DocketNumber: Docket No. 1305-94
Citation Numbers: 69 T.C.M. 2825, 1995 Tax Ct. Memo LEXIS 250, 1995 T.C. Memo. 248
Judges: RAUM
Filed Date: 6/8/1995
Status: Non-Precedential
Modified Date: 11/21/2020
*250 Decision will be entered under Rule 155.
MEMORANDUM OPINION
RAUM,
The petitioner is the Estate of Victor J. Strauss, acting by and through its co-executors, Victor J. Strauss, Jr., Susan Strauss Roberts, and Jill V. Suttle. As stipulated by the parties, the "legal residence [of the co-executors] at the time of filing the*251 petition herein [was] at P. O. Box 6068, Portland, Oregon."
Decedent's mother, Martha V. Strauss (Martha), died on August 15, 1969. Decedent's sister, Ruth Strauss (Ruth), died without issue on April 7, 1977. Decedent's ex-spouse, Jane Strauss, died on April 4, 1991. Decedent and Jane Strauss were the parents of the three co-executors in this case, Victor J. Strauss, Jr. (Victor, Jr.), Susan Strauss Roberts, and Jill V. Suttle.
The Last Will and Testament of Martha V. Strauss (the will or Martha's will) was executed on April 24, 1969. Article IV, paragraph A of the will provides, in part, as follows: The trustees shall, if my daughter Ruth survives me, create two trusts, one to be designated "RUTH STRAUSS TRUST" and one to be designated "VICTOR J. STRAUSS TRUST" and shall distribute one-half (1/2) in value * * * to Ruth Strauss Trust and one-half (1/2) in value * * * to Victor J. Strauss Trust * * *
Following Ruth's death on April 7, 1977, the Ruth Strauss Trust was added to and became a part of the Victor J. Strauss Trust, pursuant to Article IV, paragraph B, of Martha's will. At that time the decedent became the sole income beneficiary of the Victor J. Strauss Trust.
Article IV, paragraph C. 1. of Martha's will provides, in part, as follows: The trustees shall, during the lifetime of Victor J. Strauss, pay to or use all the net income for Victor J. Strauss; if, in the trustees' sole discretion, they deem it necessary to use any or all of the principal of the Victor J. Strauss Trust for his care and comfort, considering his standard of living as of the date of my death and considering his income, right to income and other property he may have, as known to the trustees, they may pay to or use for him all or any part of the principal of that trust for such purposes.
After Ruth's death on April 7, 1977, the decedent became the sole trustee of the Victor J. Strauss Trust. The decedent continued to serve as the sole trustee from April 7, 1977, until September 12, 1977. After Ruth's death there were no distributions from the Victor J. Strauss Trust to the decedent until sometime after September 12, 1977. The parties stipulated that the "decedent began receiving distributions of income, but not principal, from the [Victor J. Strauss] Trust after September 1977."
On September 12, 1977, by written instrument, the decedent appointed his son, Victor, Jr., as co-trustee of the Victor J. Strauss Trust. 2 The decedent and Victor, Jr., continued to serve as co-trustees of the Victor J. Strauss Trust from September 12, 1977, until the decedent's death on February 12, 1990.
*254 In September 1984, all of the trust assets of the Victor J. Strauss Trust were transferred to Portland, Oregon, apparently the area of residence of Victor, Jr., for administration by him. The transfer of the trust assets to Oregon was done pursuant to Article VI, paragraph C, of Martha's will.
The fair market value of the assets of the Victor J. Strauss Trust at the time of the decedent's death was $ 928,000. Petitioner excluded the value of the property held by the Victor J. Strauss Trust (i.e., $ 928,000) from the decedent's gross estate, and did not report that amount as an asset of the decedent on the Federal Estate Tax Return.
The principal issue is whether the decedent had a general power of appointment over the trust property within the meaning of
However, the Commissioner contends that the decedent's power ripened into a general power of appointment upon Ruth's death. Following her death the decedent, as the sole trustee, could appoint property to himself (invade corpus) according to the provisions of Martha's will. Relying upon
The Commissioner's argument requires a preliminary determination that the decedent, immediately following Ruth's death, possessed a general power of appointment which continued for some 5 months (a window of opportunity) until the appointment of Victor, Jr., as co-trustee. The definition of a "general power of appointment" found in
One of the principal purposes of the Powers of Appointment Act of 1951 was to provide a clear-cut definition of a general power of appointment. As the legislative history shows, the definition of a general power of appointment was intended to provide "a test of taxability which is simple, clear-cut, and easy to apply. * * * Your committee believes that the most important consideration is to make the law simple and definite enough to be understood and applied by the average lawyer, and that the present*257 bill will accomplish that purpose." H. Rept. 327, 82d Cong., 1st Sess. at 4 (1951).
The bill as originally introduced in the House contained the following definition of a general power of appointment: "For the purposes of this subsection the term 'general power of appointment' means only an unlimited, unrestricted power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate." H.R. 2084, 82d Cong., 1st Sess. sec. 2(a) (1951). The final bill, as passed by the House and Senate, did not contain the qualifying language" unlimited, unrestricted power".
The report of the Committee on Ways and Means states: While the words 'unlimited, unrestricted' have been eliminated from the definition by the committee amendment, the definition provides that, if
The decedent, as the sole trustee of the Victor J. Strauss Trust from April 7, 1977, until September 12, 1977, had the power, if he deemed it necessary, "to use any or all of the principal of the Victor J. Strauss Trust for his [the decedent's] care and comfort, considering his standard of living as of the date of my [Martha V. Strauss's] death". Absent an applicable statutory exception, the decedent's power was a general power of appointment under
However, (A) A power to consume, invade, *260 or appropriate property for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the decedent shall not be deemed a general power of appointment.
The exception found in
The Commissioner argues that the decedent's power to invade corpus for his "care and comfort" was not limited by an ascertainable standard. The Government's position is that "comfort" is too amorphous to provide an ascertainable standard. The Commissioner relies upon
What we have here is a limitation based on "care and comfort", unlike "happiness", which is obviously an open-ended, unascertainable standard, cf.
Of considerable importance here is an opinion of the Court of Appeals for the Seventh Circuit in an Illinois case that interprets "comfort" as a word of limitation. As
*264 The Commissioner attempts to distinguish
We turn now to the second part of the
The Commissioner argues that "care and comfort, considering his standard of living", as interpreted by the Illinois Supreme Court, would include items not within the meaning of "health, education, support, or maintenance." The Commissioner states: "For example, 'care and comfort' and 'standard of living' may include normal travel, entertainment, luxury items, and other expenditures which are not required for meeting the decedent's health, education, support, or maintenance."
We think that the Commissioner attempts to impose too narrow a standard. No case that authoritatively defines "support" has been cited by either party. However, the Commissioner's own regulations state: "As used in this subparagraph, the words "support" and 'maintenance' are synonymous and their meaning is not limited to the bare necessities of life."
The Supreme Court of Illinois stated that "comfort" should be interpreted so that the life tenant was maintained "in the station in life to which she was accustomed."
The Government also argues that the decedent's mother, Martha V. Strauss, knew how to restrict a power by the requisite standard when she chose to do so. The Commissioner points out that following the deaths of the decedent, Ruth Strauss, and Jane Strauss, distributions from principal could be made to the children of the decedent for their "reasonable support, comfort and education." 8
*267 However, the Commissioner also recognizes that the general rule for construing a trust under Illinois law is to find the settlor's intent. See
Having decided that the decedent never possessed a general power of appointment as defined by
In order to reflect determinations made by the Commissioner in the notice of deficiency that were not contested by petitioner,
1. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at the date of decedent's death.↩
2. There is no controversy between the parties as to the decedent's authority to appoint Victor, Jr., as co-trustee.↩
3. We recognize that the effort to attain such simplicity could well result in a mirage. Cf.
4. See 5 Bittker and Lokken,
5. Petitioner argues that the exception found in
6. Interestingly, in
7. See also
8. It is not evident to us why the inclusion of the word "comfort" in the standard by which distributions of principal may be made to Martha V. Strauss's grandchildren does not, under the Commissioner's argument as articulated in the case in chief, create a standard that is not limited by the requisite standard, exactly the opposite of the argument made by the Commissioner.↩
david-h-foxman-and-dorothy-a-foxman-v-commissioner-of-internal-revenue , 352 F.2d 466 ( 1965 )
Grace S. Pyle, a Disabled Adult, by Carolyn Straub, ... , 766 F.2d 1141 ( 1985 )
Helvering v. Stuart , 63 S. Ct. 140 ( 1942 )
Merchants Nat. Bank of Boston v. Commissioner , 64 S. Ct. 108 ( 1943 )
Harris Trust & Savings Bank v. Beach , 118 Ill. 2d 1 ( 1987 )
Rock Island Bank v. Rhoads , 353 Ill. 131 ( 1933 )
Morgan v. Commissioner , 60 S. Ct. 424 ( 1940 )
Ithaca Trust Co. v. United States , 49 S. Ct. 291 ( 1929 )
Henslee v. Union Planters National Bank & Trust Co. , 69 S. Ct. 290 ( 1949 )