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City Trust Co. v. United States


decided: May 17, 1974.


Appeal from a judgment of the United States District Court for the District of Connecticut, Jon O. Newman, Judge, awarding a $197,497.53 refund to taxpayer upon determining that a charitable deduction for estate tax purposes had been erroneously disallowed. Reversed.

Kaufman, Chief Judge, Hays and Oakes, Circuit Judges.

Author: Kaufman

KAUFMAN, Chief Judge:

The appeal before us presents the single, narrow question whether the remainder interest bequeathed to charity under the will of Frederick A. Lockwood, deceased, is an allowable, charitable deduction for estate tax purposes, 26 U.S.C. § 2055.*fn1 The court below*fn2 responded in the affirmative, and accordingly entered judgment for the taxpayer in the amount of $197,497.53. Since we find, however, that the language of the will provides no objective standard to govern the trustee's power to invade corpus for the benefit of Lockwood's widow, the life beneficiary, we reverse.

Lockwood died a resident of Norwalk, Connecticut on May 21, 1966. His will was admitted to probate in the Probate Court for the District of Norwalk, and appellee City Trust Company was duly qualified as executor. Article 3 of the will established a trust, the income from which was to benefit Lockwood's widow during her lifetime, and also to benefit his sister and certain relatives in the event his sister survived his widow. Upon the death of the survivor the trust was to cease, with fifty percent of the remainder to be paid to certain charities.*fn3

During Mrs. Lockwood's life tenancy, the trustee could invade corpus for her benefit in accordance with the following provision of the will:

My trustee may, in its absolute and unhampered discretion, pay so much of the principal of this trust as it may deem to be necessary for the proper care, comfort, welfare and happiness of my wife. It is my desire that my wife may occupy her own home and live in the manner to which she has been accustomed in our life together so long as she desires to do so, and that she shall have from my estate at least Five Hundred Dollars ($500.00) a month, from the date of my death, with payments to begin as soon after my death as is practicable, for her own personal spending money and for whatever she may desire, after the payment of all of her necessary expenses. I direct my executor and trustee to begin to make regular monthly payments to my wife on account of the income which is due or will become due to her as soon after my death as it is practicable to do so. (emphasis added)

The district court construed this language as establishing the widow's customary standard of living as an objective determinant to limit the trustee's power of invasion. To be sure, this standard finds mention, but that objectivity is totally lost among such subjective factors as provision for her "happiness," for "whatever she may desire," and for monthly payments of " at least $500.00 . . . after the payment of all of her necessary expenses." With a guideline so pregnant with subjective considerations, the size of the charitable bequest is simply not, as it must be for deductibility, "presently ascertainable."*fn4 See Henslee v. Union Planters National Bank & Trust Co., 335 U.S. 595, 93 L. Ed. 259, 69 S. Ct. 290 (1949); Merchants National Bank of Boston v. Comm'r., 320 U.S. 256, 64 S. Ct. 108, 88 L. Ed. 35 (1943); Treas. Reg. § 20.2055-2(a) (1958).*fn5 And compare Seubert v. Shaughnessy, 233 F.2d 134, 137 (2d Cir. 1956) with Hartford National Bank & Trust Co. v. United States, 467 F.2d 782, 785 (2d Cir. 1972). Thus, the language in issue, read in its entirety, makes clear that the decedent intended his trustee to prefer his wife's desires at all times over the needs of the charitable remaindermen.*fn6 Accordingly, the taxpayer, we hold, can effectuate that wish only by foregoing its charitable deduction.

We note, finally, with some surprise, the Government's suggestion -- an afterthought perhaps for it first appeared in the Government's reply brief -- that we remand "for consideration whether taxpayer is entitled to an additional estate tax deduction for the legal expenses incurred by it in defending this appeal." Since the Government had earlier entered into a stipulation with taxpayer assuring the allowance of an estate tax deduction for reasonable attorney's fees "in connection with this litigation," we believe it is bound by this agreement. See also Treas. Reg. § 20.2053-3(C) (2) (1958). The district court is instructed to retain jurisdiction to compute reasonable attorney's fees, in the event the parties are unable to agree on the sum.

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