DocketNumber: Docket No. 941-69
Judges: Sterrett
Filed Date: 1/10/1973
Status: Precedential
Modified Date: 11/14/2024
*186
Decedent in his will, established a trust, income payable to his son for life, remainder to a named charity. The trustees were given discretionary powers over the income and principal of the trust.
*535 Respondent determined a deficiency in the Federal estate tax of the Estate of Abraham Simonson in the amount of $ 399,045.98.
Due to concessions the sole issue remaining for adjudication is whether the value of a trust's remainder interest payable to a charitable beneficiary was subject to ascertainability at the time of the decedent's death. Such a decision will lead us to a conclusion relative to the estate's right to a charitable deduction within the purview of
Some of the facts have been stipulated and are so found. The stipulation of facts, together with the exhibits attached thereto, are incorporated herein by this reference.
Decedent, Abraham Simonson, died on September 14, 1964. Petitioner Nathaniel Simonson is the surviving executor of the estate of the decedent. Ernest C. Geiger was an executor of the estate of David Geiger and had duly qualified as such on October 16, 1964. He died on May 12, 1968. The Federal estate tax return was timely filed on December 13, 1965, with the district director of internal revenue, New York, N.Y.
On December 27, 1963, the decedent executed a last will and testament which provided in part for the creation of two trusts, a marital *536 trust for the decedent's wife, Henrietta Simonson, and a second trust income payable to decedent's son Nathaniel Simonson (hereinafter referred to as Nathaniel) during his lifetime and upon his death corpus to be distributed to various charitable organizations. The will provides in pertinent part as follows:
EIGHTH: All the rest, residue and remainder of my estate, of whatever nature or description and wherever situate, including any lapsed *189 legacies, I give, devise and bequeath to my trustees hereinafter named, In Trust, Nevertheless, for the purposes and upon the terms and conditions hereinafter set forth:
A. If my beloved son, NATHANIEL SIMONSON, also known as NAT SIMONSON, shall survive me, I direct my trustees to hold, invest and reinvest my residuary estate, hereinafter called the "Fund", collect the income and profits therefrom and during the natural lifetime of my said son to pay to him the net income therefrom in semi-annual or more frequent installments as my trustees may determine.
B. Upon the death of my son, NATHANIEL SIMONSON, or in the event my said son does not survive me, then upon my death, I direct my trustees to divide, pay over and distribute this fund or the then remainder thereof, together with any and all accumulated and undistributed income therefrom, in equal shares, to no more than four or five charitable organizations as hereinafter defined. Among them shall be included Brandeis University, Waltham, Massachusetts, Albert Einstein College of Medicine of Yeshiva University, Bronx, New York and University Settlement Society of New York, at Eldridge and Forsythe Streets, in the Borough of Manhattan, *190 City of New York. Each such gift shall be designated as a memorial to my family and shall bear and perpetuate the Simonson name and shall be used by such organization for general charitable purposes or for such special or limited purpose within the authorized area of activity of such charitable organization as my trustees may specify. I authorize my trustees to subject any such gift to a charitable organization to any lawful terms, conditions and restrictions which they in their absolute and uncontrolled discretion shall deem necessary, appropriate or desirable. Without intending hereby to limit or restrict the discretion of my trustees, I request that in selecting additional charitable institutions for receipt of a share of my estate, my trustees give special consideration to organizations whose work is in the fields of education, medical research, the care of underprivileged children, aid to the blind and hospitals for chronic diseases.
The words "charitable organizations" as hereinabove used shall be deemed to mean organizations, corporations, associations, funds, foundations and institutions organized exclusively for religious, charitable, educational and/or scientific purposes*191 which are tax exempt and gifts to which may be deducted in determining my taxable estate under the then applicable provisions of the Internal Revenue Code and New York tax law.
I authorize my trustees during any reasonable period while they may be considering and deciding upon additional charitable organizations to which distribution is to be made in accordance with the foregoing, to invest and reinvest such fund and to collect and accumulate the income and profits therefrom. The net income and profits accumulated during any such period shall be divided, paid over and distributed to the charitable organizations together with the principal from which derived.
NINTH: A. I authorize my executors and trustees to retain for such period *537 of time, during his lifetime, as my son NATHANIEL in his absolute and uncontrolled discretion shall deem appropriate and advisable in view of all the circumstances my two thousand one hundred sixty six and two-thirds (2166 2/3) shares of stock in the Fashion Center Building Corp. and my two (2) shares of stock in the Fashion Center Service Corporation. In the event that it shall be determined to sell such shares of stock during the life of my*192 son, NATHANIEL, I direct my trustees to afford first opportunity to acquire such shares of stock to the respective issuing corporations, and to the extent such offer is not accepted by the corporations concerned, to the persons who then own shares of stock in the respective corporations. It is my desire, if the same can be achieved without unreasonable disadvantage to my estate or the trusts directed to be established hereunder, of which fact my trustees shall be the absolute judges, that the disposition of my shares of stock in these corporations shall not disturb the ownership and control of said corporations during the lifetime of my said son, NATHANIEL, without his consent, and I direct my executors and trustees to be mindful of this fact in negotiating the price to be paid for such shares of stock and the terms of payment.
B. I authorize my executors and trustees in their absolute discretion and judgment to extend for such period as they deem advisable and appropriate in all the circumstances the time during which the surviving partners of Cohen, Simonson & Co. shall be required to pay out the amount due my estate for my interest in said partnership. I also authorize my executors*193 and trustees, if they in their absolute and uncontrolled discretion shall deem it advisable, to permit all or part of the amount due my estate with respect to my interest in Cohen, Simonson & Co. to be retained by any successor partnership thereto (but only during the lifetime of my son, NATHANIEL SIMONSON, and only while he is, and continues to be, a general partner of any such successor partnership) for such period of time and upon such terms and conditions as my executors and trustees in their absolute and uncontrolled discretion shall deem appropriate.
TENTH: I direct that all inheritance, estate, transfer, succession and death taxes or duties (including interest thereon) imposed by any jurisdiction whatsoever by reason of my death, upon or in relation to any property includable in my estate for the purpose of any such taxes or duties, whether such property passes under the provisions of this Will or outside the provisions of this Will, shall be paid out of my residuary estate as a charge of administration and shall not be apportioned to any beneficiary hereunder nor to any person receiving such property.
* * * *
TWELFTH: I hereby give and grant to my executors and trustees herein*194 named and their successors, the following powers and authority which may be exercised by them at any time and from time to time, as they shall, in their absolute discretion, deem advisable:
A. To hold and retain all or any part of my estate or any trust created hereby, in the form in which the same may be at the time of my decease, or at the time of the receipt thereof by my said trustees from my executors, as long as they may deem advisable.
B. To invest and reinvest any funds in my estate or any trust created hereby in any property, real or personal, of any kind or nature, including, without limitation, stocks, whether common, preferred or otherwise, listed on the New York Stock Exchange or the American Stock Exchange, without being limited or restricted *538 to investments prescribed or authorized for executors or trustees by the laws of New York or any other state.
C. To sell, exchange, partition or otherwise dispose of any property, real or personal (except property specifically bequeathed) of which I may die seized or possessed, or which may at any time form a part of my estate or any trust created hereby, at public or private sale, for such purposes and upon such terms, *195 in such manner and at such prices, as they may determine.
D. To mortgage any property, real or personal, of which I may die seized or possessed, or which may at any time form a part of my estate or any trust created hereby, in such amount and on such terms as they may deem advisable; to lease any such property, for such term or terms, and upon such conditions and rentals, and in such manner, as they may deem advisable, irrespective of whether the term of any such lease shall exceed the period permitted by law or the probable period of any trust created hereby, and to renew or modify any such leases, to make repairs, replacements and improvements, structural or otherwise, of any such property, as they may deem advisable.
E. To renew or extend the time of payment of any obligation, secured or unsecured, payable to or by my estate or any trust created hereby, for as long a period or periods of time, and on such terms, as they may determine; to borrow such sums of money as they in their discretion may deem in the best interests of my estate or of any trust created hereby and to pledge any property in my estate or in such trust or otherwise secure the repayment thereof; and to adjust, *196 settle, compromise and arbitrate claims or demands (including claims or demands involving estate, gift, income or other taxes) in favor of or against my estate or any trust created hereby, upon such terms as they may deem advisable.
F. In respect of any securities forming a part of my estate or any trust created hereby, to vote upon any proposition or election at any meeting, and to grant proxies, discretionary or otherwise, to vote at any such meeting; to join in or become a party to any reorganization, readjustment, merger, voting trust, consolidation or exchange, and to deposit any such securities with any committee, depositary, trustee or otherwise and to pay out of my estate or any trust created hereby any fees, expenses and assessments incurred in connection therewith, and to charge the same to principal or income as they may see fit; to exercise conversion, subscription or other rights, or to sell or abandon such rights, and to receive and hold any new securities issued as a result of any such reorganization, readjustment, merger, voting trust, consolidation, exchange or exercise of conversion, subscription or other rights; and, generally to take all action in respect to any*197 such securities as they might or could do as absolute owners thereof.
G. Whenever they are required or permitted to divide or distribute any estate created hereby, to make such division or distribution in kind or in money, or partly in kind and partly in money.
H. To apportion stock, extraordinary, and liquidating dividends received by them, between income and principal, in such manner as they may see fit; and to determine what constitutes such dividends.
J. To engage attorneys, accountants, agents, and such other persons as they may deem advisable, in the administration of my estate and any trust created hereby, and to make such payments therefor as they may deem advisable, and to charge the expense thereof to income or principal as they may determine, and to delegate to such persons any discretion which they may deem proper.
K. To exercise all power and authority, including any discretion, conferred in *539 this Will, with respect to all accumulations of income under this Will, and with respect to all property held under a power in trust in this Will.
L. To exercise all *198 power and authority, including any discretion, conferred in this Will, after the termination of any trust created herein and until the same is fully distributed.
THIRTEENTH: A. I hereby nominate, constitute and appoint my son, NATHANIEL SIMONSON, my friend and longtime associate, FRANCIS G. REA, presently the managing partner of Cohen, Simonson & Co., and my friend and accountant, STEPHEN R. ABRAMS, as executors and trustees under this my Last Will and Testament.
B. A majority of my executors or trustees, as the case may be, shall have the power to make any decision, undertake any action, or execute any document affecting my estate or the trust created hereunder.
On July 22, 1964, the decedent executed a codicil to the above-quoted will which states*199 in part as follows:
SECOND: I hereby nominate and appoint my dear son, NATHANIEL, and my dear friend and attorney, DAVID GEIGER, the executors and trustees of my aforesaid Will, hereby revoking in its entirety the provision in my aforesaid Will relating to the appointment of executors and trustees thereof.
Almost 90 percent of the assets contained in the estate at the time of decedent's death consisted of stock in two closely held corporations ($ 1,532,000) and his capital account in a partnership ($ 553,472.23).
The decedent believed the powers granted the trustees were given to facilitate proper control and care of the trusts and not to defeat testator's purpose of creating a tax-exempt charitable bequest.
Cash dividends have been declared with respect to said stock on a regular basis, and no stock dividends have been declared with respect to either corporation.
The estate tax return claimed charitable deductions for the remainder interest in the trust as follows:
Brandeis University | $ 153,651.25 |
Albert Einstein College of Medicine of Yeshiva | |
University | 153,651.25 |
University Settlement | 153,651.27 |
460,953.74 |
The notice of deficiency states in part:
It is determined*200 that the amount of $ 460,953.74, as set forth above, claimed as a deduction for charitable bequests is not allowable under
*540 OPINION
The Court is once again faced with the question of the deductibility under
Although our
A will must be construed in its entirety to determine the testator's intent, and such intent is significant *206 in determining the manner in which the trustee will exercise his authority.
The parties agree that State law is controlling in determining the extent to which a trustee may exercise the powers conveyed to him by the language of the trust instrument. Under New York law it is manifest that the grant of discretion to a trustee, however broad, does not "relieve him from obedience to the great principles of equity which are the life of every trust."
Having recognized the deceased's intent to convey the corpus of his trust to charity and the limits placed upon the trustee's discretion by New York law it is patently evident to this Court that such interest is ascertainable. See
The trustees' powers, therefore, to invest in wasting assets or to allocate cash receipts to principal*209 or income
*543 "To hold otherwise would be to turn what are commonplace trust powers intended simply to provide administrative flexibility into a substantive grant of dispositive flexibility,"
We find additional support for this result in a recent decision promulgated by the Court of Appeals for the First Circuit wherein the court in
Trustee powers given for the administration or management of the trust must be equitably exercised * * *, for the benefit of the trust as a whole.
In sum we find the trustee powers here in issue to be nothing more than the traditional boilerplate powers long accorded trustees to give them some freedom of action outside the courts as distinguished from the more precise, definitive, even sophisticated, powers created by tax advisers to cover every conceivable contingency and which, on many occasions, have resulted in the very tax results sought to be avoided. It follows that we have no difficulty in holding for the petitioners on our conclusion that the value of the charitable remainder is presently ascertainable.
1. All statutory references are to the Internal Revenue Code of 1954 unless otherwise indicated.↩
2.
(a) In General. -- For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests, legacies, devises, or transfers * * *; * * * * (2) to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes * * *↩
3. Sec. 20.2055-2 Transfers not exclusively for charitable purposes.
(a)
(b)
4. Other decisions supporting respondent's position are
5. In further support of petitioners' point of view see
6. The Court in the instant case is not required to follow the Third Circuit's decision in
7. As noted heretofore the instant trustees' powers are not that broad.↩
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