Opinion
Docket No. 6530.
1946-02-21
ESTATE OF EDWIN E. JACK, GEORGE M. NAY AND FRANCIS P. DENNY, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Oliver A. Wyman, Esq., and Edward Hyde Earle, Esq., for the petitioners. Carl A. Stutsman, Esq., for the respondent.
Under testamentary trust testator's widow was given income for life and the trustees were authorized to pay over to the widow so much of the principal as they, in their sole discretion, should deem necessary for her ‘comfort and support‘ if they thought the income insufficient. The remainder was given largely to certain charities. The widow had ample means for her comfort and support without recourse to the trust principal. Held, the charitable bequests are deductible from gross estate under Ithaca Trust Co. v. United States, 279 U.S. 151, and Hartford-Connecticut Trust Co. v. Eaton, 36 Fed. (2d) 710. Oliver A. Wyman, Esq., and Edward Hyde Earle, Esq., for the petitioners. Carl A. Stutsman, Esq., for the respondent.
The Commissioner has determined a deficiency of $17,016.75 in estate tax. The petitioners contend that there has been an overpayment in the amount of $36,692.02. The taxable year is 1942.
The sole issue is whether the taxpayer is entitled to a deduction from gross estate for residual charitable bequests under section 812(d), Internal Revenue Code, where the will provided that the principal of the trust, which was subject to a life estate in decedent's widow, could be invaded by the trustees if in their opinion the income was insufficient and in their sole discretion they should deem it necessary for her support and comfort.
An issue relating to credit against the Federal estate tax for estate, inheritance, legacy, or succession taxes paid or payable to the State of Massachusetts was also raised. The respondent in his brief states that he makes no objection to the granting of such credit to the extent provided by law upon the furnishing of proper verification of payment by the petitioners as required by section 813(b) of the code and the regulations thereunder. Accordingly, this matter is not further discussed and can be taken care of under a Rule 50 computation.
FINDINGS OF FACT.
Petitioners are the executors of the estate of Edwin E. Jack, hereinafter referred to as decedent, who died testate on November 16, 1942, a resident of Brookline, Massachusetts. The executors seasonably filed an estate tax return with the collector of internal revenue at Boston, Massachusetts.
Decedent, a retired physician, died in his 83d year. The assets includible in his gross estate had a value at the time of his death of $731,107.31, and deductions claimed in the return and allowed, except for specific exemptions, were $56,961.75, leaving a net estate (before exemptions and before charitable deductions) of $676,145.56.
The decedent's will provided for the payment of debts and expenses and made a bequest of certain tangible personal property to his wife, Mary Denny Jack. It further provided that the trustees should provide and maintain a suitable dwelling house for her during her lifetime. The residue of the estate was left to petitioners, in trust. The following paragraphs of the will are material to this proceeding:
FOURTH: I give, devise and bequeath all the rest, residue and remainder of my property to FRANCIS PARKMAN DENNY of said Brookline, and GEORGE M. NAY of Wellesley, said Norfolk County, to their own use and behoof forever, BUT IN TRUST NEVERTHELESS, upon the following uses and purposes, viz:
To invest and reinvest, manage and control and execute all necessary instruments of transfer, and to pay over the entire net income, and also such of the principal, if any, as they in their sole discretion deem necessary for her comfort and support, (if they think the income insufficient) to my wife, MARY DENNY JACK, quarterly, during the term of her natural life.
In the management of this trust fund, I request that conservatism rule. The safety of principal rather than possible appreciation is desired, but I give to my executors and trustees the power to hold any security that I may leave, if they so desire, although said security may be somewhat speculative.
On the death of my said wife, MARY DENNY JACK, I direct my said trustees to pay:
A. To the ANIMAL RESCUE LEAGUE of Boston the sum of ONE THOUSAND (1000) DOLLARS.
B. To the MASSACHUSETTS SOCIETY FOT THE PREVENTION OF CRUELTY TO ANIMALS, the sum of TWO THOUSAND (2000) DOLLARS.
FIFTH: I direct that the remainder of my estate be divided into hundredths, and be distributed as follows:
G. Thirteen one-hundredths (13/100) to the MASSACHUSETTS CHARITABLE EYE AND EAR INFIRMARY * * * .
H. Three one-hundredths (3/100) to the CHILDREN'S HOSPITAL of Boston * * *
I. Six one-hundredths (6/100) to the BOSTON ART MUSEUM * * * .
J. One one-hundredth (1/100) to the PERKINS INSTITUTE AND MASSACHUSETTS SCHOOL FOR THE BLIND
K. One one-hundredth (1/100) to the NATIONAL SOCIETY FOR THE PREVENTION of BLINDNESS.
The organizations above referred to are charitable organizations within the provisions of section 812(d), Internal Revenue Code.
Mary Denny Jack was at the death of decedent in her 77th year and her expectancy of life at his death, according to the Combined Mortality Tables, was 5.76 years. Mrs. Jack, at the testator's death, owned in her own right securities having a value of $99,462.66 and $4,143.32 in cash. Her income from her own securities for the two years following testator's death was $6,638.04 for the first year and $7,805.34 for the second year. The income to be paid to her from the trust under the will was $30,000 for the first year after decedent's death and $24,280.71 for the second year. No principal has ever been paid to her from the trust. The living expenses of Mrs. Jack for the two years subsequent to the death of the decedent were $8,792.07 for the first year and $8,439.25 for the second year. Her taxes, including chiefly income taxes, were $11,213.47 for the first year and $23,902.81
for the second year. In the two years subsequent to testator's death, Mrs. Jack's personal bank account increased from $4,085.07 to $7,834.24, and her investments increased by $10,175.71.
This tax figure is unusually large due to the fact that it includes, among others, the last installment of estimated 1943 tax, $10,171.06; the final payment of actual 1943 tax, $610.38, including the unforgiven portion of the 1942 tax; and the first three installments of estimated 1944 tax, $12,602.46.
The combined income of decedent and Mrs. Jack for the two years prior to his death was $49,009.71 for the first year prior to his death and $48,226.73 for the second year prior thereto. Their living expenses for the two years were $9,335.93 and $9,669.59, respectively. In the two years prior to the death of decedent the combined bank balance of decedent and Mrs. Jack increased $500 and their combined investments increased $53,572.61.
Mrs. Jack has lived in the house furnished her under the will, and taxes thereon have been paid by the trustees, so that the income to her is the net after taxes. She lived a modest life and had ample means for her comfort and support, and there was no likelihood that it would ever become necessary for the trustees to distribute any of the principal of the fund to her for her support and comfort.
The Commissioner refused to allow deduction of the charitable bequests, from which determination the taxpayer brings this proceeding.
OPINION.
ARUNDELL, Judge:
The problem here is whether the estate of the decedent is entitled to a deduction for the charitable bequests under section 812(d) of the Internal Revenue Code. The respondent takes the position that no deduction is allowable, inasmuch as the trustees were authorized to invade the principal of the fund in behalf of the settlor's widow if the trustees, in their sole discretion, should deem it necessary for her comfort and support if they thought the income insufficient. It is asserted that this power rendered the charitable bequests too indefinite at the time of decedent's death to warrant permitting a deduction therefor.
In determining the question, we have the benefit of the decisions by the Supreme Court in Ithaca Trust Co. v. United States, 279 U.S. 151, and the more recent case of Merchants Nat. Bank of Boston v. Commissioner, 320 U.S. 256. In addition, there are numerous decisions by the Circuit Courts of Appeals and our own, all of which bear directly upon the issue. Those cases point out that the disposition of the issue as to whether or not such bequests are deductible depends, generally, upon the language of the power and the likelihood of its exercise as disclosed by the facts and circumstances of each case. Estate of Nathan P. Cutler, Jr., 5 T.C. 1304.
In the Ithaca Trust Co. case, supra, where the trust indenture provided that the trustee might invade the principal of the fund for the benefit of the settlor's wife to the extent ‘that may be necessary to suitably maintain her in as much comfort as she now enjoys‘ and where the income of the trust estate, to which the settlor's wife was entitled, was more than sufficient to maintain her as required, the Court held that the standard was fixed in fact and capable of being stated in definite terms of money. In allowing the deduction, the Court went on to say that ‘There was no uncertainty appreciably greater than the general uncertainty that attends human affairs.‘ In the Merchants Nat. Bank of Boston case, supra, where the trustee was authorized to use principal when the trustee in its sole discretion should deem wise and proper for ‘the comfort, support, maintenance, and/or happiness‘ of the settlor's wife and where the settlor directed a liberal exercise of the power, the Court held that the deduction was not allowable. It was pointed out in that decision that the introduction of the element of the widow's ‘happiness‘ and the instruction to the trustee to exercise its discretion with liberality to make her wishes prior to the claims of residuary beneficiaries brought into the calculation elements of speculation too large to be overcome, notwithstanding the widow's previous mode of life was modest and her own resources substantial.
The instrument here considered provides that the trustees shall pay over to the decedent's wife the entire net income of the trust and also so much of the principal thereof as they in their sole discretion deem necessary for her comfort and support if they think the income insufficient. The question is whether that direction provides a fixed standard capable of being stated in terms of money. We think it does. It is true that the instrument before us does not expressly limit the standard to ‘as much comfort as she now enjoys,‘ as did the instrument in the Ithaca Trust Co. case, supra, but, nevertheless, the words used limit the discretion of the trustees as effectively as if there had been an express limitation in the instrument itself. With due regard to changes in cost, the power is intended only to secure to the beneficiary the kind of living to which she was accustomed as if interpolating into the will here considered the words expressly used in the will under consideration in the Ithaca case, supra. Hartford-Connecticut Trust Co. v. Eaton, 36 Fed.(2d) 710. As pointed out by Judge L. Hand in the Hartford-Connecticut Trust Co. case, ‘while there was, of course, some latitude of choice with which the remaindermen could not interfere, the trustee was limited to the support of the widow according to her 'station in life’; that is, according to her wont.‘
A number of the Circuit Courts of Appeals and this Court have had occasion, before and after the Supreme Court handed down its decision in the Merchants Nat. Bank of Boston case, supra, to consider the legal effect of comparable directions and have held that the words provided a fixed standard capable of measurement. The following cases are illustrative: ‘Proper comfort and support,‘ First Nat. Bank of Birmingham v. Snead, 24 Fed.(2d) 186; ‘Comfortable maintenance and support,‘ Hartford-Connecticut Trust Co. v. Eaton, supra; ‘Comfort, maintenance and support,‘ Lucas v. Mercantile Trust Co., 43 Fed.(2d) 39; ‘Comfort and support,‘ Boston Safe Deposit & Trust Co. et al., Executors, 21 B.T.A. 394; more recently, ‘Care, maintenance and support,‘ Estate of Horace G. Wetherill, 4 T.C. 678; appeal dismissed, 150 Fed.(2d) 1019, and see the directions to trustees in Commissioner v. Robertson's Estate, 141 Fed.(2d) 855, and Commissioner v. Wells Fargo Bank & Union Trust Co., 145 Fed.(2d) 130. When a widow has taken property under the will of her husband, ‘to be used and enjoyed by her for her comfort and support during her lifetime,‘ the courts of Massachusetts have held that she took a life estate only, with limited power of disposal so far as necessary for her personal comfort and well being, but for no other purpose. Her receipts and disbursements were subject to approval by the probate court. Allen v. Hunt, 213 Mass. 276; 100 N.E. 552, and cases cited therein.
The purposes for which the principal of the trust fund could be expended by the trustees herein lend themselves to reliable prediction. Expenditures could be made only to maintain the widow at the standard of living to which she had been accustomed, and such standard is measurable in terms of money. First Nat. Bank of Birmingham v. Snead, supra, and Hartford-Connecticut Trust Co. v. Eaton, supra.
The stipulated facts illustrate that the decedent's wife owned approximately $100,000 in securities at his death. The annual income therefrom amounted to approximately $7,000. The trust income distributable to her would amount to from $24,000 to $30,000 per annum. She was furnished a suitable dwelling in addition. It is demonstrated that her living expenses were less than $9,000 per year and that her bank account and investments were being expanded by her savings. The combined living expenses of the widow and the decedent for the two years immediately preceding his death were less than $10,000 each year. She was at the advanced age of 77 years, with a life expectancy of 5.76 years, and it can reasonably be assumed that her demands would not be great. Had her living expenses increased substantially, still she would have had adequate means of her own. The respondent does not contend that the widow's resources were inadequate for her normal needs. In these circumstances, we think there was no likelihood that the trustee would ever find it necessary to use the corpus for her support and comfort and that we are justified in concluding that it was reasonably certain that the remaindermen would come into the principal undiminished by any distribution to her. It follows that the charitable bequests constitute allowable deductions.
The recent cases, Estate of Nathan P. Cutler, Jr., supra, and Estate of John W. Holmes, 5 T.C. 1289, are distinguishable. In the Cutler case it was pointed out that ‘use and benefit‘ is a term of broader meaning than ‘comfort, maintenance and support‘; that a power to ‘use‘ is a power to consume; and that there was no fixed standard of expenditure capable of being stated in terms of money. In the Holmes case, supra, it was thought the words ‘to properly care for and maintain‘ did not provide a fixed standard since the word ‘proper‘ is not one of exactitude. Even so, that case turned upon the fact that the evidence failed to establish the standard of living to which the life tenant was accustomed. Nor do we think Estate of Charles H. Wiggin, 3 T.C. 464, is contrary to our present holding. In that case a deduction for the charitable remainders was denied because the income of the trust approximately equaled the ordinary expenses of the life tenant and, therefore, it was not unlikely that the corpus would be invaded to provide for her ‘comfort and support.‘
Reviewed by the Court.
Decision will be entered under Rule 50.