Court Opinion

ID: 9637851
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:23:53.220786+00
Date Added: 2024-06-11T18:10:01.147435
License: Public Domain

McDERMOTT, District Judge
(dissenting) . I regret my inability to eoneur. The estate tax is a creature of statute, and, if we leave the statute, we are lost. Rightly or wrongly, the statute provides that there shall be deducted “from the value of the gross estate * * * claims against the estate. * * * ” The Treasury Department interprets this to mean exactly what it says, in article 39 of its Regulations:
“Claims against the Estates. — The amounts that may be deducted under this heading are such only as represent personal obligations of the decedent existing at the time of his death, whether matured or not. Only such claims as a/re enforceable against the estate may be deducted.” (Italics mine.)
The government and the majority opinion concede in terms that a valid, enforceable claim for $75,000 existed against the estate at the time of the death of the testator. The reasons given for ignoring the statute do not persuade me. It is said that this claim was not paid. In the light of Ithaca Trust Co. v. United States, 279 U. S. 151, 49 S. Ct. 291, 73 L. Ed. 647, decided by the Supreme Court of the United States on April *2378, 1929, I doubt if that is material. In the cited ease a life tenant had an expectancy o£ some years; she did not live out her expectancy; she died within six months, apparently before a return was made of the tax. The government levied the tax in the light of what transpired after the death, and valued the life estate as of six months. The Supreme Court did not concur, and deducted a value predicated on her expectancy on the day the testator died, and not on the length of time she actually lived. “The estate as far as may be settled as of the date of the testator’s death.” Indeed, no other conclusion can be reached from the earlier eases of Y. M. C. A. v. Davis, 264 U. S. 47, 44 S. Ct. 291, 68 L. Ed. 558; Edwards v. Slocum, 264 U. S. 61, 44 S. Ct. 293, 68 L. Ed. 564; Nichols v. Coolidge, 274 U. S. 531, 47 S. Ct. 710, 71 L. Ed. 1184, 52 A. L. R. 1081, all of which make quite clear that these “death duties” are measured by the situation as it exists at the time of the death, and “comes into existence before and is independent of the receipt of the property by the legatee.” The situation must be looked at as of some particular time. The decisions settle it that the cut-off date is the date of the decease. So, although it need not be decided in this case, I am not at all certain that the conclusive analogy as to the father and son, suggested by the majority, is sound. If my father owed me some notes at "his death, I see no reason why the executor should not deduct them when paying the estate tax; if, some years later, I should mark them “Paid” and hand them to my mother, I do not know why the government should try to upset the estate tax theretofore correctly paid, and am not nearly as sure as the majority that such effort would be successful.
But the $75,000 debt here was paid. Bear in mind the concession of an existing legal obligation; that at any time between July 27, 1923, and September 17, 1924, the widow could collect it by presenting a claim for it, or by suing on her contract; and if she sued on her contract the executor could not defend by setting up the option in the will; and if she died during that period her administrator could collect it, and in fact would have no other alternative. What happened on September 17, 1924? The widow, availing herself of an option given her by the will, accepted a trust fund of $250,000, from which she was to have the income for life; and thus the estate satisfied the debt. So the debt was paid, and presumably well paid. Doubtless the satisfaction cost the estate more than the $75,000; for a fair presumption is that, if the widow could have taken her $75,000 in cash and purchased a better annuity than the one the will provided, she would have done so.
Moreover, this opinion seems to me to be in conflict with the principle of the decision of Allen v. Brandeis, 29 F.(2d) 363, decided by another division of this court. There a widow had a statutory widow’s share of the estate, worth $483,727.79. Her husband’s will, in effect, gave her the option of an income for life of $50,000 a year, and she exercised it. The government undertook to tax these annuities as income. The court held that she purchased them with her statutory right, which was not taxable, and that the annuity payments were not taxable until her nontaxable capital invested therein was returned to her. To the same effect is U. S. v. Bolster (1 C. C. A.) 26 F.(2d) 760, 59 A. L. R. 491; Warner v. Walsh (2 C. C. A.) 15 F.(2d) 367. In other words, the option in the will did not change the tax liability.
The practical test suggested by the majority opinion is not pursued far enough. True, the beneficiaries of this estate did not pay the $75,000; they paid more, for they find that their enjoyment of $250,000 is postponed an indefinite number of years, and the income therefrom going to the widow. Yet the government declines to allow either the $75,000 as a deduction, or the commuted value of $250,000. That is not right. By reason of this enforceable daim, this estate was worth $75,000 less than its gross amount at the date of the testator’s death; was worth that much less every day until September 17, 1924; on that date" and thereafter it was depleted by the commuted value of a life estate in $250,000. But the government says it is not depleted by anything on account of this claim, and makes no deduction at all.
But neither words, nor the citation of such authorities as those above, or of such as Ferguson v. Dickson, 300 F. 961 (C. C. A.), certiorari denied 266 U. S. 628, 45 S. Ct. 126, 69 L. Ed. 476, can add much to the proposition that the statute requires that legally enforceable claims, existing at the time of death, shall be deducted, and that all parties, the government and the majority of the court, concede a legally enforceable claim did exist, and was not deducted.
I therefore must dissent.