The opinion of the court was delivered by: THOMAS A. HIGGINS
The Court has before it the plaintiff's second motion (filed March 20, 1992; Docket Entry No. 41) for partial summary judgment and the defendant's cross-motion (filed October 22, 1992; Docket Entry No. 55) for summary judgment. For the reasons set forth below, the plaintiff's second motion for partial summary judgment shall be denied. The defendant's cross-motion for summary judgment shall be granted.
This is a tax refund case in which the plaintiff, the executrix of the estate of William G. Hall, seeks a refund of federal estate taxes pursuant to 26 U.S.C. § 7422(a). Jurisdiction is based on 28 U.S.C. § 1346(a).
The decedent, William Gordon Hall, executed his will on May 26, 1978. Mr. Hall's will made two bequests: one to a marital trust for the benefit of his widow and the other to a family trust for the benefit of his widow and children. To the marital trust, the will distributed an amount equal to the maximum allowable marital deduction
under the federal estate tax laws, reduced by whatever amount could be used to take full advantage of any available tax credits.
To the family trust, the will distributed the rest of the estate.
When Mr. Hall executed his will in 1978, the maximum allowable marital deduction, which would determine the amount to be distributed to the marital trust, was limited by 26 U.S.C. § 2056(c) to the greater of $ 250,000 or one-half the value of the adjusted gross estate. However, in 1981 Congress enacted the Economic Recovery Tax Act of 1981 ("ERTA"), which, in part, amended 26 U.S.C § 2056 (c) to allow an unlimited marital deduction. Economic Recovery Tax Act of 1981, Pub. L. No. 97-34, § 403(a)(1)(A), 95 Stat. 172, 301.
Mr. Hall died on April 28, 1983. The executrix timely filed a federal estate tax return and paid the estate tax. However, she only claimed a limited marital deduction. She subsequently filed with the IRS two administrative claims for a refund. Those claims asserted that the estate was entitled to an unlimited marital deduction pursuant to ERTA and that the estate, therefore, should receive a refund. The IRS denied both claims.
The executrix then filed this action in which she has reasserted both claims for a refund. The Court has dismissed one of those claims on the grounds that it is barred by the statute of limitations. Order (entered October 22, 1992; Docket Entry No. 54). The remaining claim is the subject of the plaintiff's second motion for partial summary judgment and the defendant's cross-motion for summary judgement, which are now before the Court.
These two motions call on the Court to construe a complicated grandfather clause that controls the applicability of ERTA to Mr. Hall's will. In enacting ERTA, Congress was aware that many wills, like Mr. Hall's, tied spousal bequests to the maximum allowable marital deduction, and Congress was concerned that by creating an unlimited marital deduction, ERTA might cause spousal bequests to become larger than intended by testators. See H.R. Rept. No. 201, 97th Cong. 1st Sess. 163-64 (1981); S. Rept. No. 144, 97th Cong. 1st Sess. 128 (1981), reprinted in 1981 U.S.C.C.A.N. 105, 229. Congress' solution was to include in ERTA a grandfather clause, Section 403(e)(3).
According to Section 403(e)(3), the limited marital deduction remains in effect for wills drafted prior to enactment of ERTA if they contain a spousal bequest in an amount equal to the maximum allowable marital deduction. However, Section 403(e)(3)(D) further provides that if a state enacts "a statute . . . which construes" such a spousal bequest as referring to the new, unlimited deduction, then the unlimited deduction shall apply.
In August 1990, pursuant to Tenn. Code Ann. Section 32-3-108(a)(5), the executrix filed a complaint in the Probate Court for Davidson County, Tennessee, seeking a declaratory judgment to the effect that the decedent intended in his will to take advantage of the unlimited marital deduction. See exhibit B (complaint filed in probate court) to plaintiff's statement of uncontested facts (filed March 20, 1992; Docket Entry No. 43). The probate court subsequently appointed a guardian ad litem to represent Mr. Hall's unborn grandchildren, whose interests under the will would be affected by its decision. See exhibit B (order appointing guardian ad litem) to plaintiff's statement of uncontested facts. Then, in April 1991, the probate court entered an order declaring that "William G. Hall intended in his will, dated May 26, 1978, that his property be distributed in order to take advantage of the unlimited marital deduction available at the time of his death." Exhibit B (declaratory judgment order) to statement of uncontested facts.
In the plaintiff's second motion for partial summary judgment, she asserts that the facts recited above, which are not in dispute, entitle her to summary judgment as a matter of law. In brief, she argues that the declaratory judgment of the Probate Court of Davidson County, exempts her from the ERTA grandfather clause, according to Section 403(e)(3)(D), and therefore the estate is entitled to claim the unlimited marital deduction. The defendant, however, in its cross-motion for summary judgment, asserts that the estate is still subject to the grandfather clause. According to the ...