Taxation-Federal Estate and Gift Commons^™

Federal Estate Tax - Marital Deduction - Annuity For Life With Guaranteed Certain Payments Not Divided Into Two Properties By Insurer's Accounting Treatment, William S. Bach

Michigan Law Review

Plaintiff, executor of decedent's estate, brought suit to recover an overpayment of federal estate tax. Decedent had purchased a life insurance policy and had elected an option under which proceeds would be paid to his wife in monthly payments for her life; however, the option also guaranteed a minimum of 240 payments. In the event the wife died before 240 payments were made, payments were to continue to decedent's daughter, or on the death of both wife and daughter, the commuted value of the remaining guaranteed payments would be paid in lump sum to the estate of the survivor. The …

Taxation-Federal Income Tax-Strike Benefits May Be Gifts, Christopher Cobb

Michigan Law Review

Taxpayer received assistance from a labor union while he was participating in a strike called by the union. The area in which he lived had become a distressed area as a consequence of the strike, and the union had established a general program of aid for strikers with no other source of income. Both before and after he joined the union payments were made to taxpayer under this program. Taxpayer sued for a refund of the income tax he payed on the value of the assistance so received, and the jury returned a verdict in his favor, finding the payments …

Property - Powers - State Powers Statutes Protecting Creditors And Requiring Formal Execution, Robert A. Smith S. Ed.

Michigan Law Review

The first part of the comment considers the elevation sections of the statute-sections that change the donee's interest in the appointive or dispositive property to a fee for the benefit of creditors. The second part considers the execution sections of the statute-sections that subject the execution of powers to conveyancing requirements. These sections are of the utmost significance to estate planners.

Taxation - Federal Estate Tax - Effect Of Presidential Freezing Orders On The Creation Of Excludable Bank Deposits For Nonresident Aliens, William Y. Webb

Michigan Law Review

Decedent, a citizen and resident of France, was the sole income beneficiary of a trust fund held in New York by the plaintiff as trustee. An executive order, issued pursuant to the Trading with the Enemy Act, prohibited remittance of trust income to the decedent from 1940 to the time of her death in 1946. As this income accrued, the plaintiff's trust department transferred it to the plaintiff's general banking department in its own name as trustee and subject to its order out of current banking funds. In an action by the executor of the decedent-beneficiary's estate to recover an …

Inheritance Taxation - Selected Provisions Of Michigan, Illinois And Ohio - A Study In Application And Justification, Edward B. Stulberg S.Ed.

Michigan Law Review

This comment will explore the existing variations in four commonly encountered areas: joint interests with rights of survivorship, contingent remainder interests, powers of appointment, and life insurance proceeds. Emphasis will also be placed on treatment accorded the surviving spouse and children and the implicit relationship between such treatment and some of the above areas. The essence of this examination will be to inquire whether adoption of an estate tax would be a more suitable vehicle for implementing a local death tax program.

Setting The Price In An Close Corporation Buy-Sell Agreement, David Keith Page

Michigan Law Review

The stockholders of a close corporation may consider it important to keep control of the business "within the family." This can be accomplished through a restrictive agreement, typically one which gives the corporation or the remaining stockholders a first option to purchase the shares of any departing stockholder. The original owners may also wish to guarantee themselves a ready purchaser for their stock when they die or leave the business. This second objective can be attained by adopting a restrictive agreement which places an obligation on the departing stockholder to sell to the corporation or to the surviving stockholders, who …

Taxation - Federal Estate Tax - Incidence Of Tax Determined By Testamentary Directive, Robert A. Smith

Michigan Law Review

An inter vivas trust created by testator and property held jointly with his wife were included in his gross estate in computing the federal estate tax.1Testator left his residuary estate to charity and directed in his will that the estate tax on the above inter vivas transfers be borne by the property so transferred. The government determined that the estate tax was payable out of the residue and reduced the charitable deduction by the amount of the estate tax attributable to the inter vivas transfers pursuant to section 812(d) of the 1939 Internal Revenue Code. The district court granted the …

Federal Taxation - Tax Aspects Of Corporate Buy And Sell Agreement, Joel D. Tauber S.Ed.

Michigan Law Review

It is the purpose of this comment to consider the tax problems connected with both types of "conventional" corporate buy and sell agreements. It should be recognized, however, that there are many questions of local law and business necessity that also exert influence on the use of such agreements.

Federal Taxation - Transferee Liability Of Insurance Beneficiary, John Gelder S.Ed.

Michigan Law Review

Nearly six years after taxpayer died income tax deficiencies were determined against his estate. Since his estate was insolvent the Commissioner sought to impose transferee liability under section 311 of the 1939 code (now I.R.C. section 6901) on plaintiff, taxpayer's widow, as beneficiary of" her husband's life insurance. The Tax Court, applying federal law, held plaintiff liable for the entire deficiency since the proceeds received by her exceeded that amount. The court of appeals, applying state law, reversed and ruled that the beneficiary was not a "transferee" within the meaning of section 311 even to the extent of the cash …

Taxation - Federal Estate Tax - Insurance And Annuity Combinations, John B. Schwemm S.Ed.

Michigan Law Review

Decedent, aged seventy-six, invested in three single premium life insurance policies. Issuance of each was conditioned on the purchase of a single life, nonrefundable annuity of specified value, and no physical examination was required. Each combination was balanced so that the total premium, exclusive of loading charges, equalled the face value of the insurance. The resulting correlation between compound interest and annuity disbursements made the guaranteed payments to the annuitant correspond precisely with the expected income of a reinvestment of the entire deposit by the insurer. Decedent retained the annuity rights, but all present and future interests in the life …

Taxation - Federal Income Tax - Right Of Donee To Deduct Expense Of Contesting Gift Tax Asserted Against Donor, William J. Wise S.Ed.

Michigan Law Review

ln 1948 taxpayer's mother gave him 410 shares of stock in the family enterprise. She filed a gift tax return, but the government, in auditing it, disagreed with her valuation of the stock. Donor had no desire to contest the government's valuation, but since his mother and father still held substantial stock in the business which would eventually go to him, donee desired a lower valuation for estate tax evidentiary purposes. Allegedly fearing personal liability for any deficiency assessed against his mother as well as a lien against the corpus of the gift for any unpaid tax, he decided to …

Taxation - Federal Estate Tax - Interpretation Of "In Fact" Clause Of Section 2036 And Deductibility Of Support Rights Of Wife, Nathan B. Driggers S.Ed.

Michigan Law Review

Having decided to separate, but desiring to avoid the publicity of a judicial proceeding, decedent and his wife executed an agreement which called for the transfer of securities to a trust, the income of which was to be paid to the wife for her life or until her remarriage, with a reversionary interest in the decedent. In consideration for the transfer, the wife relinquished her right to support by the decedent. Both parties were represented by attorneys in the arms-length negotiations leading to the agreement. About six years after the separation, during which time neither party took steps to procure …

Transfers Of Joint Property In Contemplation Of Death: A Call For Immediate Statutory Revision, L. Hart Wright

Michigan Law Review

For years the Tax Court sided with the government and the Court of Appeals for the Third Circuit in asserting that the contemplation-of-death provision of the estate tax act was sufficiently elastic to include the tax concept of ownership reflected in the joint-property provision of the same act. The alliance between those tribunals on this point was recently broken, however, when the Tax Court shifted to the competing view supported by taxpayers and the appellate court for the Ninth Circuit. It now believes that the two provisions mentioned above are complete strangers even though at one time these two were …

The Martial Deduction And Equalization Under The Federal Estate And Gift Taxes Between Common Law And Community Property States, Paul E. Anderson

Michigan Law Review

In 1948, as the culmination of much dissatisfaction with the treatment of community property under the federal estate and gift tax laws, Congress adopted a new formula for the treatment of gifts and bequests between spouses; this formula was known as the marital deduction. It has remained practically unchanged since its adoption and still stands as an integral part of our federal estate and gift tax structure.

The basic purpose of the deduction was to provide equalization in estate and gift tax treatment between spouses residing in community property states and those residing in common law property states. The plan …

Taxation - Federal Estate Tax - Includibilty Of Accumulated Income Of Trust Where Corpus Included In Gross Estate, Neil Flanagin S.Ed.

Michigan Law Review

Decedent created eight inter vivos trusts for the benefit of his immediate family, reserving the power as trustee to invade the corpus in unusual circumstances for the benefit of the beneficiaries, and to accumulate all or part of the income and add it to the corpus. The Commissioner included both the corpus and the accumulated income in the decedent's gross estate. The Tax Court held that the corpus was properly included, but not the accumulated income. On appeal by the Commissioner, held, affirmed. The accumulated income of the trusts should not be included in the decedent's gross estate as …

Taxation - Federal Estate Tax - Deductibility Of Contingent Bequests To Charity, Jack G. Armstrong S.Ed.

Michigan Law Review

Testator bequeathed a remainder interest to charitable organizations which was contingent upon her sister, age eighty-two, predeceasing two other women, ages sixty-seven and sixty-eight. The Commissioner disallowed a deduction for this bequest on the ground that it was not certain that charity would receive any benefit. In the district court the parties stipulated that there was an eleven to one chance that charity would receive the bequest. On the basis of this stipulation the district court found for the taxpayer. On appeal, held, reversed. In order for a deduction to be allowed the possibility that charity will not take …

Taxation - Inheritance Tax - Transfers Subject To Take Effect At Or After Death, Harvey A. Howard S.Ed.

Michigan Law Review

Decedent was a participant in a company profit-sharing savings and retirement trust. Under the terms of the plan, the company made deposits with a trustee on an annual basis and relinquished the right to recapture or impair the fund for its own use or benefit. The contributions were to be held for ten years with accrued interest, and then were to be distributed to the employees in three annual instalments. Should an employee leave the company, he was entitled to his share in three instalments; in the event of retirement or illness he was to receive his entire share in …

Taxation - Federal Income Taxation - Problems Created By The Complex Trust Provisions Of The 1954 Code, Harvey A. Howard S.Ed.

Michigan Law Review

This comment will not be expository of all of the trust provisions but rather will attempt to deal with some of the more important interpretative difficulties likely to be encountered in the new law involving the taxation of the income of those trusts which may accumulate income, distribute corpus, or pay or set aside amounts for charitable purposes. It will be assumed that the reader is familiar with the basic statutory pattern of the trust sections of the new code.

Taxation-Federal Estate Tax-Relevance Of Marital Deduction To Computation Of Widow's Distributive Share Of Husband's Estate Where She Elects To Take Against Will, Alice Austin

Michigan Law Review

A widow electing to take against her husband's will claimed to be entitled to have her one-third share of decedent's net personal estate computed without deduction of federal estate taxes, on the theory that Congress in allowing the marital deduction intended that a widow's share qualifying for such deduction should be free of the impact of the federal estate tax. The state had no statute providing for apportionment of federal estate taxes. Held: Congress did not intend, by allowing the marital deduction, to change the rule that state law is determinative of the impact of the federal estate tax. …

Taxation-Federal Estate Tax-Taxability Of Joint And Survivor Annuity Paid Pursuant To Pension Plan, Lawrence M. De Vore S.Ed.

Michigan Law Review

Under a pension and retirement plan, decedent had the option of receiving a pension for life or a smaller pension while both he and his wife lived, with two-thirds of such reduced pension payable to the survivor for life. On decedent's normal retirement date he chose the latter. Decedent did not retire but continued working until his death. His wife was then entitled to receive a monthly income for life under the pension plan. The Commissioner of Internal Revenue determined that the value of the wife's annuity should be included in the decedent's gross estate. Plaintiff instituted action for refund …

Obtaining The Gift Tax Exclusion On Gifts In Trust: Drafting And Legislative Suggestions, Zolman Cavitch

Michigan Law Review

The purposes of this article are to outline the "future interest" pitfalls in the use of various conventional trust provisions, to explore remedial drafting possibilities even under the present law, and to suggest a statutory amendment which will eliminate the fundamental defects of the present poorly-drafted law.

Taxation-Federal Estate Tax-Use Of Actual Life Expectancy Without Reference To Actuarial Tables In Valuing Charitable Remainder, Gene E. Overbeck S.Ed.

Michigan Law Review

Decedent, Nicholas Murray Butler, died testate on December 7, 1947. He bequeathed property to trustees, directing that the income be paid to his wife, Kate, for life, and upon her death the trust to terminate and a stipulated portion of the corpus be paid to the trustees of Columbia University. Held, the facts in existence at the time of decedent's death were such as to render it certain that Kate La Montagne Butler would not live more than one year after decedent's death, hence it was proper to use that expectancy, without reference to actuarial tables, in valuing the …

Title Examinations As Affected By The Federal Gift And Estate Tax Liens, L. Hart Wright

Michigan Law Review

The Treasury Department may look to either of two security devices to protect its rights with respect to federal gift and estate taxes. The most sweeping of these devices-the general federal tax lien, a discussion of which appeared in the last issue of this Review, has been complemented in the case of each of these taxes by special liens, presumably designed to meet what apparently were considered peculiar needs. It is with the impact of these special liens on the work of title examiners that this article is concerned.

Taxation-Federal Income Tax-Deductibility Of Legal Fees Incurred In Contesting Gift Tax Deficiency, Richard B. Barnett S.Ed.

Michigan Law Review

Petitioner gave shares of stock in a closely held family corporation to his wife and children. After paying the federal gift tax, he was notified by the Commissioner of a deficiency of $145,276. The case was eventually settled by payment of $15,612. In this controversy petitioner incurred legal expenses which he sought to deduct on his income tax return under section 23(a)(2) of the Internal Revenue Code. When his claim was disallowed by the Commissioner, this suit was brought for refund. Held, on certiorari, this expenditure was not "for the production or collection of income'' nor incurred in the …

The Second Circuit Reaffirms The Efficacy Of Restrictive Stock Agreements To Control Estate Tax Valuation, Edmund W. Pavenstedt

Michigan Law Review

Owners of close corporations have for many years entered into agreements with each other requiring a stockholder who wishes to dispose of his holdings first to offer them to his fellow stockholders or to the corporation and, in the case of death, granting to the survivors or the corporation an option to buy the shares from the decedent's estate. Such agreements either fix a price per share or contain a formula or a provision for appraisal under which such price is to be determined. About twenty years ago two leading cases both decided by the United States Court of Appeals …

Apportionment Of The Federal State Tax In The Absence Of Statute Or An Expression Of Intention, William P. Sutter

Michigan Law Review

Federal law now provides in sections 826 (c) and (d) of the Internal Revenue Code that life insurance and property transferred by appointment shall bear their proportionate tax burden. It does not contain similar provisions with respect to other types of non-probate property. At the present time, twenty states provide by statute for some sort of apportionment of estate taxes. Two states have statutes restricting apportionment in some degree. In the rest, the matter rests in the discretion of the courts. I propose to discuss in this article the situation in those areas where no statutory guidance exists.

Taxation-Federal Estate And Gift Taxation-Powers Of Appointment Act Of 1951, William O. Allen S. Ed.

Michigan Law Review

It is the purpose of this comment to trace the history of Congress' treatment of powers of appointment in the past and to examine the latest legislative pronouncement, the Powers of Appointment Act of 1951.

Taxation-Federal Gift Tax-Transfers Made Pursuant To Postnuptial Separation Agreements, Douglas L. Mann S. Ed.

Michigan Law Review

Taxpayer and her husband entered into a property settlement whereby she agreed to make certain payments to him in return for his promise to relinquish all marital rights in her property. The agreement was not to become operative unless a divorce decree was entered in a then pending action, but it was further provided that "the covenants in this agreement shall survive any decree of divorce which may be entered." The subsequent divorce decree approved the agreement and directed performance of its provisions. The Tax Court, which expunged the gift tax deficiency assessed by the Commissioner, was reversed by the …

Taxation-Income Tax-Taxability Of Payments Made To Widows Of Deceased Employees, Douglas L. Mann S.Ed.

Michigan Law Review

Payments were made by an employer to the widow of a deceased employee in consideration of services rendered by the employee. Held, the payments were includible in the widow's gross income for federal income tax purposes. I.T. 4027, Int. Rev. Bul., Oct. 16, 1950, 2, 505 CCH ¶6208.

The Limitation Of Taxation Of Transfers In Contemplation Of Death By The Revenue Act Of 1950, Edmund W. Pavenstedt

Michigan Law Review

The Revenue Act of 1950 amended the estate tax provision dealing with transfers in contemplation of death, which has been on the books ever since the estate tax first appeared as a war emergency measure during World War I, by eliminating from this category all transfers made more than three years prior to the date of death. All transfers made within that period are deemed under the new law to have been made in contemplation of death (and hence are includible in the transferor's gross estate) unless the contrary is shown. Such a rebuttable presumption formerly was limited by the …