Estate of George M. Brandon, Deceased, Willard C. Brandon v. Commissioner of Internal Revenue

Secretary cisión of the district court. The any to seek certiorari from of these

failed But, Secretary finally has

decisions. has found a way. He Circuit

had

agree interpretation him his

Act. taking position justified that he is shopping, Secretary has fol-

in forum prede- as he and his

lowed the same road security

cessors did in social cases consistently they have refused to

apply Ap- Circuit decisions of Courts Secretary’s position

peals adverse to boundaries, immediate

beyond their petitions

have refused to file for certiorari

with the Court. We should

tolerate this course action. BRANDON, George

ESTATE M. OF Brandon,

Deceased, Willard C.

Executor, Appellee,

COMMISSIONER OF INTERNAL

REVENUE, Appellant.

No. 86-2036. Appeals,

United Court of States

Eighth Circuit. April

Submitted 1987. Sept.

Decided Ferris, D.C., Washington,

Elain F. for appellant. Williams, Rock, Ark., A.

Richard Little appellee. ROSS, Judge, bequest recognition FLOYD was made “in Circuit Before Judge, loyalty Chanoy and GIBSON, and devotion” had dis- Circuit Senior R. played family. to GIBSON, Judge. decedent and his The Circuit R. JOHN provided Chanoy, codicilalso who rent- Judge.* ROSS, Circuit Senior Mae, ed a house from Nina decedent and in Revenue could continue to live her residence for a of Internal The Commissioner reasonable time after decedent’s death un- appeals the decision (Commissioner) place til she could find a suitable to live. holding that the Tax Court United States (Estate) George M. Brandon Estate of death, prior Also to Nina Mae’s Nina tax marital deduction an estate entitled to her, conveyed by in- Mae real estate held pay- a settlement $90,000, based cluding the homestead she shared with de- surviving spouse. to decedent’s ment made cedent, grandchildren. to her re- two The argues appeal, the On mainder Nina Mae’s estate was either allowing in the marital erred the Tax Court jointly passed held decedent or to him with making indepen- first deduction without upon her death under the marital deduction to whether dece- as dent determination provision provision or residue trust of her surviving spouse had an enforceable dent’s will. the state against the estate under claim prior After Nina Mae’s death but to dece- statute, ARK. STAT. ANN. election marriage Chanoy, dent’s dis- decedent (1971),at the time the settlement 60-501 § posed holdings of all of by his real estate The agreement was reached. Commission- son, Willard, gift either or sale to his and the Tax Court erred argues er also grandchildren. Thereafter, to his on Feb- full allowing the marital deduction the as 10, 1978, ruary Chanoy decedent married surviving spouse paid decedent’s they together lived as and husband inter- since an enforceable one-third dower until his death. wife estate would have est decedent’s death, Shortly after decedent’s dece- $56,000. less than For the amounted to attorney gave Chanoy dent’s Brandon for- below, forth we reverse and reasons set widow, right, mal notice of her for further consideration. remand the case will, against to elect to take decedent’s FACTS to ARK. STAT. ANN. 60-501 (decedent), George Brandon a resident M. (1971). prepared and filed an in- He also Helena, Arkansas, died testate on West ventory of decedent’s estate on June by January 1979. He was survived his 1979, listing the value of the total estate as wife, Chanoy Shockley second Lee Bran- $167,172.18. don, to whom he had been married for less death, Following Chanoy’s re- decedent’s year, one his mar- than son from his first grand- lationship with decedent’s son Brandon, riage, grand- Willard C. and two 21, 1979, deteriorated. On June Jef- sons sons, Jeffrey Stephen K. Brandon and A. Brandon, grandson, decedent’s filed frey K. Brandon. Decedent’s wife of almost first detainer complaint for unlawful Brandon, years, predeceased Nina Mae Phillips Chanoy the Circuit Court Appellant decedent on November 1976. Arkansas, seeking to have her County, Willard Brandon is the executor of dece- C. family from the Brandon home evicted dent’s estate. she had resided with decedent. 10, 1976, August prior

On to Nina Mae’s complaint prop- that this basis for the was death, conveyed by decedent executed a codicil to his him erty had been will, $25,- provided bequest Mae, grandmother, April a cash on Nina 28, 1979, Shockley, July Chanoy 000 to Lee a clerk in the moved to dismiss On on commissary complaint by Jeffrey farm filed Brandon where decedent worked conveyance of the manager. grounds that The codicil stated that 13, 1987, opinion before the was *The Honorable R. active status on June Donald Ross was an judge Eighth Appeals Circuit Court of filed. submitted, the date this case was but took senior family Jeffrey Nina Mae sought home was also to set aside certain specifically alleged that Nina invalid. She property as a homestead and to receive a incompetent Mae at the time the war- dower share in properties. decedent’s ranty signed, that the deed deed assist determining To the estate’s le- consideration, supported by that she gal position respect occupy had a as decedent’s widow to claims, attorney for decedent’s estate residence, and that she did not have sought legal opinion a from the Research relationship Jeffrey. landlord-tenant with Charlottesville, Group, Inc. of Virginia. In 19,1979, Chanoy On October filed a com- a February 4, memorandum law dated Chancery plaint equity in in the Court Group the Research indicated that Arkansas, Phillips County, seeking to set may the estate standing have to raise property by aside transfers of certain Nina the issue of constitutionality the of the Mae and the decedent. She statute. The memorandum also noted that alleged the of property that transfers upheld several state courts had similar shortly Nina her Mae before death were against equal state statutes protection invalid, incompetent Mae because Nina challenges grounds on the that they satis- lacking capacity and in at the time the legitimate fied a state purpose. The memo- signed. warranty Chanoy deeds were also that, randum light concluded even in alleged property by that the transfers of Orr, Supreme holding in Orr v. Court’s shortly marriage decedent his before to her supra, it possible that the fiduciary were a breach of duties a Arkansas and fraudulent abuse of a confidential dower election relation- statute would be held consti- ship. tutional. Thereafter, 22, 1979, Chanoy on October Finally, on June after lengthy against filed an election to take decedent’s negotiations, parties1 entered into a will, pursuant to ARK. STAT. ANN. 60- settlement in Chanoy ac- which (1971). By making election, Cha- cepted $90,000 sum in return a

noy renounced all benefits under dece- full release of all against claims she held dent’s will and codicil to will. his re- parties decedent’s estate and the other in- sponse election, Chanoy’s the executor ap- volved. The settlement of the estate moved to dismiss action proved by Chancery Court that same on grounds that the election statute day. equal violated the protection clause of the April 18, On the estate filed its amendment, fourteenth based return, claiming federal estate tax full United Supreme States Court’s in holding $90,000 amount of the Orr, Orr v. 268, 278-83, 440 U.S. 99 S.Ct. Chanoy 1102, 1111-13, as marital deduction under (1979). In 59 L.Ed.2d 306 2056(a) case, section of the Internal Supreme Revenue Court held that gender-based a Code. The statutes do serve Commissioner allowed legitimate governmental purpose $25,000 deduction, however, are un- as a marital on argued constitutional. The executor also ground Chanoy did not have a equal protec- the statute violated the legally against enforceable claim dece- tion clause of the Arkansas Constitution. dent’s estate in excess of that amount. As result, deficiency in federal estate tax complaint later amended her in $33,560 the amount was determined equity, alleging that the transfers subsequent- from the estate. The estate grandsons Nina Mae to her should be set grounds ly brought aside on the action in Tax that Nina Mae’s this Court for a signatures on forgeries. the deeds were deficiency. redetermination of the Brandon, son, wife, Brandon; Representa- along Dorothy C. Willard Personal G. Brandon, tive in wife, Succession of the Estate of Jeffrey Nina Mae K. and his Jamie L. Representative and Brandon Personal Brandon; Brandon, wife, of the Es- Stephen A. and his Brandon; George tate of M. Willard C. Bran- Brandon; Anita W. and L. Brandon. don, capacity in his individual decedent’s thereafter,

Shortly extremely law. Such action would be Stokes (Ark. 8, 1980), Dec. the Arkan- to the A parties No. 80-141 unfair involved. settle- opportunity had first sas Court its ment that reached based principles state above should be consider allowed statute, 60-501, involved, election section and stand. The settlement herein relating specifically recognized statutes to state dower other rights, light personal States Su- the United one-third estate and dow- Orr, preme decision in Orr v. su- er in one-third of the real estate under provided, initial- pra. The Arkansas as it then valid, and af- ly specifically provided accept- the statute to be that she found court’s of a dow- the sum of firmed the trial allowance ed in full settlement in decedent’s es- statutory er interest to widow of those and other However, 23, 1981, February fide recognition” tate. “bona of those en- re- upon rehearing rights. the court forceable The cash settlement in exchange held prior rights its decision and ARK. would qualify versed those 60-501, dow- STAT. ANN. and the other for the under marital deduction section § statutes, 2056(a) (c) to er-related be unconstitutional as interpreted Code equal analysis upon protection 20.2056(e)-2(d), based section Tax Estate Orr, supra. Regs., supra. set v. fully forth Orr Stokes v. This conclusion is 300, 372, Barrett, supported by 271 Ark. 613 375- supra. S.W.2d Estate of (1981). Lyeth 188, 76 Hoey, See also 305 U.S. v. [59 155, (1938). 83 S.Ct. L.Ed. 119] argument The Tax Court and evi- heard (footnote omitted). 337 Id. at in May dence in this case of 1985. On appeals. Commissioner now 10, 1986, the March court held that decedent’s estate was to a entitled marital DISCUSSION Brandon v. surviving spouse’s der arm’s-length negotiations. (1986). because the ment deduction agreement have made an Barrett v. tiations based troversy examine whether or not the arm’s-length negotiations. Estate of spouse in the decedent’s (1954). agreement enforceable state law as It is our view that once adverse In ^[******] agreement pursuant made in faith, determining The Tax Court for the full and that in bona parties is Commissioner, Commissioner, 22 part “bona fide fide enforceable whether a settlement faith as the had result of amount of the settle- the law of arm’s-length nego- recognition entered into the to section estate,” recognition applicable 86 T.C. settle a con- Estate good is made in agreement rights un- surviving result T.C. 606 parties stated: courts faith, 327 of of at of provides that: (Emphasis nent Code of 1954 passing ue of gross estate. est sy be determined to included in if and thereof) spouse of only to the extent that such interest is the value of decedent Section (3) For the value of interest part: ^[******] in property such interest is the dower purposes passes only if— from 2056(a) added.) of such gross determining (or (26 U.S.C.) provides, the decedent by deducting or has decedent; any statutory of the Internal Revenue estate an amount taxable estate shall be considered as surviving Section this person interest passed section, the value of the interest in lieu 2056(d) * * as from the val- spouse, any *. from surviving shall or an inter- further person curte- equal perti- but * * settlement, pass surviving spouse the time of then this to the Interests step in to are subject will not that settle- as the result a will contest invalidate rules, Treasury Regula- subsequent change special ment due to a in the set forth

497 20.2056(e)-2(d). tion, Specifi- 26 C.F.R. continue. The argues, Commissioner § how- (2) 20.2056(e)- cally, ever, of section subsection that the foregoing sufficient to situations, 2(d) pertains to such as the qualify the for the es- case, property is present where transferred deduction, tate citing tax marital Commis- surviving spouse in to the settlement of her sioner Estate U.S. the estate. Section 20.- (1967). S.Ct. 18 L.Ed.2d 886 In that 2056(e)-2(d)(2)provides: case, the argues, the United (2) If controversy as a result of the States Court stated that the avail- will, involving involving the decedent’s or ability of the estate tax marital deduction thereunder, any bequest or prop- device turns the actual enforceability of the erty assigned interest is or surrendered surviving spouse’s claims in the decedent’s spouse, surviving to the so interest under applicable state law. addi- In acquired regarded having will tion, highest where the state court has “passed the decedent his surviv- from interpreted law, applicable state the federal ing spouse” assignment or hearing court controversy the tax is re- recognition surrender as a bona fide of quired to do so. enforceable the state dower election spouse in the decedent’s estate. Such statute, 60-501, ARK.STAT.ANN. recognition presumed bona fide bewill uncertain at the time of the settlement. the assignment or surrender was The Commissioner thus concludes that the to a of a local decision court parties’ good faith beliefs as to the enforce- adversary proceed- upon merits in ability of at claims the time of genuine ing following a and active con- settlement are irrelevant to the determina- However, such test. a decree will be tion of the extent to which quali- the estate only the accepted extent that the court fies the marital deduction. The Com- passed upon upon the facts which deduc- that, missioner further concludes because tibility depends. of the interests the of enforceability Chanoy’s dower claims assignment the or surrender was If purposes for estate tax turned wheth- pursuant a decree rendered con- er the state dower election statute was sent, or agreement settlement, constitutional the the at time of probate to contest the orwill not to the required the Tax Court was in first the will, necessarily accepted it will be constitutionality instance to determine the rights bona evaluation the fide of of of the statute at the time settlement. spouse. the of The Commissioner contends added.) (Emphasis engaged that had the Court in Tax itself Surviving Spouse’s Enforceability A. of analyzing constitutionality of section Dower Claims 60-501, in that court all likelihood would parties agree 20.2056(e)- The pro- section on equal have invalidated 2(d)(2) governs disposition of this grounds tection under the rationale of Orr the “passing” and that of an interest from Orr, supra, v. and the Arkansas surviving spouse the decedent to the Court’s decision of supra, Stokes v. only deemed have occurred if the settle- rendered after the settlement recogni- ment was fide executed “bona argues was reached. The Commissioner tion of enforceable of that the Tax failure consider the spouse in the decedent’s estate.” statute, of and the court’s reliance Estate v. Barrett The Commissioner concedes that the set- Commissioner, supra, 22 T.C. as stat- tlement was reached after determining faith, ing the test for the enforce- arm’s-length negotiations by all claims, i.e., ability surviving spouse’s of the parties, and admits further the reasonable- agreement was ness whether the settlement executor’s belief the time of at faith, Chanoy might ultimately as the arm’s- made result prevail on litigation negotiations, her to length claim were was error. argues that apply estate “federal authorities must they

The decedent’s what enforceability held that correctly Tax Court find to be the state law giving ‘proper after surviving spouse’s regard’ to rulings relevant of other courts pur- for estate tax the estate is determined of the State.” Id. at 87 S.Ct. at 1783. as it existed poses, on the basis law regard, effectively this the federal court reached, the time the settlement at sits as a state court. The Court subsequent basis on the rather than further indicated that the federal court’s argues law. The estate change in the determination of state law in these kinds of recognized that on the date the Tax Court eases “would avoid much of the uncertain- Chanoy had an enforceable of settlement ty that would result from the ‘non-adver- her dower right to receive share dece- sary’ approach and at same time would estate, because ARK.STAT.ANN. dent’s taxpayer protect fair to the had not at that time been de- 60-501 federal revenue as majori- well.” Id. The Although clared unconstitutional. the Tax ty rejected of the Court the view that fed- implications did not address the eral courts must attribute conclusiveness present case, supra, to the the es- judgment, to a state court other than a argues impliedly that the Tax Court tate judgment highest from the court of the the law at the time of settle- found that state, litigation unless the from which the support Chanoy’s ment did judgment resulted did not bear the indicia argues estate the estate. The also that the genuinely of a adversary proceeding. position reg- conflicts Commissioner’s 20.2056(e)-2(d). ulation section The estate argues princi- that the enforceability contends that if means that ples applied set forth in Bosch should be validity must establish in the case same manner as surviving spouse’s beyond any claim shad- Found, they applied were in Ahmanson doubt, ow of then the term “bona fide” States, (9th Cir.1981). United F.2d 761 (2) throughout subparagraph used becomes agree- In that case the decedent left trust surplusage parties’ good mere and the giving surviving spouse ment his the sum evaluating validity faith in of the claim $5,000,000. death, Following interpretation, is irrelevant. This the es- surviving spouse argued that she also was argues, goes against tate the in- manifest entitled to an additional amount in satisfac- encourage tent Regulations of the settle- community property rights. tion of her ments, practical and would as a matter negotiated This claim was and settled for litigate surviving force the estate to the $750,000. the additional sum of As in the spouse’s claims. the estate claimed the full Bosch, Supreme In the Court reviewed payment part settlement as of the estate involving question two cases a state law government tax marital deduction. The eligibility which the of the federal estate pay- disallowed deduction of the settlement tax marital deduction affected. In was ment, arguing that under state law the both cases the issue before the Court was surviving spouse did not have an enforce- given what effect must be to a state trial right any proper- able to receive amount of adjudication property rights court of $5,000,000 ty beyond the left to her under the party United States is not made a the terms of decedent’s trust. The estate proceeding adjudication the and where such however, argued, private that where a affects the estate’s federal estate tax liabil- good surviving the faith settlement of ity. The Court held that when spouse’s against claims the estate is the liability federal estate tax turns the genuine adversary proceeding result of a character property of a interest held and court, approved by and is the state then the by transferred the decedent under state settlement should considered be law, federal by authorities are not bound recognition a bona fide of enforceable property determination made of such surviving spouse binding by interest a state trial court. Where the highest spoken, purposes. court of the state has for federal estate tax considering cally, enforceability issue the Tax Court required to consid Ninth Cir- government, er the by raised of constitutionality the Arkansas holding carefully examined the settlement, cuit dower statute at time of Bosch, noting majority that “the light of Having carefully [of v.Orr Orr. re test concluded that the viewed the Tax opinion, Court] we find purposes for estate tax should be ‘passing’ that the Tax Court failed to do so. The spouse the interest reaches the whether Tax Court’s reliance upon Estate Bar law, correctly interpreted pursuant to state Commissioner, supra, holding rett v. [by the federal whether it court] test for determining —not the enforceability good a spouse reached the result of surviving spouse’s against claims adversary at faith confrontation.” Id. the estate whether or not the settlement agreed government The court with the good was made as the result of adjudication if state court result of a faith, arm’s-length negotiations, im adversary proceeding is faith not proper, appears because that case to have pursuant binding purposes for tax to been overruled sub silentio Bosch. We private good then a faith settlement therefore remand for a determination of cannot either. The court found that of ARK.STAT.ANN. deductibility under Bosch the issue 60-501 at the time the settlement was payment turned on whether the reached. right, to an was made enforceable i.e., whether state law entitled surviv- Enforceability Surviving B. spouse ing to at least Spouse’s Other Claims $5,000,000 beyond given above and her under decedent’s trust. The court argues The Commissioner further opined support the evidence did not that, even it is determined that any payment conclusion that the settlement Brandon did have enforceable dower based under enforceable law, Chanoy under state was not entitled to state law. The court therefore remanded $90,000 paid receive the full to her pursu case to the district court a determi- agreement. ant to the settlement The supported nation of whether state law the Commissioner notes that the surviving additional made to surviving spouse entitles a spouse. of a property, one-third decedent’s and that in this case the value of decedent’s agree We with Ninth Circuit’s $167,172.18. Thus, gross estate was analysis application principles argues, maximum .the respect set forth Bosch amount to which could have an faith settlements of a spouse’s $55,724.06. right is Tax enforceable Specifically, we estate. argu rejected Court the Commissioner’s agree that “under even the most narrow ment, noting that the reading either a faith settle Chanoy’s also took into account judgment or a ment a lower state court claim to a dower interest certain other right, on must be based an enforceable property by transferred. decedent and his properly interpreted, under state law prior first wife to their deaths. qualify ‘passing’ pursuant order to to the estate tax marital deduction.” Ah presented We feel the issue here is es- manson, supra, 674 F.2d at 775. presented above, sentially the same as that i.e., Chanoy whether Brandon had an en- support

Bosch and Ahmanson right under to amounts forceable state law conclusion that the Tax Court was re gross instance, quired, excess of one-third of decedent’s in this to an inde make require pendent estate. Bosch and determination to the enforce Ahmanson ability Chanoy to make this determination in Brandon’s dower claims Tax Court deciding qualify such for estate under state law at whether amounts Specifi- time the settlement was reached. the estate tax marital deduction. 500 agreements and re- the Tax wise valid settlement also notes

The court paid Chanoy greater liability. tax that the amounts sult in estate statement of dece- in excess of one-third Brandon Further, even if the Tax Court did not in satisfaction gross estate are dent’s Ahmanson, mention Bosch and against property transferred her necessary it is not to remand consid for prior to their his first wife decedent and of the dower eration remand, ask the Tax Court we deaths. On 3, 1980. More election statute on June decedent’s estate consider whether important than whether the statute was marital an estate tax be allowed should Chanoy’s rights unconstitutional is whether passing to a surviv- deduction sure, To be the dower were enforceable. included in dece- was not ing spouse which unconstitu election statute was declared federal tax gross estate for dent’s 23, February 1981 in v. tional on Stokes purposes. 300, Stokes, 372 271 Ark. 613 S.W.2d remanded. Reversed and However, (1981). affect the this did not

enforceability Chanoy’s dower interest GIBSON, Circuit FLOYD R. Senior the Arkansas Court later because dissenting. Judge, held that its decision Stokes would retroactively strip away applied dow respectfully I affirm I dissent. would rights prior vested er to Stokes. See issue in this Tax Court. The ultimate Parker, 37, Mobley Estate 278 Ark. simply is had “en- case whether (1982); Hall, 883 Hall v. 274 642 S.W.2d rights” to her deceased hus- forceable 266, (1981), 833 cert. de Ark. 623 S.W.2d 3, I on believe band’s estate June nied, 916, 1770, 72 456 U.S. S.Ct. that she did. (1982). present L.Ed.2d 175 In the case representa- On June and Chanoy’s rights vested on June into tives of the decedent’s estate entered ap reached and when was agreement whereby party compro- each proved by Chancery Court. Because mised its to the estate. Because the Chanoy’s interest was under state law valid status of the dower election statute was enforceable, requirements of Inter and time, legal opinion unclear at the was 2506(a) have been met nal Revenue Code § prepared by Group, Inc. The the Research de and the estate entitled to marital Group was not concluded that duction. fact, clearly ten unconstitutional. opinion prepared, after the months would be different This outcome six months after the settlement pursued of the estate had its chal- executor signed, con- lenge Chanoy’s election and had ruled that the statute was constitutional. the dower the Arkansas courts that vinced (Ark. Dec. Stokes v. No. 80-141 unconstitutional. Un- election statute was 1980).1 rehearing Only upon did the court Chanoy’s circumstances der those I declare the statute unconstitutional. been In the would have unenforceable. agree with the Tax Court that we should case, however, a settlement once agree- step in to invalidate a faith en- reached became it then ment which was based the law as forceable, Mobley and simply existed the law has since because Hall, by the decision in unaffected Stokes. recog- changed. majority’s failure to validity nize thé in this discourage

case out of court settle- will

ments of similar matters because without approval, subsequent

immediate Tax Court

changes may in state other- law invalidate legislature making gender it neu-

1. It is also of interest to note that the later held (Supp.1985). gender 60-501 tral. See Ark.Stat.Ann. deficient dower state was corrected

Case Details

Case Name: Estate of George M. Brandon, Deceased, Willard C. Brandon v. Commissioner of Internal Revenue

Court Name: Court of Appeals for the Eighth Circuit

Date Published: Sep 14, 1987

Citation: 828 F.2d 493

Docket Number: 86-2036

Court Abbreviation: 8th Cir.