                        T.C. Memo. 1997-13



                      UNITED STATES TAX COURT



       ESTATE OF CHARLES BAXTER SOUTHERN, SR., DECEASED,
 FIRST AMERICAN TRUST COMPANY, N.A., CO-EXECUTOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2249-95.              Filed January 7, 1997.



     Allan J. Wade, for petitioner.

     E. Ford Holman, Jr., for respondent.

                        MEMORANDUM OPINION

     KÖRNER, Judge:   This case is before the Court on

petitioner's motion for summary judgment and respondent's motion

for partial summary judgment under Rule 121.1   There is no



     1
        All statutory references are to the Internal Revenue Code
in effect as of the date of decedent's death, and all Rule
references are to the Tax Court Rules of Practice and Procedure,
except as otherwise noted.
                                  2

dispute as to any material facts.     Hearing and argument of the

motions was held on April 22, 1996, in Memphis, Tennessee.

     Charles Baxter Southern, Sr. (decedent), died on March 14,

1991, and was survived by his spouse, Dorothy I. Southern, a

daughter, two sons, and nine grandchildren.     At the time of his

death, decedent was a resident of Pemiscot County, Missouri.

Probate of the will and administration of the estate was had in

the Circuit Court (Probate Division) of Pemiscot County,

Missouri.   The coexecutors of decedent's estate timely filed a

Federal estate tax return.   The return showed a gross estate of

$3,543,575.97 and deductions of $1,079,149, resulting in a net

estate of $2,464,426.   Adjusted taxable gifts of $35,573 were

reported and when added to the estate provided a net taxable

estate of $2,499,999.   The tentative tax shown was $1,025,799.51.

A unified credit of $192,800 and a credit for State death taxes

in the amount of $135,954.08 were taken, leaving a net estate tax

of $697,045.43, which was the amount paid.

     Respondent determined a deficiency of $88,234 in the Federal

estate tax of the Estate of Charles Baxter Southern, Sr.,

petitioner here.   Such deficiency resulted from a $166,478.26

increase in the taxable estate.   That increase resulted in part

from respondent's determination that $90,000 was improperly

deducted from the gross estate as part of the computation of the

marital deduction.   The second component of the increase is

$76,478.24, an amount equal to certain of the estate's
                                  3

administration expenses taken as a deduction on its fiduciary

income tax return, Form 1041.   Respondent determined that under

the language of the will, those administration expenses must be

subtracted in arriving at the residuary estate (thereby reducing

the marital deduction by an equal amount).   In the alternative,

because there was a residuary marital share, respondent

determined that payment of administration expenses from estate

income (or the grant of discretion to make such payment) should

decrease the marital share in an equal amount to represent the

decrease in total value passing to the spouse.

     The alternative determination by respondent presents

essentially the same issue2 as heard before the Supreme Court in

Estate of Hubert v. Commissioner, 101 T.C. 314 (1993), affd. 63

F.3d 1083 (11th Cir. 1995), cert. granted 517 U.S.    , 116 S. Ct.

1564 (1996), argued November 10, 1996.   Because the decision in

that case may be controlling as to this argument, we shall not

decide that issue at this time.   Rather, we shall preserve and

decide it after a decision in Estate of Hubert is handed down.

     Thus, there are two issues presently to decide in this case.

The first is whether under the language of the will, $90,000 was

     2
        Petitioner and respondent agreed, and the Court entered a
decision in Estate of Southern v. Commissioner, docket No. 2248-
95 (Aug. 21, 1995), that deduction of the administration expenses
from the estate income on the fiduciary income tax return of
decedent's estate was proper. Thus, the issue for decision here
will be whether the marital deduction must be reduced in the case
of a residuary marital bequest where administrative expenses have
been properly taken on the fiduciary income tax return.
                                   4

improperly included in calculating the marital share (the amount

passing to the marital trust which is part of the marital

deduction in arriving at the Federal estate tax).     We hold that

it was not improper.     Second, whether the language of the will

requires that administration expenses be subtracted from the

residuary estate.   We hold that it does not.

1.   Specific Bequests

      Under item II of decedent's will, labeled "Specific

Bequests", various personal items and $100,000 went to the widow,

and bequests of $10,000 each went to all nine of decedent's named

grandchildren.   All such legatees survived decedent.

      Item III, titled "Bequest of Residuary Estate", provided in

the first sentence:

           All the rest and residue of my estate * * * after
      subtracting therefrom the aggregate amount of
      deductions allowed by sections 2053 and 2054 * * *
      shall constitute my "residuary estate" and shall pass
      as hereinafter provided. I hereby devise and bequeath
      my residuary estate as follows: (1) the marital share,
      as hereinafter defined, to the Trustee to hold in a
      Marital Trust or Trusts for the use and benefit of my
      wife, Dorothy Irene Southern; and (2) the balance of my
      residuary estate (the non-marital share) to be divided
      as hereinafter provided.

      Item I of the will names the executors.    Items II and III

have been noted herein.     The remaining items of this lengthy

will, except item X, mentioned hereinafter, are not material

here.   They involve the later disposition of the trusts first set

out by item II and administrative provisions.
                                 5

     Under the will, the marital share funds the marital trust

and is "hereinafter defined."   The nonmarital share is the

balance of the residuary estate after deducting the marital

share.   The nonmarital share is allocated "as hereinafter

provided."

     The second paragraph of item III defines the marital share.

It provides:

          The marital share shall be an amount equal to the
     value of my residuary estate, reduced by the largest
     amount which, when added to the amount of any adjusted
     taxable gifts made by me during my lifetime, will be
     subject to federal estate tax under section 2001 of the
     Internal Revenue Code of 1986, or any successor
     provision, at a marginal rate of less than 50%.

To calculate the marital share, we start with the residuary

estate, as provided under the first paragraph of item III.    Next

we must calculate the largest amount (LA), which, when added to

lifetime gifts (LG), will be taxed at a marginal rate of less

than 50 percent.   To tax the sum of the largest amount and the

lifetime gifts at a marginal rate of less then 50 percent, we

must consider the entire taxable estate.   The entire taxable

estate consists of the nonmarital share, as hereinafter

determined, the lifetime gifts, and the bequests to the

grandchildren (BG).3




     3
        The specific bequests to the spouse would not be part of
the taxable estate as those bequests qualify for the marital
deduction.
                                 6

     Thus, we interpret the above sentence to mean, what amount,

when added to lifetime gifts, will cause the taxable estate (TE)

to be taxed at less than 50 percent?    The only unknown in our

equation is the largest amount, or LA.    Under section 2001, the

marginal amount (MA) taxed under 50 percent is $2,499,999.      It is

agreed by the parties that the amount of the lifetime adjusted

taxable gifts was $35,573.

     The taxable estate has three components:    The bequests to

the grandchildren, the lifetime gifts, and the largest amount,

which will be the same as the nonmarital share.    Thus TE is equal

to BG + LG + LA.   The taxable estate must be equal to the

marginal amount, which is $2,499,999.    Therefore TE is equal to

$2,499,999.   Because the values of TE, BG, and LG, are known, the

value of LA is determined by subtracting BG and LG from TE.

Thus, our formula is TE - (LG + BG) = LA.    Therefore, LA =

$2,374,426, which is $2,499,999 less the sum of $90,000 and

$35,573.   The nonmarital share is $2,374,426.   The residuary

estate is $2,576,677.11, and, when reduced by the nonmarital

share, leaves a marital share of $202,251.11.    This was the

amount shown on the estate tax return.

     Respondent argues that we must not include the bequests to

the grandchildren when making the computation.    Respondent

insists that the above-quoted sentence instructs us to reduce the

residuary estate by some amount which when added to lifetime

gifts would be taxed at less than 50 percent.    Respondent asserts
                                  7

that the formula should be LG plus LA equals MA, or LA = MA - LG.

Under this approach, LA equals $2,464,426, which is $2,499,999 -

35,573.   Although the language of the will is less than crystal

clear, we agree with petitioner for two reasons.

     In order to give meaning to the term "marginal amount", we

must consider the entire taxable estate.    Second, we find that

petitioner's version of the will identifies a sensible intent, to

have the taxable estate taxed at less than 50 percent.    This is a

logical tax planning scheme.    Respondent's assertion evidences no

sensible intent.   Although there is no requirement that a will be

sensible or logical, when there is a discernible intent, and the

language lends itself to more than one interpretation, we adopt

the interpretation that is consistent with the intent of the will

and gives full meaning to every word and clause.    Bookwalter v.

Lamar, 323 F.2d 664 (8th Cir. 1963).    We conclude that decedent

intended the computation be made with reference to the entire

taxable estate.

     Respondent argues incorrectly that petitioner is including

the $90,000 gifts to the grandchildren in the computation of the

marital deduction.    The dollar amount may be the same, but

petitioner has not included the $90,000 bequest to the

grandchildren in the marital deduction; rather, it has increased

the marital share, and therefore the marital deduction, by

$90,000 to offset the presence of the $90,000 bequest in the

taxable estate.    The $90,000 increase to the marital share is
                                  8

taken from other assets in the residuary estate, of which these

bequests to the grandchildren do not form a part.

2.   The Option of Where To Take the Deduction

      The second issue to be decided is whether the language of

the will requires that an amount equal to the administration

expenses be subtracted in arriving at the residuary estate,

regardless whether such administration expenses are paid from

estate income or corpus.

      The first sentence of item III provides that the residuary

estate is the amount of estate remaining after bequests, i.e.,

the rest and residue, less deductions allowed under sections 2053

and 2054.   Respondent asserts that this language requires that

any expenses allowed under sections 2053 and 2054 be deducted

from the gross estate to determine the residuary estate.

Petitioner argues that section 2053 (there being no section 2054

expenses) does not "allow" deductions.    That section merely

specifies those classes of deductions which are "allowable".     The

Commissioner "allows" these deductions upon examination and

approval of the estate tax return, Form 706.     Since certain

administration expenses were claimed on Form 1041, U.S. Fiduciary

Income Tax Return, of the estate, pursuant to section 642(g),

they were not claimed or "allowed" for estate tax purposes.

      We agree with petitioner.   Item X of decedent's will,

"Provisions Relating to the Executor", provides:
                                 9

          4. The Executor may (a) elect to use the costs of
     administration of my estate as deductions for federal estate
     tax purposes or federal income tax purposes, and (b) elect
     to use date of death values or optional values for federal
     estate tax purposes * * * [Emphasis added.]

The will gives the executor discretion as to how to account for

the administration expenses.   This provision bolsters

petitioner's argument, because it clarifies the idea that it was

to be determined after death whether any administration expenses

would be claimed under section 2053.   We conclude that the will

does not require the residuary estate to be diminished by an

amount equal to the administration expenses that were not in fact

claimed or allowed under section 2053 and were instead properly

deducted from estate income.

     Petitioner's motion for summary judgment will be granted in

part, in that the $90,000 bequest was properly included in

calculating the marital share, and in that the language of the

will does not require that administration expenses be subtracted

from the residuary estate thus decreasing the marital deduction.

Respondent's motion for partial summary judgment will accordingly

be denied in part.   The balance of the case will be reserved for

future resolution.

                                     An appropriate order

                               will be issued.
