Source: https://law.justia.com/cases/federal/appellate-courts/F2/330/234/116293/
Timestamp: 2020-08-14 06:53:06
Document Index: 154493396

Matched Legal Cases: ['§ 2055', '§ 2041', '§ 2055', '§ 2055', '§ 2041', '§ 2041', '§ 2041', '§ 2041', '§ 2055', '§ 2041', '§ 2041', '§ 2055', '§ 2055', '§ 2055', '§ 2041', '§ 2041', '§ 2055', '§ 2041']

Albert Strite and Commonwealth Trust Company of Pittsburgh, Executors of the Estate of Lillian D. Cree, Deceased, Appellants, v. Edgar A. Mcginnes, District Director of Internal Revenue, Appellee, 330 F.2d 234 (3d Cir. 1964) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1964 › Albert Strite and Commonwealth Trust Company of Pittsburgh, Executors of the Estate of Lillian D. Cr...
Albert Strite and Commonwealth Trust Company of Pittsburgh, Executors of the Estate of Lillian D. Cree, Deceased, Appellants, v. Edgar A. Mcginnes, District Director of Internal Revenue, Appellee, 330 F.2d 234 (3d Cir. 1964)
U.S. Court of Appeals for the Third Circuit - 330 F.2d 234 (3d Cir. 1964) Argued November 21, 1963
On the other hand § 2055 deals with deductions for charitable transfers.3 The scope of this section is developed by the Internal Revenue Regulations. In part the present Regulation 20.2055-2 provides that " [i]f a trust is created or property is transferred for both a charitable and a private purpose, deduction may be taken of the value of the charitable beneficial interest only insofar as that interest is presently ascertainable, and, hence, severable from the non-charitable interest". (Emphasis supplied.)
"Although Congress, in permitting estate tax deductions for charitable bequests, used the language of outright transfer, it apparently envisaged deductions in some circumstances where contingencies, not resolved at the testator's death, create the possibility that only a calculable portion of the bequest may reach ultimately its charitable destination. * * * The limit of permissible contingencies has been blocked out in a more convenient administrative form in Treasury Regulations which provide that, where a trust is created for both charitable and private purposes the charitable bequest, to be deductible, must have, at the testator's death, a value `presently ascertainable, and hence severable from the interest in favor of the private use,' and further, to the extent that there is a power in a private donee or trustee to divert the property from the charity, `deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise of such power.'" Merchants National Bank of Boston v. Commissioner, 1943, 320 U.S. 256 at pp. 259-260, 64 S. Ct. 108 at p. 110, 88 L. Ed. 35.
Thus it is said that the private interest must be limited by an ascertainable standard in order that the amount entitled to a charitable deduction, might be determined. "Only where the conditions on which the extent of invasion of the corpus depends are fixed by reference to some readily ascertainable and reliably predictable facts do the amount which will be diverted from the charity and the present value of the bequest become adequately measurable." Merchants National Bank, supra, 320 U.S. at p. 261, 64 S. Ct. at p. 111, 88 L. Ed. 35.
With this meager background of legislative purpose, it is a fair construction of this section that the measure of control over the property by virtue of the grant of power is the determinant of the taxability of property subject to the power. See Morgan v. Commissioner, 309 U.S. 78, 60 S. Ct. 424, 84 L. Ed. 585 (1940). Unquestionably if the exercise of the power is restricted by definite bounds, relating to health, support, maintenance and education, even though the amount of property or funds that would be absorbed in its exercise was not measurable or predictable, it would not be a general power of appointment with the resulting tax consequence. The thin line drawn here is that while under § 2041 it is required that the exercise of the power be restricted, under § 2055, it is required that the property which can be appropriated under the power be measurable.
As we indicated above, we believe that the thrust of § 2055 and the regulations promulgated under that section (which now have the force of law. Helvering v. Winmill, 305 U.S. 79, 83, 59 S. Ct. 45, 83 L. Ed. 52 (1938), Taft v. Commissioner, 304 U.S. 351, 58 S. Ct. 891, 82 L. Ed. 1393 (1938)) is measurement and apportionment of funds or property destined for both charitable and private donees. Measurement is not a real issue in § 2041. The extent of property subject to the power is almost always clear, but in deciding the taxability of the property, the query in § 2041 will be the extent of the power. If the power is deemed a general one, all the property subject to the power is taxable. If the power is limited under § 2041, the property subject to the power will not be includible in decedent's gross estate.7
Therefore, resolving this § 2041 question, we are reluctant to look to the § 2055 ascertainable standards recognized by the courts, as determinative. Nor will we rely on the § 2041 Treasury Regulations. (See note 5.) We look rather to the grant of power given to the decedent and determine whether it is clearly limited in its exercise to matters relating to health, education, support and maintenance. The initial step is to determine in light of local law, the interest conveyed to the decedent under this trust, i. e., the extent to which, consonant with the testamentary trust provision, the decedent could invade and consume the principal. Morgan v. Commissioner, 309 U.S. 78, 60 S. Ct. 424, 84 L. Ed. 585 (1940); Commissioner of Internal Revenue v. Ellis' Estate, 252 F.2d 109, 113 (3 Cir. 1958); Hoffman v. McGinnes, 277 F.2d 598, 602 (3 Cir. 1960).
In Pennsylvania, the cardinal rule of construction is that the actual intent of the testator must prevail when it can be ascertained from the language of the will. Anderson's Estate, 243 Pa. 34, 89 A. 306 (1914); In re Keefer's Estate, 353 Pa. 281, 45 A.2d 31, 165 A.L.R. 1277 (1946). See Hoffman v. McGinnes, 277 F.2d 598 (3 Cir. 1960). This intention is to be discovered from a consideration of all the language in the four corners of the instrument, giving the words he employs their plain and ordinary meaning, except where the context in which they are used renders them a different denotation, or where legal or technical words are used and it is clear from their use that the legal or technical meaning was intended. Hoffman v. McGinnes, 277 F.2d 598 (3 Cir. 1960); Long's Estate, 270 Pa. 480, 113 A. 675 (1921); Metzgar's Estate, 395 Pa. 322, 148 A.2d 895 (1959); Collins Estate, 393 Pa. 195, 142 A.2d 178 (1958); Wright Estate, 380 Pa. 106, 110 A.2d 198 (1955); Schellentrager v. Tradesmens National Bank & Trust Co., 370 Pa. 501, 88 A.2d 773 (1952). "Comfort", as considered in Zumbro v. Zumbro, 69 Pa.Super. 600, 603 (1918) embraces "a variety of things. It is not limited solely to the necessaries of life, but may include things which bring ease, contentment or enjoyment." It is something more than support, a "minimum endurable standard of living." Price v. Rothensies, 67 F. Supp. 591, 595 (E.D. Pa. 1946). "` [S]upport' is defined by Worcester as `sustenance; maintenance; subsistence; sustentation; livelihood; living.' * * * ` [B]enefit' is a much broader word than `support,' and has no such limited meaning as the latter word. It is thus defined in Worcester: `Advantage; gain; profit;' and its manifest signification is anything that works to the advantage or gain of the recipient." Winthrop Company v. Clinton, 196 Pa. 472, 477, 46 A. 435, 437 (1900). See Helvering v. Evans, 126 F.2d 270 (3 Cir. 1942). In the context of the present grant, we agree with Judge Freedman who held below 215 F. Supp. at p. 517 that —
"The will emphatically reveals that the sisters are intended to be the main objects of the testatrix's bounty. This is heightened threefold by the identical provisions which each sister made in her will. Were we now construing this will in the lifetime of a surviving sister it is difficult to believe that a Pennsylvania court would place any grudging limitation on the breadth of the power to consume. The power conferred on the decedent to invade principal for her `benefit or comfort' must therefore be given its broadest meaning. It is not a power limited to her support, but on the contrary, is to be used for her benefit or comfort." Strite v. McGinnes, 215 F. Supp. 513, at p. 517 (E.D. Pa. 1963).
Only a few reported cases have dealt with § 2041 (b) (1) (A). Phinney v. Kay, 275 F.2d 776 (5 Cir. 1960); Barritt v. Tomlinson, 129 F. Supp. 642 (S.D. Fla. 1955); Snyder v. United States, 203 F. Supp. 195 (W.D. Ky. 1962); Pittsfield National Bank v. United States, 181 F. Supp. 851 (D. Mass. 1960)
On July 14, 1954, the Internal Revenue Service promulgated regulations implementing the 1939 Code, as amended by the Power of Appointment Act. In part they provided: "whether a power is limited by an ascertainable standard will be determined by applying the principles followed in ascertaining the extent to which, if any, a bequest to a trust for both private and charitable purposes is allowable as a deduction under — 812(d) (now 2055). A power to consume, invade or appropriate property for comfort, pleasure, desire or happiness, is not a power limited by an ascertainable standard." Reg. 81.24 in force January 1, 1955 under 1939 Code. See 19 F.R. 4302, 4303, July 14, 1954. Thus these regulations were promulgated less than 5 weeks before the 1954 Code became law on August 16, 1954 (although a notice of proposed rule making was published on August 5, 1953. See 18 F.R. 4599). At least from January 1, 1959, the Internal Revenue Service in their promulgated regulations omitted this reference to § 2055 and its predecessor. But the substance of § 2055 remained in the regulation. "A power is limited by such a standard if the extent of the holder's duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health, education or support (or any combination of them)." The examples of what the Service believes are and are not ascertainable standards, as described in the regulations, seem to have been derived from judicial decisions in § 2055 cases. See Henslee v. Union Planters, 335 U.S. 595, 598, 69 S. Ct. 290, 93 L. Ed. 259 (1949); Merchants National Bank of Boston v. Commissioner, 320 U.S. 256, 261, 64 S. Ct. 108, 88 L. Ed. 35 (1943); Ithaca Trust Co. v. United States, 279 U.S. 151, 154, 49 S. Ct. 291, 73 L. Ed. 647 (1929); Newton Trust Co. v. Commissioner, 160 F.2d 175 (1 Cir. 1947). The latter case is very reminiscent of regulations respecting § 2041. See Regulations 20.2041-1 (1959-1963)
Further it would seem that since § 2041 and § 2055 will be applied to the same trust agreement they should be harmonious. Section 2055 deals with the taxation of the estate of the settler of the trust. Section 2041 taxes the estate of him who was given the power to invade. It would seem incongruous that one year would find a certain portion of the settler's trust deductible because destined for a charitable purpose, and another year find that same property swept into the estate of the holder of a power when his estate is taxed under § 2041.
It is to be noted that the conditions for the exercise of the power are in the disjunctive, i. e., "necessary or advisable * * * reasonable needs and proper expenses or the benefit or comfort * * *," so that if it was advisable to provide for the comfort of the sisters, an invasion of the corpus was permissible under the grant. (Emphasis supplied.)