Lloyd v. Commissioner

Estate of Malcolm Lloyd, Jr., Mary Dercum Lloyd, The Pennsylvania Company for Banking and Trusts, Executors, Petitioner, v. Commissioner of Internal Revenue, Respondent

Lloyd v. Commissioner

Docket No. 48379

United States Tax Court

24 T.C. 624; 1955 U.S. Tax Ct. LEXIS 150;

June 30, 1955, Filed

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Decision will be entered under Rule 50.

Shortly before his first and only marriage, which occurred at the age of 73, the decedent made a draft of a will under which at his death all of his property, with minor exceptions, would be placed in trust with the income therefrom to be paid to his wife during her life, thereafter to his two sisters and upon the death of the survivor of his sisters the corpus of the trust to be distributed, one-half to decedent's nephews and nieces and one-half to certain named charitable, educational, and religious organizations. Pursuant to the suggestion of a long-time business adviser who was in charge of the trust department of a banking company, and to whom decedent submitted the draft, decedent made certain pencil insertions on the draft to provide for possible issue born of the approaching marriage, had the draft retyped, and executed the retyped draft as his last will and testament. Decedent predeceased his wife and no issue was born of their marriage. Decedent's will construed and held that the bequests made by decedent to the charitable, educational, and religious organizations were vested and not contingent as determined by respondent.

Leon Meltzer, Esq., and Gustave F. Straub, Esq., for the petitioners.

Max J. Hamburger, Esq., for the respondent.

Withey, Judge.

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WITHEY

The respondent has determined a deficiency of $ 110,854.23 in the estate tax of the Estate of Malcolm Lloyd, Jr. Issues presented by the pleadings are the correctness of the respondent's action in determining the value of the net estate (1) in disallowing a deduction of $ 5,000 taken for attorneys' fees, (2) in disallowing a deduction of $ 3,134.52 taken for debts of the decedent, and (3) in disallowing a deduction of $ 292,479.48 taken for bequests to charitable, educational, and religious organizations. By stipulation the respondent has conceded that the deductions involved in issues Nos. (1) and (2) were allowable. This leaves for determination only issue No. (3).

FINDINGS OF FACT.

Some of the facts have been stipulated and are found accordingly.

Malcolm Lloyd, Jr., sometimes hereinafter referred to as the decedent, was born on January 16, 1874, and died testate and a resident of Devon, Chester County, Pennsylvania, on July 27, 1949. The petitioners are the duly qualified executors of his estate. The Federal estate tax return for the decedent's estate was filed with the collector of internal revenue for the first district of Pennsylvania.

Decedent graduated from Princeton University in 1894 and from the law school of the University of Pennsylvania in 1898. Thereafter he practiced law in Philadelphia, Pennsylvania, until the time of his death. His practice was largely a general office practice rather than a trial practice. During the later years of his life, decedent devoted most of his time to the management of his and his family's investments and to active participation in the affairs of charitable, educational, and religious organizations.

On March 29, 1947, and at the age of 73, the decedent married petitioner Mary Dercum Lloyd, who was born September 25, 1896, and at the time of the marriage was about 51 years of age. Neither had been married before. No children were born of the marriage. None were adopted. The decedent continued to be active and alert until his death from thrombosis in 1949.

The decedent inherited property from his father consisting largely of stocks and bonds. These had a value of about $ 860,000 in 1948. The inventory value of the decedent's estate, including the foregoing properties and his professional earnings and investments, was $ 1,780,000.

During the first part of March 1947, the decedent conferred with Frank G. Sayre about a typed draft of a will he, decedent, had prepared for execution in connection with his approaching marriage. At that time Sayre was vice president in charge of the trust department of the petitioner The Pennsylvania Company for Banking and Trusts, and he and the decedent had had frequent business conferences over a period of many years. In presenting the draft of the will to Sayre for consideration, decedent informed Sayre that he desired to provide for his wife during her lifetime, and at her death to provide for his sisters and their descendants until the death of his last surviving sister, and to provide that upon the death of his last surviving sister his estate should be divided and one-half distributed to his nephews and nieces and one-half to certain named charities, including Princeton University and Pennsylvania Hospital in which he was interested. After examining the draft of the will, Sayre told decedent that, in his opinion, it was "entirely in good shape" but suggested to the decedent that since he was about to be married it would be advisable for him to provide in the will for possible issue. The decedent accepted the suggestion and informed Sayre that he would revise the will so as to incorporate the suggested provision. Thereafter, the decedent made certain pencil insertions on the typed draft of the will to provide for issue. In handing the draft to his secretary for rewriting, the decedent stated that Sayre had suggested that the pencil insertions be incorporated in the will. Thereupon, and within a week prior to March 29, 1947, the secretary rewrote the draft of the will incorporating the pencil insertions made by decedent. The draft as thus rewritten was executed by decedent as his last will and testament on March 29, 1947.

During the first week of March 1947, decedent told Mary Dercum Lloyd that he wanted her to know something of his financial affairs. He informed her that about one-half of his property had been inherited from his father and the other half had been earned by him; that he considered the inherited half as family money and it always had been his purpose to return that half "to the family"; and that he proposed to divide the half he had earned more or less between Princeton University and the Pennsylvania Hospital. Approximately a week later decedent informed Mrs. Lloyd that he was drafting a will in her favor leaving everything to her for her lifetime, with the exception of a bequest to his secretary, and providing that upon the death of Mrs. Lloyd the inherited half of his property would go to his family and the other half, with certain exceptions, would go to Princeton University and the Pennsylvania Hospital. Mrs. Lloyd informed him that if he made a will in her favor she desired to make one in his favor and asked him to accompany her to the office of a Mr. Smythe, her attorney, so that she could have a will prepared. Decedent agreed to accompany her and a few days prior to their marriage they went to Smythe's office. Decedent informed Smythe that he was making a will leaving all his property to Mrs. Lloyd for her lifetime except a bequest to his secretary, that he was making provision for any children which might be born of their marriage and that if no children were born of the marriage, he was leaving one-half of his property, which he considered family property, to his family and leaving the other half of his property, which he had earned, to certain named organizations but primarily one-half thereof to Princeton University and one-half to Pennsylvania Hospital. Mrs. Lloyd requested Smythe, on the basis of the information given him by decedent, to prepare a will for her in favor of decedent. Thereafter, Smythe prepared a will for Mrs. Lloyd which she signed shortly after her marriage.

With the exception of a bequest to Mrs. Lloyd of decedent's personal effects and belongings, certain things with a family history and association, nominal bequests to servants, and an annuity of $ 1,000 a year to his secretary, the decedent by his will left all his property in trust. Respecting the income and corpus of such trust the will provided as follows:

Item 6. In Trust Further to collect the income arising from the securities or property at any time held in my estate and, after the payment of taxes and costs of management, to distribute the net income thereof in monthly or quarterly installments to my wife, Mary Dercum Lloyd, for and during the term of her natural life, and upon her death the principal of said fund shall pass to my children and descendants of deceased children per stirpes, if any, but if none then thereafter in equal shares to and among my sisters, Anna Lloyd Hayward and Mary C. Wister, the survivor of them and their lawful issue, and the children of my deceased brothers, Stacy B. Lloyd and Francis V. Lloyd, the survivor or survivors of them and their lawful issue, such issue of any deceased brother or sister of mine to take per stirpes the share of the parent.

Item 7. In Trust Further, there being no issue of mine to take as above provided, then upon the death of my said wife and of the last surviving of my said sisters, to pay over and distribute the principal of my estate as follows:

One-half (1/2) thereof to and among my nephews and nieces then living and the lawful issue of any deceased nephew or niece of mine, in equal shares, per stirpes, such issue of any deceased nephew or niece of mine to take per stirpes the share of the parent.

One-sixth (1/6) of my said estate to The Contributors to the Pennsylvania Hospital (commonly known as the Pennsylvania Hospital) of Philadelphia, Pennsylvania; one-sixth (1/6) thereof to Princeton University, of Princeton, New Jersey, and one-sixth (1/6) thereof as hereinafter provided.

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Item 8. In Trust Further as to the remaining one-sixth (1/6) portion or share of the estate and the income accrued or attributable to it, to pay therefrom the following bequests and to transfer and dispose of the residue as hereinafter provided.

Following the foregoing provision of Item 8 appears a list of 10 churches, educational institutions, and other organizations to which bequests were made of stated sums, totaling $ 44,000. Item 8 further provided that any residue of the one-sixth of the estate referred to therein should be transferred to and incorporated in the sums bequeathed to Princeton University and the Pennsylvania Hospital and that in the event the one-sixth of the estate referred to in Item 8 was insufficient to pay the bequests enumerated therein such sum as might be necessary should be deducted and paid in equal one-half portions from the sums bequeathed to Princeton University and the Pennsylvania Hospital, respectively.

Upon probate of the decedent's will, Mrs. Lloyd elected to take under the will.

Aside from having been survived by Mrs. Lloyd, the decedent was survived by his sisters, Anna Lloyd Hayward, born in 1880, and Mary C. Wister, born in 1887. In addition to the foregoing beneficiaries under the decedent's will, the following is a statement of the decedent's nephews and nieces, together with their years of birth, who survived decedent and are also beneficiaries under his will:

Children of Anna Lloyd Hayward
	Born
Anna Hayward Lisle	1908
Sarah Hayward Draper	1913
Malcolm L. Hayward	1915
Esther Hayward Rivinus	1919
Nathan Hayward, Jr. (now
deceased)	1909
Children of Nathan Hayward, Jr.
(now deceased)
	Born
Nancy Lloyd Hayward	1942
Nathan Hayward, 3rd	1943
Rosa Laird Hayward	1945
Pierre DuPont Hayward	1948
Children of Mary C. Wister
	Born
Caspar Wister	1910
Malcolm L. Wister	1912
Lewis Wynne Wister	1914
Children of decedent's brother,
Francis V. Lloyd, who died in 1935
	Born
Francis V. Lloyd, Jr	1908
Nancy Lloyd	1930
Children of decedent's brother,
Stacy B. Lloyd, who died in 1941
	Born
Stacy B. Lloyd, Jr	1903
Morris Lloyd	1913
Ellen D. Lloyd Browning	1908

In computing the net estate reported in the estate tax return for the decedent's estate, the petitioners deducted $ 292,479.48 for charitable, etc., bequests made by the decedent in his will. The respondent denied the deduction and explained his action as follows:

The deductions of remainder interests for charitable, religious and educational organizations are disallowed, since the contingent rights of such organizations are not proper deductions under Section 812 (d) of the Internal Revenue Code.

OPINION.

The controversy here is as to the construction to be given the will of the decedent. The respondent takes the position that by Item 6 the decedent provided that the income from the trust property should be distributed to his wife, Mrs. Lloyd, during her life and upon her death, if there be no children of them surviving, the entire corpus or principal of the trust should be distributed to decedent's sisters and brothers and the children thereof per stirpes. The respondent takes the further position that by Item 7 decedent provided that if he left no issue to take as provided in Item 6, then upon the death of his wife, Mrs. Lloyd, and his sisters the corpus or principal of the trust should be distributed one-half to decedent's nephews and nieces and the issue of any who are deceased, per stirpes, and the remaining one-half should be distributed to the named charities. The respondent contends that as thus construed Items 6 and 7 of the will are hopelessly inconsistent and irreconcilable, that because of such irreconcilability the interest the charities will ultimately take is lacking in certainty and not presently ascertainable and that, accordingly, the petitioners have failed to establish that they are entitled to the deduction of $ 292,479.48 taken for charitable bequests. The respondent further urges that consideration of extrinsic evidence as to the surrounding circumstances under which the decedent made the will is not permissible to ascertain the decedent's intent and that an application of the technical rules of interpretation applied by courts in construing ambiguous or contradictory provisions of wills strongly indicates that the bequests to charities are unenforceable against the next of kin under the will.

The petitioners contend that a proper interpretation of the will requires consideration of all its provisions and that so interpreted the decedent's will, alone and without the consideration of extrinsic evidence, gives the charitable institutions named therein vested interests. They further contend that, where the language of a will is ambiguous or in seeming conflict, as in the decedent's will, it is proper to consider the circumstances and declarations of the testator prior to making the will. Petitioners take the position that Item 6 of the decedent's will disposes only of the income arising from the trust, absent children, and Item 7 disposes of the principal, giving vested interests to the charitable organizations provided for therein.

So far as appears, neither the petitioners nor anyone else interested in the decedent's will has ever sought a construction of it by any court in Pennsylvania or elsewhere, and petitioners now ask us to construe it only because they seek the allowance of a deduction for charitable bequests in computing decedent's net estate for Federal estate tax purposes. Grantees under deeds, wills, and trusts, alike, take according to the rule of the State law. Whether a named grantee does or does not take depends upon the interpretation placed upon the terms of the instrument by State law. Once rights are obtained by local law, whatever they may be called, they are to be recognized for Federal tax purposes. Consequently, in a situation such as is presented here we must determine under the applicable State law the rights of the parties named in the decedent's will as best we may. Anthony J. Drexel Biddle, Jr., 11 T.C. 868">11 T. C. 868.

The fundamental rule in construing wills was stated as follows in Hilton v. Kinsey, (C. A., D. C.) 185 F.2d 885">185 F. 2d 885:

"The law in this jurisdiction, as well as in all the states of the United States, is that the intention of the testator is the basic and fundamental rule in the construction of wills, and the intention should be determined by construction of the whole will and not from detached paragraphs; and where the intention is apparent, it should be given effect -- and this is true -- even though to do so involves the rejection of the literal meaning of particular words." Walker v. Thomas, 64 App. D. C. 148, 149-150, 75 F. 2d 667, 668-669, 99 A. L. R. 713. "In order to reach this end words may be supplied and omitted and sentences transposed." Farrar v. Bingham, 68 App. D. C. 93, 95, 93 F. 2d 252, 254. * * *

Also see In re Patterson's Estate, 333 Pa. 92">333 Pa. 92, 3 A. 2d 320; Riegel v. Oliver, 352 Pa. 244">352 Pa. 244, 42 A. 2d 602; In re Worstall's Estate, 133">125 Pa. Super. 133, 162">190 Atl. 162.

Where the language or provisions appearing in a will are ambiguous or conflicting, consideration will be given to the circumstances surrounding the making of the will and the declarations of the testator in order to determine the testator's intent. Logan v. Wiley, 357 Pa. 547">357 Pa. 547, 55 A. 2d 366, and cases there cited. See also Baker v. National ., (C. A., D. C.) 181 F. 2d 273. Where there are irreconcilable clauses in a will, the last clause is given effect. In re Fisher's Will, 355 Pa. 105">355 Pa. 105, 49 A. 2d 376; In re Mayer's Estate, 289 Pa. 407">289 Pa. 407, 137 Atl. 627;In re Windt's Estate, 124">110 Pa. Super. 124, 167 Atl. 467.

From a careful consideration of the controverted Items 6 and 7 of the decedent's will, together with the other provisions thereof, and the record as a whole in the light of the foregoing rules, it is our opinion that decedent's intention was that Mrs. Lloyd, during her lifetime, should receive the income from the property placed in trust by the will; that upon her death, with no children having been born to decedent's and her marriage, the property should continue to be held in trust until the death of the survivor of decedent's sisters, Anna Lloyd Hayward and Mary C. Wister; and that, upon the death of such survivor, the principal of the trust should be distributed as provided in Items 7 and 8 of the will, namely, one-half to decedent's nephews and nieces then living and the lawful issue of any deceased nephew or niece, per stirpes, and the remaining one-half to the organizations named in Items 7 and 8 and in the proportions there stated. On the record presented we are unable to conclude that decedent's intention was other than the foregoing.

In view of what has been said above, we conclude that the bequests to charitable, educational, and religious organizations made by decedent were not contingent as determined by respondent but were vested. Having reached that conclusion, we hold for the petitioners on this issue.

Decision will be entered under Rule 50.