## Facts

- Josephus Daniels Pell died in 1958; his will placed his entire estate in a trust benefiting his widow for life.
- Under Virginia law, the widow could renounce the will and thereby become entitled to one-half of the net personal estate and a life estate in one-third of the real property.
- Virginia law also allowed a widow to elect a cash commutation of dower if dower could not conveniently be assigned in kind.
- A Virginia circuit court found dower could not conveniently be assigned, ordered sale of the real estate, and directed payment to the widow of $33,167.70 as the commuted value of her dower.
- The estate claimed a federal estate tax marital deduction under I.R.C. § 2056 for the $33,167.70 payment.
- The United States disallowed the deduction, asserting the widow’s interest was a terminable dower life estate and the cash payment was merely a conversion of that terminable interest.
- The district court ruled for the estate; the government appealed.

## Issues

1. Whether a cash payment to a widow representing the commuted value of her dower, paid under Virginia law and a state-court decree, qualifies for the federal estate tax marital deduction under I.R.C. § 2056.
2. Whether the payment must be treated as a disallowed “terminable interest,” or as a mere conversion of a terminable dower life estate.

## Decision

- The Fourth Circuit affirmed the judgment for the estate.
- The court held the commuted dower paid in cash qualified for the marital deduction under I.R.C. § 2056.
- The court rejected the government’s position that the payment was only a conversion of a terminable life estate that retained terminable attributes.

## Legal Principles

- Marital deduction qualification under I.R.C. § 2056 is determined as of the decedent’s death, based on the surviving spouse’s legal rights at that time under applicable state law.
- A payment grounded in a spouse’s state-law right at death to obtain commutation of dower can be treated as a non-terminable property interest for § 2056 purposes when reduced to a sum certain payable to the spouse.
- A state-court decree implementing state-law commutation rights may establish the operative property interest recognized for federal estate tax characterization.
- The terminable-interest limitation in § 2056 does not apply where the spouse receives an outright cash interest that does not terminate and pass to another upon the spouse’s death.

## Conclusion

The court held that, because Virginia law gave the widow a right at the decedent’s death to receive commuted dower in cash and a state court ordered payment of a fixed sum, the $33,167.70 payment was a qualifying, non-terminable interest eligible for the federal estate tax marital deduction.


First Nat’l Exch. Bank of Roanoke v. United States, 335 F.2d 91 (4th Cir. 1964)