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State death tax credit as of the date of decedent's death was
$42,260.
In her notice of deficiency, respondent increased decedent's
gross estate to include certain real estate, stocks and bonds,
miscellaneous property, and the amount of property disclaimed by
the surviving spouse. The question presented is whether the
disclaimer had the effect of decreasing the marital deduction,
and thereby increasing decedent's gross estate, or whether the
disclaimer merely resulted in a substitute of certain property
for other property, and thereby had no impact on the amounts of
the marital deduction or the taxable estate.4
Respondent contends that to give effect to the disclaimer,
the surviving spouse's interest in decedent’s estate must be
reduced by the value of the disclaimed property. Petitioner
asserts that the calculation of the marital deduction must be
made after taking into effect the disclaimer. By calculating the
marital deduction in this manner, the disclaimed property will
become part of the estate and will be used to fund the residuary
4 The dispute in this case can best be understood with the
help of the following example:
Assume a decedent died with an estate of $1 million, of
which $400,000 was in stock and the balance of $600,000 in cash.
The trustee distributes the $400,000 in stock to the surviving
spouse and lets the $600,000 cash fall into the residue, to take
advantage of the unified credit. The surviving spouse disclaims
the stock. The Government argues that no marital deduction is
allowable, whereas the estate argues that $400,000 of the cash
can be given to the surviving spouse as a substitute for the
stock, leaving the marital deduction intact.
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