Estate of O'Brien v. Commissioner

MEMORANDUM OPINION

WILLIAMS, Judge: The Commissioner determined*270 a deficiency of $ 96,153.72 in Federal Estate tax due from the estate of Edward J. O'Brien. The issue we must decide is whether decedent's disclaimer of his wife's interest in jointly held property passing to him by right of survivorship was a qualified disclaimer pursuant to section 2046¹ and section 2518.

This case was submitted fully stipulated pursuant to Rule 122, Tax Court Rules of Practice and Procedure. Edward J. O'Brien ("decedent") died testate on January 19, 1983. His wife, Mary Ryan O'Brien, predeceased him on December 30, 1982. Both were residents of Chestertown, Maryland at the time of their deaths. Joseph Patrick O'Brien was named the executor of both estates. Mr. O'Brien maintains an office in Media, Pennsylvania. A federal estate tax return was filed on behalf of decedent's estate on October 21, 1983.

The Last Will and Testament of Mary Ryan O'Brien was executed May 21, 1964, and amended by a First Codicil dated April 29, 1976, and a Second Codicil dated November 6, 1981. On March 31, 1983, decedent's estate filed a Disclaimer of Property*271 Interest (the "Disclaimer") in the Office of the Register of Wills for Kent County, Maryland, pursuant to which the estate did

disclaim, renounce and refuse to receive any inheritance that would have passed to or for the benefit of Edward J. O'Brien whether outright or in trust under that certain Last Will and Testament of Mary R. O'Brien and any Codicil thereto which has been offered for probate in the Office of the Register of Wills of Kent County, Maryland.

The Disclaimer further provided that decedent's estate

does hereby disclaim that certain separate interest which would devolve to Edward J. O'Brien by right of survivorship in those certain securities and those certain deposits in financial institutions which are listed hereafter, to the extent that a disclaimer of that "separate interest" does constitute a qualified disclaimer for Federal gift tax purposes under the Internal Revenue Code as amended. This disclaimer is made in reliance on that comment in Section 9-201 of the Estates and Trust Article of the Annotated Code of Maryland which recites that disclaimers are permitted:

(5) * * * of any interest in property which otherwise would devolve to the disclaimant*272 by right of survivorship. In the case of a tenancy by the entireties, even though the actuarial factors for the spouses may differ, the interest which would devolve by right of survivorship is an undivided one-half (1/2) interest in the property.

The executor also executed the Disclaimer in his capacity as executor of the estate of Mary Ryan O'Brien to indicate that estate's written consent to the Disclaimer.

The survivorship interest in the securities that was the subject of the Disclaimer pertained to certain shares of stock acquired by decedent and Mary Ryan O'Brien as joint tenants with right of survivorship or as tenants by the entireties between 1949 and 1980. In the Fall of 1981, decedent and Mary Ryan O'Brien transferred all of this stock to Joseph Patrick O'Brien as their attorney-in-fact and agent. He in turn deposited the shares with Shearson American Express in "street name" ² on behalf of decedent and his spouse. In the winter of 1982, decedent and Mary Ryan O'Brien requested that the shares be reissued directly to them for their possession as joint tenants with right of survivorship. The shares were reissued to them on March 29, 1982.

*273 At the time of the death of Mary Ryan O'Brien, she and decedent held two bank accounts as joint tenants with right of survivorship: (i) $ 19,709,80 at Maryland national Bank and (ii) $ 11,129.25 at First Keystone Federal Savings and Loan Association. These two accounts were the "deposits in financial institutions" referred to in the Disclaimer. The record does not indicate when these accounts were opened.

On January 14, 1983, after the death of Mary Ryan O'Brien but before decedent's death, Joseph Patrick O'Brien closed the Maryland National Bank Account and consolidated the funds therefrom with the First Keystone Federal Savings and Loan account for ease of administration. Decedent did not otherwise possess or use any of the monies in the accounts. One-half of the original value of each account was omitted from decedent's gross estate pursuant to the Disclaimer.

No stocks or bonds were acquired by decedent and Mary Ryan O'Brien during the nine month period preceding the filing of the Disclaimer on March 31, 1983. Decedent accepted no benefit from the renounced interests in the joint bank accounts or stock.

In his notice of deficiency dated October 2, 1986, respondent determined*274 that the shares of stock that were the subject of the Disclaimer should be included in decedent's gross estate. Respondent also increased decedent's gross estate by $ 4,652.45 based on his determination that the fair market value of the First Keystone Federal Savings and Loan Association account as of the date of decedent's death was $ 22,926.43 rather than $ 18,273.98 as reported on the estate tax return. ³ Petitioner timely filed its petition contesting the deficiencies on December 23, 1986.

The resolution of this case turns on whether the period for testing the timeliness of decedent's Disclaimer pursuant to sections 2046⁴ and 2518 began on the date of death of decedent's wife, Mary Ryan O'Brien, or on the dates when the joint tenancies in*275 the stock and the bank accounts were created. Petitioner argues, relying on Kennedy v. Commissioner,804 F.2d 1332 (7th Cir. 1986), revg. a Memorandum Opinion of this Court, that the proper time for evaluating the effect of the Disclaimer began on the date of Mary Ryan O'Brien's death. In a recent Court-reviewed opinion, however, we declined to follow the Seventh Circuit and reaffirmed our rationale and holding in our Memorandum Opinion in Kennedy⁵ that the proper time for measuring the timeliness of a disclaimer pursuant to the Supreme Court's analysis in Jewett v. Commissioner,455 U.S. 305 (1982), begins on the date the joint tenancy is created. McDonald v. Commissioner,89 T.C. 293 (1987).

*276 McDonald involved facts substantially similar to those in the instant case. We decline the invitation to reconsider our holding in McDonald and adhere to our reasoning in that case. ⁶

In McDonald, a husband and wife held real property in joint tenancies created prior to 1976.⁷ The wife disclaimed her survivorship interest in her husband's undivided one-half interest in the property on September 23, 1981, within nine months of his death. The issue we addressed was whether, to be timely, a disclaimer of a survivorship interest in jointly held property must be made within reasonable proximity to (1) the creation of the joint tenancy or (2) the death of a joint owner. We reviewed the reasoning of this Court and of the Seventh Circuit in Kennedy and concluded that our reasoning was more consonant*277 with the Supreme Court's opinion in Jewett v. Commissioner,455 U.S. at 305. We, therefore, held that the wife's purported disclaimer of her survivorship interest in 1981 was not valid because it was not made within a reasonable time of the creation of the joint tenancies. McDonald v. Commissioner,89 T.C. at 300-301.

Although this case presents an estate tax issue while McDonald presented a gift tax issue, section 2518 also governs disclaimers under the estate tax provisions. Section 2046. Consequently, our reasoning in McDonald applies with equal force to this case.

The joint tenancies of decedent and Mary Ryan O'Brien in various shares of stock were created between 1949 and 1981. The record does not indicate when the joint bank accounts were created, but petitioner does not argue that they were created at any time within nine months of March 31, 1983, when decedent filed his Disclaimer. ⁸ As a result the attempted*278 disclaimer was not made within a reasonable time of the creation of the joint tenancies and, therefore, was not timely. Section 2518(b)(2)(A). Decedent's survivorship interests in the joint tenancies are thus includible in this estate. ⁹

*279 Decision will be entered for the respondent.