Waldrup v. United States, GC 79-97-WK-P.

• Decision Date: 15 September 1980
• Docket Number: No. GC 79-97-WK-P.,GC 79-97-WK-P.
• Citation: 499 F. Supp. 820
• Parties: Charles E. WALDRUP, Executor of the Last Will and Testament of Marion T. Waldrup, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

499 F. Supp. 820

Charles E. WALDRUP, Executor of the Last Will and Testament of Marion T. Waldrup, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

No. GC 79-97-WK-P.

United States District Court, N. D. Mississippi, Greenville Division.

August 12, 1980.

Memorandum Order September 15, 1980.

Robert Lawson Holladay, Drew, Miss., for plaintiff.

William D. M. Holmes, Dept. Justice, Washington, D. C., H. M. Ray, U. S. Atty., Oxford, Miss., for defendant.

MEMORANDUM OPINION

KEADY, Chief Judge.

This action was instituted by Charles E. Waldrup, Executor of the Last Will and Testament of Marion T. Waldrup, Sr., deceased, against the United States of America, seeking the refund of federal estate taxes in the amount of $12,850.62, together with interest and attorney's fees. Plaintiff has moved for summary judgment on the basis of stipulated facts, exhibits and uncontradicted affidavits, which we hereby set forth as our findings of fact.

FACTS

On April 18, 1976, Marion T. Waldrup, Sr. died testate and was survived by his widow, Rosie Lee Waldrup, three sons, and a daughter. Mr. Waldrup's will provided as follows:

I, MARION T. WALDRUP, a citizen of Sunflower County, Mississippi, over twenty-one years of age and of sound and disposing mind and memory, do hereby make, declare, and publish this, my Last Will and Testament, hereby revoking all other wills and testaments heretofore made by me.

ITEM I.

I hereby give, devise and bequeath unto my wife Rosie Lee Waldrup all bank savings account sic in the name of M. T. Waldrup and/or Rosie Lee Waldrup, my household furniture and fixtures, and my personal automobile.

ITEM II.

I hereby give, devise and bequeath unto my wife Rosie Lee Waldrup, for and during her life time with remainder in my children, Charles E. Waldrup, Janett Waldrup Hubbard, J. W. Waldrup and Marion T. Waldrup, Jr., to share and share alike, the house and lot occupied by us as a home in the City of Drew, Sunflower County, Mississippi.

ITEM III.

I hereby give, devise and bequeath unto my wife Rosie Lee Waldrup for and during her life time with remainder in Charles E. Waldrup, Janett Waldrup Hubbard, J. W. Waldrup and Marion T. Waldrup, Jr., to share and share alike an undivided one-fifth interest in any and all real estate owned by me at the time of my death. I direct that my wife receive $4,800.00 per year free of any debts, from said farm land prior to annual distribution from the farm income being made to her and my children hereinafter named after payment of taxes and expense of ownership. For example, if the land rents for $12,000.00, my wife shall first receive $4,800.00, then the expense of ownership estimated at $3,100.00 for taxes, insurance and payment to JOHN HANCOCK LIFE INSURANCE COMPANY shall be deducted leave sic a balance of $4,100.00 to be distributed to my wife and four children.

ITEM IV.

I direct that the bequests made in Items I, II, and III above be exempt from payment of inheritance or estate taxes and cost of administration.

ITEM V.

In lieu of an executor's fee, I hereby give, devise and bequeath unto Charles E. Waldrup my Mississippi Chemical and Coastal Chemical Stock.

ITEM VI.

I hereby designate Charles E. Waldrup my Executor to serve without bond and with full power to do and perform all things which under this Will and the law he may do and perform without accounting to any Court. I hereby waive the necessities of having a formal appraisal or inventory made of my estate.

IN TESTIMONY HEREOF, I have this the 5th day of March, 1974, signed, declared and published the above and foregoing instrument as my Last Will and Testament, at Drew, Sunflower County, Mississippi, in the presence of the undersigned witnesses.

On July 20, 1976, Rosie Lee Waldrup filed a petition for Widow's Allowance, Construction of the Will and Payment of Rental in the Chancery Court of Sunflower County, Mississippi. In her petition, Mrs. Waldrup states that she is entitled to a widow's allowance in the amount of $6,600.00, the funds in a Golden Savings Account in the Merchants and Planters Bank in Drew, Mississippi, bearing account number XXXXXXX and any other funds in accounts bearing the name of M. T. Waldrup alone and in accounts in the names of M. T. Waldrup and Rosie Waldrup, and $4,800.00 representing the income from farm lands for the year 1976 as provided in Item III of M. T. Waldrup's will. Mrs. Waldrup also filed a renunciation of the will¹ on July 20, 1976 although a copy of this document, if indeed there be one, is not before the court.

On August 26, 1976, Mrs. Waldrup executed a written agreement with the other estate beneficiaries whereby she received the following property:

1. All household furniture and fixtures owned by decedent at the time of his death and located in deceased's Drew residence.

2. The family automobile.

3. Funds on deposit in Merchants and Planters Bank in Drew, Mississippi in the names of Mr. or Mrs. M. T. Waldrup in the amount of $10,477.40.

4. A deed of conveyance to a cemetery plot in Drew, Mississippi.

5. A deed of conveyance to the house and lot occupied by decedent at the time of his death.

6. $50,000.00 in cash, $30,000.00 of which was to be paid on or before September 15, 1976, with $10,000.00 payable on January 1, 1977, and the remaining $10,000.00 on January 1, 1978.²

The value of these properties totals $93,484.78. In exchange for these properties Mrs. Waldrup agreed to transfer 640 acres of land in Sunflower County and to relinquish any and all claims against the estate of M. T. Waldrup. By uncontradicted affidavit of R. C. McBee, the attorney who represented Mrs. Waldrup in the filing of her petition, this settlement agreement was entered into after "an extended time of arms length negotiations" between the parties who were "highly adverse" and represented by separate counsel. P. J. Townsend, Jr., who represented the children and estate of M. T. Waldrup during the period of settlement negotiations, also states by affidavit that the settlement was based on Mrs. Waldrup's valid claims against the will and that "the controversy was between genuinely adverse claimants."

The Commissioner of Internal Revenue determined that the taxable estate of M. T. Waldrup was $215,426.02 and allowed a marital deduction of $46,928.55. On December 1, 1978, plaintiff filed his claim for refund of estate taxes with the Director of Internal Revenue Service wherein plaintiff demanded that an estate tax refund be allowed in the original principal sum of $12,850.62, together with interest, attorney's fees and costs.³

Plaintiff maintains that the total marital deduction should have amounted to $93,484.78, the value of properties received under the settlement agreement. The United States contends that the estate is not entitled to a refund since the proper marital deduction of one-fifth of the distributive estate, which amounts to $57,198.47, minus one-fifth of the applicable estate taxes of $10,416.40, for a total marital deduction of only $46,482.07, was allowed in the first instance.

APPLICABLE LAW

In computing a decedent's estate for estate tax purposes, 26 U.S.C. § 2056 allows a marital deduction in an amount not to exceed one-half of the value of the adjusted gross estate or $250,000.00, whichever is greater, for property which passes or has passed to decedent's surviving spouse. To qualify as a marital deduction, the property interest must have passed from the decedent to his spouse, must be a deductible interest, and must be a non-terminable interest. While simple in concept, the estate marital deduction "has become more complex with each encrusting precedent." Citizens & Southern Nat'l Bank v. United States, 451 F.2d 221, 222 (5th Cir. 1971). The issue present in this case is whether the interest acquired by Mrs. Waldrup under the settlement agreement "passed" to her from the decedent.

The tax regulations provide our starting point. The applicable provisions are as follows:

If as a result of a controversy involving the decedent's will, or involving any bequest or devise thereunder, his surviving spouse assigns or surrenders a property interest in settlement of the controversy, the interest so assigned or surrendered is not considered as having "passed from the decedent to his surviving spouse."

If as a result of the controversy involving the decedent's will, or involving any bequest or devise thereunder, a property interest is assigned or surrendered to the surviving spouse, the interest so acquired will be regarded as having "passed from the decedent to his surviving spouse" only if the assignment or surrender was a bona fide recognition of enforceable rights of the surviving spouse in the decedent's estate. Such a bona fide recognition will be presumed where the assignment or surrender was pursuant to a decision of a local court upon the merits in an adversary proceeding following a genuine and active contest. However, such a decree will be accepted only to the extent that the court passed upon the facts upon which deductibility of the property interests depends. If the assignment or surrender was pursuant to a decree rendered by consent, or pursuant to an agreement not to contest the will or not to probate the will, it will not necessarily be accepted as a bona fide evaluation of the rights of the spouse. (Emphasis added.)

26 CFR § 20.2056(e)-2(d)(1) & (2). Therefore, the regulations clearly provide that the interests surrendered by Mrs. Waldrup, i. e., her widow's allowance, her right to claim a child's share in the property by renouncing the will, and all bequests under the will not retained by her under the settlement agreement, are irrelevant in a determination of the estate marital deduction. Id. at (d)(1). The Fifth Circuit has recognized that the amount of the marital deduction, in situations such as this, is to be determined by the value of the property actually received under the settlement agreement, "and not as to the value of the property s...