Manufacturers Hanover Trust Company, as of the Last Will and Testament of Caryl Hackstaff Wood, Deceased v. The United States

410 F.2d 767, 187 Ct. Cl. 686, 23 A.F.T.R.2d (RIA) 1371, 1969 U.S. Ct. Cl. LEXIS 152

• Court: United States Court of Claims
• Decided: May 16, 1969
• Docket: 191-67
• Status: Published

Opinions

ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

COWEN, Chief Judge.

This is an income tax refund case that comes before the court on defendant’s motion for summary judgment. All the facts are stipulated. For the reasons stated in the opinion, we find the plaintiff is not entitled to recover, and that the defendant’s motion should be granted.

Plaintiff here is the duly appointed and acting executor of the estate of Mrs. Caryl Hackstaff Wood, who died testate on October 3, 1957. Her will provided that her husband, Howard O. Wood, Jr., was to be the sole residuary legatee of her estate, which included at the date of Mrs. Wood’s death certain securities having a fair market value of $65,871.-47, and this value was included in her gross estate for federal estate tax purposes. It is undisputed that at all times subsequent to Mrs. Wood’s death and until May 19, 1964, the securities were held by plaintiff as executor of Mrs. Wood’s estate and in no other legal capacity.

On April 9, 1964, Mr. Wood died testate, leaving his estate to his two children. On April 23, 1964, plaintiff was appointed executor of Mr. Wood's estate. Included in Mr. Wood’s gross estate was the fair market value of his interest in his wife’s estate, which was still undergoing administration at the time of his ‘death. On the date of Mr. Wood’s death, the value of the securities involved in this suit and held by Mrs. Wood’s estate was $159,766.63.

On May 19, 1964, and on May 20, 1964, plaintiff on behalf of Mrs. Wood’s estate sold the securities for $160,742.09 in the ordinary course of the administration of Mrs. Wood’s estate. The proceeds of the sale were used to purchase $160,000 of United States Treasury Notes maturing in 1965. As executor of Mrs. Wood’s estate, plaintiff duly filed a fiduciary income tax return for the year 1964. The return showed that Mrs. Wood’s estate had realized a long-term capital gain from the sale of the securities in the amount of $94,870.62, which represented the difference between the sales price of the securities and their fair market value as of the date of Mrs. Wood’s death. Mrs. Wood’s estate also reported dividend and interest income attributable to the securities.

In July of 1965, plaintiff, acting as executor of Mrs. Wood’s estate, sold the Treasury Notes and distributed the proceeds to the estate of Howard O. Wood, Jr.

On December 31, 1964, plaintiff as executor of Mrs. Wood’s estate filed an amended income tax return for Mrs. Wood’s estate. In that return, plaintiff claimed that instead of the long-term capital gain reported in the fiduciary return for 1964, Mrs. Wood’s estate had realized only a short-term capital gain of $975.46,¹ the difference between the value of the securities on April 9, 1964, the date of Mr. Wood’s death, and the sale price of $160,742.09. Plaintiff filed a claim for refund based on the amended return and, upon the disallowance of the claim, suit in this court followed.

Although the legal basis on which plaintiff claims recovery is not entirely clear, plaintiff’s theory seems to be as follows:

As the executor of Mrs. Wood’s estate, the plaintiff bank was administering her estate for the benefit of Mr. Wood, the sole residuary legatee, and later for Mr. Wood’s estate of which the plaintiff bank was also the executor. Thus, plaintiff says, when Mr. Wood died, his beneficial interest in Mrs. Wood’s estate vested in the legatees under his will and the legal title to his personal property passed to his executor, the plaintiff bank, so that the executor of Mr. Wood’s estate received all the property with a basis equal to the fair market value thereof as of the date of Mr. Wood’s death.

As a corollary argument, plaintiff contends that the executor of Mrs. Wood’s estate and the executor of Mr. Wood’s estate were the same institution, and that when plaintiff, as the executor of Mrs. Wood’s estate, sold the securities in 1964, it did so at the direction of the executor of Mr. Wood’s estate, also the plaintiff bank. Continuing on the same line, plaintiff maintains that the fact that the securities were sold by the executors of Mrs. Wood’s estate, instead of by the executor of her husband’s estate, is immaterial and that the funds obtained from the sale were used to pay the federal estate taxes of Mr. Wood’s estate. Viewed in this light, the estates seem to merge — at least plaintiff would have us believe this — so that Mr. Wood, and later his estate, were in control all along of the securities held by the estate of Mrs. Wood.

We shall not attempt to explore the many problems that would arise by the adoption of a rule which rests on the fact that the executor of two estates is the same entity. We merely note the unfair effect of such a rule on the estates of related decedents, when those estates are being administered by separate entities.

Aside from the problems mentioned above, there are several serious obstacles to plaintiff’s right of recovery. The first is that plaintiff’s position collides squarely with the provisions of Section 1014 of the Internal Revenue Code of 1954.²

Section 1014(a) states that the basis of property in the hands of a person acquiring the property from a decedent shall be the fair market value of the property at the time of the decedent’s death. Section 1014(b) (1) specifically, provides that a decedent’s estate shall be considered to have acquired property from the decedent for the purpose of applying the general basis rules of Section 1014(a). There is no doubt that for all legal purposes plaintiff held Mrs. Wood’s estate as executor and that it sold the securities in 1964 acting in that capacity. In saying that the securities were sold to pay the federal estate taxes due by Mr. Wood’s estate, plaintiff overlooks the fact that it was the 1964 sale of the securities which engendered this tax controversy. Plaintiff not only sold those securities as the executor of Mrs. Wood’s estate, but it reinvested them in Treasury Notes and did not sell the notes or distribute the proceeds to Mr. Wood’s estate, a separate legal entity, until more than a year later.

The argument that the two estates merged and must be regarded as one because Mr. Wood, as the residuary legatee, was the sole beneficiary of Mrs. Wood’s estate, ignores the concept that each decedent’s estate is a separate entity, as well as the distinction which the courts have made in tax cases between the estate of a decedent and the ultimate legatees. Y.M.C.A. of Columbus, Ohio v. Davis, 264 U.S. 47, 44 S.Ct. 291, 68 L.Ed. 558 (1924); Continental Illinois Nat’l Bank and Trust Co. of Chicago v. United States, 403 F.2d 721, 185 Ct.Cl. 642 (1968), cert. denied, 394 U.S. 973, 89 S.Ct. 1456, 22 L.Ed.2d 752 (Apr. 22, 1969). See also Brewster v. Gage, 280 U.S. 327, 334, 50 S.Ct. 115, 74 L.Ed. 457 (1930), in which the Supreme Court declared that upon the death of a decedent, a legatee has no title or right to any particular personal property except the right to a distributive share of what remains after proper administration.

Finally, it seems to us that plaintiff’s position is inconsistent with the manner in which plaintiff handled the estate of Mrs. Wood. Plaintiff not only treated Mrs. Wood’s estate as a wholly separate entity from Mr. Wood’s estate, but in both the original fiduciary income tax return filed December 1, 1964, and in the amended return filed December 31, 1964, plaintiff recognized that any income received as a result of the capital gain realized from the sale of the securities in 1964 was taxable to the estate of Mrs. Wood.

Plaintiff has not shown that a different conclusion is justified by any law of the State of New York where the estates were administered, by any provision of the Internal Revenue Code, or by any court decision. Therefore defendant’s motion for summary judgment is granted, and plaintiff’s petition is dismissed.

1 . Plaintiff admits that the estate of Mrs. Wood owes a tax on this amount, but plaintiff has not made clear why it makes this concession. We presume that plaintiff admits that it owes the tax- as executor of Mrs. Wood’s estate only as holder of the legal title to the securities and as agent for Mr. Wood’s estate.

2 . Insofar as applicable, § 1014 reads as follows:

“Sec. 1014. Basis Of Property Acquired From A Decedent.

“(a) In General. Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before tbe decedent’s death by such person, be the fair market value of the property at the date of the decedent’s death, or, in tbe case of an election under either section 2032 or section 811 (j) of the Internal Revenue Code of 1939 where the decedent died after October 21, 1942, its value at the applicable valuation date prescribed by those sections.

“(b) Property Acquired From the Decedent. — For purposes of subsection (a), the following property shall be considered to have been acquired from or to have passed from the decedent:

“(1) Property acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent