377 F.2d 700 | 2d Cir. | 1967
Lead Opinion
Taxpayer, as executor under the will of Ora S. Hitchcock, brought an action pursuant to 28 U.S.C. § 1346(a) (1) in the United States District Court for the Western District of New York for a refund of a federal estate tax and assessed interest collected from the estate in the amount of $19,800.75, plus statutory interest from the date of collection. Taxpayer claims that the District Director of Internal Revenue erroneously collected
Ora S. Hitchcock died on December 5, 1961, and her will was admitted to probate on February 7, 1962. The residue of her estate, after certain specific bequests, was governed by Article Third of her will which reads as follows:
All the rest, residue and remainder of the property which I may own at the time of my death, both real and personal, of every kind and nature and wherever situated, including any lapsed legacies, I give, devise and bequeath to Samuel H. Salisbury and Genesee Valley Union Trust Company of Rochester, New York, as Trustees, in trust, nevertheless, to hold, manage, invest and reinvest, collect the income and profit therefrom and distribute the same for the following uses and purposes:
(a) to distribute to my cousin, Samuel H. Salisbury, or expend on his behalf, the net income derived therefrom in quarterly or other convenient installments so long as he shall live.
(b) My disinterested Trustee is authorized in its sole and absolute discretion at any time and from time to time to distribute to my said cousin, Samuel H. Salisbury, or on his behalf, from the principal of this trust such amount or amounts as it may deem advisable to provide adequately for his maintenance, support and medical expenses.
If, in the opinion of my disinterested Trustee, my said cousin, Samuel H. Salisbury, is incapacitated through illness, age or other cause, my disinterested Trustee may in its sole and absolute discretion, from time to time, while it believes such incapacity continues, apply all or part of the principal of this trust toward the support, care and benefit of my said cousin, in such amount or amounts and in such manner as it may determine.
(c) Upon the death of my said cousin, (or upon my death if he shall not survive me) my surviving Trustee shall distribute the entire then remaining balance to The Commission on Ecumenical Mission and Relations of the Presbyterian Church located in New York, New York, for use in its foreign mission work. (Emphasis supplied.)
The federal estate tax return which was timely filed on January 22, 1963 revealed a gross estate of $180,428.-70, undisputed deductions in the amount of $17,370.77, and a claimed deduction of $106,425.45 representing the present value of the remainder interest granted to charity by subparagraph (c) of Article Third. The value of the charitable remainder was determined on the basis of the life expectancy of the life beneficiary as of the date of testator’s death and under the assumption, verified by an affidavit filed with the return, that the trust principal would never be invaded as authorized by subparagraph (b) of Article Third inasmuch as the private beneficiary’s financial resources were substantially in excess of his anticipated future needs. The district judge upheld the government position that the deduction was not authorized by § 2055 of the Internal Revenue Code of 1954
As we have stated, the sole question on this appeal is whether the charitable remainder interest is “presently ascertainable.”
The standards provided by a will are sufficiently fixed, objective, or
Here, in the first sentence of subparagraph (b) the Hitchcock will expressly provides for Salisbury’s “maintenance, support, and medical expenses” “at any time,” while the second sentence deals specifically with any period of his incapacitation. As the trustee is authorized to invade corpus, not when strictly necessary to meet the exigencies of incapacitation within the established linguistic rubric, but for the beneficiary’s “care, support and benefit” during such incapacitation, we must determine whether such phrasing also implies that the extent of permissible invasion is limited to maintenance of the beneficiary’s “station in life.”
As we have already indicated, a phrase such as “comfort and support” connotes the objective station in life standard. Clearly, this interpretation is not limited to only those instances where these very words are used. 4 Mertens, Federal Gift & Estate Taxation, § 28.38, p. 407 (1959). Other language, such as “treatment, support and maintenance,” Berry v. Kuhl, supra; “proper care, support and maintenance,” Lincoln Rochester Trust Co. v. CIR, 181 F.2d 424 (2 Cir. 1950); “comfortable maintenance and support,” Hartford-Connecticut Trust Co. v. Eaton, 36 F.2d 710 (2 Cir. 1929), have been deemed referable to a fixed standard of living, and even terminology containing words which, in other contexts, import a subjective, rather than an objective standard, have also been so interpreted, as e. g., “comfort and welfare,” Blodget v. Delaney, 201 F.2d 589 (1 Cir. 1953); “comfort or convenience,” see Seubert v. Shaughnessy, 233 F.2d 134, 137 (2 Cir. 1956); “comfort and well-being,” see Union Trust Co. v. Tomlinson, 355 F.2d 40, 42 (5 Cir. 1966); “support, maintenance, comfort and general well-being,” Mercantile-Safe Deposit & Trust Co. v. United States, 252 F.Supp. 191 (D.Md.1966); “support, maintenance, welfare and comfort,” Estate of Mary Cotton Wood, 39 T.C. 919, appeal dismissed per stipulation (2 Cir. 1963); and see, for identical language, Zentmayer’s Estate v. CIR, 336 F.2d 488, 490 (3 Cir. 1964), “support, maintenance and comfort, including luxuries,” see Vaccaro v. United States, 224 F.Supp. 307, 309 (D.Mass. 1963), and “maintenance, welfare, comfort and happiness,” United States v. Powell, 307 F.2d 821 (10 Cir. 1962). Of course, when general or subjective words stand alone, as, e. g., “use and benefit,”
Turnihg to the present case, we find no general or subjective words standing alone in the Hitchcock will; nor do
Thus our inquiry is reduced to deciding whether a provision for “support, care and benefit,” taken as a whole, is distinguishable in meaning from phrases providing for “support, maintenance, comfort and general well-being,” “support, maintenance, welfare and comfort” or “comfort and welfare” which, as we have seen, establish presently ascertainable standards. Inasmuch as “benefit” is commonly understood to be a synonym of “welfare,” Random House Dictionary of the English Language (Unabridged ed. 1966), we think that it would constitute verbal hairsplitting of the most offensive variety
Our interpretation is also consistent with the applicable state law
In view of our previous discussion of federal authorities, we find that the cases relied on by the Government which construe “benefit” in a different context, e. g., In Re Rachlin’s Will, 133 N.Y.S.2d 151 (Surr.1954) (“benefit” alone); In Re Emmons’ Will, 165 Misc. 192, 300 N.Y.S. 580 (Surr.1937) (“use and benefit”) ; as well as cases based primarily on the existence of additional instructions, e. g., In Re Caro’s Estate, 47 Misc.2d 217, 262 N.Y.S.2d 45 (Surr.1965), distinguished on this ground in In Re Meyer’s Estate, 51 Misc.2d 397, 273 N.Y.S.2d 285, 288 (Surr.1966), are clearly inapposite. In sum, it is unlikely that the New York courts would interpret the trustee’s power here to invade corpus by construing “benefit” out of context and performing the verbal gymnastics required to distinguish “support, care and benefit” from “welfare” or “comfort and. happiness,” see In Re Buell’s Estate, supra, and In Re Elmendorf’s Estate, supra. Cf. Application of Miller, 235 N.Y.S.2d 125, 128-129 (Sup.Ct.1962), interpreting the phrase “support, maintenance, education and benefit” in N.Y. Personal Property Law, McKinney’s Con-sol.Laws, c. 41, § 266(2) (McKinney 1959) so as to exclude “extraneous purposes” for the beneficiary’s “use and
Moreover, even assuming arguendo that “benefit” were not so limited by its present context, the Government’s contention that the beneficiary could, in the event of his incapacity, utilize corpus to spend his remaining days in regal luxury far beyond his previous standard of living, must fail. The testatrix restricted such use of trust principal to the duration of incapacity, which restriction anticipates eventual recovery. This suggests that resorts to principal may be had for the purposes of curing his incapacity and maintaining his standard of living should his independent means of maintenance prove inadequate, see In Re Downey’s Will, 277 App.Div. 921, 98 N.Y.S.2d 439, 440 (3d Dep't 1950); Berry v. Kuhl, 174 F.2d 565, 568 (7 Cir. 1949), by reason of incapacitating circumstances. Indeed, if such unrestrained erosion of corpus were permitted for a first temporary incapacity there might be none left for subsequent incapacities, which eventuality is certainly not foreclosed by the language of the will.
Nor are we persuaded by the Government’s makeweight alternative argument that the provision for invasion of corpus for the beneficiary’s “support, care and benefit” if he should become incapacitated through “illness, age or other cause” is so broad as to permit the beneficiary to enjoy corpus by merely choosing to incapacitate himself. The phrase “other cause” would ordinarily refer only to extrinsic causative factors such as illness or old age, and is defined and limited further by its subsequent context, see Berry v. Kuhl, supra, at 568.
Having concluded that the authorized invasion of corpus is limited by a “presently ascertainable” standard,
“ * * * it becomes necessary to examine the remoteness of invasion, or the extent of possible invasion, in terms of the standard, to determine the likelihood that the charity will take and the value of what it will receive.” Newton Trust Co. v. CIR, 160 F.2d 175, 178-179 (1 Cir. 1947); see Lincoln Rochester Trust Co. v. CIR, 181 F.2d 424, 427 (2 Cir. 1950).
As these determinations cannot be made from the present record, summary judgment, which taxpayer unsuccessfully sought below, is improper. See Mercantile Safe Deposit & Trust Co. v. United States, 252 F.Supp. 191, 199 (D.Md.1966). Accordingly, we remand for consideration of these questions.
Reversed and remanded.
. The pertinent portions of § 2055 read as follows:
§ 2055. Transfers for public, charitable, and religious uses
(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 (including the interest which falls into any such bequest, legacy, devise, or transfer as a result of an irrevocable disclaimer of a bequest, legacy, devise, transfer, or power,
*703 if the disclaimer is made before the date prescribed for the filing of the estate tax return)—
******
(2) to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation;
(3) to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, and no substantial part of the activities of such trustee or trustees, or of such fraternal society, order, or association, is carrying on propaganda, or otherwise attempting, to influence legislation; or ******
. Section 20.2055-2 (a) provides in pertinent part:
(a) Remainder and similar interests. If a trust is created or property is transferred for both a charitable and a private purpose, deduction may be taken of the value of the charitable beneficial interest only insofar as that interest is presently ascertainable, and hence severable from the non-charitable interest. The present value of a remainder or other deferred payment to be made for a charitable purpose is to be determined in accordance with the rules stated in See. 20.2031-7. * * * (Emphasis supplied.)
. Section 20.2055-2 (b) reads in pertinent part:
(b) Transfers subject to a condition or a power. If, as of the date of a decedent’s death, a transfer for charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible * * *. (Emphasis supplied.)
. The Government does not question that the trustee’s discretion under the first, sentence of subparagraph (b) to invade-principal whenever “advisable * * *' for his [the beneficiary’s] maintenance,, support and medical expenses” is limited' by a fixed standard. So our consideration is limited to the power granted by the second sentence of subparagraph (b)..
. Thus, extrinsic facts such as the financial circumstances of the life beneficiary, though relevant to the remoteness of invasion, are irrelevant to whether the charitable interest is “presently ascertainable”. Seubert v. Shaughnessy, 233 F.2d 134, 137 (2 Cir. 1956).
. The phrase “station in life” was equated with a standard of living as early as 1929 by Judge Learned Hand in Hartford-Connecticut Trust Co. v. Eaton, 36 F.2d 710, 711 (2 Cir.).
. The Fourth Circuit, prior to the Supreme Court’s pronouncement in Henslee v. Union Planters Bank & Trust Co., supra, had approved the “best interests” phraseology as establishing a presently ascertainable standard in CIR v. Robertson’s Estate, 141 F.2d 855 (1944).
. As the First Circuit stated, 313 F.2d at 31, these words appearing in the instrument there being interpreted “presumably import additional meaning.” However, the application of such a rule of construction to language which specifies an additional permissible purpose authorizing the invasion of corpus when that language appears in a separate clause does not automatically compel a similar application when the language used is, as here, integrated into a single phrase rather than a separate clause. Indeed, so interpreting such integrated language would be inconsistent with the contextual approach followed in most of the above cases. See, e. g., Mercantile Safe Deposit & Trust Co. v. United States, supra; United States v. Powell, supra.
. Nor are the decisions finding no presently ascertainable standard attributable to provisions granting the trustees sole or absolute discretion to invade corpus. The Supreme Court in Henslee v. Union Planters, supra, made no reference to thp trustees’ power to “expend in their discretion,” 335 U.S. at 595, 598-599. To the contrary, a grant of sole and absolute discretion to expend is not fatal to a claim for a charitable deduction if there also is an objective standard to guide trustees in the exercise of their discretion. See, e. g., Lincoln Rochester Trust Co. v. McGowan, supra; Blodget v. Delaney, supra.
. The frequency of such “hairsplitting” has led jurists and commentators to seek more equitable alternatives to the “presently ascertainable” test of deductibility. See, e. g., Seubert v. Shaughnessy, 233 F.2d 134, 138 (2 Cir. 1956) (Clark, Ch. J„ concurring); Blodget v. Delaney, 201 F.2d 589, 594-595 (1 Cir. 1953) (Magruder, Ch. J., concurring) ; Taggart, Charitable Deductions for Transfers of Remainder Interests Subject to Invasion, 21 Tax.L. Rev. 535, 562 (1966).
. This case, Blunt v. Kelly, 131 F.2d 632 (3 Cir. 1942), held that a transfer of securities in trust (income and principal to' be distributed when “necessary” for the settlor’s “support, care or benefit,” with remainder over) was intended to take effect at death within the purview of §
. This consistency is not surprising as New York has by statute instructed its courts to apply federal law in state estate tax proceedings dealing with charitable deductions in which identical problems of will construction are presented. N.Y.Tax law, McKinney’s Consol.Laws, c. 60, § 955 (McKinney 1962); In Re Caro’s Estate, 47 Misc.2d 217, 262 N.Y.S.2d 45, 47 (Surr.1965).
Dissenting Opinion
(dissenting) :
I dissent.
I agree with the majority that New York case law ought to be considered as “highly persuasive” in determining the content of the phrase “support, care and benefit,” since it is that state’s law which would ultimately determine the extent of the limitation, if any, upon the power of the trustee to invade corpus. “Support” and “care” are among the words used in clauses of limitation which have long been viewed as capable of providing an objective standard in New York, e. g., In re Martin’s Will, 269 N.Y. 305, 199 N.E. 491 (1936), as elsewhere. On the other hand, the New York courts have appeared to define the word “benefit” in broad terms, without other limits than those attendant the typical fiduciary relationship.
Further, while the majority goes to great length to demonstrate the importance of viewing the critical words of the will in their proper context, and attempts to distinguish the major cases on the grounds that additional broadening instructions appeared in the instrument, no consideration has been given to the fact that the trustee in the instant case in construing his own power to invade has been given “sole and absolute discretion” to apply all or part of the principal to the life beneficiary as long as the trustee believes such incapacity to continue. Compare, e. g., Henslee v. Union Planters Nat’l Bank & Trust Co., 335 U.S. 595, 69 S.Ct. 290, 93 L.Ed. 259 (1949). I cannot agree with the opinion of the court which holds that the value of the remainder to be paid over to charity is capable of present ascertainment. I would therefore affirm the judgment.
. “The word ‘benefit’ is more comprehensive than the word ‘support’ and is ‘anything that works to the advantage or gain of the recipient.’ * * * If petitioner [trustee] determines that the payment of the principal sum will be for the widow’s benefit she has the discretionary power to do so. Such action must be motivated by a proper purpose and not by either the whim of the trustee or her personal convenience. It should be exercised only after full consideration of the impelling circumstances and not from caprice, careless good nature or to obtain relief from further fiduciary duties. * * * In making her determination pe