Court Opinion

ID: 4601445
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:27:37.876784+00
Date Added: 2024-06-11T07:52:29.733512
License: Public Domain

JOHN NICHOLAS AND CHEMICAL BANK & TRUST COMPANY, AS EXECUTORS OF THE LAST WILL AND TESTAMENT OF WILLARD A. LALOR, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Nicholas v. CommissionerDocket No. 92113.United States Board of Tax Appeals40 B.T.A. 1040; 1939 BTA LEXIS 757; December 7, 1939, Promulgated *757  1.  A bequest to a charitable corporation to be selected by testator's sister and nephew under a provision of the will that if such selection were not made within one year after probate the charitable bequest should lapse and the amount become part of the residuary estate bequeathed to private individuals, held not deductible as a bequest to a charitable or educational corporation, sec. 303(a), Revenue Act of 1926.  2.  Amounts paid by the estate to decedent's nieces because, in reliance upon decedent's promise, they had refrained from marriage until after they were twenty-five, held not deductible, since the consideration was not in money or money's worth, sec. 303 Revenue Act of 1926, as amended by sec. 805, Revenue Act of 1932.  Dallas S. Townsend, Esq., for the petitioner.  John R. Wheeler, Esq., for the respondent.  STERNHAGEN *1040  The commissioner determined a deficiency of $149, 199.67 in estate tax of the estate of Willard A. Lalor, deceased.  Petitioner assails the disallowance of the deduction (1) of a bequest to a charitable corporation, and (2) of claims against the estate growing out of the decedent's promise to his nieces*758  if they would remain unmarried until the age of twenty-five years.  FINDINGS OF FACT.  John Nicholas and the Chemical Bank & Trust Co. are executors of the estate of Willard A. Lalor, who died testate on October 9, 1934, domiciled in the District of Columbia.  1.  Willard A. Lalor had inherited a substantial part of his fortune from a brother, John Charles Lalor, a distinguished chemist.  He was interested in organizing or endowing an enterprise for research and education as a memorial to his brother, and discussed *1041  plans for its establishment with his sister, Anna Lalor Burdick, and her son, Charles Lalor Burdick, also an experienced chemist.  While plans for the proposed foundation were being formulated, the market value of Willard A. Lalor's securities decreased.  He then considered the establishment of a research professorship at some university, but at the time of his death no definite project had been chosen.  On November 19, 1930, Willard A. Lalor executed a will, containing the following article: THIRD - I give and bequeath to the Trustees of such educational institution that my sister Anna Lalor Burdick may select the sum of One Hundred Thousand Dollars*759  ($100,000.) for the establishment and maintenance of either the "Anna Lalor Rotaing Loan Fund" for loans to worthy students to enable them to complete their college traning, or the "Anna Lalor Scholarship Fund". The conditions under which the Trustees of the educational institution so selected shall receive, hold and manage such sum of One Hundred Thousand Dollars ($100,000.) and the guarantees as to its permanent use for the purposes specified are to be agreed upon between the Trustees aforesaid and the said Anna Lalor Burdick.I give and bequeath to the Trustees of such educational institution as my nephew Charles Lalor Burdick may select the sum of Three Hundred Thousand Dollars (300,000.) for the establishment and maintenance of a professorship in purely scientific research as a memorial to my brother John Charles Lalor to be known as the "Lalor Research Professorship". The conditions under which the Trustees of the educational institution so selected shall receive, hold and manage such sum of Three Hundred Thousand Dollars ($300,000.) and the guarantees as to its permanent use for the purposes specified are to be agreed upon between the Trustees aforesaid*760  and the said Charles Lalor Burdick.My executor hereinafter named shall have no duty or responsibility in respect of the bequests contained in this Article Third other than to pay over to the trustees of the educational institutions selected the sums bequeathed.  I have discussed my wishes and expectations in respect of the establishment and maintenance of the Funds hereinbefore mentioned with my sister Anna Lalor Burdick and nephew Charles Lalor Burdick and it is my intention to request each of them to make the selection of the educational institutions at this time and to arrange if possible, and if not, to set forth in writing the terms and conditions upon which the Funds shall be held and operated by such Trustees.  In the event such selections are made and details of operation and management given by the said Anna Lalor Burdick and/or Charles Lalor Burdick I shall endorse them with my signature and file them with this my Will to prevent the lapse of these bequests should the said Anna Lalor Burdick and/or Charles Lalor Burdick predecease me.  In the event Anna Lalor Burdick and/or Charles Lalor Burdick predecease me, I direct my Executor to*761  pay the bequests to the Trustees of the educational institutions selected, in the manner and upon the terms and conditions set forth in such written instructions so endorsed and filed with my Will.  In the event Anna Lalor Burdick and/or Charles Lalor Burdick have given such written instructions which I shall have so endorsed and filed with my Will and either or both survive me, the instructions of such survivor or survivors shall be controlling unless Anna Lalor Burdick and/or Charles Lalor Burdick so surviving shall within one year after the date upon which my Will shall have been probated, deliver to my Executor hereinafter named a notice in writing selecting different educational institutions and/or modifying or altering the terms and conditions under which *1042  the Trustees of the educational institutions so selected shall receive, hold and manage the amounts bequeathed, in which event such selections, modifications or alterations shall be controlling.  In the event no instructions in writing given by Anna Lalor Burdick and/or Charles Lalor Burdick shall have been so endorsed and filed with my Will and in the event my Executor hereinafter named*762  shall not receive within one year after the date upon which my Will shall have been probated from either of them, a notice in writing designating the educational institution or institutions to the Trustees of which my Executor shall make payment of the bequests herein made, I direct that the legacy in respect of which there shall have been such a failure of selection shall lapse and the amount thereof shall be added to and form a part of my residuary estate.  The residuary clause of the will (fifth) set up a trust for the benefit, both as to income and principal, of individuals, mostly nephews and nieces.  The will was admitted to probate in the Supreme Court of the District of Columbia on March 20, 1935.  Anna Lalor Burdick and Charles Lalor Burdick had not before probate designated any educational institutions as recipient of the above bequests, and they discussed the matter with the heads of leading universities and with other prominent educators.  They then organized "The Lalor Foundation, Inc.," a Delaware corporation, on August 27, 1935, for the purpose of accepting the amounts bequeathed.  On October 14, 1935, they duly notified the executors in writing of their designation*763  of it as "the educational institution" to which the amounts set out in article third were to be paid; on March 4, 1936, the executors filed their first and final account, showing payment of the $400,000 to the Lalor Foundation, Inc., and on April 10, 1936, the account was approved by the Probate Court.  The purposes of the Lalor Foundation, Inc., as set forth in its certificate of incorporation, are: To constitute itself as an deucational institution and foundation and as such to receive, maintain and administer a fund or funds and to apply the income and principal thereof exclusively to educational purposes and for the support, promotion, instruction in and encouragement of the arts and sciences and purely scientific reseauch; to contribute to the establishment and maintenance or support of such educational, scientific and research activities, agencies and institutions that have already been established or may hereafter be established; and generally to have all the powers permitted by the laws of the State of Delaware to an educational or charitable corporation; but to have no right to engage in any business or enterprise for the profit of this corporation except as a means to*764  raising funds for the support and furtherance of educational or scientific purposes or as an incident to or means of attaining and furthering such educational and scientific purposes and objects.  * * * The corporation was not authorized to have any capital stock; its business was to be managed by five or more trustees.  Charles Lalor Burdick, Anna Lalor Burdick, and five others prominent in scientific *1043  or educational work have constituted this board, serving without compensation.  They have created chemical research fellowships, awarded them to individuals selected by an advisory committee, and have distributed to these individuals during the past three years an aggregate of $41,250, constituting the corporation's income.  The Lalor Foundation, Inc., was organized and is operated exclusively for scientific and educational purposes; no part of its net earnings inures to the benefit of any private stockholder or individual; it carries on no propaganda and does not attempt to influence legislation.  2.  In a letter dated November 13, 1924, relating to various family matters, Willard A. Lalor stated to Thomas J. Lalor: If you wish you can tell young Thomas that if*765  he waits until he is well established and 30 years old before marrying, as Charles did, I will give him $2000 - same as I did Charles - for a wedding present.  Will do the same thing for the girls also (Ruth, Esther and Margaret) if they wait until 25 before marrying.  * * * Before and after writing this letter Willard A. Lalor made oral statements to the effect that he would give his nieces, Ruth Lalor and Margaret Lalor Carey, $2,000 each if they would refrain from marriage until each attained the age of twenty-five years, and these statements were communicated to them.  They did not marry until after each had attained that age, and each claimed $2,000 from the estate.  The executors paid the claims and reported the payments in their account, which the Probate Court approved.  OPINION.  STERNHAGEN: 1.  The taxpayer estate claims the deduction from gross estate of the $400,000 paid by the executors to the Lalor Foundation, Inc., because the corporation was a charitable or educational corporation, bequests to which are deductible, Revenue Act of 1926, sec. 303(a)(3).  The Commissioner has denied the deduction for several reasons.  It is necessary to consider the force of only*766  one ground for the Commissioner's disallowance.  The will provided clearly that if the selection of charitable or educational recipients of the $400,000 bequest was not made by the designated persons within one year after probate of the will, the possibility of such charitable legacy should lapse and the amount should become part of the residuary estate.  The residuary estate was left to a trust for the benefit of private individuals.  This provision, it must be held, defeats the deduction claimed.  ; ; . Although the evidence shows that the decedent had little doubt that his sister and his nephew would carry out his desire to make a charitable *1044  contribution, neverthelless he left it entirely within their discretion to effectuate such a philanthropy or to permit it to lapse and thus have the $400,000 go into the residuary estate.  The last word was theirs.  The bequest, therefore, can not be designated as a bequest by the decedent to a charitable organization.  It was*767  only to become such if the sister and her son by their own volition designated such a legatee.  The effect of the testamentary provision was to create a simple alternative - on the one hand, a charitable bequest if certain living individuals were willing to have it so; and, on the other hand, a residuary bequest to private legatees if the individuals so elected.  The belief arising from the circumstances in which the testamentary provision was made, that the sister and her son were not likely to permit the decedent's charitable purpose to lapse, does not soften the operation of the fact that the charitable bequest was in terms not absolute but conditional upon the voluntary conduct of the sister and nephew. The Commissioner's determination must be sustained.  2.  The petitioner also claims the deduction of the amounts paid to the nieces because, in reliance upon the decedent's promise, they had refrained from marriage until after they were twenty-five.  It is sufficient to defeat the deduction that the consideration for the claims was not in money or money's worth, as the statute requires, section 303(a)(1)(e), Revenue Act of 1926, as amended by section 805, Revenue Act of 1932. *768 . The Commissioner's disallowance of these deductions is sustained.  Several items of the deficiency determination were disposed of by the parties and the disposition may serve to modify the deficiency.  Decision will be entered under Rule 50.