## Facts

- Ernest Duncan and Elizabeth Duncan were married for about three years before Ernest died domiciled in Texas.
- Ernest entered the marriage with more than $130,000 in separate-property assets.
- The couple’s tax returns showed that the total possible community earnings during the marriage were $16,737.19.
- During the marriage, Ernest acquired stocks and maintained two accounts in his name; at his death, the disputed stocks and account balances together exceeded $80,000 (about $81,688.84).
- The Commissioner treated the stocks and the two account balances as Ernest’s separate property, which increased the amount included in his federal gross estate.
- The executors filed a federal estate-tax refund suit, arguing that the assets were community property because they were acquired during marriage and because the funds in the accounts were commingled and not traceable.
- The record contained no direct tracing evidence showing the precise source of the funds used to purchase the stocks, and the accounts reflected commingling of separate and possible community funds.
- The district court ruled for the United States, holding the disputed items were entirely Ernest’s separate property; the executors appealed.

## Issues

1. Under Texas community-property law, did the evidence rebut the presumption that property acquired during marriage (the stocks and account balances) was community property?
2. If the presumption was rebutted only in part, how should the court classify assets acquired from commingled funds when exact tracing is not possible but the maximum amount of community funds available can be determined?
3. Did the district court err by treating all disputed assets as 100% separate property for federal estate-tax purposes?

## Decision

- The Fifth Circuit rejected the executors’ claim that the community-property presumption required treating the entire $81,688.84 as community property, given Ernest’s large separate estate at marriage and the small maximum community earnings during the marriage.
- The Fifth Circuit also rejected the district court’s all-or-nothing conclusion that the assets were entirely separate property.
- The court held that the disputed property should be treated as community property to the extent of the maximum community funds that could have contributed to the acquisitions, with the remainder treated as separate property.
- The court remanded for a recomputation of the estate tax consistent with that proportional classification.

## Legal Principles

- Federal estate-tax inclusion depends on state law ownership; Texas law controls whether an asset is community or separate property.
- Texas presumes that property acquired during marriage is community property, but the presumption may be overcome by clear and conclusive evidence that the property (or some portion of it) came from separate sources.
- Economic facts may rebut an across-the-board community characterization when the amount acquired during marriage far exceeds the maximum community funds shown to be available.
- When separate and community funds are commingled and exact tracing cannot be made, but the maximum possible community contribution can be identified, the asset should be classified with a community interest to that extent and a separate interest for the balance.
- For federal estate-tax purposes, the gross estate includes the decedent’s separate property and the decedent’s share of community property, so a partial community classification reduces the amount includible compared to a 100% separate classification.

## Conclusion

Duncan held that Texas’s community-property presumption was not enough to label all of the disputed $81,688.84 as community property when the record showed Ernest brought substantial separate assets into a short marriage with limited community earnings. At the same time, the Fifth Circuit ruled the district court went too far in treating the entire amount as separate property despite commingling and the absence of precise tracing. The court required a proportional allocation: the disputed assets had a community component up to the maximum community funds shown to be available, with the remainder treated as separate property, and it remanded for recomputation of the federal estate tax on that basis.


Duncan v. United States, 247 F.2d 845 (1957)