Commissioner v. Estate of Hubert - Oral Argument - November 12, 1996

Commissioner v. Estate of Hubert

Media for Commissioner v. Estate of Hubert

Audio Transcription for Opinion Announcement - March 18, 1997 in Commissioner v. Estate of Hubert

Audio Transcription for Oral Argument - November 12, 1996 in Commissioner v. Estate of Hubert

William H. Rehnquist:

We'll hear argument next in No. 95-1402, the Commissioner of Internal Revenue v. the Estate of Otis C. Hubert.

Mr. Jones.

Kent L. Jones:

Mr. Chief Justice, and may it please the Court:

This case involves the marital and charitable deductions to the Federal estate tax.

As with some other tax cases, and perhaps more so than most, this case involves the central logical principle that is surrounded and almost obscured by a wealth of technical detail.

I would therefore like to focus first on the central logical principle and discuss the technical issues later.

The gross estate is defined as the value on the date of death of the property owned by the decedent.

The marital and charitable deductions to the gross estate are defined by statute as the value of the property that passes to the spouse and charity.

When, as in this case, the bequest left to the spouse or charity is burdened by the obligation of paying some expense or administration expense or other claim against the estate, the value of the property that passes under the bequest is obviously less than the full face value of the bequest.

It is the face value of the bequest, reduced by the cost of satisfying the obligations that have been imposed on it.

Thus, in 1963, this Court explained in United States v. Stapf that when the burden of paying administration expenses' or other claims against the estate is placed on the marital bequest, the decedent has in effect left that portion of the estate not to the spouse, but has designated it for payment of the claims of others.

David H. Souter:

And in that case it was the decedent's act that did it, as I recall.

Wasn't it the provision of the will that required it in that case?

Kent L. Jones:

It was... actually if I remember Stapf correctly, there was an option given to the heir as to how to take under the will or not take under the will, and it dealt with the specifics of the Texas community property rules.

In this--

David H. Souter:

In any case it didn't involve a charge which was wholly contingent at the time of death and which simply arose later and then, under the statutory option, was charged against the marital share.

Kent L. Jones:

--No, nor does this case.

In this case, as several courts have explained, the obligation to pay administration expenses is fixed on the date of death.

It is about--

David H. Souter:

But we don't know what the expenses are--

Kent L. Jones:

--Exactly.

David H. Souter:

--and we don't know that there's going to be a... for example, a will contest or something like that.

Kent L. Jones:

Exactly.

It's the valuation of that later on that has to be conducted.

But in Stapf, the Court in speaking specifically of administration expenses, said that they, like claims against the estate, represent... I'm sorry... when the obligation for administration expenses or to pay claims against the estate is placed on the marital bequest, that that reduces the value of the marital bequest because the decedent has in concept set aside a portion of the bequest not to go to the spouse, but to someone else.

And obviously, the portion of the bequest that's to go to someone else is not within the scope of the marital deduction.

Ruth Bader Ginsburg:

Mr. Jones, if we value the estate at the time of death, why don't we also value these encumbrances at the time of death?

That is one part of your argument that I don't follow.

If you say it's an encumbrance on the estate at the time of death, then if one were planning to pay it, one would have an amount that would yield, say, 4 years later what these expenses are.

But you are arguing for a dollar-for-dollar deduction and not the--