## Facts

- A Texas domiciliary died testate owning separate property ($65,100) and community property with his wife ($258,105).
- Community debts totaled $32,368; administration expenses (including attorneys’ fees) totaled $4,073.
- The will required the widow to elect either to retain her one-half community interest under Texas law or to take under the will and let it govern disposition of her community interest.
- If the widow elected to take under the will, she would receive (after specific bequests) one-third of the community property and one-third of the separate property.
- By electing under the will, the widow allowed her one-half community interest to pass into a trust for the children.
- The will directed the executors, if the widow took under the will, to pay all community debts and administration expenses (not merely one-half).
- The widow elected to take under the will and, overall, received less than she would have received by retaining her one-half community interest.
- The IRS denied a marital deduction and limited deductions for community debts and administration expenses; the estate sought a refund.

## Issues

1. Whether any interest received by the widow after electing under the will qualified for the marital deduction under § 812(e) of the Internal Revenue Code of 1939 when she gave up more than she received in economic substance.
2. Whether all community debts were deductible as “claims against the estate” under § 812(b)(3) when half were chargeable to the widow’s share of community property.
3. Whether all administration expenses were deductible under § 812(b)(2) when a portion was chargeable to the widow’s share of community property.
4. Whether the testator’s direction that the estate pay all community debts and administration expenses could be treated as a marital gift supporting a marital deduction.

## Decision

- The Supreme Court unanimously reversed the Fifth Circuit and remanded.
- No marital deduction was allowed under § 812(e) because the widow’s election resulted in her surrendering more than she received.
- Community debts could not be deducted in full under § 812(b)(3) because one-half were chargeable to the widow’s one-half community interest.
- Administration expenses could not be deducted in full under § 812(b)(2) to the extent they were chargeable to the widow’s share of the community property.
- Even if the estate’s assumption of the widow’s share of debts and expenses were treated as a marital gift, no marital deduction was permitted because the widow gave up more than she received overall.

## Legal Principles

- A marital deduction under § 812(e) requires a net economic benefit passing to the surviving spouse; an election that leaves the spouse economically worse off does not create a deductible “interest passing” to the spouse.
- In community property jurisdictions, deductions for “claims against the estate” under § 812(b)(3) are limited to obligations properly attributable to the decedent’s taxable share; the estate may not deduct amounts chargeable to the surviving spouse’s share.
- Deductions for “administration expenses” under § 812(b)(2) are similarly limited to expenses attributable to administration of the decedent’s taxable estate, not expenses chargeable to the surviving spouse’s property.
- For federal estate tax purposes, the analysis turns on substantive economic effect rather than formal labels in the will; an attempted recharacterization of burdens as “gifts” does not alter the outcome when there is no net benefit to the spouse.

## Conclusion

The Court held that an election forcing the widow to surrender more than she received precluded any marital deduction, and it required allocation of community debts and administration expenses so the estate could deduct only the portions attributable to the decedent’s taxable share.


United States v. Stapf, 375 U.S. 118 (1963)