Do-It-Yourself Will Succeeds in Spite of Itself

BY SHARON BURNETT AND DARLENE PULLIAM

The Ninth Circuit Court of Appeals recently upheld a district court’s decision that a self-prepared will’s bequest qualified for the marital deduction, even though its literal wording created a disqualifying terminable interest. The courts found the decedent’s handwritten notes of planned revisions to the will and an article he saved on the deduction demonstrated he intended for his estate to claim the deduction.

When Tony Sowder died in 1995, he was survived by his wife, Marie Sowder, and three adult children. Sowder had prepared his own will in 1983, leaving his children a total of $600,000—the amount that could be passed tax-free to a non-spouse at the time. The will required that the remainder pass to Marie “if she survives me, and if she does not survive me, or dies before my estate is distributed to her, to my issue me surviving, in equal shares per stirpes.” Later handwritten notes to the will by Sowder did not contain the language “if she does not survive me, or dies before my estate is distributed to her.”

Code section 2056(b) denies the marital deduction for terminable interests, which include conditioning a bequest on the spouse’s survival until distribution. Under § 2056(b)(3), however, that rule does not apply where the period is limited to not more than six months and the spouse in fact survives such period. In the instant case there was no limitation of the period of survival. However, state law in Washington, where Sowder died, provides that if the testator is determined to have intended a marital deduction bequest, “the governing instrument shall be construed to comply with the marital deduction provisions of the Internal Revenue Code in every respect.”

Evidence that Sowder so intended included that he was a professional businessman who had demonstrated the desire and ability to complete careful tax planning. Four years before his death, the Sowder Family Trust had purchased “last-to-die” insurance on the Sowders, indicating a perceived need for cash to pay deferred taxes after the second spouse died. The court also was persuaded by the fact that Sowder did not change his handwritten will after the insurance was purchased.

The unlimited marital deduction was created by a 1981 change in the tax law. A 1981 article concerning the change was found in Sowder’s papers after his death, and the court decided that he probably read it.

Marie L. Sowder v. U.S. , 100 AFTR2d 2007-6379

Prepared by Sharon Burnett , CPA, Ph.D., lecturer of accounting, Oklahoma State University–Stillwater, and Darlene Pulliam , CPA, Ph.D., McCray Professor of Business and professor of accounting, College of Business, West Texas A&M University, Canyon, Texas.

SPONSORED REPORT

How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.

VIDEO

Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.

QUIZ

News quiz: Scam email plagues tax professionals—again

Even as the IRS reported on success in reducing tax return identity theft in the 2016 season, the Service also warned tax professionals about yet another email phishing scam. See how much you know about recent news with this short quiz.