The opinion of the court was delivered by: GRIM
In this case a father and mother
gave to their daughter a life interest in and a general power of appointment by will over two trust estates, and provided that the daughter's son was entitled to the two trust estates in default of an exercise of the powers of appointment. When the daughter died, thereby terminating the life estates, the account of the trustees was filed in the Orphans' Court of Chester County, Pennsylvania. In that court the daughter's son contended that there was a default in the exercise of the powers of appointment and that, therefore, he, the son, was entitled to the assets of the two trusts. On the other hand, certain trustees named in the daughter's will contended that the powers of appointment were exercised by the daughter's will and that under it they, the trustees, were entitled to the assets of the two trust estates.
Because of the two contentions, the Orphans' Court had before it the question of whether there was a default in the exercise of the powers of appointment, thereby entitling the daughter's son to the assets, or whether the powers of appointment were exercised by the daughter's will, thereby entitling the claiming trustees to the assets. After careful consideration the Orphans' Court decided that there was a default in the exercise of the powers of appointment and it adjudicated the assets to the daughter's son.
The question before this federal court is whether federal estate tax was due on the transfer of the assets from the two trust estates to the daughter's son. If the daughter exercised the powers of appointment, federal estate tax was due from her estate. If she did not exercise them, no federal estate tax was due. The daughter's estate contends that the question of whether or not the powers of appointment were exercised is no longer open to decision, even for federal estate tax purposes, because the question was determined by the Pennsylvania state court. The government contends that the question is still open for decision by this federal court and that contrary to the decision of the Orphans' Court the powers of appointment were exercised by the daughter.
The government contends that the state Orphans' Court was in error in deciding that there was a default in the exercise of the powers of appointment, because to arrive at its conclusion the court considered extrinsic evidence.
In my opinion, the government's contention must be rejected. The Orphans' Court in the exercise of its functions had to adjudicate the property rights of the claimants before it. Since it decided these property rights and as part of its decision decided that there was a default in the exercise of the powers of appointment, the question is no longer an open one, even as to the question of whether federal estate tax was due. Gallagher v. Smith, 3 Cir., 1955, 223 F.2d 218.
Plaintiffs have also attacked the action of the government in fixing the value of 1440 shares of common stock of Insurance Company of North America at $ 125,280 (or $ 87 a share) rather than at the value stated in the return of $ 120,960 (or $ 84 a share).
On the date of death, July 29, 1953, 100 shares of this stock were traded on the American Stock Exchange, on which the stock was and is listed. These shares were traded at a low of 86 1/2 and a high of 87 1/2. The government contends that the correct value was the mean between the high and low prices, or 87.
If the stock were actively traded, there would be no dispute that the government's contention was correct. The evidence showed, however, that while there are 3,600,000 shares outstanding, trading in this stock was not active. It is traded in units of 50 shares. The sales near the date of death were:
July 17 50
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