Markle v. Commissioner , 28 B.T.A. 201 ( 1933 )

JOHN MARKLE, EDWARD M. ROBINSON, CHARLES A. MCKENDREE, AND ADA DAVIS SIGLAR, AS EXECUTORS OF THE ESTATE OF MARY R. MARKLE, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Markle v. Commissioner

Docket No. 50142.

United States Board of Tax Appeals

28 B.T.A. 201; 1933 BTA LEXIS 1156;

May 31, 1933, Promulgated

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1. By her will the decedent gave to her executors "the sum of Two hundred thousand Dollars ($200,000) or such part of that amount as in their judgment may be required for the purpose of establishing a suitable memorial to my mother, the late Mary Robinson Wright, in the event that I shall not establish or complete the same in my lifetime. It is my intention to decide upon the form of the memorial in my lifetime and if my health permits to complete it. If I fail to carry out this plan in any respect the fund herein bequeathed to them shall be available for that purpose and I give my said executors full discretionary power and authority to select the form of memorial. In this connection I express the preference that it be used for some distinctive purpose, such as the erection of a building or other permanent improvement, which shall bear my mother's name. If, in the exercise of their judgment, it seems advisable to use only a portion of the amount stated for the erection and equipment of the memorial, they may set aside the remaining balance in an Endowment Fund, the income to be used for the maintenance of the memorial."

2. Pursuant to this provision of the will her executors paid to the Knickerbocker Hospital, a charitable institution, $200,000 for the erection of a wing thereon in memory of decedent's mother, Mary Robinson Wright. Held, that the amount is a legal deduction from the gross estate in the determination of the net estate subject to estate tax under section 303(a)(3) of the Revenue Act of 1926.

Russell D. Morrill, Esq., for the petitioners.

Frank T. Horner, Esq., for the respondent.

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SMITH

This is a proceeding for the redetermination of a deficiency in estate tax of $73,820.48. Certain allegations of error stated in the petition have been settled by stipulation of the parties. The allegation of error in the petition not settled by the stipulation is:

In determining the value of the decedent's net estate the respondent has erroneously disallowed as a deduction the sum of $200,000, representing the amount paid by the petitioners to Knickerbocker Hospital, New York, New York, pursuant to the terms of the decedent's will.

FINDINGS OF FACT.

Petitioners are the duly qualified executors of the estate of Mary R. Markle, who died a resident of New York, N.Y., on September 4, 1927, leaving a will dated April 4, 1927, which was duly admitted to probate in the Surrogate's Court of the County of New York, on October 13, 1927.

Decedent's will contained the following provisions:

FOURTH: I give and bequeath to each of the persons or corporations hereinafter named the amount of money set opposite his, her or its name:

* * *

(27) To the KNICKERBOCKER HOSPITAL, a New York charitable corporation maintaining an hospital at Amsterdam Avenue and 131st Street, New York City, Ten Thousand Dollars ($10,000).

* * *

EIGHTH: I give and bequeath to my executors, or to such of them as shall qualify hereunder, and to the survivors or survivor of them, the sum of Two hundred thousand Dollars ($200,000), or such part of that amount as in their judgment may be required for the purpose of establishing a suitable memorial to my mother, the late Mary Robinson Wright, in the event that I shall not establish or complete the same in my lifetime. It is my intention to decide upon the form of the memorial in my lifetime and if my health permits to complete it. If I fail to carry out this plan in any respect the fund herein bequeathed to them shall be available for that purpose and I give my said executors full discretionary power and authority to select the form of memorial. In this connection I express the preference that it be used for some distinctive purpose, such as the erection of a building or other permanent improvement, which shall bear my mother's name. If, in the exercise of their judgment, it seems advisable to use only a portion of the amount stated for the erection and equipment of the memorial, they may set aside the remaining balance in an Endowment Fund, the income to be used for the maintenance of the memorial.

Pursuant to said article eighth of the will, petitioners paid to the Knickerbocker Hospital $200,000 for the erection of a wing on the hospital in memory of decedent's mother, Mary, Robinson Wright.

It is stipulated:

8. Knickerbocker Hospital is a corporation organized under an act of the Legislature of the State of New York, entitled "An Act for the incorporation of benevolent, charitable, scientific and missionary societies," passed April 12, 1848, and is organized and operated exclusively for charitable and scientific purposes, and no part of the net earnings of said hospital inures to the benefit of any private stockholder, member or individual.

9. Said Knickerbocker Hospital was originally incorporated May 23, 1862, under the name of Manhattan Dispensary. That by order of the Supreme Court of the State of New York, dated August 18, 1895, the name was changed to J. Hood Wright Memorial Hospital. That by order of the said court dated May 8, 1913, the name was changed to Knickerbocker Hospital after June 16, 1913.

10. That said Manhattan Dispensary was one of the residuary legatees under the last will and testament of J. Hood Wright, husband of decedent's mother Mary R. Wright, who died November 12, 1894.

11. Decedent, her mother Mary R. Wright, and other members of her family, at all times manifested an interest in the affairs of Knickerbocker Hospital.

12. Dr. Charles A. McKendree, one of the Petitioners and the decedent's friend and physician, states that he visited decedent for approximately one hour almost daily during the last eight years of her life and that decedent frequently discussed during these visits her mother's health and interests. After her mother's death, Mrs. Markle frequently expressed her desire and intention to erect a memorial building for her mother and continually referred to her mother's and her own interest in Knickerbocker Hospital.

13. Mrs. Ada Davis Siglar, one of the Petitioners, was a companion for and member of Mrs. Markle's mother's household and a close associate of Mrs. Markle. Mrs. Siglar states that Mrs. Markle was always extremely interested in the affairs of Knickerbocker Hospital and that in the fall of 1926 and at other times during the winter of 1926-1927, Mrs. Markle stated that she intended to build a wing on Knickerbocker Hospital in memory of her mother Mary R. Wright. Mrs. Siglar states that Mrs. Markle told her that she intended to take the matter of a memorial building up with Mr. McGuire, the then president of the hospital, as soon as her health permitted.

14. Dr. McKendree further states that Mrs. Markle suffered from chronic bronchitis and complete nervous exhaustion from about April, 1926, to the time of her death and in his opinion, was physically unable after April, 1926, to carry out her expressed intention of deciding on the form and providing for the erection of a building in memory of her mother.

15. Both Dr. McKendree and Mrs. Siglar state that Petitioners had no hesitancy in selecting Knickerbocker Hospital as the beneficiary of the bequest under Article Eighth of decedent's will, since they believed from Mrs. Markle's statements to them and her interest in the Knickerbocker Hospital that it was Mrs. Markle's intention that Knickerbocker Hospital was to be the beneficiary of that bequest and that the memorial to decedent's mother was to take the form of a building in connection with the hospital.

16. That even before the will was admitted to probate, John Markle, decedent's husband and one of the Petitioners, was in communication with Mr. McGuire, the president of Knickerbocker Hospital in regard to the consideration of a building in memory of Mrs. Mary R. Wright in accordance with the provisions of Article Eighth of decedent's will and letters, copies of which are attached as Exhibits A, B, and C and by this reference made a part of this stipulation, were exchanged between Mr. Markle and Mr. McGuire.

17. The plan of erecting the memorial tentatively agreed upon between Mr. Markle and Mr. McGuire was formally adopted by petitioners at their first formal meeting held October 8, 1927, and after the probate of the will and the issuance of Letters Testamentary to Petitioners they confirmed the arrangements made by Mr. Markle and Mr. McGuire by a letter, a copy of which is attached as Exhibit D and by this reference made a part of this stipulation.

18. The Board of Managers of Knickerbocker Hospital at a Regular Meeting held November 21, 1927, accepted the conditions of the bequest under Article Eighth of decedent's will by resolution, a copy of which is attached as Exhibit E and by this reference made a part of th s stipulation.

19. The statements of Dr. McKendree and Mrs. Siglar referred to herein, shall be considered as the testimony of Dr. McKendree and Mrs. Siglar before the Board of Tax Appeals in this proceeding.

The respondent disallowed the deduction of $200,000 paid by the petitioners to the Knickerbocker Hospital in the determination of the deficiency involved herein.

OPINION.

SMITH: Section 303 of the Revenue Act of 1926 provides in part as follows:

SEC. 303. 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 -

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(3) The amount of bequests * * * to a trustee or trustees * * * exclusively for * * * charitable purposes, * * *

The respondent has disallowed the deduction of the bequest paid to the Knickerbocker Hospital under article eighth of the decedent's will for the reason that it was not limited to charity and therefore did not come within the provisions of section 303(a)(3) of the Revenue Act of 1926.

A cardinal principle in the interpretation of wills is that they shall be construed to effectuate the intention of the testator. It has been said that "what is a charitable gift" has been given "an amount of discussion that probably no other one question in our jurisprudence has received." Reeves v. Reeves,73 Tenn. (5 Lea) 644. The books are replete with definitions of widely varying terms and scope, no one of which has yet received general acceptance. A definition quoted with approval as frequently as any other is:

A charity, in the legal sense, may be more fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves in life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government. It is immaterial whether the purpose is called charitable in the gift itself, if it is so described as to show that it is charitable in nature. [St. Louis Union Trust Co. et al., Executors,21 B.T.A. 1201">21 B.T.A. 1201.]

The Supreme Court said in Perrin v. Carey,24 How. 465">24 How. 465: "Charity is rather a matter of description than definition." In any event, one element common to definitions as to descriptions of charitable gifts is the implication of public utility. In re MacDowell,217 N.Y. 454">217 N.Y. 454; 112 N.E. 177">112 N.E. 177.

Undoubtedly the law favors charitable bequests. Ould v. Washington Hospital,95 U.S. 313">95 U.S. 313. Likewise Congress intended to encourage bequests for the purposes mentioned in the quoted statutory provision. St. Louis Union Trust Co. et al., supra, reversed in part on other grounds by the United States Circuit Court of Appeals, Eighth Circuit, St. Louis Union Trust Co. v. Burnet, 59 Fed.(2d) 922; Herron v. Heiner, 243 Fed.(2d) 745. So that, if a general charitable purpose is manifest within the limits of the testator's language, a broad and liberal construction should be applied to that language and the gift upheld. In re MacDowell, supra;In re Dubrow's Estate,245 N.Y. 469">245 N.Y. 469; 157 N.E. 747">157 N.E. 747.

Nevertheless, liberal as the courts generally are in such cases, a real intent of the testator to make a legally charitable bequest must be found in order to validate it. Thus, "as to the purpose, it is not enough that the founder has cherished or even disclosed a charitable intent. It is not the mere benevolence of a lover of his kind which will infuse vitality to this provision. There must be derivable from the instrument of gift a purpose 'charitable' within the measure which the law has imposed upon that word." Matter of Davis,77 Misc.Rep. 72; 137 N.Y.S. 427">137 N.Y.S. 427. Also see Owens v. Methodist Episcopal Church Missionary Society,14 N.Y. 380">14 N.Y. 380.

Much of the stipulation refers to extrinsic facts and testimony intended to establish them. In so far as this extrinsic testimony of record tends to place this Board in the situation in which the testator stood, when the will was made, we hold it entitled to consideration, if the will was latently ambiguous or has been made so by extrinsic testimony. Gilmer v. Stone,120 U.S. 586">120 U.S. 586.

However, we believe the intention of the testator in reference to the challenged bequest, as expressed in the will itself, is sufficiently clear and unambiguous, under the foregoing rules of construction, to bring it within the stated exemption. Nor have we overlooked the rigidity of the rule in construing exemptions from taxation. Cf. J. W. Perry Co. v. Norfolk,220 U.S. 472">220 U.S. 472; Great Northern R.R. Co. v. Minnesota,216 U.S. 206">216 U.S. 206; 2 Cooley on Taxation, 4th Ed., sec. 672.

The amount of the bequest is legally sufficiently certain. Speer v. Colbert,200 U.S. 130">200 U.S. 130. The actual use to which the gift was appropriate by the executors is not determinative of the issue. St. Louis Union Trust Co. et al., supra, reversed on other grounds. Unless the discretion of the executors is limited, exclusively, to the expenditure of the fund for a legally charitable purpose it will not be upheld. In re Beekman's Estate,232 N.Y. 365">232 N.Y. 365; 134 N.E. 183">134 N.E. 183; St. Louis Union Trust Co. v. Burnet, supra.

Here, under any circumstances, although the form of the memorial was left to the discretion of the executors, if not completed or at least selected by the testator before her death, it was, in any event, to fill the description of "suitable memorial" to her mother. In its reversal of this Board in St. Louis Union Trust Co. et al., supra, the Circuit Court of Appeals for the Eighth Circuit, by way of dictum, held that a bequest in trust for the establishment of a fitting memorial to a person excludes the concept of private benefaction and is therefore legally charitable. Cf. Bates v. Bates,134 Mass. 110">134 Mass. 110, possibly contra.

The controverted clause before us adds the preference that the gift be used "for a distinctive purpose such as the erection of a building or other permanent improvement which shall bear my mother's name." Persuasive of a generally charitable purpose as the objects of the controverted clause are said to be, they do not sufficiently identify the testator's intention as legally charitable. But the disputed paragraph then proceeds "If, in the exercise of their judgment, it seems advisable to use only a portion of the amount stated for the erection and equipment of the memorial, they may set aside the remaining balance in an Endowment Fund, the income to be used for the manitenance of the memorial." Thus, not as a mandate for the disposition of the fund at all events, but as definitely descriptive of the use to which this sum shall be appropriated, the testator clearly limits the discretion of the executors to "a suitable memorial" to her mother, to which the income of an endowment fund for its maintenance would be effectual.

Webster defines endowment as:

1. An act of endowing, or bestowing a power, fund, or permanent provision for support.

2. That which is bestowed or settled on a person or an institution; property, fund, or revenue permanently appropriated to any object, as, the endowment of a college.

3. That which is given or bestowed upon the person or mind; gift of nature; natural capacity or power; talents; usually in plural.

Bouvier states that its generally accepted meaning is that "of a permanent provision for any public object, as a school or hospital. By the endowment of such institutions is commonly understood, not the building or providing sites for them, but the providing of a fixed revenue for their support. 25 L.J.Ch. 82; 6 De G., M. & G. 87; State v. Lyon,32 N.J.L. 361">32 N.J.L. 361." Bouvier's Law Dictionary (Rawle's Revision), vol. 1, p. 1039. Cf. Saltonstall v. Saunders, 11 Allen, (Mass.) 446. Circumscribed by its context, "Endowment Fund," as here used, obviously meant merely a fund the income from which was to maintain the memorial. Even so limited, unless such bequest was legally charitable, it would fail as a violation of the rule against perpetuities. Bates v. Bates, supra; cf. ch. 42, Personal Property Law of New York; Jones v. Habersham,107 U.S. 174">107 U.S. 174; In re Olmstead's Will,131 Misc.Rep. 238; 226 N.Y.S. 637">226 N.Y.S. 637.

We conclude that the $200,000 bequest in issue is a legal deduction from the gross estate under section 303(a)(3) of the Revenue Act of 1926.

Reviewed by the Board.

Judgment will be entered under Rule 50.

ARUNDELL, MURDOCK, and MATTHEWS concur in the result.

VAN FOSSAN and SEAWELL dissent.