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BONE v. UNITED STATES

February 16, 1965

LENORA ANNA BONE, EXECUTRIX OF THE ESTATE OF CLARENCE W. BONE, DECEASED, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: John E. Miller, Chief Judge.

Statement

On March 27, 1964, plaintiff commenced this action seeking to recover $15,587.42, together with interest and costs, because of an alleged erroneous disallowance of marital deduction in the estate tax return of Clarence W. Bone, deceased. The defendant filed its answer May 28, 1964, in which it admitted the filing of the estate tax return and the disallowance of the marital deduction claimed for the residue of the deceased's estate devised to Lenora Anna Bone and alleged that the determination of the Commissioner of Internal Revenue was correct. On December 5, 1964, the defendant and plaintiff, through their respective attorneys, filed a stipulation containing facts and procedures to be followed in the event the court reached certain conclusions.

In clarification of the facts set forth in the stipulation, the court makes the following findings of fact:

No. 1

The deceased, Clarence W. Bone, died testate May 4, 1961. His will was duly admitted to probate by the Probate Court of Washington County, Arkansas. The plaintiff, Lenora Anna Bone, surviving wife, qualified as Executrix and was granted letters testamentary May 22, 1961.

No. 2

An estate tax return for the estate of Clarence W. Bone was filed July 30, 1962, reflecting an adjusted gross estate of $187,142.94. The estate tax return claimed deduction for bequests to the surviving spouse in the amount of $93,571.47, and the estate tax as reflected by that return was paid at that time.

No. 3

The Internal Revenue Service readjusted the gross estate and determined it to be $192,893.80. The deduction for bequests to the surviving spouse was decreased from $93,571.47 to $34,379.19. The reduction was based upon a disallowance of the value of the property passing to the surviving spouse under the residuary clause of Clarence W. Bone's will in the amount of $96,446.90. The tax as computed after adjustment has been paid, and a timely request for refund was made but denied by the Internal Revenue Service.

No. 4

The will of Clarence W. Bone in the third clause provided:

    "Third. All of the rest and residue of my estate,
  real, personal and mixed, of every nature and kind
  and wheresoever located, I hereby give, devise and
  bequeath the same to my wife, Lenora Anna Bone, for
  and during her natural life, with the right to my
  said wife to use the same as she deems best and
  proper without limitation, giving unto my said wife
  the right and power of selling conveying and
  converting any of my property. Upon the death of my
  said wife, the balance and residue of my estate which
  has not been consumed, I give, devise and bequeath to
  and the same shall vest absolutely in, my five
  children in fee simple, in the proportions
  hereinafter set forth * * *."

DISCUSSION

As the court views the pleadings, the stipulation, the facts and contentions of the parties as set forth in their briefs, the issue presented is: Whether the estate of Clarence W. Bone is entitled to a marital deduction for the value of the property devised to Lenora Anna Bone in the residuary clause of Clarence W. Bone's will as provided in Sec. 2056(b)(5) of the Internal Revenue Code, 26 U.S.C. § 2056(b)(5). In determining this question, the court must examine the extent and nature of the spouse's interest as devised in the residuary clause of the decedent's will.

Section 2056(b)(5) and the regulations promulgated by the Internal Revenue Service grant a marital deduction to the estate for a devise to a surviving spouse of a life estate with a power of appointment if it meets certain criteria. The regulations provide that five conditions have to be satisfied to entitle the estate to a marital deduction under this section:

    "(1) The surviving spouse must be entitled for life
  to all of the income from the entire interest or a
  specific portion of the entire interest, or to a
  specific portion of all the income from the entire
  interest.
    "(2) The income payable to the surviving spouse
  must be payable annually or at more frequent
  intervals.
    "(3) The surviving spouse must have the power to
  appoint the entire interest or the specific portion
  to either herself or her estate.
    "(4) The power in the surviving spouse must be
  exercisable by her alone and (whether exercisable by
  will or during life) must be exercisable in all
  events.
    "(5) The entire interest or the specific portion
  must not be subject

  to a power in any other person to appoint any part to
  any person other than the ...

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