Summary
In Estate of Jennings v. Commissioner, 10 T.C. 323 (1948), the life tenant on the valuation date was suffering from a complete loss of memory and almost total paralysis as the result of a cerebral attack.
Summary of this case from Estate of Fabric v. Comm'r of Internal RevenueOpinion
Docket No. 6471.
1948-02-19
ESTATE OF NELLIE H. JENNINGS, HAMILTON NATIONAL BANK OF KNOXVILLE, EXECUTOR AND TRUSTEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
M. W. Egerton, Esq., William W. Davis, Esq., and S. F. Fowler, Esq., for the petitioner. S. Earl Heilman, Esq., for the respondent.
1. Charitable bequests of the remainder interest in residuary estate, after life estate in decedent's invalid husband, with power in the trustee to invade the principal for husband's ‘care and maintenance,‘ held deductible.
2. Value of such remainder interest determined with reference to actual physical condition of life beneficiary on the date of decedent's death, rather than by use of established mortality tables exclusively. M. W. Egerton, Esq., William W. Davis, Esq., and S. F. Fowler, Esq., for the petitioner. S. Earl Heilman, Esq., for the respondent.
This proceeding involves an estate tax deficiency of $38,865.43. In determining the deficiency the respondent disallowed, as a charitable bequest, a claimed deduction from the gross estate of $218,192.63 representing the value of the remainder interest in decedent's residuary estate, after a life estate in her surviving husband, which she bequeathed to recognized charities, with the power in the trustee to use as much of the principal as necessary for her husband's care and maintenance. Whether the right to invade the principal of the trust estate rendered the charitable bequests incapable of valuation and, if not, whether such valuation is to be made by the use of standard mortality tables or by determining the actual life expectancy of the life tenant with reference to the condition of his health at the time of decedent's death, are the questions for our determination.
Some of the facts have been stipulated and other evidence has been adduced by depositions.
FINDINGS OF FACT.
We incorporate the stipulated facts herein by reference. For the purpose of this opinion, these and other facts of record may be summarized as follows:
The decedent, Nellie H. Jennings, died testate, a resident of Knox County, Tennessee, on September 17, 1941. The estate tax return was filed with the collector of internal revenue at Nashville, Tennessee. In her will the decedent left the residue of her estate, after certain specific bequests, in trust to her husband for life, and the remainder to the trustee of the Knox County Tuberculosis Sanitarium, Inc., and Carson-Newman College, in the respective proportions of 49 per cent and 51 per cent. The will provided, in material part, as follows:
* * * If, at my death, my husband, James W. Jennings, is still living, I will, devise and bequeath to the Hamilton National Bank of Knoxville, as Executor and Trustee, all of my property, both real and personal, wheresoever situated, for the following purposes, to-wit:
For the use and benefit of my husband, James W. Jennings, so long as he may live. My Executor and Trustee, the Hamilton National Bank, is to use any amount of the income or principal for the care and maintenance of my husband, James W. Jennings, and my said Executor and Trustee will be responsible for his care and maintenance.
Upon my demise, as hereinbefore stated, if James W. Jennings, my husband, is living, then all of my property with the exception of the ring willing to W. P. Haynes, Jr. and the indebtedness he might owe me, and the Five Hundred ($500.00) Dollar bequest to Ray Simmons, will go to the Hamilton National Bank as Executor and Trustee for the use and benefit of my husband, James W. Jennings, so long as he lives. However, if he is not living at my demise, my property will be distributed as hereinbefore set out.
The will was executed August 11, 1941. At that time decedent's husband was paralyzed and in a helpless and hopeless condition. He had been confined to his bed since January 1940, with complete loss of memory and almost total immobility of his limbs. He suffered his first severe cerebral attack in September 1935, with recurrences in 1937, 1938, 1939, and 1940. An attack in January 1940 left him unconscious for about two weeks and resulted in complete loss of memory and almost total paralysis. This condition remained unchanged until his death. He died November 16, 1941, approximately two months after decedent's death, at the age of seventy-three years.
At the time of decedent's death she and her husband were living at the Andrew Johnson Hotel, Knoxville, Tennessee, where they occupied a suite of rooms. Decedent's husband was then, and for some time had been, under the constant care of his physician and trained nurses. From both a medical and practical standpoint, he was then receiving the maximum of care and maintenance. His average monthly expenses for the two months' period following decedent's death, including hotel rooms, food, nurses, and physician's care, were approximately $780, which, on an annual basis, amounted to approximately $9,380.
After decedent's death her husband was declared an incompetent and his brother was appointed his legal guardian.
The decedent left an estate valued at approximately $300,000. The annual income of the estate at that time, consisting of rents and interest on Government bonds, amounted to approximately $9,600. The assets of the residuary estate consisted for the most part of real estate, Government bonds, and $80,000 of cash which was not invested. The executor and trustee thought it advisable not t invest the cash because of the fact that the residuary estate would have to be distributed upon the death of the decedent's husband, which was expected daily.
Other expenses of the estate, in addition to the care and maintenance of decedent's husband, such as executor's fees and attorneys' fees, were paid out of corpus.
On October 11, 1941, the executor filed a bill in the Chancery Court of Knox County, Tennessee, for a construction of decedent's will. The decedent's sole heir at law claimed that the residuary clause of the will was ineffectual and that the residuary estate passed to her. Also, the legal guardian of decedent's husband claimed a right of dissent from the will, which, if established, would have given him a large part of the personal property. The chancery court denied the surviving husband's right of dissent from the will and construed the will as vesting in him a life interest in the residuary estate, with the remainder to the named charities. The Supreme Court of Tennessee on October 2, 1943, affirmed this construction of the will, saying in its opinion that:
When the will is considered as a whole, which clearly shows a well considered general scheme of disposal of her property, we think there is a manifest intention (1) to amply provide for her husband during his lifetime, and (2) to give whatever remained of her estate, ‘the residue of my estate‘ (expression found in Items 6 and 7), to the named beneficiaries at his death.
The life expectancy of decedent's husband at the date of her death was not greater than one year.
The two residuary beneficiaries named in the decedent's will, Knox County Tuberculosis Sanitarium, Inc., and Carson-Newman college, are charitable organizations within the meaning of section 812(d) of the Internal Revenue Code.
OPINION.
LEMIRE, Judge:
The courts of proper jurisdiction have construed the decedent's will as vesting the remainder of the residuary estate in the named charitable organizations, and that ruling is not challenged by the respondent here. The Commissioner contends, however, that the charitable bequests are incapable of valuation, and, therefore, not deductible under section 812(d), Internal Revenue Code, because of the power in the trustee to invade the corpus of the testamentary trust for the benefit of the decedent's surviving husband.
Item I of the will provides that, if the husband survives the testatrix, the trustee is to hold the estate ‘For the use and benefit of my husband, James W. Jennings, so long as he may live‘ and ‘is to use any amount of the income or principal for the care and maintenance of my husband.‘ Item X of the will contains a similar provision for the residuary estate to be held by the executor and trustee ‘for the use and benefit‘ of the husband so long as he lives.
The petitioner takes the position that under these provisions of the will, and considering the physical condition of the surviving husband at the date of decedent's death, there was not a sufficient probability of invasion of the principal of the trust to render the charitable bequests of the remainder interest incapable of valuation.
We agree with this contention. It has been held in a number of cases that the words ‘care and support,‘ ‘care and maintenance,‘ and words of like import, used in trust conveyances denote a fixed or ascertainable standard determinable by reference to the manner of living to which the beneficiary is accustomed and other circumstances that might affect his needs. We said in Estate of Edwin E. Jack, 6 T.C. 241, that:
* * * the disposition of the issue as to whether or not such bequests are deductible depends, generally, upon the language of the power and the likelihood of its exercise as disclosed by the facts and circumstances of each case. * * *
In Ithaca Trust Co. v. United States, 279 U.S. 151, there was a provision for withdrawal from principal of any sum that might be necessary ‘to suitably maintain her (the wife) 'in as much comfort as she now enjoys.’‘ The Supreme Court held that this provision established a standard for measuring the extent of the invasion of the trust principal. Under the testamentary trust in Estate of Edwin E. Jack, supra, the trustees were directed to pay over to the widow, in addition to the income, so much of the principal ‘as they in their sole discretion deem necessary for her comfort and support.‘ We said in our opinion:
* * * It is true that the instrument before us does not expressly limit the standard to ‘as much comfort as she now enjoys,‘ as did the instrument in the Ithaca Trust Co. case, supra, but, nevertheless, the words used limit the discretion of the trustees as effectively as if there had been an express limitation in the instrument itself. With due regard to changes in cost, the power is intended only to secure to the beneficiary the kind of living to which she was accustomed as if interpolating into the will here considered the words expressly used in the will under consideration in the Ithaca case, supra. Hartford-Connecticut Trust Co. v. Eaton, 36 Fed.(2d) 710.
In Hartford-Connecticut Trust Co. v. Eaton, 36 Fed.(2d) 710, the invasion of principal was for the ‘comfortable maintenance and support‘ of the widow. The court pointed out that this meant for the support of the widow according to her station in life. See also First National Bank of Birmingham, Alabama v. Snead, 24 Fed.(2d) 186; Estate of Horace G. Wetherill, 4 T.C. 678; and Commissioner v. Wells Fargo Bank & Union Trust Co., 145 Fed.(2d) 130. We think that the reasoning of those cases applies here. The trustee, we think, would have been restrained by the court from paying out any more of the principal of the trust than was needed for the reasonable care and support of decedent's invalid husband. The husband at the date of decedent's death, as well as at the time the will was executed, was a hopeless invalid, almost totally paralyzed and without reason, memory, or personal desires of any kind. He was rapidly deteriorating at the date of decedent's death and, in the words of his physician, was ‘just an individual protoplasm.‘ The evidence is that he was then receiving the maximum of care that could be given him and that there was no reasonable likelihood that there would ever ben any increase in the cost of his care and maintenance. As the Tennessee courts had pointed out in construing the will, the trustee was under a duty to preserve the residuary estate for the benefit of the charities named in the will.
The remaining question is whether in valuing the charitable bequests the life estate of the decedent's husband is to be determined with reference to established mortality tables, upon which the respondent relies, or with reference to the actual physical condition of the decedent's husband at the time of her death. At the date of decedent's death her husband was seventy-three years of age. The petitioner contends that, in view of the husband's physical condition, his reasonable life expectancy was not more than one year from the date of decedent's death. Such was the testimony of the husband's attending physician and the opinion testimony of other well qualified medical authorities.
The United States Supreme Court has said that in making a deduction for a remainder interest bequeathed to charity, such as is here under consideration, ‘the value thereof must be determined from data available at the time of the death of decedent.‘ United States v. Provident Trust Co., 291 U.S. 272. We held in the Estate of John Halliday Denbigh, 7 T.C. 387, that the use of established mortality tables, which are evidentiary only, must give way to the proven facts which show a less life expectancy. There, the life beneficiary was suffering from cancer in an ‘inoperable, incurable‘ form and was doomed to die within a year or two, whereas, according to the mortality table, she had a life expectancy of about sixteen years. Those are much like the facts in the instant case, and we think the same principle governs. The evidence is that at the date of decedent's death the life expectancy of her husband was not more than one year. Actually, he lived only two months. We therefore sustain the petitioner's contention that the valuation of the life estate, which must be deducted from the charitable bequests, should be based upon a life expectancy of not more than one year.
Decision will be entered under Rule 50.