Weyenberg v. United States, Civ. A. No. 6141.

• Decision Date: 27 October 1955
• Docket Number: Civ. A. No. 6141.
• Citation: 135 F. Supp. 299
• Parties: Frank L. WEYENBERG and The First Wisconsin Trust Company, a Wisconsin corporation, as co-trustees u/w Sylvester A. Weyenberg, Deceased, Plaintiffs, v. The UNITED STATES, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

135 F. Supp. 299

Frank L. WEYENBERG and The First Wisconsin Trust Company, a Wisconsin corporation, as co-trustees u/w Sylvester A. Weyenberg, Deceased, Plaintiffs, v. The UNITED STATES, Defendant.

Civ. A. No. 6141.

United States District Court E. D. Wisconsin.

October 27, 1955.

John S. Best and Roy C. LaBudde, Milwaukee, Wis., for plaintiffs.

Edward G. Minor, U. S. Atty., Milwaukee, Wis., for defendant.

GRUBB, District Judge.

This is a suit for refund of Federal estate taxes paid by plaintiffs as co-executors of the will of Sylvester A. Weyenberg, deceased. Most of the facts were stipulated by the parties for trial before the Court.

The decedent died on June 29, 1949, in Waukesha County, Wisconsin. He left surviving him a widow and two sons. The widow was not the mother of the sons, one of whom was a minor and the other an incompetent during the period here material.

The will admitted to probate contained no provision for the surviving widow. Under Wisconsin Statutes, § 233.14, the widow elected to take a statutory one-third share of her husband's net personal estate. In the proceedings had before the County Court the widow was represented by an attorney as were the co-executors, and the two sons were represented by a guardian ad litem who was an attorney. By an order dated May 16, 1950, the County Court of Waukesha County, Wisconsin, determined the widow's share to be one-third of the estate unreduced by Federal estate taxes. That portion of the estate assigned to the widow was actually distributed to her by the executors. No appeal or other proceeding for review of the final decree was commenced within the time limited by Wisconsin law for an appeal.

The plaintiffs as executors filed a Federal estate tax return based on two-thirds of the decedent's residuary estate. The Commissioner of Internal Revenue determined that there was a deficiency in the Federal estate tax return of $2,530.50 due to the fact that the County Court had not reduced the widow's share of the estate by Federal estate taxes before distributing such share to the widow. The executors paid the deficiency and now sue for a refund of $7,486.05.

In the proceeding before the County Court, the question of whether the widow's one-third share of the net personal estate of the deceased should be determined before or after the impact of Federal estate taxes was never discussed with the County Judge either in open court or in chambers. However, the guardian ad litem testified that he understood the duties of a guardian ad litem; that he understood that his wards' interests were adverse to those of the widow; that he understood that there was an issue as to who was to bear the impact of the Federal estate tax; that that issue was raised and discussed in conferences between himself and the attorneys for the widow and the executors before the final decree; that the amount of the shares to be distributed was also discussed in those conferences; that the law concerning the impact of Federal taxation on the marital deduction was presumed to be fairly clear and he was satisfied that the conclusion reached among the attorneys was the law; that he knew he had an obligation to raise an objection before the court if such conclusion were not correct; and that he knew that the Federal estate tax would be borne by his wards.

The question presented to the Court in this case is whether the decree of the County Court giving the widow an amount equal to one-third of the residuary estate unreduced by Federal estate taxes is to be given conclusive effect taxwise by the Federal taxing authorities.

The statute under construction is Section 812 of Title 26 U.S.C.A., which provides:

"For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate —

* * * * * *

"(e) Bequests, etc., to surviving spouse

"(1) Allowance of marital deduction

"(A) In general. An amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.

* * * * * *

"(E) Valuation of interest passing to surviving spouse. In determining for the purposes of subparagraph (A) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this subsection —

"(i) there shall be taken into account the effect which a tax imposed by this chapter, or any estate, succession, legacy, or inheritance tax, has upon the net value to the surviving spouse of such interest; * * *."

Regulation 105, Section 81.47c contains the following explanatory information concerning 812(e):

"(c) Effect of Death Taxes. Section 812(e) (1) (E) provides that in the determination of the value of any property interest which passed from the decedent to his surviving spouse, there shall be taken into account the effect which the federal estate tax, or any estate, succession, legacy, or inheritance tax, has upon the net value to the surviving spouse of such property interest.

* * * * * *

"If the decedent bequeaths his residuary estate, or a portion thereof, to his surviving spouse, and his will contains a direction that all death taxes shall be payable out of such residuary estate, the value of the bequest, for the purpose of the marital deduction, is based upon the amount of the residue as reduced pursuant to such direction. If the residuary estate, or a portion thereof, is bequeathed to the surviving spouse, and by the local law the federal estate tax is payable out of the residuary estate, the value of the bequest, for the purpose of the marital deduction, may not exceed the amount thereof as reduced by the federal estate tax."

There can be little doubt that the purpose of the marital deduction provision of 26 U.S.C.A. § 812 was to equalize the Federal estate tax between citizens of common law states and citizens of community property states. The method of equalization was to some extent left up to the individual states. Hamrick v. Pitts, D.C., 135 F.Supp. 835.

"Congress expressly left the question of whether a spouse's share * * * qualifying for marital deduction should be subject to federal estate tax, to the individual states to determine for themselves." In re Will of Uihlein, infra 264 Wis. 362, 59 N.W.2d 646.

As a result, different results were arrived at in different states. Several courts have held that because the marital deduction relieves the widow's share of Federal estate taxes up to one-half of the taxable estate, her share should not be charged with any part of that tax. Lincoln National Bank & Trust Co. v. Huber, Ky., 240 S.W.2d 89; Miller v. Hammond, 156 Ohio St. 475, 104 N.E.2d 9; See also In re Peter's Will, 204 Misc. 333, 88 N.Y.S.2d 142. Other states have reached the opposite conclusion. Wachovia Bank & Trust Co. v. Green, 236 N.C. 654, 73 S.E.2d 879; Northern Trust Co. v. Wilson, 344 Ill.App. 508, 101 N.E. 2d 604.

The Wisconsin Supreme Court in 1953 settled the question for Wisconsin of the impact of Federal estate taxes in Re Will of Uihlein, 264 Wis. 362, 59 N.W.2d 641, 38 A.L.R.2d 961. The court held that the words "net estate" in Wisconsin Statutes, § 233.14 under which the widow took one-third of her husband's estate meant that part of the estate which remained after payment of all charges against the estate including Federal taxes. Federal taxes, it said, fell into the same category as debts chargeable to the estate.

We feel that the Uihlein decision, which settled the law in Wisconsin in 1953, does not govern the result taxwise under the facts of this case. The decision of the County Probate Court has become final. We cannot now sit as an appellate court to change the result of that decision. The state, through its courts, determines the property rights of its citizens in probate proceedings. The Federal estate tax law hinges on the determination of those rights. Here the County Court passed a full one-third share of the decedent's estate...