Court Opinion

ID: 4607936
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:41:42.566387+00
Date Added: 2024-06-11T07:53:37.126920
License: Public Domain

BENJAMIN B. SANDERSON, EXECUTOR UNDER THE WILL OF MARGARETTA A. LIBBY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Sanderson v. CommissionerDocket No. 28979.United States Board of Tax Appeals18 B.T.A. 221; 1929 BTA LEXIS 2101; November 14, 1929, Promulgated *2101  The will of decedent devised and bequeathed her estate to her sister "for the term of her natural life to use the same and the income therefrom and so much of the principal thereof as she may desire for her needs and comfort." The will then proceeded in much detail to dispose of the estate upon the death of said sister, making certain charitable bequests.  At the date of decedent's death said sister was 83 years of age, unmarried and possessed of of a fortune of her own, her income being more than sufficient for her needs and conforts.  Held, that the will did not give to the sister unlimited power to dispose of the principal of decedent's estate.  Held, further, that the circumstances were such at the date of death as to make payment of the charitable bequests practically certain and to permit their present values at that date to be estimated for the purpose of determining the amount allowable as a deduction in computing the net estate subject to taxation.  Benjamin B. Sanderson, Esq., pro se.  L. S. Pendleton, Esq., for the respondent.  PHILLIPS *222  The Commissioner asserted a deficiency in Federal estate tax in the amount of $3,941.69*2102  against the estate of Margaretta A. Libby, deceased.  The petitioner, as executor of the estate, brings this proceeding for a redetermination of the tax liability of said estate.  The petition alleges error in several counts, the substance of all of which is that the respondent erred in refusing to allow as a deduction, in computing the net estate, certain bequests to charitable and religious corporations.  FINDINGS OF FACT.  Margaretta A. Libby died August 14, 1923, leaving a will which was duly admitted to probate, and under which the petitioner was named executor and was duly appointed and qualified as such by the probate court for the County of Cumberland in the State of Maine.  The will of the decedent and a codicil thereto which was allowed and probated as a part of the will provide as follows: I, Margaretta A. Libby of Portland, in the County of Cumberland and State of Maine, do make, publish and declare this my Last Will and Testament, hereby revoking all wills heretofore made by me.  FIRST: I direct my Executor hereinafter named to pay all of my just debts and funeral charges as soon as may be after my decease.  SECOND: I give, devise and bequeath all the estate, *2103  real, personal and mixed, of which I shall be seized or possessed or to which I shall be in any way entitled at my decease to my beloved sister, Ellen H. Libby of said Portland, for the term of her life to use the same and the income therefrom and so much of the principal thereof as she may desire for her needs and comfort.  THIRD: Upon the decease of my said sister, or in case she shall predecease me, then forthwith upon my decease I give and bequeath the sum of Five Thousand Dollars ($5,000.) in trust to the State Street Congregational Church of Portland, Maine, the income therefrom to be used for the general maintenance and support of the Church; the sum of Five Thousand Dollars ($5,000.) in trust to the First Congregational Church of Black Point, Scarboro, Maine, the income therefrom to be devoted exclusively toward the support of its pastor; the sum of Five Thousand Dollars ($5,000.) to the Maine General Hospital of Portland, Maine, for such use as the Trustees thereof may see fit; the sum of Five Thousand Dollars ($5,000.) to the Young Women's Christian Association of Portland, Maine; the sum of Two Thousand Dollars ($2,000.) to The *223  State Young Men's Christian Association*2104  of Maine; the sum of Two Thousand Dollars ($2,000.) to the Mary Brown Home of Portland, Maine; the sum of Two Thousand Dollars ($2,000.) to the Home for Aged Women of Portland, Maine; the sum of Two Thousand Dollars ($2,000.) to the Female Orphan Asylum of Portland, Maine; the sum of Two Thousand Dollars ($2,000.) to the Home for Aged Men of Portland, Maine; and the sum of One Thousand Dollars ($1,000.) to the Bible Society of Maine.  I give and bequeath the sum of Seventy-five Hundred Dollars ($7,500.) to Dr. John F. Thompson of said Portland and his heirs; and the sum of Seventy-five Hundred Dollars ($7,500.) to John C. Woods of Scarboro, Maine, and his heirs.  I further give and bequeath to each of the following named persons who shall be living at the decease of my said sister, or in case she shall predecease me then such as shall be living at my decease, as follows, to wit: the sum of Twenty-five Hundred Dollars ($2,500.) to Ephraim Schoppe of said Scarboro; the sum of Twenty-five Hundred Dollars ($2,500.) to Minnie Berry of said Portland; and the sum of Twenty-five Hundred Dollars ($2,500.) to Mattie Sanborn of said Portland.  FOURTH: I further direct subject to the use*2105  and any disposition made by my sister that my Executor, bearing in mind any written requests which I may leave pertaining thereto, shall make such distribution of my personal belongings, household furniture and furnishings, carriages, horses, live stock, automobiles, farm implements and machinery as he shall deem wise and fair for the benefit of my estate and any of the persons interested therein.  FIFTH: All the rest, residue and remainder of my estate upon the decease of my said sister, or in case she shall predecease me, then upon my decease, and after the payment of the foregoing bequests, I give, devise and bequeath to my Trustee hereinafter named, and his successors, but in trust nevertheless for the uses and purposes following, that is, in trust to hold, manage and control the same with full power without authority from any Probate Court to sell, mortgage, lease, exchange, transfer and convey any of said property, real or personal, for the purpose of reinvestment and to invest the proceeds of any such sale or transfer in such securities as he deems wise with full power to vote any and all shares of stock, to collect rents, dividends, interest and profits arising from said*2106  property and to pay out of the same all proper taxes, assessments and other charges and expenses, including those for repairing and maintaining said real estate and all expenses and charges incident to said trust including a reasonable compensation for his services in the conduct and management thereof and to pay the net income therefrom and to distribute the principal thereof upon the conditions and provisions as follows, namely: SIXTH: My said Trustee shall pay therefrom the sum of Four Thousand Dollars ($4,000.) annually in quarterly installments to Harrison J. Holt of said Portland during the term of his life and on his decease said income shall revert to my Trust Estate, and in lieu thereof I direct my Trustee then to pay to the children of the said Harrison J. Holt in equal shares the sum of Twenty-five Thousand Dollars ($25,000.), the issue of a deceased child to take by right to representation.  SEVENTH: My said Trustee shall pay likewise therefrom the sum of Four Thousand Dollars ($4,000.) annually in quarterly installments to William L. Holt of Beloit, Wisconsin, during the term of his life and on his decease said income shall revert to my Trust Estate, and in lieu thereof*2107  I direct my Trustee then to pay to the children of said William L. Holt in equal shares the sum of Twenty-Five Thousand Dollars ($25,000.), the issue of a deceased child to take by right of representation.  *224  EIGHTH: I further direct my Trustee to pay the remainder of the net income from my Trust Estate, subject to the provisions of the Ninth Paragraph of this Will, annually in quarterly installments to the following named persons then living in equal shares for the term of their respective lives, to wit: Harrison J. Holt of said Portland, William L. Holt of said Beloit, Ernestine L. Bowman, Frances E. Lord, Nathalie Lord, and Agnes McC. Lord, all of said Medford, Massachusetts, Mary McDonald of Riverdale-on-Hudson, New York, Lillie W. Libby of New York City, and Harrison J. Libby of Hackensack, New Jersey, provided that on the decease of any one of the aforementioned persons her or his share of said income shall revert to my said Estate to augment the share of the income therefrom to be paid to the survivors or survivor of the aforementioned persons named in this Eight Paragraph of this Will and provided further that if it is the wish of the said Ernestine L. Bowman, Frances*2108  E. Lord, Nathalie Lord and Agnes McC. Lord, or any of them, to occupy the Farm at said Scarboro, known as Oakwood Farm, I direct my Trustee to permit the said Ernestine L. Bowman, Frances E. Lord, Nathalie Lord, and Agnes McC. Lord, or any of them, (so far as my interest therein conveyed to my Trustee is concerned) to occupy the said premises for the term of their lives or the life of the survivor of them free of any taxes or rental charges.  In such case my Trustee shall retain the property during the period of such occupancy and shall pay the taxes on the same and all other charges incident to the proper maintenance and repair of the buildings thereon.  NINTH: Upon the decease of the said Ernestine L. Bowman, Frances E. Lord, Nathalie Lord, Agnes McC. Lord, Mary McDonald, Lillie W. Libby and Harrison J. Libby, I direct my Trustee to pay the following additional bequests, namely: The sum of Fifteen Thousand Dollars ($15,000.) absolutely to the Maine General Hospital of Portland, Maine, for such use by the Trustees thereof as they may see fit; the sum of Fifteen Thousand Dollars ($15,000.) to The State Street Congregational Church of Portland, Maine, in trust one-half of the income*2109  therefrom to be used for the general maintenance and support of the Church and the remaining one-half of the income to be used and distributed for the support of Home and Foreign Missions and for such other benevolent purposes as the Church authorities administering the fund may see fit; the sum of Ten Thousand Dollars ($10,000.) to the Young Women's Christian Association of Portland, Maine; the sum of Five Thousand Dollars ($5,000.) to the Mary Brown Home of Portland, Maine; the sum of Five Thousand Dollars ($5,000.) to the Home for Aged Women of Portland, Maine; the sum of Five Thousand Dollars ($5,000.) to The Home for Aged Men of Portland, Maine; the sum of Five Thousand Dollars ($5,000.) to the State Young Men's Christian Association of Maine; the sum of Five Thousand Dollars ($5,000.) to the First Congregational Church of Black Point, Scarboro, Maine; and the sum of Twenty-five Hundred Dollars ($2,500.) to The Female Orphan Asylum of Portland, Maine.  TENTH: I direct that all bequests hereinbefore made shall be free from all inheritance taxes and that such taxes shall be paid out of my Estate.  ELEVENTH: On the decease of both the said Harrison J. Holt and William L. Holt*2110  and the said Ernestine L. Bowman, Frances E. Lord, Nathalie Lord, Agnes McC. Lord, Mary McDonald, Lillie W. Libby and Harrison J. Libby, I direct that the principal of my Estate then remaining with all accumulations of income undisposed of shall be divided equally among the lawful issue then living of the said Harrison J. Holt, William L. Holt, Ernestine L. Bowman, Frances E. Lord, Nathalie Lord, Agnes McC. Lord, Mary McDonald, Lillie W. Libby, and Harrison J. Libby, I direct that said Trust herein created shall thereupon be terminated.  *225  TWELFTH: I further direct and declare that in case any person to whom any legacy or any beneficial use or interest in any income is given in this my said Will or in any codicil thereto shall in any manner contest or oppose the probate of this Will, or the Will of my sister, Ellen H. Libby, or shall take any legal proceedings of any kind in any Court to set aside my said Will or the Will of my said sister or any Codicil thereto or any part thereof, or shall cooperate and aid in any such proceedings or shall refuse to accept the provisions made for his or her benefit therein, then and in that case I revoke all or any legacies or other beneficial*2111  interest given in favor of any such person or of his or her heirs.  THIRTEENTH: I nominate and appoint as my Executor and Trustee Benjamin B. Sanderson of said Portland.  Upon his decease or in case he is unwilling to serve in said capacities, then I nominate and appoint Herbert J. Brown of said Portland as my Executor and Trustee.  Upon the decease of both the said Herbert J. Brown and the said Benjamin B. Sanderson or in case both the said persons are unwilling to serve in said capacities, then I nominate and appoint the First National Bank of said Portland to be my executor and Trustee.  In Testimony Whereof I have hereunto set my hand and seal and declare this to be my Last Will and Testament, this tenth day of November in the year of our Lord one thousand nine hundred and nineteen.  (Signed) MARGARETTA A. LIBBY (Seal).  Whereas I, Margaretta A. Libby of Portland of the County of Cumberland and State of Maine, on the tenth day of November, 1919, made and executed my last Will and Testament in writing.  Now I do make, publish and declare this my codicil to my said last Will and Testament, to be annexed to and taken and allowed as part thereof, and I do hereby amend the*2112  eighth paragraph of my said Will so as to include as life beneficiaries Stephen A. Libby and William D. Libby, omitting therefrom the names of Ernestine L. Bowman and Frances E. Lord, who are now deceased, so that the said eighth paragraph as amended shall be and provide as follows: "EIGHTH: I further direct my Trustee to pay the remainder of the net income from my Trust Estate, subject to the provisions of the Ninth Paragraph of this Will, annually in quarterly installments to the following named persons then living in equal shares for the term of their respective lives, to wit: Harrison J. Holt of said Portland, William L. Holt of said Beloit; Nathalie Lord and Agnes McC. Lord, both of said Medford, Massachusetts, Mary McDonald of Riverdale-on-Hudson, New York, Lillie W. Libby of New York City, Harrison J. Libby of Hackensack, New Jersey, Stephen A. Libby of Milford, Connecticut and William D. Libby of Williamsburg, Pennsylvania, provided that on the decease of any one of the aforementioned persons her or his share of said income shall cease and revert to my said Trust Estate to augment the share of the income therefrom to be paid by my said Trustee to the survivors or survivor*2113  of the aforementioned persons, and provided further that if it is the wish of the said Nathalie Lord and Agnes McC. Lord, or either of them, to occupy the farm at said Scarboro, known as Oakwood Farm, I direct my Trustee to permit the said Nathalie Lord, and Agnes McC. Lord, or either of them (so far as my interest therein conveyed to my Trustee is concerned) to occupy the said premises for the term of their lives or the life of the survivor of them free of any taxes or rental charges.  In such case my Trustee shall retain the property during the period of such occupancy and *226  shall pay the taxes on the same and all other charges incident to the proper maintenance and repair of the buildings thereon." I also hereby cancel and revoke absolutely the eleventh paragraph of my said Will, relating to the final disposition of my Estate, and in lien thereof I direct that on the decease of both the said Harrison J. Holt, William L. Holt and the said Nathalie Lord, Agnes McC. Lord, Mary McDonald, Lillie W. Libby, Harrison J. Libby, Stephen A. Libby and William D. Libby, the principal of my estate then remaining with all accumulations of income undisposed of shall be equally divided*2114  among the lawful issue then living of the said Harrison J. Holt, and William L. Holt, and the said Trust herein created shall thereupon be terminated.  I give and bequeath the sum of Fifteen Hundred Dollars ($1,000.) to Hattie Berry of said Portland, now in my employ, provided she is living at my decease.  I give and bequeath the sum of One Thousand Dollars ($1,000.) to Mattie Sanborn of said Portland, now in my employ, provided she is living at my decease, in addition to the bequest already made to her in my said Will.  In all other respects I hereby confirm my said Last Will and Testament.  In Witness Whereof I have hereunto set my hand and seal this Thirty-first day of October, 1922.  (Signed) MARGARETTA A. LIBBY (Seal).  The corporations named in article third of the will as beneficiaries in the amount of $31,000 and the corporations named in article ninth of the will as beneficiaries in the amount of $67,500 were all organized and operated exclusively for religious, charitable, scientific, literary, and educational purposes and were in existence when the will took effect.  The decedent left an estate of the value of $494,244.03.  Ellen H. Libby was born December 11, 1840. *2115  At the time of the death of the testatrix she was within four months of being eighty-three years old and was unmarried.  At that time she owned in her own right property approximately equal to the estate of Margaretta A. Libby, the two sisters having inherited in equal share the property of their father.  For several years prior to the decease of the testatrix, her living expenses had been and continued to be until her decease substantially less than the income from her own property and the property of the testatrix.  She died January 13, 1927, prior to the final determination and assessment of the deficiency here in question.  During her lifetime she never took possession of the securities constituting the bulk of the estate of Margaretta A. Libby, nor used any part of the principal of this estate, all of which remained in the possession and under the control of the executor of said estate.  In November, 1926, Ellen H. Libby executed the following instrument and a certified copy thereof was forwarded on November 22, 1926, to the Commissioner of Internal Revenue: *227  WHEREAS Margaretta A. Libby, late of Portland in the County of Cumberland and State of Maine, died on*2116  the fourteenth day of August, 1923, leaving a Last Will and Testament which was duly admitted to probate in the Probate Court for said Cumberland County and State of Maine on October 4, 1923, and WHEREAS under the provisions of the Second Paragraph of the said Last Will and Testament the said Margaretta A. Libby gave, devised, and bequeathed all of her property and estate to her sister, Ellen H. Libby of said Portland for the term of her life with the right to use so much of the principal thereof as she might desire for her needs and comfort, and WHEREAS under the provisions of the Third and Ninth Paragraphs of said Will the said Margaretta A. Libby made bequests in the amount of $98,500 to certain charitable institutions therein enumerated, payable on the decease of certain life beneficiaries, and WHEREAS the United States Treasury Department proposes to disallow to the Estate of said Margaretta A. Libby the exemption from the Federal Estate Inheritance Tax of any of the aforesaid charitable bequests on the ground that they might never be paid because of the provisions of the Will of aforesaid, giving Ellen H. Libby the right to use all or any part of the principal of said Margaretta*2117  A. Libby Estate for her needs and comfort for the term of her life.  Now, THEREFORE, I, Ellen H. Libby of said Portland, the life beneficiary under the said provisions of the Will of said Margaretta A. Libby, in consideration of the foregoing and of One Dollar and other good and valuable considerations paid to me, the receipt whereof is hereby acknowledged, do hereby forever and irrevocably waive any and all right which I have or may hereafter at any time have under the provisions of said Will to use the principal of said Estate of Margaretta A. Libby or any part thereof for my needs and comfort during the term of my life.  ELLEN H. LIBBY (Seal).  Dated .  WITNESS: Benjamin B. Sanderson.  The $31,000 of gifts to charitable and religious corporations which, under the provisions of the will, were payable on the decease of Ellen H. Libby, were paid by the executor on March 22, 1927.  Of the seven life beneficiaries mentioned in article ninth of the will, five were living at the decease of the testatrix.  The names and dates of birth of these persons were as follows: NameDate of birthNathalie LordJuly 12, 1847Agnes McC. LordSept. 8, 1875Mary McDonaldDec. 23, 1855Lillie W. LibbyJan. 15, 1857Harrison J. LibbyApril 1, 1858*2118  The petitioner duly filed a return for the Margaretta A. Libby estate, deducting the full amount of the charitable gifts.  The respondent disallowed this deduction on the ground that they were so contingent as not to be presently ascertainable under the will of decedent.  *228  OPINION.  PHILLIPS: Margaretta A. Libby, a resident of Portland, Me., died August 14, 1923, leaving an estate valued at $494,244.03.  By the terms of her will all of her estate was given to her sister, Ellen H. Libby, "for the term of her life to use the same and the income therefrom and so much of the principal thereof as she may desire for her needs and comfort." The will also provided for gifts to certain corporations which it is admitted were charitable or religious within the meaning of the Revenue Act in the amount of $98,500, of which $31,000 was payable upon the decease of Ellen H. Libby and $67,500 upon the decease of certain life beneficiaries after her life.  The question for decision is whether the gifts to charitable corporations are deductible from the value of the gross estate of the decedent under the provisions of section 403(a)(3) of the Revenue Act of 1921.  The governing provision*2119  of the Act is, "that for the purpose of the tax the value of the net estate shall be determined - (a) in the case of a resident, by deducting from the value of the gross estate * * * (3) the amount of all bequests * * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary and educational purposes, * * * or to a trustee or trustees exclusively for such * * * purposes." The executor duly filed a Federal estate-tax return which included a deduction of the full amount of charitable bequests.  Allowance of this deduction was denied by the respondent pursuant to Treasury Regulations 70, article 47, which is the same as Regulations 63, article 50, under the Revenue Act of 1921, and provides: Where the transfer is dependent upon the performance of some act or the happening of some event in order to become effective, it is necessary that the performance of the act or the occurrence of the event shall have taken place before the deduction can be allowed.  Where the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which would have rendered it, to the*2120  extent that it is subject to such power, not deductible had it been directly so bequeathed, devised, or given by the decedent, deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise of such power.  The respondent urges that the provisions of the decedent's will authorizing the life tenant to use the estate and the income therefrom and so much of the principal thereof as she may desire for her needs and confort, gave to her the unlimited power to dispose of the principal and rendered the gifts to charitable corporations so uncertain that they can not be ascertained as of the date of the death of the decedent.  Humes v. United States,276 U.S. 487">276 U.S. 487. On the other hand, the petitioner contends that payment of the charitable bequests was assured by the execution by Ellen H. Libby of a release of any right to use any part of the principal of the estate *229  and also by reason of her death before the deficiency here in question was determined.  Petitioner further urges that the will when properly construed does not give to the life tenant unrestricted power over the principal of the estate, to the extent that*2121  the bequests might be avoided.  Ithaca Trust Co. v.United States,49 Sup.Ct. 291; 279 U.S. 151">279 U.S. 151. It is at best doubtful whether a legatee can affect the taxable status of an estate by an attempted release of a portion of a bequest while retaining the balance of such bequest.  It may well be argued that in such a case any benefit which flows to others by reason of such a release is acquired by them from the person executing the release, and not from the decedent.  It is equally doubtful whether the death of the life tenant is to be considered in determining the taxable status of the estate, which must be fixed as of the date of decedent's death.  Ithaca Trust Co. v. United States, supra.We find it unnecessary to pass upon either of those questions in this proceeding, for we are of opinion that a proper construction of the will leaves no uncertainty with respect to the payment of the charitable bequests.  It is elementary that in construing a will the intention of the testator is sought.  No construction is to be placed upon particular words or phrases which will defeat the manifest purpose as disclosed by the instrument as*2122  a whole.  If there is any ambiguity which permits of construction, the surrounding circumstances are considered helpful in seeking the intention.  The second clause of the will of this decedent gives all the estate to a sister "for the term of her life to use the same and the income therefrom and so much of the principal thereof as she may desire for her needs and comfort." If these words bare considered alone, they lend support to the contention of the respondent that the life beneficiary had the principal at her disposal and the contingencies under the will were such that it could not be determined whether or not any amounts would be paid the charitable corporations.  But it appears that decedent had no thought that the principal would be used to an extent which would consume her estate for in the following clause she bequeaths $54,000, payable upon the death of her sister, and in paragraph fifth creates a trust of "all the rest, residue and remainder of my estate." It would be improbable that any court of equity, reading this will as a whole, would consider that it gave to the life tenant the unrestricted right to use the principal.  A more reasonable interpretation, and one which*2123  would appear to meet the intention of the testator, would be that the life tenant should have the use and disposition of those articles enumerated in paragraph fourth of the will and so much of the principal of the estate as might be desirable for her needs and comfort.  *230  The decedent undoubtedly had in mind not only the size of her own estate and the life income to be derived from it, but the circumstances of her sister, who was an old woman and possessed of an estate equal to her own, both having inherited equally from their father, all of which convinces us that the decedent intended a definite limitation on the power of the life beneficiary to dispose of the corpus of the estate.  See Bodfish v. Bodfish,105 Me. 166">105 Me. 166; McGuire v. Gallagher,99 Me. 334">99 Me. 334; Merrill v. Hayden,86 Me. 133">86 Me. 133; Young v. Hillier,103 Me. 17">103 Me. 17. We think this case falls fairly within the principal laid down in Ithaca Trust Co. v. United States, supra, where the court said: The standard was fixed in fact and capable of being stated in definite terms of money.  * * * There was no uncertainty appreciably*2124  greater than the general uncertainty that attends human affairs.  Ellen H. Libby was almost 83 years old at the decease of her sister.  Her living expenses had for several years been substantially less than the income of her own and her sister's estate, and, while there was a bare possibility, it was highly improbable that it would be necessary to use any of the principal of the decedent's estate, her income from the combined estates being amply sufficient for her needs and comfort.  The charitable bequests became vested on the death of the testator and their value was ascertainable as of that time.  See First National Bank of Birmingham v. Snead, 24 Fed.(2d) 186; Herron v. Heiner, 24 Fed.(2d) 745; Achorn v. Jackson,86 Me. 215">86 Me. 215; 29 Atl. 989; Mercantile Trust Co.,13 B.T.A. 85">13 B.T.A. 85. The charitable bequests should be estimated as of the date of the death of the testator by mortuary tables, taking into account the probable life of Ellen H. Libby, the first life beneficiary, and the five life beneficiaries after her life, namely, Nathalie Lord, Agnes McC. Lord, Mary McDonald, Lillie W. Libby, and*2125  Harrison J. Libby.  Ithaca Trust Co. v. United States, supra.Decision will be entered under Rule 50.