DocketNumber： Docket No. 91101.
Judges： Hill
Filed Date： 12/21/1939
Status： Precedential
Modified Date： 10/19/2024
*740 A, the mother of four sons, who were her only heirs at law, died testate. She created a testamentary trust of her residuary estate, the income of one-fourth share of which was to be paid to each of her sons during his life. By her will A gave to B a general power of appointment to dispose of the remainder of such trust property by will. A made no other provision for the disposition of such remainder. B exercised the power of appointment. He appointed the four sons to take such remainder, subject to contingencies as follows: The surviving sons were to receive in equal shares the remainder of the share of the trust property from which each predeceased son received the income for life, subject, however, to the contingency that if a deceased son left issue surviving, such issue would take as remaindermen the share as to which their father was a life beneficiary to the exclusion of their deceased father's surviving brothers, and, also, that such surviving issue would take,
*1211 This proceeding involves a deficiency in estate tax of $94,856.06 determined against the estate of William H. Morgan, deceased. The issues raised by the pleadings are the correctness of the respondent's action (1) in determining the value at the time of the decedent's death of certain items of property listed in schedule E of the estate tax return, (2) in determining the value*742 at the time of the decedent's death of certain items of property listed in schedule F of the estate tax return, (3) in including in the gross estate certain amounts as accrued interest on designated items of property listed in schedule F of the estate tax return, (4) in including in the gross estate certain property held in trust under the will of Laura Louise La Montagne, as to which a power of appointment was exercised by the decedent, and (5) in determining the value of appointed property by not allowing any deduction for estimated commissions of the trustee, for paying out and distributing it. The parties have disposed of issues Nos. (1) and (2) by stipulation as to the value of the items in controversy and issue No. (3) by stipulation that the amounts in controversy did not constitute part of the decedent's gross estate. Only No. (4) and No. (5) remain for determination. The proceeding was submitted upon a stipulation of facts and certain documentary evidence, all of which are incorporated herein by reference but only so much of which is set out below in our findings of fact as is necessary for a determination of the issues that are remaining.
FINDINGS OF FACT.
William*743 H. Morgan (sometimes referred to hereafter as the decedent) died a resident of the City, County, and State of New York on October 12, 1934, leaving a last will and testament which was admitted to probate by the Surrogate's Court of the County and State of New York. The petitioner, a New York corporation, was duly appointed and now is the executor of the last will and testament of the decedent. About October 11, 1935, the petitioner duly filed with the collector of internal revenue for the third district of New York the Federal estate tax return and paid the tax as computed thereon.
Laura Louise La Montagne died a resident of the County of Queens, City and State of New York, on March 21, 1912, leaving a will which was duly admitted to probate in the Surrogate's Court of the County of Queens. The Central Hanover Bank & Trust Co. was appointed cotrustee with William H. Morgan on April 29, 1932, and now is the sole trustee of the trusts created under the will of Laura La Montagne.
Laura La Montagne was survived by the following children, Montaigu La Montagne, Rene M. La Montagne, morgan E. La Montagne, *1212 and William A. La Montagne, but was not survived by a husband*744 or the issue of any deceased child.
After providing in her will for the payment of her debts and the funeral and testamentary expenses, Laura La Montagne devised and bequeathed all of her estate to the executrix and executor named in the will in trust for certain purposes, of which the following were a part:
(1) To divide said estate into as many equal shares as I shall leave children surviving me. In case any of my children shall have died before my decease, leaving issue living at the time of my decease, then, and in that event, said number of equal shares shall be increased by the number of children who shall have so died leaving issue me surviving; and in this latter event to subdivide one of said equal shares into as many equal portions as there shall be children, me surviving, the issue of such deceased child: so that there shall be one equal and distinct share to correspond to, and to represent each one of my children living at the time of my decease, and one equal and distinct portion of one of said equal shares to correspond to, and to represent each child, me surviving, of the issue of each one of my children who shall have died prior to my decease.
(2) To invest*745 and keep invested each of said shares and each of said subdivisions or portions of said shares, and to pay over in such manner and at such times as hereinafter provided, the net income derived from said shares and portions of shares respectively, for the use and benefit of, and I hereby bequeath said net income to, the child and grandchild corresponding to or representing said shares and portions of shares respectively, during his or her natural life; and immediately upon the death of any child or grandchild to pay over, and I hereby give, devise and bequeath unto my brother William H. Morgan, the principal or
* * *
THIRD: In case I shall die leaving no child or grandchild surviving me, then, and in that event, I give, devise and bequeath all my said estate unto my said brother, William H. Morgan, his heirs and assigns forever, absolutely and free from any trust.
* * *
Pursuant to the terms of Laura La Montagne's will her estate was divided into four trusts, with each of her sons entitled to the income from one of such trusts during his life.
All of the sons of Laura La Montagne survived William H. Morgan, and their ages at the time of his death, October 12, 1934, were: Montaigu, 54, Rene M., 51, Morgan E., 49, and William A., 48.
*1213 With respect to the exercise of the power of appointment over the remainder interests after the termination of the intervening life estates given to him in the will of Laura La Montagne, William H. Morgan provided as follows in his will:
ITEM ONE: Whereas by the Will of my sister Laura Louise La Montagne, deceased, bearing date September 14th, 1894, and duly probated*747 in Queens County, New York, March 29th, 1912, it is provided among other things that if I should not be living at the time I would be entitled to receive the Principal or
At the time of the death of William H. Morgan none of the sons of Laura La Montagne had issue except Morgan E., who had two infant children, one born in September 1922 and the other in February 1927. Since the death of William H. Morgan no issue of any of the sons has been born and none of the sons has died except that Montaigu died without issue on January 19, 1938.
The only heirs at law and next of kin of Laura La Montagne and the only persons entitled to share in such part of her estate as to which she died intestate were her four sons.
In March 1936 each of the sons of Laura La Montagne executed and delivered to the Central Hanover Bank*749 & Trust Co., as trustee under her will, a separate instrument wherein he renounced and disclaimed all right to take any interest in remainder in any trust created by the will of Laura La Montagne which might be given to him by the terms of the will of William H. Morgan wherein he (Morgan) undertook to exercise the power of appointment ever the remainders in the trust given him by the will of Laura La Montagne. Executed counterparts of these instruments were filed on May 2, 1936, in the Surrogate's Court of the County of New York (in which *1214 William H. Morgan's will was probated) and on May 15, 1936, in the Surrogate's Court of the County of Queens (in which the will of Laura La Montagne was probated).
In determining the gross estate of William H. Morgan the respondent included therein the value of the remainder interests in the property appointed by William H. Morgan under the general power of appointment given to him by the will of Laura La Montagne. In computing the value of such remainder interests, the respondent did not allow trustee's commissions payable on disbursements to be made upon termination of the trusts of the property held in trust which was subject*750 to the power of appointment. Such commissions, computed in accordance with section 285 of the Surrogate's Court Act of the State of New York upon the value on October 12, 1934, of the trust estate created by the will of Laura La Montagne amount to $3,970.25.
OPINION.
HILL: The petitioner contends that because of the renunciations the property held in trust under the will of Laura La Montagne did not pass in remainder by the exercise of the power of appointment by William H. Morgan, the decedent herein, and is not part of his gross estate for the purpose of the estate tax. Respondent contends
The Revenue Act of 1926, as amended, provides as follows:
SEC. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, * * *
* * *
(f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will * * *.
The statute provides three requisites for the inclusion of appointed property in the estate of the decedent, namely, the existence of a general power of appointment, the exercise of such power by the decedent by will, and the passing*751 of the property by reason of such exercise. If the property does not pass as a result of the exercise of the power of appointment by the decedent, then it is not to be included in the decedent's gross estate.
Bearing in mind that Laura La Montagne died leaving surviving her four sons and no husband and that each of her four sons survived petitioner's decedent, the following are in brief the provisions of her will applicable to the questions under consideration:
1. An estate for life in her residuary estate was bequeathed in trust to her four sons in equal shares, with the income from one such share payable to each son for the term of his life.
2. General power of appointment was granted to decedent to designate and appoint the person or persons who should take the remainder interest in the share of the trust property in which each of the four sons had a life estate.
*1215 3. Decedent exercised the power of appointment by will and designated the persons who should take the remainder interests in the trust property at the expiration of the several life estates. Such designation under the following conditions*752 constituted the following described persons as such remaindermen:
(a) Upon the death of each of such sons the fee title to the property in which he had a life estate should vest in his surviving issue, if any, in equal shares.
(b) If a son should die leaving no issue surviving the fee title to the property in which he had a life estate should vest in the surviving brothers of such deceased son and in the surviving issue of any predeceased brother, by representation, in equal shares.
(c) If the last survivor of the sons should die without leaving surviving him any issue of any of the sons the fee title to the property in which he had a life estate should vest in the Metropolitan Museum of Art in the city of New York.
Laura La Montagne's will contains no provision for the disposition of the remainder interests in her residuary estate upon the expiration of the life estates of her several sons therein except by the exercise of the power of appointment granted to petitioner's decedent. It is apparent, therefore, that none of the sons of Laura La Montagne acquired under her will a remainder interest in any of the property of her estate. It is also apparent that if decedent*753 had failed to exercise the power of appointment granted him or if the exercise of such power was ineffective to pass title because of the renunciations of title thereunder by the four sons or for any other reason, the four sons as the only heirs at law of their mother would have, as of the date of her death, the fee title in equal shares to the remainder interests in the trust property upon the expiration of their several life estates therein.
That decedent exercised the power of appointment is admitted but it is contended by petitioner that the renunciations of title thereunder rendered the exercise of appointment ineffective to pass title and that hence one of the elements essential to the applicability of section 302(f) of the Revenue Act of 1926 is absent. The premise of petitioner's contention is that by the renunciations of title under the appointment no title to the remainder interests in the trust property passed either under the will of decedent or under the will of Laura La Montagne, and that as to such remainder interests the latter died intestate. Upon the basis of such premise petitioner claims that the four sons of Laura La Montagne took title in fee to the remainder*754 interests in question under the law of descent and distribution as the only heirs at law of their mother, and that they received nothing by appointment. Petitioner relies mainly for support of its contention *1216 on
Can it properly be said that, because the beneficiaries elected to take the property under a distinct and separate title, the property nevertheless passed under the power? Plainly enough, we think, the answer must be in the negative.
The case of
The property under consideration never belonged to the daughter, Mrs. Lansing, although she had the income therefrom during her life through a trust created for her benefit by her father's will. By the same sentence which created the trust*757 during her life, the property was given after her death to the granddaughter, Mrs. McVickar, subject to the exercise of the power of appointment. That power was limited to two classes of persons, consisting of the heirs at law and the collateral relatives of Mrs. Lansing. Mrs. McVickar was her sole heir at law, and the power of appointment, as formally exercised, gave all the property to her the same as her grandfather had given it to her more than 30 years before. In other words, the attempt to exercise the power neither increased nor diminished the estate of Mrs. McVickar, and did not affect in any degree the value of her grandfather's gift. It did not effectively transfer any property whatever, for she took from her grandfather, and nothing was added to or taken away from the gift by the exercise of the power through the will of her mother. The execution of the power left the title where it was before, and the result is the same as if there had been no power to exercise. Mrs. McVickar was born before her grandfather died, and upon his death she took a vested interest in remainder, because she was "a person in being, who would have an immediate right to the possession of the*758 lands upon the ceasing of the intermediate or precedent estate" created in trust for the benefit of her mother. * * * Her rights were fixed by the will of her grandfather, and, unless changed pursuant to its provisions, her estate in expectancy would become an estate in possession upon the death of her mother. While the situation was subject to change under the power of appointment, no change was made. Although the power was exercised in form, her title was perfect without it, and she derived no benefit from it. The power was to "dispose of the remainder," and the remainder was not disposed of, but continued where it was. The attempt to execute the power was not effective, because it did nothing. The exercise of a power which leaves everything as it was before is a mere form, with no substance.
* * * The power as it might have been exercised would have left Mrs. McVickar with no title at all, but as it was exercised it left her the same title that she had before. It gave her nothing and took nothing away from her. She is not forced to claim through the second clause of her mother's will, for she took under the will of her grandfather. She had the right of election and could*759 refuse to take under the appointment and still hold the property, for her title was as good without as with the exercise of the power. * * *
An appointee under a power has the right of election, the same as a grantee under a deed. "It is essential to the legal operation of a deed that the grantee assents to receive it. It cannot be imposed upon him, and there can be no delivery without an acceptance." * * * While the mother could appoint, the daughter could reject. Mrs. McVickar could therefore repudiate the action of her mother in attempting to exercise the power and hold the property from her grandfather.
The Supreme Court in the
Under the facts in each of the above cited cases the persons designated as appointees under the exercise of the power of appointment were vested with the same title to the same estate from a source independent of the appointment as was given them by the appointment. *760 In the proceeding before us an analogous state of facts does not exist. Here the title claimed for the four sons was a fee title to the remainder in equal shares by inheritance, and if they had title by inheritance it was that kind of title. Under the power of appointment as exercised neither of the sons was given such title. The appointment gave them neither an estate in fee nor an estate in equal shares in the entire remainder of the trust property. It gave them a defeasible title in different and unascertainable proportions in not to exceed three-fourths of such remainder.
For petitioner to succeed in its contention that none of the remainder of the trust property is includable for estate tax purposes in decedent's estate it must appear from the evidence that the entire remainder was appointed to the sons and that they each had the same title by inheritance as was appointed to them.
It would be an anomaly to hold that the remainder of the trust property is intestate property as a result of the renunciations*762 by the sons of title under the appointment in view of the fact that appointees other than the sons will under the terms of the appointment, if certain contingencies happen, receive a part or all of such remainder interest to the exclusion of the sons. The rights of such *1219 other appointees are testamentary rights and affect the title to the entire remainder. Whether the sons will or will not get any part of the remainder of such property depends upon the happening or nonhappening of contingencies specified in the will of decedent in exercising the power of appointment regardless of the renunciations of the sons. The whole title to the remainder of such property was disposed of by appointment in such way that no part of it can be intestate property. It can not be intestate property as to the sons of Laura La Montagne and testate property as to the other appointees under decedent's will.
In determining the status of the titles under the appointment we must consider them as of the date of the death of petitioner's decedent. *763
At the time of decedent's death one of the sons, Morgan E., had living two minor children. Under the appointment these children *1220 were the remaindermen to their father's life tenancy in one-fourth share of the trust property. Their title was defeasible only by their predeceasing their father. Such title passed to them by the appointment just as effectively as title passed to each of the four sons of Laura La Montagne*765 by such appointment. Also the issue, if any, of the sons, whether or not in being at the time of decedent's death, who should survive their fathers were by the appointment designated as remaindermen after their father's life tenancy and remaindermen,
It is obvious from the foregoing that the remainder interests to the sons of Laura La Montagne, as given by the appointment, were vastly different in character and scope from the remainder interests which are claimed for them under the laws of intestacy as the only heirs at law of Laura La Montagne. It is also obvious that the four sons in question were not the only appointees under the power of appointment. There was no renunciation of title under the appointment by or on behalf of the two children of Morgan La Montagne or of the contingent titles of unborn issue.
This proceeding is clearly distinguishable on the facts from the cases of
In the case of
*1221 The court, in holding the transfer under the appointment taxable, said:
Again, as we have seen, under the will of Mrs. Cooksey, in exercising the power of appointment she made material changes with reference to paying over the remainder to her children from that incorporated in the will of her father. While each of her children may ultimately receive the same amount, yet she, by her will, fixes definitely the amounts that shall be paid to each of her children upon their arriving at the ages of 21 and 25 years, leaving no discretion in the trustees as to the amounts that shall be paid over to them, and then vests in the trustees the discretionary power to determine how much shall be used for the support and education of the children during their minority. It appears to us, therefore, that there was a necessity for exercising the power, that it cannot be treated as a nullity, and that, therefore, the transfer tax under the statute was properly assessed.
The facts in the instant case are much stronger than in the
We hold that the entire remainder of the trust property is includable in decedent's estate for estate tax purposes.
The remaining question for determination is whether, in determining the value at which the remainder of the trust property passed under the power of appointment, there should be deducted any amount as estimated trustee's commissions which will be payable on the distribution of the trust property at the termination of the trusts. Respondent disallowed such deduction. Petitioner contends that such deduction should be allowed.
Under section 302 of the Revenue Act of 1926, property passing under a general power of appointment exercised by will must be included for estate tax purposes in the estate of the donee of the power at its value at the time of his death. The estate tax is imposed upon the net estate of the*769 decedent, and section 303 of such Revenue Act provides that the net estate for such purpose shall be the value of the gross estate reduced by certain enumerated deductions and exemptions. Among such deductible items are administration expenses and claims against the estate or any indebtedness in respect of the property to the extent that such claims or indebtedness were incurred or contracted bona fide and for an adequate and full consideration in money or money's worth.
The property passing by appointment in this proceeding is the remainder interest in property now being administered by a testamentary *1222 trust. Section 285 of the Surrogate's Court Act of the State of New York provides that the surrogate must allow to a testamentary trustee for his services in such official capacity commissions for "receiving and paying out all sums of money" at specified rates of percentage of the sums so received and paid out. The trustee's commissions for "receiving" have been paid to it and were allowed by the respondent as a deduction from the gross value of the appointed property, but respondent disallowed any deduction for estimated trustee's commissions for "paying out" any*770 such sums of money. It is stipulated by the parties that such disallowed commissions, if computed at the rates specified in section 285 of the Surrogate's Court Act upon the value of the property in question on October 12, 1934, the date of decedent's death, would amount to the sum of $3,970.25, but the value of the property at the date named is not the basis upon which such commissions are computable. To justify the deduction claimed in determining the value of the property passing by appointment two things are necessary - first, authority must be found therefor in the statutes, and, second, the amount of such commissions must be established by the evidence. The deduction claimed is for an estimated amount of commissions which will be payable to the trustee of the testamentary trust upon paying out sums of money in distribution of the trust property at the termination of the several trusts. We find no provision in the revenue act authorizing such a deduction. Nor do we find authority in law for excluding from the value of the appointed property the amount of such estimated future commissions in determining the value of the property passing under general power of appointment. *771 It is our duty, however, to find the value of such property and in doing so we should take into consideration all facts pertinent thereto. The value of the property involved herein has been stipulated without taking into account the obligation to pay as trustee's commissions in the future specified percentages of the value of the property when distributed. To hold that the value of such property is its value as stipulated, reduced by estimated trustee's commissions computed on such stipulated value, would be unsupported by evidence and, hence, an arbitrary action. It is too obvious for comment that such future commissions are not measurable by applying the statutory rates of percentage to the value of the property at the time of decedent's death, but only by applying such rates to the value of the property when distributed or paid out. There is no evidence of record, and we doubt if any can be produced, by which the amount of such future commissions can be determined. Hence, even if in law there is authority for deducting such commissions in determining the value of the property for estate tax purposes, there is a lack of evidence from which to ascertain the amount of *1223 *772 such deduction, and the burden is upon petitioner to produce such evidence.
The parties hereto stipulated the value of the property in question as of the date of decedent's death without taking into account trustee's commissions in amounts to become determinable and payable only upon the paying out of the trust property at the termination of the several trusts. It is not shown by the evidence to what extent the payment of such future commissions reduces the value of the property as stipulated or that it reduces such value at all. We hold, therefore, that the stipulated value of the property is the value thereof to be included in decedent's estate for estate tax purposes.
Reviewed by the Board.