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Barclay v. United States.

decided: April 27, 1949.

BARCLAY
v.
UNITED STATES.



Author: Biggs

Before BIGGS, Chief Judge and McLAUGHLIN and KALODNER, Circuit Judges.

BIGGS, Chief Judge.

The question in the instant case is whether a one-fifth interest in a testamentary trust created by Emma W. Coulter, the "donor", a resident of Pennsylvania, who died in 1929, is includable in the estate of Rebecca Coulter Barclay, the donor's daughter, the "decedent". The court below found the interest includible*fn1 and the executor has appealed.

The pertinent provisions of the donor's will are as follows: "All net income from the property thus held in trust * * * shall be distributed * * * among my children, Richard Coulter, Rebecca Coulter Barclay, Henry W. Coulter, William A. Coulter and Margaret Coulter, in equal shares, provided that, if any of my said children shall then be deceased, the share of the income which such deceased child would have received shall be disposed of in such manner as he or she may have, by his or her last will, appointed, and in default of such appointment such share of income shall go to such person or persons, as by the laws of the State of Pennsylvania, would have been entitled to the same if such deceased child at the time of each payment of income had been legally seized and possessed of said income in his or her own right and had died intestate."

"Upon the termination of said trust, the property, real and personal, then held in trust by the trustees under this Article of this codicil shall go, absolutely, in fee simple and free from all trusts, to my said children, Richard Coulter, Rebecca Coulter Barclay, Henry W. Coulter, William A. Coulter and Margaret Coulter, in equal shares provided that, if any of my said children shall then be deceased, the share of such deceased child shall be disposed of in such manner as he or she may have by his or her last will appointed, and, in default of such appointment, such share shall go to such person or persons as, by the laws of the State of Pennsylvania, would have been entitled to the same if such deceased child at the time of his or her death had been legally seized and possessed of said share in his or her own right and had died intestate."

"* * * the * * * trust shall immediately terminate upon the death of the last survivor of * * * [the] two trustees and in any event shall terminate twenty-one years after the date of my death."

"The * * * trustees are hereby empowered, in their sole discretion, to terminate the * * * trust at any time prior to the expiration of * * * twenty-one (21) years after my death if they shall deem proper."

The donor, Mrs. Coulter, named her son, Richard Coulter, and her daughter, the decedent, as trustees. It seems to be conceded by the parties that the trust is still in existence and has not been terminated.

The decedent, also a resident of Pennsylvania, died on June 22, 1937 leaving a will which stated in pertinent part, "It is my will that all my just debts, funeral expenses and expenses of proving this my last Will and Testament be in the first place fully paid and satisfied. * * * [Here follow specific bequests which would require a cash outlay of approximately $120,000]. All the rest, residue and remainder of my estate I will, devise and bequeath to my son John Barclay [Jr.]." John Barclay Jr. is the executor of his mother's, the decedent's, estate and hence the plaintiff herein. On April 5, 1939 by a document filed in the Orphans' Court of Westmoreland County, Pennsylvania, he renounced any interest which he might receive in the trust under the will of the decedent and elected to take his interest in the trust under the will of his grandmother, the donor.

The questions for our determination are identical with those which were before the court below. They may be stated as follows. Under the circumstances outlined does the one-fifth interest in the corpus fall within the purview of Section 302 (a) or (f) of the Revenue Act of 1926 as amended and the pertinent Treasury Regulations?*fn2

The court below, 73 F. Supp. at page 819, seemed to take the position that the decedent was a "life tenant having a general power of appointment" and therefore had "an estate equivalent to a fee", citing inter alia In re Perkins' Trust Estate, 314 Pa. 49, 170 A. 255, and In re Wilbur's Estate, 334 Pa. 45, 5 A. 2d 325. But the decedent did not have a life estate coupled with a power of appointment. She had an estate for years in the income from the trust. The trustees held the corpus subject to the termination of the trust within twenty-one years or at an earlier date if the trustees should so determine. The decedent did have a general power of appointment over her share of the corpus. By will she could appoint to whomever she pleased including her own estate. The cases cited by the court below therefore are inapposite and the principle cited by the learned trial judge cannot rule the case at bar.*fn3

We entertain no doubt that the decedent exercised the power of appointment conferred upon her by the donor's will. Section 11 of the Wills Act of June 7, 1917, P.L. 403, which was a re-enactment of Section 3 of the Act of June 4, 1879, P.L. 88, 20 P.S. Pa. ยง 223, provides in pertinent part as follows: "A general devise of the real estate of the testator, or of the real estate of the testator in any place, or in the occupation of any person mentioned in his will, or otherwise described in a general manner, shall be construed to include any real estate, or any real estate to which such description shall extend, as the case may be, which he may have power to appoint in any manner he may think proper, and shall operate as an execution of such power unless a contrary intention shall appear by the will. In like manner, a bequest of the personal estate of the testator, or any bequest of personal property described in a general manner, shall be construed to include any personal estate, or any personal estate to which such description shall extend, as the case may be, which he may have power to appoint in any manner he may think proper, and shall operate as an execution of such power unless a contrary intention shall appear by the will." It was the settled law of Pennsylvania at the time of the decedent's death*fn4 that a general bequest constituted an execution of a general power of appointment unless a contrary intention specifically appeared from the will. Huddy's Estate, 236 Pa. 276, 84 A. 909. Cf. In re Wilbur's Estate, 334 Pa. 45, 53, 5 A. 2d 325, 330, and Provident Trust Co. of Philadelphia v. Scott, 335 Pa. 231, 6 A. 2d 814.

The United States contends that because the decedent by her will directed that all her just debts should be paid and stated that the residue and remainder of the estate should go to her son, Barclay, Jr., she commingled or blended the appointive property with her separate estate in her residuary estate. Such a conclusion is required by the doctrine of blending as enunciated in the leading case, In re Pennsylvania Company for Insurance on Lives, Etc.,*fn5 264 Pa. 433, 436, 107 A. 840, 841-842, and reiterated by the Supreme Court of Pennsylvania in In re Miller's Trust, 313 Pa. 18, 24, 169 A. 362, 364. Cf. In re Valentine's Estate, 297 Pa. 99, 146 A. 453, 64 A.L.R. 737. The principle of blending was summed up as follows by the Supreme Court of Pennsylvania in In re Miller's Trust, supra, 313 Pa. at page 24, 169 A. at page 364, as follows: "* * * in cases where the will, which executes the power, directs the payment of debts, and then gives the residue of the estate to one who claims to be the appointed legatee, the latter can get only what is left after the debts are paid, for that is the necessary result of the use of the word 'residue'". It will be observed that the decedent in her will made no reference to the power of appointment but did employ the word "residue". The trust in the instant case is not a spenthrift one.

Both the Pennsylvania Company case and the Miller case cited in the previous paragraph are referred to by the Supreme Court of Pennsylvania in In re Stannert's Estate, 339 Pa. 439, 441-445, 15 A. 2d 360, 362-363, and both cases were distinguished by the Court in Stannert on their respective facts. But the Supreme Court in the Stannert case did not purport to apply a theory of law not applied by it in the Pennsylvania Company and the Miller decisions. In the three cases, Pennsylvania Company, Miller and Stannert, it appears that the decedents' separate property was insufficient to take care of debts while in the instant case it does not appear that the decedent's, Mrs. Barclay's, separate estate was not sufficient to pay her debts and the specific bequests specified in her will. See in this connection In re Jackson's Estate, 337 Pa. 561, 566-567, 12 A. 2d 338, 341, 129 A.L.R. 819, where an excess of debts over the decedent's separate estate did not enter into the Court's consideration although the substantial excess of bequests over the amount of the decedent's personal estate was considered as a factor in determining the decedent's intention. Insofar as we can ascertain from an examination of the authorities, the question of the decedent's intention whether or not to blend the two classes of property, separate estate and trust estate, is deemed paramount. In the Stannert case, 339 Pa. at pages 442-443, 15 A. 2d at page 362, ...


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