The opinion of the court was delivered by: WEBER
This is a suit for refund of estate taxes paid, brought under 28 U.S.C. § 1346(a)(1).
The United States of America has taxed as part of the Estate of A. Brady McSwigan his one-third beneficial interest in a testamentary trust established under the Will of his mother, Genevieve M. McSwigan, who died in 1951.
The trust assets comprise the shares of stock which Genevieve M. McSwigan owned in Kennywood Park Corporation which operated Kennywood Park, a well-known amusement park in Allegheny County, Pennsylvania. The beneficiaries of said trust were the five children of Genevieve M. McSwigan including the decedent, A. Brady McSwigan and his four sisters. Prior to the death of A. Brady McSwigan, two of the sisters had died and their interests devolved on the decedent and the two surviving sisters. The trustees of the trust were the decedent A. Brady McSwigan and his brother-in-law, Thomas Ryan Quinn, the husband of one of the surviving sisters.
Under the terms of the Will the Trustees were given extensive powers of management including the power of sale of the trust assets upon such terms and for such consideration as they, in their sole and uncontrolled discretion, might deem desirable. A power of sale is given to trustee in Pennsylvania without specific authorization in the trust instrument, unless otherwise provided. 20 P.S. § 320.961.
Under the terms of the Will of Genevieve M. McSwigan the trust thereby created was to continue in effect for a period of twenty years after her death, --
" . . . unless prior to such date, (a) my Trustees, in their sole and uncontrolled discretion, shall deem it desirable to sell or dispose of and shall sell or dispose of all or substantially all of the shares of stock of Kennywood Park Corporation . . . included in the trust estate, or (b) such Kennywood Park Corporation . . . shall cease to operate an amusement park at Kennywood Park. If either of such events shall occur, this trust shall forthwith cease and determine and my Trustees shall proceed to liquidate the trust estate and to pay over and distribute the principal thereof, in the manner hereinafter presented."
The trust was not terminated prior to the decedent's death and the decedent at no time relinquished the powers granted to him under this provision of the Will.
The Government claims that the portion of the corpus of the trust in which A. Brady McSwigan had a beneficial interest should be included in his gross estate for Federal Estate tax purposes because it is property over which the decedent had a general power of appointment at the time of his death, under § 2041 of the Internal Revenue Code of 1954.
The taxpayer contends that this portion of the trust assets is not includable in decedent's gross estate because the decedent possessed, in conjunction with a co-trustee, only a power of management exercisable in a fiduciary capacity only, the power of termination being only an incidental consequence of the discharge of such fiduciary duties.
It is beyond dispute that, under the provisions of the Will, if decedent together with his co-trustee had exercised the power of sale of these trust assets there would have resulted a distribution to decedent of one-third of the assets of the trust estate.
As a preliminary matter we must consider the exception from the general provisions of § 2041(b)(1) provided by subsection (C)(ii) thereof, which provides:
"If the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property, subject to the power, which is adverse to exercise of the power in favor of the decedent -- such power shall not be deemed a general power of appointment. For the purposes of this clause a person who, after the death of the decedent, may be possessed of a power of appointment (with respect to the property subject to the decedent's power) which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent's power."
Under the terms of the Will of Genevieve M. McSwigan, Thomas Ryan Quinn was named a co-trustee with decedent of the trust in question. Thomas Ryan Quinn has not been shown to have "a substantial interest in the property, subject to the power which is adverse to exercise of the power in favor of the decedent . . . ." While Thomas Ryan Quinn's wife is a beneficiary of the trust it has not been shown that he has "a direct legal or equitable interest in the trust property", Latta v. Commissioner, 212 F.2d 164, 167 (3d Cir. 1954). Nor has it been shown that Quinn's interest would in anyway be adverse to the exercise of power of termination by the decedent. The beneficial interest of Quinn's wife would in no way be altered or diminished by the exercise of the power; on the contrary she would come into immediate ...