                     T.C. Memo. 2001-174



                   UNITED STATES TAX COURT



 ESTATE OF MARVIN M. SCHWAN, DECEASED, LAWRENCE A. BURGDORF,
             SPECIAL ADMINISTRATOR, Petitioner v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent


THE MARVIN M. SCHWAN FOUNDATION, f.k.a. THE KING’S FOUNDATION,
TRANSFEREE OF A TRANSFEREE OF THE ESTATE OF MARVIN M. SCHWAN,
  DECEASED, ALFRED PAUL G. SCHWAN AND LAWRENCE A. BURGDORF,
  TRUSTEES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE,
                          Respondent

   Docket Nos. 21554-97, 21555-97.           Filed July 13, 2001.


        At the time of his death, D owned two-thirds of
   the voting and nonvoting shares in SSE, a closely held
   corporation. D’s estate plan provided for the
   distribution of such shares to a charitable foundation
   and for the subsequent redemption by SSE of certain of
   the “securities” as defined in a redemption agreement.
   The dispute between the parties in these cases centers
   on the valuation of D’s SSE stock for purposes of
   computing the gross estate and the allowable charitable
   deduction under Federal tax laws. On petitioners’
   motion for summary judgment and respondent’s cross-
   motion for partial summary judgment, held:

        (1) Because of potential impediments under State
   law relating to stockholder rights, an alleged power on
                              - 2 -

     the part of the foundation to recapitalize SSE after
     D’s death and convert all nonvoting shares to voting
     shares is an insufficient basis on which to conclude,
     as a matter of law, that the value of the stock must
     necessarily be identical for gross estate and
     charitable deduction purposes.

          (2) D’s voting and nonvoting shares in SSE must be
     valued for gross estate purposes as a unitary, two-
     thirds interest, unrestricted by the terms of the
     redemption agreement. The requirement under D’s estate
     plan that the SSE shares be distributed to the
     foundation, and that certain shares be redeemed by SSE,
     did not affect the value of the shares in the gross
     estate.

          (3) The redemption agreement is ambiguous as to
     whether it required redemption of only the voting
     shares, as opposed to both the voting and nonvoting
     stock.

          (4) The charitable deduction available to D’s
     estate must be reduced by the burden of taxes and
     administrative expenses, and a bonus received by the
     estate after D’s death cannot be taken into account in
     calculating such tax and expense burden.


     Larry R. Henneman and Ann B. Burns, for petitioner in docket

No. 21554-97.

     Joseph M. Hassett, George H. Mernick III, and Albert W.

Turnbull, for petitioner in docket No. 21555-97.

     Lawrence C. Letkewicz, Marjory A. Gilbert, and William G.

Bissell, for respondent.
                                - 3 -

                         MEMORANDUM OPINION

     NIMS, Judge:    Respondent determined a Federal estate tax

deficiency for the estate of decedent Marvin M. Schwan (the

Estate) in the primary amount of $415,480,079 and in an

alternative amount of $181,921,766.     In computing the primary

deficiency, respondent determined that no deduction was allowable

for a charitable bequest to the Marvin M. Schwan Foundation (the

Foundation) because, due to “an unresolved controversy”, the

amount to be received by the Foundation had not been established

to exceed the estate taxes payable from such bequest.     The

parties now agree that the referenced controversy has been

settled, and respondent has conceded this primary position.

Hence, only respondent’s alternative position, which was based on

the terms of decedent’s estate plan without regard to the pending

controversy, presently remains at issue.

     By a separate notice of deficiency, respondent further

determined that the Foundation was similarly liable for the

foregoing deficiencies as a result of its transferee status.

Procedural Posture

     These consolidated cases are before the Court on

petitioners’ motion for summary judgment and respondent’s cross-

motion for partial summary judgment.     Unless otherwise indicated,

all section references are to sections of the Internal Revenue

Code in effect as of the date of decedent’s death, and all Rule
                                - 4 -

references are to the Tax Court Rules of Practice and Procedure.

Also, for convenience and because this matter involves multiple

individuals sharing the same last name, we adopt the convention

of using first names for subsequent references to previously

identified persons.

     Rule 121(a) allows a party to move “for a summary

adjudication in the moving party’s favor upon all or any part of

the legal issues in controversy.”   Rule 121(b) directs that a

decision on such a motion may be rendered “if the pleadings,

answers to interrogatories, depositions, admissions, and any

other acceptable materials, together with the affidavits, if any,

show that there is no genuine issue as to any material fact and

that a decision may be rendered as a matter of law.”   The moving

party bears the burden of demonstrating that no genuine issue of

material fact exists and that he or she is entitled to judgment

as a matter of law.    Estate of Chenoweth v. Commissioner, 88 T.C.

1577, 1578 (1987).    Facts are viewed in the light most favorable

to the nonmoving party.   See id.   With respect to the case at

bar, we set forth below factual information that, based upon

examination of the pleadings, moving papers, responses, and

attachments, would appear not to be in dispute.
                                - 5 -

Factual Background

     Petitioners

     Decedent died testate on May 9, 1993, in Poway, California.

He was at that time a domiciliary of Sioux Falls, South Dakota,

and his will was subsequently admitted to probate in the Circuit

Court of Minnehaha County, South Dakota.   Lawrence A. Burgdorf, a

friend of decedent, was appointed by the circuit court as special

administrator for purposes of the Estate’s tax controversy with

the Internal Revenue Service.   The petitions filed in these cases

provide a mailing address for Lawrence in St. Louis, Missouri.

The Foundation is a section 501(c)(3) charitable entity

established under the laws of South Dakota.   Lawrence and Alfred

Paul G. Schwan, decedent’s brother, serve as the Foundation’s

trustees.   Alfred used a mailing address in Salina, Kansas, at

the time the petitions in these cases were filed.

     Events Prior to May 9, 1993

     Until his death on May 9, 1993, decedent was the president

and majority shareholder of Schwan’s Sales Enterprises, Inc.

(SSE).   SSE is primarily engaged in the production and

distribution of frozen food products throughout the United States

and Canada.   SSE has at all relevant times been a closely held

corporation organized under the laws of the Minnesota.

Capitalization of SSE has also at all pertinent times been

divided between voting common shares and nonvoting common shares.
                                - 6 -

     On December 29, 1976, decedent created five irrevocable

trusts and funded each with a portion of his SSE stock.    One

trust was established for the benefit of each of his four

children:    Lorrie L. Schwan (now Schwan-Okerlund), Mark D.

Schwan, David J. Schwan, and Paul M. Schwan (collectively the

Children’s Trusts and individually, e.g., the Lorrie Irrevocable

Trust).    A fifth trust was established for decedent’s

grandchildren (the Grandchildren’s Trust).    Subsequently, on

August 1, 1985, decedent executed a will and established a

revocable trust which dealt, among other things, with the

eventual disposition of his remaining interest in SSE.

     Thereafter, on November 20, 1992, decedent executed a series

of documents serving to amend and expand his estate plan.      As

relevant to the instant proceedings, these instruments included:

(1) A new will superseding all prior wills; (2) a revocable trust

altering and restating the trust established in 1985 (the 1992

Trust); (3) a charter creating the Foundation; and (4) a trust

for the benefit of his great-great grandchildren (the 3G Trust).

Decedent funded the 3G Trust with a portion of his SSE stock, and

the remainder of his shares were apparently held through the 1992

Trust.    Additionally, on November 25, 1992, decedent, the 1992

Trust, the Foundation, and SSE entered an agreement providing for

the future redemption of certain SSE shares (the Redemption

Agreement).
                                - 7 -

     In general, pursuant to these instruments and as pertinent

to the pending motions, decedent’s estate plan was structured in

the following manner.   Decedent’s will devised all stock in SSE

owned by him at the time of his death to the trustees of the 1992

Trust.   (We note, however, that while the parties do not discuss

any specific date of transfer, the record seems to indicate that

decedent’s complete SSE holdings were in fact placed in the 1992

Trust prior to his death.)    The trust agreement, in turn,

directed that all SSE stock be distributed by the trustees

outright to the Foundation.    The Redemption Agreement then

specified that, on the 10th business day after the due date for

decedent’s Federal estate tax return, SSE was to redeem the

“Securities”, as defined therein, from the Foundation for a

purchase price equal to the value of the Securities as determined

for Federal estate tax purposes.    The Securities subject to the

Redemption Agreement were defined to include:

     1) Common or other Voting Capital Stock of the Company;
     2) voting capital stock of any affiliate of the Company
     and 3) voting capital stock that is the product of any
     reorganization of the Company * * *

In this connection the Foundation charter also provided that the

Foundation trustees:

     may vote stock or shares of any corporation or trust
     directly or by proxy in such manner as they deem
     advisable * * * . If the Foundation is a party to a
     redemption agreement with Schwan’s Sales Enterprises,
     Inc., the Trustees shall perform said agreement, and
     shall not exercise their voting power hereunder so as
     to rescind it.
                                - 8 -

     However, neither the 1992 Trust nor the Redemption Agreement

restricted decedent’s right to otherwise dispose of his interest

in SSE.    The 1992 Trust by its terms reserved to decedent, as

settlor, the right to amend or revoke the trust agreement during

his lifetime.    The Redemption Agreement likewise stated:

          This Agreement shall not limit Schwan’s freedom,
     during his lifetime, to sell, give away, create a
     security interest in or otherwise transfer the
     Securities without restriction, or, upon his death, to
     transfer the Securities and any additional securities
     received by him without restriction by bequest or gift
     outright or in trust. * * *

     Subsequently, in December of 1992, the articles of

incorporation of SSE were amended to increase the number of

shares authorized, and a stock dividend of 100 nonvoting shares

for each nonvoting share issued and outstanding was declared.

The Redemption Agreement was amended on February 4, 1993, to

reflect the appropriate numbers for the recapitalized structure

and decedent’s holdings therein.

     Events After May 9, 1993

     Following decedent’s death on May 9, 1993, it appears from

the record that ownership of SSE was distributed as set forth

below:

              Shareholder               Voting Shares   Nonvoting Shares
1992 Trust                                    5,076       25,910,000
3G Trust                                      1,270                0
Grandchildren’s Trust                           632        6,320,000
Lorrie                                           79          740,000
                                   - 9 -

Lorrie Irrevocable Trust                          79           790,000
Mark                                              79           765,000
Mark Irrevocable Trust                            79           790,000
David                                             79           740,000
David Irrevocable Trust                           79           790,000
Paul Irrevocable Trust                           158       1,530,000
Trusts created by the Schwan children             0            175,000
                              TOTAL            7,610      38,550,000

       The relevant directors and officers of SSE as of that date

were Alfred, Adrian J. Anderson, and Donald M. Miller.         The

record additionally reflects that, as of decedent’s date of

death, Alfred and Lawrence were the trustees of the 1992 Trust,

the 3G Trust, and the Foundation.       The trustees for the

Children’s Trusts and the Grandchildren’s Trust appear to have

been Alfred, Lawrence, and Elton Huebner.       The named executors of

the Estate were Lawrence, Mark, and Paul.

       In December of 1993, the 5,076 voting and 25,910,000

nonvoting shares of SSE held by the 1992 Trust were transferred

to the Foundation.       Thereafter, on August 4, 1994, a document

entitled “Amendment to Agreement” (the 1994 Amendment) was

executed by Alfred and Lawrence in their capacities as trustees

of the Foundation, by Alfred and Lawrence in their capacities as

trustees of the 1992 Trust, by Lawrence in his capacity as

executor of the Estate, and by Donald on behalf of SSE.         The 1994

amendment recited:
                              - 10 -

          Questions and controversies have arisen between
     counsel for the Foundation and counsel for the Company
     regarding the interpretation of * * * the Redemption
     Agreement. One interpretation would require the
     Company to purchase, and the Foundation to sell, all of
     the Shares. Another interpretation would require the
     Company to purchase, and the Foundation to sell, only
     the voting shares. The Foundation and the Company
     understand that it is uncertain how a court would
     resolve the varying interpretations of the Redemption
     Agreement.

The instrument then provided that the Foundation would sell, and

SSE would purchase, all of the shares, both voting and nonvoting,

at an initial purchase price of $869,450,800.

     Also on August 4, 1994, decedent’s Federal estate tax return

was signed by Lawrence, Mark, and Paul.   The return was received

by respondent on August 10, 1994.   Therein, decedent’s SSE stock

was valued at $869,450,800 in his gross estate, and a charitable

deduction was taken in that same amount for the bequest of the

shares to the Foundation.   Similarly, the above-referenced

redemption transaction was completed on August 23, 1994, with the

Foundation receiving cash and a note totaling $869,450,800.

     After the foregoing events, in May of 1995, Lorrie, Mark,

David, and Paul, individually and as parents of decedent’s

grandchildren, filed suit in the U.S. District Court for the

District of Minnesota against SSE, the Foundation, Alfred, and

Lawrence.   In their amended complaint, the plaintiffs brought

numerous direct and derivative claims based principally on the

contention that, under the Redemption Agreement, “Schwan’s was to
                               - 11 -

redeem only the outstanding voting stock owned by the Foundation

upon Marvin’s death and not the non-voting stock.”    The

plaintiffs alleged injury to their position as minority

shareholders and trust beneficiaries on grounds including

violation of statutory corporate law, fraud, breach of fiduciary

duty, and conspiracy.   This litigation eventually settled in

November of 1997.   Pursuant to the settlement reached, the

redemption transaction remained in place, and SSE agreed to

redeem as well the stock held by the plaintiffs for a price of

nearly $160 million.

     In the notice of deficiency sent by respondent to the Estate

in August of 1997, respondent determined that the value of the

SSE stock in decedent’s gross estate was $1,064,591,322, an

increase of $195,140,522 over the reported value.    As relevant to

the instant motions, respondent further determined that the fair

market value of the SSE shares passing to the Foundation for

purposes of the charitable deduction was $857,572,432, a decrease

of $11,878,368 from the reported value.

Discussion

     I.   Petitioners’ Motion for Summary Judgment

           A.   Power To Recapitalize

     Petitioners move for summary judgment on the primary grounds

that “the Foundation’s power to convert the non-voting stock to

voting stock gave it the same rights as were included in the
                               - 12 -

gross estate, and thus the Commissioner erred in assuming that

the stock had a lower value for purposes of the charitable

deduction than for purposes of the gross estate.”   As explained

in greater detail below, it is respondent’s position that

decedent’s holdings in SSE must be valued for purposes of the

gross estate as a unitary, unrestricted two-thirds interest in

the company.   At the same time, because respondent construes the

Redemption Agreement as providing for redemption of only voting

stock, respondent views the interest bequeathed to the Foundation

as consisting of the nonvoting shares and a right to payment for

the voting shares following a transitory holding period.

Respondent concludes that this bifurcated interest, as restricted

by the Redemption Agreement, had a lesser fair market value than

the unitary, unrestricted holding.

     Petitioners, on the other hand, allege that even if the

Redemption Agreement is interpreted to cover only the voting

stock, such is irrelevant and does not diminish the value of the

charitable gift.    Petitioners reason that because the Foundation

received from decedent sufficient voting shares to control SSE,

the Foundation could exercise such control to recapitalize the

corporation and thereby remove any distinction between the

classes of stock.   Since the Redemption Agreement required SSE to

redeem voting stock that is a product of any reorganization at

its value as determined for Federal estate tax purposes,
                              - 13 -

petitioners maintain that, as a matter of law, the Foundation

received rights having the same value as those included in the

gross estate.   (In this connection, we note that while

petitioners summarize their position in terms of the Foundation

possessing the “same rights” as were included in the gross

estate, their principal argument rests more particularly on the

Foundation’s receiving potentially nonidentical rights having the

same value as those in the gross estate.)

     Petitioners also raise the alternative point that even if a

postrecapitalization redemption of shares not originally

designated voting could be prevented or enjoined, the

Foundation’s power to recapitalize would in that event have

enabled it to continue indefinitely in possession of a two-thirds

interest in both the equity and the voting power of SSE,

mirroring the interest held by decedent.

     The parties are seemingly in agreement, and we concur, that

Minnesota corporate law governs activities related to SSE.    We

conclude, however, that we cannot at this juncture appropriately

grant petitioners’ motion for summary judgment on the basis of

such law.

     While Minnesota statutes may provide a mechanism for

recapitalization of a corporation by majority shareholder vote,

they also contain certain protections for minority shareholders.

See Minn. Stat. Ann. secs. 302A.135, 302A.751 (West 1985 & Supp.
                                - 14 -

2000).    In fact, Minnesota courts are authorized to “grant any

equitable relief” deemed just when those in control of a

corporation have acted “in a manner unfairly prejudicial toward

one or more shareholders”.    Minn. Stat. Ann. sec.

302A.751(1)(b)(2).    Unfairly prejudicial conduct has also been

further defined as “conduct that frustrates the reasonable

expectations of shareholders in their capacity as shareholders or

directors of a corporation that is not publicly held or as

officers or employees of a closely held corporation.”    Berreman

v. W. Publg. Co., 615 N.W.2d 362, 374 (Minn. Ct. App. 2000).

       Accordingly, it would appear that the rights of the

Foundation under Minnesota law are intertwined with and could be

limited by the reasonable expectations of the minority

shareholders.    Such expectations, in turn, would depend upon all

of the circumstances relating to the preparation and carrying out

of decedent’s estate plan, including the reasonableness of

potential interpretations of the Redemption Agreement.    As the

record is largely devoid of evidence pertaining to relevant

surrounding circumstances, we cannot now rule as a matter of law

that the Foundation did or did not have a right to recapitalize

SSE.

            B.   Equal Diminishment of Value

       Petitioners further argue that, in the event we disagree

with their primary position, we should nevertheless grant summary
                               - 15 -

judgment on the alternative ground that “if the Redemption

Agreement diminished the value of the stock, it equally

diminished the value of the gross estate.”     Petitioners maintain

that the Redemption Agreement took effect no later than the

moment of decedent’s death and thus imposed any value-lessening

constraints on the stock as it existed in the gross estate, prior

to any distribution to beneficiaries.     This argument is

essentially the converse of the first point on which respondent

moves for partial summary judgment.     Because we grant

respondent’s motion on such point for the reasons discussed

immediately below, we hold that petitioners are not entitled to

summary judgment on their postulated alternative basis.

     We therefore will deny petitioners’ motion in its entirety.

     II.   Respondent’s Cross-Motion for Partial Summary Judgment

           A.   Unitary, Unrestricted Gross Estate Valuation

     Respondent asks this Court to find as a matter of law that,

for gross estate purposes, “decedent’s voting and non-voting

stock interest in the Schwan Corporation which was held in a

revocable trust (“1992 Trust”) at the time of his death should be

valued as a unitary holding, unrestricted by the terms of the

1992 Trust, the terms of the redemption agreement he executed

prior to his Death (“Pre-Death Redemption Agreement”) or the

terms of the Schwan Corporation by-laws”.     As indicated above,

petitioners advance the contrary view that the Redemption
                               - 16 -

Agreement is to be taken into account in valuing the gross

estate.    Accordingly, we must consider the nature of the interest

to be included in decedent’s gross estate.

     As a general rule, the Internal Revenue Code imposes a

Federal tax “on the transfer of the taxable estate of every

decedent who is a citizen or resident of the United States.”

Sec. 2001(a).   Such taxable estate, in turn, is defined as the

“value of the gross estate”, less applicable deductions.    Sec.

2051.   Section 2031(a) then specifies that the “value of the

gross estate of the decedent shall be determined by including to

the extent provided for in this part [sections 2031 through

2046], the value at the time of his death of all property, real

or personal, tangible or intangible, wherever situated.”    In this

connection, section 2033 broadly states that the “value of the

gross estate shall include the value of all property to the

extent of the interest therein of the decedent at the time of his

death.”

     Regulations further explain the valuation concept as

follows:

     The value of every item of property includible in a
     decedent’s gross estate under sections 2031 through
     2044 is its fair market value at the time of the
     decedent’s death * * * . The fair market value is the
     price at which the property would change hands between
     a willing buyer and a willing seller, neither being
     under any compulsion to buy or to sell and both having
     reasonable knowledge of relevant facts. * * * [Sec.
     20.2031-1(b), Estate Tax Regs.]
                                - 17 -

     The timing issue involved in placing a value on the gross

estate was addressed by the Court of Appeals for the Fifth

Circuit in the following oft-quoted pronouncement:

          Brief as is the instant of death, the court must
     pinpoint its valuation at this instant--the moment of
     truth, when the ownership of the decedent ends and the
     ownership of the successors begins. It is a fallacy,
     therefore, to argue value before--or--after death on
     the notion that valuation must be determined by the
     value either of the interest that ceases or of the
     interest that begins. Instead, the valuation is
     determined by the interest that passes, and the value
     of the interest before or after death is pertinent only
     as it serves to indicate the value at death. In the
     usual case death brings no change in the value of
     property. It is only in the few cases where death
     alters value, as well as ownership, that it is
     necessary to determine whether the value at the time of
     death reflects the change caused by death, for example,
     loss of services of a valuable partner to a small
     business. [United States v. Land, 303 F.2d 170, 172
     (5th Cir. 1962).]

     Thus, it is now generally held, including in this Court,

that the estate tax is laid on the interest that passes or is

transferred at death.     Estate of Chenoweth v. Commissioner, 88

T.C. 1577, 1582 (1987).    Furthermore, while in the typical

scenario this interest will be identical to that held by the

decedent, it must be recognized that situations can exist where

death itself will change the value of a property interest.

Likewise, case law also establishes that valuation should “take

into account transformations brought about by those aspects of

the estate plan which go into effect logically prior to the

distribution of property in the gross estate to the
                               - 18 -

beneficiaries.”   Ahmanson Found. v. United States, 674 F.2d 761,

768 (9th Cir. 1981).    Such predistribution transformations are of

a different genre, and must be distinguished from, “changes in

value resulting from the fact that under the decedent’s estate

plan the assets in the gross estate ultimately come to rest in

the hands of different beneficiaries.”    Id.

     Moreover, as a general premise and absent a predistribution

transformation of the type described above, “the fair market

value of the non-voting stock in the hands of an estate with

sufficient shares of voting stock to ensure the estate’s control

of a corporation cannot be less than the value of the estate’s

voting stock.”    Estate of Curry v. United States, 706 F.2d 1424,

1427 & n.2 (7th Cir. 1983).    Hence, in such circumstances

stockholdings are typically viewed as an aggregate interest in

the corporate concern.

     In the present matter, however, petitioners characterize the

Redemption Agreement as working a transformation which altered

decedent’s interest prior to its distribution.    Consequently,

they aver that the interest which passed at death was decedent’s

interest in SSE as impacted by and subject to the terms of the

Redemption Agreement.    Respondent, on the other hand, asserts

that decedent’s two-thirds interest in SSE was in no manner

transformed before its distribution from the gross estate.

Rather, according to respondent, the value-lessening restrictions
                              - 19 -

of the Redemption Agreement took effect only upon and because of

the distribution to the Foundation.    On the facts before us, we

agree with respondent.

      Since the Redemption Agreement placed no restrictions on

decedent’s freedom to use or dispose of his interest in SSE, the

instrument clearly had no impact on the stock’s value prior to

his death.   More importantly and notwithstanding the existence of

the Redemption Agreement, neither did decedent’s death cause his

25,915,076 shares in SSE to represent anything less than two-

thirds of the equity and two-thirds of the vote in SSE.    If,

prior to the distribution to the Foundation, a hypothetical buyer

could have purchased all of the stock from the Estate, such buyer

would have succeeded to decedent’s full interest, unrestricted by

the terms of the Redemption Agreement.   This follows from the

fact that the Foundation is the only person or entity upon whom

the Redemption Agreement would operate to require the surrender

of shares.   Hence, any changes in value accruing as a result of

the Redemption Agreement would be a function of the stock’s

coming to rest in the hands of a particular beneficiary.    Such

changes do not involve a predistribution transformation required

to be considered for purposes of the gross estate.   See Ahmanson

Found. v. United States, supra at 768.

     Furthermore, if and when the Redemption Agreement became

operative upon distribution of the stock to the Foundation, the
                                - 20 -

postulated reduction in value caused thereby would, as respondent

correctly observes, stem from the balkanization of decedent’s

interest in SSE among multiple beneficiaries.    If the Redemption

Agreement were to be interpreted to require redemption of only

the voting shares, the Redemption Agreement would essentially

grant to the Foundation only decedent’s equity interest plus a

“term interest” in voting control, while simultaneously passing

the “remainder interest” in voting control over SSE to other

beneficiaries.   Yet decedent’s interest would nonetheless pass in

its entirety.    Decedent would have controlled SSE at his death

and would have through his estate plan passed that control first

to the Foundation and then to his descendants.    Such is a

situation where value is divided, not destroyed.    We therefore

conclude that the existence of the Redemption Agreement had no

effect on the value of decedent’s interest in SSE for gross

estate purposes.

     We are equally satisfied that neither the 1992 Trust nor the

corporate bylaws constitute a relevant restriction to be taken

into account in valuing the gross estate.    As regards the 1992

Trust, case law indicates that restrictions contained in a

revocable trust becoming irrevocable at death and essentially

functioning as an instrument of transfer are to be ignored in

making estate tax valuations.    See Citizens Bank & Trust Co. v.

Commissioner, 839 F.2d 1249, 1251-1252 (7th Cir. 1988), affg. an
                              - 21 -

unpublished Order of this Court.   With respect to the bylaws, the

pertinent provisions merely afforded SSE an option to acquire its

stock at fair market value in the event that a shareholder

elected during life or at death to transfer the shares to a party

other than a family member or a charity.    Since such terms do not

limit transferability or prevent receipt of fair market value,

they would not result in a lesser value for gross estate

purposes.   Accordingly, we grant respondent’s motion for partial

summary judgment on this point and hold that decedent’s

shareholdings in SSE are to be valued in his gross estate as a

unitary, unrestricted two-thirds interest in the company.

     B.   Redemption of Only Voting Stock

     Respondent secondly requests this Court to find as a matter

of law that “The Pre-Death Redemption Agreement executed by

Marvin M. Schwan, the Foundation, Marvin M. Schwan’s revocable

trust and the Schwan Corporation required the Foundation to

deliver, and the Schwan Corporation to redeem, only voting stock,

not both voting and non-voting stock”.   Respondent contends that

the language of the document as a whole, augmented by the legends

stamped on various stock certificates, clearly provides that only

the voting shares were to be redeemed.   Petitioners in opposition

assert that the express terms of the Redemption Agreement plainly

require redemption of both classes.
                              - 22 -

     The Redemption Agreement states that it is to be governed by

and interpreted in accordance with the laws of the State of

Minnesota.   Under Minnesota law, “The cardinal purpose of

construing a contract is to give effect to the intention of the

parties as expressed in the language they used in drafting the

whole contract.”   Art Goebel, Inc. v. N. Suburban Agencies, Inc.,

567 N.W.2d 511, 515 (Minn. 1997).   Furthermore, “When parties

reduce their agreement to writing, parol evidence is ordinarily

inadmissible to vary, contradict, or alter the written agreement.

But parol evidence is admissible when the written agreement is

incomplete or ambiguous to explain the meaning of its terms.”

Flynn v. Sawyer, 272 N.W.2d 904, 907-908 (Minn. 1978).

     The Minnesota Supreme Court has also instructed that “A

contract is ambiguous if, based upon its language alone, it is

reasonably susceptible of more than one interpretation.”     Art

Goebel, Inc. v. N. Suburban Agencies, Inc., supra at 515; see

also Metro Office Parks Co. v. Control Data Corp., 205 N.W.2d

121, 123 (Minn. 1973).   A determination of ambiguity is a

question of law and “depends, not upon words or phrases read in

isolation, but rather upon the meaning assigned to the words or

phrases in accordance with the apparent purpose of the contract

as a whole.”   Art Goebel, Inc. v. N. Suburban Agencies, Inc.,

supra.
                               - 23 -

     Suffice it to say that, on the record before us, we find the

Redemption Agreement to be ambiguous.   We note that both sides

raise colorable textual arguments, that even the 1994 Amendment

to the Redemption Agreement characterizes the original instrument

as susceptible to differing interpretations, and that this issue

formed the basis for protracted and contested litigation

extending over a period of several years before eventually

settling.   Such circumstances belie the parties’ representations

that the document is clear on its face.

     Accordingly, we conclude that the issue of decedent’s intent

in drafting the Redemption Agreement remains a question of

material fact as to which extrinsic evidence will aid in reaching

an appropriate result.   At present the record is lacking in

information which could shed light on decedent’s intentions, and

we therefore leave this matter for development at trial.    We will

deny respondent’s motion for partial summary judgment on this

second point.

     C.   Treatment of Taxes and Administrative Expenses

     The third point upon which respondent asks for judgment as a

matter of law is as follows:   “Under the operative documents, and

state law properly applied, the burden of taxes and

administrative expenses shall be borne by the Foundation.”     More

specifically, it is respondent’s position that:   (1) Any

charitable deduction allowable to the Estate for the bequest to
                              - 24 -

the Foundation must be reduced by taxes and administrative

expenses, and (2) a postmortem bonus remitted by SSE to the

Estate cannot be considered to have paid those expenses so as to

leave the charitable deduction unreduced.

     Petitioners do not contest that the charitable deduction may

be reduced if payments for administrative expenses and taxes

exceed the amount of the 1992 Trust residue (meaning in this

context residual trust assets other than the SSE stock).    Rather,

petitioners maintain that the bonus received by the Estate should

be included in computing the residue available for paying these

obligations.   In that event, petitioners calculate that

sufficient funds would exist to cover all taxes and expenses

without need to resort to the charitable gift.   We, however,

conclude that petitioners’ view is contrary to the express terms

of the will and trust agreement executed by decedent.

     As a general rule, section 2055 permits a deduction for the

value of bequests to charitable entities but limits the amount of

such deduction to “the value of the transferred property required

to be included in the gross estate.”   Sec. 2055(a), (d).   Here,

the parties agree that the postmortem bonus was not includible in

the gross estate.   The sum was instead includible in the income

of the Estate for fiduciary income tax purposes.   As a result,

receipt of the bonus did not increase the total amount otherwise

potentially deductible under section 2055.   The relevant question
                              - 25 -

therefore is whether the bonus may be applied to payment of taxes

and expenses in lieu of gross estate assets which would support a

deduction if transferred to charity.

     The property from which a decedent’s debts and taxes are

payable and the order of payment of those items are governed by

applicable State law.   See Riggs v. Del Drago, 317 U.S. 95, 97-98

(1942).   The pertinent law in this case regarding the

administration of the Estate is that of South Dakota.    Under

South Dakota law as in effect in 1993, where a decedent’s will,

construed together with other testamentary instruments, directs

the source from which obligations are to be paid, such directions

are given effect.   See S.D. Codified Laws secs. 29-5-1, 29-5-2,

29-5-4, 29-6-7, 29-7-1 (1993).   The statutory codification then

provides additional default rules to ensure a complete and

orderly disposition of the decedent’s property.   Accordingly, we

must first consider the portions of decedent’s will and the 1992

Trust agreement which speak to this issue.

     Decedent’s will states the following regarding taxes and

expenses:

          Payment of debts, expenses and death taxes. I
     direct my Executors to pay out of my residuary estate
     my legally enforceable debts and the expenses of my
     last illness, funeral and burial. I direct that all
     inheritance, estate, succession and transfer taxes * *
     * which may be imposed by any domestic or foreign law
     by reason of my death or because of the transfer,
                             - 26 -

     disposition or distribution of any property deemed a
     part of my taxable estate at my death shall be paid out
     of the principal of the Trust Estate held pursuant to
     the provisions of Article 3 of the Trust Agreement (as
     amended from time to time) dated August 1, 1985 * * *

The foregoing is then augmented by the provisions of the 1992

Trust agreement set forth below:

          2.3 Disposition of Trust Estate upon the
     Settlor’s death. Upon the death of the Settlor,
     whatever then constitutes the Trust Estate, both
     principal and all undistributed income, shall be held
     and distributed pursuant to the provisions of Articles
     3, 4, 5, 6, 7, 8 and 9 of this Agreement.

                            ARTICLE 3

          3.1 Payment of death taxes. The Trustees shall
     pay all of the inheritance, estate, succession and
     transfer taxes * * * which may be imposed by law by
     reason of the Settlor’s death or because of the
     transfer, disposition or distribution of any property
     deemed a part of the Settlor’s taxable estate at his
     death. * * *

          3.2 Payment of legacies, debts and expenses. The
     Trustees shall pay out of the Trust Estate any legacies
     made in the Settlor’s will for which the Settlor’s
     probate estate is not sufficient, and may so pay out of
     the Trust Estate, or reimburse the representative of
     the Settlor’s estate for, such of the Settlor’s debts
     and such of the expenses of his last illness, funeral
     and burial as the Trustees, in the exercise of their
     discretion, may deem necessary or advisable, taking
     into consideration any other assets available for such
     purposes and the liquidity of other assets.
                              - 27 -

          3.3 Source of Payments. All payments made
     pursuant to the provisions of paragraph 3.1 or 3.2 * *
     * shall be made from the assets of the Trust Estate
     remaining after complying with the provisions of
     Articles 4, 5, and 6 of this Trust Agreement and from
     assets of the Trust Estate otherwise disposed of under
     the provisions of paragraph 8.2 of Article 8 of this
     Trust Agreement. If stock of Schwan’s Sales
     Enterprises, Inc., must be used for any payment, non-
     voting stock shall be used before voting stock. * * *

     Given these directives, the principal difficulty with

petitioners’ argument is that it conflicts with the explicit

language of paragraph 2.3 above.   That paragraph states that

“Upon the death of the Settlor, whatever then constitutes the

Trust Estate” (emphasis added) shall be subject to distribution

in accordance with the enumerated provisions.   One such provision

is Article 3, which governs payment of taxes and expenses.

Hence, assets received after decedent’s date of death are not

covered by Article 3 and consequently are not among those which

decedent specified are to be used to pay tax and expense

obligations.   Although petitioners reference an ability on the

part of the fiduciaries to allocate the bonus to principal under

the Revised Uniform Principal and Income Act, no amount of such

allocating can retroactively render the bonus then-existing

principal.   The controlling testamentary instruments simply do
                              - 28 -

not allow for taxes and expenses to be charged to postmortem

income.   We therefore will grant respondent’s motion for partial

summary judgment on this point.

     To reflect the foregoing,

                                         Appropriate orders will

                                    be issued denying petitioners’

                                    motion for summary judgment

                                    and granting in part and

                                    denying in part respondent’s

                                    cross-motion for partial

                                    summary judgement.
