First National Exchange Bank of Roanoke v. United States

When Josephus Pell died, his will left his widow, Frances Pell, a life estate in all his property. Under Virginia law, Frances had the option of renouncing, i.e., disclaiming, her inheritance under the will and claiming a dower right instead. Ideally, this dower right would give Frances a full ownership interest in one-half of Josephus’s personal property and a life estate in one-third of his real property. However, if it was not possible to give Frances the dower interests in those exact forms, Frances was entitled to a commuted dower, which was a cash payment for the value of the dower interests. For Josephus’s estate (plaintiff), it was not possible to transfer a life estate in one-third of Josephus’s real property. Therefore, at the time of Josephus’s death, Frances had a legal right to either (1) accept her inheritance under the will or (2) receive her dower rights in cash. Frances elected to disclaim her inheritance and receive the cash. When Josephus’s estate filed its federal estate tax return, it claimed a marital deduction for the cash paid to Frances for her dower rights. The federal government (defendant) disallowed the deduction, arguing that the cash payment should be treated like the nondeductible, terminable life estate that it replaced rather than as a separate, nonterminable transfer. The estate petitioned for a new determination, and the district court ruled that the cash transfer qualified for the marital deduction. The government appealed.