(2) In default of exercise of the special power by Daughter, and in default of issue of Daughter, Decedent eliminated University of Pennsylvania as a default remainderman in favor of Daughter's heirs at law;
(3) Decedent eliminated her own contingent testamentary general power of appointment and University of Pennsylvania as default remainderman;
(4) Decedent added the power of the trustees to invade corpus of the trust for the maintenance, welfare and happiness of Daughter during the period when Daughter was entitled to receive the income from the trust.
The Government had contended that even if Decedent had followed the form prescribed by the 1951 Act, she could not, in the exercise of an exempt special power of appointment, have taken away Daughter's general power of appointment. In support of that contention, Government had made the statement, without citation of authority, that 'the holder of a special power has no power to explicitly divest another of a general power'. That argument overlooks the fact that Daughter never had a general power of appointment. Whatever power she was given by Settlor was defeasible, subject to the exercise of Decedent's power of appointment, either as originally created by Settlor, or as reduced to comply with the requirements of the 1942 Act. Beyond that, it appears fundamental that, if Decedent was the holder of an exempt special power to appoint to any one within a class of which Daughter was a member, Decedent could exercise that power (a) by giving the corpus of the trust outright to Daughter; or (b) by eliminating Daughter completely in favor of some other member of the class; or (c) by appointing to Daughter some interest in the trust estate between those two extremes. In our view, therefore, granting to Daughter a life estate and a testamentary power to appoint to Daughter's spouse and descendants was well within the exercise of Decedent's exempt special power.
The Government attacks one other change effected by Decedent's amendments to the trust, the addition of the power of the trustees to invade the corpus of the trust for Daughter's maintenance and welfare. Government points out that Decedent was one of the trustees and by that amendment she retained for herself control over the disposition of the corpus of the trust. We would be persuaded by that argument but for the fact that the power to invade corpus existed only during the time Daughter became entitled to the income of the trust estate, i.e. after Decedent's death, a time when, obviously, Decedent could not occupy the position of trustee.
In a somewhat analogous factual situation Judge Wyzanski of the District Court of Massachusetts in Emery v. United States, 153 F.Supp. 248, 251 (D.C.Mass.1957) granted a refund of gift taxes. We are impressed with the logic and reasoning expressed in Judge Wyzanski's opinion in support of his conclusion. Little purpose would be served by quoting in extenso from his excellent opinion although much of the language therein contained is quite pertinent to the issue before us. We point out only, as Judge Wyzanski emphasized in Emery, that in the instant case 'Not one of these changes would have been for the benefit of the (decedent) or anyone else outside the exempted class. All of them would have represented exercises in favor of issue, spouses of issue, and charities, that is, persons within a class exempted by * * * the Revenue Act of 1942'.
In the instant case Decedent went outside the class of persons included in the definition of exempt power only to the extent that she made an ultimate disposition of the corpus to Daughter's heirs at law upon default of the exercise of the special power by Daughter and upon default of issue of Daughter. In that respect Decedent is saved by the provisions of the 1951 Act which makes such a disposition non-taxable. We regard the 1951 Act, since it was effective as if enacted in 1942, as being applicable to the instant case, save only for the procedural requirements therein contained. To that limited extent, for the reasons set out above, we hold that the 1951 Act was not binding upon Decedent.
Plaintiff's motion for summary judgment will be granted. Counsel will submit an appropriate form of Order.
© 1992-2004 VersusLaw Inc.