Title: First Nat. Bank of McMinn County v. Walker

State: tennessee

Issuer: Tennessee Supreme Court

Document:

607 S.W.2d 469 (1980) The FIRST NATIONAL BANK OF McMINN COUNTY and Harold Fred Miller, Co-Executors of the Last Will and Testament of Charles C. Miller, Deceased; the First National Bank of McMinn County, Tennessee, and Thomas M. Boyd, Co-Executors of the Last Will and Testament of Allie Bess W. Miller, Deceased, and Harold Fred Miller v. William Bryan WALKER, Jr. Supreme Court of Tennessee. November 3, 1980. Robert L. McMurray, Cleveland, of counsel; Bell, Painter, McMurray, Callaway, Brown, Mashburn & Headrick, Cleveland, William P. Biddle, III, Athens, for plaintiffs-respondents and defendant-respondent. Thomas B. Prickett, II, Oneonta, Ala., Larry B. Nolen, Athens, for defendant-petitioner. BROCK, Chief Justice. Charles Miller died on March 17, 1975, leaving an estate of approximately $800,000.00 which by his last will and testament, dated October 4, 1972, was divided into two trusts, a "marital deduction" trust and a residuary trust. His wife, Allie Bess Walker Miller, was made the lifetime beneficiary of the marital deduction trust and was given a power of appointment over the corpus thereof. However, this power of appointment was limited by the following language: *470 At issue is the question whether Allie Bess effectively exercised the power of appointment thus granted by the language employed in her last will and testament, dated October 17, 1969. That language is as follows: The crucial question is whether Mrs. Miller's reference to "... all property over which I shall have any power of appointment ..." is a sufficient compliance with the stipulation in her husband's will that her power of appointment "... shall be exercisable only by a specific reference to said power in her last will and testament."[1] The Chancellor held that the power of appointment granted to Mrs. Miller had been effectively exercised; but, the Court of Appeals reached a contrary conclusion and reversed the decree of the Chancellor. The real parties in interest are Mr. Bryan Walker, Jr., of Oneonta, Alabama, and Mr. Harold Fred Miller of Athens, Tennessee. If the power of appointment granted to Mrs. Miller was effectively exercised, upon her death the corpus of the marital deduction trust vested equally in Mr. Walker and Mr. Harold Fred Miller under the will of Mrs. Miller; but, if the power is held to have been not properly exercised, the whole of the corpus would be distributed to Mr. Harold Fred Miller under the residuary trust created by the last will and testament of Mr. Charles Miller. The material facts have been stated by the Court of Appeals in an opinion by Judge Goddard as follows: Our first task, of course, is to ascertain, as best we can, the intent of the testator-donor of the power of appointment. Just what did Charles Miller mean by use of the words "... shall be exercisable only by specific reference to said power in her last will and testimony"? Did he mean a more specific reference than that employed by Allie Bess in her will by use of the words "... all property over which I shall have any power of appointment at my death... ."? We must determine that intent by making a fair assessment of the words used by the testator-donor in his will, considering the instrument as a whole, read in light of the circumstances known to the testator at the time the will was executed. Locke v. Davis, Tenn., 526 S.W.2d 455 (1975); Cobb v. Stewart, 225 Tenn. 85, 463 S.W.2d 693 (1971); Ashley v. Volz, 218 Tenn. 420, 404 S.W.2d 239 (1966). We have no reported decision in this state dealing with the particular problem presented. The reported decisions in other jurisdictions, as might be expected, are not unanimous. Some have held that a donor's requirement that the donee make "a specific reference" to the donated power in order to effect its exercise, was intended merely to prevent an inadvertent exercise of such power; whereas, other courts have held that the donor in making such a requirement truly intends to require that the donee refer specifically to the donated power in order to effect an exercise thereof, hoping that the donee will fail to comply with this requirement with the result that the property subject to the power will pass under the will of the donor to recipients of his own choosing rather than to beneficiaries who might be appointed by the donee. Holding that the donor's intent in requiring a specific reference to the power donated was merely to prevent an inadvertent exercise thereof, are Shine v. Monahan, 354 Mass. 680, 241 N.E.2d 854 (1968); McKelvy v. Terry, 370 Mass. 328, 346 N.E.2d 912 (1976); First Union Nat. Bank v. Moss, 32 *472 N.C. App. 499, 233 S.E.2d 88 (1977); Cross v. Cross, Mo. App., 559 S.W.2d 196 (1977). See, also, Restatement of Property, § 347 (American Law Institute). Cases holding that the donor intended a strict and literal compliance with his requirement that the donee exercise the donated power by specific reference thereto are In Re Estate of Schede, 426 Pa. 93, 231 A.2d 135 (1967); Holzbach v. United Virginia Bank, 216 Va. 482, 219 S.E.2d 868 (1975). The cited cases as well as the instant case may be better understood if we digress for a brief consideration of certain aspects of the federal estate tax laws. Powers of appointment play an important role under the marital deduction trust provisions of the Internal Revenue Code, § 2056. In order to qualify for the marital deduction, the code makes it clear that any property which passes to a spouse without taxation should end up in that spouse's estate and, therefore, cannot be a "terminable interest." Thus, under Internal Revenue Code, § 2056(b)(5), if marital deduction property is placed in trust with income for life to the spouse, that spouse must have a power of appointment which will include the trust corpus in the subsequent estate under Internal Revenue Code, § 2041, that is, some general power of appointment. It has become a popular estate planning technique for an owner of property to grant to the spouse a life interest and a general power of appointment in order to qualify for the marital deduction, but, to limit the manner in which it can be exercised. Under existing federal law and regulations, such a restriction does not deprive the power of its general character and, thus, does not defeat the marital deduction. Treasury Regulation, § 20-2056(b)-5(g)(4). Under this arrangement, the residual beneficiary under the will of the original grantor will receive the trust corpus unless the spouse has exercised the power of appointment exactly as directed. Obviously, this technique was attempted in the case at bar. In Shine v. Monahan, supra, a husband by his will gave to his surviving wife the income for her life from a trust estate and a power of appointment of the remainder which was to be exercised "by a specific reference in her will to the full power hereby created." The wife, in turn, provided in her will that "all the rest, residue, and remainder of my property, including all property of which I have the power of appointment by virtue of any will or testament or inter vivos trust executed by my husband ... I give, devise and bequeath to Margaret A. O'Toole of said Westwood." The Massachusetts court held that the language employed by the wife effectively exercised the power of appointment granted by her husband. In reaching its decision, the court quoted from American Law of Property, § 23.44, as follows: The court continued: In First Union Nat. Bank v. Moss, supra, the North Carolina court stated the problem before it as follows: In deciding the issue, the court stated, in part: It was, thus, held by the court that the power granted by Mr. Moss had been effectively exercised by Mrs. Moss. In Cross v. Cross, supra, the restrictive language in the will of the donor was as follows: The language employed by the donee in attempting to exercise the power was as follows: In the course of its opinion the Missouri court noted an argument made before it, to wit: After reviewing the pertinent authorities, the Missouri court concluded: In Holzbach v. United Virginia Bank, supra, the testator husband set up a marital trust in his will providing that his wife would receive the income therefrom for life and granted to her a power of appointment as follows: After enjoying the income from the trust, the surviving wife died eight years later leaving a will in which she provided: The Virginia court concluded that the power of appointment granted by the husband had not been properly exercised by the wife. As did the Court of Appeals, we find the reasoning of the Virginia court to be particularly persuasive, in view of the particular facts in the case at bar. We, therefore, quote from that opinion as follows: Considering Charles Miller's will as a whole and the facts surrounding its execution, we conclude that Charles intended to require of Allie Bess strict compliance with his requirement that in order to exercise her power of appointment she must make "a specific reference" to the power which he had granted her. We further conclude that the general reference contained in her last will and testament was not a compliance with Charles' requirement, although we are satisfied, as found by the Chancellor, that Allie Bess intended the language that she used to be effective to exercise the power that Charles had granted to her. We concur in the reasoning and conclusions reached by the Court of Appeals, to wit: We find of compelling force the evidence that Charles continued to require a "specific reference" after learning from an attorney schooled in estate planning and death taxes that the general reference to "any power of appointment" contained in Allie Bess' will dated 1969 probably was not an effective exercise of the power of appointment which he had granted to her. Each case of this kind, of course, must be determined upon its own facts respecting the sometimes elusive intent of the testator. We believe our conclusion to be the correct one, but, it is limited to the peculiar facts of this case. *476 The decree of the Court of Appeals is affirmed. Costs are taxed against petitioner, William Bryan Walker, Jr., and surety. FONES, COOPER and HARBISON, JJ., concur. [1] Inherent in this question is another: Will the courts recognize the validity of and require compliance with a donor's requirement that the donee of a power of appointment must, to effect an exercise thereof, make "specific reference" to the power.