OPINION
NlMS, Chief Judge:Respondent determined a deficiency in petitioner’s Federal estate tax in the amount of $143,327.
The issue for decision is whether section 403(e)(3) of the Economic Recovery Tax Act of 1981, Pub. L. 97-34, 95 Stat. 305 (ERTA), precludes petitioner from qualifying for an unlimited marital deduction under section 2056. (Unless otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect as of the date of the decedent’s death and all Rule references are to the Tax Court Rules of Practice and Procedure.)
The parties submitted this case fully stipulated. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Petitioner is the Estate of Samuel I. Levitt. Helen S. Levitt (Mrs. Levitt) is the widow of Samuel I. Levitt (decedent or Mr. Levitt). At the time of his death, decedent was domiciled in California. By order of the Superior Court of California for the County of San Diego, dated February 16, 1989, Mrs. Levitt was appointed to act as administrator (executor) for the Estate of Samuel I. Levitt.
By trust agreement executed June 12, 1975, decedent, as trustor, made an inter vivos transfer of certain property to a revocable trust (the trust). In general, the trust was for the benefit of Mr. and Mrs. Levitt during their joint lifetimes and thereafter for Mrs. Levitt if she survived her husband, which she did.
By first amendment to trust agreement, executed March 6, 1978, decedent amended the trust in its entirety, but the dispository scheme was basically unchanged, although somewhat liberalized for the benefit of Mrs. Levitt after her husband’s death.
On May 13, 1985, decedent, without having made any further amendments to the trust, died intestate.
The formula clause in question reads as follows:
B. If the Trustor’s Spouse survives the Trustor, the Trustee shall divide the Trust Estate, without being required to make physical segregation thereof except to the extent necessary to make distribution, into shares as follows:
1. One share, to be known as Trust A, shall consist of the following:
(i) The one-half interest of the Spouse in the community property of our marriage to the extent included in the Trust Estate; and
(ii) The Marital Deduction Amount consisting of that amount of the balance of the Trust Estate which will equal the maximum marital deduction allowable for federal estate tax purposes on my death, reduced by the final federal estate tax values of all other property interests includible in my gross estate for federal tax purposes which pass or have passed to Spouse under other provisions of this Trust or otherwise and qualify for the marital deduction; provided that such amount shall be reduced by an amount, if any, needed to increase my taxable estate to the largest amount that will not result in a federal estate tax being imposed by reason of my death, after allowing for the unified credit which has not been claimed for transfers made by me during my life and all other available credits taken against the federal estate tax.
(For convenience, article II of the amended trust agreement containing the dispositive provisions is reproduced in its entirety in the appendix.)
On its estate tax return, petitioner reported a gross estate in the amount of $1,909,880, including assets of the trust in the amount of $858,851. Petitioner also claimed marital, funeral expense, and debt expense deductions in the amounts of $1,424,214, $20,000, and $9,621, respectively.
The claimed marital deduction in the amount of $1,424,214 consists of the following items, as disclosed on Schedule M of the Federal estate tax return (Form 706) filed by Mrs. Levitt as executor:
Real estate reported in Schedule A net of $85,722 mortgage report in Schedule K. $438,278
Stocks reported in Schedule B. 9,024
Cash reported in Schedule C. 424,017
Insurance on decedent’s life reported in Schedule D. 56,080
Jointly owned property reported in Schedule E. 27,408
Other miscellaneous property reported in Schedule F. 10,500
Surviving spouse’s interest in revocable trust (Trust A)... 458,907
Total. 1,424,214
Under the formula clause, Trust A, the surviving spouse’s trust, shall consist of the surviving spouse’s half of the trust’s assets and the marital deduction amount. The marital deduction amount is equal to $458,851. ($858,851, the value of decedent’s share of the trust’s assets, reduced by $400,000, the amount needed to fully utilize the $121,800 of unified credit available to the estate, equals a marital deduction amount of $458,851.) Petitioner, however, claimed a marital deduction with respect to Trust A in the amount of $458,907, rather than $458,851. Consequently, an unexplained difference of $56 exists. The tax computation on the face of the return reflects no other available credits.
The assets of the trust are includable in the decedent’s gross estate pursuant to section 2038, and these assets were properly listed on Schedule G of the estate tax return.
At the time of the creation of the trust on June 12, 1975, Mr. and Mrs. Levitt were residents and domiciliaries of the State of Florida. At the time of the execution of the amendment to the trust on March 6, 1978, Mr. and Mrs. Levitt were residents and domiciliaries of the State of California.
The Levitts were married in Philadelphia in 1934. At the time of their marriage, they had assets totaling approximately $200. Mr. Levitt was his parents’ only son and he supported his family during his lifetime; he received only nominal gifts and inheritances from his family during his lifetime.
On March 6, 1978, the date of the amendment to the trust, Mr. and Mrs. Levitt had a combined net worth in excess of $975,000, consisting of their residence, a commercial rental building, marketable securities, the outstanding common stock of Levitt International Corp. (all of the stock of which was owned by Mr. and Mrs. Levitt), and cash; on that date all of the assets were the quasi-community property of Mr. Levitt. The combined net worth of the Levitts continued to increase after the amendment of the trust agreement on March 6, 1978.
When the decedent initially executed the revocable trust agreement on June 12, 1975, he named himself as “Trustor” and Mrs. Levitt and Carl Bruce Levitt and Jay Caiman Levitt, the two sons of Mr. and Mrs. Levitt, as the “Trustees.” When the decedent amended the agreement on March 6, 1978, he named himself and his wife as cotrustees, and provided that upon the death, inability, incapacity, refusal, or resignation of both of the trustees, then the two sons would be successor cotrustees.
As previously indicated, the amended revocable trust agreement provided that if Mrs. Levitt survived decedent, she would receive all of the net income from Trust A, at least annually, and would have a general power of appointment over the trust principal. The amended trust agreement further provided that if Mrs. Levitt survived decedent, she would receive all of the income from Trust B, together with as much or all of the principal as the trustee (Mrs. Levitt) deemed advisable, provided only that the principal of Trust A had first to be exhausted before payments of principal could be made from Trust B.
At the death of the survivor of the decedent and his surviving spouse, the principal of Trust B and any unap-pointed portion of Trust A was to be distributed equally to Mr. and Mrs. Levitt’s two sons or their surviving issue, “upon the principle of representation.”
Respondent determined that section 403(e)(3) of ERTA (section 403(e)(3)) limits the amount which petitioner may claim for marital and funeral expense deductions to $945,761 and $9,925, respectively. Under respondent’s determination, no trust assets could be allocated to Trust A or will qualify for the marital deduction (because it is respondent’s position that the estate tax on decedent’s estate is to be computed under the pre-ERTA marital deduction limitation).
The parties have stipulated that petitioner is entitled to deduct funeral and debt expenses in the amounts of $9,925 and $9,621, respectively. The parties have also stipulated that petitioner is entitled to deduct reasonable attorney’s fees and miscellaneous administration expenses such as accounting fees incurred in litigating this case.
The sole issue for decision is whether the trust contains a “formula” within the meaning of section 403(e)(3)(B) of ERTA.
By way of general background, we note that an estate tax commentator has stated that:
The traditional purpose of marital deduction formula clauses has been to reduce or eliminate Federal estate taxes imposed on the estate of the first spouse to die while passing no more to the surviving spouse than is necessary to produce such reduction or elimination. * * * A common drafting technique under [pre-ERTA law] was to leave the surviving spouse the maximum marital deduction and then reduce that bequest to the extent such reduction did not cause estate taxes to be increased. * * * [Mulligan, “Drafting Marital Deduction Formula Clauses after ERTA to Achieve Maximum Tax Savings,” 57 J. Taxn. 362 (1982).]
The foregoing statement is quoted to show that formulas similar to the formula in the present case were commonly used prior to ERTA as an estate planning technique, coming into use after the concept of the unified estate tax credit was enacted into law by the addition of section 2010 to the Internal Revenue Code by section 2001(a)(2) and (d)(1) of the Tax Reform Act of 1976, Pub. L. 94-455, 90 Stat. 1846-1847, effective for estates of decedents dying after December 31, 1976.
Under section 2056(c), as in effect on the dates the trust was executed and amended, the maximum estate tax marital deduction was limited to the greater of $250,000 or 50 percent of the value of the adjusted gross estate. Section 403(a)(1)(A) of ERTA amended section 2056 to generally provide for an unlimited estate tax marital deduction for decedents dying after December 31, 1981. Congress, however, was concerned that this amendment might inadvertently change the effect of formula marital deduction provisions in wills and trusts that had been executed before the enactment of ERTA in a manner inconsistent with a decedent’s expressed intent. The Senate Committee Report stated:
Because the maximum estate tax marital deduction under present law is limited to the greater of $250,000 or one-half of the decedent’s adjusted gross estate, many existing wills and trusts provide a maximum marital deduction formula clause. The committee is concerned that many testators, although using the formula clause, may not have wanted to pass more than the greater of $250,000 or one-half of the adjusted gross estate (recognizing the prior law limitation) to the spouse. For this reason, a transitional rule provides that the increased estate tax marital deductions, as provided by the bill, will not apply to transfers resulting from a will executed or trust created before the date which is 30 days after enactment, which contains a maximum marital deduction clause provided that: (1) the formula clause is not amended before the death of the decedent to refer specifically to an unlimited marital deduction, and (2) there is not enacted a State law, applicable to the estate, which would construe the formula clause as referring to the increased marital deduction as amended by the bill. [S. Rept. 97-144 (1981), 1981-2 C.B. 412, 462.]
The transitional rule to which this passage from the Senate Committee Report refers is contained in section 403(e)(3) which provides:
(3) If-
(A) the decedent dies after December 31, 1981,
(B) by reason of the death of the decedent property passes from the decedent or is acquired from the decedent under a will executed before the date which is 30 days after the date of the enactment of this Act, or a trust created before such date, which contains a formula expressly providing that the spouse is to receive the maximum amount of property qualifying for the marital deduction allowable by Federal law,
(C) the formula referred to in subparagraph (B) was not amended to refer specifically to an unlimited marital deduction at any time after the date which is 30 days after the date of enactment of this Act, and before the death of the decedent, and
(D) the State does not enact a statute applicable to such estate which construes this type of formula as referring to the marital deduction allowable by Federal law as amended by [section 403(a) of ERTA],
then the amendment made by [section 403(a) of ERTA] shall not apply to the estate of such decedent.
[1981-2 C.B. 326-327.]
Respondent asserts that all the conditions contained in section 403(e)(3) have been met. Therefore, he maintains, petitioner is not entitled to an unlimited marital deduction. Petitioner concedes that the conditions contained in section 403(e)(3)(A), (C), and (D) have been met, but contends that the condition contained in section 403(e)(3)(B) has not been met because the trust does not contain a formula within the meaning of section 403(e)(3)(B).
Section 403(e)(3)(B) requires that a trust contain “a formula expressly providing that the spouse is to receive the maximum amount of property qualifying for the marital deduction allowable by Federal law.” (Emphasis added.)
The trust in the present case contains a formula providing that the spouse’s trust shall consist of “The Marital Deduction Amount consisting of that amount * * * which will equal the maximum marital deduction allowable * * * reduced by the * * * values of all other property * * * which pass or have passed to Spouse under other provisions of this Trust or otherwise and qualify for the marital deduction; provided that such amount shall be reduced by an amount, if any, needed to increase my taxable estate to the largest amount that will not result in a federal estate tax being imposed * * * , after allowing for the unified credit which has not been claimed for transfers made by me during my life and all other available credits.”
Without question, the trust formula initially provides that the spouse will receive under the trust the maximum marital deduction amount. The amount for the benefit of the spouse under the trust, but not the maximum marital deduction amount, is then reduced by the value of other property also qualifying for the marital deduction passing to the spouse outside of the trust. If the trust formula stopped at that point, the intention would seem clear to provide the surviving spouse with the pre-ERTA maximum marital deduction amount. But the trust language does not stop at that point. It goes on to provide that the maximum marital deduction amount is to be reduced by an amount necessary to increase the taxable estate to the largest amount that will not result in a Federal estate tax after allowing the unified credit. The trust formula thus does not expressly provide that “the spouse is to receive the maximum amount of property qualifying for the marital deduction” — it expressly provides substantially less. The trust therefore does not contain a formula within the literal terms of section 403(e)(3)(B).
Respondent contends that cases have read the formula provision of section 403(e)(3)(B) to encompass formulas not meeting the literal terms of section 403(e)(3)(B).
Respondent first cites Estate of Bauersfeld v. Commissioner, T.C. Memo. 1988-224, in support of his contention that a formula need not expressly provide that the surviving spouse will receive the maximum marital deduction amount to be a formula within the meaning of section 403(e)(3)(B).
In Estate of Bauersfeld, the will contained a formula providing that the surviving spouse’s trust “shall consist of * * * such residue of my estate which will equal the maximum estate tax marital deduction * * * less the aggregate of the marital deductions, if any, allowable for such tax purposes by reason of property or interests in property passing or which shall have already passed to * * * my spouse otherwise than by the terms of this [will].” 55 T.C.M. 891, 57 P-H Memo T.C. par. 88,224 at 1131. We found that the formula in Estate of Bauersfeld was a formula within the meaning of section 403(e)(3)(B).
Respondent asserts, based on Estate of Bauersfeld, that a formula need not expressly provide that the surviving spouse receive the maximum marital deduction amount to be a formula within the meaning of section 403(e)(3)(B). Petitioner, however, contends that the formula in Estate of Bauersfeld provides that the spouse will receive the maximum marital deduction amount and, thus, is a formula within the literal terms of section 403(e)(3)(B). We agree with petitioner.
The formula in Estate of Bauersfeld provided that the testator’s spouse would receive the maximum marital deduction amount less the amount of property passing to the spouse outside of the formula that qualified for the marital deduction.
Section 403(e)(3)(B) requires that a will or trust contain “a formula expressly providing that the spouse is to receive the maximum amount of property qualifying for the marital deduction.” Section 403(e)(3)(B) does not, however, require that a surviving spouse “receive the maximum amount of property qualifying for the marital deduction” exclusively from a will or trust containing the formula. The formula in Estate of Bauersfeld provided, when all amounts passing to the spouse were considered, that the spouse would receive the maximum amount of property qualifying for the marital deduction. Accordingly, the will in Estate of Bauersfeld contained a formula within the literal terms of section 403(e)(3)(B). See also Liberty National Bank & Trust Co. v. United States, 867 F.2d 302 (6th Cir. 1989); Estate of Christmas v. Commissioner, 91 T.C. 769 (1988).
In contrast, the formula in the present case reduces the maximum marital deduction amount not only by the amount of property qualifying for the marital deduction passing to the spouse outside of the trust but also by the amount of property needed to ensure that the unified credit and other credits of the estate are fully utilized. Thus, the formula in the present case does not provide, even when all amounts passing to the spouse are considered, that the spouse will receive the maximum amount of property qualifying for the marital deduction. This intentional reduction in the maximum amount of qualifying property passing to the surviving spouse assured full utilization of available credits while at the same time avoiding increasing the size of the surviving spouse’s taxable estate unnecessarily.
Respondent next cites Estate of Blair v. Commissioner, T.C. Memo. 1988-296, in support of his contention that a formula need not expressly provide that a surviving spouse will receive the maximum marital deduction amount to be considered a formula within the meaning of section 403(e)(3)(B).
In Estate of Blair, the will contained a formula providing that the trust established for the benefit of the surviving spouse:
shall also include the portion of separate property * * * qualifying for the marital deduction of a value, * * * , necessary to obtain for his or her estate the maximum marital deduction allowable * * * , after taking into account any other qualifying marital deduction property passing to the surviving Trustor otherwise than under this subdivision, * * * . However, this sum shall be reduced by an amount, if any, needed to increase the deceased Trustor’s taxable estate to the largest amount that will, after allowing for the unified credit * * * and any other allowable credits or deductions, not result in a federal estate tax being imposed * * * . [55 T.C.M. 1246, 1247, 57 P-H Memo T.C. par. 88,296 at 1506. Emphasis in original.]
We held that the formula in Estate of Blair was a formula within the meaning of section 403(e)(3)(B) (although we now conclude, infra, that such holding was incorrect).
The net effect of the formula in Estate of Blair and the formula in the present case is the same. These formulas provide that the surviving spouse is to receive the maximum marital deduction amount reduced by the amount of property otherwise passing to the surviving spouse, less the amount needed to ensure that the estate’s credits are fully utilized.
Respondent contends that Estate of Blair stands for the proposition that section 403(e)(3)(B) is satisfied by any formula that defines the marital gift “as a function of the maximum allowable marital deduction” amount. Thus, respondent contends that the formula in the present case satisfies section 403(e)(3)(B) because the formula in the present case and Estate of Blair are indistinguishable.
Petitioner asserts that Estate of Blair did not correctly apply our decisions in Estate of Bruning v. Commissioner, T.C. Memo. 1988-5, affd. per curiam 888 F.2d 657 (10th Cir. 1989), and Estate of Neisen v. Commissioner, 89 T.C. 939 (1987), affd. per curiam 865 F.2d 162 (8th Cir. 1988), and, therefore, Estate of Blair should not be relied on in the present case. We agree with petitioner.
Section 403(e)(3)(B) requires that a will or trust contain a “formula expressly providing that the spouse is to receive the maximum amount of property qualifying for the marital deduction allowable.” (Emphasis added.) In Estate of Bruning v. Commissioner, supra, we analyzed the legislative history of section 403(e)(3) and concluded that “Congress was not concerned with clausés that merely mention the maximum marital deduction, but with clauses under which the amount of property transferred to the surviving spouse is determined solely by reference to the maximum marital deduction.” (Emphasis added.) 54 T.C.M. 1469, 1471, 57 P-H Memo T.C. par. 88,005 at 30, 32.
In Estate of Neisen v. Commissioner, supra, we recognized a distinction, based on the language of section 403(e)(3), between a formula expressly providing that the surviving spouse was to receive the maximum marital deduction amount and a formula providing that the spouse was to receive the minimum marital deduction amount needed to minimize taxes. A formula providing that the surviving spouse was to receive the maximum marital deduction amount was found to be a formula within the meaning of section 403(e)(3)(B). However, a formula, as in Estate of Neisen, providing that the spouse was to receive “the lesser” of the “maximum marital deduction” amount or the “minimum marital deduction” amount needed to minimize estate taxes, was not found to be a formula within the meaning of section 403(e)(3)(B). Thus, a formula must provide that a spouse will receive, not merely mention, the maximum marital deduction amount to be considered a formula within the meaning of section 403(e)(3)(B).
In Estate of Blair, we noted the distinction recognized in Estate of Neisen and stated: “In this case, we can make no such distinction because the trust expressly provides that the [surviving spouse] is to [receive] the maximum amount of property qualifying for the marital deduction.” 55 T.C.M. 1246, 1248, 57 P-H Memo T.C. par. 88,296 at 1506, 1508. We find this analysis to be incomplete.
The formulas in Estate of Blair and the present case initially provide that each surviving spouse is to receive the maximum marital deduction amount. However, the amount each spouse is to receive is reduced by the amount needed to ensure that the credits of the estates are fully utilized. Thus, the formulas in Estate of Blair and the present case do not, when read in their entirety, “[provide] that the spouse is to receive the maximum amount of property qualifying for the marital deduction allowable by Federal law.” Sec. 403(e)(3)(B). A formula must provide that the spouse is to receive, not merely mention in isolation, the maximum amount of the marital deduction to be a formula within the meaning of section 403(e)(3)(B).
Accordingly, we hold that the formula in the present case is not a formula within the meaning of section 403(e)(3)(B). Consequently, the result reached in Estate of Blair v. Commissioner, supra, incorrectly applied our decisions in Estate of Neisen v. Commissioner, supra, and Estate of Bruning v. Commissioner, supra, and is expressly disapproved. Our holding is in accord with the intent of Congress as well as our decisions in Estate of Neisen v. Commissioner, supra, and Estate of Bruning v. Commissioner, supra.
Congress created section 403(e)(3) out of concern that many testators, although using a formula clause, may not have wanted to pass, under a will or trust executed before the enactment of ERTA in 1981, more than the greater of $250,000 or one-half of the adjusted gross estate (recognizing the prior law limitation) to the spouse. S. Rept. 97-144 (1981), 1981-2 C.B. 412, 462. Thus, the purpose of section 403(e)(3) was to preserve, not frustrate, the testator’s intent. Estate of Bruning v. Commissioner, 888 F.2d at 659; Liberty National Bank & Trust Co. v. United States, 867 F.2d at 304.
Respondent observes that his division of the estate (whereby all of the assets held in the Levitt trust would be distributed to fund Trust B) results in an approximately equal allocation between the surviving spouse and the children, before accounting for the value of the surviving spouse’s interest in the community property. Respondent goes on to argue that “absent the protection of the transitional rules, ” all of the estate except the unified credit cutback amount, which respondent computes to be $399,944, will pass to the surviving spouse pursuant to the “maximum marital deduction formula clause.” (Emphasis added.) The children, he says (meaning, of course, the decedent’s two adult sons), will be substantially disinherited from Samuel I. Levitt’s estate, except to the extent provided for by the surviving spouse, a result which the transitional rules were expressly adopted to avoid.
While we are touched by respondent’s solicitude for the welfare of the decedent’s two adult sons, we cannot believe, since $143,327 in Federal estate tax is at stake, that the sons’ welfare is actually respondent’s primary concern. Decedent’s intent is derived from the language and operation of the trust. Estate of Bruning v. Commissioner, 888 F.2d at 659. The trust provisions simply do not support respondent’s professed concern. The provisions of the trust, of which Mrs. Levitt is the sole trustee during her lifetime, give her unlimited access to all of the income and principal of Trust A and Trust B after the decedent’s death, provided only that the principal of Trust A must be used up before the principal of Trust B can be invaded.
In Estate of Bruning v. Commissioner, 888 F.2d at 660, the Tenth Circuit disagreed with the Commissioner’s assertion that any formula referring to the maximum marital deduction is a formula within the meaning of section 403(e)(3)(B). As there stated:
Congress desired to carry out a decedent’s intent. If it can be discerned from the will [here, the trust] that decedent would have desired the unlimited marital deduction permitted by ERTA, the limitation was not intended to apply. Because decedent * * * expressly bequeathed an amount to achieve a minimum payment of federal estate taxes, we conclude that decedent’s intent was clearly expressed and the [trust] does not contain a maximum marital deduction formula clause within the meaning of section 403(e)(3).
Nothing in the revocable trust agreement before us could lead a reasonable person to believe that the decedent’s primary concern was to limit the amount going to his surviving wife to protect the interests of his other heirs. On the contrary, the decedent’s trust only shows concern for the welfare of the person who was his wife of 44 years when the amended trust agreement was signed in 1978. It seems highly unlikely, if not inconceivable, given the tax reduction language of Trust A and the dispositive provisions of the trust instrument to which we have alluded that decedent would willingly have foregone the benefit of a $143,327 estate tax savings for his surviving wife.
We therefore conclude that decedent’s intent in the present case was to minimize Federal estate taxes, and not to limit the amount of property passing to the surviving spouse. We base this conclusion on the language and operation of the formula itself and the trust’s entire dispository scheme, which for all intents and purposes solely benefited the surviving spouse.
Respondent points out that California, by former Probate Code sections 1034 and 1038.14, has adopted the transitional rule of section 403(e)(3). Respondent further cites In re Estate of Libeu, 205 Cal. App. 3d 1436, 253 Cal. Rptr. 456 (1988), for the proposition that California has, as stated on brief, “broadened the definition of the marital deduction formula clause to include all gifts that evidence an intention to realize for the estate the maximum marital deduction.” We do not agree.
In In re Estate of Libeu, the court states that “the California Legislature enacted [California’s] former Probate Code [provision] which adopted in essential part the federal transitional rule.” 253 Cal. Rptr. at 462. California Probate Code section 1034 provided that if a pre-ERTA will “indicates the testator’s intention to make a gift that will provide the testator’s estate with the maximum marital deduction, then the will passes to the recipient an amount equal to the maximum marital deduction which would have been allowed as of the date of the testator’s death for federal estate tax purposes [pre-ERTA].” (Emphasis added.) California Probate Code section 1038.14 extends section 1034 to include formula gifts or transfers made through inter vivos trusts. The California Probate Code provisions insure that the property passing to the surviving spouse under State law is equal to the marital deduction allowed for Federal estate tax purposes.
In the Libeu case, the will provided in pertinent part as follows:
I give to my wife, HELEN L. Libeu, should she survive me by four months, a fractional share of my estate, including the property described in paragraph SECOND above, which shall be equivalent to the maximum marital deduction obtainable in fixing the Federal Estate Tax upon all of the items included in my gross estate for Federal Estate Tax purposes (whether or not passing under this Will or included in my estate for purposes of actual probate). There shall be subtracted from such fractional share any property passing to my wife outside of probate which qualifies for the marital deduction. * * * [253 Cal. Rptr. at 461.]
Respondent states on brief that:
Inasmuch as this provision defines the gift in terms of the maximum marital deduction, it is substantially identical to the dispositive provisions of the Levitt Trust. Both instruments direct that the gift shall be reduced to account for estate property which passed to the spouse outside of the trust/probate.
The dispositive provision of the Levitt Trust is distinguishable from that of the Libeu will in that the formula further refines the gift by including the “unified credit cut-back clause.” The existence of this clause in no way distinguishes the marital deduction clause in decedent’s will from that in Libeu, for the effect of this clause is to ensure full use of the credit; it does not alter the fact that the amount the spouse is to receive is determined with reference to the allowable marital deduction.
Unfortunately for respondent’s position, the conclusion he draws is based solely upon wishful thinking. At no place in the Libeu will is there any provision for reducing the maximum marital deduction bequest by an amount necessary to fully utilize the unified credit, as there is in the Levitt trust provision. The fact that, as stated in respondent’s brief, “the amount the spouse is to receive is determined with reference to the allowable marital deduction” has no utility whatever in assisting the determination of whether a pre-ERTA will or trust “contains a formula expressly providing that the spouse is to receive the maximum amount of property qualifying for the marital deduction allowable by federal law.” Sec. 403(e)(3)(B). We consequently conclude that neither former section 1034 of the California Probate Code nor In re Estate of Libeu, supra, in any way assists or supports respondent’s position.
As a result of the foregoing, applying section 403(e)(3) to the present case would be contrary to decedent’s intent and, thus, the purpose for which section 403(e)(3) was created.
We conclude by noting that to date the decided cases which have considered maximum marital deduction formula provisions not containing a diminution to utilize the maximum unified estate tax credit have uniformly supported respondent’s position here. See Estate of Bauersfeld v. Commissioner, supra; Liberty National Bank & Trust Co. v. United States, supra; Estate of Christmas v. Commissioner, supra; and In re Estate of Libeu, supra. On the other hand, the cases dealing with marital deduction formula provisions which do contain a diminution provision utilizing the maximum estate tax unified credit, with the sole exception of Estate of Blair v. Commissioner, supra, support petitioner’s position. See Estate of Neisen v. Commissioner, supra, and Estate of Bruning v. Commissioner, supra. Petitioner’s formula falls within the Neisen-Bruning category, and for the reasons outlined above, we conclude that petitioner’s position is correct and that Estate of Blair was incorrectly decided.
We hold that the trust does not contain a “formula” within the meaning of section 403(e)(3)(B). Accordingly, section 403(e)(3) does not preclude petitioner from qualifying for an unlimited marital deduction under section 2056 as amended by ERTA. To reflect the foregoing,
Decision will be entered under Rule 155.
Reviewed by the Court.
Korner, Hamblen, Cohen, Clapp, Swift, Wright, Parr, and COLVIN, JJ., agree with the majority.APPENDIX
ARTICLE II — Distribution of Income and Principal
A. During the lifetime of the Trustor, the Trustee shall pay to or for the benefit of Trustor and Trustor’s spouse HELEN STEIN LEVITT, hereinafter referred to as Spouse, during their joint lifetimes, in monthly or other convenient installments, not less often than annually, all of the net income and so much of the trust principal as the Trustee deems necessary for the care, support and maintenance of the Trustor and Spouse, without apportionment.
B. If the Trustor’s Spouse survives the Trustor, the Trustee shall divide the Trust Estate, without being required to make physical segregation thereof except to the extent necessary to make distribution, into shares as follows:
1. One share, to be known as Trust A, shall consist of the following:
(i) The one-half interest of the Spouse in the community property of our marriage to the extent included in the Trust Estate; and
(ii) The Marital Deduction Amount consisting of that amount of the balance of the Trust Estate which will equal the maximum marital deduction allowable for federal estate tax purposes on my death, reduced by the final federal estate tax values of all other property interests includible in my gross estate for federal tax purposes which pass or have passed to Spouse under other provisions of this Trust or otherwise and qualify for the marital deduction; provided that such amount shall be reduced by an amount, if any, needed to increase my taxable estate to the largest amount that will not result in a federal estate tax being imposed by reason of my death, after allowing for the unified credit which has not been claimed for transfers made by me during my life and all other available credits taken against the federal estate tax.
(iii) The Trustee shall satisfy the Marital Deduction Amount in cash or in kind, or partly in each, with assets eligible for the marital deduction for federal estate tax purposes. The assets so allocated in kind shall be deemed to satisfy the Marital Deduction Amount on the basis of their value at the date or dates of distribution of Trust A.
2. One share, to be known as Trust B, shall consist of the balance of the Trust Estate.
3. The terms “gross estate”, “marital deduction”, and “interests in property which pass or have passed”, as used in this Trust, shall have the same meanings as they have under the marital deduction provisions of the Internal Revenue Code. It is intended that the provisions of this Trust relating to the marital deduction, including any power, duty or discretionary authority, comply with the marital deduction provisions of the Internal Revenue Code and they shall be construed to conform to that intent and to the extent any such provision cannot be construed it shall be deemed to be void.
4. If my spouse does not survive me, the entire Trust Estate shall be held, managed, and distributed in accordance with the provisions of this Trust relating to Trust B.
C. Trust A shall be held, managed and distributed as follows:
1. The Trustee shall distribute the net income to Spouse during his lifetime in monthly or other convenient installments, not less often than annually. In addition, the Trustee shall distribute to Spouse, or to any other person, such amounts of the principal of Trust A, up to the whole thereof, as Spouse may direct from time to time. In the event Spouse for any reason is unable to request distributions to himself of principal of Trust A, the Trustee shall have discretion to distribute to or for his benefit such amounts of the principal up to the whole thereof, as the Trustee may deem necessary for his care, support and maintenance.
2. My spouse shall have the absolute power exercisable only by a written instrument other than a Will delivered to the Trustee during his lifetime to appoint any part of the principal and any undistributed net income of Trust A in favor of himself or any person.
3. Should my Spouse fail to exercise the foregoing power of appointment, then upon his death the Trustee shall add the remainder of Trust A to Trust B, to be distributed in accordance with the provisions hereinafter set forth relating to Trust B.
D. Trust B shall be held, managed and distributed as follows:
1. The Trustee shall pay to or for the benefit of my Spouse during his lifetime the entire net income, in monthly or other convenient installments, not less other than annually.
E. If the income from the Trusts to which my Spouse may be entitled shall be insufficient in the discretion of the Trustee to provide for his reasonable care, support and maintenance, the Trustee may pay to said Spouse or apply for his benefit so much of the principal up to and including the whole of the respective Trusts as the Trustee may deem advisable; provided, however, that the principal of Trust A must be exhausted before payments from principal may be made from Trust B.
F. This Trust shall terminate upon the death of the survivor of the Trustor and Trustor’s Spouse. The Trustee shall distribute Trust B and any portion of Trust A not disposed of as hereinbefore provided, to the children of the Trustor, namely: CARL BRUCE LEVITT and JAY CALMAN LEVITT, in equal shares. If either of said children should not then be living, said share shall be distributed to his then living lawful issue upon the principle of representation.
G. The words “lawful issue” as used in this instrument shall mean and refer to natural issue. It shall not include children by adoption.
Note: Article I provides, among other things, that “The singular shall include the plural wherever necessary, and one gender shall include any other gender wherever necessary.”