Delaune v. United States

1997 WL 33624718 (5th Cir.)

Briefs and Other Related Documents

United States Court of Appeals, Fifth Circuit.

Sammie Barman DELAUNE, Estate; Denise Loveless, Co-Executors and Transferees of the Estate of Sammie Barman Delaune; Mae Acy Amedee, Co-Executors andTransferees of the Estate of Sammie Barman Delaune; William R. Smith, Jr., Transferees of the Estate of Sammie Barman Delaune; Phyllis Robira Zapp, Transferees of the Estate of Sammie Barman Delaune; Bertha Thomas, Transferees of the Estate of Sammie Barman Delaune; Jane Lee Van Reenen, Transferees of the Estate of Sammie Barman Delaune; Joyce B. Metcalf, Transferees of the Estate of Sammie Barman Delaune; Peggy Ann Geiler, Transferees of the Estate of Sammie Barman Delaune; Samuel Buckmaster, Jr., Transferees of the Estate of Sammie Barman Delaune Plaintiffs-Appellants.,

UNITED STATES OF AMERICA, Defendant-Appellee.

No. 97-30385.

September 30, 1997.

ON APPEAL FROM THE MIDDLE DISTRICT OF LOUISIANA CASE NUMBER 94-CV-416

THE HONORABLE JOHN v. PARKER

Appellant's Original Brief

Joseph A. Prokop, Jr., Louisiana Bar Roll No. 20461, 830 Main Street, Suite C, Baton Rouge, LA 70802, (504) 387-2277, Attorneys for Plaintiffs-Appellants

James E. Boren, Louisiana Bar Roll No. 3252, 830 Main Street, Suite A, Baton Rouge, LA 70802, (504) 387-5786

TABLE OF CONTENTS

Table of Citations ... i

Statement of Jurisdiction ... 1

Statement of Issues ... 1

Statement of the Case ... 1

Summary of Argument ... 4

Argument ... 5

Conclusion ... 31

*i TABLE OF CITATIONS

Federal Statutes:

I.R.C. § 2053 ... 1, 5, 18

I.R.C. § 2053(a) ... 18, 19

I.R.C. § 2053(c)(1)(A) ... 19

I.R.C. § 2518 ... 4, 6

I.R.C. § 2518(b) ... 8

I.R.C. § 7422 ... 1

28 U.S.C. § 1340 ... 1

28 U.S.C. § 1346(a)(l) ... 1

Fed. R. App. P. rule 4 ... 1

Federal Regulations:

Treas. Reg. § 20.2043-1(a) ... 29

Treas. Reg. § 20.2053-1 (a)(1) ... 18

Treas. Reg. § 20.2053-4 ... 19, 29

Treas. Reg. § 25.2518-1(b) ... 5

Treas. Reg. § 25.2518-2(b)(1) ... 5, 6

Treas. Reg. § 25.2518-(d)(1) ... 12-13, 14, 15

Treas. Reg. § 25.2518-2(d)(2) ... 15, 16

Treas. Reg. § 25.2518-2(d)(4)(Ex. 8) ... 13, 15, 18

Federal Cases:

Anderson v. Flexel, Inc., 47 F. 3d 243 (7th Cir. 1995) ... 9

Atkins v. Commissioner, 30 F.2d 761 (5th Cir. 1929) ... 24, 25

Commissioner v. Bosch, 387 U.S. 456, 87 S. Ct. 1776, 18 L. Ed. 2d 886 (1967) ... 6, 7, 8

Dagnall v. Louisiana Dep't of Highways, 466 F. Supp. 245 (E.D. La. 1979), rev'd, 631 F. 2d 1195 (5th Cir. 1980) ... 10

Dorey v. Dorey, 609 F. 2d 1128 (5th Cir. 1980) ... 9

Estate of Goree, 68 T.C.M. (CCH) 123 (1994) ... 7, 8

Garabedian v. Allstates Eng'g Co., 811 F. 2d 802 (3rd Cir. 1987) ... 10

Land v. Acadian Prod. Corp. of La., 57 F. Supp. 338 (W. D. La. 1944) ... 10

*ii Terrain Enter., Inc. v. Western Cas. & Sur. Co., 774 F. 2d 1320 (5th Cir. 1985) ... 9

State Statutes:

LA. CIV. CODE ANN. art. 872 ... 27-28, 29

LA. CIV. CODE ANN. art. 977 ... 6

LA. CIV. CODE ANN. art. 988 ... 10

LA. CIV. CODE ANN. art. 1007 ... 6

LA. CIV. CODE ANN. art. 1015 ... 6, 10

LA. CIV. CODE ANN. art. 1017 ... 26

LA. CIV. CODE ANN. art. 1018 ... 6

LA. CIV. CODE ANN. art. 1020 ... 11

LA. CIV. CODE ANN. art. 1536 ... 26

LA. CIV. CODE ANN. art. 1538 ... 26

la. CIV. CODE ANN. art. 1760 ... 20

LA. CIV. CODE ANN. art. 1761 ... 20, 24, 27, 29

LA. CIV. CODE ANN. art. 1762 ... 22

LA. CIV. CODE ANN. art. 1762(3) ... 20, 23

LA. CIV. CODE ANN. art. 1765 ... 28

LA. CIV. CODE ANN. art. 2338 ... 13

LA. CIV. CODE ANN. art. 2356 ... 13

LA. CIV. CODE ANN. art. 2992 ... 11

LA. CIV. CODE ANN. art. 2997 ... 11

LA. CIV. CODE ANN. art. 3000 ... 11

LA. CIV. CODE ANN. art. 3071 ... 9

LA. REV CIV CODE OF 1870 art. 1758(1) ... 20, 21, 22

LA. REV CIV CODE OF 1870 art. 1758(4) ... 23

LA. REV. STAT. ANN. § 9:2442 ... 26

LA. CODE CIV. P. art. 863(B) ... 11

LA. CODE CIV. P. art. 864 ... 11

LA. CODE CIV. P. art. 3261 ... 6

State Cases:

Breaux v. Breaux, 51 So.2d 73 (1951) ... 20, 21

Canter v. Koehring Co., 283 So. 2d 716 (La. 1973) ... 8

Carter v. Fowler, 33 La. Ann. 100 (1881) ... 7

*iii Keith v. Lee, 127 So. 139 (La. App. 2nd Cir. 1930) ... 14

Milburn v. Wemple, 101 So. 132, 135 (La. 1924)(On Rehearing) ... 12

Police Jury of Tangi. Par. v. Begnaud, 9 So. 2d 399 (La. 1942) ... 10

Succession of Dunham, 428 So. 2d 876 (La. App. 1st Cir. 1983) ... 16

Succession of Gumbel, 56 So.2d 418 (La. 1951) ... 26, 27

Succession of Harrison, 444 So. 2d 1191 (La. 1984) ... 22, 23, 27

Succession of Tertrou, 47 So.2d 681, 685 (La. 1950) ... 7

Miscellaneous Authority:

Priv. Ltr. Rul. 92-14-022 ... 17

Priv. Ltr. Rul. 87-29-008 ... 17

Priv. Ltr. Rul. 86-19-002 ... 18

Priv. Ltr. Rul. 80-15-014 ... 17

Rev. Rul. 69-148, 69-1 C.B. 226 ... 18

S. LITVANOFF, LOUISIANA CIVIL LAW TREATISE, LAW OF OBLIGATIONS § 2.5 ... 25

Hood, Recent Developments, 21 LOUISIANA ESTATE PLANNER 1179-81 (1997) ... 6

*1 STATEMENT OF JURISDICTION

The plaintiffs-appellants filed their Complaint in the United States District Court for the Middle District of Louisiana pursuant to 28 U.S.C.A. §§ 1340& 1346(a)(l). Subject matter jurisdiction is conferred by 26 U.S.C.A. § 7422. Following a final judgment of the district court disposing of all claims with respect to all parties, signed on March 7, 1997, the plaintiffs-appellants filed this appeal of right in this civil matter on April 9. 1997, under Fed. R. App. P. Rule 4.

STATEMENT OF ISSUES

I. Did the executors or their attorneys have the authority under Louisiana law to renounce an interest in property on behalf of Sammie Delaune after her death?

II. Did Sammie Delaune accept benefits from the disclaimed property prior to her death?

III. Did the trial court err when it refused to allow Sammie's estate to deduct the value of the claim against her estate by Jack's relatives, as provided in I.R.C. § 2053?

STATEMENT OF THE CASE

This is an appeal for the refund of the overpayment of federal estate taxes erroneously assessed against the plaintiff-appellants.

*2 Sammie Barman Delaune's (Sammie) estate filed a United States Estate Tax Return on October 26, 1987, showing the renunciation of a portion of Sammie's inheritance from Joseph N. Delaune, Jr. (Jack). Jack's estate filed a United States Estate Tax Return that included the property renounced by Sammie's estate. On audit, the Internal Revenue Service (Service) refused to accept the disclaimer or the legal claim of Jack's relatives. The Service assessed additional estate taxes and interest of $146,727.53. Sammie's estate and its transferees paid the assessed deficiency on November 28, 1990.

On November 20, 1992, the plaintiffs-appellants filed a Claim for Refund and Request for Abatement with the Service. The Service denied the Claim for Refund.

On April 26, 1994, the plaintiffs-appellants filed a Complaint in the United States District Court for the Middle District of Louisiana. After a bench trial, the Court dismissed the plaintiff-appellants' claims on March 7, 1997. The plaintiffs-appellants filed this appeal on April 9, 1997.

Sammie was married to Jack and they had no children. The couple lived in Ascension Parish, Louisiana.

Jack died on May 31, 1986. His will left his entire estate, except $3,000 in special bequests, to his wife, Sammie.

*3 On January 14, 1987, Sammie met with the attorneys representing the executor of Jack's succession and discussed changing her will and renouncing succession.

Sammie died on January 26, 1987.

Sammie' s will left her entire estate, except $3,000 in special bequests, to Jack. Because Jack predeceased Sammie, that legacy lapsed and all but $6,000 of the their combined net successions would pass to Sammie's heirs under Louisiana's laws of intestacy.

William P. Delaune, an heir of Jack and executor of his succession, filed a state action in the Twenty-third Judicial District Court on February 6, 1987, alleging that Sammie's act instructing the attorneys to draft the renunciation documents created a legally enforceable obligation in favor of Jack's heirs. He contended this obligation was enforceable against Sammie's succession for Jack's entire bequest to her. A Rule to Show Cause hearing was held and a judgment was signed on February 27, 1987 declaring that Sammie had renounced a portion of the bequest from Jack equal to two-sevenths of their combined net estates. The judgment was signed within nine months of Jack's death.

Sammie's co-executors did not accept any income or other benefit from Jack's succession in the period between Sammie's death and February 27, 1987.

*4 Although Sammie died in a hospital, she and her husband both resided in a nursing home during a period before their respective deaths.

Bill Delaune was Jack Delaune's brother and before Jack's death, he paid the expenses of both Jack and Sammie.

Subsequent to Jack's death, Bill was named executor of his succession.

Subsequent to Jack's death, Bill Delaune issued checks drawn on a joint account in the names of Jack and Bill Delaune for the payment of Sammie Delaune's expenses while in the nursing home. The funds in the account were all community property and Jack's undivided interest in the account was a part of his succession. This was the same account Bill used prior to Jack's death to pay living expenses of Jack and Sammie. See Findings of Fact and Conclusions of Law pp. 1-4.

SUMMARY OF ARGUMENT

The Defendant erred when it increased Sammie's gross estate by the value of the disclaimed portion of Jack's estate because the disclaimer [FN1] meets all the requirements of I.R.C. § 2518. In the alternative, the Defendant erred when it refused to allow Sammie's estate to deduct the value of the claim against her estate *5 by Jack's relatives, as provided in I.R.C. § 2053.

FN1. Generally, the term "disclaimer is used when discussing federal law and the term "renunciation" is used when discussing Louisiana law. These terms are used synonymously in this Brief.

ARGUMENT

I. DID THE EXECUTORS OR THEIR ATTORNEYS HAVE THE AUTHORITY UNDER LOUISIANA LAW TO RENOUNCE AN INTEREST IN PROPERTY ON BEHALF OF SAMMIE DELAUNE AFTER HER DEATH?

[T]he value of a decedent's gross estate for purposes of the Federal estate tax does not include the value of property with respect to which the decedent, or the decedent's executor or administrator on behalf of the decedent, has made a qualified disclaimer.

Treas. Reg. § 25.2518-l(b)(emphasis added).

A disclaimer is a qualified disclaimer only if it is in writing. The writing must identify the interest in property disclaimed and be signed by either the disclaimant or by the disclaimant's legal representative.

Treas. Reg. § 25.2518-2(b)(l)(emphasis added).

The only disputed issues are whether anyone can renounce an interest in property after an heir's death and, if so, whether an attorney needs written authorization from their client to seek a judicial renunciation on behalf of that client. It is respectfully suggested that the trial court erred when it ruled that under Louisiana law, no one can renounce on behalf of a deceased heir and, by inference, that attorneys need written authority from their clients to renounce on their behalf.

"Not only the person who is entitled to an inheritance may accept it, but if *6 he dies before having expressly or tacitly accepted or rejected it, his heirs shall have a right to accept it under him." la. Civ. CODE art. 1007. "A succession can be renounced only under the same circumstances in which it can be legally accepted, according to the rules established in the preceding section." la. CIV. CODE art. 1015. "No one can be compelled to accept a succession, in whatever manner it may have fallen to him, whether by testament or the operation of law. He may therefore accept or renounce it." la. CIV. code art. 977. See Hood, Recent Developments, 21 louisiana estate planner 1179- 81 (1997) (attached).

In an administered succession, the succession representative steps into the shoes of the decedent and the succession representative has the authority to alienate succession property, with prior court approval. See la. code CIV. pro. art. 3261. [FN2] A renunciation is "assimilated to an alienation." See LA. CIV. CODE art. 1018.

FN2. Similarly, the regulations interpreting I.R.C. § 2518 expressly authorize a disclaimants legal representative to sign a disclaimer. See Treas. Reg. § 25.2518-2(b)(l).

Clearly, Sammie's succession representatives had the capacity to alienate, and therefore renounce, Jack's bequest to Sammie.

"[T]he State's highest court is the best authority on its own law." Commissioner v. Bosch, 387 U.S. 456, 465, 87 S. Ct. 1776, 18 L. Ed. 2d 886,

*7 894 (1967). Many years ago, the Louisiana Supreme Court recognized the validity of judicial renunciations. See Succession of Tertrou, 47 So.2d 681, 685 (La. 1950); Carter v. Fowler, 33 La. Ann. 100 (1881).

There are no Louisiana Supreme Court decisions addressing whether a person can renounce on behalf of a deceased heir. [FN3]

FN3. Sammie's heirs could not renounce directly because this would mean that Sammie had accepted Jack's bequests and would cause the renounced property to flow to Sammie's heirs, rather than to Jack's heirs.

If there is no decision by that [highest state] court then federal authorities must apply what they find to be the state law after giving "proper regard" to relevant rulings of other courts of the State. We believe that this would avoid much of the uncertainty that would result from the 'non-adversary' approach.

Bosch, 387 U.S. at 465, 87 S. Ct. at 1783, 18 L. Ed. 2d at 894.

In Estate of Goree, 68 T.C.M. (CCH) 123 (1994), the conservator of the minor heirs made a partial disclaimer on their behalf that caused the disclaimed property to pass to the decedent's spouse by operation of Alabama law. A guardian ad litem was appointed to represent the minors, a hearing was held in state court and the court approved the disclaimer.

Claiming that the state court rubber stamped the judgment and relying on Bosch, the Defendant argued that the Tax Court should conduct a de novo review of the state court decision. The Tax Court rejected this argument and used the *8 Alabama appellate review standard of "plainly and palpably erroneous." See Goree at 128. The Tax Court held that there was a valid disclaimer under I.R.C. § 2518(b) since the state court decision was not plainly and palpably erroneous.

Sammie's succession representatives and their attorneys appeared before Judge Goldsmith who questioned the attorneys for all of the heirs to determine if their clients concurred in the proposed renunciation. It was only after he was satisfied that the heirs concurred that he authorized the succession representatives to renounce a portion of Jack's estate.

Like in Goree, the Louisiana court appointed an attorney to represent the absentee heirs, conducted a hearing, and authorized and signed a judicial renunciation. Like in Goree, this court should apply the "manifest error" standard of appellate review applied by the appellate courts in Louisiana. See e.g., Canter v. Koehring Co., 283 So. 2d 716, 724 (La. 1973).

Judicial renunciations are valid in Louisiana. There was no manifest error because the state court judge authorized and signed the renunciation after receiving the approval of all of the interested parties.

In summary, Sammie's capacity to renounce Jack's succession passed to her succession representatives. Sammie's succession representatives sought a judicial renunciation and obtained a judgment to that effect stating that Sammie has *9 renounced a portion of Jack's estate.

This judicial renunciation was also evidenced by a writing signed by attorneys for all of the interested parties and read into the record. [FN4] See la. CIV. code art. 3071.

FN4. Miriam Attaya was the attorney who signed the pleadings in the Succession of Sammie Barman Delaune, Probate No. 8237, 23rd Judicial District Court, Ascension Parish, Louisiana and approved the Judgment. On February 6, 1987, Mae Acy Amedee and William P. Delaune were appointed

dative testamentary co-executors of Sammie's estate. At the end of the hearing held on February 27, 1987, Judge Goldsmith removed William P. Delaune as succession representative and appointing Denise S. Loveless dative testamentary co-executrix of Sammie's estate. Mae Acy Amedee, Denise S. Loveless and William P. Delaune were present at the hearing and each signed the documents either personally or through their legal counsel. This is significant because it establishes who the succession representatives were on the date of the hearing.

The relationship between the client and attorney is one of principal and agent. "It is presumed that an attorney who has represented a party is authorized to take all action necessary to conduct the litigation. The burden of showing that the attorney had no authority to act is upon the party denying such authority." Terrain Enter., Inc. v. Western Cas. & Sur. Co., 774 F. 2d 1320, 1322 (5th Cir. 1985) (citations omitted). "A presumption of authority of the attorney, however, arises from the mere fact of the appearance [in court]." Dorey v. Dorey, 609 F. 2d 1128, 1131 n. 5 (5th Cir. 1980). [FN5]

FN5. See also, Anderson v. Flexel, Inc., 47 F. 3d 243 (7th Cir. 1995) (A legal presumption exists that an attorney has authority to act on behalf of the person the attorney represents.); Garabedian v. Allstates Eng'g

Co., 811 F. 2d 802 (3rd Cir. 1987) (There is a presumption that a settlement entered into by an attorney is authorized by the client.); Dagnall v. Louisiana Dep't of Highways, 466 F. Supp. 245 (E.D. La. 1979) (Under Louisiana law, there is a strong presumption that an attorney acts with the authority of his client.), rev'd, 631 F. 2d 1195 (5th Cir. 1980) (Presumption overcome because of specific statute limiting authority of attorneys representing the State); Land v. Acadian Prod. Corp. of La., 57 F. Supp. 338 (W. D. La. 1944) (An attorney's authority to represent a litigant that he claims the right to represent is presumed and may only be challenged by oath of the person denying such authority.), rev'd on other grounds, 153 F. 2d 151 (5th Cir. 1946); Police Jury of Tangi. Par. v. Begnaud, 9 So. 2d 399 (La. 1942) (It is not to be presumed that an attorney who appears in court as the representative of a client is acting without authority.).

*10 Under Louisiana law, an express power of attorney is required for a statutory renunciation. The purpose of the statutory requirement that a renunciation by an agent be pursuant to an express power of attorney is to ensure the authority of the agent to act.

The Civil Code formalities apply to statutory renunciations, not judicial renunciations. See la. CIV. CODE arts. 988 & 1015. The only requirement for a judicial renunciation is that it be part of a pleading or on the record. Both of these requirements were satisfied in this case. Through their attorneys, Jack and Sammie's executors, among others, sought court authorization to renounce a portion of Jack's estate. The court authorized the renunciation, which is embodied in the Judgment dated February 27, 1987.

Even if the agent authorization requirements apply to judicial renunciations, *11 there is an exception for attorneys at law. LA. CIV. CODE art. 1020. states that an agent may renounce an inheritance if he is "specially appointed to that effect." la. CIV. CODE art. 2997 states that an "express" mandate is required to accept or reject a succession. However, la. CIV. code art. 3000 states that:

powers granted to persons, who exercise a profession, or fulfill certain functions, or doing any business in the ordinary course of affairs to which they are devoted, need not be specified, but are inferred from the functions which these mandataries exercise.

The terms "specially" and "express" do not require that the mandate be in writing. See la. CIV. code art. 2992.

As a profession, attorneys perform the function of filing pleadings in the ordinary course of affairs to which they are devoted. Pursuant to the exception in Article 3000, the powers granted by the executors and heirs to their attorneys at law need not be express. [FN6] Regardless, the testimony shows that the attorneys for the interested parties had their clients' authority to sign the judgment containing the renunciation. Judge Goldsmith also questioned the attorneys at the hearing before and after the Stipulation was read into the record.

FN6. The authority of the attorney is presumed. There is not even a requirement that the pleading containing the judicial renunciation be verified. See la. CODE CIV. PRO. art. 863(B). The safeguard in the system is sanctions. See LA. CODE CIV. PRO. art. 864.

All of the interested persons were represented by attorneys at the state court *12 hearing on the judicial renunciation, all of the attorneys agreed to the judicial renunciation and approved the form and, content of the Judgment, and none of the clients have objected to the authority of their attorney to take the action taken. See Milburn v. Wemple, 101 So. 132, 135 (La. 1924) (On Rehearing) (Although decided prior to the Code of Civil Procedure, held that "unauthorized acts of agents may be ratified by conduct or by silence.").

The attorneys for the interested parties had the legal authority to approve and sign the judgment containing the disclaimer. Furthermore, the parties ratified the acts of their attorneys when they signed the Judgment of Possession for Sammie's estate.

II. DID SAMMIE DELAUNE ACCEPT BENEFITS FROM THE DISCLAIMED PROPERTY PRIOR TO HER DEATH?

To be a qualified disclaimer, the disclaimant cannot accept the interest or any of its benefits.

A qualified disclaimer cannot be made with respect to an interest in property if the disclaimant has accepted the interest or any of its benefits, expressly or impliedly, prior to making the disclaimer. Acceptance is manifested by an affirmative act which is consistent with ownership of the interest in property. Acts indicative of acceptance include using the property or the interest in property; accepting dividends, interest, or rents from the property; and directing others to act with respect to the property or interest in property. The acceptance of one interest in property will not, by itself, constitute an acceptance of any other separate interests created by the transferor and held by the disclaimant in the same property.

*13 Treas. Reg. § 25.2518-2(d)(l)(emphasis added). See also Treas. Reg. § 25.2518-2(d)(4)(Ex. 8).

An analysis of state law to determine ownership of the property at issue is necessary to decide if Sammie accepted the disclaimed interest.

The community property regime terminates upon the death of a spouse and the surviving spouse continues to own an undivided one-half interest in the former community property. See la, CIV. code ann. art. 2356. Likewise, the surviving spouse owns an undivided one-half interest in income generated by the former community property. See la. CIV, CODE ANN. art. 2338. Sammie owned an undivided one-half interest in the former community property and one-half of all income generated by the former community property.

Jack and Sammie had two checking accounts. Account number 15-3807-1 was a joint checking account in Jack and Sammie's names. Account number 15-3814-4 was a joint checking account in Jack and William P. Delaune's names. All of the funds in these accounts were community property.

In the period between Jack's death on May 31, 1986 and Sammie's death on January 26, 1987, there were only three types of transactions involving account number 15-3807-1. The first type of transaction was the monthly automatic deposit of interest income generated by a community property Certificate of *14 Deposit. The second type of transaction was the monthly automatic deposit of interest income generated by the community property funds in that checking account. The third type of transaction was one check written to transfer funds from this checking account to the other checking account.

In this period, the transactions involving account number 15-3807-1 cannot be considered affirmative acts consistent with the ownership of Jack's interest in the property. See, e.g., Keith v. Lee, 127 So. 139, 145 (La. App. 2nd Cir. 1930). The interest payments flowed automatically into the account just as they had prior to Jack's death.

The only check drawn on account number 15-38070-1 was payable to cash and deposited in the other checking account. Only Jack and William P. Delaime were authorized to make transactions in the account to which the funds were transferred. This transfer was to an account controlled by Jack's legal representative.

Acceptance requires "an affirmative act which is consistent with ownership of the interest in property." See Treas. Reg. § 25.2518-2(d)(l). Despite Sammie's ownership of one-half of the funds and her ability to withdraw all of the funds in the account, she did no affirmative act to exercise these rights. The only transaction involving this account that differed in any way from the transactions *15 before Jack's death involved a check that moved a portion of the funds from this account to an account controlled by Jack's legal representative. Moving funds to an account controlled by Jack's legal representative is hardly an affirmative act by Sammie consistent with ownership of Jack's estate,

Sammie was in a nursing home in Baton Rouge during the relevant time period. Bill Delaune was Jack's executor and was managing the affairs of Jack's succession.

In the period between Jack's death on May 31, 1986 and Sammie's death on January 26, 1987, William P. Delaune used the funds in account number 15-3814-4 to pay Jack and Sammie's expenses because each had funds in-that account. He deposited income from the community property in an account he controlled. Sammie did not and could not write checks on this account.

William P. Delaune's duty as Jack's legal representative was to collect and preserve estate assets. These acts of William P. Delaune are consistent with his fiduciary duties as Jack's legal representative. See Treas. Reg. § 25.2518-2(d)(2) & (d)(4)(Ex, 8). The acts of Jack's legal representative of depositing income in an account Sammie did not control cannot be construed as an affirmative act by Sammie of accepting Jack's estate. [FN7]

FN7. Any act of acceptance must be indistinguishable from any other exercise of rights or interests in the disclaimed property. See Treas. Reg. §§ 25.2518-2(d)(l) & (d)(2). Sammie did no acts after Jack's death that were different from acts taken before his death. Any acts that are imputed to Sammie are indistinguishable from the exercise of her rights in her portion of the former community property since the accounts contained both Sammie's and the estate's property. During the relevant period, Sammie was in failing health and was either in the nursing home or the hospital.

*16 In the period between Jack's death and Sammie's death, Sammie's property generated more income than needed to pay her expenses. All of Sammie's expenses were paid from income generated by her undivided one-half interest in former community property. At no time were Sammie's funds in this account exhausted.

Louisiana Jurisprudence is clear that when an estate is under dministration, the succession representative also administers and possesses the surviving spouse's portion of the community property. See Succession of Dunham, 428 So. 2d 876 (La. App. 1st Cir. 1983). Sammie could not accept Jack's succession or any of its benefits. Sammie did not have possession of the community property because Jack's estate was under administration. The community property was in the possession of Jack's estate and bills were being paid by Jack's executor, as required by law.

The trial court stated that the property should have been segregated in a separate estate account. The property was in an account in the name of Jack and Bill Delaune. This was a separate account that Sammie had no access to and was *17 used as Jack's succession account.

Furthermore, the Rule to Show Cause was filed in Jack's estate because Jack's estate had possession of the property and was the only estate that could disburse the property pursuant to the Rule to Show Cause.

Also, Sammie's legal representatives disclaimed only a portion of Jack's estate. The income from the portion of Jack's estate not disclaimed also could have been used to pay Sammie's expenses without affecting the validity of the disclaimer. See Priv. Ltr. Rul. 80-15-014 (A disclaimer of a portion of a savings account is effective because the account is severable property.); Priv. Ltr. Rul. 86-19-002 (Even though withdrawals were made from a joint account by the disclaimant for her own benefit, the disclaimant did not accept any benefits from the disclaimed amount and could make a qualified disclaimer of the remaining funds in the account.) & 87-29-008 (Even though interim distributions were made, the disclaimer of an amount that did not include the interim distributions could be a qualified disclaimer).

Sammie owned an undivided one-half interest in the community property. Sammie's actions in the period between Jack's death and her death were wholly consistent with her ownership of an undivided one-half interest in the community property. The actual bank records clearly show that prior to the disclaimer, *18 Sammie did not accept any of Jack's estate or any income it generated. See Treas. Reg. § 25.2518-2(d)(4)(Ex. 8); Rev. Rul. 69-148, 69-1 C.B. 226 (Where a joint account is funded with one owner's funds, there is no completed gift until the other owner "draws upon the account for his own benefit without any obligation to account" to the other owner.); Priv. Ltr. Rul. 92-14-022.

Neither Sammie nor her legal representatives accepted the interest in the refused property or any of its benefits.

III. DID THE TRIAL COURT ERR WHEN IT REFUSED TO ALLOW SAMMIE'S ESTATE TO DEDUCT THE VALUE OF THE CLAIM AGAINST HER ESTATE BY JACK'S RELATIVES, AS PROVIDED IN I.R.C. § 2053?

The Internal Revenue Code allows a deduction from the gross estate for claims against the estate. I.R.C. § 2053(a) states:

For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducing from the value of the gross estate such amounts -

(1) for funeral expenses,

(2) for administration expenses,

(3) for claims against the estate, and

(4) for unpaid mortgages on, or any indebtedness in respect of, property where the value of the decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate,

as are allowable by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered.

(emphasis added). See Treas. Reg. § 20.2053-1 (a)(l).

*19 The amounts that may be deducted as claims against a decedent's estate are such only as represent personal obligations of the decedent existing at the time of his death.. Only claims enforceable against the decedent's estate may be deducted.

Treas. Reg. § 20.2053-4 (emphasis added).

The general rule in I.R.C. § 2053(a) is subject to the following limitation:

The deduction allowed by this section in the case of claims against the estate... shall, when founded on a promise or agreement, be limited to the extent that they are contracted bona fide and for an adequate consideration in money or money's worth;...

I.R.C. § 2053(c)(l)(A)(emphasis added).

A. DID JACK'S RELATIVES HAVE A CLAIM AGAINST THE ESTATE THAT WAS ALLOWABLE BY THE LAWS OF THE JURISDICTION WHERE THE ESTATE WAS BEING ADMINISTERED?

Jack's relatives had a claim against Sammie's estate that was allowable under Louisiana law. Jack and Sammie were residents of Louisiana at the their deaths and their estates were both administered in Louisiana. Sammie owed a natural obligation to Jack's relatives under Louisiana law. This natural obligation ripened into an onerous contract when Sammie instructed the attorneys to draft the documents necessary to perform the natural obligation. Jack's relatives could legally enforce the natural obligation once it became an onerous contract.

The testimony was that Jack and Sammie had an oral agreement that upon the death of the survivor of them, their property would be divided among their *20 heirs. This agreement was either an oral contract or an oral will, both of which are invalid under Louisiana law because of form.

1. DID SAMMIE OWE A NATURAL OBLIGATION TO JACK'S RELATIVES UNDER LOUISIANA LAW?

The Louisiana Civil Code and jurisprudence provide that a contract or will, invalid in form, is a natural obligation. Under Louisiana law, "[a] natural obligation arises from circumstances in which the law implies a particular moral duty to render a performance." la. CIV. CODE ANN. art. 1760. The natural obligation supplies the cause necessary for an onerous contract. See la. CIV. CODE ANN. art. 1761 (Comments a, c & d).

Natural obligations are "[s]uch obligations as the law renders invalid for want of certain forms or for some reason of general policy, but which are not in themselves immoral or unjust." LA. REV. CIV. CODE of 1870 art. 1758(1). A natural obligation exists "[w]hen the universal successors are not bound by a civil obligation to execute the donations and other dispositions made by a deceased person that are null for want of form." LA. CIV. CODE ANN. art. 1762(3).

In Breaux v. Breaux, 51 So.2d 73 (La. 1951) (On Rehearing), the Louisiana Supreme Court found a natural obligation on the part of a legatee to carry out an invalid oral contract.

In Breaux, Mrs. Robert Champagne bequeathed land to Iselle Breaux with *21 the agreement that Iselle would convey title to the land to Elmo Breaux when he became of age. Iselle subsequently conveyed the land to Elmo. Iselle later sued Elmo to annul the sale alleging lack of consideration and deception. Elmo argued that when Mrs. Champagne executed her will bequeathing the land to Iselle, there was an oral contract between Iselle and Mrs. Champagne to convey the land to Elmo when he reached age twenty-one. He contended that this oral contract was a natural obligation.

The Court stated that the oral contract was a natural obligation since it was an obligation "'the law has rendered invalid for want of certain forms or for some reason of general policy, but which are not in themselves immoral or unjust."' Breaux at 80 (quoting LA. REV. CIV. code of 1870 art. 1758(1)).

The Court concluded there was an oral contract and, although invalid for lack of form and for general policy reasons, the oral contract was not immoral or unjust. The Court found that the oral contract was a natural obligation.

Breaux shows that in Louisiana, an oral contract regarding the disposition of assets upon a person's death is a natural obligation if the contract is not immoral or unjust.

Like in Breaux, Jack and Sammie had an oral contract that Jack's property would pass to his relatives. Although the oral contract lacked only the requisite *22 form and was invalid for general policy reasons, it was moral because one has a moral duty to honor the wishes of a deceased loved one. The Louisiana Civil Code recognizes this moral duty. See la. REV. CIV. CODE of 1870 art. 1758(1); la: CIV. CODE ANN. art. 1762. The oral contract was just because it supported the moral duty to pass Jack's property to his relatives and Sammie's property to her relatives. [FN8]

FN8. This moral duty was actually detrimental to Sammie's heirs who inherited everything if Sammie did not act. In essence, Sammie's sense of moral duty cost her heirs $815,000.00.

An error in the wills caused the relatives of the spouse that happened to die first to receive virtually nothing. This result was clearly contrary to Jack and Sammie's intent. Sammie knew that their intentions were not coming to fruition and honored the natural obligation by beginning to perform the oral contract.

In Succession of Harrison, 444 So.2d 1191 (La. 1984), the Louisiana Supreme Court found a natural obligation on the part of an heir to carry out a disposition made in an invalid will.

In Harrison, the "testator" executed an invalid olographic will leaving land to his foster son. Following the "testator's" death, most of his intestate heirs signed an instrument honoring the bequest of land made to the foster son in the defective will. Years later, one of the intestate heirs who did not sign the *23 instrument attempted to sell the same land to a third party.

Discussing whether the invalid will spawned a natural obligation, the Court stated that "the defectiveness of the will in question is plainly one of form only no matter how severe the formal deficiencies." Harrison at 1195 (relying on la. rev. CIV. code of 1870 art. 1758(4) (now la. CIV. code ann. art. 1762(3))). The Court found that the defective will created a natural obligation.

Like in Harrison, the oral disposition of Jack and Sammie's property created a natural obligation. This agreement had all of the elements of a will, except written form. Although the oral disposition lacked the form necessary for a valid testamentary instrument, Sammie had a moral duty to perform the agreement. This moral duty created a natural obligation. See la. ClV. code ann. art. 1762(3). [FN9]

FN9. The Plaintiffs are not arguing that oral wills are valid in Louisiana. The Plaintiffs are arguing that oral wills create a natural obligation under Louisiana law.

Sammie owed a natural obligation to Jack's relatives under Louisiana law. This natural obligation was to pass Jack's property to his relatives because she and Jack had an oral contract stating that their property would be split between five of their seven lines of heirs.

Regardless of whether Jack and Sammie's agreement was an invalid oral

*24 contract or an invalid oral will, it created a natural obligation because it was invalid as to form only.

2. DID THE NATURAL OBLIGATION RIPEN INTO AN ONEROUS CONTRACT WHEN SAMMIE INSTRUCTED THE ATTORNEYS TO DRAFT THE DOCUMENTS NECESSARY TO PERFORM THE NATURAL OBLIGATION?

Clearly, a natural obligation is unenforceable under Louisiana law. However, a contract made for the performance of a natural obligation is onerous and enforceable. See LA. CIV. CODE ANN. art. 1761. A natural obligation supplies the cause necessary for an onerous contract. See id. (Comments a, c & d).

Atkins v. Commissioner, 30 F.2d 761 (5th Cir. 1929), addressed whether notes given to some of the decedent's children to equalize gifts made to other children were deductible from the decedent's gross estate. The Court found that under Louisiana law "there could be no doubt that there is a moral obligation resting upon a parent to do equity between his children by equalizing his gifts to them during his lifetime," which was a natural obligation. Applying Louisiana law, the Court found that this natural obligation was sufficient consideration for the notes and that they were deductible from the decedent's gross estate.

Sammie met with Jack's heir and others in her hospital room and said that *25 she renounced Jack's estate because she wanted the property to go to Jack's heirs like she and Jack had agreed. In the meeting in her hospital room. Sammie promised to perform the natural obligation. This promise to perform the natural obligation was an onerous contract enforceable by Jack's heirs, even though it lacked the requisite form.

Professor Litvanoff states at Section 2.5 of his Civil Law Treatise on the Law of Obligations, that:

the law presumes that, if the heir voluntarily executes those dispositions [in a will that lacked the required formalities], or promise to execute them, they do so not by mistake but in performance of a natural obligation. It is noteworthy that, in such a case, the law allows persons acting as heirs to execute without formalities, certain acts that would require those formalities if executed by the same persons carrying out their own will rather than that of their ancestor.

Like in Atkins, Sammie owed a natural obligation. The claim is allowable by Louisiana law, was contracted bona fide, and for adequate and full cause in money or money's worth. No formalities were required because Sammie was acting as Jack's heir. The natural obligation supplied the cause necessary for the contract (the promise to perform the natural obligation) in the hospital.

Furthermore, when Sammie instructed the attorneys to draft the documents necessary to renounce Jack's bequest, she began performing the natural obligation. The natural obligation could only be performed by renouncing Jack's estate, rewriting *26 Sammie's will or gifting the property to Jack's relatives. Each of these options required, either as a legal or a practical matter, the assistance of legal counsel. See la. CIV. code ann. arts, 1017, 1536 & 1538; la. rev. stat. ann. § 9:2442. Instructing the attorneys to prepare documents implementing Jack and Sammie's agreement was a necessary and indispensable step in performing the natural obligation.

In Succession of Gumbel, 56 So.2d 418 (La. 1951), the Louisiana Supreme Court upheld an agreement between legatees implementing an invalid oral agreement with the testator.

In Gumbel, the testator wrote a letter to the residuary legatee of his estate increasing several special bequests listed in his will. The residuary legatee accepted the terms of the letter after the testator's death. After receiving the consent of all of the other legatees, the trial court authorized the executor to carry out the provisions in the letter. Later, one of the legatees contested the court's order. The Court stated that:

While this transaction cannot be considered a will or a confected contract, the wishes of the decedent are expressed therein and they are sufficient consideration to support the agreement entered into by the legatees after his death because it is a natural obligation on the part of the legatees to perform the will of the donor.

Gumbel at 420.

*27 In Gumbel, the Court found that it was not the testator's letter that was enforceable. What was enforceable was the agreement by the legatees to honor the terms of the letter. In essence, the legatees converted the natural obligation into a legally enforceable onerous contract when they consented to perform the natural obligation. See Gumbel at 420-21.

Like in Gumbel, Jack and Sammie's oral contract was not a valid will or confected contract. However, Jack's wishes are expressed in the oral contract, which created a natural obligation on the part of Sammie to perform the oral contract. The natural obligation ripened into an onerous contract when Sammie began to perform the natural obligation. Sammie began to perform the natural obligation when she instructed the attorneys to draft the documents necessary to implement the oral contract. See Gumbel 420-21. The natural obligation supplied the cause for the onerous contract. See LA. CIV. CODE ann. art. 1761 (Comment d); Harrison at 1195; Gumbel at 420-21.

3. COULD JACK'S RELATIVES LEGALLY ENFORCE THE NATURAL OBLIGATION ONCE IT BECAME AN ONEROUS CONTRACT?

Sammie's death did not affect the onerous contract because all rights and duties under the contract transferred to her heirs. "The estate of a deceased means the property, rights, and obligations that a person leaves after his death." *28la. CIV. code ann. art. 872. Jack's relatives assumed all rights Jack had to enforce the onerous contract because "every obligation is deemed heritable as to all parties." la. CIV. code ann. art. 1765. Jack's heirs had a right to enforce Sammie's onerous contract created by her promise to perform the natural obligation. Jack's relatives also had enforceable rights as beneficiaries of the onerous contract. These were legitimate claims that Jack's heirs were pursuing with the Rule to Show Cause. [FN10] Sammie's executors had the legal duty to fulfill these obligations.

FN10. Jack's heirs properly filed the action in Jack's estate because the claim was an asset of Jack's estate that the executor was attempting to preserve. This prevented the property from being distributed to Sammie's estate until the claim was resolved. The claim was satisfied after the judge decreed the judicial renunciation.

Jack's relatives had a legal claim, enforceable under Louisiana law, against Sammie's estate. Under Louisiana law, the moral duty created by the oral contract between Jack and Sammie regarding the disposition of their property was a natural obligation. When Sammie instructed the attorneys to draft the documents necessary to perform the natural obligation, it ripened into an onerous contract. Once the natural obligation became an onerous contract, Jack's relatives could legally enforce it and Sammie's executors had a legal duty to honor the agreement.

B. WAS THE CLAIM AGAINST THE ESTATE A PERSONAL OBLIGATION OF SAMMIE'S?

*29 When Sammie transformed the natural obligation into an onerous contract by beginning to perform the natural obligation, she became personally liable to Jack's relatives who could enforce the onerous contract against her estate. See Treas. Reg. § 20.2053-4. This personal liability was a debt of Sammie's estate. See la. CIV. CODE ANN. art. 872.

C. DID THE OBLIGATION EXIST AT THE TIME OF HER DEATH?

The obligation existed at the time of Sammie's death because prior to her death she took steps that converted the natural obligation into a legally enforceable onerous contract. See Treas. Reg. § 20.2053-4.

D. WAS THE CLAIM AGAINST SAMMIE'S ESTATE FOUNDED ON A PROMISE OR AGREEMENT THAT WAS CONTRACTED BONA FIDE AND FOR ADEQUATE CONSIDERATION IN MONEY OR MONEY'S WORTH?

When the oral contract became an onerous contract, it was bonafide because it implemented the natural obligation and its purpose was to see that the natural objects of the parties' bounty received their just inheritance. The onerous contract was for adequate consideration in money or money's worth because a natural obligation is adequate consideration for an onerous contract under Louisiana law. See LA. CIV. code ann. art. 1761 (Comments a, c & d); Treas. Reg. § 20.2043-l(a). The consideration was capable of valuation in money or money's worth *30 because the object of the onerous contract was Jack's estate. Jack's estate was valued for estate tax purposes.

All of the witnesses testified that there was a bona fide dispute between Jack's heirs and Sammie's heirs. After weighing the costs, risks and other factors, the parties arrived at a negotiated settlement of the dispute. The Stipulation and Judgment in Jack's succession represented a settlement of a bona fide legal controversy over what Sammie and her successors were to receive from Jack's estate. The settlement fixed the amount includable in Sammie's estate and the numbers were reported consistently on both Jack and Sammie's estate tax returns. The Service accepted the settlement as reported on Jack's return, but denied the settlement as reported on Sammie's return.

In summary, the trial court erred when it refused to allow Sammie's estate to deduct the value of the claim made by Jack's relatives, as provided in I.R.C. § 2053. Jack's relatives had a claim against Sammie's estate that was valid under Louisiana law, the state where the estate was administered. The claim against Sammie's estate was a personal obligation enforceable against her estate. Sammie's obligation existed at the time of her death. The claim Jack's relatives filed suit to enforce was contracted bona fide and for adequate consideration in money or money's worth.

*31 CONCLUSION

Under Louisiana law, the executors and their attorneys had the authority to renounce an interest in property on behalf of Sarnmie Delaune after her death. Sammie's executors sought and obtained a judicial renunciation that meets all of the requirements of I.R.C. § 2518. Therefore, the Service erred when it did not allow the disclaimer and assessed additional taxes against the transferees of the Sammie's estate.

The claim by Jack's relatives was valid under Louisiana law because the natural obligation ripened into an enforceable onerous contract when Sammie began to perform or promised to perform the natural obligation. This contract meets all of the requirements of I.R.C. § 2053 and should have been allowed as a deduction from Sammie's taxable estate.