T.C. Memo. 2004-166
UNITED STATES TAX COURT
ESTATE OF DAVID KATZ, DECEASED, SARAH KATZ, EXECUTRIX, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1462-03. Filed July 14, 2004.
D executed a will in 1991 which provided for the
creation of a trust that was to be funded with an
amount equal to the “aggregate federal estate tax
exemption equivalent”. Following D’s death in 1998,
D’s wife filed a qualified disclaimer, disclaiming both
her interest in the trust, and also in five securities.
R determined that the trust was funded by (1)
assets in an amount equal to the “aggregate federal
estate tax exemption equivalent” and (2) the interests
in the securities disclaimed by D’s wife. R determined
that the estate was liable for a deficiency in estate
tax because of the bequests disclaimed by D’s wife.
Held: The trust was funded both by (1) assets in
an amount equal to the “aggregate federal estate tax
exemption equivalent”, and also by (2) the interests in
the securities disclaimed by D’s wife. Since the trust
was therefore overfunded, the estate is liable for a
deficiency in estate tax, as determined by respondent.
- 2 -
Anne Marie Mazzu and Lewis Cohn, for petitioner.
Joseph J. Boylan, for respondent.
MEMORANDUM OPINION
NIMS, Judge: Respondent determined a Federal estate tax
deficiency in the amount of $147,800 with respect to the estate
of David Katz (the estate). The issue for decision is whether
the estate is liable for a deficiency in estate tax because of
bequests disclaimed by Sarah Katz.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the relevant periods,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
Background
This case was submitted fully stipulated pursuant to Rule
122, and the facts are so found. The stipulations of the
parties, with accompanying exhibits, are incorporated herein by
this reference.
David Katz (decedent) was a resident of the State of New
Jersey when he died testate in that State on September 23, 1998.
- 3 -
Decedent’s spouse, Sarah Katz, was named executrix of the estate
and likewise resided in New Jersey at the time the petition in
this case was filed.
On February 8, 1991, decedent executed a Last Will and
Testament (decedent’s will). On November 23, 1998, decedent’s
will was admitted to probate by the Surrogate of Essex County,
New Jersey.
Decedent’s will provides, in relevant part:
THIRD: (A) If my wife, SARAH KATZ, shall survive
me, I give, devise and bequeath to my trustees, IN
TRUST, NEVERTHELESS, a legacy in an amount equal to the
aggregate federal estate tax exemption equivalent, as
hereinafter defined, in effect at my death. This
amount shall not be reduced on account of any
disclaimer by my wife. As used in this will, the term
“aggregate federal estate tax exemption equivalent”
refers to the maximum amount of property subject to
federal estate tax that can be transferred at my death
without incurring any federal estate tax (without
regard to property that qualifies for the federal
estate tax marital or charitable deductions), as a
result of all credits against federal gift and estate
taxes available to my estate at my death, diminished by
the value of all other property which shall be included
in my gross estate for federal estate tax purposes and
which passes or has passed to any person (other than
property passing to my wife or any charitable
beneficiary in a manner that qualifies for the federal
estate tax marital or charitable deductions), either
under any other provisions of this will or in any other
manner. For the purposes of this definition, if the
use of all credits against federal gift and estate
taxes available to my estate would increase the amount
of any tax payable to any state on account of my death,
then I direct that such credits be used only to the
extent they do not increase such state death taxes.
* * *
* * * * * * *
- 4 -
(D) Immediately after the death of my wife,
SARAH KATZ, this trust shall terminate and the balance
of the trust fund then on hand, including any accrued
and undistributed income, shall be administered and
disposed of in accordance with the applicable
provisions of Article FOURTH of this will.
FOURTH: (A) All the rest, residue and remainder
of my estate is hereinafter referred to as my
“residuary estate.”
(B) I give, devise and bequeath my residuary
estate to my wife, SARAH KATZ, if she shall survive me.
Notwithstanding any otherwise conflicting provision of
this will, if my wife disclaims any interest in any
portion of the property otherwise passing outright to
her under this Article of my will, such portion instead
shall be added to the trust created under Article THIRD
of this will, to be administered and disposed of in
accordance with the provisions thereof.
(C) Upon my death if my wife shall not
survive me, or immediately after the death of my wife
if my wife shall survive me (the later of such events
being hereinafter referred to as the “time of the later
death”), I direct my executors or trustees to divide my
residuary estate or the then remaining balance of the
trust established under Article THIRD, as the case may
be, into as many equal parts as shall equal in number
those of my children who shall be living at the time of
the later death and those of my children who shall have
died prior to the time of the later death leaving
descendants living at the time of the later death, and
I give, devise and bequeath such equal parts * * *.
On June 22, 1999, Sarah Katz timely filed a Renunciation and
Disclaimer (the Disclaimer) with the Essex County Surrogate’s
Court with respect to decedent’s will.
The Disclaimer provides, in relevant part:
I hereby renounce and disclaim irrevocably and
forever any right, title and interest in and to the
following securities:
(1) 407.437 shares, Chrysler Corp.;
- 5 -
(2) 1,832.357 shares, Marriott International,
Inc.;
(3) 6,904.323 shares, PECO Energy;
(4) 776.5432 shares, PSE&G, Inc.; and
(5) 1,800 shares, Sempra Energy.
In addition, I hereby renounce and disclaim
irrevocably and forever any right, title and interest
in and to the trust created for my benefit pursuant to
Article THIRD of my husband’s Will.
On December 28, 1999, the estate filed Form 706, United
States Estate (and Generation-Skipping Transfer) Tax Return.
On November 1, 2002, respondent issued to the estate a
statutory notice of deficiency.
Discussion
Section 2001(a) imposes a tax on “the transfer of the
taxable estate of every decedent who is a citizen or resident of
the United States.” Section 2031(a) provides that “The value of
the gross estate of the decedent shall be determined by including
to the extent provided for in this part, the value at the time of
his death of all property, real or personal, tangible or
intangible, wherever situated.”
Section 2056(a) provides for a deduction from the gross
estate of a decedent for the value of property that passes from
the decedent to the surviving spouse.
Section 2046 provides that disclaimers of property interests
passing upon death are treated as provided in section 2518.
- 6 -
Section 2518 provides that, if a person makes a qualified
disclaimer with respect to any interest in property, the
disclaimed interest is treated as if it had never been
transferred to the person making the qualified disclaimer.
The parties agree that the Disclaimer was a qualified
disclaimer within the meaning of section 2518. The parties
disagree regarding how to properly interpret decedent’s will and
the Disclaimer.
Respondent argues that decedent’s will and the Disclaimer
have the effect of funding a trust (as described in Article THIRD
of decedent’s will, and hereinafter referred to as “the Trust”)
with an amount equal to the “aggregate federal estate tax
exemption equivalent” and with the interests in various
securities specified in the Disclaimer.
The estate argues that decedent’s will and the Disclaimer
have the effect of funding the Trust with an amount equal to the
“aggregate federal estate tax exemption equivalent”. According
to the estate, the Disclaimer functions to specify which assets
pass to the Trust; the Disclaimer does not increase the overall
amount passing to the Trust. The estate argues that respondent
is effectively double counting. The estate contends that the
“only assets by which the Trust was to be funded were the five
- 7 -
enumerated shareholding interests identified in the Disclaimer.”
We agree with respondent’s interpretation of decedent’s will and
the Disclaimer.
Pursuant to Article THIRD (A) of decedent’s will, the Trust
was to be created and funded with an amount equal to the
“aggregate federal estate tax exemption equivalent”. Article
THIRD (A) further provides that this amount should not be reduced
on account of any disclaimer by Sarah Katz. Article FOURTH (B)
of decedent’s will provides that if Sarah Katz “disclaims any
interest in any portion of the property otherwise passing
outright to her * * * such portion instead shall be added to the
trust created under Article THIRD”. Thus, the Trust was to be
funded with an amount equal to the “aggregate federal estate tax
exemption equivalent” and with any interests disclaimed by Sarah
Katz.
Respondent correctly determined that the securities
disclaimed by Sarah Katz should be added to the property passing
to the Trust, as required by Article FOURTH (B) of decedent’s
will. Thus, the Trust was funded with the “aggregate federal
estate tax exemption equivalent” and the securities specified in
the Disclaimer.
The estate argues that decedent intended for the Trust to be
funded only with the “aggregate federal estate tax exemption
equivalent”. The estate argues that we should interpret
- 8 -
decedent’s will in such a manner as to effectuate decedent’s
“probable intent” to this end. According to petitioner,
decedent’s intent was to minimize taxes, and to accomplish this
petitioner seeks to require us to apply the probable intent
doctrine as formulated by New Jersey statutory law and case law.
See N.J. Stat. Ann. sec. 3B:3-33 (West 1983); Fid. Union Trust
Co. v. Robert, 178 A.2d 185 (N.J. 1962). To do so we are asked
to read decedent’s will in such a way as to exclude the second
sentence of Article THIRD (A): “This amount shall not be reduced
on account of any disclaimer by my wife.” We decline to do so.
The fatal defect in petitioner’s argument is that
petitioner’s intent, if such it was, to minimize taxes was
thwarted, not by any ambiguous language in the will, but by the
Disclaimer. As pointed out above, the Disclaimer disclaims both
specified shares (and fractional shares) of certain stocks, and
also the disclaiming wife’s interest in the Trust. Article
FOURTH (B) of the will provides that if decedent’s wife disclaims
any interest in property that would otherwise pass outright to
her under Article FOURTH such property is to be added to the
trust created under Article THIRD. Thus, it was the Disclaimer,
and not decedent’s will, that caused the Trust to be funded with
more than the “aggregate federal estate tax exemption
equivalent”. Absent the Disclaimer the Trust would have been
funded with only the “aggregate federal estate tax exemption
- 9 -
equivalent”, as required by decedent’s will. Thus, the estate’s
argument regarding decedent’s intent is irrelevant, since it was
defeated by the Disclaimer, and not the will provisions.
We have considered all of the contentions and arguments of
the parties that are not discussed herein, and we find them to be
without merit, irrelevant, or moot.
To reflect the foregoing,
Decision will be entered
for respondent.