                       T.C. Memo. 2004-166



                     UNITED STATES TAX COURT



ESTATE OF DAVID KATZ, DECEASED, SARAH KATZ, EXECUTRIX, Petitioner
                                v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1462-03.              Filed July 14, 2004.


          D executed a will in 1991 which provided for the
     creation of a trust that was to be funded with an
     amount equal to the “aggregate federal estate tax
     exemption equivalent”. Following D’s death in 1998,
     D’s wife filed a qualified disclaimer, disclaiming both
     her interest in the trust, and also in five securities.

          R determined that the trust was funded by (1)
     assets in an amount equal to the “aggregate federal
     estate tax exemption equivalent” and (2) the interests
     in the securities disclaimed by D’s wife. R determined
     that the estate was liable for a deficiency in estate
     tax because of the bequests disclaimed by D’s wife.

          Held: The trust was funded both by (1) assets in
     an amount equal to the “aggregate federal estate tax
     exemption equivalent”, and also by (2) the interests in
     the securities disclaimed by D’s wife. Since the trust
     was therefore overfunded, the estate is liable for a
     deficiency in estate tax, as determined by respondent.
                                - 2 -


     Anne Marie Mazzu and Lewis Cohn, for petitioner.

     Joseph J. Boylan, for respondent.



                        MEMORANDUM OPINION


     NIMS, Judge:   Respondent determined a Federal estate tax

deficiency in the amount of $147,800 with respect to the estate

of David Katz (the estate).    The issue for decision is whether

the estate is liable for a deficiency in estate tax because of

bequests disclaimed by Sarah Katz.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect during the relevant periods,

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

                              Background

     This case was submitted fully stipulated pursuant to Rule

122, and the facts are so found.    The stipulations of the

parties, with accompanying exhibits, are incorporated herein by

this reference.

     David Katz (decedent) was a resident of the State of New

Jersey when he died testate in that State on September 23, 1998.
                                   - 3 -

Decedent’s spouse, Sarah Katz, was named executrix of the estate

and likewise resided in New Jersey at the time the petition in

this case was filed.

     On February 8, 1991, decedent executed a Last Will and

Testament (decedent’s will).       On November 23, 1998, decedent’s

will was admitted to probate by the Surrogate of Essex County,

New Jersey.

     Decedent’s will provides, in relevant part:

           THIRD: (A) If my wife, SARAH KATZ, shall survive
     me, I give, devise and bequeath to my trustees, IN
     TRUST, NEVERTHELESS, a legacy in an amount equal to the
     aggregate federal estate tax exemption equivalent, as
     hereinafter defined, in effect at my death. This
     amount shall not be reduced on account of any
     disclaimer by my wife. As used in this will, the term
     “aggregate federal estate tax exemption equivalent”
     refers to the maximum amount of property subject to
     federal estate tax that can be transferred at my death
     without incurring any federal estate tax (without
     regard to property that qualifies for the federal
     estate tax marital or charitable deductions), as a
     result of all credits against federal gift and estate
     taxes available to my estate at my death, diminished by
     the value of all other property which shall be included
     in my gross estate for federal estate tax purposes and
     which passes or has passed to any person (other than
     property passing to my wife or any charitable
     beneficiary in a manner that qualifies for the federal
     estate tax marital or charitable deductions), either
     under any other provisions of this will or in any other
     manner. For the purposes of this definition, if the
     use of all credits against federal gift and estate
     taxes available to my estate would increase the amount
     of any tax payable to any state on account of my death,
     then I direct that such credits be used only to the
     extent they do not increase such state death taxes.
     * * *

                       *   *   *     *     *   *   *
                               - 4 -

               (D) Immediately after the death of my wife,
     SARAH KATZ, this trust shall terminate and the balance
     of the trust fund then on hand, including any accrued
     and undistributed income, shall be administered and
     disposed of in accordance with the applicable
     provisions of Article FOURTH of this will.

          FOURTH: (A) All the rest, residue and remainder
     of my estate is hereinafter referred to as my
     “residuary estate.”

               (B) I give, devise and bequeath my residuary
     estate to my wife, SARAH KATZ, if she shall survive me.
     Notwithstanding any otherwise conflicting provision of
     this will, if my wife disclaims any interest in any
     portion of the property otherwise passing outright to
     her under this Article of my will, such portion instead
     shall be added to the trust created under Article THIRD
     of this will, to be administered and disposed of in
     accordance with the provisions thereof.

               (C) Upon my death if my wife shall not
     survive me, or immediately after the death of my wife
     if my wife shall survive me (the later of such events
     being hereinafter referred to as the “time of the later
     death”), I direct my executors or trustees to divide my
     residuary estate or the then remaining balance of the
     trust established under Article THIRD, as the case may
     be, into as many equal parts as shall equal in number
     those of my children who shall be living at the time of
     the later death and those of my children who shall have
     died prior to the time of the later death leaving
     descendants living at the time of the later death, and
     I give, devise and bequeath such equal parts * * *.

     On June 22, 1999, Sarah Katz timely filed a Renunciation and

Disclaimer (the Disclaimer) with the Essex County Surrogate’s

Court with respect to decedent’s will.

     The Disclaimer provides, in relevant part:

          I hereby renounce and disclaim irrevocably and
     forever any right, title and interest in and to the
     following securities:

          (1)   407.437 shares, Chrysler Corp.;
                               - 5 -

          (2)   1,832.357 shares, Marriott International,
                Inc.;

          (3)   6,904.323 shares, PECO Energy;

          (4)   776.5432 shares, PSE&G, Inc.; and

          (5)   1,800 shares, Sempra Energy.

          In addition, I hereby renounce and disclaim
     irrevocably and forever any right, title and interest
     in and to the trust created for my benefit pursuant to
     Article THIRD of my husband’s Will.

     On December 28, 1999, the estate filed Form 706, United

States Estate (and Generation-Skipping Transfer) Tax Return.

     On November 1, 2002, respondent issued to the estate a

statutory notice of deficiency.

                            Discussion

     Section 2001(a) imposes a tax on “the transfer of the

taxable estate of every decedent who is a citizen or resident of

the United States.”   Section 2031(a) provides that “The value of

the gross estate of the decedent shall be determined by including

to the extent provided for in this part, the value at the time of

his death of all property, real or personal, tangible or

intangible, wherever situated.”

     Section 2056(a) provides for a deduction from the gross

estate of a decedent for the value of property that passes from

the decedent to the surviving spouse.

     Section 2046 provides that disclaimers of property interests

passing upon death are treated as provided in section 2518.
                               - 6 -

Section 2518 provides that, if a person makes a qualified

disclaimer with respect to any interest in property, the

disclaimed interest is treated as if it had never been

transferred to the person making the qualified disclaimer.

     The parties agree that the Disclaimer was a qualified

disclaimer within the meaning of section 2518.   The parties

disagree regarding how to properly interpret decedent’s will and

the Disclaimer.

     Respondent argues that decedent’s will and the Disclaimer

have the effect of funding a trust (as described in Article THIRD

of decedent’s will, and hereinafter referred to as “the Trust”)

with an amount equal to the “aggregate federal estate tax

exemption equivalent” and with the interests in various

securities specified in the Disclaimer.

     The estate argues that decedent’s will and the Disclaimer

have the effect of funding the Trust with an amount equal to the

“aggregate federal estate tax exemption equivalent”.   According

to the estate, the Disclaimer functions to specify which assets

pass to the Trust; the Disclaimer does not increase the overall

amount passing to the Trust.   The estate argues that respondent

is effectively double counting.   The estate contends that the

“only assets by which the Trust was to be funded were the five
                               - 7 -

enumerated shareholding interests identified in the Disclaimer.”

We agree with respondent’s interpretation of decedent’s will and

the Disclaimer.

     Pursuant to Article THIRD (A) of decedent’s will, the Trust

was to be created and funded with an amount equal to the

“aggregate federal estate tax exemption equivalent”.    Article

THIRD (A) further provides that this amount should not be reduced

on account of any disclaimer by Sarah Katz.    Article FOURTH (B)

of decedent’s will provides that if Sarah Katz “disclaims any

interest in any portion of the property otherwise passing

outright to her * * * such portion instead shall be added to the

trust created under Article THIRD”.    Thus, the Trust was to be

funded with an amount equal to the “aggregate federal estate tax

exemption equivalent” and with any interests disclaimed by Sarah

Katz.

     Respondent correctly determined that the securities

disclaimed by Sarah Katz should be added to the property passing

to the Trust, as required by Article FOURTH (B) of decedent’s

will.   Thus, the Trust was funded with the “aggregate federal

estate tax exemption equivalent” and the securities specified in

the Disclaimer.

     The estate argues that decedent intended for the Trust to be

funded only with the “aggregate federal estate tax exemption

equivalent”.   The estate argues that we should interpret
                                 - 8 -

decedent’s will in such a manner as to effectuate decedent’s

“probable intent” to this end.    According to petitioner,

decedent’s intent was to minimize taxes, and to accomplish this

petitioner seeks to require us to apply the probable intent

doctrine as formulated by New Jersey statutory law and case law.

See N.J. Stat. Ann. sec. 3B:3-33 (West 1983); Fid. Union Trust

Co. v. Robert, 178 A.2d 185 (N.J. 1962).       To do so we are asked

to read decedent’s will in such a way as to exclude the second

sentence of Article THIRD (A):    “This amount shall not be reduced

on account of any disclaimer by my wife.”      We decline to do so.

     The fatal defect in petitioner’s argument is that

petitioner’s intent, if such it was, to minimize taxes was

thwarted, not by any ambiguous language in the will, but by the

Disclaimer.    As pointed out above, the Disclaimer disclaims both

specified shares (and fractional shares) of certain stocks, and

also the disclaiming wife’s interest in the Trust.      Article

FOURTH (B) of the will provides that if decedent’s wife disclaims

any interest in property that would otherwise pass outright to

her under Article FOURTH such property is to be added to the

trust created under Article THIRD.       Thus, it was the Disclaimer,

and not decedent’s will, that caused the Trust to be funded with

more than the “aggregate federal estate tax exemption

equivalent”.   Absent the Disclaimer the Trust would have been

funded with only the “aggregate federal estate tax exemption
                                 - 9 -

equivalent”, as required by decedent’s will.      Thus, the estate’s

argument regarding decedent’s intent is irrelevant, since it was

defeated by the Disclaimer, and not the will provisions.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, or moot.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
