisability of a lump sum or periodic installment form of allowance.9

A widow's allowance, although characterized as a "statutory right" in one decision,10 is said to be "not a property right" but "in the nature of a continuance of the support after the husband's death which he or his estate had furnished her before his death".11 Being within the discretion of the Probate Court, the allowance is subject to an equitable balancing of interests.12 Acting on equitable principles, the Probate Court under changing circumstances may revoke or modify its decree granting the allowance.13

Plaintiff in the instant case does not dispute the power of the Probate Court to revoke or modify its order granting an allowance to be paid in installments. Rather, plaintiff relies (i) on the fact that the allowance here was in the form of a lump sum award, and (ii) on language in Havens' Appeal14 construing the effect of a revocation or modification by the Probate Court subsequent to payment of an allowance to a widow.

The Connecticut courts have not distinguished between lump sum and installment allowances in discussing the power of the Probate Court to revoke or modify their orders granting widows' allowances. Absent controlling authority and recognizing the power of Probate Courts to revoke or modify their decrees, this Court does not find the distinction between lump sum and installment allowances to be helpful in resolving the present question.

It appears that the Probate Court has the power to direct that the widow's allowance be charged against her interest in the estate.15 The power of the Probate Court to impose an equitable charge against the interest in the estate of the decedent passing to the widow under the will suggests that the widow's allowance, whatever its form of payment, did not, prior to the recent statutory change,16 become absolute and indefeasibly vested as soon as the order of the Probate Court directing payment became final.

The Court concludes that under Connecticut law, prior to the 1961 amendment to Section 45-250,17 the widow's allowance, whether in lump sum or installment form, was subject to revocation or modification; might be the subject of an equitable charge against the widow's interest in the estate; did not become absolute and indefeasibly vested as soon as the order of the Probate Court directing payment became final was, therefore, at the time it was granted, a terminable interest; and, under Section 2056(b) (1) of the Internal Revenue Code of 1954,18 is not eligible as a marital deduction.

II FEDERAL TAXATION OF...

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10 cases
  • Commissioner of Internal Revenue v. Estate Bosch Second National Bank of New Haven v. United States, s. 673
    • United States
    • U.S. Supreme Court
    • 5 Junio 1967
    ...no circumstances can be construed as binding and conclusive upon a federal court in construing and applying the federal revenue laws.' 222 F.Supp. 446, 457. The court went on to hold that under the standard applied by the state courts, there was no 'clear and unambiguous direction against p......
  • CIR v. Estate of Bosch
    • United States
    • U.S. Court of Appeals — Second Circuit
    • 6 Julio 1966
    ...circumstances can be construed as binding and conclusive upon a federal court in construing and applying the federal revenue laws.' 222 F.Supp. 446, at 457. This court is in accord with the trial court's conclusion as to the effect of the state decree, see Estate of Peyton v. Commissioner, ......
  • Magavern v. U.S.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • 24 Febrero 1977
    ...and conclusive upon a federal court in construing and applying the federal revenue laws." 351 F.2d at 494, aff'g in part 222 F.Supp. 446, 457 (D.Conn.1963). The trustee tries to avoid the consequences of the holdings in Bosch by suggesting that the instant case is distinguishable because he......
  • Rubinow v. Comm'r of Internal Revenue (In re Estate of Rubinow)
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    • U.S. Tax Court
    • 30 Diciembre 1980
    ...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 (1967). When that same court was face......
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