Opinion
No 5570.
Argued March 8, 1967.
Decided April 28, 1967.
1. Where the testator devised to his wife the equivalent of a general power of appointment, but further provided that if the wife shall during her lifetime wish to designate a trustee to hold the property and pay to her the income and such portions of the principal as in the discretion of the trustee shall be for her best interest, comfort and support then she shall have the power to name such a trustee, it was held that the act of the wife in executing, filing and obtaining the allowance of her petition for the appointment of a trustee constituted a renunciation and disclaimer of any general power of appointment she had under the will.
2. In such case, where the trustee was appointed by the probate court on the first day there could be no further claims against the estate of the testator, it was held that the renunciation by the wife met the requirement that it occur within a reasonable time after the death of the testator, and hence was effective.
3. The decision of the highest court of the state in the construction of wills and the interpretation of state statutes regulating the devolution of property have binding effect for federal tax purposes where the proceedings are truly adversary in character.
Certification of questions of law to the Supreme Court by the probate court of Hillsborough county (Lemelin, J.) pursuant to RSA 547:30. The facts are not in dispute and appear in the petition for certification filed by the executor under the will of Anna F. Cross. They have been verified and approved by the Director of Charitable Trusts, the guardian ad litem and interested legatees.
Fred D. Cross died testate on August 3, 1957. His will was allowed and his sister, Anna F. Cross, was appointed executrix on August 14, 1957. The fourth article of the will gave his sister Anna the residue of his estate "during the term of her natural life, free from any trust, obligation or condition of any kind." Clause A of the fourth article provides that Anna ". . . shall have the right and power to sell and dispose of any and of all my property and to enjoy the use of principal and income therefrom in any amounts she may desire." This clause also exempted her from liability for improper investments or the requirements of accounting or of furnishing an executrix's bond. Clause B states that Anna "shall treat my property as her own during her lifetime; and she may, during her lifetime, so dispose of my property as to defeat the interests . . . of any other persons named in this Will." Clause C states that income received during Anna's lifetime shall be her property ". . . and shall not become a part of the remainder of my estate."
Clause D of the fourth article of the will provides in part as follows: "In the event my sister shall, during her lifetime, wish to designate a trustee to hold my property and to pay to my sister all the income therefrom and so much of the principal thereof as shall, in the discretion of the trustee, be for the best interests, benefit, comfort, support and maintenance of my sister, then my sister shall have the power and authority to name such a trustee, either corporate or individual, without the permission of said Court of Probate."
The disposition of the remainder after the death of Anna appears in clause E which reads as follows: "Upon the death of my sister, the then remaining principal of my estate shall be distributed in accordance with the term of Paragraph `FIFTH' of this Will."
On August 1, 1958 Anna executed a petition for the appointment of a trustee pursuant to clause D of the will which was granted by the probate court on August 14, 1958. The trustee continued to serve as trustee until the death of Anna on October 15, 1963. From the death of Fred Cross, Anna received no principal from his estate under any provision of his will although she did receive income from time to time. Anna died testate and her will was allowed October 22, 1963.
On August 24, 1966 the probate court certified the following questions of law to this court: "1. Did the act of Anna F. Cross in executing, filing and obtaining the allowance of her Petition requesting the appointment of Frank B. Clancy, Esq. as trustee under Paragraph D of Article Fourth of the Will of Fred D. Cross, constitute a renunciation and disclaimer made within a reasonable time of any interest under said Article Fourth beyond that of the life income beneficiary of a trust, with no power to obtain principal except in the discretion of the trustee, and then only subject to certain objective standards? [2.] If the answer to the above question is in the affirmative, does it follow that Anna F. Cross did not ever acquire a power of appointment or disposition exercisable, either during her lifetime or at her death over the property passing under Article Fourth of the Will of Fred D. Cross?"
Earl F. Nauss, Jr. (of Massachusetts) (by brief and orally), pro se, as a residuary legatee under wills of Fred D. Cross and Anna F. Cross.
Joseph P. Whelton, guardian ad litem, filed no brief.
Robert Danais, Director of Charitable Trusts (by brief and orally), pro se.
The essence of the questions certified to us under RSA 547:30 is whether as a matter of New Hampshire law Anna Cross effectively renounced and disclaimed within a reasonable time the powers granted to her under article fourth of the will of her brother Fred Cross to invade, consume and dispose of the principal of the residue of his estate. We conclude that she did and accordingly the answer to both certified questions is in the affirmative.
The interest that Anna received under article fourth of her brother's will, clauses A, B, C and E was obviously more than a conventional life estate. Quinn v. Tuttle, 104 N.H. 1. Inasmuch as she had the power to invade, consume and dispose of the principal of the residue to herself or others it was the equivalent of a general power of appointment. Belford v. Olson, 94 N.H. 278; Shapleigh v. Shapleigh, 69 N.H. 577; In re Segal Estate, 107 N.H. 120. However clause D of article fourth of the will makes it clear that the appointment of trustee thereunder restricts her interest to receiving income with no power to invade, consume or dispose of the principal. This clause of the will explicitly limits distribution of principal to her in the discretion of the appointed trustee. When Anna requested the appointment of a trustee which the probate court granted, she rejected the power to invade, consume or dispose of the principal. This constituted a renunciation and disclaimer of any general power of appointment she had under the will. Coleman v. Burns, 103 N.H. 313, 316; Bradley v. State, 100 N.H. 232, 236; Perry v. Hale, 44 N.H. 363.
In order for a renunciation to be effective it must occur within a reasonable time after the death of the testator. Oliver v. Wells, 254 N.Y. 451; Coleman v. Burns, supra. In Weston v. Society, 79 N.H. 245, 247, it was observed that a life tenant with a power to consume and dispose cannot exercise his power until claims against the estate have been settled. In the present case claims against the estate of Fred D. Cross could be brought on or before August 13, 1958. The trustee was appointed by the probate court on August 14, 1958, the first day there could be no further claims against the estate. RSA 556:1, 3, 5. Therefore the renunciation by Anna was within a reasonable time, when the trustee was appointed under clause D of the will on August 14, 1958.
Seven years ago we held that appellate state court decisions in the construction of wills and the interpretation of state statutes regulating the devolution of property had binding effect for federal tax purposes where the proceedings "are truly adversary in character." In re Barnhart Estate, 102 N.H. 519, 522; Freuler v. Helvering, 291 U.S. 35; Blair v. Commissioner, 300 U.S. 5; Sharp v. Commissioner, 303 U.S. 624. As of this date the Barnhart decision is still good law although there is substantial conflict among the federal circuits. Braverman Gerson, The Conclusiveness of State Court Decrees in Federal Tax Litigation, 17 Tax L. Rev. 545 (1962); Holzman, Impact of State Law Upon Federal Taxation, 42 Taxes 240 (1964); 10 Merten's, Law of Federal Income Taxation, s. 61.03 (Zimet Rev. 1964); Note, Effect of State Court Decrees in Federal Tax Litigation: A proposal for Judicial Reform, 30 U. Chi. L. Rev. 569 (1963). The divided opinion in C.I.R. v. Estate of Bosch, 363 F.2d 1009 (2d Cir. 1966) points up some of the arguments for and against the existing rule. See 41 N.Y.U.L. Rev. 1007 (1966); Casner, Estate Planning, p. 844, n. 123a (1966 Supp). Certiorari has been granted in this case and further light may be forthcoming in the near future. 5 Rabkin Johnson, Federal Income, Gift and Estate Taxation, s. 71.08 (1967 Supp). However our decision must be here and now and we have no hesitation in holding that a decision of the highest court of a state construing a will in a proceeding which is "truly adversary in character" (In re Barnhart Estate, 102 N.H. 519, 522) — as is this case — is entitled to binding recognition by the parties and the tax gatherers alike. Richter, Effect of State Court Interpretation of Wills, N YU. 24th Annual Inst. on Federal Taxation 257 (1966). See In re Bushway Estate, 107 N.H. 135, 138.
Remanded.
All concurred.