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Estate of William Zentmayer v. Commissioner of Internal Revenue

decided : September 9, 1964.


Author: Kirkpatrick

Before KALODNER and HASTIE, Circuit Judges, and KIRKPATRICK, District Judge.

KIRKPATRICK, District Judge.

This is a petition to review a decision of the Tax Court affirming the Commissioner's disallowance of a deduction of the value of a charitable remainder from the gross estate of Dr. William Zentmayer, a physician who had attained eminence in the field of ophthalmology.

Allowance of a deduction of a charitable remainder in cases where the will allows the principal of the estate to be invaded depends upon there being in the will an ascertainable standard by which the amount that the charity will receive at the termination of the life interest can be calculated with reasonable accuracy. Every since Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S. Ct. 291, 73 L. Ed. 647, it is settled that, if the will provides that the corpus can be invaded only to the extent necessary to maintain the life beneficiary in his or her accustomed manner of living, such a standard is provided and the charitable bequest can be deducted. On the other hand, it almost goes without saying that if the trust corpus or some unascertainable part of it can be diverted from the charity, what the charity will receive cannot be valued and there can be no deduction in respect of it. This case turns entirely upon whether it was this testator's intention to restrict the power of invasion to providing money needed to maintain his sister in her accustomed manner of living.

The FOURTH paragraph of Dr. Zentmayer's will bequeaths the residuary estate to trustees to pay the net income to his sister for her life.

The FIFTH paragraph gives to the trustees certain powers to invade the principal. The paragraph is as follows:

"It is my desire and my intent that any and all parts of my estate, as well principal as income, shall be available for the support, maintenance, welfare and comfort of my said sister, so that such principal and income may be applied thereto if occasion arises as herein set forth. In order that my said desire and intent may be carried out, I specially order and direct that for the purpose of the support, the maintenance, the welfare and comfort of my said sister, and for any other purpose which my trustees shall deem expedient, necessary or desirable for the benefit or use of my said sister, my said trustees shall have full power and right to spend and pay out of my said estate such part and parts of the principal of said trust as my trustees shall at any time deem expedient, necessary or desirable, if the income shall be deemed by them insufficient for such purposes. My trustees shall have absolute discretion in this respect and the exercise by them of such discretion shall be conclusive upon, and without right of question or objection by, any and all parties interested or to become interested in my estate. The production by my said trustees, and any successors, of receipts or vouchers for such expenditures and payments shall be a full discharge to the extent thereof, and their action in so expending and paying shall be without liability on the part of said trustees, for waste or otherwise."

Upon the death of the life beneficiary, the bulk of the residuary estate goes in varying proportions to eleven charities most of which were devoted to the care of the eye or the study of ophthalmology.

Dr. Zentmayer died March 18, 1958, at the age of 93, leaving a residuary estate of approximately $478,000. He had made his will seven years earlier, at a time when his sister was 80 years old. Testimony was offered of the circumstances surrounding the testator and his sister at the time the will was made, but the evidence need not be reviewed in detail because, at best, it establishes the fact, stipulated in the Tax Court, namely, that "the possibility of invasion of principal is negligible if the Court determines that the terms of the will set forth a definite and ascertainably fixed standard based upon Mary Zentmayer's past mode of living."

Briefly, the evidence shows that the testator and his sister, neither of whom had ever married led, as stated by the Tax Court, "a quiet, reserved and modest life," living in the same house (valued at $26,000) for 26 years preceding the testator's death, that the sister had some money of her own, and that there was nothing about her habits and manner of living which indicated any likelihood of her changing her way of life to a more extravagant one. However, the question is not the probability that the power to invade principal beyond the amount necessary to maintain her standard of living will be exercised but whether such power exists - not what the trustees were likely to do, but what they had the power to do.

In Henslee v. Union Planters Bank, 335 U.S. 595, 69 S. Ct. 290, 93 L. Ed. 259, the Court, dealing with a somewhat similar case in which the life beneficiary was the testator's mother, 85 years old, who had been living on less than one-half the amount of the income from the trust estate, had independent investments worth $100,000, and was a woman of modest needs and without dependents, said, "We do not overlook the unlikelihood that a woman of the mother's age and circumstances would abandon her customary frugality and squander her son's wealth. But, though there may have been little chance of that extravagance which would waste a part or consume the whole of the charitable interest, that chance remained.What common experience might regard as remote in the generality of cases may nonetheless be beyond the realm of precise prediction in the single instance," and the deduction was disallowed. See also Merchants Nat. Bank of Boston v. Commissioner, 320 U.S. 256, 64 S. Ct. 108, 88 L. Ed. 35.

Turning now to the will, the first sentence of the FIFTH paragraph, standing alone, might be interpreted to have the effect of restricting the extent to which the trustees were authorized to invade principal to the maintenance of the testator's sister in her usual manner of life, although the use of the word "comfort" in the list of allowable invasions makes this somewhat doubtful. See Strite v. McGinnes, 3 Cir., 330 F.2d 234; Price v. Rothensies, D.C., 67 F. Supp. 591. However, the testator did not stop with the first sentence.

In the second sentence he repeated the provision which gave his trustees power to invade principal for the "support, maintenance, welfare and comfort" of his sister (using exactly the same words as he had used in the first sentence), and added "and for any other purpose which my trustees shall deem expedient, necessary or desirable for the benefit or use of my said sister." The otherwise needless repetition of the catalogue of purposes for which the principal might be invaded can be accounted for as having been inserted in order to show that the "any other purpose" clause was not intended to be taken as a mere recapitulation but would be recognized as adding a broader, but discretionary, power of invasion to that already mentioned.

The two provisions are not in conflict.The first sentence impliedly but unmistakably imposes upon the trustees a positive duty to invade principal "if occasion arises" - that is, if it should prove to be necessary in order to maintain the testator's sister in her usual manner of living - but for no other purpose and then only to the extent needed to make up the deficit. On the other hand, by the "any other purpose" clause the trustees may, in their absolute discretion and without any obligation to do so, draw upon the principal as they see fit, provided only that the expenditure is for the "benefit or use" of the testator's sister. In other words, the trustees must invade principal to the extent necessary to keep the testator's sister maintained in the manner in which she has been accustomed to live, and they may take from the principal additional funds if, in their judgment, the expenditures would be ...

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