Todd v. Comm'r of Internal Revenue (In re EState S. Todd) , Docket No. 3953-70.
| Decision Date | 29 November 1971 |
| Docket Number | Docket No. 3953-70. |
| Citation | 57 T.C. 288 |
| Parties | ESTATE OF JAMES S. TODD, JR., DECEASED, JANE JARVIS TODD RITCHEY, FORMERLY JANE JARVIS TODD, AND JAMES S. TODD III, EXECUTORS, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Robert S. Newkirk and Michael M. Gibson, for the petitioners.
Harold L. Cook, for the respondent.
Decedent's will established a marital and a residuary trust. The provision for the distribution of income from the marital trust required the trustees to pay at least annually ‘so much of the net income of this trust to my wife * * * as in their conclusive discretion should be so expended to accomplish the purpose of this trust.’ During their administration of the estate, the independent coexecutors borrowed $300,000 to pay Federal estate and State inheritance taxes in order to avoid having to sell nonliquid assets at ‘forced sale’ prices. The interest incurred on this borrowing was deducted from the value of the gross estate as an administration expense. Held, since the stated purpose of the trust was to qualify for the marital deduction, the words ‘conclusive discretion’ do not authorize the withholding of income payments by the trustees. The trust qualifies for the marital deduction under sec. 2056, I.R.C. 1954. Held, further, the interest expense which was incurred, paid, and not previously deducted is deductible under sec. 1053(a)(2), I.R.C. 1954.
Respondent determined a deficiency of $252,018.28 in the Federal estate tax of the Estate of James S. Todd, Jr. The primary question to be decided is whether the estate is entitled to a marital deduction (amounting to $513,309.64) under section 2056, I.R.C. of 1954.1 A second question is whether the estate incurred an interest expense which is deductible under section 2053(a)(2). Other questions involving additional deductions for reasonable attorneys' fees and executors' commissions have been resolved by the parties and can be given effect in the Rule 50 computations.
All of the facts relating to the primary issue and most of the facts relating to the second issue have been stipulated. The stipulation of facts, together with the exhibits attached thereto, are incorporated herein by this reference.
Petitioners are the executors of the Estate of James S. Todd, Jr. The decedent died on April 27, 1966. He was a resident and domiciliary of Paris, Tex. Petitioner Jane Jarvis Todd Ritchey, formerly Jane Jarvis Todd, widow of the decedent, resided in Fort Worth, Tex., at the time of filing the petition herein. Petitioner James S. Todd III, son of the decedent, resided in Talala, Okla., at the time the petition was filed herein.
The will of James S. Todd, Jr., was admitted to probate on May 16, 1966. The Federal estate tax return was filed with the district director of internal revenue at Dallas, Tex., on July 26, 1967.
The will in question provides in articles I through IV for the payment of decedent's debts, funeral expenses, expenses of administration, and taxes and for the disposition of certain specific bequests. In article V, after appointing the Fort Worth National Bank and James S. Todd III, as trustees, the will creates two trusts— a marital trust (also called the Jane Jarvis Todd Trust) and a residuary trust (also called the James S. Todd III Trust). The marital trust was designed to qualify under section 2056(b)(5) as an exception to the terminable interest limitation, section 2056(b). Article V contains the following pertinent provisions:
A. It is my intention hereby to create two separate and distinct trusts, one of which, the ‘marital trust,‘ shall be known as the Jane Jarvis Todd Trust and the other of which shall be known as the James S. Todd, III Trust.
B. If my wife, Jane Jarvis Todd, survives me, then I give to the trustees of said trust, to be held and administered as hereinafter specified and provided, an amount equal to 50% of the value of my adjusted gross estate as finally determined for Federal estate tax purposes, less the aggregate amount of marital deductions, if any, allowed for such tax purposes by reason of property or interests in property passing or which have passed to my wife otherwise than by the terms of this numbered paragraph of my will.
* * * No asset or proceeds of any asset shall be included in the trust as to which a marital deduction is not allowable if included. Said bequest shall abate to the extent that it cannot be satisfied in the manner hereinabove provided.
In order to assure my estate of the maximum marital deduction permitted under the Federal estate tax provisions of the Internal Revenue Code, if my wife, Jane Jarvis Todd, shall survive me, the trustees shall immediately set aside as a separate trust so much thereof as is equal in value to the amount by which the maximum marital deduction available to my estate exceeds the aggregate value of all interests in property which pass or have passed from me to my said wife, except under the trust created by this paragraph, and otherwise qualify for the marital deduction. * * *
The marital deduction referred to herein is the deduction allowed in determining the Federal estate tax for property passing to a surviving spouse under the Internal Revenue Code in effect at the time of my death (presently Sec. 2056). The trustees shall hold, manage, invest and distribute the income and principal of the trust upon the following terms and conditions:
(1) The trustees shall in convenient periodic installments not less frequently than annually pay so much of the net income of this trust to my wife, Jane Jarvis Todd, so long as she shall live, as in their conclusive discretion should be so expended to accomplish the purpose of this trust.
(2) If during the lifetime of my wife, Jane Jarvis Todd, the trustees, in their complete and absolute discretion, determine that the net income of this trust, together with such other property and income as my wife may possess is insufficient to provide for her adequately and generously at the standard of living to which she has been accustomed, then the trustees may, from time to time, disburse or pay to her, or pay out for her use and benefit, from the corpus of this trust such amounts as they deem necessary to provide for her; provided, however, that no such distributions out of corpus shall at any time be made for the purpose of any business venture.
(3) On the death of my wife, Jane Jarvis Todd, this trust shall terminate and the trust properties, together with any undistributed income, shall be distributed to or for the use and benefit of such person or persons, or the estate of my wife, in such amounts and proportions and upon such terms, trusts, conditions and limitations as my wife shall appoint by a will made after my death, which will specifically refers to the power herein given to my wife. If my wife does not exercise in the manner specified her right to appoint by such a will, or to the extent that she does not exercise such right, then the trust properties of the Jane Jarvis Todd Trust shall become a part of the James S. Todd, III Trust hereinafter established, and shall be held, paid out and distributed according to the terms and provisions thereof.
(4) With respect to all items included in my gross estate for Federal estate tax purposes which pass to my wife, Jane Jarvis Todd, either directly or in trust for her benefit under the provisions of this will, or otherwise, and which qualify for the estate tax marital deduction in the event my wife survives me, I hereby declare that if the order of our deaths cannot be established by proof, my wife, Jane Jarvis Todd, shall be deemed to have survived me.
C. The James S. Todd, III Trust shall consist of all the rest, residue and remainder of my estate of whatever kind or character, including the balance of my separate property and the balance of the entire community estate of myself and my wife, Jane Jarvis Todd, not heretofore disposed of.
The James S. Todd, III Trust shall be held by the trustees for the following uses and purposes:
(1) Unless my wife, Jane Jarvis Todd, should make an election not to take under my will, then during her lifetime The Fort Worth National Bank acting alone for this purpose as if it were the sole trustee hereof, shall pay over to her or pay out for her use and benefit from time to time, so much of the annual net income of this trust as said Bank, in its complete and absolute discretion, determines is reasonable and necessary to provide for her at the standard of living to which she has been accustomed, after taking into consideration the income she has available to her from other sources, including the income distributable to her or for her use and benefit under this will from the Jane Jarvis Todd Trust.
(2) So much of the balance of the annual net income of this trust remaining after the distribution to or for the use and benefit of Jane Jarvis Todd, as above provided, as The Fort Worth National Bank as trustee shall in its conclusive discretion deem proper to accomplish the purpose of this trust, shall be paid over to or paid out for the use and benefit of my son, James S. Todd, III, in convenient periodic installments for and during the balance of his lifetime, not to exceed.$1000.00 monthly.
(3) Upon the death of both my son, James S. Todd, III, and my wife, Jane Jarvis Todd, this trust shall terminate and all the trust properties, including any undistributed income, shall be paid over and distributed to the then surviving lawful bodily issue of James S. Todd, III, if any, per stirpes * * *.
(4) If at any time during the continuation of the James S. Todd, III Trust, The Fort Worth National Bank acting alone for this purpose as if it were the sole trustee, in its complete and absolute discretion, should determine that the net income of the trust is insufficient to provide for the care, maintenance, education and support of either Jane Jarvis Todd or...
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