Court Opinion

ID: 4481121
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:42.746115+00
Date Added: 2024-06-11T15:03:36.255015
License: Public Domain

Hoyt, J., dissenting: I agree with the portion of Judge Withey’s dissenting opinion which concludes that the separation agreement here involved does not constitute a relinquishment by the wife of her support rights. A mere specification that in case the parties are later divorced the decree will be silent as to alimony does not constitute a release or relinquishment of support rights in my view. I see nothing else in the documents that could be deemed a release and while the subsequent divorce decree ratified the agreement it was silent as to support rights and did not otherwise purport to settle them. I would therefore hold, as Judge Withey does, that the entire trust corpus should be included in the decedent’s estate. However, if the mentioned provision is construed to be a release or relinquishment of lone’s support rights, I would disagree with the majority opinion in two particular respects. First, I would apply the rule of United States v. Davis, 370 U.S. 65 (1962), as petitioner urges, and conclude that the value of the rights relinquished by lone was equal to the value of the transfer made in exchange therefor. As I read our opinions in Edward B. McLean, 11 T.C. 543 (1948), and Estate of Robert Rodger Glen, 45 T.C. 323 (1966), appeal dismissed by agreement of the parties (C.A. 9, 1968), section 2043(b) is not applicable to the relinquishment of presently enforceable claims in a divorce situation. Here, as the majority opinion indicates, “the only right that lone relinquished was her right to support, a present claim against decedent’s property not within the ambit of section 2043(b).” On the record here, I would hold that the parties valued the alimony and support rights given up by lone as equal in value to the value of the transfer in trust. Where there is no evidence to the contrary or any suggestion of a donative intention, I would conclude that the values of the two properties exchanged in an arm’s-length transaction are either equal in fact or presumed to be equal. Philadelphia Park Amusement Co. v. United States, 126 F. Supp. 184, 189 (1954), cited with, approval in United States v. Davis, supra; Estate of Morrison T. O'Nan, 47 T.C. 648, 663 (1967). This is a case in which it is almost impossible to evaluate with any degree of accuracy what was surrendered by lone or transferred to the trust in exchange for lone’s rights. The decedent reserved interests in the trust so that it is obvious that the transfer did not consist of the entire trust corpus. After the death of lone and their ailing daughter, Alma, decedent was entitled to the trust income. Under another provision of the trust if it were terminated by agreement of lone and decedent, the trust fund was to be divided as they specified and agreed. Decedent thus might have obtained part of the corpus upon an agreed termination. As recognized by the majority opinion these rights and potential benefits add “potential value” to the interests in the trust and make precise evaluation by the use of actuarial tables unreliable. Even if we conclude that lone’s support rights could be accurately measured by applying actuarial factors to what she agreed to accept as the majority has done, I would conclude that the value of what the decedent transferred could not be readily ascertained. It was certainly less than the entire $26,307.38 placed in trust because his reserved rights and interests had some value, difficult as it might be to determine it. As the Supreme Court stressed in United States v. Davis, supra at 72, absent a readily ascertainable value it is accepted practice where property is exchanged in a negotiated arm’s-length marital settlement to equate the values of the properties transferred. The majority recognizes the difficulty in trying to apply the “fractionalization theory” of Estate of Donald M. Nelson, 47 T.C. 279 (1966), remanded 396 F. 2d 519 (C.A. 2, 1968), in trying to evaluate the interests of the various trust beneficiaries. See footnote 8 of the majority opinion. In the light of all of the facts and circumstances, I would conclude and hold that the release of lone’s support rights in consideration for the transfer in trust was an arm’s-length negotiated settlement in the divorce situation between adverse parties. There obviously was no great disparity between what was transferred and what was released and there is no evidence of any donative intent. The values of the two properties exchanged were equal in fact or should 'be presumed to be equal. United States v. Davis, supra; Philadelphia Park Amusement Co. v. United States, supra. As expressed another way, “a man who spends money or gives property of a fixed value for an unliquidated claim is getting his money’s worth.” Commissioner v. Mesta, 123 F. 2d 986 (C.A. 3, 1941). Under this view there was adequate and full consideration for the transfer and no portion of the trust should be included in decedent’s estate. Estate of Morrison T. O'Nan, supra; Edward B. McLean, supra. Second, even if I were to go along with the majority opinion to hold that there was less than an adequate and full consideration for the transfer, I would apply a different yardstick to measure the portion of the trust corpus to be included in decedent’s estate. I would adopt and apply the rule announced in Helvering v. United States Trust Co., 111 F. 2d 576 (C.A. 2, 1940), as urged by petitioner, and exclude from decedent’s gross estate that proportion of the date-of-death value of the trust corpus which the value of lone’s support rights represented in the value of the trust corpus when it was established in 1936. While section 2043(a) does not prescribe a proportional rule, neither in my view does it prescribe the mechanical rule adopted. I would not adopt what has often been described as a harsh rule because I do not believe we are required to do so. I have been unable to conceive of any situation in which the “harsh results” of the majority view can operate to the detriment of “the Treasury” as mentioned by the opinion, as a result of valuing consideration at the date of transfer in a support rights surrender case; it can only result in harsh treatment for the taxpayer in such cases. In certain cases where property is transferred as consideration for a transfer in trust and such property decreases in value before the death of the transferor, an unfair or harsh result may follow insofar as the Commissioner is concerned by valuing the consideration at date of transfer. Only the decreased date-of-death value of “the consideration” would be included in decedent’s estate whereas under the mechanical formula adopted by the majority opinion the estate would be allowed to deduct the higher date-of-transfer value of “the consideration” from the value of the transferred property taxed to the estate. However, this is not such a case and in every case where “support rights” acquired by the decedent are “the consideration” they will not be assets in the transferor’s estate upon his death. A transfer in consideration of support rights is in essence the discharge of a legal obligation which reduces the transferor’s estate. No property replaces the transferred property but the obligation is satisfied. Certainly, therefore, any decrease in value of the “support rights,” “the consideration,'” after the date of transfer does not work a harsh result on the Commissioner because no value for the consideration is includable in the decedent’s estate anyway, any more so than in the case of the payment or discharge of any other debt. In the instant case the majority has concluded that the decedent, by his transfer in trust, discharged his support obligation to lone, which was valued at $17,150.35. He paid that debt, and by relinquishing her rights, lone paid bim that consideration for the transfer. To the extent that lone paid for the transfer by discharging those rights there was adequate consideration and that portion of the trust corpus, $17,150.35, was fully paid for 'by lier. If two separate trusts had been created at that time in all respects identical with the one trust here involved and decedent had transferred $17,150.35 to one in consideration of lone’s support rights and $9,157.03 to the second without consideration, so that his total transfer was $26,307.38, the exact amount here involved, and after his death the two trusts had the identical assets of the instant trust with a date-of-death value of $93,411.25, divided between them, as in the instant case involving only a single trust, no portion whatever of the first trust would be taxed in his estate and the entire corpus of the second trust would be includable. I am not convinced that because only one trust is here involved a different result should follow as determined by the majority opinion. The same result, however, does follow if petitioner’s proportional formula for valuing the includable portion of the trust is applied. Ione bought and paid for $17,150.35 of the $26,307.38 worth of securities placed in trust. To that extent she gave consideration for it. There is no logic or reason to conclude that the accretion in the value of the portion of the trust she paid for should be added to decedent’s estate. I would interpret the statutes, secs. 2036, 2038, and 2043(a) and the regulations, section 20.2043-1 to mean that the “property to the extent of any interest therein” and “the property otherwise to be included on account of such transaction,” means the property that was transferred without consideration and not also property to the extent that it was bought and fully paid for. In cases in which the property cannot be readily divided so as to be able to ascertain which property or portion thereof falls into each category, I would conclude that “the value of the consideration received” means the proportion of the value of the property at death attributable to the consideration paid. Helvering v. United States Trust Co., supra; United States v. Past, 347 F. 2d 7, 15-18 (C.A. 9, 1965), dissenting opinion of Ely, J. The anomalous and harsh results which follow here from the simple subtraction of the value of the consideration at the date of transfer from the value of the entire trust corpus at date of death are avoided by such an interpretation of the statutory provisions. See Charles L. B. Lowndes, “Consideration and The Federal Estate and Gift Taxes,” 35 Geo. Wash. L. Rev. 50, 57-58; note, “Inheritance and Estate Taxes,” 70 Harv. L. Rev. 1486. The same result follows from the application of what has been for many years respondent’s own interpretation and application of the statutes. In E.T. 19, 1946-2 C.B. 166, the Commissioner ruled that to the extent that a transfer does not exceed the reasonable value of the support rights of the wife it is to be treated as made for an adequate and full consideration in money and money's worth. It is therefore clear that to the extent that the transfer here did not exceed $17,150.35 it was not for an inadequate or insufficient consideration but was for a full and adequate consideration in money or money’s worth. E.T. 19 was still in effect when decedent died in 1963 and only recently has been superseded by Rev. Rul. 68-379, 1968-2 C.B. 414. (The extension of E.T. 19 by the “decretal obligation” rule of Harris v. Commissioner, 340 U.S. 106 (1950), to the estate tax area by Rev. Rul. 60-160, 1960-1 C.B. 374, is not here material.) If this application and statutory interpretation followed by the Commissioner for many years is adopted here, then only $9,157.03 of the property transferred in trust was a transfer for insufficient consideration under section 2043(a) and there shall be included in the gross estate of decedent only the excess of the fair market value at the time of death of that property over the consideration received therefor. Since no consideration was paid for that property, its value at date of death would be included in toto. Exactly the same portion of decedent’s estate would be taxable if this approach is adopted as would be includable if the proportional method is used and the entire transfer is regarded as one for partial consideration. I would adopt the proportional method urged as the proper one by petitioner, and include in decedent’s estate only that portion of the trust corpus which represents the fully taxable portion of the transfer in trust for which no consideration passed. This would exclude from the estate only that proportion of the daite-of-death value of the trust corpus which the value of lone’s support rights represented in the value of the trust corpus at time of transfer and is in accord with Helvering v. United States Trust Co., supra, and the long standing interpretation of the Commissioner as stated in E.T. 19, supra. Only to the extent that an includable transfer exceeds adequate and full consideration should transferred property be taxed to the transferor’s estate. The majority view in my opinion does violence to this interpretation by applying the mathematical formula adopted.