The opinion of the court was delivered by: KIRKPATRICK
This is an action to recover an alleged overpayment of federal estate tax upon the estate of Edward Martin, who died March 17, 1938. The case is now before the Court on motions by both parties for summary judgment on the pleadings and supporting affidavits.
The decedent's will created a trust, the income to be paid to three designated beneficiaries -- cousins of his wife -- during their lives, remainder to charities. The trustees were given power to invade the principal of the trust by the following provision: 'I further authorize and direct my said trustees and the survivors of them, in their uncontrolled discretion, to pay form the principal of my estate to Ruth C. Dennisson, William E. Dennisson and Anna K. Dennisson, or any of them, such amount as shall be necessary for his or her comfort and support, should my said trustees deem the income payable from my estate to be inadequate for the purpose. My trustees shall be authorized to exhaust the entire principal of my Estate in the exercise of this power hereby given them.'
The question involved is whether the present value of the remainder which the charities will receive is ascertainable with sufficient accuracy to permit a deduction in respect of it under Sec. 303(a)(3) of the Revenue Act of 1926, 26 U.S.C.A.Int.Rev.Acts,page 234, and Sec. 162(a) of the Revenue Act of 1936, 26 U.S.C.A.Int.Rev.Code, § 162(a).
The latest decision of the Supreme Court upon the subject, Merchants National Bank of Boston, Executor, v. Commissioner of Internal Revenue, 320 U.S. 256, 64 S. Ct. 108, 111, 88 L. Ed. 35, states the applicable rule substantially as follows: The taxpayer has the burden of establishing that the amounts which will be spent for the benefit of the private beneficiary or, to put it another way, will reach the charity are accurately calculable. While the mere fact that a possibility that the principal may be invaded and some of the corpus diverted to the life tenants does not necessarily forbid the deduction, only 'where the conditions on which the extent of invasion of the corpus depends are fixed by reference to some readily ascertainable and reliably predictable facts do the amount which will be diverted from the charity and the present value of the bequest become adequately measurable.' It is not enough that one might 'guess or gamble * * * or even insure against' the principal being invaded to an unascertained extent.
Merchants Bank v. Commissioner, supra, is not in conflict with nor does it in any way overrule the earlier decision of the Court in Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S. Ct. 291, 73 L. Ed. 647. However, reading the two opinions together, it seems quite clear that the Ithaca Trust Co. case was an exceptionally strong case for the charitable exemption, and that the general rule imposes a much more exacting burden upon the taxpayer than the opinion of Mr. Justice Holmes in that case might have indicated.
Have the taxpayers sustained the burden in this case? Have they produced evidence on which 'a highly reliable appraisal of the amount the charity will receive,' can be made, or does the 'standard by which the extent of permissible diversion of corpus' under this will 'is to be measured embrace factors which cannot be accounted for accurately by reliable statistical data and techniques'? Merchants Bank v. Commissioner, supra.
The answer of the taxpayers is:
(1) That the law of Pennsylvania governs.
(2) That the law of Pennsylvania sets a standard governing the discretion of trustees empowered to invade principal for the comfort and support of life beneficiaries, which is that the trustees may not (except for remotely possible temporary emergencies) spend more than such amounts as are necessary to maintain the beneficiaries in the way of life to which they have been accustomed.
(3) That the facts of this case as disclosed by the pleadings and affidavits establish that the principal of this trust estate will, in all probability, never be invaded or, if at all, only to an extent readily measurable by the standards of the beneficiaries' previous mode of living.
Conceding that we look to the law of Pennsylvania for any limit which there may be upon the trustees' discretion (although in the Merchants Bank case, supra, the Supreme Court gave scant consideration to the law of Massachusetts), it must also be conceded that the plaintiffs are bound to show this Court, with reasonable assurance, that the rule upon which they rely is, at least, fairly well settled by the Pennsylvania Courts. See Helvering v. Fitch, 309 U.S. 149, 60 S. Ct. 427, 84 L. Ed. 665.
It is true that in each of the three Pennsylvania cases cited, and relied upon by the plaintiffs, it was held that, under the will and the facts in the particular case, the principal could not be invaded beyond amounts necessary to maintain the prior mode of life if the beneficiary, but none of them go further than holding that the intention of the testator, in the light of the terms of the will and the circumstances of the case, controls the extent to which principal may be expended.
In Steele's Appeal, 47 Pa. 437, the testator had charged upon his real estate a bequest to his wife, she 'to be furnished with a comfortable room, and sufficient maintenance during her natural life.' Although it was the room, not the maintenance, which was to be 'comfortable,' the Court transposed the adjective and said 'A comfortable maintenance, measured by the station, habits, and tastes of the testator and the widow, it is fair to presume was intended; no more nor no less; without extravagance either as to the place or material. This, we think, is the only limitation.' There was no trustee and there were no discretionary powers to be construed, and what was said about the meaning of 'comfortable maintenance' was in the nature of dictum, because the will did not contain that expression. The point actually decided, on the facts of the case, was that 'sufficient maintenance' in the will before the Court was intended by the testator to mean maintenance measured by station, habits, and tastes of the life beneficiary and, it is to be noted, of the testator as well.
In La Bar's Estate, 181 Pa. 1, 37 A. 111, the testator had left certain shares of stock in trust and the provision in point was, ' * * * if at any time or times she needs any part of the principal of the stock she is at liberty to receive it for her support and maintenance.' The beneficiary was not merely claiming payments from the corpus to supplement her income, but demanded that the trustees deliver to her the entire corpus of the trust. The Court said: 'This latter provision was evidently intended to provide for possible temporary exigencies that might arise and made it necessary to supplement, for the time being, her regular annual income, which he evidently considered would be ordinarily sufficient for her needs.' All that was actually decided was that the privilege to receive part of the corpus of the trust for support and maintenance did not ...