Court Opinion

ID: 9467030
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:36:09.796578+00
Date Added: 2024-06-11T17:40:06.730003
License: Public Domain

*1132ROSS, Circuit Judge,
dissenting.
In our view, Lois P. Cottrell, during her lifetime and after her death by will, held such extensive control over her remainder interest in the testamentary trust that we would distinguish this case on its facts from the Keinath case and partially modify the wording of that opinion. Therefore, we dissent.
The relevant treasury regulation, § 25.-2511-l(c), requires that a disclaimer is effective for gift tax purposes “if the refusal is made within a reasonable time after knowledge of the existence of the transfer.” This regulation is the agency’s interpretation of 26 U.S.C. § 2511 which states that gift tax is imposed “whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible * * * No mention is made in either the statute or regulation of an interest “indefeasibly fixed both in quantity and quality” or words of similar meaning.
The facts show that the taxpayer had complete knowledge of the transfer and the complicated nature thereof from the time of the death of her father in 1937. The taxpayer acted as an executor of her father’s will and as a trustee of the residuary trust. Also, in 1944 the taxpayer executed a partial release of her general testamentary power of appointment.
More importantly, the remainder interest of the taxpayer, as originally created, essentially assured taxpayer of either possession during her life — by outliving the life beneficiary — or control after her death — through the exercise of her general testamentary power of appointment. Taxpayer essentially controlled all the events which could cause the ultimate disposition of her remainder interest.
In contrast, the facts presented in Keinath led to the conclusion that “the remainderman Cargill had really nothing to accept or renounce by way of beneficial ownership or control of the property until he succeeded in outliving the life beneficiary.” 480 F.2d at 64. In Keinath the event which would cause divestiture of the remainder-man’s interest was not within his control, i. e. outliving the life beneficiary. If the remainderman had not outlived the life beneficiary he took nothing and did not have any control as to the identity of the ultimate beneficiary.
The Keinath opinion states that a disclaimer of a remainder interest following termination of a life estate would be found to have been made within a “reasonable time” if such interest was less than an indefeasibly vested remainder. We agree with this general rule as applied to the facts of Keinath. However, the facts of the instant case convince us that this general rule should be modified in certain instances. Modification should be mandated where the remainderman essentially controls the events which would cause divestiture of the interest, i. e. the right to appoint by will if the remainderman should not outlive the life beneficiary. To that extent we feel this court en banc should modify its ruling in Keinath.
We recognize that the general statement in Keinath previously cited is a convenient standard which would lend uniformity to the disposition of this type of case.1 But we recognize, as did the Keinath court that:
The reasonable time standard does not lend itself to a purely mathematical calculation and its parameters must depend on the varying factual situations and circumstances of each case. What is a reasonable time in which to disclaim a testamentary gift has been considered by state courts, but there has emerged no exact and decisive pattern except the general concept that a factual question is presented.
480 F.2d at 62. We are suggesting only that this court, en banc, should limit Keinath’s holding to the facts of that case and *1133modify what we consider to be unnecessary dicta contained therein.
Judge Arnold’s opinion indicates that we should uphold the effectiveness of the disclaimer because the Keinath decision relies on the case of In re Estate of Page, supra, 113 N.J.Super. 582, 274 A.2d 614 (Ch.Div. 1970), in which Lois P. Cottrell, the taxpayer in the current case, established that her disclaimer was effective under state law. While we agree with the decision in Keinath as applied to its facts, we do not believe that citation to Page now binds us to uphold the disclaimer for federal gift tax purposes. First, as the Keinath court noted, “[w]e are not conclusively bound by the state law” 480 F.2d at 61-62 (footnote omitted). This is especially true here, since we are interpreting federal gift tax regulations and the government was not a party to the state court case. We also note that Page was an advisory opinion rendered in a friendly lawsuit between the trustees and remaindermen. Secondly, a careful reading of Page indicates that the state court would have found the disclaimer effective regardless of whether the remainder was indefeasibly vested or otherwise. Thus, Page does not really support the proposition for which it is cited in Keinath ; the distinction between indefeasibly vested remainders and remainders subject to divestiture.
The practical result of the majority opinion is to permit a remainderman with a power of appointment to sit by for over 33 years before having to determine whether to accept the inheritance or pass it on to others of her own choice. In the process the United States has been deprived of nearly five million dollars which it probably would have collected, at least in major part, if the remainderman had been forced to make the election within a reasonable time after her father’s death.
In summary, we would modify the “vested remainder” test in Keinath in situations where the remainderman has the ultimate control over the disposition of his remainder interest. This modification is necessary because, as in this case, the distinction between an indefeasibly vested remainder and a vested remainder subject to divestiture may be illusory in nature and has no basis in the federal tax statutes. This modification would allow us to more accurately define what constitutes a “transfer” under Treas. Reg. § 25.2511-l(c). As we noted in Keinath, “ ‘ “taxation is not so much concerned with the refinements of title as it is with the actual command over the property taxed.” ’ ” Keinath, supra, 480 F.2d at 64, citing Estate of Sanford v. Commissioner, 308 U.S. 39, 43, 60 S.Ct. 51, 55, 84 L.Ed. 20 (1939) (citations omitted).
HEANEY and BRIGHT, Circuit Judges, join in this dissenting opinion.

. We fail to see the relevance of Part III of the majority opinion. Obviously in a situation such as this, where the Supreme Court has not ruled on the question presented in Keinath, this court en banc has an absolute right, which it frequently exercises, to modify the scope and application of a prior panel decision.