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LINCOLN ROCHESTER TRUST CO. v. MCGOWAN

January 22, 1953

LINCOLN ROCHESTER TRUST CO.
v.
MCGOWAN, Collector of Internal Revenue



The opinion of the court was delivered by: KNIGHT

Defendant has moved under Rule 56 of the Federal rules of Civil Procedure to enter judgment for the defendant dismissing the action on the ground that there is no genuine issue of any material fact and that defendant is entitled to a judgment as matter of law.

Plaintiff is the executor and trustee of the last will and testament of Frank M. Harroun, deceased. Upon the estate tax return filed by plaintiff with the defendant Collector of Internal Revenue, a deduction of $ 80,687.74 was claimed under section 812(d) of the Internal Revenue Code. The deduction was disallowed and a deficiency was assessed in the amount of $ 17,338.66, which plaintiff paid together with interest amounting to $ 1,025.87. A claim was made for refund of such payments but it was disallowed and this action was instituted to recover $ 18,364.53 with interest from December 24, 1948, and costs.

 The contentions of the parties revolve around the provisions contained in that part of paragraph 'Seventh' of the decedent's will which reads:

 'My trustee is hereby authorized to take, from the principal of the trust herein provided for my wife, such sum or sums as in its sole discretion may be necessary to meet any unusual demands, emergencies, requirements or expenses for her personal needs that may arise from time to time. A letter addressed to the trustee, requesting the payment of such sum or sums and signed by my said wife shall be good and sufficient authority for the payment of such sum or sums, but the said trustee shall use its discretion solely, and its judgment shall be final and shall be binding and conclusive on all the parties interested herein. This clause is intended to provide for emergencies arising from sickness, accident or failure of investments. Need caused by support by my said wife of, notes signed by her with or endorsed for, or any obligation assumed for another, should not be considered sufficient reason.'

 The complaint contains the allegation,

 '12. The income from the decedent's estate since the date of his death has been greater than the sum actually required for the support and maintenance of the decedent's wife, and no part of the principal has been paid over to or expended for her benefit.'

 Defendant contends that under Internal Revenue Code Sec. 812(d) and Treasury Regulation 105, Secs. 81.44 and 81.46 there is a question of whether or not the bequests to charitable institutions can be ascertained with sufficient accuracy to permit deduction thereof for the purpose of the Federal estate tax.

 The question whenever raised seems to have been troublesome to the Courts and generally has been resolved in a further limitation or restriction accompanied by justifiable explanation.

 In this Circuit (2d) the Court of Appeals in recent years has written in two cases: DeCastro's Estate v. Commissioner, 2 Cir., 155 F.2d 254, 256, certiorari denied 329 U.S. 727, 67 S. Ct. 82, 91 L. Ed. 630, and Lincoln Rochester Trust Co. v. Commissioner, 2 Cir., 181 F.2d 424. The DeCastro will provided for the invasion of two trusts during the life of his wife if, due to her 'illness, accident or other unforeseen emergency' the income of the trusts shall not be sufficient to amply provide for her needs. The Court of Appeals held that the estate was not entitled to the deduction for tax purposes and relied on Merchants National Bank v. Commissioner, 320 U.S. 256, 64 S. Ct. 108, 88 L. Ed. 35.

 In the Lincoln Rochester (Morse Estate) case the provision in the will was that the trustee "is authorized, empowered and directed" to advance such sums of the principal of the residuary estate as may be necessary for the 'proper care, support and maintenance' of the beneficiary. The Court of Appeals followed Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S. Ct. 291, 73 L. Ed. 647, and held that the deduction of the charitable trust by the trustee for the purposes of the estate tax was proper.

 The problem in this suit then is to determine whether the language used in the Harroun will, which seems to be limited to invasion in the sole discretion of the trustee only by reason of sickness, accident or failure of investments as related to the beneficiary- wife, falls in line with the Merchants Bank case or the Ithaca Trust case. Until all of the facts are presented to the trier, it is possible that the premise for a just and proper decision would be faulty.

 Much of the oral arguments related to review of the two cases decided in this circuit and most of the space in the briefs has been devoted to them. However, defendant's motion is directed to the pleadings and resort must be had to the complaint and answer. While it is true that the answer admits, in number, most of the allegations of the complaint, yet the defendant denies that value of the residual trusts to charitable institutions can be ascertained with sufficient accuracy to permit deduction for tax purposes. Plaintiff should have the opportunity on a trial to present to the trier such facts as are relied upon to establish its right to the deduction of the residual charitable trusts. Berry v. Kuhl, D.C., 77 F.Supp 581, affirmed 7 Cir., 174 F.2d 565; Commissioner v. Wells Fargo Bank & Union Trust Co., 9 Cir., 145 F.2d 130; Commissioner v. Bank of America, 9 Cir., 133 F.2d 753.

 In Berry v. Kuhl, supra, 174 F.2d at page 566, the will to be construed read:

 'Sixth: If by reason of accident, illness or other cause, either Wilma E, Berry or Martha Berry Datus requires funds for this treatment, support or maintenance, I request that the court having jurisdiction of the trust created under this will authorize my trustee to pay to either of them such portion of the principal of the trust fund as the court deems ...


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