Fourteen months after her husband's death, a state court awarded
his widow a support and maintenance allowance payable monthly for
not to exceed twenty-four months from date of decedent's death. The
widow survived the period, unremarried, and under state law was
entitled to and did receive the payments. Deduction of all the
payments on the federal estate tax return, as part of the marital
deduction provided by § 812(e) of the Internal Revenue Code of
1939, was disallowed by the Commissioner of Internal Revenue. The
District Court held that the widow's allowance was a "terminable
interest" under § 812(e)(1)(B), and thus not deductible, and the
Court of Appeals affirmed.
Held:
1. Since a widow' right to the allowance under the State law is
defeated by her death or remarriage, her interest is terminable
under § 812(e)(1)(B). Pp.
376 U. S.
503-506.
2. Qualification for the marital deduction, including the
widow's allowance, is determined as of time of death.
Cunha's
Estate v. Commissioner, 279 F.2d 292;
United States v.
Quivey, 292 F.2d 252, followed. Pp.
376 U. S.
507-511.
317 F.2d 821, affirmed.
MR. JUSTICE WHITE delivered the opinion of the Court.
Since 1948, § 812(e)(1)(A) of the Internal Revenue Code of 1939
has allowed a "marital deduction" from a decedent's gross taxable
estate for the value of interests
Page 376 U. S. 504
in property passing from the decedent to his surviving spouse.
[
Footnote 1] Subsection (B)
adds the qualification, however, that interests defined therein as
"terminable" shall not qualify as an interest in property to which
the marital deduction applies. [
Footnote 2] The question raised by this case is whether
the allowance provided by California law for the support of a widow
during the settlement of her husband's estate is a terminable
interest.
Petitioners are the widow-executrix and testamentary trustee
under the will of George Richards, who died a resident of
California on May 27, 1951. Acting under the Probate Code of
California, the state court, on June 30, 1952, allowed Mrs.
Richards the sum of $3,000 per month from the corpus of the estate
for her support and maintenance, beginning as of May 27, 1951, and
continuing for a period of 24 months from that date. Under the
terms of the order, an allowance of $42,000 had
Page 376 U. S. 505
accrued during the 14 months since her husband's death. This
amount, plus an additional $3,000 per month for the remainder of
the two-year period, making a total of $72,000, was in fact paid to
Mrs. Richards as widow's allowance.
On the federal estate tax return filed on behalf of the estate,
the full $72,000 was claimed as a marital deduction under § 812(e)
of the Internal Revenue Code of 1939. The deduction was disallowed,
as was a claim for refund after payment of the deficiency, and the
present suit for refund was then brought in the District Court. The
District Court granted summary judgment for the United States,
holding, on the authority of
Cunha's Estate v.
Commissioner, 279 F.2d 292, that the allowance to the widow
was a terminable interest, and not deductible under the marital
provision of the Internal Revenue Code. The Court of Appeals
affirmed, 317 F.2d 821, and we brought the case here because of an
asserted conflict between the decision below and that of the Court
of Appeals for the Fifth Circuit in
United States v. First
National Bank & Trust Co. of Augusta, 297 F.2d 312. 375
U.S. 894. For the reasons given below, we affirm the decision of
the Court of Appeals.
In enacting the Revenue Act of 1948, 62 Stat. 110, with its
provision for the marital deduction, Congress left undisturbed §
812(b)(5) of the 1939 Code, which allowed an estate tax deduction,
as an expense of administration, for amounts "reasonably required
and actually expended for the support during the settlement of the
estate of those dependent upon the decedent." 26 U.S.C. (1946 ed.)
§ 812(b)(5). As the legislative history shows, support payments
under § 812(b)(5) were not to be treated as part of the marital
deduction allowed by § 812(e)(1). [
Footnote 3] The Revenue Act of 1950, 64 Stat. 906,
however, repealed
Page 376 U. S. 506
§ 812(b)(5) because, among other reasons, Congress believed the
section resulted in discriminations in favor of States having
liberal family allowances. [
Footnote 4] Thereafter allowances paid for the support of
a widow during the settlement of an estate "heretofore deductible
under section 812(b) will be allowable as a marital deduction
subject to the conditions and limitations of section 812(e)."
S.Rep. No. 2375, 81st Cong., 2d Sess., p. 130.
The "conditions and limitations" of the marital deduction under
§ 812(e) are several, but we need concern ourselves with only one
aspect of § 812(e)(1)(B), which disallows the deduction of
"terminable" interests passing to the surviving spouse. It was
conceded in the Court of Appeals that the right to the widow's
allowance here involved is an interest in property passing from the
decedent within the meaning of § 812(e)(3), that it is an interest
to which the terminable interest rule of § 812(e)(1)(B) is
applicable, and that the conditions set forth in (i) and (ii) of §
812(e)(1)(B) were satisfied under the decedent's will and codicils
thereto. The issue, therefore, is whether the interest in property
passing to Mrs. Richards as widow's allowance would "terminate or
fail" upon the "lapse of time, upon the occurrence of an event or
contingency, or upon the failure of an event or contingency to
occur."
We accept the Court of Appeals' description of the nature and
characteristics of the widow's allowance under California law. In
that State, the right to a widow's allowance is not a vested right,
and nothing accrues before the order granting it. The right to an
allowance is lost when the one for whom it is asked has lost the
status upon
Page 376 U. S. 507
which the right depends. If a widow dies or remarries prior to
securing an order for a widow's allowance, the right does not
survive such death or remarriage. The amount of the widow's
allowance which has accrued and is unpaid at the date of death of
the widow is payable to her estate, but the right to future
payments abates upon her death. The remarriage of a widow
subsequent to an order for an allowance likewise abates her right
to future payments. 317 F.2d 821, 825.
In light of these characteristics of the California widow's
allowance, Mrs. Richards did not have an indefeasible interest in
property at the moment of her husband's death, since either her
death or remarriage would defeat it. If the order for support
allowance had been entered on the day of her husband's death, her
death or remarriage at any time within two years thereafter would
terminate that portion of the interest allocable to the remainder
of the two-year period. As of the date of Mr. Richards' death,
therefore, the allowance was subject to failure or termination
"upon the occurrence of an event or contingency." That the support
order was entered in this case 14 months later does not, in our
opinion, change the defeasible nature of the interest.
Petitioners ask us to judge the terminability of the widow's
interest in property represented by her allowance as of the date of
the Probate Court's order, rather than as of the date of her
husband's death. The court's order, they argue, unconditionally
entitled the widow to $42,000 in accrued allowance, of which she
could not be deprived by either her death or remarriage. It is true
that some courts have followed this path, [
Footnote 5] but it is difficult to accept an approach
which would allow a deduction
Page 376 U. S. 508
of $42,000 on the facts of this case, a deduction of $72,000 if
the order had been entered at the end of two years from Mr.
Richards' death and none at all if the order had been entered
immediately upon his death. Moreover, judging deductibility as of
the date of the Probate Court's order ignores the Senate
Committee's admonition that, in considering terminability of an
interest for purposes of a marital deduction, "the situation is
viewed as at the date of the decedent's death." S.Rep.No. 1013,
Part 2, 80th Cong., 2d Sess., p. 10. We prefer the course followed
by both the Court of Appeals for the Ninth Circuit in
Cunha's
Estate, supra, and by the Court of Appeals for the Eighth
Circuit in
United States v. Quivey, 292 F.2d 252. Both
courts have held the date of death of the testator to be the
correct point of time from which to judge the nature of a widow's
allowance for the purpose of deciding terminability and
deductibility under § 812(e)(1). This is in accord with the rule
uniformly followed with regard to interests other than the widow's
allowance, that qualification for the marital deduction must be
determined as of the time of death. [
Footnote 6]
Our conclusion is confirmed by § 812(e)(1)(D), [
Footnote 7] which saves from the operation of
the terminable interest
Page 376 U. S. 509
rule interests which by their terms may (but do not in fact)
terminate only upon failure of the widow to survive her husband for
a period not in excess of six months. The premise of this provision
is that an interest passing to a widow is normally to be judged as
of the time of the testator's death, rather than at a later time
when the condition imposed may be satisfied; hence, the necessity
to provide an exception to the rule in the case of a six months'
survivorship contingency in a will. [
Footnote 8] A gift conditioned upon eight months'
survivorship, rather than six, is a nondeductible terminable
interest for reasons which also disqualify the statutory widow's
allowance in California where the widow must survive and remain
unmarried at least to the date of an allowance order to become
indefeasibly entitled to any widow's allowance at all.
Petitioners contend, however, that the sole purpose of the
terminable interest provisions of the Code is to assure that
interests deducted from the estate of the deceased spouse will not
also escape taxation in the estate of the survivor. This argument
leads to the conclusion that, since it is now clear that, unless
consumed or given away during Mrs. Richards' life, the entire
$72,000 will be taxed to her estate, it should not be included in
her husband's. But, as we have already seen, there is no provision
in the Code for deducting all terminable interests which become
nonterminable at a later date and therefore taxable in the estate
of the surviving spouse if not consumed or transferred.
Page 376 U. S. 510
The examples cited in the legislative history make it clear that
the determinative factor is not taxability to the surviving spouse,
but terminability as defined by the statute. [
Footnote 9] Under the view advanced by
petitioners, all cash allowances actually paid would fall outside §
812(e)(1)(B); on two different occasions, the Senate has refused to
give its approval to House-passed amendments to the 1954 Code which
would have made the terminable interest rule inapplicable to all
widow's allowances actually paid within specified periods of time.
[
Footnote 10]
We are mindful that the general goal of the marital deduction
provisions was to achieve uniformity of federal estate tax impact
between those States with community property laws and those without
them. [
Footnote 11] But the
device of the marital deduction, which Congress chose to achieve
uniformity, was knowingly hedged with limitations, including the
terminable interest rule. These provisions may be imperfect devices
to achieve the desired end, [
Footnote 12] but they are the means which Congress chose.
To the extent it was thought desirable to modify the rigors of the
terminable interest rule, exceptions to the rule were written into
the Code. Courts should hesitate to provide still another exception
by straying so far from the statutory language as to allow a
marital deduction for the widow's allowance provided by the
California statute.
Page 376 U. S. 511
The achievement of the purposes of the marital deduction is
dependent to a great degree upon the careful drafting of wills; we
have no fear that our decision today will prevent either the full
utilization of the marital deduction or the proper support of
widows during the pendency of an estate proceeding.
Affirmed.
MR. JUSTICE DOUGLAS dissents.
[
Footnote 1]
The deduction allowed is:
"An amount equal to the value of any interest in property which
passes or has passed from the decedent to his surviving spouse, but
only to the extent that such interest is included in determining
the value of the gross estate."
26 U.S.C. (1952 ed.) § 812(e)(1)(A).
[
Footnote 2]
Subsection (B) provides in pertinent part:
"Where, upon the lapse of time, upon the occurrence of an event
or contingency, or upon the failure of an event or contingency to
occur, such interest passing to the surviving spouse will terminate
or fail, no deduction shall be allowed with respect to such
interest --"
"(i) if an interest in such property passes or has passed (for
less than an adequate and full consideration in money or money's
worth) from the decedent to any person other than such surviving
spouse (or the estate of such spouse); and"
"(ii) if by reason of such passing such person (or his heirs or
assigns) may possess or enjoy any part of such property after such
termination or failure of the interest so passing to the surviving
spouse."
26 U.S.C. (1952 ed.) § 812(e) (1)(B).
The marital deduction and terminable interest provisions of the
1954 Code are similar to those of its 1939 counterpart.
See 26 U.S.C. (1958 ed.) § 2056(a) and (b).
[
Footnote 3]
S.Rep. No. 1013, Part 2, 80th Cong., 2d Sess., p. 3.
[
Footnote 4]
The legislative history states:
"In practice, [the support allowance deduction] has
discriminated in favor of estates located in States which authorize
liberal allowances for the support of dependents, and it has
probably also tended to delay the settlement of estates."
S.Rep. No. 2375, 81st Cong., 2d Sess., p. 57.
[
Footnote 5]
United States v. First National Bank & Trust Co. of
Augusta, 297 F.2d 312 (C.A.5th Cir.);
Estate of Gale v.
Commissioner, 35 T.C. 215;
Estate of Rudnick v.
Commissioner, 36 T.C. 1021.
[
Footnote 6]
Bookwalter v. Lamar, 323 F.2d 664 (C.A.8th Cir.);
United States v. Mappes, 318 F.2d 508 (C.A.10th Cir.);
Commissioner v. Ellis' Estate, 252 F.2d 109 (C.A.3d Cir.);
Starrett v. Commissioner, 223 F.2d 163 (C.A.1st Cir.);
Estate of Sbicca v. Commissioner, 35 T.C. 96.
[
Footnote 7]
"For the purposes of subparagraph (B) an interest passing to the
surviving spouse shall not be considered as an interest which will
terminate or fail upon the death of such spouse if --"
"(i) such death will cause a termination or failure of such
interest only if it occurs within a period not exceeding six months
after the decedent's death, or only if it occurs as a result of a
common disaster resulting in the death of the decedent and the
surviving spouse, or only if it occurs in the case of either such
event; and"
"(ii) such termination or failure does not in fact occur."
26 U.S.C. (1952 ed.) § 812(e)(1)(D).
[
Footnote 8]
The Senate Report accompanying the House bill which eventually
became law states that
"Subparagraph (D) of section 812(e)(1) provides an exception to
the terminable interest rule under subparagraph (B) of such
section. This exception is for the purpose of allowing the marital
deduction in certain cases where there is a contingency with
respect to the interest passing to the surviving spouse under a
common disaster clause or similar clause in the decedent's
will."
S.Rep. No. 1013, Part 2, 80th Cong., 2d Sess., p. 15.
[
Footnote 9]
Id. at 10, 11, 15.
[
Footnote 10]
See S.Rep. No. 1622, 83d Cong., 2d Sess., p. 125; H.R.
2573, 86th Cong., 1st Sess.; and H.R.Rep. No. 818, 86th Cong., 1st
Sess.
[
Footnote 11]
United States v. Stapf, 375 U.
S. 118.
[
Footnote 12]
See Surrey, Federal Taxation of the Family -- The
Revenue Act of 1948, 61 Harv.L.Rev. 1097, 1156-1157; Anderson, The
Marital Deduction and Equalization Under the Federal Estate and
Gift Taxes Between Common Law and Community Property States, 54
Mich.L.Rev. 1087, 1109.