The opinion of the court was delivered by: WILLSON
William T. Leggett, a resident of Allegheny County, Pennsylvania, by will dated February 28, 1895, bequeathed a life estate in personalty to his wife Kate B. Leggett with a remainder in fee to those children of the testator born of the body of Kate Leggett who were living at testator's death. Kate Leggett was named executrix. The testator died in 1909.
The life tenant, upon testator's death, took possession of and managed the principal for 51 years -- the remainder of her life. An inventory was prepared but not filed. No bond was filed by Mrs. Leggett, who died in 1960. It is undisputed that
[During] the entire period from October 30, 1909, to September 6, 1960, Kate B. Leggett registered and held the securities which were in the estate of William T. Leggett in the name of Kate B. Leggett as executrix of the estate of William T. Leggett, deceased. All stock splits and dividends on the aforementioned stock were also registered in the name of Kate B. Leggett as executrix of the estate of William T. Leggett. Kate B. Leggett kept a complete set of books in which the original stock and stock dividends and splits were credited to the estate of William T. Leggett, deceased. [Leggett's Estate, Orphan's Court of Allegheny County, Pa., No. 913 of 1963; Cox, J.]
The executor of Kate B. Leggett's estate, her son Milton, filed an account on her behalf as executrix of the estate of William T. Leggett and prayed that the entire estate of William T. Leggett, including increments to principal, be distributed to the remaindermen under his will. The Orphan's Court was also asked to answer two questions:
1. Do stock dividends and splits on stock in the estate of William T. Leggett at the time of his death and during the period Kate B. Leggett was in possession of his estate belong to the estate of Kate B. Leggett or the estate of William T. Leggett?
2. Was the relationship between Kate B. Leggett and the estate of William T. Leggett a debtor-creditor relationship?
[ Leggett's Estate, supra ]
The Orphan's Court held that the dividends and stock splits belonged to the estate of William T. Leggett during the period Kate B. Leggett was in possession thereof, and that a debtor-creditor relationship did not exist at any time between Kate B. Leggett and the decedent's estate.
The Federal Estate Tax return filed for the estate of Kate B. Leggett did not include the above-mentioned increments to the principal of her husband's estate, which occurred during her lifetime. The Commissioner, after reducing the original principal by the administrative expenses incurred in settling William T. Leggett's estate, included the difference between this adjusted, original principal and the final value of the estate of Kate B. Leggett's death in her gross estate and assessed appropriate tax deficiencies. These deficiencies were levied under the authority of § 2033 of the Internal Revenue Code of 1954, 26 USCA § 2033, on the assertion that the increments to principal were constructively available to the life tenant during her life. The plaintiff paid the tax deficiencies and now sues to recover them. 26 U.S.C.A. § 1346(a)(1). The case is before the Court on cross-motions for summary judgment.
The Government contends that under Pennsylvania law Kate B. Leggett was a debtor to the remaindermen for the value of the principal of her husband's estate at the time she received it, and that the increments to that principal occurring during her lifetime were her property and hence were properly includible in her gross estate.
The plaintiff on the contrary contends that she was a fiduciary only under Pennsylvania law. It is asserted that the life tenant must elect to assume the debtor-creditor relationship by posting bond and by taking possession of the principal and increments thereto. Here she did neither. It is, therefore, now urged that Kate B. Leggett be designated a trustee of the principal and increments for the remaindermen, rather than a debtor to the remaindermen in the amount of the original principal. The result of such a conclusion is the exclusion of the increments to principal from Mrs. Leggett's gross estate.
The law governing the determination of what interests were created by the will of William T. Leggett (the testator's intent) is that which was in effect when the testator used the language which is contained in his will. Moltrup's Estate, 424 Pa. 161, 225 A. 2d 676, 680 (1967). At the time the will was executed and at the time the testator died, the Act of 1871, P.L. 269 was in effect. The cases decided under this Act, as well as under the Act of 1834, P.L. 73, and the Act of 1917, P.L. 447, uniformly hold that a devise such as is before this Court creates a debtor-creditor relationship between the life tenant (who has a legal life estate) and the remaindermen, wherein the life tenant is indebted to the remaindermen for the value of the personalty when received by him. Reiff's Appeal, 124 Pa. 145, 16 A. 636 (1889); Kirkpatrick's Estate, 284 Pa. 583, 131 A. 361 (1925). This is true even when the life tenant is not excused from giving security by the terms of the testator's will (this case) and did not, in fact, give security (this case). Strawbridge's Estate, 14 Pa. D. & C. 703 (1931); Gillett's Estate, 130 Pa. Super. 309, 197 A. 517 (1938). See also Powell's ...