Lettice v. United States
Dorothy Clarke LETTICE, as Executrix of the Will of Zellah May Gray, Deceased, Plaintiff, v. UNITED STATES of America, Defendant
- Proceeding
- district
- Area
- probate
- Panel
- Kunzel (author)
Analysis
The court reviewed a refund action regarding a federal estate tax deficiency where the government argued that a trust provision allowing the settlor to receive income for 'enjoyment' made the entire trust estate includible in her gross estate. The court held that under Missouri law, the trustee's 'absolute discretion' precluded the settlor from enforcing a right to the entire income, and thus ordered a partial refund of the deficiency and interest.
| What the court decided | The model |
|---|---|
Refund of the deficiency of $72,070.64 and interest of $14,373.64 is allowed.“refund for the deficiency of $72,070.64 is allowed together with the interest paid thereon in the amount of $14,373.64.” | agree with court The court correctly applied the principle that for a trust interest to be includible in the gross estate under the 'power to invade' doctrine, the beneficiary must have a legally enforceable right to the corpus or income. By citing Missouri state law cases establishing that a trustee's 'absolute discretion' prevents a beneficiary from compelling the distribution of funds, the court correctly determined that the settlor did not possess a power that would trigger inclusion of the entire trust estate. The exclusion of the trust corpus from the gross estate is a logical consequence of the state law determination that the settlor had no enforceable right to the principal or the full income beyond the fixed $300. |
Claim for refund as to the deficiency of $12,832.97 is disallowed.“The claim for refund as to the deficiency of $12,832.97 is disallowed” | unsure The order does not provide specific reasoning for disallowing this specific portion of the refund, but it is consistent with the government's initial assessment based on the fixed $300 monthly payment, which likely remained includible or was otherwise properly assessed. Without further facts, the court's decision to uphold this portion is presumed correct based on the partial nature of the refund. |
The order itself: sound — The court correctly identified the legal issue as whether the settlor had an enforceable right to the trust income that would make it includible in her gross estate. It properly looked to the governing state law (Missouri) to determine the nature of the settlor's interest. The reliance on state cases establishing that 'absolute discretion' precludes enforcement of a right to income is legally sound and directly addresses the government's argument that the word 'enjoyment' created a subjective test allowing the settlor to claim the entire income. The reasoning is concise but sufficient to resolve the dispute.
Opinion — Kunzel
KUNZEL, District Judge.
In this action for refund the Government had first assessed a deficiency based upon the value of $300.00 per month, and then assessed a deficiency based upon the entire value of the trust.
The Government contends that under the following provision of the trust, the entire trust estate is includible in the decedent’s gross estate in that the trust could have been invaded by the Settlor to the full extent of its income:
“The Trustees, out of the net income, shall pay the sum of $300.00 per month to the Settlor so long as she shall live, and in addition thereto the Trustees shall, in their absolute discretion, use all or any part of the remaining income to provide suitable support, maintenance, comfort and enjoyment for Settlor, so long as she shall live and the reasonable expenses of her last illness and burial * * The Government’s position being that the word “enjoyment” connotes a subjec *124 tive test and that if the Settlor had desired to use the entire income of the trust for whatever purpose, she would have been able to enforce the right to such income in a court of equity on the ground that such use would be for her enjoyment.
It is my view that the law of Missouri as announced in the cases precludes this inasmuch as the trustee had the “absolute discretion”. See Bakewell v. Mercantile Trust Company, 308 S.W.2d 341 (Mo.App.1957); Lyter v. Vestal, 355 Mo. 457, 196 S.W.2d 769 (1946); and Williams v. Hund, 302 Mo. 451, 258 S.W. 703 (1924).
The claim for refund as to the deficiency of $12,832.97 is disallowed and refund for the deficiency of $72,070.64 is allowed together with the interest paid thereon in the amount of $14,373.64.
Plaintiff shall prepare findings of fact and conclusions of law in accordance herewith, and a judgment in a separate document.