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Salisbury v. United States

decided: May 8, 1967.


Lumbard, Chief Judge, and Waterman and Anderson, Circuit Judges. Lumbard, Chief Judge (dissenting).

Author: Waterman

WATERMAN, Circuit Judge:

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 the tax because a charitable deduction in the amount of $106,425.45 had been improperly disallowed. Plaintiff moved for summary judgment, the Government cross-moved, plaintiff's motion was denied, and the Government's cross-motion was granted. The opinion and decision below is reported at 256 F. Supp. 30 (1966). Taypayer appeals.

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*fn1 because the trustee's discretionary authority in the second sentence of subparagraph (b) to invade corpus for the "support, care and benefit" of the income beneficiary during an incapacitation through "illness, age or other cause" prevented the charitable interest from being "presently ascertainable" within the purview of Treas. Reg. § 20.2055-2(a)(1958).*fn2 We disagree, and as there are undetermined factual questions relative to the remoteness of the possibility that the charitable interest will not become effective within the meaning of Treas. Reg. § 20.2055-2(b) (1958)*fn3 and relative to the amount of any deduction, we remand for a determination thereof.

As we have stated, the sole question on this appeal is whether the charitable remainder interest is "presently ascertainable."*fn4 The answer must be in the affirmative when the power of the life tenant to invade corpus is limited by an objective standard fixed by the terms of the will that is capable of being stated in terms of money. Ithaca Trust Co. v. United States, 279 U.S. 151, 154, 49 S. Ct. 291, 73 L. Ed. 647 (1929). Absent a measurable standard limiting the power of invasion, the charitable deduction is disallowed, however remote or tenuous the possibility of invasion might be.*fn5 Henslee v. Union Planters Nat'l Bank & Trust Co., 335 U.S. 595, 599, 69 S. Ct. 290, 93 L. Ed. 259 (1949); Berry v. Kuhl, 174 F.2d 565, 567 (7 Cir. 1949).

The standards provided by a will are sufficiently fixed, objective, or measurable, when, and only when, the purposes for which corpus may be invaded are subject to "reliable prediction," Merchants National Bank of Boston v. CIR, 320 U.S. 256, 262, 64 S. Ct. 108, 88 L. Ed. 35 (1943), rather than to mere "speculation." 320 U.S. at 263, 64 S. Ct. 108, 88 L. Ed. 35. Thus the deduction is allowed when the life beneficiary's power of invasion is made referable to his standard of living as of testator's death, either expressly, as in Ithaca Trust Co., supra, or by implication from "such words as 'comfort and support' * * * if such interpretation is consistent with applicable local law, and other terminology in the will or instrument does not require some different interpretation," Rev. Rul. 54-285, 1954-2 Cum. Bull. 302. The standards in the will also qualify as presently ascertainable if the occasions for invasion of principal are limited to physical and economic emergencies, see Lincoln Rochester Trust Co. v. McGowan, 217 F.2d 287, 289 (2 Cir. 1954), C.I.R. v. Wells Fargo Bank & Union Trust Co., 145 F.2d 130 (9 Cir. 1944), unless the objectivity of the standard is diminished by additional directions favoring the life beneficiary, as by insulating invasions of corpus from review or question, see DeCastro's Estate v. CIR, 155 F.2d 254, 255 (2 Cir. 1946). Absent such provisions, language authorizing invasion when necessary to meet such emergencies limits the extent of invasion to a maintenance of the life beneficiary's standard of living. See Lincoln Rochester Trust Co. v. McGowan, supra, 217 F.2d at 292.

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."*fn6

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," Newton Trust Co. v. CIR, 160 F.2d 175 (1 Cir. 1947), "best interest," Estate of Helen Thompson, 1958 T.C. Memo 100, 17 CCH Tax Ct. Mem. 510 (1958),*fn7 or are used in conjunction with accompanying words which may be subjective or objective depending upon context, as, e. g., "pleasure, comfort and welfare," Henslee v. Union Planters National Bank & Trust Co., supra (emphasis supplied), they are generally interpreted so as not to restrict the use of trust principal to maintenance of the benficiary's standard of living. A similar interpretation prevails when language usually associated with the station in life standard is modified by more expansive terminology as, e. g., "for any purpose which may add to her [the beneficiary's] comfort or convenience," Seubert v. Shaughnessy, supra (emphasis supplied), or as "to provide proper maintenance and support to the same generous extent that I, if living, could do," Kline v. United States, 202 F. Supp. 849 (N.D.W. Va. 1962), aff'd per curiam, 313 F.2d 633 (4 Cir. 1963) (emphasis supplied), or is supplemented by a clause which permits the invasion of corpus for an additional, less restrictive purpose, as, e. g., "and for any other purpose which my trustees shall deem expedient, necessary or desirable for the benefit or use of my said sister," Zentmayer's Estate v. CIR, 336 F.2d 488 (3 Cir. 1964); or as "and for any other reasonable requirement," State Street Bank & Trust Co. v. United States, 313 F.2d 29 (1 Cir. 1962);*fn8 or as "or will be for her best interests to receive," Vaccaro v. United States, supra, or as "or for any purpose whatsoever, whether included in the foregoing classification or not," Title Insurance & Trust Co. v. United States, 249 F. Supp. 386 (S.D. Cal. 1965), or is supplemented by additional explanatory instructions to the trustee to favor the life beneficiary's interest in corpus at the expense of the charitable remainderman, as e. g., "my said Trustee shall exerise its discretion with liberality to my said wife, and consider her welfare, comfort and happiness prior to claims of residuary beneficiaries," Merchants National Bank of Boston v. CIR, supra, or as "the first object to be accomplished * * ...

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