United States Nat. Bank of Portland v. United States

• Decision Date: 30 September 1960
• Docket Number: Civ. No. 489-59.
• Citation: 188 F. Supp. 332
• Parties: UNITED STATES NATIONAL BANK OF PORTLAND, Executor of the Estate of Hanford F. Reed, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Oregon

188 F. Supp. 332

UNITED STATES NATIONAL BANK OF PORTLAND, Executor of the Estate of Hanford F. Reed, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. 489-59.

United States District Court D. Oregon.

September 30, 1960.

COPYRIGHT MATERIAL OMITTED

Carl E. Davidson, Charles P. Duffy, Walden Stout, Portland, Or., for plaintiff.

C. E. Luckey, U. S. Atty., Edward J. Georgeff, Asst. U. S. Atty., Portland, Or., for defendant.

KILKENNY, District Judge.

Plaintiff instituted this action to recover estate taxes assessed against and collected from the plaintiff by the defendant. Also involved is a counterclaim by defendant for the recovery of estate taxes assessed but not collected.

Hanford F. Reed, a resident of Union County, Oregon, died testate on November 13, 1956, survived by his wife, Ruby J. Reed. In November of that year the plaintiff was appointed executor of decedent's estate by the County Court of said County. On February 17, 1953, decedent, as trustor, entered into an irrevocable written trust agreement with plaintiff, as trustee, and at that time paid the trustee $25,000 to be held pursuant to the terms and conditions of said trust. Trustor retained no power to alter, amend, revoke or terminate said trust. The trust agreement provided, inter alia, that the income from the trust fund should be accumulated by the trustee and added to the principal until February 17, 1959. On that date decedent was to receive $100 per month from the net income of the trust, or from the principal if necessary, for his life, and a similar sum of $100 each month was to be paid by said trustee to the wife of the decedent during her lifetime.¹ After the death of the survivor, the trust would terminate and the trustee was directed to distribute the residue of the trust estate and any accumulated income among the then surviving children of the trustor, in equal shares. The trustee was authorized, at its sole discretion, to pay or apply such portions of the net income of the trust estate to or for the benefit of the trustor and his wife as the trustee might deem necessary in the event of illness or other emergency during the lifetime of both, and to the survivor, the aggregate amount of funds so applied not to exceed the sum of $5,000 during the entire period. A copy of the trust agreement is one of the exhibits introduced in evidence.

At the time of the death of the decedent the assets of the trust had increased in value to $48,866.22 and at that time the fund was producing an annual income of approximately $1,550. Decedent died before the monthly income payments were due to him or his wife. Decedent was born October 2, 1882.

On March 20, 1957, the probate court for Union County, pursuant to the provisions of ORS 116.015² made an order directing plaintiff to pay to the surviving widow a widow's allowance in the sum of $12,000, which sum was paid to her on March 22, 1957. The order recited, inter alia, that the appraised value of the estate was $878,666.95, and was ample and sufficient to satisfy all debts and liabilities, pay the expenses of administration and in addition pay said allowance, the said allowance to be paid from the corpus of the estate. A copy of the order is in evidence. The executor duly filed a federal estate tax return for said estate with the District Director of Internal Revenue for Oregon and on that date paid the sum of $331,941.87, the net estate tax payable as shown by the return. In said return the executor did not include any part of the value of the said inter vivos trust established by decedent and claimed a deduction of $12,000 for the said widow's allowance paid to the said surviving spouse.

Subsequently, the District Director notified the executor of an estate tax deficiency in the amount of $16,408.05, which was determined by reason of the inclusion in the taxable estate of an alleged retained life interest by the decedent in said inter vivos trust and by reason of the claim by the Director that the widow's allowance for $12,000 did not qualify as a marital deduction. Plaintiff paid the alleged deficiency and interest and then instituted this action to recover same.

On April 15, 1960, the estate was notified by the District Director of an additional estate tax deficiency in the sum of $2,804.81, determined by reason of the inclusion in the taxable estate of the amount of $48,866.22, rather than $39,933.71 as the value of the decedent's retained life interest in said inter vivos trust and/or by reason of the inclusion in the taxable estate of the value of the trust property which was transferred in trust during his lifetime and by which trust instrument decedent retained a reversionary interest, the value of which exceeds 5% of the value of such property. This forms the basis of defendant's counter-claim.

Issues

I. Does the widow's allowance under the Oregon statute constitute such a property interest as will qualify as a

marital deduction under the provisions of 26 U.S.C.A. § 2056?

II. What portion if any, of the value of the trust should be included in the gross value of the estate?

I. In order to decide the first issue, it is necessary to construe ORS 116.015. This section and ORS 116.010, dealing with the exempt property of the estate, were part of the original civil code of the state of Oregon enacted in 1862. Deedy & Lane Code, §§ 1094, 1095, 1096. All statutes in pari materia should be construed together. United States v. Phez Co., 9 Cir., 1928, 28 F.2d 106; Noble v. Noble, 164 Or. 538, 103 P. 2d 293. This is particularly true in the construction of exemption statutes such as a probate homestead. Benedict v. Lee, 198 Or. 378, 256 P.2d 507. Laws enacted by the same legislative session must be construed together. Winslow v. Fleischner, 112 Or. 23, 228 P. 101, 34 A.L.R. 826; Daly v. Horsefly Irrigation District, 143 Or. 441, 21 P.2d 787. ORS 116.010 directs the judge of a probate court to set aside for the widow all property of the estate exempt from execution.³ It is significant that the widow is entitled to her rights under ORS 116.015 only if the exempt property, including the homestead, is insufficient for her support.

Since the Oregon legislature has made the right to support of the widow dependent on the insufficiency of the homestead and other exempt property, for support, it would be logical that we look to the Oregon Supreme Court cases, construing the homestead statutes,⁴ in arriving at a conclusion to our problem. The right to a homestead exists solely by reason of statute. Hansen v. Jones, 57 Or. 416, 109 P. 868. The Oregon statute on the selection of a homestead is not self-executing. Jenning v. Jenning, 197 Or. 366, 253 P.2d 276. The probate homestead is premised on the homestead exempt from execution. ORS 116.010. The homestead exemption is not an estate, but is a personal privilege which must be claimed in order to be effective. Moore v. Schermerhorn, 210 Or. 23, 307 P.2d 483, 308 P. 2d 180, 65 A.L.R.2d 715; Crim v. Thompson, 112 Or. 399, 410, 229 P. 916; Varner v. Portland Trust Bank, 210 Or. 658, 662, 313 P.2d 444. The widow's claim for support is analogous to her right of dower. The death of the widow prior to the assignment of dower terminates that right. Dahlhammer & Roelfs v. Schneider, 197 Or. 478, 252 P.2d 807.

It seems rather clear that the widow in the instant case would not be entitled to support without first showing, (1) that the exempt property, including the homestead, was insufficient for her support, and (2) that the estate was sufficiently solvent to satisfy all of the debts and liabilities of the decedent and to pay the expenses of administration. In other words, the claim for support would be much weaker, under the Oregon statutes, than the claim for a homestead.

In Re Booth's Estate (Booth v. First National Bank), Or., 349 P.2d 840, 847, decided March 2, 1960, the Oregon Supreme Court held that the widow's allowance should be determined upon the basis of the following considerations:

"(a) The circumstances and condition in life of the widow, including her health;

"(b) Her necessary expenditures for her support;

"(c) The income derived by her from property owned by her before the death of her husband;

"(d) The income derived by her from property acquired by her upon or as a result of the death of her husband;

"(e) Other income received by her; and

"(f) The total assets of the estate."

The Court in that case held that one of the principal considerations was the income which the widow might receive from her separate property, rather than the value of her separate property. The opinion clearly indicates that if said income was sufficient for the support of the widow, then a widow's allowance from the husband's estate would be improper. Likewise, the Booth case holds that the amount of the allowance is within the sound discretion of the trial court. Under the plain language of the statute, as construed by the Oregon Supreme Court, the payment of a widow's allowance is contingent on many factors and is not a vested property right at the time of death.

The plaintiff cites Iltz v. Krieger, 104 Or. 59, 202 P. 409, 206 P. 550; In re Potter's Estate, 154 Or. 167, 59 P.2d 253; Brown v. Miles, 193 Or. 466, 238 P.2d 761; and Jenning v. Jenning, 197 Or. 366, 253 P.2d 276, as supporting its theory that the widow received a vested interest in the property of the estate on the death of the decedent. These cases all dealt with the homestead right of the surviving widow in the husband's estate and all of these cases were decided before Varner v. Portland Trust Bank, supra. None of these cases, when read in the light of the facts involved, lend support to the plaintiff's theory.

Varner v. Portland Trust Bank, supra, was not cited by either the plaintiff or the defendant. In that case a widower died without making application to have the family abode set apart as homestead. His child by a former marriage and the administrator of his estate...