Court Opinion

ID: 9706894
Source: CourtListenerOpinion
Date Created: 2023-08-26 01:54:33.399107+00
Date Added: 2024-06-11T18:22:25.417880
License: Public Domain

Dissenting Opinion by
Mr. Justice Cohen :
The rights of Grace W. Pratt are governed by the clause contained in paragraph 5 of the property settlement agreement between her and her former husband. This clause provided: “5. Husband further agrees that he will specifically provide in his Last Will and Testament effective upon the date of his death that the said Grace W. Pratt, herein referred to as Wipe, shall receive one-third (1/3) of his gross estate, including life insurance policies covering Husband’s life, less the costs of administration, debts and State and Federal Transfer Inheritance, Succession and Estate Taxes, or any other taxes in the nature thereof, all computed and paid on the entire estate and to be first deducted in computing the 1/3 interest of wife in the remainder.” The problem which remains, therefore, is to determine exactly what Grace Pratt is entitled to receive. We acknowledge that the specific language “one-third (1/3) of his gross estate” and what follows as set forth in the agreement is hardly an example of careful draftsmanship and affords no useful clue as to what was in Leonard Pratt’s mind nor what Grace Pratt understood the agreement to be. However, since we must come to some decision, I disagree with the majority’s interpretation of the quoted language as referring to the “gross estate as determined for purposes of Federal Estate tax.” As the majority seems to recognize, to refer to Federal Estate Tax concepts under these circumstances is fraught with pitfalls because of the uncertainty of the federal tax definition of “gross es*454tate.” Yet, in its statement of the holding, the majority applies the tax definition to the words generally.
The complexity of the federal law with reference to determining the gross estate for federal estate tax purposes is well illustrated by the sheer size of that portion of the United States Code Annotated devoted to the problem. Part III of Subtitle B of the Internal Revenue Code of 1954 (IRC) sets forth the statutory provisions governing the determination of the contents of the gross estate. These provisions and the annotations of the holdings of the cases interpreting and defining the gross estate sections of the Code are encompassed in 219 bound pages and 56 pocket part pages of 26 U.S.C.A. It is thus apparent that “gross estate” has been and in the future will continue to be, a source of involved litigation. Consequently, there is an immense and growing body of intricate law being developed for the purpose of determining what is meant by “gross estate” as defined in §§2031 through 2044 of the IRC.
Suppose, for example, the value of the estate’s assets is less on the alternate valuation date a year after death than on the date of death. If the executors were to choose the alternate valuation in order to reduce the estate tax, Grace Pratt would surely complain. If they were to choose the date of death values, testator’s second wife would object because of the resulting additional taxes. IRC §2032 permits this delayed valuation of the assets of the estate, and could certainly provoke litigation.
While the majority opinion sets forth the sums in the “gross estate”, it does not indicate whether any option under §2032 has been elected, or whether the executor has been allowed to make an election, or, if having done so for federal tax purposes, he is here bound by that election.
*455And further, would the majority include as life insurance within the meaning of gross estate for Federal Estate Tax purposes the proceeds of a policy irrevocably transferred to the second Mrs. Pratt with no incident of ownership retained by the defendant after Mr. Pratt’s remarriage? IRC §2042 does not require the inclusion of the proceeds in the gross estate. Yet, a reading of the agreement would appear to require its inclusion. Such a device could be used to deprive the first wife of as much property as any device which the majority could construct under a more practical definition of “gross estate.” The majority’s self-conjured fear that decedent could have deprived his first wife of property rightfully hers is insupportable. Had decedent transferred property in fraudulent avoidance of the agreement, the wife had recourse to the law to preserve her interest.
The generality of application of the tax definition of “gross estate” resulting from the majority’s reasoning invites an inquiry into the following situations:
IRC §§2033 and 2037 would require, in the case of a testator who had settled an irrevocable trust upon two daughters to pay income to each and at the death of each to pay the corpus supporting her share of the income to her descendants, reserving to testator only a power to appoint the corpus by will should both daughters predecease him without leaving descendants, that the entire corpus be included in the testator’s gross estate even though the daughters survived him. Fidelity-Philadelphia Trust Company v. Rothensies, 324 U.S. 108 (1945).
IRC §2035 requires an inquiry into the motivation of the decedent’s inter vivos gifts. Suppose testator made substantial inter vivos gifts which §2035 would make includable in his gross estate for federal estate tax purposes but not for probate purposes. If the tax on these gifts were sufficiently large to deplete the *456probate estate so that it would be insufficient to pay the creditor-wife’s one-third, would the majority require the donees to return the gifts?
As recently as March 23, 1966, the definition of “gross estate” for federal tax purposes was being developed. In United States v. O’Malley, 383 U.S. 627, 34 L.W. 4285 (1966), the Supreme Court held that where settlor created an irrevocable inter vivos trust of which he was one of the three trustees and the trust provided that the trustees, in their sole discretion, might pay trust income to the beneficiary or accumulate the income in which event it became principal, settlor’s gross estate for federal estate tax purposes included that part of the principal accumulated from income as well as the funds originally transferred to the trust, although the estate did not include any of the distributed income. This case not only illustrates that the federal law defining “gross estate” is an ever changing one, but as applied to the instant case it could have defeated the expectations of the parties.
As I have said, the contract language is anything but clear. But if, as the majority holds, testator meant his gross estate as determined for federal estate tax purposes, his reference to insurance policies would have been unnecessary, since by IRC §2042 insurance proceeds on policies owned by decedent are includable in his gross estate as determined for federal tax purposes.
Hence, I would conclude that Leonard Pratt agreed to devise to Grace in satisfaction of her claim under the agreement one-third of his net probate estate (with no diminution for the debt to Grace) plus one-third of the proceeds of the insurance on his life not otherwise includable in his probate estate.
I grant' that there are obvious difficulties in any interpretation of such unclear and indefinite language, but I think that it is safer to adopt my interpretation, *457since we would be dealing with terminology and practices with which we have experience. While the majority opinion studiously avoids clearly stating that it is imposing all the rules of the tax definition of “gross estate” on the instant agreement, the computations which the majority set forth are plainly those which might be used in computing the gross estate as determined for purposes of Federal Estate Tax. I use the conditional since one familiar with the Estate Tax provisions would recognize that §2040 of the IRC requires that the portion of jointly-held property includable in the deceased participant’s gross estate depends upon what fraction of the property was contributed by each individual. However, the majority sets forth no facts supporting the figures arrived at in items three and four of its computation, and the record discloses none.
I believe that the record is insufficient to allow any computation to be made in this matter or to permit us to gauge the effect of my conclusion. Accordingly, I would remand this record to the lower court for a determination of what assets belong in the estate as inventoried by the personal representative and diminished as set forth in the agreement, and for an order for payment to Grace from the estate of an amount equal to one-third of decedent’s thus diminished estate plus one-third of his life insurance proceeds.
I dissent.