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:
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
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
"(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 restraint on what he can do with the property after he
acquired title. The fact that property acquired through his
estate may have included property disposed of by her will in no
wise affects the quality of the title acquired by him. The
quality of the title as of the date of her death is the matter
involved here, not contract rights which have been fully carried
out by the probate of his will.
It is apparent that the interest taken by Mr. Newman is not a
"terminable interest" within the plain meaning of the statute. He
received all of the decedent's property outright, absolute and in
fee simple. No interest in this property passed from the decedent
to some one else. See Treas. Reg. 105, Sec. 81.47(a-d).
It is conceded that the law of Illinois governs the nature of
devised. Kasper v. Keller, 8 Cir., 1954, 217 F.2d 744; Shedd's
Estate v. Commissioner, 9 Cir., 237 F.2d 345, certiorari denied,
352 U.S. 1024, 77 S.Ct. 590, 1 L.Ed.2d 596; Commissioner of
Internal Revenue v. Ellis' Estate, 3 Cir., 252 F.2d 109.
Under the law of Illinois it is settled beyond question where
property is given by will to one person and in case of his death
to another, that if the primary devisee survives the testator, he
takes the estate absolute. In the leading case of Kohtz v.
Eldred, 208 Ill. 60, at page 67, 69 N.E. 900, at page 901, the
court considered a similar question of construction, and held
that no interest passed under the alternative provision where the
primary beneficiary survives the testator. This is in accord with
the well settled doctrine as espoused by most of the courts in
this country, (2 Jarman on Wills 752), and is clearly in accord
with the intent of the testatrix. In the Kohtz case the Illinois
court in referring to both Mr. Jarman and other authorities said:
"In Vanderzee v. Slingerland, 103 N.Y. 47,
8 N.E. 247, the court held the rule thus announced by Mr.
Jarman applies with equal force to real and personal
property, and said on page 53 [of], 103 N.Y. [on]
Page 248 [of] 8 N.E.: `The authorities in this
country uniformly sustain the construction that where
there is a devisee or bequest simpliciter to one
person, and in case of his death to another, the
words refer to a death in the lifetime of the
testator.' And again, on page 55 [of], 103 N.Y. [on]
Page 249 [of], 8 N.E.: `Where real estate is devised
in terms denoting an intention that the primary
devisee shall take a fee on the death of the
testator, followed by a devise over in case of his
death without issue, it has, I think, been uniformly
held in England, and it is the rule supported by the
preponderance of judicial authority in this country,
that the words refer to a death without issue in the
lifetime of the testator, and that the primary
devisee surviving the testator takes an absolute
estate in fee simple.'"
To the same effect are many authorities from other jurisdictions
cited in the Kohtz case.
In the case at bar decedent's will provides for her children to
take only "In the event my husband shall be deceased at the time
of my decease, * * * ". It was the obvious intent of Mrs. Newman
that her surviving husband take her estate absolute. The
alternative gift over, being purely executory and contingent in
nature, could not and would not vest under the will of Mrs.
Newman. It necessarily follows that no "interest in property"
passed under the decedent's will to any one other than her
surviving spouse. Further, where language such as that employed
in the granting clause of the decedent's will is followed by a
purported limitation over, the courts are uniform in holding that
the estate devised is absolute. MacGalliard v. Duis, 370 Ill. 230,
18 N.E.2d 223; Wolfer v. Hemmer, 144 Ill. 544, 33 N.E. 751.
The plaintiff, accordingly, is entitled to the marital deduction
and the Commissioner's disallowance was erroneous.
In the opinion of the court the, findings of fact and
conclusions of law expressed in this memorandum opinion are
sufficient to meet the requirements of Rule 52(a) of the Federal
Rules of Civil Procedure (28 U.S.C.A.), and any further
preparation and filing of formal findings of fact and conclusions
of law may be dispensed with.
By their stipulation the parties agreed to compute the amount
refundable upon final determination of the question pertaining to
the marital deduction. In the first instance the total asserted
deficiency was the sum of $13,784.84 plus interest in the amount
of $3,799.79, which sums the plaintiff paid February 20, 1958.
Thereafter the plaintiff filed a proper claim for refund.
There are two minor items in connection with such deficiency
that are not now in dispute. These items are (a)
the Commissioner's repayment to the plaintiff of the sum of
$359.59 representing a credit for Illinois inheritance tax paid,
and (b) an agreement between the parties that the fair market
value of the real estate may be increased from $117,000 to
$119,000 which the court approves, and, accordingly, that portion
of the deficiency represented by said increase in valuation shall
be credited to the Government in the computation of the amount
due the plaintiff.
By reason of the premises and in accordance with the
determination herein set forth, the parties will compute the
amount to be refunded the plaintiff for which judgment will be
entered in favor of the plaintiff in due course, and after the
submission to the court of written judgment in form as agreed
upon as to amount and date from which interest is to run.
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