## Facts

- Edward N. Opal and his wife, Mae Opal, executed a joint will (dated August 29, 1961) stating that, in consideration of the plan of disposition, it would be “irrevocable” by either spouse without the other’s written consent.
- The will provided that if Edward died first, his debts and funeral expenses would be paid and then all of his residue would pass to Mae “absolutely and forever.”
- The will further provided that upon Mae’s later death, after payment of her debts and funeral expenses, the remaining estate would pass to the couple’s son, Warren Ian Opal, “absolutely and forever.” A parallel set of provisions applied if Mae died first.
- The will also addressed a common-disaster scenario by directing that the couple’s entire estates would pass to Warren if they died in a common accident or if the order of death was uncertain.
- Under applicable state law (New York), the joint will constituted a binding contract between Edward and Mae. Once one spouse died, the survivor was bound to the agreed testamentary plan and could not change the disposition to exclude Warren.
- Edward died first, and under the joint will his entire estate passed to Mae.
- Edward’s estate claimed the full federal estate tax marital deduction under I.R.C. § 2056(a) for the property passing to Mae.
- The IRS disallowed the deduction on the ground that Mae received a nondeductible terminable interest under § 2056(b)(1) and did not qualify for the § 2056(b)(5) exception.
- The Tax Court sustained the deficiency, and Edward’s estate appealed to the Second Circuit.

## Issues

1. Whether the interest passing to Mae under the contractually binding joint will was a “terminable interest” barred from the marital deduction by I.R.C. § 2056(b)(1) because the property was required to pass to Warren at Mae’s death.
2. If Mae’s interest was terminable, whether the bequest nonetheless qualified for the marital deduction under I.R.C. § 2056(b)(5) as a life interest coupled with a general power of appointment “exercisable in all events.”

## Decision

- The Second Circuit affirmed the Tax Court.
- The court held that, despite the will’s language giving Edward’s residue to Mae “absolutely and forever,” the binding contractual nature of the joint will meant Mae’s enjoyment was limited in a way that caused the property to pass to Warren at her death; Mae therefore received a terminable interest within § 2056(b)(1).
- The court held that § 2056(b)(5) did not apply because Mae did not have a qualifying general power of appointment over the property “exercisable in all events,” given the enforceable obligation that the property ultimately pass to Warren.

## Legal Principles

- Federal estate tax classification of a spouse’s interest turns on the substantive rights created under state law and the practical effect of those rights, not solely on absolute-sounding words in the will.
- An interest is a nondeductible terminable interest under I.R.C. § 2056(b)(1) when, on the termination of the spouse’s interest (including at the spouse’s death), another person is entitled to possess or enjoy the same property.
- A joint will that is an enforceable contract can restrict the survivor’s ability to redirect the property, making the survivor’s interest functionally terminable for § 2056(b)(1) purposes.
- The § 2056(b)(5) exception requires a power in the surviving spouse to appoint the entire interest or corpus to herself or her estate that is exercisable “in all events”; a contractual obligation enforceable in equity to preserve a remainder for a third party prevents the power from meeting that standard.

## Conclusion

Because the Opals’ joint will was an enforceable contract that fixed a remainder in their son, Mae’s receipt of Edward’s property was treated as a terminable interest under § 2056(b)(1), and the arrangement did not qualify for the § 2056(b)(5) exception since Mae lacked a general power of appointment exercisable in all events; the marital deduction was therefore properly denied and the Tax Court was affirmed.


Estate of Opal v. Commissioner, 450 F.2d 1085 (1971)