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 Rev. Rul. 77-98

1977-1 C.B. 288

Section 2056 -- Marital Deduction

IRS Headnote

Marital deduction; conflict in will provisions. Under Texas law, the bequest of a remainder interest in property to the decedent's children in a later clause of the will prevails over the bequest of the same property to the surviving spouse "in fee simple and absolute" and the surviving spouse does not have an absolute interest in the property that qualifies for a marital deduction.

Full Text

Rev. Rul. 77-98

Advice has been requested whether a marital deduction is allowable pursuant to section 2056 of the Internal Revenue Code of 1954 where one clause of the decedent's will provides for an absolute transfer of property to the surviving spouse and a subsequent clause bequeaths the property to the decedent's children on the death of the surviving spouse.

The decedent, A, a lifelong resident of Texas, and whose property was located in the State, died testate on November 28, 1974, survived by a spouse, B, and two children, C and D. A's will contained the following pertinent provisions:

2nd. I give, bequeath and devise unto my beloved spouse, B, all of my personal estate in fee simple and absolute.

3rd. I give, bequeath and devise unto my spouse, B, all of my real estate for and during B's natural life.

4th. After the demise of B, it is my will and I direct that all of my estate then remaining, both real and personal property, shall pass to and vest in my children, C and D.

In general, section 2056(a) of the Code provides for a marital deduction for property passing from the decedent to the surviving spouse. However, section 2056(b)(1) provides that no marital deduction is allowable for the transfer of a mere life estate to the surviving spouse since the interest will terminate on death and the remainder interest will vest in another.

In determining the nature of the interest passing to the surviving spouse, section 20.2056(b)-5(e) of the Estate Tax Regulations provides that "regard is to be had to the applicable provisions of the law of the jurisdiction under which the interest passes * * *." As pointed out in Morgan v. Commissioner, 309 U.S. 78 (1940), 1940-1 C.B. 229: "State law creates legal interests and rights. The federal revenue acts designate what interests and rights, so created, shall be taxed." Thus, since A's will was executed and probated in Texas, the law of Texas determines the nature and extent of the property interest passing to B under the will.

In construing wills, the Texas courts "seek and enforce" the intention of the testator as expressed in the language and provisions of the will as a whole and the circumstances surrounding its execution. Guilliam v. Koonsman, 154 Tex. 401, 279 S.W. 2d 579 (1955). Generally, the greatest estate will be conferred on a devisee that the terms of a devise will permit; and when an estate is given in one part of a will in clear and decisive terms, it cannot be cut down or taken away by any subsequent words that are not equally clear and decisive. Johnson v. Moore, 223 S.W. 2d 325 (Tex. Civ. App. 1949).

In Texas, a devise of an estate is deemed a fee simple interest unless limited by express words, and a condition that tends to defeat such an estate will be strictly construed. Johnson v. Moore, cited above; Bergin v. Bergin, 159 Tex. 83, 315 S.W. 2d 943 (1958). On the other hand, an estate for life only is passed by an instrument that purports in one clause to transfer the fee or absolute ownership but in a subsequent clause creates a remainder in another person. See Flippen v. Robinson, 144 S.W. 707 (Tex. Civ. App. 1912); 37 Tex. Jur. 2d Life Estates, Remainders and Reversions, sec. 5. Thus, it is the rule in Texas that where there is an irreconcilable conflict between two clauses of this kind, the later clause will prevail as being the latest expression of the testator's intent. Martin v. Dial, 57 S.W. 2d 75 (Tex. Com. App. 1933); Stanley v. Henderson, 139 Tex. 160, 162 S.W. 2d 95 (1942); Dougherty v. Humphrey, 424 S.W. 2d 617 (Tex. Sup. Ct. 1968).

Paragraph 2nd of the decedent's will bequeaths personalty to the surviving spouse "in fee simple and absolute." Paragraph 4th, however, provides for a remainder interest in the personal property for the decedent's children. Thus, there is a conflict in the terms of the will since it is not clear whether the decedent intended to give the surviving spouse an absolute interest or a life estate in personal property.

The Supreme Court of Texas has held that, in cases of such irreconcilable conflict, the earlier clause is limited by the later clause where the limitation of the later clause is clear and decisive. The later provision prevails as being the latest expression of the decedent's intent. Here, paragraph 4th is clear and decisive and is the latest expression of intent. Thus, on the death of the surviving spouse, the property will pass to the decedent's children, C and D.

Accordingly, under Texas law, where property is bequeathed to a surviving spouse in "fee simple and absolute" in one clause of a will and in a later clause a remainder over in the property is bequeathed to the decedent's children, the surviving spouse does not have an absolute interest in the property that qualifies for a marital deduction under section 2056(a) of the Code.