Estate of John Kenly, Deceased, Betty B. Kenly, Personal Representative - Page 17

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            1977) (citing Beam v. Bank of America, 490 P.2d 257 (Cal. 1971)).                             
            Where one spouse exchanges his separate property for new                                      
            property, the new property remains his separate property.  Nace                               
            v. Nace, 448 P.2d 76, 79 (Ariz. 1968) ("Property purchased during                             
            marriage with separate property remains such.").                                              
                  B.  The Federal Estate Tax                                                              
                  The Federal estate tax law requires that there shall be                                 
            included in the value of the gross estate the value of all                                    
            property to the extent of the decedent’s interest therein at the                              
            time of his death.  Sec. 2033.  In determining the value of the                               
            taxable estate, there is allowed a deduction for the value of any                             
            interest in property that is included in the gross estate and                                 
            that passes from the decedent to the surviving spouse.  Sec.                                  
            2056(a).  One-half of the value of property held in community                                 
            (that being the decedent's interest in the property) is                                       
            includable in a decedent's gross estate.  Ahmanson Foundation v.                              
            United States, 674 F.2d 761, 773 (9th Cir. 1981) ("The surviving                              
            spouse's [one-half interest in] community property is excluded                                
            from the gross estate".); see also Estate of Lepoutre v.                                      
            Commissioner, 62 T.C. 84, 88 (1974); Estate of Vandenhoeck v.                                 
            Commissioner, 4 T.C. 125, 135-136 (1944).  Property passing to                                
            the surviving spouse by intestate succession qualifies for the                                
            deduction provided for in section 2056(a) (the marital                                        
            deduction).  Sec. 20.2056(c)-1(a)(5), Estate Tax Regs.  Thus, if                              
            we find that the Bard property was decedent’s separate property,                              

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