Commissioner v. Estate of Vease

314 F.2d 79 (1963)

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Commissioner v. Estate of Vease

United States Court of Appeals for the Ninth Circuit
314 F.2d 79 (1963)

Facts

James Walker executed a will in 1918. The following year, Walker arranged with his attorney to make changes to the will but died before the new will could be executed. Walker’s attorney gave Walker’s surviving family—a widow, three sons, and two daughters—the choice of honoring the executed will or the unexecuted will, though the attorney did not disclose the contents of either. The family members unanimously decided to honor the unexecuted will. The unexecuted will gave the daughters a greater interest in the residual income of the estate than the executed will would have, though the heirs were the same under both wills. A signed agreement incorporated the terms of the unexecuted will and was executed in probate court. The agreement gave one of the daughters, Elizabeth Vease, 25 percent of the residual income, to be held in a trust from which Vease was entitled to receive income for life. Vease was also given the power to create remainder interests from the trust’s principal for the benefit of her own children. Upon the later death of Vease, the Internal Revenue commissioner (defendant) determined that Vease’s trust had resulted from a transfer made by Vease during her lifetime and was thus subject to an estate tax. Vease’s estate (plaintiff) contested this determination in United States Tax Court. The court held that the trust was the result of a transfer made by Walker’s estate to his heir and was not taxable to the recipient. The commissioner appealed to the United States Court of Appeals for the Ninth Circuit.

Rule of Law

Issue

Holding and Reasoning (Hamley, J.)

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