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NEWMAN v. UNITED STATES

September 4, 1959

ARTHUR F. NEWMAN, ADMINISTRATOR WITH THE WILL ANNEXED OF THE ESTATE OF ETHEL L. NEWMAN, DECEASED, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Poos, District Judge.

This is an action brought pursuant to 28 U.S.C.A. § 1346 (as amended) for refund of an assessed deficiency of a portion of Federal estate taxes paid by plaintiff, administrator of the estate of Ethel L. Newman, deceased. The case was tried before the court upon an agreed stipulation of facts, together with attached exhibits and briefs.

The only question presented is whether the Commissioner erred in disallowing the marital deduction and determining the interest passing to the surviving spouse, W.D. Newman, was a terminable interest under Sec. 812(e)(1) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 812(e)(1).

Ethel L. Newman predeceased her husband, dying testate April 16, 1952. Both had executed mutual wills on February 12, 1945. Mrs. Newman's will was admitted to probate by the Probate Court of Sangamon County, Illinois, April 24, 1952. In her estate tax return filed February 10, 1955, the property received by her surviving spouse under her will was reported as property for which the marital deduction is authorized. Thereafter, on March 2, 1957, W.D. Newman died testate and his will was duly admitted to probate in Sangamon County, Illinois. The plaintiff then became and is now the administrator with the will annexed in the estate of Ethel L. Newman. The order of probate in each estate is final, and the provisions of each will provide for and constitute the disposition of the respective decedents' estate. The pertinent provisions of the testatrix' will are:

II.

    "In consideration of the mutual will on this date
  executed by my husband, W.D. Newman, I give, devise
  and bequeath to my husband, W.D. Newman, all of my
  property, both real and personal, and all effects of
  every kind and nature whatsoever and wheresoever
  situated, of which I may die seized and possessed, or
  to which I may be entitled at the time of my decease,
  to have and to hold same as an absolute estate
  forever. This will is a mutual will executed
  contemporaneously with the aforesaid mutual will of
  my husband, W.D. Newman, and each is consideration
  for the other, and the provisions of same are
  reciprocal and it is the express intention and
  desire, based upon said consideration, that each of
  our respective wills be irrevocable."

III.

    "In the event my husband shall be deceased at the
  time of my decease, then I give, devise and bequeath
  all of my property, both real and personal, and all
  effects of every kind and nature whatsoever and
  wheresoever situated of which I may die seized and
  possessed, or to which I may be entitled at the time
  of my decease, to my children, Arthur Newman, Mildred
  Jones and William D. Newman, Jr., in equal shares,
  share and share alike; and in the event any of my
  said children predecease me leaving a child or
  children surviving, I direct that such child or
  children of my deceased child take per stirpes the
  parent's share, and in the event any of my said
  children should be deceased at the time of my death
  leaving no child or children surviving, then I direct
  that the share of my said deceased child shall be
  divided equally among my children surviving me or
  their child or children surviving, who shall take per
  stirpes the parent's share."

The will of W.D. Newman was similar in all its provisions except that where her will gave everything to W.D. Newman, her husband, under Clause II, his will gave everything to Ethel L. Newman, his wife, under Clause II thereof. Both wills recite that they are mutual wills executed on the same date, and both wills as so executed have been admitted to probate.

The estate taken by the surviving spouse under Mrs. Newman's will qualifies for the marital deduction pursuant to the provisions of 26 U.S.C.A. § 812(e)(1)(A), unless the interest is a "life estate or other terminable interest" as defined in subsection (B) as follows:

    "(B). Life estate or other terminable interest.
  Where, upon the lapse of time, upon the occurrence of
  an event or contingency, or upon the failure of an
  event or contingency to occur, such interest passing
  to the surviving spouse will terminate or fail, no
  deduction shall be allowed with respect to such
  interest —
    "(i) if an interest in such property passes or has
  passed (for less than an adequate and full
  consideration in money or money's worth) from the
  decedent to any person other than such surviving
  spouse (or the estate of such spouse); and
    "(ii) if by reason of such passing such person (or
  his heirs or assigns) may possess or enjoy any part
  of such property after such termination or failure of
  the interest so passing to the surviving spouse; and
  no deduction shall be allowed with respect to such
  interest (even if such deduction is not disallowed
  under clause (i) and (ii) —
    "(iii) if such interest is to be acquired for the
  surviving spouse, pursuant to directions of the
  decedent by his executor or by the trustee of a
  trust. * * * "

The Commisioner of Internal Revenue determined on his construction of the two wills that the language of these mutual wills constituted a binding contract, the result of which resulted in the surviving spouse acquiring a terminable interest which was not subject to the marital deduction. The only effect of the binding contract created by the execution of these mutual wills was that each of the wills was irrevocable. Neither will bound either the husband or the wife to retain the property so bequeathed to the other. By her prior death Clause II became operative and spoke from the time of her death. On his death after that of his wife, Clause III of his will became operative and all property that he owned at the time of his death passed to his three children, no matter from which source it was acquired. The provision of Clause III of her will in no wise diminished or affected the title he acquired by Clause II. There was no event or contingency which affected the quality of his title. On her death the estate, real and personal, that she owned passed to him without any qualification whatsoever. The government argues that her will did not pass a fee simple estate to her husband and contends that her will prevented him from making a testamentary disposition of his property other than as provided in her will. They make no contention that the children did not acquire his estate under his will. In construing her will, it must be examined from what is said by the language of the four corners of the instrument itself. It only speaks from her death, and places no ...


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