Waldrop v. United States

• Citation: 137 F. Supp. 753,133 Ct. Cl. 902
• Decision Date: 31 January 1956
• Docket Number: No. 174-54.,174-54.
• Parties: Frank C. WALDROP and William C. Shelton, Surviving Executors of the Estate of Eleanor Patterson, Deceased, v. The UNITED STATES.
• Court: U.S. Claims Court

137 F. Supp. 753

133 Ct. Cl. 902

Frank C. WALDROP and William C. Shelton, Surviving Executors of the Estate of Eleanor Patterson, Deceased, v. The UNITED STATES.

No. 174-54.

United States Court of Claims.

January 31, 1956.

Edmund D. Campbell, Washington, D. C., John C. Ristine, Washington, D. C., and Jackson, Nash, Brophy, Barringer & Brooks, New York City, and Douglas, Obear & Campbell, Washington, D. C., on the briefs, for plaintiffs.

Elizabeth B. Davis, Washington, D. C., with whom was H. Brian Holland, Asst. Atty. Gen., Andrew D. Sharpe, Washington, D. C., on the brief, for defendant.

Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and LARAMORE, Judges.

MADDEN, Judge.

The plaintiffs are the executors of the will of Eleanor Patterson, a resident of the District of Columbia, who died on July 24, 1948. They sue to recover $633,814.88 of the $7,476,927.10 of estate tax which they have paid to the United States.

The decedent's gross estate amounted to $16,839,459.50. By her will she made specific bequests to individuals amounting to $5,181,208.97, and bequeathed to various persons annuities having a commuted value of $659,508.66. She made a bequest of $229,406 to the American Red Cross which bequest was deductible for estate tax purposes. There were debts and administration expenses amounting to $1,666,205.05 which were also deductible. The entire balance of her estate she left to trustees in trust for charities. This balance before deducting Federal estate taxes amounted to $8,260,474.35. But the United States assessed an estate tax of $7,476,927.10 as we have seen, and the District of Columbia assessed a similar tax of $1,722,880.72 a total of such taxes of $9,199,807.82. The payment of these taxes more than exhausted the residue of $8,260,474.35 which would, but for the taxes, have been available for the charitable trust. This would have seemed to make it necessary to take some one million dollars out of the specific bequests in order to pay the estate taxes.

But the executors were able to obtain income on that portion of the gross estate which was ultimately used to pay the debts, and part of the taxes. That income amounted to $1,165,521.34, an amount sufficient to pay the balance of the taxes and leave $238,979.38 to go to the charitable trust.

The plaintiffs say that if the $1,165,521.34 had been added to the gross estate, the estate would have shown $1,039,040.78 available for the residue for charity, and that amount would have been deductible from the gross estate before estate taxes were assessed, and the taxes would have been reduced by 77% (the estate tax rate here applicable) of that amount, that is to say, by $633,814.88, the amount here sued for. Stated in another way, the $238,979.38 given above as the amount available for the residuary charitable trust, even if no deduction is allowed, is only 23% (100-77%) of the amount which would be available if the deduction were allowed.

The Government urges that the income produced by the estate after the death of the decedent is not, for estate tax purposes, a part of the gross estate. It cites Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421 to the effect that such income cannot be subjected to the estate tax, and Maass v. Higgins, 312 U.S. 443, 61 S.Ct. 631, 85 L.Ed. 940 holding that this is so even where the executors elect, under section 811(j) of the Internal Revenue Code of 1939, 26 U.S.C. § 811(j), to use the optional valuation date of one year after the testator's death. Hence, the Government says, since the post mortem income is not a part of the gross estate, and since the charitable deduction is, according to sec. 812(d) of the Internal Revenue Code of 1939, 26 U.S.C. (1952 ed.) § 812(d), to be a deduction from the gross estate, it would be illogical to allow a deduction from the gross estate of assets not included in it, and which would not be taxed as a part of it even if they went to a private devisee.

The Government further urges that, from a practical standpoint, to allow a charitable deduction where it cannot be determined at the time of the decedent's death would render any computation of the federal estate tax almost impossible. It cites the instant case in which when the estate tax return was made, no charitable deduction for the residuary gift was claimed, since there was no residue; when the first refund claim was filed, as of May 31, 1952, a charitable deduction of $95,436.93 was asserted; presently, because of the August 31, 1952 transfer of post mortem income to principal, a charitable deduction of $1,039,040.78 is asserted. The Government says that this process could go on indefinitely, so long as there were undistributed assets of the estate which might earn income. It cites Henslee v. Union Planters Bank, 335 U.S. 595, 69 S.Ct. 290, 293, 93 L.Ed. 259, where the will permitted unlimited invasion of the corpus of the estate for the benefit of the decedent's mother during her life, and gave the remainder after her death to charity. The mother died three years after the decedent and in fact there had been no invasion of the corpus. The Court said:

"Nor do we think it significant that the trust corpus was intact at the mother's death, for the test of present ascertainability of the ultimate charitable interest is applied `at the death of the testator.' Ibid. The charitable deduction is a matter of congressional grace, and it is for Congress to determine the advisability of permitting amendment of estate tax returns at such time as the probable vesting of the charitable interest has reduced itself to unalterable fact."

The...