proper, and shall operate as an execution of such power. * * *'
Since no contrary intent appears in decedent's will the general dispositive provision therein must, under Pennsylvania law, be construed to include the property which decedent had power to appoint and to operate as an execution of the power. So executed it would appoint the property to the very persons who were entitled to it in default of any appointment, and hence to those to whom, under the decision in In re Freeman's Estate, supra, it was already vested under the donor's will, subject only to being divested by decedent's adverse exercise of her appointive power. Some lower court cases in Pennsylvania
have held that an express exercise of appointive power, or one implied by statutory rules of construction is a nullity where such exercise of appointive power appoints the property to the same persons who were entitled to take it in default of appointment, upon the ground that the property was already vested in them subject only to divestment by an adverse exercise of the appointive power.
Support is given the view that this should not be construed as an exercise of the power by Estate of Paul v. Commissioner, 16 T.C. 743, 747; and, by the following dictum in Estate of Rogers v. Commissioner, 320 U.S. 410, 415, 64 S. Ct. 172, 174, 88 L. Ed. 134: 'Where a donee of a power merely echoes the limitations over upon default of appointment he may well be deemed not to have exercised his power, and therefore not to have passed any property under such a power.'
However, sounder reason appears to exist for the view that Congress did not intend 'exercise' to mean 'effective exercise'. Estate of Rogers v. Commissioner, supra, involved a case under the law prior to the 1942 amendment, but was not decided until after the enactment of the 1942 amendment. It is true that Congress must have been aware of this dictum at the time of the successive amendments extending the time limitation of the 1942 Act and at the time of passage of the Powers of Appointment Act of 1951. It employed no language showing an intention to disavow the dictum, but it is also true that during the same period, Congress must have been equally aware of the interpretive Treasury regulation
which was directly contrary to the dictum. This situation affords little real aid in ascertaining the legislative intent.
The instant case calls for an application of the pre-1942 law, excepting therefrom only the requirement that the property pass by the exercise of the power. The decisions which had construed what was an exercise of an appointive power under the pre-1942 law were known to Congress. Since, in situations like the present, Congress made only the change which eliminated the requirement that the property pass, it is reasonable to infer that Congress intended no change from prior judicial determination of what constituted exercise of a power.
Under similar circumstances, as a necessary prelude to the ultimate decision, it was held in Barclay v. United States, supra, that a Pennsylvania decedent had exercised her power of appointment. On this point the court said:
'But the decedent must be deemed to have had knowledge of the Pennsylvania Wills Act and of the construction put upon wills under that statute by the Pennsylvania courts.'
Helvering v. Grinnell, 294 U.S. 153, 55 S. Ct. 354, 79 L. Ed. 825, overruled Wear v. Commissioner, 3 Cir., 65 F.2d 665, upon the ground that the Circuit Court erred in holding that the pre-1942 law imposed the tax on the exercise of the appointive power rather than upon the passing of the property by such exercise. The effect in the instant case of the removal by Congress of the passing requirement is to impose the tax on the very thing upon which Wear v. Commissioner, supra, had previously held it to be imposed before the amendment. In the Wear case the decedent's will expressly exercised the power. In this case the will, by necessary implication under Pennsylvania law, exercised the power. In each case the property was appointed to the same persons who were entitled to take in default of appointment. What was said, therefore, in Wear v. Commissioner, supra, is most pertinent, 65 F.2d 666-667:
'The subject of the tax in this case is the exercise of a general power of appointment. The tax is not on the property of the power but is on the exercise of the power itself. In many states a general power of appointment, following the English rule, is regarded as an estate equivalent to out-and-out ownership of the property, or an ownership at least to the extent of subjecting it to liability for the donee's debts, and of course subjecting it to taxation (citing cases). In Pennsylvania and in some other American jurisdictions, the rule is just the opposite. Such being the diversity of rules, we are not concerned with a question whether one is right and the other wrong, but with an altogether different question, whether a federal taxing act is to be put into effect in one jurisdiction and not in another according to the different ways in which the subject of the tax is looked upon.
'We do not believe the Congress intended, by the quoted provision of the act, that the estate tax in respect to the exercise of a general power of appointment should be imposed and collected at the will of the states or upon the accident of the citizenship of the taxpayer. * * *
'We have not been convinced that on the death of the donee nothing happened in respect to the property of the power and in respect to the daughters' right to the property by the exercise of the power. Before its exercise the daughters of the decedent, the twice named recipients, had under Pennsylvania law an estate in the property of the power. But it was a defeasible estate, not unlike the interest of a beneficiary in a policy of life insurance where the insured has reserved, yet has not exercised, the right to change the beneficiary. Their estate was liable to be wholly taken away from them by the exercise of the power in favor of others. So long as the donee lived and retained control over the disposition of the property the daughters ran that risk, which was akin to the risk of a change of beneficiaries in a policy of insurance. Not until the donee died did that risk disappear. Until then he stood in their way. Therefore it was upon his death without exercising the power adverse to them that the estate of the daughters became indefeasible. Death, with an exercise of the power in their favor, was the event that wrought the change. Then their estate, theretofore contingent upon the nonexercise of the power against them, became vested, like the interest of a beneficiary of a policy of life insurance becomes vested upon the death of the insured without exercising a reserved right to change the beneficiary, the value of which must, under the cases, be included in the gross estate of the insured for purposes of taxation. (Citing case.) The generating source of the change was the death of the donee without action adverse to them. That, too, was the generating source of the tax. And such a tax, we hold, the federal government, under its sovereign power to levy taxes, may lawfully impose upon the exercise of a power effecting such a change, to be determined by actual results thereby brought about rather than by consideration of rules which define and limit title of property * * *.'
In common understanding an effective exercise is one which accomplishes the result intended. Ordinarily the intended result of an exercise of appointive power is to pass the property to the appointee. Congress eliminated the requirement of passing and a judicial construction of the amended act which would require that an exercise be effective would nullify the effect of this deliberate legislative action. Wilson v. Kraemer, 2 Cir., 190 F.2d 341; Estate of Moran v. Commissioner, 16 T.C. 814.
It is concluded, therefore, that this decedent's will did exercise her power of appointment and that it is immaterial under amended Section 811(f) whether that exercise was effective to pass the property to her sons. The inclusion of the property in decedent's gross estate is made to depend, not on the effectiveness or result of the exercise, but solely on the exercise itself. This result is consistent with the general intent of the amendments to require inclusion of property in a decedent's gross estate upon the possession of the power to control disposition of the property rather than upon the passage of the property to the recipient.
The plaintiffs' motion, accordingly, is hereby denied, the defendant's motion is granted and judgment is now entered for the defendant.