Court Opinion

ID: 9451962
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:28:07.567019+00
Date Added: 2024-06-11T17:33:00.187505
License: Public Domain

GANEY, Circuit Judge
(dissenting).
Clarence C. Young died on May 3, 1958. Surviving him were his widow, who was 42 years old at the time, and four children, whose ages are not disclosed by the record. He left a last will and testament in which the plaintiff was named executor and trustee of the estate. Item 6 thereof provided as follows:
“Item 6. I give, devise and bequeath one-half (%) of all the rest, residue and remainder of my estate, whatsoever and wheresoever the same may be, both real and personal, to which I may be entitled, or which I may have power to dispose of at the time of my death, unto my Trustee hereinafter named and designated, to have and to hold the same in trust, nevertheless, as hereinafter provided.
“(a) I direct my Trustee to pay out of the said income and corpus of the said estate unto my wife, Beatrice 0. Young, the sum of Three Hundred Dollars ($300.00) per month for and during the period until my youngest child reaches the age of eighteen years- and thereafter I direct my Trustee to pay to my wife, Beatrice O. Young, the sum of Three Hundred Fifty Dollars ($350.00) per month for and during the rest of her natural life.
“(b) If my wife survives me, she shall have the power, exercisable by Will, to appoint to her estate, or to others, any or all of the principal remaining at the time of her death. If my wife fails to appoint the entire principal to her estate or to others as above authorized, then upon her death (or if she predeases me, then upon my death) any principal remaining at that time shall be paid over to my children on the same terms and conditions as under Item 7 of this my Will.”
It is to be noted the surviving widow is to have the income from all of the trust estate, as well as the power of appointment over the same by her last will and testament as to all or any part thereof. At the time of the decedent’s death, the value of the testamentary residuary trust passing under the will, to which all parties were in agreement, was $69,-245.85. The widow also received outright from the decedent’s estate at the time of his death, property and money valued at $41,751.02. One-half of the decedent’s adjusted gross estate amounted to $99,874.98 and the executor of the estate reported this value as a marital deduction in the Federal estate tax return and took therein as a partial deduction the $41,751.02.
Section 2056(b) (5) of the Internal Revenue Code of 1954, 26 U.S.C. § 2056,1 *486remedied previous legislation which failed to provide for a situation in which the surviving spouse received an interest less than all of the trust income or the power to appoint less than all of the trust property, to the extent that, where the surviving spouse is entitled for life to all of the income from a “specific portion” thereof with power in the surviving spouse to appoint such “specific portion”, it will qualify for the marital deduction. The phrase “specific portion” is nowhere defined in the statute, but Treasury Regulations on Estate Tax (1954 Code), Sec. 20.2056(b)-5 2 so does, and therein it provides as set forth below that the surving spouse’s right to income must be a fractional or percentile share of the trust corpus.
The Commissioner of Internal Revenue disallowed any part of the $69,245.-85, the value of the trust corpus to be included in the marital deduction and allowed only the $41,751.02, and assessed a deficiency estate tax of $14,966.23 plus interest at $2,608.22 against the estate. The executor paid the deficiency tax plus interest and brought this action in the United States District Court for the Middle District of Pennsylvania to recover those amounts. Both parties moved for summary judgment and the court below decided in favor of the executor in 235 F.Supp. 941, and the United States has prosecuted this appeal.
It is the Government’s contention here that (1) since the surviving spouse is not entitled to all the income from the entire corpus during her lifetime, because under the terms of the decedent’s will income from the trust could have exceeded $300.00 per month and the surplus would then have to be accumulated and therefore the trust becomes disqualified.3 Furthermore, (2) the $300.-00 per month allotted as income to the widow is not in conformity with the Treasury Regulation cited above since it is not fractional or percentile and no part of it, accordingly, could qualify for *487the marital deduction. The court below is in agreement with the first portion of the Government’s contention that the plaintiff is not entitled to take as a marital deduction the value of the property passing to the spouse under the testamentary residuary trust. However, on the other hand, the contention of the executor is that since the trust makes provision for setting up a monthly income to the surviving spouse, and she alone, under the will, was granted all of the income from the trust corpus, as well as being given power to dispose of all of her interest by appointment, the plaintiff was entitled to take as a marital deduction the value of the $300.00 per month as a “specific portion” as may be computed actuarially. Since the surviving spouse is absolutely entitled to, presently, $300.00 per month, and if this amount is construed to represent income from corpus, then the amount of the corpus which would yield this income could be ascertained and regarded as qualifying as a “specific portion” for the marital deduction. Here, the court rejects the Government’s second contention and agrees with the above contention of the executor since the underlying purpose of Congress in enacting the marital deduction provision of the statute was that it might conform to the pattern of state law in those states which permit transfer free of taxes of one-half of the known community property to the surviving spouse in what has been referred to as community property states. It is, accordingly, our duty to construe the statute as liberally as we can in order to effectuate such policy.
The value of this right was computed by multiplying together the following factors: $300.00 (amount of monthly payment); 12 (number of months in a year); 1.0159 (factor for monthly payments) and 17.3911 (factor for the discount rate of 3%% over the period of the widow’s life expectancy). See Sec. 20.2031-7 of the Treasury Regulations of the Estate Tax provisions of the 1954 Internal Revenue Code, 26 C.F.R. Part 20-29 (Rev’d 1961) Sec. 20.2031-7. Citizens National Bank of Evansville v. United States, (S.D.Ind.1965), 65-1 USTC H 12,302, a similar case, was decided in this way. This right had a value, according to this actuarial computation, of $63,663.43. The executors contend that this was a “specific portion” of the trust corpus and that the Treasury Regulation so far as it required a fractional or percentile part of the trust was invalid as being the only and exclusive indication of Congressional intent.
With this contention of the executor, I likewise agree. While, as I have indicated, all of the value of $69,245.85 could not be taken as a marital deduction, certainly $300.00 monthly for life devised in trust for his wife had a value at the time of his death and this value could be related to, or be a specific portion of, the entire corpus, and, as determined, it amounted to $63,663.43. This figure is reached after a reasonable calculation of the present worth of $300.00 over the life expectancy of the wife. I do not take into consideration fluctuation, wide or narrow, of the value of the corpus or the income thereon, over what would be the life expectancy of the wife, since the marital deduction is taken only once, at the death of testator, and I determine then what could be its value and not what might ultimately happen. “We cannot wait, like ‘Monday morning quarterbacks,’ to see what actually happened, but must concern ourselves with what could have happened.” Bookwalter v. Lamar, 323 F.2d 664, 670.
It is in conformity with this that I do not take into consideration the $350.00 stipend somewhat later to be paid to the beneficiary, as it is prospective of an exigency which might never occur, and, as has been indicated, I take the marital deduction but once and at the date of the testator’s death and hence the amount of the stipend at that time. This construction does riot strain the statutory intent nor does it, in any wise, work a change in the phrase, “specific portion”, and is fully in accord with the mandate of the stat*488ute that anyone seeking the marital deduction must satisfy the requirements thereof, which is the requisite rule in statutory construction. United States v. Olympic Radio & Television, Inc., 349 U. S. 232, 235, 75 S.Ct. 733, 99 L.Ed. 1024; Deputy v. Du Pont, 308 U.S. 488, 493, 60 S.Ct. 363, 84 L.Ed. 416; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440, 54 S.Ct. 788, 78 L.Ed. 1348.
The final point of the majority here is an attempt to extract, from paragraph 11 of the testator’s will, an intent by him to “limit the survivors’ control over the monthly stipend”, thus not making it akin to a fee simple.
Paragraph 11 merely provides that the fund created for the wife is for her “sole and separate use, maintenance and support” and not “only that which he thought would be proper for her support and maintenance”, as stated by the majority.
As a matter of fact, this paragraph of the will has no real bearing on the issue here presented, for if the testator had provided a percentile interest for the wife, instead of a monthly stipend, this paragraph would have been equally applicable to it, so even if expressed in a percentile interest, the majority, taking the position they do here, would thus be defeating their own argument.
Since the wife gets all of the income from the specific portion and has the power of appointment over all of it, this method of determining the specific portion of the corpus by evaluating the life interest at the time of the testator’s death is, in my judgment, neither inconsistent nor irreconcilable with the statutory requirement.
Furthermore, while this formula may not be a perfect one, its components are fair and reasonable and tested by Governmental experience and, therefore, it seems but just that some value be given the stipend at the testator’s death in order to qualify for the marital deduction, in conformance with the desire of Congress to give full effect to its marital deduction in order that it might level off any inequality resulting from community property states, rather than let the field lie fallow and adopt a sterile attitude of defeatism because the testator has not resorted to fractional or percentile figures.
The value of the “specific portion” being ascertained at $63,663.43 within the intendment of the statute, plus the $41,757.02 already taken as a deduction, therefore exceeds the allowable marital deduction of $99,874.02, and therefore $58,117.00 of the $63,663.43, the value of the “specific portion”, should be allowed additionally.
Accordingly, I would affirm the judgment of the lower court.
STALEY, Chief Judge, and Mc-LAUGHLIN, Circuit Judge, join in this dissent.

. This section reads as follows:
“(5) Life estate with power of appointment in surviving spouse. — In
the case of an interest in property passing from the decedent, if his surviving spouse is entitled for life to all the in*486come from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse. * * * ” (Emphasis supplied.)

. This section, in pertinent part, reads as follows:
“Marital Deduction; Life Estate with Power of Appointment in Surviving Spouse.
“(c) Definition of ‘specific portion.’
A partial interest in property is not treated as a specific portion of the entire interest unless the rights of the surviving spouse in income and as to the power constitute a fractional or percentile share of a property interest so that such interest or share in the surviving spouse reflects its proportionate share of the increment or decline in the whole of the property interest to which the income rights and the power relate. Thus, if the right of the spouse to income and the power extend to one-half or a specified percentage of the property, or the equivalent, the interest is considered as a specific portion. On the other hand, if the annual income of the spouse is limited to a specific sum, or if she has a power to appoint only a specific sum out of a larger fund, the interest is not a deductible interest. Even though the rights in the surviving spouse may not be expressed in terms of a definite fraction or percentage, a deduction may be allowable if it is shown that the effect of local law is to give the spouse rights which are identical to those she would have acquired if the size of the share had been expressed in terms of a definite fraction or percent-Í **

. See S.Rep. No. 1013, Part 2, 80th Cong., 2d Sess., p. 17 (1948-1 Cum.Bull. 285, 342-343), U.S.Code Cong.Service 1948, p. 1239: “(3) The surviving spouse must be entitled to the income from the corpus of the trust annually, or at more frequent intervals. This requirement disqualifies any trust the income of which is required to be accumulated or may, in the discretion of the trustee, be accumulated.”