*1 Estate. Schwartz Argued January 1972. Before O. J., Jonhs, and Man- Eagen, O’Brien, Roberts, Nix Pomeroy, JJ. derino, Deane, Jr., appellants.
Daniel T. M. IÁébmam, with him Samuel Harry Liebman, 0. appellee. *2 by October 4, Opinion Justice Jones, Mr. Chief 1972:
Decedent died testate December leaving, on 11,1969, inter one half of his estate to his alia, residuary wife, Pearl three Approximately Schwartz (appellee). one-half months trans prior to his decedent death, Pipeline ferred a bond of the Natural Gas $37,000 marriage, of America a Company prior son by Act, the Pennsylvania Uniform Gifts to Minors amended, Act of June P. L. et as 21, 1957, 358, seq., §1 20 et decedent P.S. wherein seq. (Supp. 1971), §3601 named himself as appointment, custodian. court By decedent’s divorced became successor of wife custodian the bond for her son1 Kraus appoint and one Irwin ed guardian of the son’s estate. appellee Thereafter, elected take Wills against will to the pursuant Act of us Act of P. 1947, April 1947, §8, L. 24, 89, amended, 20 P.S. as (Supp. as well 1971), §180.8 all against inter vivos the bond conveyances, including in question, under the Estates Act of 1947, April 24, 1947, P.S. 100, §11, amended, The Court Division (Supp. 1971). Orphans’ §301.11 of the Court of Common County Pleas of Montgomery considered the transfer the bond by “testamentary disposition” appel and determined that lee was entitled to one half the value of the bond and all income derived therefrom. court- Appellants, Pennsylvania provides Uniform Minors Act Gifts to designation by upon of a successor custodian court the death original 358, §8, custodian. Act of June P. U. <?s 1971). (Supp. P.S. §3608 es- guardian son’s and the custodian
appointed this appeal. filed tate, by appeal—one issue presented
The overall bond pur- a corporate whether first impression—is name as cus- in his registered a decedent by chased Uniform Gifts Pennsylvania’s for his son under todian election under widow’s Act is subject to Minors Es- Act. Section 11 of the Estates Section “A con- in pertinent part: tates Act provides a power retains of assets who person veyance or con- revocation poioer appointment will, at the elec- shall thereof, over the sumption a testamen- treated as surviving spouse, tion of his is con- spouse surviving so far as the tary disposition has been re- which the power cerned extent added). . .” 5(b) served . . (Emphasis grants Uniform Gifts to Minors Act *3 minor to over to the use pay the for the the at the discretion benefit of minor property the or without to of regard duty custodian “with or of the minor any support himself other to person The before is ability or his to issue us precise do so.” whether the a custodian to statutory authority given use the custodial “with or to regard” without property “power his to constitutes a of duty support the . ll consumption” . . Section of the Estates Act under the of 1947 when the donee’s donor-custodian is also of pre-existing duty father with support. 24, 8 Act of April of Wills 1947,
Section
the
89,
(Supp.
P.S.
1947,
§8,
§180.8
elect
her
permits
against
widow to
to take
1971),
will.
obvious
of Section
philosophy
husband’s
of the Estates Act of
as well as the common law,
Estate, 403 Pa.
This falls between case somewhere benefit potenial to decide whether and forces us derived have which father-donor-custodian could pre fulfill the custodial distributing a retained to such existing amounts the transfer should ownership” “important disposition be treated as a Section Act.2 Our cases the interests that must past interpreting be retained or donor in order invoke by the settlor argument either or on Since the not been raised has below appeal, purpose we assume of this decision that will le- substitute custodial donor-custodian could fact funds gal obligation support. However, it than is less clear under language 5(b) of the Uniform Gifts Minors Act proceeds pre- defray use could of the fund to obligation. existing Nothing in the Act states that cus- sup- todian can use the custodial relieve himself of his *4 obligations. port give the order to flexi- maximum bility fund, specifically pro- in of the the administration the Act mate that he can distributions the benefit of vides the minor regard” person’s duty or without own other “with plain meaning language the The minor. the does in- not proceeds the custodian can use the that dicate fund in lieu obligation. independent prior support of an of the Estates Act of 1947—“a power Section the consumption revocation or over principal”—have situations the interest the involved where be advantage.3 decedent could exercised to his own in 374 Pa. 97 A. 2d Thus, Pengelly Estate, the settlor of the inter (1953), vivos trust reserved main corpus to consume of the trust for his tenance and “as in may opinion [settlor’s] necessary.”
Unlike cases of this
a custodian
nature,
Uniform Gifts
con-
Pennsylvania
to Minors Act cannot
sume the
for his
own benefit. While Section
Uniform
Pennsylvania
Gifts to
5(b)
to the
gives discretionary power
custodian to pay over
the minor
minor’s “sup-
education and
no-
maintenance,
port,
benefit,”
act
the custodian
permits
where
to use
custodial prop-
custodian’s
erty for the
benefit. The
contends
appellee
that
(supported by
dissent)
the decedent
pre-
had
the same right
after
cisely
he created
oyer
Gift
he
the Uniform
fund as
had prior
convey-
ance.
under the
provisions
Act,
not the case.
clearly
subsection
First,
(c)
the court may order the custodian to
provides
funds for
pay
support, maintenance or
education
upon petition
parent
guardian or of
the minor himself if he has reached
fourteen
age
(as
case).
instant
subsection
Secondly,
of Section
(d)
the custodian
provides
must
the entire un-
pay
fund over to the
at the
expended
beneficiary
time of his
or to his estate
the event he
dies a minor.
turning point
involving powers
appointment,
cases
Estate,
e.g.,
(1960),
Behan
399 Pa.
dian would benefit
might
the de-
relieve
tion since this
duty
support
Mare
of his
cedent-father
argument presupposes
course,
Of
Kevin Schwartz.
part
support obligation on the
of the
existence of a
by payments from the cus-
can be met
that
apart
a custodian owes
and falls
whenever
todial fund
duty
Additionally,
be-
the minor.
we
no
advantage
present
if
there was
decedent,
lieve
any advantage,
indirect and remote and cannot
was too
power
consumption
under Section
classified
impossible
appears
11.
It
to be
the custodian
statutory authority to his own advan-
have used his
consumption
tage;
only be exercised
could
the minor and
existence of such
to benefit
consumption has
been demonstrated on this record
not
actually
potentially,
relieved,
to have
the donor-de-
obligation.
cedent of his
appellee
also cites several United States Tax
persuasive authority
rulings
proposi-
for the
Court
in a Uniform Gifts to
Minors transfer the
tion
appoints himself custodian retains
donor who
sufficient
property make it
in his
over
includable
control
Although
11 of the Estates Act.
under Section
estate
interpreta-
the Tax
is not bound
Court’s
this Court
interpreta-
Internal Revenue Code in the
of the
tions
Estates
are
Act,
own
we
aware
our
our
tion
decision in this case
mean that
are
will
transfers which
included
pur
decedent’s estate for federal
tax
will not be
poses
included for purposes
spousal
election against
dispositions under Sec
tion 11 of the
Act. There
is no inconsistency,
since the
however,
provisions
Internal Revenue
*6
Code
Tax
applied
are
by
Court
broad
significantly
er than Section 11. Section 2036 of the Internal Reve
nue
Tranfers
Code,
with Retained Life
makes
Estate,
the value of any property transferred
the decedent
by
includable
estate
gross
“to the extent
in
of
terest
therein” (emphasis added)
retained
the dece
dent,
“the
including
right
...
designate
persons
who shall possess or
enjoy
or
the income
therefrom.”
in Estate
Thus,
Prudowshy
Harry
v. Commissioner,
In his as custodian of the pow- clearly had some for his son the decedent created determined The Tax Court has er over its distribution. provi- sufficient under that this retained entire Code to make the of the Internal Revenue sions part gross tax federal estate estate for transfer purposes owes not the donor-custodian whether duty be- minor. we do not in his the decedent lieve that “impor- capacity gift an was such custodian of “power consump- ownership” . of . . tant testamentary disposition to make the transfer a tion” The sole bene- Act. ficiary of Marc Kevin the irrevocable indefeasibly enjoyed who decedent’s Schwartz, *7 security. Any advantage re- title vested by and to the decedent was too indirect remote tained consumption. power constitute a pay party Each Decree reversed. to own costs. Mr. Justice concurs the result. Eagen by Concurring Opinion Mr. Justice Manderino : power consumption, I should concur. term, qualified in sense to not be used even restricted prerogatives any of decedent’s in relation to describe property under the Uniform Gifts to Mi- the custodial during lifetime, Act. The decedent his father, nors might claimed that the have and income ir- revocably given to his son under the Uniform Gifts legal support obligations Act fulfilled possible this claim is re- minor son. not a power to consume. If a father estab- tention income as to principal trust an irrevocable lishes pro- specifically child and single of a for the benefit trust the purpose trust creating vides reten- no there is support obligations, is to fulfill his in- be and the trust would to consume tion of claiming widow surviving attack from a sulated from if extent, any, election To the rights. her statutory father obligated the decedent was between relationship there existed a debtor-creditor could Schwartz father and the son. Edward effect, sup- have claimed that use of the custodial property no created law. He had a debt port extinguished far so and had no other freedom rights other possible the custodial concerned. as the use of funds extin- can the use of custodial possible How gift debt the named son specific legal guish defeat be considered the to consume which will always an inter when a gift surviving spouse vivos all If takes debts of decedent. Edward subject had never made the to his son under the Schwartz Gifts to Minors died owing Uniform Act and had for his son’s payments benefit, obliga- before com- question, payable tion without would, one-half the residuary widow’s share of es- puting even elect Widows, tate. when law, they do not take ir- detriment of against will, inter to children or gifts revocable vivos to any legal debts of the decedent. The decree is properly reversed. Opinion
Dissenting Mr. Justice Roberts: I to dissent. The compelled am reaches its un ignoring by completely controlling result *8 by orphans’ fully facts found court and disputed the record. It is conceded that by Edward supported both the father, was donor and Schwartz, self-ap of the bond for his minor custodian son which pointed
121 registered Act.1 he the Uniform Gifts to Minors specifi unchallenged orphans’ It is also that the court obliga cally Schwartz a found that Edward had 94 Mont. tion to his son. Schwarts Estate, (1971).2 father- 170 as Schwartz 168, Furthermore, power retained the as custodian donor-custodian, “pay much over ... so of or all the custodial [here as the deems advisable father] support, and benefit of education maintenance, minor.”3 dispositive
Having ignored statu facts and these pur tory powers, for the concludes that poses Edward 11 Act,4 of Section of the Estates support ob father-donor-custodian with a Schwartz as power ligation “. . of . . . [retain] to his son did not . ,”5 consumption principal ma thereof. . . over jority deprives statutory created the widow of her 11 share6 to elect a one-half |37,000 purchased and bond which “conveyed” to himself custodian. as
1 21, 358, seq., 1957, et L. et P.S. §§1 §§3601 Act June P. 20 seq. 2 Judge opinion: in liis “It declared undenied Taxis support obligation Edward Schwartz had a Act, supra, he, custodian, the Uniform reveals that as could have discharged property, wholly from the or partly. Estate, 168, (1971). . .” . Schwartz 94 Mont 170 3 21, 1957, 358, §5, amended, June as P.S. §3605 added). (Emphasis (b) April 24, 1947, 100, §11, amended, Act of P. D. P.S. §301.11. conveyance provides: per- “A Id. section This of assets appointment by will, retains a son who of revo- consumption thereof, over cation shall at elec- surviving spouse, testamentary disposi- be treated as a tion of his . . tion. appellee (Schwartz* wife) only first child, had Since one she conveyance. April one-half share to a entitled .100, (b), P.S. §301.11. §11 D. P. *9 cus- Act the empowers
The Uniform. Gifts to Minors expenditure to the minor for “pay todian to: over of or for the benefit so much him or minor’s expend ad- the deems property all the custodial as education the support, maintenance, visable for or at the time minor, manner, benefit of extent that the custodian and to the times, [here deems suitable and discretion, proper in his father], or of . . . with or without regard duty of himself ability or his support minor, other any person in- other regard to do or without to any with so, applica- minor, may come or which June such purpose.” ble or available §3605(b) P. L. 20 P.S. as 21, 1957, 358, §5, amended, (emphasis added).
I as the trial court conclude, did, would prop- himself custodian of the father-donor, by naming he this device “conveyed” erty himself, authority to utilize the statutory proceeds for the of his son. To the extent bond is subject being used support, precisely father retains the same over the right proper- as he held to himself ty prior conveyance which of course not if the custodian. would apply someone other than the father-donor or custodian were if the donor-custodian had no parental support obliga- the bond under tions to the donee of the act. Although neither of these situations is here the ma- involved, nevertheless reaches its result as jority though they were. himself designating as custodian the father
Upon in the where in position himself his placed “discretion, and proper”7 he deems suitable he could as utilize the instead of his proceeds, personal assets, 21, 1957, 358, §5, §3605 (b). of June P.S. minor son. obligation his Ms parental satisfy the fa Ms self-appointment custodian, means of By to decide for himself exclusive ther created support obligation per from satisfy whether to this ex the custodial assets. sonal assets from It sup of decision—whether satisfy clusive personal from custodial assets from port “power constitutes ... statutory funds—which custodial assets under Section over the consumption” *10 11 to widow’s and assets the thereby subjects those election. right of Section refusing the of
By recognize applicability to 11 assets conveyance the into custodial to decedent’s the that which judicially sanctions here, to Legislature sought prevent and so clearly expressly and and to diminish opportunity Section .13.—device statutorily rights. marital deny granted enact- certainly Uniform Gifts to Minors Act was not 11 ed a from provide refuge $37,000 to Section the will subject which was recalled at conveyance satisfy parental the father-donor at time to his obligation. The Joint Government Avhich State Commission drafted the Act of 1947 explained purpose 11: surviving “This section Section preserves in spouse right to share decedent’s assets where rights the decedent has retained of owner- important at death. in such Rights surviving ship spouse in circumstances have been other states.... recognized has little However, Pennsylvania given opportunity title surviving spouse share when has death. prior from . . . passed Indeed, been Pennsylvania has such that it was situation correctly husband, ‘It is only stupid stated be forced wishes, would to allow his against who, share Ms . . personalty’. April wife to 24, 124 (Com- 20 P.S. 100,
1947,
§11,
§301.11
(citations omitted).
Comment)
missions’
374 Pa.
A. 2d
358,
Estate,
In Pengelly
“the Act
Court
(1953), this
observed
[Section 11]
existing public policy
is
of a
confirmatory
long
Id. at
rights
of widows.”
Commonwealth to protect
314,
399 Pa.
Estate,
2d at 849.
In Behan
A.
A.
held that an inter vivos
(1960),
2d
we
trust
retains for the husband a special
which
subject
and
appointment
there
fully explored
legislative pur-
explained
pose
Section 11: “The mischief
be remedied
being
the reason for the new law are clear. Wives are
a
unfairly deprived of
share
their husband’s per-
sonal
trust device
property by
transparent
per-
which
mitted
husband to retain control
his property, and
at the same time
wife
legally deprive
just
of her
marital
therein.”
rights
Id. at
It
is pertinent
to note that
the Tax Court of the
United States has ruled on the very issue presented to
contrary
the same
has decided
and
appeal
dece
that where
has held
That Court
majority.
child
to
transferring
dent-donor,
names himself
Act,
Minors
Gift to
Uniform
under the
majority,
minor-donee’s
to
prior
and dies
custodian
is includible
constituting
gift
the property
Fed
to
subject
accordingly
and
estate
gross
decedent’s
de
Prudowsky,
Harry
Tax.
Estate
See,
eral Estate
Dorothy
It finds majority while ironic, indeed, that the decedent lacked sufficient control over the it within ambit 11 of property bring of Section the federal decisions noted above mandate a unquestionably of sufficient finding to incorporate control it into the decedent’s estate for the purpose of the Federal Estate Tax computing due.
It is difficult comprehend how can ignore the effect of the conveyance support obliga- tion in this involved case. Under the hold- majority’s ing, Edward Schwartz, donor-custodian with a sup- port to his minor was able to shield from his permanently wife violation of the clear mandate of Section property over which he simul- taneously controls—namely power to use custodial assets place of his personal assets to satisfy parental support obligation subject- without ing the concomitant right of the widow to elect to take her one-half share. It was precisely type conveyance depriving her widow of enjoy her testamentary share of her husband’s that Section 11 was designed to preclude.
I believe the decree of the orphans’ court should be affirmed.
Mr. Justice O’Brien joins this dissent. Appellant.
Commonwealth v. Powell,