                          T.C. Memo. 2003-189



                       UNITED STATES TAX COURT



   ESTATE OF CHARLES N. ARONSON, DECEASED, BARNEY P. ARONSON,
                     EXECUTOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5873-01.                  Filed June 30, 2003.


     Roger B. Simon, for petitioner.

     Jennifer S. McGinty, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:     Respondent determined a deficiency of

$2,224,224.71 in the Federal estate tax of the Estate of Charles

N. Aronson (decedent).    Unless otherwise indicated, all section

references are to the Internal Revenue Code in effect for the

date of decedent’s death.
                               - 2 -

     The sole issue for decision is whether an interest in the

trust created by decedent’s will qualifies for the estate tax

marital deduction as “qualified terminable interest property”

(QTIP), within the meaning of section 2056(b)(7).

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.

     At the time of his death on December 20, 1996, decedent

resided in Cattaraugus County, New York.     At the time of

decedent’s death, decedent and Josephine R. Aronson (Jo) were

married--and had been married 61 years--and they were U.S.

citizens and residents.   Decedent was survived by, among others,

(1) Jo, (2) Barney R. Aronson (Barney), who is Jo’s son and

decedent’s adopted son, and (3) Barney P. Aronson (Bar), who is

Barney’s son and decedent’s grandson.

     Bar is the executor of decedent’s estate.     At the time the

petition was filed, Bar resided in Arcade, New York.

     Decedent was born in 1913 near Lincoln, Nebraska.     Decedent

was a knowledgeable businessman.   Decedent founded and ran

Aronson Machine Co.   He retired in 1969.

     Decedent was a strong-willed, “bullheaded” man.     He was self

made, and, even though he had only a high school education, he
                                - 3 -

“felt superior to everyone else”.    In general, decedent “disliked

attorneys”.    He felt attorneys “were out to get his money”.

     At the time decedent died, Bar and decedent lived at 11520

Bixby Hill Road, Arcade, New York (Hundred Acres).1   There were

two houses on Hundred Acres.    Decedent and Jo lived in “the Big

House”, and Bar and his wife, Charlene Voit Aronson (Charlene),

lived in “the Little House”.    While living on Hundred Acres, Bar

took care of decedent, Jo, and Hundred Acres.

     Bar was responsible for maintaining Hundred Acres.    Decedent

met with Bar once a week to discuss the maintenance of Hundred

Acres, to inform Bar of anything that required attention, and to

chastise Bar if he did not get things done in a timely fashion.

Decedent had conversations with Bar regarding estate taxes and

Jo’s income.    Decedent, however, never discussed leaving a QTIP

to Jo.

     On May 31, 1980, decedent executed a will (1980 will).     The

1980 will revoked all prior wills and codicils.    In the first

article of the 1980 will, decedent gave all of his personal

effects, household effects, motor vehicles, works of art, and

tangible personal property to Jo.    The 1980 will also provided:

          SECOND: If my wife survives me, I hereby create a
     marital trust. There shall be allocated to the marital
     trust that amount (if any) which, when added to any
     other sums allowable in determining the marital


     1
        Around 1981, Bar had moved into the Little House on
Hundred Acres.
                           - 4 -

deduction in the federal estate tax proceeding relating
to my estate, shall equal the maximum marital deduction
allowable in such proceeding. Notwithstanding the
foregoing, such amount shall not exceed that minimum
sum which, when added to such other sums, will have the
effect of reducing to zero the federal estate tax
(after giving effect to all credits against tax)
determined in such proceeding. The marital trust
(which is an amount and not a fractional share) shall
be established with cash or any other assets qualifying
for the marital deduction, first preference to be given
to assets not subject under the Internal Revenue Code
to a credit for foreign death taxes. All assets
allocated to the marital trust shall be valued as of
their respective dates of distribution. The marital
trust shall be held upon the following terms:

          A. The entire net income of the marital
trust shall be paid to my wife, JOSEPHINE R. ARONSON,
at least quarter-annually during her lifetime.

               *   *   *    *      *   *   *

     THIRD: If my wife survives me, I give all the
rest of my property, real and personal, wherever
situated, herein called my residuary estate, to my
Trustee to hold as a family trust upon the following
terms:

          A. The entire net income of the family trust
shall be paid to my wife, JOSEPHINE R. ARONSON, at
least quarter-annually during her lifetime.

               *   *   *    *      *   *   *

     FIFTH: As my wife and I in no way want to try to
impose the will of the dead hand, it will be up to our
heirs to determine who lives in the Big House and the
Little House on Hundred Acres. It is our wish that
Hundred Acres will always belong to Aronsons, that an
Aronson live in the Big House, and that Charles J.
Aronson have the use of the Little House as long as he
wishes. It is also our wish that our heirs see to it
that the property taxes and utility bills are paid so
that the Big House will be kept from freezing up or
passing from Aronsons through tax default.
                               - 5 -

     On February 25, 1982, decedent executed a new will (1982

will).   The 1982 will revoked all prior wills and codicils.    The

1982 will was virtually identical to the 1980 will, except, in

pertinent part, the fifth article of the 1982 will provided that

Bar, instead of Charles J. Aronson, should have use of the Little

House.

     The 1980 will and the 1982 will were drawn by a law firm in

Buffalo, New York.   Decedent remarked that his experience with

this law firm was “less than successful”, and he eventually fired

those attorneys.

     Robert C. Newman has been an attorney since 1981.   He first

met with decedent in February 1988 after decedent contacted him

via a letter dated February 6, 1988.   Decedent contacted Mr.

Newman because decedent knew Mr. Newman’s parents and decedent

was dissatisfied with his then-current attorneys at the law firm

in Buffalo, New York.2   Most of decedent’s communications with

Mr. Newman, and vice versa, were in writing.

     At first, Mr. Newman thought decedent was seeking tax

advice; however, it quickly became clear to Mr. Newman that

decedent did what decedent wanted to do.   Furthermore, decedent

stated to Mr. Newman that he (decedent) would rather pay estate

taxes than draw up his will in a way other than what he wanted.



     2
        Additionally, because decedent and Jo were recluses,
decedent wanted someone close by who could come to Hundred Acres.
                                - 6 -

     Decedent received financial and tax advice from C.P.A.s at

the accounting firm of Seidman & Seidman.   Mr. Newman never had

any contact with accountants at Seidman & Seidman.

     Decedent prepared a will dated February 6, 1988 (1988

proposed will).   Decedent mailed a copy of the 1988 proposed will

to Mr. Newman.    In the letter to Mr. Newman accompanying the 1988

proposed will, decedent informed Mr. Newman that it was a serious

mistake to underestimate his abilities and that what he wanted

was an attorney who could sign the following statement:   “I have

closely examined this Will and have found it to be a legal

document that should have no difficulty in probate.”3   Decedent

would have considered changes to the 1988 proposed will if it had

meant Mr. Newman would sign the aforementioned statement.

Decedent, however, was “not looking for any changes at all,

frankly, but if there is a glaring error, we’ll want that

corrected.”   Decedent also wrote:   “I do not expect you to know

everything but I do expect you to know where to find out whatever

we need to know to do the job better than it has ever been done

before.”

     The 1988 proposed will revoked all former wills and codicils

and provided, in relevant parts, as follows:




     3
        Decedent included this language at the end of the 1988
proposed will along with a space underneath it for Mr. Newman to
sign.
                                - 7 -

          FIRST: I hereby create a Trust and give into it
     all my personal effects, household effects, motor
     vehicles, works of art, and other tangible personal
     property, all my stocks and bonds, my personal checking
     account, such to be held secure for equal division
     among Jo’s biologic descendants if she survive[s] me
     and if so, Jo is to receive all the dividend and
     interest income from such assets as long as she lives,
     and upon her death the real property known as Hundred
     Acres and the buildings thereon will be added to this
     Trust, as spelled out in Jo’s Will, and this Trust will
     then be liquidated and the proceeds divided equally
     among Jo’s biologic descendants as administered by the
     two Executors, Barney R. Aronson and Barney P. Aronson,
     or if one is dead, the remaining named Executor will
     name a replacement, and these Executors will have
     arranged the Trust to be effectuated, at Central Trust
     Arcade or such as they choose, and the distribution of
     assets made among Jo’s biologic descendants which at
     this writing are: Barney R. Aronson, Scott Haley
     Aronson, Charles J. Aronson, Barney P. Aronson, Heather
     Aronson, Rozlyn Jo Aronson, Jeff Aronson, Charles J.
     Aronson Jr., or if Jo predeceases me, her Will will
     have added Hundred Acres to the assets of the Trust and
     division will proceed as ordered.

                    *   *   *    *      *   *   *

               D. Upon Jo’s death, if she survives me, all
     my estate, now including Hundred Acres, shall be
     distributed to the eight biologic descendants as named
     above, or such of them as shall then be surviving, in
     equal shares, per capita.

                    *   *   *    *      *   *   *

          THIRD. The process of liquidating the assets of
     my estate, for distribution to the eight biologic
     descendants as heretofore decreed, may take up to three
     years after my death, to allow proper advertising, for
     example, and to avoid flooding the market with art, for
     instance, and until Hundred Acres has been sold * * *.

Decedent signed the 1988 proposed will, which he prepared, and

Jo, Bar, and Charlene signed the 1988 proposed will as witnesses.
                                - 8 -

     On February 19, 1988, decedent wrote a letter to Mr. Newman

regarding their meeting on February 18, 1988.    Decedent decided

that he wanted Mr. Newman to be his attorney.    Decedent requested

Mr. Newman to inform him, as soon as possible, of “all the

subtractions from an estate of approx. $4,000,000".    Decedent

approved changing the 1988 proposed will to make Bar and Barney

executors and trustees.    Decedent requested Mr. Newman’s

“business identification number” so he could fill out “Forms

1099”.

     On February 22, 1988, decedent wrote a letter to Mr. Newman.

Decedent explained that Bar and his wife Charlene had come to

live in the Little House on Hundred Acres in the early 1980s to

take care of decedent and Jo.    Although he felt they were not

“worth a damn” the first 3-1/2 years they lived on Hundred Acres,

they had “smartened up”.    Decedent stated that Bar wanted to live

on Hundred Acres until he (Bar) died, so Jo and decedent wanted

Bar to inherit Hundred Acres, the buildings thereon, and the

vehicles and machinery decedent owned “in addition to his being

Executor and Trustee and an equal recipient of the residual

estate after taxes and expenses.”    Decedent instructed Mr. Newman

to draft his will to reflect this change and to provide him with

a copy so he could study the draft, make notes on the draft, and

finalize the will.
                                - 9 -

     On February 23, 1988, Mr. Newman wrote a letter to decedent.

Mr. Newman acknowledged receiving decedent’s letters dated

February 19 and 22.    Mr. Newman briefly reviewed the 1988

proposed will.   Mr. Newman raised one major problem with the 1988

proposed will--some of the witnesses were beneficiaries under the

1988 proposed will and the 1988 proposed will might not be upheld

under New York law.    Mr. Newman recommended that two “uninvolved”

witnesses be used when the new wills were executed.     Mr. Newman

also informed decedent that he would “have the estate reducing

figures and possible tax related suggestions” to decedent soon.

Mr. Newman provided decedent with his tax identification number.

     On February 25, 1988, decedent wrote a letter to Mr. Newman.

Decedent advised Mr. Newman that he (decedent) wrote the 1988

proposed will in order to “cancel” his then-current will drafted

by the law firm in Buffalo, New York, and so he could wave it in

the law firm’s face.    Decedent wrote:   “I do not pretend to teach

anyone Law.   But, protected as I am from an avalanche of law

books, it is sometimes easier for me to see Justice and Intent

than might be true of a lawyer.”    Decedent continued by

“explaining” the law to Mr. Newman.     Decedent concluded the

letter:

           As I say, I do not want us to get into a debate
     about Law. Frankly, it is too disgusting a subject for
     an old man to waste time on. And I wanted mainly to
     void the Wills MacLeod had, and I think I did just
     that.
                              - 10 -

          Bob, let’s quickly get good, binding,
     incontestable Wills affectuated [sic] quickly, or, if
     you like, add lines to what I made and bring * * *
     legal witnesses and Jo and I will sign again. * * *
     dash up to the Big House and we’ll make it all legit.
     If that will do it for us all. I still want Newmanmade
     Wills ASAP.

     On March 6, 1988, decedent wrote a letter to Mr. Newman.

Decedent was disappointed in what seemed to him “much too long to

look in the statute books and write to us what the Federal and

State taxes will be, and the fees and commissions as spelled out

by law.”   Given that at the time he was 75 years old, decedent

wanted his will completed, witnessed, and safely stored in his

“safe room” as quickly as possible.

     On March 7, 1988, Mr. Newman wrote a letter to decedent.

Mr. Newman listed the expenses that would be incurred on an

estate of $4 million.   Mr. Newman explained that the delay was

not in computing the figures “but rather trying to come up with

an acceptable way of avoiding the estate tax which is quite

significant.”   Mr. Newman listed the potential Federal estate tax

as $1,302,600 and potential New York estate tax as $392,500.    Mr.

Newman wrote that he had “some ideas that I would like you to

examine, but I will present these to you at a later time.”    Mr.

Newman advised decedent that he had a draft of the will which

would be sent to decedent that Friday for his examination.
                              - 11 -

     On March 8, 1988, decedent wrote a letter to Mr. Newman.       He

wrote:

          Yes, the taxes are confiscatory. I’m not wearing
     a closed mind about ideas but I do have limitations.
     In no way will I ever give up any direct control of my
     assets. I have been through a lot of this and it
     appears to me that any tax saved tends to end up as
     fees and commissions to the people who “save” me the
     taxes.

     On March 11, 1988, Mr. Newman mailed decedent a copy of a

draft will for decedent to review.     Mr. Newman kept as much of

the original language, written by decedent, from the 1988

proposed will as possible in the new draft.

     On March 14, 1988, decedent wrote a letter to Mr. Newman.

The new draft looked good and right to decedent, and he thanked

Mr. Newman for providing him with “information on the costs of

dying with property.”   Decedent instructed Mr. Newman to come up

to the Big House with witnesses as soon as possible so he could

execute his new will.

     On March 16, 1988, Mr. Newman wrote a letter to decedent.

Mr. Newman enclosed executed proofs of will with the letter.     Mr.

Newman recommended that decedent make available to Barney his

original adoption papers in order that the new will would

withstand challenges.   Mr. Newman also suggested that decedent

should destroy his prior wills.
                                  - 12 -

       On March 18, 1988, decedent wrote a letter to Mr. Newman.4

Decedent expressed his satisfaction with Mr. Newman’s work.

Decedent advised Mr. Newman that no one had the original adoption

papers for Barney.       Decedent instructed Mr. Newman to obtain

copies of the adoption papers.

       On March 19, 1988, decedent wrote a letter to Barney and

Bar.       Decedent expressed a clear understanding of finances and

the stock market.       Decedent advised Bar and Barney that

decedent’s C.P.A. was Norman C. Joseph at Seidman & Seidman in

Buffalo, New York.       Decedent also gave Barney and Bar several

instructions including:       (1) Bar should have Jo show him (Bar)

where her “squirreled-away caches” were; (2) to keep decedent’s

“custodial account” after he died; (3) to transfer his two “NOW

Accounts” to a new “NOW Account” after he died; (4) if in their

opinion a property asset had been valued too high, then have Mr.

Newman fight it; (5) that Mr. Newman should probate his will and

act as the estate’s attorney; (6) if they had any questions they

should put them in writing and decedent would write another

letter to them; (7) to cremate decedent as soon after his death

as possible; (8) not to save the ashes from his cremation; (9)

there was to be no funeral, ceremony, no viewing of decedent;


       4
        Although this letter is dated Mar. 18, 1987, it is clear
from the testimony at trial, the contents of the letter, and the
fact that the letter bears a “received” stamp dated Mar. 21,
1988, that this date is merely a typographical error and the
letter was written in 1988.
                                - 13 -

(10) not to make his death public (no obituary or publicity) and

not tell anyone of his death--especially the media; (11) not to

obtain a headstone or “stainless steel cross” for decedent to

mark his death; (12) the family, and no one else, should gather

at the Big House after his death, except grandson Lars who could

come only if Jo predeceased decedent--otherwise he was not

permitted on Hundred Acres.    Decedent directed Bar to use Mr.

Newman because decedent trusted Mr. Newman.

     On April 7, 1988, Mr. Newman wrote a letter to decedent.

Enclosed with the letter were two certified copies of the Order

of Adoption of Barney.    Mr. Newman also apprised decedent that he

had had an additional opportunity to examine the estate tax

situation; however, in order to reduce the taxes Mr. Newman

advised decedent that he (decedent) was going to have to divest

himself of control over his property.    Mr. Newman also informed

decedent that he could make gifts in the amount of $10,000-per-

year to reduce his estate, but “we get back to the same problem

that you must give up control.    Basically the amount of the tax

is the cost of this control.”

     On April 9, 1988, decedent wrote a letter to Mr. Newman.     He

thanked Mr. Newman for the copies of Barney’s adoption papers.

Decedent further wrote:

          Yeah. I know all about $10,000 to a slew of
     folks, no gift tax and it saves me taxes. I have a
     one-word response to that and it has only four letters,
     the first two are n u and the last two are t s. I’m
                               - 14 -

     not saying nuts to you, Bob, but to the idea, which has
     been given to me by a lot of folks.

          I like your succinctness. ‘The only way to reduce
     the taxes on my estate is for me to divest myself of
     control over the property.’ That same four-letter word
     applies here, too. I’ve spent 75 years--less a few
     years as a crawling baby--working hard, diligently,
     totally honestly, in The Golden Rule Way, to acquire
     what I have, and if my total wealth is incinerated with
     me when I’m dead, that’s all right with me, compared to
     giving anyone any control at all over what I have
     earned.

     On May 6, 1988, Mr. Joseph, from Seidman & Seidman, wrote a

letter to decedent.   Mr. Joseph, in response to decedent’s

request, informed decedent that the consequences of a tax-free

gift of $10,000 per year would be to reduce decedent’s taxable

income and would “serve to reduce your estate and save the very

high estate taxes on each $10,000 that you give away.    The estate

tax rates start at 37% for assets over $600,000.”    Mr. Joseph

recommended that decedent make these gifts.

     On May 25, 1988, Mr. Joseph wrote another letter to

decedent.   Mr. Joseph further explained the estate and gift tax,

and that the tax rate of 37 percent rapidly accelerated to 55

percent.    Mr. Joseph also informed decedent that in addition to

estate and gift taxes:

     we now have a new tax a “generation skipping transfer
     tax.” The tax basically is imposed to discourage the
     gifting of assets to a second generation below the
     transferor. Thus, it is an attempt to prevent a
     grandparent from giving his assets to his grandchild
     while leaving his children to enjoy the benefits of
                               - 15 -

     ownership of the property without having the property
     included in their estates on their death, or when they
     transfer the property by gift to their children.

     On June 1, 1988, decedent wrote a letter to Mr. Newman.

Decedent wanted to make a codicil to his will.    Decedent decided

to make a $10,000 gift each year to Barney, Barney’s wife, “Ruth

M.”, and Bar.    Decedent informed Mr. Newman that Mr. Joseph, who

decedent identified as his C.P.A., had explained the $10,000-per-

year gifts and the tax consequences to him.    Bar intended to use

the $10,000-per-year gift to help him (Bar) maintain Hundred

Acres after decedent died.    Decedent, however, felt that the

$10,000-per-year gift would not give Bar enough money to maintain

Hundred Acres.   Decedent decided that the other “heirs” did not

deserve equal shares of his estate, so he wanted to change his

will to distribute his residuary estate as follows:    25 percent

each to Bar and Barney, 10 percent each to two of decedent’s

other grandchildren, and 7.5 percent each to four of decedent’s

great-grandchildren.   Decedent decided on these amounts because:

“As of now, there will be approximately $2,000,000 left after

taxes and costs.    This is $2,000,000 ‘residual estate.’   Barney

and Bar get 25%, or $500,000.”    Decedent believed that Bar could

invest his inheritance in a bond yielding 7 to 8 percent, and

this would provide Bar enough money to pay the taxes and upkeep

on Hundred Acres.
                               - 16 -

     On June 17, 1988, decedent wrote a letter to Mr. Newman.

Decedent wrote:

          It struck me that Bar’s wife Charlene remodeled
     The Little House and ruined it and when her husband
     owns Hundred Acres and The Big House she is likely to
     rip out all the Pittsburgh Twindows and put in sash
     windows, as she did in the Little House.

          I know the implication of ‘the dead hand.’ BUT.
     The Big House is more my monument than the Washington
     Monument is George’s . . I designed and built
     my monument. Charlene would somehow hang lace curtains
     on the Washington Monument if she could. Or put up
     awnings where there aren’t any windows.

In light of this, decedent wanted his will to include the

following language:    “No changes or alterations in the Structure

or the General Make-up of the Big House on Hundred Acres shall

ever be made.”    Decedent further wrote:

          I know that when I am dead, ‘they’ can do things
     to the Big House and I’ll never know it. But lying in
     bed trying to go to sleep at night while I live, and
     visualizing the horrors that woman can perpetrate on My
     Monument keeps me awake and in terror. Knowing that my
     Family Lawyer has made it impossible for any such
     desecration will be a welcome and effective soporific.

     On June 24, 1988, Mr. Newman wrote a letter to decedent.

Mr. Newman informed decedent that he had made changes to

decedent’s will regarding restricting changes to the Big House

and the percentage inheritances of the residuary estate.     Mr.

Newman advised decedent that when the new wills were typed, he

would forward them to decedent for him to review.

     On June 28, 1988, Mr. Newman mailed decedent a revised draft

of decedent’s new will for decedent’s review and approval.
                              - 17 -

     On July 5, 1988, decedent executed the revised will (July

1988 will).   The July 1988 will revoked all former wills and

codicils and provided, in relevant parts, as follows:

          SECOND: I hereby give, devise and bequeath my
     real property (which shall include my residence which I
     refer to as “Hundred Acres” should my wife, Josephine
     R. Aronson, hereinafter referred to as “Jo,” predecease
     me) my vehicles and machinery to my grandson, BARNEY P.
     ARONSON. It is hereby stipulated that no changes or
     alterations in the structure or the general make-up of
     the “Big House” on Hundred Acres shall ever be made.

          THIRD: I hereby create a Trust and give into it
     all the rest, residue and remainder of my property of
     every kind and nature and wheresoever situate, such to
     be held secure for division among “Jo’s” biologic
     descendants as described below, if she survives me, and
     if so, “Jo” is to receive all the dividends and
     interest income from such assets as long as she lives,
     and upon her death this Trust will then be liquidated
     and the proceeds divided as described below among
     “Jo’s” biologic surviving descendants as administered
     by the two Executors, Barney R. Aronson and Barney P.
     Aronson, or if one is dead, the remaining named
     Executor may name a replacement, and these Executors
     will have arranged the Trust to be effectuated at
     Central Trust, Arcade, or such as they choose, and the
     distribution of assets made as follows:

          25% of residual estate to my son, BARNEY R.
     ARONSON;

          25% of residual estate to my grandson, BARNEY P.
     ARONSON;

          10% of residual estate to my grandson, SCOTT HALEY
     ARONSON;

          10% of residual estate to my grandson, CHARLES J.
     ARONSON;

          7½% of residual estate to my great grandaughter
     [sic], HEATHER ARONSON;
                              - 18 -

          7½% of residual estate to my great grandaughter
     [sic], ROSLYN JO ARONSON;

          7½% of residual estate to my great grandson,
     JEFFREY ARONSON; and

          7½% of residual estate to my great grandson,
     CHARLES J. ARONSON, JR.,

     or if “Jo” predeceases me division will proceed as
     ordered above.

     On August 9, 1991, decedent executed a new will (1991 will).

The 1991 will revoked all former wills and codicils, and it

provided for the distribution of the residuary estate as follows:

35 percent to Barney, 35 percent to Bar, 15 percent to Scott

Haley Aronson, and 15 percent to Charles J. Aronson.    By

eliminating his great-grandchildren, decedent also removed the

sections of the July 1988 will that dealt with distributions to

minors.   In all other respects, the 1991 will was essentially

identical to the July 1988 will.   Decedent did not care whether

the estate would be able to claim a marital deduction under the

terms of the 1991 will because decedent did not want to

relinquish control over his assets.

     On March 16, 1993, decedent wrote a letter to Mr. Newman.

Decedent wanted a new will.   Decedent wanted Bar to inherit

Hundred Acres and to be able to earn enough income from his

inheritance so that Bar could maintain Hundred Acres.     Decedent

asked Mr. Newman some questions regarding the generation-skipping

transfer (GST) tax, selling his art collection to Bar (in order
                              - 19 -

to remove the art collection from his estate), and the amount of

estate tax on a $5 million taxable estate.    Decedent told Mr.

Newman that when decedent had the answers to his questions he

(decedent) would prepare a new will.

     On April 3, 1993, decedent wrote a letter to Mr. Newman.

Decedent understood that there would be GST tax if he made Bar

his “sole heir” and that there would be gift taxes associated

with giving his art to Bar (so he decided not to do this).

Decedent’s C.P.A. had given decedent round numbers on what Bar

would inherit after taxes.   On the basis of the numbers his

C.P.A. provided, decedent felt that Bar would be able to generate

enough income from his inheritance after taxes to maintain

Hundred Acres, its buildings, and its contents.    Decedent,

however, wanted a second opinion from Mr. Newman on how much Bar

would inherit after taxes to make sure Bar would have enough to

maintain Hundred Acres.   Decedent wanted a new will as soon as

possible to ensure that Hundred Acres would not “be lost”.

     On April 8, 1993, decedent wrote a letter to Mr. Newman.

Decedent wrote:   “I’ll sure be glad when we have our two Wills

finalized so Bar can keep Hundred Acres and the Big House a kind

of monument to me.   Instead of a stone in a cemetery.”

     On April 13, 1993, decedent wrote a document entitled “My

Will - An Explanation”.   This document is similar to his March

19, 1988, letter to Bar and Barney.    It stated as follows:
                           - 20 -

     I have been an asset to everyone who has been
associated with me in any way. I have been good for
the world. I am more than average. And I want a more
than average monument to my life. More than a slab in
a cemetery.

     Aronson Machine Company is not a monument to me.
The Big House on Hundred Acres is. I designed the Big
House--invented it--and was its architect and builder.
It is unique. It is my monument.

     It is my wish that my monument, the Big House and
Hundred Acres, be preserved pretty much as it is as
long as possible. No changes shall be made in the Big
House that would alter its true basic concept.

     Bar (Barney Peter Aronson) has been my back up and
right hand man since April 1982. I have been training
him to manage my estate after my death. No other
family member has done anything for me and my monument.

     Therefore, I leave all my worldly goods after
Death Taxes to Barney Peter Aronson.

     This involves skipping a generation and adds to
the tax burden. My son, Barney Roman Aronson, is only
11 years 9 months younger than I and won’t live long
enough to preserve my monument very long after my
death. Barney Peter Aronson is 42 years younger than I
& can be expected to preserve my monument a long time
after my death.

     Death Taxes will take so much of my estate that
Bar inheriting Hundred Acres will not have enough
income to maintain Hundred Acres and the Big House if
my estate is divided among several members of the
family.

     If my estate amounts to $5,500,000 when I die
* * * and Bar is my sole heir, he will inherit
approximately $2,200,000 including Hundred Acres,
building and contents. * * *

               *   *   *     *      *   *   *

     Thus, to assure preservation of my monument for a
fairly long term, Barney Peter Aronson is my sole heir.
                               - 21 -

     On May 10, 1993, Mr. Newman wrote a letter to decedent.     Mr.

Newman had redrawn decedent’s will, per decedent’s request, and

enclosed a copy for his review.

     On May 12, 1993, decedent wrote a letter to Mr. Newman.

Decedent wrote:    “I was trying to show how and why grandson

Barney Peter Aronson (let’s use his full name instead of his

middle initial) would inherit so as to maintain my monument.     The

previous Wills--1991--needed to be changed to show one Executor

and one inheritor, grandson Barney Peter Aronson.”    Decedent

enclosed a revised copy of the 1991 will, with alterations

decedent made to the language of the 1991 will, as a guide for

Mr. Newman.    Decedent instructed Mr. Newman to prepare him a new

will, incorporating decedent’s changes, and to submit it to him

to review.    Decedent’s revisions to the 1991 will, in relevant

part, were as follows:

          SECOND: I hereby give, devise and bequeath my
     real property (which shall include my residence which I
     refer to as “Hundred Acres” should my wife, JOSEPHINE
     R. ARONSON, hereinafter referred to as “JO,” predecease
     me), my vehicles and machinery to my grandson, BARNEY
     P. ARONSON. It is hereby stipulated that no changes or
     alterations in the structure or the general make-up of
     the “Big House” on Hundred Acres shall ever be made.

          THIRD: I hereby create a Trust and give into it
     all the rest, residue and remainder of my property of
     every kind and nature and wheresoever situate, such to
     be held secure for division among “JO’s” biologic
     descendants as described below, if she survives me, and
     if so, “JO” is to receive all the dividends and
     interest income from such assets as long as she lives,
     and upon her death this Trust will then be liquidated
     and the proceeds divided as described below among
                             - 22 -

     “JO’s” biologic surviving descendants as administered
     by the two Executors, BARNEY R. ARONSON and BARNEY P.
     ARONSON, or if one is dead, the remaining named
     Executor may name a replacement, and these Executors
     will have arranged the Trust to be effectuated at
     Central Trust, Arcade, or such as they choose, and the
     distribution of assets made as follows:

          35% of residual estate to my son, BARNEY R.
     ARONSON;

          35% of residual estate to my grandson, BARNEY P.
     ARONSON;

          15% of residual estate to my grandson, SCOTT HALEY
     ARONSON;

          15% of residual estate to my grandson, CHARLES J.
     ARONSON.

The remainder of the third article of the 1991 will had a line

through it and the word “redone” written next to it.    Decedent

also attached a sheet of paper with the following language to the

revised copy of the 1991 will:

          THIRD: I hereby create a Trust and give into it
     all the rest, residue and remainder of my property of
     every kind and nature and wheresoever situate, such to
     be held secure for my grandson Barney Peter Aronson, if
     she [sic] survives me, and if so, “Jo” is to receive as
     much income from such assets as she needs, for as long
     as she lives, and upon her death this Trust will then
     be liquidated and the proceeds given to my grandson,
     Barney Peter Aronson, as administered by the Executor,
     Barney Peter Aronson, or if he be dead, by alternate
     Executor, son Barney Roman Aronson, or third, if he
     also be dead, by grandson, Scott Haley Aronson, or if
     Barney Peter Aronson predecease me, Scott Haley Aronson
     shal [sic] take his place as my heir and as Executor,
     or if “Jo” predeceases me, division will proceed as
     ordered above.

               A. The Executor will be paid the
          established legal Executors Commission, which
          at this writing is understood to be 5% of the
                               - 23 -

          first $100,000, 4% of the next $200,000, 3%
          of the next $700,000, and 2½% of the next of
          the next $4 million, and 2% thereafter.

               B. The Executor will see that “Jo”, if
          she survives me, receives interest and
          dividend income sufficient to her needs.

               C. If an emergency requires “Jo” to
          have some of the assets in the Trust, the
          Executor will allot such funds as he
          determines “Jo” needs.

               D. Upon “Jo’s” death, if she survives
          me, all the estate shall go to Barney Peter
          Aronson as described above.

               E. In my personal effects are “Chuck
          Aronson’s Journals” which the Executor will
          keep safe and secure in perpetutity, [sic] to
          be used as seen fit, but in no way destroyed.

     On May 18, 1993, Mr. Newman wrote a letter to decedent.      Mr.

Newman wrote:    “I have received your letter to me dated May 12th

and have redrawn your wills per your request, copies of which I

have enclosed.   Please advise if they are satisfactory with you.”

     On May 20, 1993, decedent wrote a letter to Mr. Newman.

Decedent pointed out a few typographical errors in the new draft

of his will and instructed Mr. Newman to correct them.    The new

will otherwise looked fine to decedent, but decedent noted that

he was not an expert about estates and the law; for that he

depended on Mr. Newman.   Decedent continued:   “I am satisfied

with the Wills (after the typos are corrected) and if you, too,

are satisfied these Wills will go through Probate and all with no
                                - 24 -

trouble or successful contesting, please have the final Wills

prepared and witnessed and all as we did before.”

     On May 24, 1993, Mr. Newman wrote a letter to decedent.    Mr.

Newman informed decedent that he had finalized decedent’s new

will and wanted to come to the Big House on May 28, 1993, for

decedent to execute the new will.

     On May 28, 1993, decedent executed a new will (1993 will).

The 1993 will revoked all former wills and codicils and provided,

in relevant parts, as follows:

          SECOND: I hereby give, devise and bequeath my
     real property (which shall include my residence which I
     refer to as “Hundred Acres” should my wife, JOSEPHINE
     R. ARONSON, hereinafter referred to as “JO”, predecease
     me), my vehicles and machinery to my grandson, BARNEY
     PETER ARONSON. It is hereby stipulated that no changes
     or alterations in the structure or the general make-up
     of the “Big House” on Hundred Acres shall ever be made.

          THIRD: I hereby create a Trust and give into it
     all the rest, residue and remainder of my property of
     every kind and nature and wheresoever situate, such to
     be held secure for my grandson, BARNEY PETER ARONSON,
     if he survives me, and if so, “JO” is to receive as
     much income from such assets as she needs, for as long
     as she lives, and upon her death this Trust will then
     be liquidated and the proceeds given to my grandson,
     BARNEY PETER ARONSON, as administered by the Executor,
     BARNEY PETER ARONSON, or if he be dead, by alternate
     Executor, my son BARNEY ROMAN ARONSON, or third, if he
     also be dead, my grandson, SCOTT HALEY ARONSON, or if
     BARNEY PETER ARONSON predecease me, SCOTT HALEY ARONSON
     shall take his place as my heir and as Executor, or if
     “JO” predeceases me, division will proceed as ordered
     above.

                    *   *   *     *      *   *   *
                                     - 25 -

          B. The Executor will see that “JO”, if she
     survives me, receives interest and dividend income
     sufficient to her needs.

          C. If an emergency requires “JO” to have some of
     the assets in the Trust, the Executor will allot such
     funds as he determines “JO” needs.

          D. Upon “JO’s” death, if she survives me, all the
     estate shall go to BARNEY PETER ARONSON as described
     above.

          E. In my personal effects are “Chuck Aronson’s
     Journal’s”, which the Executor will keep safe and
     secure in perpetutity, [sic] to be used as seen fit,
     but in no way destroyed.

                       *     *   *     *      *   *   *

          FIFTH: I hereby direct that all inheritance,
     estate, transfer, succession or other taxes (including
     any interest or penalties) shall be paid out of my
     residual estate and that all beneficiaries under this
     Will shall receive legacies, bequests and devises free
     and exempt from any and all such tax payment.

          LASTLY: I hereby nominate and appoint my
     grandson, BARNEY PETER ARONSON, to be the executor of
     this my Last Will and Testament, and the trustee of any
     trust herein created. I further direct that the said
     executor and trustee shall act as such without bond or
     other security in either event, and have all the powers
     contained in the New York Fiduciary Powers Act.

Mr. Newman provided a proof of will to decedent.

     On December 20, 1996, decedent died testate.

     On January 9, 1997, Mr. Newman probated the 1993 will in the

Surrogate’s Court, State of New York, County of Cattaraugus

(Surrogate’s Court).       Around this time, Mr. Newman advised Bar

that once decedent had died and the 1993 will had been probated,

it could not be changed.
                               - 26 -

     On January 25, 1997, Bar wrote a letter to Mr. Newman.      Bar

wrote:    “Due to the complexities of the interpretation of my

grandfather Chuck’s will and the need for creative estate

planning I have retained the services of an estate specialist:

Mr. Roger Simon”.

     Mr. Simon was more experienced in estate planning than Mr.

Newman.    Decedent had not known Mr. Simon.   Seidman & Seidman

referred Bar to Mr. Simon.    After talking to Mr. Simon, Bar

thought there was a possibility that the 1993 will could be

changed.

     Mr. Simon suggested that Bar file a petition in the

Surrogate’s Court.    Bar petitioned the Surrogate’s Court in order

to decrease the amount of estate tax owed.

     On February 5, 1998, Bar filed a “PETITION UNDER SPCA

1420(A) FOR CONSTRUCTION AND REFORMATION OF WILL” regarding the

1993 will (1998 petition) in the Surrogate’s Court.     The 1998

petition referred to the 1993 will as “home-drawn” and “drawn by

the Testator himself”.    The 1998 petition sought to reform and

construe the third article of the 1993 will as requiring that all

income of the trust be paid to Jo and to sever the trust holding

the residue of decedent’s estate into three separate trusts--a

credit shelter trust, a reverse QTIP trust, and a residuary

trust.    The 1998 petition states:   “The sole purpose and effect

of the proposed construction, restructuring and severing of the
                              - 27 -

Trust would be to insure that decedent’s estate receives a full

marital deduction, fully utilizes the decedent’s credit shelter

amount and reduces substantially the generation-skipping transfer

(“GST”) tax that will be payable by reason of distributions from

the Trust.”   The 1998 petition asserts that decedent always

intended to minimize the estate tax and GST tax on his estate.

The 1998 petition further states:   “Your Petitioner believes that

if this Court will reform and construe Article THIRD of the Will

to sever the residue of Decedent’s estate into three trusts as

set forth, this will insure the foregoing potentially

considerable estate tax and GST tax savings.”

     On February 10, 1998, Jo filed a waiver and consent to the

1998 petition waiving service and consenting in full to the

relief requested in the 1998 petition.

     On February 17, 1998, Scott Haley Aronson filed a waiver and

consent to the 1998 petition waiving service and consenting in

full to the relief requested in the 1998 petition.

     On March 5, 1998, Bar filed an “AMENDED PETITION UNDER SPCA

1420(A) FOR CONSTRUCTION AND REFORMATION OF WILL” regarding the

1993 will (1998 amended petition) in the Surrogate’s Court.    The

1998 amended petition was virtually identical to the original

petition and contained only a few changes--such as adding Scott

Haley Aronson as a beneficiary if Bar predeceased Jo.
                                 - 28 -

     On March 13, 1998, Jo and Scott Haley Aronson each filed a

waiver and consent to the 1998 amended petition waiving service

and consenting in full to the relief requested in the 1998

amended petition.

     On March 16, 1998, the Surrogate’s Court entered a decree

granting the relief sought in the amended petition (Surrogate’s

Court decree).      The Surrogate’s Court construed the 1993 will to

require that all income of the trust be paid to Jo at least semi-

annually.    The Surrogate’s Court further ordered and decreed:

     that Article THIRD of the said Last Will and Testament
     of CHARLES N. ARONSON be reformed to read as follows:

            THIRD

          A. In the event that my wife, JOSEPHINE R.
     ARONSON, survives me, I give and bequeath an amount
     equal to the exemption equivalent amount, as
     hereinafter defined, to my Trustee hereinafter named,
     IN TRUST, for the following uses and purposes:

               1. My Trustee shall invest and reinvest the
     same and shall collect and receive the income thereof
     and, after deducting the necessary and proper expenses
     therewith, shall pay over said net income to my wife,
     JOSEPHINE R. ARONSON, in monthly, quarterly, or other
     convenient payments of nearly equal amounts as possible
     during her lifetime, provided, however, that in no
     event shall such payments be made less frequently than
     semi-annually.

               2. I hereby authorize my Trustee, in his
     sole discretion, in the event that both the principal
     of the residuary trust and the principal of the reverse
     Q-Tip trust shall at any time become exhausted, to
     withdraw from the principal of this trust and pay over
     to my said wife, JOSEPHINE R. ARONSON, or for her
     benefit, such amount or amounts as may be deemed
     necessary or desirable for medical, surgical, hospital,
     nursing or other expenses relating to any illness of,
                        - 29 -

accident to or emergency affecting my said wife, or as
may be determined necessary or desirable for her
maintenance and support.

          3. Upon the death of my said wife, JOSEPHINE
R. ARONSON, after my death, or if she shall have
predeceased me, then at the time of my death, the then
remaining principal of this trust or the amount which
would have constituted the principal of this trust, as
the case may be, shall be paid over and distributed to
my grandson, BARNEY P. ARONSON, if he is living at the
time, to be his absolutely. In the event that the said
BARNEY P. ARONSON shall predecease the said JOSEPHINE
R. ARONSON, the same shall be paid over and distributed
to my grandson, SCOTT HALEY ARONSON.

          4. The exemption equivalent amount referred
to above shall equal the largest amount, if any, by
which my taxable estate for federal estate tax purposes
(determined without regard to this Article) could be
increased without increasing the federal estate taxes
payable by reason of my death after taking into account
the unified credit and credit for state death taxes
available against such tax (provided that the credit
for state death taxes shall not be taken into account
if I die a resident of a state whose estate or other
death tax is limited to the federal estate tax credit
for state death tax).

          5. I direct my Executor to make the special
election under §2652(a) of the Internal Revenue Code
with respect to this trust so that I shall be treated
as the transferor of such trust for GST tax purposes.

     B. In the event that my wife, JOSEPHINE R.
ARONSON, survives me, I give and bequeath an amount
equal to the excess GST exemption amount, as
hereinafter defined, to my Trustee hereinafter named,
IN TRUST, * * * for the following uses and purposes:

          1. My Trustee shall invest and reinvest the
same and shall collect and receive the income thereof
and after deducting the necessary and proper expenses
therewith, shall pay over said net income to my said
wife, JOSEPHINE R. ARONSON, in monthly, quarterly, or
other convenient periodic payments of as nearly equal
                        - 30 -

amounts as possible during her lifetime, provided,
however, that in no event shall such payments be made
less frequently than semi-annually.

          2. I hereby authorize my Trustee, in the
event that the residuary trust set forth hereinafter
shall be exhausted, to withdraw from the principal of
this trust and pay over to my said wife, JOSEPHINE R.
ARONSON, or for her benefit, such amount or amounts as,
in the sole discretion of my Trustee, may be deemed
necessary or desirable for medical, surgical, hospital,
nursing or other expenses relating to illness of,
accident to or emergency affecting my said wife, or as
may be determined necessary, desirable for her
maintenance and support.

          3. In the event that the principal of this
trust contains unproductive property not likely to
produce income during her lifetime, my said wife,
JOSEPHINE R. ARONSON, shall have the power to require
the Trustee either to make such property productive or
to convert it within a reasonable time to income
producing property. A written statement signed by my
said wife and delivered to my Trustee shall be
sufficient for this purpose.

          4. Upon the death of my said wife, JOSEPHINE
R. ARONSON, after my death, or in the event my said
wife has predeceased me, then at the time of my death,
the entire remaining principal of this trust, or the
amount which would have constituted the principal of
this trust, as the case may be, shall be paid over and
distributed to my said grandson, BARNEY P. ARONSON, if
he is living at the time, to be his absolutely. In the
event that the said BARNEY P. ARONSON shall predecease
the said JOSEPHINE R. ARONSON, the same shall be paid
over and distributed to my grandson, SCOTT HALEY
ARONSON.

          5. I hereby authorize my Executor, in his
sole discretion, to elect that any part or all of the
amount passing under this Article THIRD (B) be treated
as qualified terminable interest property for the
purposes of qualifying for the marital deduction
allowable in determining the federal estate tax upon my
death.
                        - 31 -

           6. The excess GST exemption amount shall
equal the amount by which my unused GST exemption (as
that term is used in §2631 of the Internal Revenue
Code) available at the time of my death exceeds the
value of the property disposed of under Articles SECOND
and THIRD (A) above of this, my Last Will and
Testament.

          7. I direct my Executor to make the special
election under §2652(a) of the Internal Revenue Code
with respect to this trust so that I shall be treated
as the transferor of such trust for GST tax purposes.

     C. All of the rest, residue and remainder of my
estate, real, personal and mixed, of whatever nature
and wherever situate, which I may own or have the right
to dispose of at the time of my death (hereinafter
referred to as “my residuary estate”), I give, devise
and bequeath to my Trustee hereinafter named, IN TRUST
(hereinafter referred to as “the residuary trust”) for
the following uses and purposes:

          1. My Trustee shall invest and reinvest the
same and shall collect and receive the income thereof
and, after deducting the necessary and proper expenses
therewith, shall pay over said net income to my said
wife, JOSEPHINE R. ARONSON, in monthly, quarterly, or
other convenient periodic payments of nearly equal
amounts as possible during her lifetime, provided,
however, that in no event shall such payments be made
less frequently than semi-annually.

          2. I hereby authorize my Trustee to withdraw
from the principal of this trust and pay over to my
said wife, JOSEPHINE R. ARONSON, or for her benefit,
such amount or amounts as, in the sole discretion of my
Trustee, may be deemed necessary or desirable for
medical, surgical, hospital, nursing or other expenses
relating to illness of, accident to or emergency
affecting my said wife, or as may be determined
necessary, desirable for her maintenance and support.

          3. In the event that the principal of this
trust contains unproductive property not likely to
produce income during her lifetime, my said wife,
JOSEPHINE R. ARONSON, shall have the power to require
the Trustee either to make such property productive or
to convert it within a reasonable time to income
                             - 32 -

     producing property. A written statement signed by my
     said wife and delivered to my Trustee shall be
     sufficient for this purpose.

               4. Upon the death of my said wife, JOSEPHINE
     R. ARONSON, after my death, or in the event my said
     wife has predeceased me, then at the time of my death,
     the entire remaining principal of this trust, or the
     amount which would have constituted the principal of
     this trust, as the case may be, shall be paid over and
     distributed to my said grandson, BARNEY P. ARONSON, if
     he is living at the time, to be his absolutely. In the
     event that the said BARNEY P. ARONSON shall predecease
     the said JOSEPHINE R. ARONSON, the same shall be paid
     over and distributed to my grandson, SCOTT HALEY
     ARONSON.

               5. I hereby authorize my Executor, in his
     sole discretion, to elect that any part or all of the
     amount passing under this Article THIRD (C) be treated
     as qualified terminal [sic] interest property for the
     purposes of qualifying for the marital deduction
     allowable in determining the federal estate tax upon my
     death.

          D. I hereby direct that the for the purpose of
     calculating annual Trustee commissions hereunder (and
     solely for that purpose), the trusts created under
     Paragraphs A, B, and C above shall be aggregated and
     treated as one trust and such commissions shall be
     charged to each such trust on a pro-rata basis.

The Surrogate’s Court entered the Surrogate’s Court decree

without holding any hearings--no witnesses were called to

testify, no affidavits were submitted, and no evidence was

received by the Surrogate’s Court.

     On May 14, 1998, Bar, as executor, timely filed a Federal

estate tax return on behalf of decedent’s estate (the return).

On page 2 of the return, in the schedule for individuals (other

than the surviving spouse), trusts, and estates who received
                                - 33 -

benefits from the estate, the sole person listed was Bar in the

amount of $1 million.   Schedule E, Jointly Owned Property, of the

return listed $1,065,420.63 of qualified joint interests.

Schedule F, Other Miscellaneous Property Not Reportable Under Any

Other Schedule, of the return listed two safe deposit boxes that

decedent and Jo held jointly.    On Schedule M, Bequests, etc., to

Surviving Spouse, of the return, the “No” box was checked next to

“Election Out of QTIP Treatment of Annuities”.      On Form 712, Life

Insurance Statement, attached to the return, Jo was listed as the

owner and beneficiary of life insurance on decedent’s life.

                                OPINION

     Section 2001 imposes a tax on the transfer of the taxable

estate of all decedents who are citizens or residents of the

United States.   The amount of the tax is determined, in part, by

the value of the taxable estate.    Sec. 2001(b).   Section 2051

defines the value of the taxable estate as the gross estate less

deductions.   “For estate taxes, as for income taxes, ‘Deductions

are a matter of legislative grace, and a taxpayer seeking the

benefit of a deduction must show that every condition which

Congress has seen fit to impose has been fully satisfied.’”5


     5
        For the first time in the reply brief, the estate raises
the issue of respondent’s bearing the burden of proof pursuant to
sec. 7491(a), as amended. Generally, we will not consider an
issue that is raised for the first time on brief. See Foil v.
Commissioner, 92 T.C. 376, 418 (1989), affd. 920 F.2d 1196 (5th
Cir. 1990); Markwardt v. Commissioner, 64 T.C. 989, 997 (1975).
                                                   (continued...)
                              - 34 -

Estate of Nicholson v. Commissioner, 94 T.C. 666, 681-682 (1990)

(citations omitted).

     Pursuant to section 2056(a), the estate may claim, as a

marital deduction, the value of property passing to the surviving

spouse.   As a general rule, the marital deduction is denied for a

“terminable interest”.   Estate of Nicholson v. Commissioner,

supra at 671.   A “terminable interest”, generally, is a property

interest that will terminate or fail “on the lapse of time, on

the occurrence of an event or contingency, or on the failure of

an event or contingency to occur”.     Sec. 2056(b)(1).   An interest

in the nature of a life estate, therefore, is ineligible for the

marital deduction pursuant to section 2056(b)(5).     Estate of

Nicholson v. Commissioner, supra at 671-672.

     The Economic Recovery Tax Act of 1981 (ERTA), Pub. L. 97-34,

95 Stat. 172, modified the rules for the marital deduction

relating to terminable interests.    ERTA sec. 403(d)(1), 95 Stat.

302, added section 2056(b)(7), which allows a marital deduction


     5
      (...continued)
In the context of sec. 7491, by failing to raise the sec. 7491(a)
argument at or before trial, petitioner prejudiced respondent’s
ability to present evidence that petitioner did not meet the
requirements of sec. 7491(a)--e.g., that petitioner did not
comply with the substantiation requirements or that petitioner
was not cooperative.

     We note, however, because we make our determination on the
basis of the evidence in the record rather than on a failure to
carry the burden of proof by a party bearing the burden, our
decision in this case does not depend on which party bears the
burden of proof.
                                  - 35 -

for QTIP interests.    Estate of Nicholson v. Commissioner, supra

at 672.    A QTIP interest is one in which a decedent passes to the

surviving spouse a “qualifying income interest for life” and for

which an election has been made.        Sec. 2056(b)(7)(B)(i);6 Estate

of Nicholson v. Commissioner, supra.           Generally, when the

surviving spouse has a “qualifying income interest for life”, she



     6
          Sec. 2056(b)(7)(B), in pertinent part, provides:

          (7) Election with respect to life estate for surviving
     spouse.--

                      *   *   *     *      *    *   *

            (B) * * * For purposes of this paragraph--

                 (i) In general.--The term “qualified
            terminable interest property” means
            property–

                      (I) which passes from the decedent,

                      (II) in which the surviving spouse
                 has a qualifying income interest for
                 life, and

                      (III) to which an election under
                 this paragraph applies.

                 (ii) Qualifying income interest for
            life.--The surviving spouse has a qualifying
            income interest for life if--

                      (I) the surviving spouse is
                 entitled to all the income from the
                 property, payable annually or at more
                 frequent intervals, * * * and

                      (II) no person has a power to
                 appoint any part of the property to any
                 person other than the surviving spouse.
                              - 36 -

is entitled to “all the income from the property, payable

annually or at more frequent intervals”.   Sec. 2056(b)(7)(B)(ii).

     A QTIP interest must meet the requirements of section

20.2056(b)-5(f), Estate Tax Regs.    Estate of Nicholson v.

Commissioner, supra at 672; sec. 20.2056(b)-7(d)(2), Estate Tax

Regs.; see H. Rept. 97-201, at 161 (1981), 1981-2 C.B. 352, 378.

Section 20.2056(b)-5(f), Estate Tax Regs., provides that a

surviving spouse is entitled to “all the income from the

property” if the effect of the trust is to give her the

equivalent “beneficial enjoyment” of the trust estate as one who

is “unqualifiedly designated as the life beneficiary” under the

principles of the law of trusts.    Generally, absent indications

to the contrary, the “designation of the spouse as sole income

beneficiary for life of the entire interest or a specific portion

of the entire interest will be sufficient”.   Sec. 20.2056(b)-

5(f)(1), Estate Tax Regs.

     An interest passing in trust, however, does not provide that

the surviving spouse is entitled to “all the income” to the

extent that the income may be accumulated in the discretion of

any person other than the surviving spouse or to the extent that

the consent of any person other than the surviving spouse is

required for distribution of the income.   Sec. 20.2056(b)-

5(f)(7), Estate Tax Regs.   Additionally, the terms “entitled for

life” and “payable annually or more frequent intervals” require
                                - 37 -

that under the terms of the trust the income referred to must be

currently (at least annually) distributable to the spouse or that

she must have such command over the income that it is virtually

hers.     Sec. 20.2056(b)-5(f)(8), Estate Tax Regs.

     A determination of the nature of the interest that passes to

the surviving spouse is made pursuant to the law of the

jurisdiction under which the interest passes.       Estate of

Nicholson v. Commissioner, supra at 672-673.       In the instant

case, that is the law of New York.       Although we will look to

local law to determine the nature of the interests provided under

a trust document, we are not bound to give effect to a local

court order that modifies that document after the Commissioner

has acquired rights to tax revenues under its terms.       E.g.,

id. at 673.     The law is clear that we are not bound by the action

of a State trial court, such as the Surrogate’s Court, that has

not been affirmed by the State’s highest court.       Commissioner v.

Estate of Bosch, 387 U.S. 456 (1967).

        “[I]n construing a will, the intention of the testator must

be our ‘absolute guide’”.     In re Bieley, 695 N.E.2d 1119, 1122

(N.Y. 1998) (citations omitted); see In re Selner, 26 N.Y.S.2d

783 (App. Div.), affd. 39 N.E.2d 287 (N.Y. 1941).       “The prime

consideration * * * is the intention of the testator as expressed

in the will.     All rules of interpretation are subordinated to the

requirement that the actual purpose of the testator be sought and
                               - 38 -

effectuated as far as is consonant with principles of law and

public policy.”   In re Fabbri, 140 N.E.2d 269, 271 (N.Y. 1957).

It is the duty of the Court to carry out the testator’s purpose,

notwithstanding that general rules of interpretation might point

to a different result.   In re Bieley, supra; In re Fabbri,

supra at 271.

     The testator’s intent is to be ascertained not from a single

word or phrase, but from a sympathetic reading of the will as an

entirety and in view of all the facts and circumstances under

which the provisions of the will were framed.    In re Bieley,

supra; In re Fabbri, supra; see In re Selner, supra.   A

sympathetic reading of the will in its entirety in light of the

surrounding facts and circumstances, however, is distinguishable

from the use of extrinsic evidence to gauge testamentary intent.

Extrinsic evidence is inadmissible in the absence of an ambiguity

in the will.    In re Bieley, supra at 1123 n.2; In re Fabbri,

supra at 274.   If a dominant purpose or plan of distribution is

discernable from the will, the individual parts of the will must

be read in relation to that purpose and given effect accordingly.

In re Fabbri, supra at 271.

     Under the terms of the trust at issue (i.e., in the 1993

will), Jo is not “entitled to all the income from the property,

payable annually or at more frequent intervals” as is required by

section 2056(b)(7).   See Estate of Nicholson v. Commissioner, 94
                               - 39 -

T.C. at 674; Estate of Rapp v. Commissioner, T.C. Memo. 1996-10,

affd. 140 F.3d 1211 (9th Cir. 1998); see also sec. 20.2056(b)-

5(f), Estate Tax Regs.   The unambiguous language of the 1993 will

allows her only “as much income from such assets as she needs,

for as long as she lives”.   (Emphasis added.)    The 1993 will does

not mention the marital deduction, nor is there any evidence from

the language of the 1993 will that decedent intended the trust

property to qualify for the marital deduction.

     In the context of the trust at issue, the provision for “as

much income from such assets as she needs, for as long as she

lives” gives Jo only such income as she may reasonably need, but

not necessarily all the income that she may demand.      See Estate

of Nicholson v. Commissioner, supra at 674.      The 1993 will

reveals decedent’s intention that Jo have neither the obligation,

nor the right, to demand “all the income”, or any particular

amount of income, from the trust.   The implication of this

language is that Jo’s requirements for income from the trust were

to be evaluated in light of her assets and income from other

sources--such as from the $1,065,420.63 of joint property listed

on the estate tax return.    The availability of income from other

sources, her “squirreled-away caches”, the life insurance

proceeds, the contents of the two safe deposit boxes, and the

sizable value of her assets would lower the amount of trust

income she might otherwise need, again indicating that she is not
                                 - 40 -

“entitled to all the income” from the trust created by the 1993

will.     See id. at 677.

        The fact that the 1993 will does not make specific provision

for the disposition of the income in excess of the amount Jo

needed does not establish decedent’s intention that there would

be no excess income.     See id. at 675.   The 1993 will provides

that upon Jo’s death the trust “will then be liquidated and the

proceeds given to my grandson, BARNEY PETER ARONSON, * * * or if

BARNEY PETER ARONSON predecease me, SCOTT HALEY ARONSON shall

take his place as my heir”.      This bequest makes no distinction

between trust corpus and trust income.      It is therefore clear

that decedent intended a gift of the corpus and the undistributed

income component of the trust to Bar (or Scott Haley Aronson if

Bar was deceased) after Jo died.      See id.

        The 1993 will, as executed by decedent, and as in existence

at the time of his death, fails to establish that Jo is

“unqualifiedly designated as the life beneficiary”.      Furthermore,

the 1993 will does not designate Jo as the “sole income

beneficiary for life.”      Sec. 20.2056(b)-5(f), Estate Tax Regs.

Instead, the 1993 will limits Jo’s trust income to the amount she

would “need”.     Any excess would go to the remainderman.   Under

the trust at issue, Jo is not “entitled to all the income” from

the property within the meaning of section 2056(b)(7)(B)(ii), and
                               - 41 -

her interest in the trust does not qualify for the marital

deduction.7

     The estate contends that the language of the 1993 will is

ambiguous.    Even if the estate is correct, and we are permitted

to look at extrinsic evidence, the extrinsic evidence does not

support the estate’s contention that decedent intended (1) to

leave his wife all the income from the trust, (2) to enable the

estate to qualify for the marital deduction under the terms of

the 1993 will, or (3) to minimize the estate’s tax liability.

     Before the time that decedent executed the 1993 will, the

record shows that decedent was aware of the QTIP provisions and

the marital deduction.   Before the 1993 will, decedent had a will

which contained a QTIP provision.   Mr. Newman was aware of the

marital deduction when he prepared decedent’s wills.

     Mr. Newman received specific directions from decedent

regarding the provisions and language to be used in the 1993 will

(as well as decedent’s prior wills that Mr. Newman worked on).

The directions were detailed and explicit.   In order to follow

decedent’s directions, Mr. Newman was careful to make sure he

used decedent’s words.   Mr. Newman did not draft the following

language contained in the 1993 will:    “‘Jo’ is to receive as much



     7
        In light of our holding, we need not address the issue of
whether the trust fails to qualify as a QTIP interest, and for
the marital deduction, because Jo was not entitled to receive
distributions payable annually or at more frequent intervals.
                               - 42 -

income from such assets as she needs, for as long as she lives”.

The language was chosen by decedent and reflected his directions;

Mr. Newman merely had the words decedent chose typed.

     Bar testified that during decedent’s later years, many of

decedent’s investment decisions were made to ensure Bar would be

able to maintain Hundred Acres and the Big House.    Decedent’s

intent that Hundred Acres and the Big House be maintained after

his death is also evident from the succession of wills he had

prepared and the letters he wrote accompanying the preparation of

those wills.

     In the 1980 will, decedent did not leave Bar the Big House

or the Little House.    After Bar moved to Hundred Acres, decedent

changed his will (the 1982 will) to leave Bar the use of the

Little House.    In the 1988 proposed will, the Big House was

distributed to decedent’s eight descendants per capita.    Later in

1988, decedent decided to give Hundred Acres and the Big House

solely to Bar.    At that time, decedent was also concerned that

changes would be made to the Big House, so he had his will

rewritten (the July 1988 will) to prevent that from happening.

In 1991, decedent eliminated his great-grandchildren from his

will and increased Bar’s share to make sure Bar would have enough

money to maintain Hundred Acres and the Big House.    In 1993,

decedent eliminated his only child and all his grandchildren

other than Bar to make sure Bar would have enough money to
                              - 43 -

maintain Hundred Acres and the Big House.   Decedent also

repeatedly asked Mr. Newman, and his C.P.A., to provide him

figures on what his estate would be worth after taxes to ensure

that there would be enough money left over after taxes for Bar to

maintain Hundred Acres and the Big House.

     Additionally, the language of the 1980 will, 1982 will, 1988

proposed will, July 1988 will, and 1991 will provided that all

the income from the trusts created in those wills was to be paid

to Jo.   Decedent, when drafting the 1993 will, specifically

deleted the language providing that all the income from the trust

was to be paid to Jo.   Decedent, when drafting the 1993 will,

substituted the language limiting the distributions from the

trust to the amount of income Jo needed.

     Furthermore, decedent specifically contemplated, and

expressly indicated, that estate taxes would be paid.   He asked

numerous questions about the estate tax.    He was informed of the

GST tax.   Decedent repeatedly, and explicitly, indicated that he

would rather pay estate tax than give up control over how his

estate was distributed.   Decedent repeatedly, and explicitly,

indicated that he expected that estate taxes would be paid.    The

fact that the 1993 will made provisions for the payment of estate

taxes reflected decedent’s expectation that there would be estate

taxes that would need to be paid.   Decedent’s April 13, 1993,
                                - 44 -

explanation of the 1993 will also contemplated a sizable estate

tax and GST tax “burden”.

     Decedent’s other major concern (other than maintaining

Hundred Acres and the Big House as a monument to him) was that

his estate pass through probate with no difficulties.   Decedent

included language in the 1988 proposed will, which he wrote, for

Mr. Newman to sign indicating that the will would pass through

probate with no difficulties.    Decedent restated this concern in

1993 when he wrote to Mr. Newman and sought assurance that his

will would go through probate successfully and would withstand

any challenges.

     The extrinsic evidence shows that Mr. Newman did exactly as

decedent wished:   He used the language decedent wanted, he

prepared a will that was probated successfully, and he prepared a

will in which decedent set aside money after taxes for Bar to

maintain Hundred Acres and the Big House.    Decedent specifically

did not have the 1993 will drafted with an intention to maximize

the marital deduction or minimize the estate tax.   Accordingly,

there is no reason to contort the language decedent used to

achieve that result.   See Estate of Heim v. Commissioner, 914

F.2d 1322 (9th Cir. 1990), affg. T.C. Memo. 1988-433; Estate of

Nicholson v. Commissioner, 94 T.C. at 679.
                              - 45 -

     Accordingly, the extrinsic evidence fails to show that

decedent intended that Jo be “entitled to all the income” from

the trust.

     The estate argues that after giving proper regard to the

Surrogate’s Court decree, the trust qualifies as a QTIP interest.

We disagree.

     The Surrogate’s Court decree did not merely clarify the 1993

will.   The 1993 will did not require that all the income go to

Jo; the Surrogate’s Court decree, however, required all the

income to go to her.   The 1993 will did not require payments to

be made at any specific time; the Surrogate’s Court decree,

however, mandated “monthly, quarterly, or other convenient

payments of nearly equal amounts as possible during her lifetime,

provided, however, that in no event shall such payments be made

less frequently than semi-annually.”   The Surrogate’s Court

decree also made voluminous other changes to the trust provided

for by decedent in the 1993 will.   The Surrogate’s Court decree

is more than a mere clarification; it is a substantial change in

the 1993 will (and the trust created therein) made after

respondent had secured rights under the 1993 will.   Accordingly,

we will not give it effect.   See Estate of Nicholson v.

Commissioner, supra at 681; see also Commissioner v. Estate of

Bosch, 387 U.S. 456 (1967).
                              - 46 -

     Additionally, the Surrogate’s Court decree was not a bona

fide evaluation of the rights of Jo because there was not a

“genuine and active contest” in the Surrogate’s Court--the decree

was rendered by consent.   See Estate of Rapp v. Commissioner,

T.C. Memo. 1996-10; sec. 20.2056(c)-2(d)(2), Estate Tax Regs.

Bar petitioned the Surrogate’s Court for the specific purpose of

directly affecting Federal estate tax liability (Bar wanted to

reduce the amount of taxes due from the estate that were a

consequence of the 1993 will executed by decedent).   See

Commissioner v. Estate of Bosch, supra at 463.   Bar filed the

1998 petition and the 1998 amended petition in an attempt to

engage in postdeath “creative estate planning” and to ensure

“considerable estate tax and GST tax savings”.

     Furthermore, the Surrogate’s Court decree was based on

incorrect information (i.e., that decedent intended to minimize

the estate tax and GST tax on his estate) provided by Bar.8    Had

the Surrogate’s Court heard the testimony of Mr. Newman or been

provided the letters that decedent wrote, it would have been

clear to the Surrogate’s Court that decedent’s intention was not

to minimize the estate taxes or GST taxes on his estate.


     8
        We make no finding regarding whether Bar intentionally
provided information he knew to be incorrect to the Surrogate’s
Court in order to obtain a result that would significantly reduce
the amount of taxes owed by the estate (and thereby increase the
amount of his inheritance). That does not change the fact,
however, that the Surrogate’s Court based its actions on
incorrect information.
                                - 47 -

     The estate contends that New York law and public policy

favor the marital deduction and presume that taxpayers wish to

take advantage of it.   The estate relies on In re Choate, 533

N.Y.S.2d 272 (Sur. Ct. 1988).    Initially, we note that this case

is a decision of a lower court that was not affirmed by New

York’s highest court.    Accordingly, this decision is not binding

on us.   Commissioner v. Estate of Bosch, supra.

     Even so, Choate is distinguishable.    In Choate, the court

found that the proposed reformation did not alter the testator’s

dispositive scheme under the testator’s will.    The court found

that the testator in Choate intended to take full advantage of

the available tax deductions and exemptions.    That is not the

case herein.   Additionally, in Choate, there was a change in law

(the imposition of the GST tax) that was not in effect when the

testator executed his will.    Again, that is not the case herein.

     The estate also cites N.Y. Est. Powers & Trusts Law (EPTL)

section 13-1.3 (McKinney 2003) for support.    N.Y. EPTL section

13-1.3 provides the order in which assets are abated in paying

the expenses of an estate.    The order of abatement provided for

in this section does not, however, apply to estate taxes.    N.Y.

EPTL sec. 13-1.3(d).    Estate taxes are apportioned under N.Y.

EPTL section 2-1.8 (McKinney 2003).

     N.Y. EPTL section 2-1.8 does not support petitioner’s

position either.   N.Y. EPTL section 2-1.8 applies to apportion
                               - 48 -

the estate tax “except in a case where a testator otherwise

directs in his will”.   N.Y. EPTL sec. 2-1.8(a).   Decedent

provided for the payment of estate taxes in the fifth article of

the 1993 will.    Accordingly, N.Y. EPTL section 2-1.8 is

inapplicable.

     Furthermore, the estate relies on a presumption.       Even if

the law and public policy favor the marital deduction and presume

that taxpayers wish to take advantage of it, the taxpayer’s

express direction overrides this presumption.    Decedent expressly

stated on numerous occasions that he would rather pay tax than

give up control of his estate.    Whereas decedent indicated in

1988 that Bar should fight any valuation of the estate that he

felt was excessive and decedent was willing to make $10,000-per-

year gifts (although it is not clear that decedent still felt

this way when he drafted the 1993 will), decedent wanted control

over the property each beneficiary would receive and was not

willing to give up this control in order to minimize estate tax.

Decedent, when he rewrote his own will, eliminated language

referring to the marital deduction and eliminated QTIP provisions

from his wills.

     The estate also argues that N.Y. EPTL section 10-10.1

(McKinney 2003) provides that Bar was required to distribute all

the income of the trust to Jo.    We disagree.   N.Y. EPTL section

10-10.1 provides:
                                - 49 -

     Except in the case of a trust which is revocable by
     such person during lifetime, a power conferred upon a
     person in his or her capacity as trustee of an express
     trust to make discretionary distribution of either
     principal or income to himself or herself or to make
     discretionary allocations in his or her own favor of
     receipts or expenses as between principal and income,
     cannot be exercised by him or her. * * * If there is
     no trustee qualified to execute the power, its
     execution devolves on the supreme court or the
     surrogate’s court, except that if the power is created
     by will, its execution devolves on the surrogate’s
     court having jurisdiction of the estate of the donor of
     the power.

The trust in the 1993 will did not give Bar discretionary power

to make distributions of income or principal to himself or

allocations in his own favor.    Even if it did, this power would

devolve on the Surrogate’s Court.    Furthermore, N.Y. EPTL section

10-10.1 does not give Bar or the Surrogate’s Court the power to

pay Jo any more than she needs.9

     We conclude that the interest in the trust created by the

1993 will does not qualify for the estate tax marital deduction

as “qualified terminable interest property” within the meaning of

section 2056(b)(7).   In reaching our holding herein, we have

considered all arguments made by the parties, and to the extent

not mentioned above, we find them to be irrelevant or without

merit.




     9
        Even if N.Y. Est. Powers & Trusts Law sec. 10-10.1
(McKinney 2003) required Bar to pay all the income of the trust
to Jo, it does not require him to pay it to her annually or at
more frequent intervals.
                        - 50 -

To reflect the foregoing,

                                  Decision will be entered

                             for respondent.
