Summary
In Varick v. Commissioner, 10 T.C. 318 (1948) (Court reviewed), we examined the deductibility for Federal estate tax purposes of a charitable bequest that was voidable by the exercise of a forced heir's statutory share under California law.
Summary of this case from Longue Vue Found. Estate ofOpinion
Docket No. 10567.
1948-02-18
ESTATE OF MELUSINA H. VARICK, DECEASED, FIRST NATIONAL TRUST AND SAVINGS BANK OF SANTA BARBARA, EXECUTOR AND TRUSTEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Walter L. Nossaman, Esq., for the petitioner. E. A. Tonjes, Esq., for the respondent.
Decedent, a resident of California, by her will bequeathed the residue of her estate, consisting of more than one-third of her estate, to charitable organizations. She was survived by her husband and a sister. The husband was named and served as one of the executors. The will was admitted to probate and the estate was administered by the California court having jurisdiction in such matters. The statutes of California provided that, while legacies to charities were valid, they ‘may not collectively exceed one-third of the testator's estate as against (the testator's) spouse * * * (or) sister * * * .‘ With the explicit consent of decedent's husband and the tacit consent of her sister, the estate, pursuant to the orders of the California court, was distributed according to the terms of her will. Held, charitable bequests were voidable, not void, and decedent's estate is entitled to deduct the entire amount thereof from the gross estate, pursuant to section 812(d), I.R.C. Walter L. Nossaman, Esq., for the petitioner. E. A. Tonjes, Esq., for the respondent.
Respondent has determined herein a deficiency of $29,016.86 in estate tax liability. Petitioner alleges that respondent erred in this determination and claims an overpayment because of respondent's failure to allow as deductions certain expenses of administration.
The question presented by the determination of the deficiency and petitioner's principal allegation of error is whether petitioner is entitled, under section 812(d) of the Internal Revenue Code, as amended by section 408 of the 1942 Revenue Act and section 511 of the 1943 Revenue Act, to deduct amounts received by three institutions of the character described in section 812(d).
The notice of deficiency stated: ‘It is held that under the provisions of the Probate Code of California only one-third of this decedent's residuary estate passed to the charities named in her will; that such one-third of the residue amounted to $73,618.18; and that the excess thereof, $109,673.66, claimed as a deduction in decedent's estate tax return, is not an allowable deduction in computing decedent's net estate for purposes of estate tax thereon. Section 812 of the Internal Revenue Code, as amended.‘
The questions incident to respondent's failure to allow administration expenses have been settled by stipulation, and effect will be given to this stipulation in proceedings under Rule 50.
FINDINGS OF FACT.
All of the facts are stipulated or admitted in the pleadings and are hereby found accordingly.
Melusina H. Varick, a resident of Santa Barbara, California, died November 24, 1942, leaving a last will dated November 4, 1941, which was duly admitted to probate on December 14, 1942, in Probate Cause No. 34,255, in the Superior Court of the State of California in and for the County of Santa Barbara. Decedent devised to her husband her interest in the family home, together with certain articles of personal property and a legacy of $10,000. She bequeathed $10,000 to the First National Trust & Savings Bank of Santa Barbara in trust, to pay the net income to her sister, Myra Hopkins Taylor, during her sister's life, the principal of this fund to go at her sister's death into the Varick Memorial Fund, a trust created under the residuary clause. The residue of the estate, in the event that decedent survived for more than six months after the execution of her will, was given to her husband, William R. Varick, and the First National Trust & Savings Bank of Santa Barbara, in trust. The trustees were directed to pay $6,000 per year to her husband for his life from either principal or interest, at their discretion, and all income of the trust in excess of that amount. Following his death, the trust estate remaining was to go to three institutions, namely, Dartmouth College, New Hampshire Children's Aid & Protective Society, and Elliott Hospital Associates, Manchester, New Hampshire (Senior Branch, Inc.), all these being institutions of the character described in section 812(d), Internal Revenue Code.
On October 13, 1943, William R. Varick filed in the probate cause an instrument executed by him, dated July 30, 1943, wherein he waived and disclaimed all interest in the decedent's estate not specifically devised to him, specifically disclaiming all interest in the gifts to charitable purposes. At no time prior to decedent's death did William R. Varick, the surviving spouse, execute an instrument in writing, as provided for by section 43 of the Probate Code of the State of California, purporting to waive any of his rights as the surviving spouse of decedent. At no time did Myra Hopkins Taylor execute an instrument in writing purporting to waive any of her rights as a surviving sister of the decedent.
Decedent's husband did not contest the admission of the will of decedent to probate, nor did he or Myra Hopkins Taylor in any manner oppose any of the decrees or orders entered by the probate court in the probate of the will of decedent.
William R. Varick died November 9, 1945. The $10,000 trust for decedent's sister was established under an order for partial distribution dated July 6, 1943.
The Superior Court of the State of California in and for the County of Santa Barbara is the court which, under the law of California, had jurisdiction of the administration and distribution of the estate of Melusina H. Varick, deceased. The first and final account, report, and petition for distribution under the will, dated October 27, 1943, contains a paragraph reciting the disclaimer filed by William R. Varick, on the 13th day of October 1943.
On the 8th day of November 1943, the court issued a decree settling first and final account and for distribution under will. The court's decree of distribution distributed the estate in accordance with the provisions of the decedent's will. This decree has never been appealed from or modified and still remains in full force and effect.
At the time of decedent's death, her husband was 72 and her sister was 78 years of age. They were decedent's sole heirs, entitled, in the absence of a valid will, to her estate in equal shares.
OPINION.
KERN, Judge:
The question presented herein is whether all or only a part of amounts of the interests in decedent's residuary estate purportedly bequeathed to the three charitable or educational corporations or associations by decedent's will are deductible from the value of decedent's gross estate pursuant to the provisions of section 812(d) of the Internal Revenue Code.
Respondent has determined that ‘under the provisions of the Probate Code of California, only one-third of this decedent's residuary estate passed to the charities named in her will * * * and that the excess thereof, $109,673.66, claimed as a deduction in decedent's estate ax return, is not an allowable deduction in computing decedent's estate for purposes of estate tax thereon. ‘ On brief respondent supports this determination by the following argument: The charitable bequest of decedent in excess of one-third of her estate were void under the provisions of sections 41, 42, and 43 of the California Probate Code;
in so far as the charitable bequests were void, the charities named in the will did not receive anything pursuant thereto from decedent; the surviving husband of the decedent, in fact and in law, received the bequests (in excess of one-third of the residuary estate) purportedly made to the charities by decedent's will; and it was through him and not through the decedent that the charities received the amounts disallowed as deductions from the gross estate.
Sec. 41. Restrictions. No estate, real or personal, may be bequeathed or devised to any charitable or benevolent society or corporation, or to any person or persons in trust for charitable uses, by a testator who leaves a spouse, brother, sister, nephew, niece, descendant or ancestor surviving him, who, under the will, or the laws of succession, would otherwise have taken the property so bequeathed or devised, unless the will was duly executed at least thirty days before the death of the testator. If so executed at least thirty days before death, such devices (sic) and legacies shall be valid, but they may not collectively exceed one-third of the testator's estate as against his spouse, brother, sister, nephew, niece, descendant or ancestor, who would otherwise, as aforesaid, have taken the excess over one-third, and if they do, a pro rata deduction from such devices and legacies shall be made so as to reduce the aggregate thereof to one-third of the estate. All property bequeathed or devised contrary to the provisions of this section shall go to the spouse, brother, sister, nephew, niece, descendant or ancestor of the testator, if and to the extent that they would have taken said property as aforesaid but for such devises or legacies; otherwise the testator's estate shall go in accordance with his will and such devises and legacies shall be unaffected. (Enacted 1931; amended by Stats. 1937, ch. 480.)Sec. 42. Exemption of certain donees from restrictions. Bequests and devises to or for the use or benefit of the State, or any municipality, county or political subdivision within the State, or any institution belonging to the State, or belonging to any municipality, county or political subdivision within the State, or belonging to any municipality, county or political subdivision within the State, or to any educational institution which is exempt from taxation under section 1a of Article XIII or section 10 of Article IX of the Constitution of this State and statutes enacted thereunder, or for the use or benefit of any such educational institution, or to any corporation organized under the provisions of section 606 of the Civil Code or made by a testator leaving no spouse, brother, sister, nephew, niece, descendant or ancestor surviving by whom the property so bequeathed or devised would have been taken if said property had not been so bequeathed or devised, are excepted from the restrictions of this article. (Enacted 1931; amended by Stats. 1937, ch. 479.)Sec. 43. Exemption of certain donors from restrictions. Nothing in this article contained shall apply to bequests or devises made by will executed at least six months prior to the death of a testator who leaves no spouse, child, grandchild or parent, or when all of such heirs, by a writing executed at least six months prior to his death, shall have waived the restriction. (Enacted 1931.)
It is apparent from this statement of respondent's argument that its validity depends on the correctness of his first proposition, i.e., that the charitable bequests of decedent in excess of one-third of her estate were void under California law. See Watkins v. Fly, 136 Fed.(2d) 578; certiorari denied, 320 U.S. 769; Estate of William A. Carey, 9 T.C. 1047; Estate of Dudley S. Blossom, 45 B.T.A. 691; First National Bank of Atlanta, 36 B.T.A. 491; affd., 102 Fed.(2d) 129; Dimock v. Corwin, 99 Fed.(2d) 799; Humphrey v. Millard, 79 Fed.(2d) 107; Dumont's Estate v. Commissioner, 150 Fed.(2d) 691, reversing 4 T.C. 158.
We are convinced that the bequests in question were not void under the California statutes, but were merely voidable. Our reasons for this conclusion may be summarized as follows: First, the restrictions by the California statute on bequests to charity were not intended as a declaration of public policy as in a mortmain statute, but were intended as a protection of heirs at law. In re Broad's Estate, 20 Cal.(2d) 612; 128 Pac.(2d) 1; Mead v. Welch, 95 Fed.(2d) 617. Second, the legislative history of the statute in question indicates that at the time of decedent's death it was not intended that such bequests should be considered void. Section 41 of the California Probate Code was originally section 1313 of the Civil Code. As the latter was first enacted, it provided that a testamentary disposition to charity of more than one-third of the testator's estate should be void. This provision was eliminated by an amendment in 1937 and the statute thereafter read, and reads, as quoted. Third, various opinions of California courts indicate that the statute is to be construed as making such bequests voidable rather than void. In re Dwyer's Estate, 159 Cal. 680; 115 Pac. 242; In re Cottrill's Estate, 65 Cal.App.(2d) 222; 150 Pac.(2d) 214; In re Estate of Lingg, 71 Cal.App.(2d) 403; 162 Pac.(2d) 707; In re Broad's Estate, supra; In re Davis' Estate, 74 Cal.App.(2d) 357; 168 Pac.(2d) 789. While the precise question was not squarely decided in these cases, the language and tenor of the opinions is unmistakably to that effect. When the California cases are contrasted with the Pennsylvania decisions discussed by us in Estate of William A. Carey, supra, the difference of the judicial construction of essentially different statutes is apparent. Fourth, the decree of the California court having jurisdiction over the administration of decedent's estate which ordered the distribution of its assets pursuant to decedent's will is persuasive evidence of the law of California on this question, even if we assume, arguendo, that the decree is not conclusive in this litigation.
The charitable bequests of decedent in excess of one-third of her estate were voidable by her heirs. No steps were taken by them to render the bequests invalid, but, on the contrary, they gave explicit or tacit consent to the distribution of decedent's estate pursuant to the terms of her will. Therefore, the full amount of the interests bequeathed by decedent to the three charities here involved passed to them from decedent under her will and is deductible from her gross estate. On this issue we decide in favor of petitioner.
Since the stipulation filed herein sets out certain expenses incurred or to be incurred by petitioner which are deductible in determining the amount of estate tax liability,
Decision will be entered under Rule 50.
Reviewed by the Court.
OPPER, J., did not participate in the consideration of or decision in this report.
323 DISNEY, J., concurring: I concur in the result, but, as to the portions of the charitable bequests which might have been claimed by the sister, it seems to me that we should place the matter upon the simple ground that the judgment of the probate court distributing the charitable bequests in accordance with the will, being unappealed from and without collusion, was determinative that the property passed by the bequests under the will. Unlike the decedent's husband, she filed nothing by way of disclaimer or waiver; therefore the judgment of the court as to her could not have been based upon waiver or disclaimer, and was, in distributing the property as bequests, necessarily based upon the will. That the judgment was in a nonadversary proceeding is not important. Charles S. McVeigh, 3 T.C. 1246. Mere failure to appeal is obviously no reason to think there was collusion.