Petition for Review of the Decision of the United States Board of Tax Appeals.
Before EVANS and SPARKS, Circuit Judges, and BALTZELL, District Judge.
BALTZELL, District Judge.
This is a proceeding to review the action of the Board of Tax Appeals wherein it overruled the determination of petitioner and held there was no deficiency in the estate tax of Rose A. Kelly, deceased.
The facts, briefly stated, are that John A. Kelly and Rose A. Kelly were husband and wife, living together in the city of Chicago, Ill., for many years prior to the death of the husband in 1927. There lived with them at all times their only child, a son, Francis J. Kelly. A considerable amount of property was accumulated by them in the city of Chicago, and the husband, at the time of his death, owned a valuable piece of property at Madison and Ashland avenues, know as the "flatiron Building," which will hereinafter be referred to as the "Flatiron property." The husband and wife owned, as joint tenants, certain real estate located at 112th and Michigan avenue, such property being very valuable, and known as "Roseland," which will hereinafter be referred to as the "Roseland property."
The husband, John A. Kelly, died testate on May 17, 1927. By the terms of his will he gave to his wife, Rose A. Kelly, all of his "household goods and effects." He also gave to her, "in lieu of dower rights and of all other rights, interest and claim which she might have or claim in or to my estate or any part thereof," the Roseland property during her natural life, and the remainder to his son, Francis J. Kelly, in fee simple. There were certain bequests for the payment of specified sums to individuals each year, and his wife was charged with the responsibility of paying them. She and their son were named executors of his will, and after his death they duly qualified as such and proceeded with the administration of it.
During his lifetime John A. Kelly contracted rather large financial obligations, and at the time of his death was indebted to a considerable extent, although his estate was solvent. One of such obligations consisted of an indebtedness in the principal sum of $150,000, the payment of which was secured by a deed of trust upon the Flatiron property. This indebtedness, together with some accrued interest, was unpaid at the time of his death, and, in the determination of his federal estate tax, the entire amount of indebtedness due under the deed of trust was claimed and allowed as a deduction from his gross estate. Such estate tax return does not list any "household goods or effects" as having been owned by him at the time of his death. After his death, the widow, Rose A. Kelly, and the son, Francis J. Kelly, executed a new deed of trust upon the Flatiron property, which had been devised to the son, and the Roseland property, to secure an indebtedness of $150,000 which they borrowed from the Continental Illinois Bank & Trust Company to liquidate such indebtedness owing by the deceased, John A. Kelly, and for no other purpose. This debt was unpaid in its entirety at the time of the death of the widow, Rose A. Kelly, on October 11, 1930. After her death, the son, Francis J. Kelly, designated executor of her estate, duly qualified as such. A federal estate tax return was filed by him, as such executor, in which he listed as a part of her gross estate the Roseland property, and fixed as its fair market value the sum of $250,000. He also listed, as a part of her gross estate, household goods of the value of $500.
Upon the Commissioner's determination that there was a deficiency in the estate tax of the decedent, Rose A. Kelly, in the amount of $3,783.16, the executor of her estate filed a petition with the Board of Tax Appeals challenging the correctness of such determination. The contentions of the executor, as to the alleged errors of the Commissioner as asserted in his original petition in such proceeding, were all overruled by the Board, and the Commissioner's determination was sustained. One of the propositions presented in his original petition was that there should be deducted from the gross estate of decedent the above-mentioned indebtedness of $150,000, which amount was owing at the time of her death under the deed of trust executed by her and himself to pay an indebtedness of an identical amount owing by John A. Kelly at the time of his death, and for which his estate had received credit in the settlement of his estate tax. Another proposition presented by him therein was that at the time of the death of John A. Kelly the sum of $30,000 was owing by him to the Continental & Commercial National Bank, which was evidenced by an unmatured note, and which was an individual obligation.This indebtedness was deducted from the gross estate of John A. Kelly in determining his estate tax. After his death, the note was reduced to $27,000, and Rose A. Kelly and Francis J. Kelly executed their note for that amount to the bank, and the bank canceled and surrendered the note of John A. Kelly. There was due upon this note the sum of $24,000 at the time of the death of Rose A. Kelly. Her executor claimed this as a deduction from her gross estate, which was denied by the Commissioner, and his decision sustained by the Board.No separate order was made by the Board disallowing these items as deductions, but the ruling thereon was taken into consideration by it in arriving at its final conclusion that there was no deficiency.
The Board, after the hearing upon the original petition, but before an order was made, and over the objection of the Commissioner, permitted the executor (petitioner in that proceeding) to file an amendment to his original petition. In the amendment he alleged that the decedent, Rose A. Kelly, had only a life estate in the Roseland property under the provisions of item 3 of the will of John A. Kelly, which property had a fair market value of $250,000.This proposition was not presented in the original petition. He asked, therefore, that the value of this property be stricken from the federal estate tax return theretofore filed by him as executor of her estate. The Board sustained his contention, and held that the value of the Roseland property should not be included in her gross estate. Having thus excluded this property, the Board decided that "there is no deficiency in the estate tax," and from such decision the Commissioner has filed, and is now prosecuting, this petition for a review thereof.
Respondent's contention is that the decedent is deemed to have elected to take a life estate in the Roseland property under the will of her husband, John A. Kelly, even though such property was owned by her and her husband as joint tenants at the time of his death. He contends that she accepted other property bequeathed to her under the will, and that therefore she took, under the law, only a life estate in the Roseland property. In this contention he was sustained by the Board.
Petitioner's contention is that the decedent took no property under the will to which she was not entitled under the law, and that therefore no election was required, and upon her husband's death she became the owner in fee simple of the entire Roseland property. The question thus presented is whether, under the facts, the decedent became, under the law, the owner in fee simple of the Roseland property, upon her husband's death, or whether, under the provisions of his will, she became the owner of a life estate only.
In determining the value of decedent's gross estate at the time of her death, consideration must be given to all of the property owned by her at that time. The Revenue Act provides: "Sec. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated." 44 Stat. 9, 70 (see 26 U.S.C.A. § 411).
Therefore, if decedent had only a life estate in the Roseland property at the time of her death, the value of such property should not be considered in determining the value of her gross estate. If, on the other hand, she was, at that time, the owner thereof in fee simple, its value must then be included therein.
In considering the question of whether or not decedent was, at the time of her death, the owner in fee simple of the Roseland property, it must be kept in mind that she and her husband, John A. Kelly, were, during the lifetime of both of them, the owner of this property as joint tenants. Under the law, the title to the entire property would vest in the survivor, upon the death of either of them. Smith-Hurd Ann. St. Ill. c. 76, § 1; Cahill's Ill. Rev. St. 1933, c. 76, par. 1. Therefore, if John A. Kelly had died intestate, no question would now exist as to the owner of the fee. It would then have vested in his wife, Rose A. Kelly, immediately upon his death. The situation, however, is complicated by the fact that a will was executed by him in which he sought to devise to his wife a life estate only in such property, and the remainder to his son. In such will he also devised to his wife "household goods and effects." The law is plain that, if a benefit is conferred upon a person by the provisions of the will of another, and such will also assumes to devise or bequeath to such person property already owned by him, such person is put to an election as to whether he will take under the will or assert his legal rights and renounce such benefits. He cannot claim under and against it at the same time. The Supreme Court of the United States, in the case of Smithsonian Institution v. Meech, 169 U.S. 398, ...