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DAUPHIN DEPOSIT TRUST CO. v. MCGINNES

August 24, 1962

DAUPHIN DEPOSIT TRUST COMPANY, Conway H. Olmsted, Henry C. Olmsted and Spencer G. Nauman, Co-Executors of the Estate of Gertrude McCormick, Deceased, Plaintiffs,
v.
E. A. McGINNES, Defendant



The opinion of the court was delivered by: FOLLMAR

This is a suit for refund of Federal Estate taxes averred by the plaintiffs and denied by the defendant to have been erroneously or illegally assessed and collected.

The facts were stipulated, argument had, and briefs were submitted, from which the Court makes the following

 FINDINGS OF FACT

 1. Gertrude McCormick died testate on January 24, 1953, a resident of Harrisburg, Pennsylvania.

 2. Marlin Edgar Olmstead, former husband of the said Gertrude McCormick, died testate on July 19, 1913, a resident of Harrisburg, Pennsylvania.

 3. The claim for refund asserted four items upon which deficiencies were assessed as being in error. One item is no longer in issue, the three items pertinent here are as follows:

 '(1) The deficiency asserted and the interest thereon paid as a result of including within decedent's gross estate the value of a trust created under the Will of Marlin Edgar Olmsted of three-eighths of his residuary estate in which decedent had no interest, vested or contingent, in any portion of the remainder of said trust upon the prior death, intestate, of M. E. Olmsted, Jr., the remainder beneficiary of a one-fifth share thereof.

 '(2) The deficiency asserted and the interest thereon paid as a result of including within decedent's gross estate the value of an inter vivos trust, known as the Jeannie C. Howard Trust, created by the decedent and in which she had reserved the right to alter, amend or revoke in conjunction with others, but which power was completely and effectively exhausted by decedent during her lifetime by execution of an instrument dated April 26, 1948, in which she altered the dispositive provisions of said trust; hence, at the date of death of the decedent she possessed no reserved powers.

 '(3) The deficiency asserted and the interest thereon paid as a result of disallowing as a deduction expenses incurred by decedent's Executors incident to the sale of real estate owned by decedent, known as 'Cedar Cliff', which real estate was sold in proper exercise of the power to sell real estate conferred upon executors under Pennsylvania statutory law and not as agents for the heirs.'

 AS TO ITEM NO. 1

 4. Marlin Edgar Olmsted by his last Will and Testament as recorded in the Register's Office of Dauphin County, Pennsylvania, provided, inter alia, as follows:

 'The rest, residue and remainder of my estate, real personal and mixed, I give, devise and bequeath to my executors hereinafter named in trust, to manage and dispose of as herein directed, the said executors to have power to sell and convey any and all stocks and securities and any real estate not specifically devised herein, according to their best judgment whenever necessary or desirable and to reinvest the proceeds thereof, or any other funds, in other securities or in real estate, but except for the payment of the bequests above set forth, the estate is to remain intact until the twelfth day of June, Anno Domini, One Thousand, Nine Hundred and Thirty (A.D. 1930), upon which date, or as soon thereafter as possible, my executors shall set apart and retain whatever real estate or securities may seem to them necessary to yield sufficient income to insure and protect the payment of the annuities herein provided, and the remainder of the items comprising the estate shall be separately estimated and appriased (sic) and the whole divided into eight (8) equal parts or shares, one share to be allotted to each of my five children above named and be delivered over to them absolutely, or in the event of the death of any of them before the said date, then the share of such child or children so deceased shall be delivered to or divided among the lawful heir or heirs of the child or children so deceased. The remaining three (3) parts or shares, shall be retained by my said executors in trust and managed by them and the income thereof paid to my wife, Gertrude Howard Olmsted, so long as she shall live, and upon her death the said three parts or shares and the remainder of my estate, if any, after my executors shall have set apart and retained whatever real estate or securities may seem to them necessary to yield sufficient income to insure and protect the payment of any annuities herein provided and then remaining to be paid, shall again be separately estimated and appraised and shall be divided into five (5) equal shares, one share to be allotted to each of my five children above named and be delivered over to them absolutely, or in the event of the death in the meantime of any of them, then to the lawful heirs of the child or children so deceased, as above set forth. In the divisions above provided for, the parties entitled to receive parts of shares shall, if possible, agree among themselves as to which particular part or share each one shall have, but in the event of their failure so to agree, the distribution shall be made by lot.'

 5. Marlin Edgar Olmsted, the testator, died leaving a widow and the five named children to survive him; and his estate had a value in excess of $ 3,000,000.00.

 6. Pursuant to the first dispositive provisions of said Trust (under the will of Marlin Edgar Olmsted) shortly after June 12, 1930 (which was the date upon which the youngest child attained her majority) distribution of five-eighths of the residuary estate in trust was made in equal shares to the five named children of testator who were then all living.

 7. Three-eighths of the principal remained in trust for the benefit of Gertrude McCormick (formerly Gertrude Howard Olmsted) plaintiffs' decedent, for life, with remainder to be distributed upon her death in accordance with the second dispositive provision of the trust.

 8. On February 8, 1931, Marlin E. Olmsted, Jr., died interstate, unmarried and without issue.

 9. Upon the death of Gertrude McCormick, on January 24, 1953, Dauphin Deposit Trust Company, surviving successor trustee of the Trust created by Marlin Edgar Olmsted, deceased, made distribution of four-fifths of the remaining principal in the Trust in equal shares to Henry C. Olmsted, Conway H. Olmsted, Gertrude O. Nauman and Jane O. McMillan, in their own right as surviving children of Marlin Edgar Olmsted, deceased, and the remaining one-fifth of said principal was paid in equal shares to said surviving children as the lawful heirs of Marlin E. Olmsted, Jr., deceased, as ascertained at the death of the life tenant.

 10. No formal accounting of the administration of the Trust nor Petition for Distribution in the manner set forth above was presented to the Orphans' Court for approval; the same having been done with the approval and consent of and by releases from the four surviving children of Marlin Edgar Olmsted, deceased.

 11. In the estate of Marlin Edgar Olmsted, deceased, there were unadministered assets and cash which had not passed to the trustees under the Will as to which Dauphin Deposit Trust Company as Administrator d.b.n.c.t.a., filed a First and Final Account showing a balance of $ 9,428.44 for distribution in accordance with a proposed schedule of distribution, in equal parts to the four said surviving children of Marlin Edgar Olmsted.

 12. No exceptions having been filed, the said schedule of distribution was confirmed absolute on December 18, 1958.

 13. It was the position of the Commissioner of Internal Revenue, in assessing part of the above referred to deficiency, that the deceased son, Marlin E. Olmsted, Jr., had such an interest in one-fifth of the property held in trust during the life of his mother, that the decedent as his heir inherited such property, so that one-fifth of the trust, valued at $ 779,284.99, should be included in decedent's gross estate.

 14. The value of the aforesaid one-fifth interest in the property held in trust during the life of Gertrude McCormick, deceased, was $ 779,284.99.

 AS TO ITEM 2

 15. On January 8, 1935 Gertrude McCormick, deceased, created an inter vivos trust wherein Dauphin Deposit Trust Company was named as Trustee to manage and invest the principal and pay the net income to her sister, Jane C. Howard, for life and upon her death to pay the net income to Mary Howard Shoup and Conway Robinson Howard equally for life and to the survivor with the remainder to be paid to the then living children of the settlor and to the issue of any deceased children.

 16. Prior to April 26, 1948, Conway Robinson Howard died.

 17. On April 26, 1948, decedent executed and delivered to the Trustee an instrument entitled 'Amendment to Trust Agreement.'

 18. The defendant asserted the deficiency assessment, in part, on the grounds that the assets of the said trust, the value of which at time of decedent's death was $ 78,655.00, should be included in decedent's gross estate at its face value as of that time.

 AS TO ITEM 3

 19. On or about October 28, 1953, nine parcels of real estate set forth as Item No. 4 of Schedule A of decedent's Estate Tax Return were sold by the Executors to William L. Murray and as part of said transaction the estate incurred and paid expenses in the amount of $ 194.66 for a survey of said properties to William Kerr Cowden and purchased State and Federal transfer stamps which were attached to the deed in the amount of $ 1,942.50.

 20. The aforesaid expenses were claimed as administration expenses under Schedule J, Items 35 and 36 respectively, of decedent's Estate Tax Return and the same ...


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