Court Opinion

ID: 4618687
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:39:08.856322+00
Date Added: 2024-06-11T07:55:30.882711
License: Public Domain

ESTATE OF OZRO MILLER FIELD, THE MERCHANTS NATIONAL BANK OF BOSTON, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Field v. CommissionerDocket Nos. 105004, 105005.United States Board of Tax Appeals45 B.T.A. 270; 1941 BTA LEXIS 1144; October 7, 1941, Promulgated *1144  DEDUCTIONS - CHARITABLE USES. - The corpus of a testamentary trust could be used if in the discretion of the trustee it was necessary for the "comfort, support, maintenance, and/or happiness" of the life tenant.  The remainder went to charities.  Held, the possibility of invading corpus was sufficiently remote to justify deduction of the charitable bequest for estate tax purposes and for allowing an income tax deduction under section 162 for capital gains accumulated.  Edward C. Thayer, Esq., for the petitioner.  John T. Haslam, Esq., for the respondent.  MURDOCK *270  The Commissioner determined a deficiency of $42,825.69 in income tax for 1937 (Docket No. 105004) and a deficiency of $26,290.93 in estate tax (Docket No. 105005).  The issue for decision in the estate tax case is whether the estate is entitled to a deduction for a bequest to charity of a remainder interest.  The issue in the income tax case is whether the estate is entitled to a deduction under section 162 of the Revenue Act of 1936 of capital gains allegedly permanently set aside for charitable purposes.  *271  FINDINGS OF FACT.  Ozro M. Field died testate in Massachusetts*1145  on May 3, 1936.  The returns in question were filed with the collector in Massachusetts.  The petitioner is the duly authorized executor of the estate.  The decedent was survived by his widow, May L. Field, who was then sixty-seven years of age.  They had no children.  The decedent never had any children of his own, but he had adopted three children, Deborah, Elizabeth, and Robert, before the death of his first wife.  They were never adopted by May.  They survived the decedent.  The two girls were each twenty-seven and married, and Robert nearly twenty-one in 1936.  The husbands of the girls were fully able to support them.  The gross estate of the decedent, as determined by the Commissioner, amounted to $366,527.66, and included $52,718.75 of property held jointly by the decedent and his wife.  The widow owned income-producing property worth about $104,000 immediately after the death of her husband.  She also owned tangible personal property and a comfortable country home in Buckland, Massachusetts.  Most of her property had been given to her by her husband.  The decedent provided in his will that his property should be held in trust; the net income was to be paid to his wife*1146  for life, with the right in the corporate trustee to pay from the principal any amount which it should "in its sole discretion deem wise and proper for the comfort, support, maintenance and/or happiness of my said wife, and it is my wish and will that * * * my said Trustee shall exercise its discretion with liberality to my said wife, and consider her welfare, comfort and happiness prior to claims of residuary beneficiaries under this trust"; $100,000 was to be held in trust after the death of the wife and the income from one-fourth paid to each of the three adopted children for life and to Dora L. Russell, a niece of May L. Field, for life; the remainder was to go to named charities upon the death of May; and, as each life beneficiary of the $100,000 trust died, one-fourth of the principal was to go to named charities.  The Commissioner concedes that the charitable beneficiaries are corporations of such character as to render legacies to them deductible under both the estate and income tax laws.  The parties are in agreement as to the value of the life estates.  The decedent and May had agreed that, since his wealth had come from the public patronage of Kennedy retail clothing*1147  stores, it would be appropriate to leave it to charities.  They wrote wills simultaneously leaving the remainder interests in their estates to charities in which they were interested, hospitals.  The annual living expenses of the decedent and his wife just prior to his death had amounted to about $6,000.  They lived simply but *272  comfortably.  They paid all of the expenses of Robert, who lived with a niece of May, and gave presents to Elizabeth and Deborah as suited their pleasure.  The annual living expenses of May after the death of her husband amounted to between $6,000 and $7,000.  She never needed or received any of the principal of the trust and has no intention of ever asking for any.  Her total income from her own property and the trust, and the amount she has actually spent has been as follows: PeriodIncomeExpenditures1936 (7 months)$10,735.35$1,853.99193724,738.5710,357.91193817,480.8511,055.91193917,448.2312,024.92194016,959.6613,389.31Total87,362.6648,682.04The estate is holding uninvested about $41,000.  The expenditures included Massachusetts inheritance tax of $2,518.46 paid in 1937, $855 for*1148  an automobile and later $1,435 for another, $2,250 for a mink coat, $1,600 for two trips, $700 in 1940 to help the niece when her husband died, $1,500 to help the niece's son complete medical school, and an undisclosed amount for a fur coat for Deborah.  May has given all of the help that she desired to give, including gifts to persons in any way related to herself or to the decedent, and has saved excess income of about $40,000 from 1936 through 1940, which she intends to hold for any special purpose which may arise.  The value of the trust estate at the close of 1940 was about $366,000 and that of the personal property of May was about $151,000.  The estate realized capital gains of $100,900.31 in 1937, $65,860 of which was from the sale of 2,000 shares of 7 percent perferred stock of the Kennedy Co.  May sold 176 shares of the same stock in 1937.  The Commissioner disallowed all of the deduction claimed on the estate tax return for charitable bequests and all of the deductions claimed on the income tax return under section 162.  He explained that the right to invade the corpus for the benefit of the widow made it impossible to determine the amount of any bequest to charity. *1149  OPINION.  MURDOCK: The estate tax law allows a deduction for the amount of all bequests or legacies to corporations organized for charitable purposes and the income tax law allows a similar deduction for any part of the gross income which is permanently set aside for such purposes.  The remainder interest in the decedent's estate, including the amount realized from the sale of securities (the capital gains), was *273  to go to charitable corporations, hospitals.  The Commissioner contends, however, that no deduction is proper because the corpus could be invaded and it is impossible to determine how much might be used up by the widow.  He does not suggest that the entire corpus might be used by her, yet he has allowed no deduction.  He does not question the fact that the capital gains became a part of the corpus of the trust.  The corpus could be invaded only in case the trustee concluded, in the exercise of its discretion, that income was insufficient for the "comfort, support, maintenance, and/or happiness" of the widow and the use of principal would be "wise and proper." Cases where the beneficiary was not restricted in any way and cases where annuities for after-born*1150  children might consume the corpus are not in point.  Cf. ; affd., . The problem is similar to that involved in . The income and such part of the principal as might be "necessary to suitably maintain" her "in as much comfort as she now enjoys" was to go to the life tenant and the remainder was to go to charity.  The Court said: * * * The case presents two questions, the first of which is whether the provision for the maintenance of the wife made the gifts to charity so uncertain that the deduction of the amount of those gifts from the gross estate under section 403(a)(3), supra, in order to ascertain the estate tax cannot be allowed.  * * * This we are of opinion must be answered in the negative.  The principal that could be used was only so much as might be necessary to continue the comfort then enjoyed.  The standard was fixed in fact and capable of being stated in definite terms of money.  It was not left to the widow's discretion.  The income of the estate at the death the testator and even after debts and specific legacies*1151  had been paid was more than sufficient to maintain the widow as required.  There was no uncertainty appreciably greater than the general uncertainty that attends human affairs.  The same principles apply in an income tax case.  ; ; affd., . The standard fixed by Field was also capable of being stated in fairly definite terms of money.  The income of the estate at the death of the testator was more than sufficient to maintain the widow as required and there was no uncertainty as to future sufficiency appreciably greater than the general uncertainty that attends human affairs.  There is evidence of the amount of income which could be expected and of the probable expenditures of the widow.  The former was about 1.8 times the latter.  The actual living expenses of the widow were about one-third of the average income.  There is evidence that the widow would be most reluctant to invade the corpus of the trust.  The contention of the respondent that there was a "trend" of declining income and ascending expenditures is not borne out by the evidence. *1152  The income has been uniform *274  in amount since the sale of the Kennedy 7 percent preferred stock.  The expenditures of the widow have increased somewhat as she found some new uses for a part of her excess income, but there is reason to believe that she will never want more than income from the trust.  This may be a borderline case, 1 but the possibility of corpus being invaded is sufficiently remote to justify the deductions claimed.  Reviewed by the Board.  Decision will be entered under Rule 50.BLACK, TURNER, KERN, and OPPER dissent.  Footnotes1. Income was about five times the amount needed for the annuities in the Bonfils case.  The deduction was disallowed in Boston safe ↩; affd., ; certiorari denied, , where income was only about 1.4 times the amount needed for annuities and there was a possibility that more annuitants would be born.