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PURNELL v. UNITED STATES

September 23, 1971

Verner S. PURNELL, Executor of the Estate of Anna S. PURNELL, Deceased,
v.
UNITED STATES of America


Knox, District Judge.


The opinion of the court was delivered by: KNOX

KNOX, District Judge.

 This suit for refund of federal estate taxes involves one of the more abstruse and obscure branches of the Pennsylvania law of decedent's estates. The rule formerly was that where under a will, personal property was awarded directly to a life tenant for life with remainder over, the life tenant was treated as a debtor to the remainder man in the amount of the personal property received by the life tenant. The relationship between life tenant and remainder man was that of debtor and creditor, not trustee and beneficiary. Fortunately, the number of cases involving this question will drastically diminish as time goes on because under the Pennsylvania Estates Act of 1947, 20 Purdon's Pa. Statutes, 301.13, effective January 1, 1948, and applicable to dispositions occurring on and after that date, it is provided that a life tenant in such a situation "shall be deemed to be a trustee of such property, and not a debtor to the remainder man * * *".

 We are, however, here concerned with the will of Ansby V. Purnell who died April 21, 1941. In his will (p. 106 (a) of record in Supreme Court of Pennsylvania which was offered in evidence in this case, Exhibit 12), the decedent, after mentioning certain pieces of real estate, provided:

 
"Second: All the rest, residue and remainder of my estate, real, personal and mixed, I give devise and bequeath to my wife, Anna S. Purnell, for and during her natural life with remainder upon her death to my son, Verner S. Purnell.
 
"Third: I direct that my personal estate be distributed to my wife, Anna S. Purnell, as life tenant without requiring her to give bond therefore."

 This language in the will has clearly and conclusively been construed by the Supreme Court of Pennsylvania to set up a debtor-creditor relationship between Anna S. Purnell and her son, Verner S. Purnell, plaintiff herein, to the extent of property received by Mrs. Purnell from the estate of her husband. See Purnell's Estate, 424 Pa. 263, 226 A.2d 488 (1967).

 Anna S. Purnell, the life tenant, died February 5, 1962, and the amount in which she was indebted to the remainder man is clearly to be allowed as a deduction in the federal estate tax return in her estate as filed by the plaintiff herein her executor. *fn1" The question, however, with which we are confronted is "What is the amount of this deduction"? The determination of this question depends upon whether you adopt the figures evaluating the personalty received by Mrs. Purnell as of the date of Mr. Purnell's death on April 12, 1941, or the value of these assets at the time of distribution on May 8, 1943. It is claimed that the securities constituting the bulk of the property received by the life tenant had appreciated in value during the intervening two years and the estate naturally claims that the amount to be allowed as a deduction is to be calculated as of the date of distribution. The government, however, contends that date of death values control. For reasons herein set forth, we hold that date of distribution values control but in this case the estate is bound by the values set forth in the 1943 distribution decree.

 An examination of the Pennsylvania cases dealing with this debtor-creditor relationship shows that the life tenant is responsible to the remainder man for the amount received in distribution from the estate of the original testator. This amount is not subject to diminution for expenses of settlement of the estate of the life tenant nor for compensation to her for care of the fund and is not concerned with increase or decrease in values of securities or gains or losses from sales thereof. This can be distilled from the following cases: Reiff's Appeal, 60 Pa. 361; 124 Pa. 145, 16 A. 636 (1889); In re Letterle's Estate, 248 Pa. 95, 93 A. 935 (1915); In re Weir's Estate, 251 Pa. 499, 96 A. 1086 (1916); In re Kirkpatrick's Estate, 284 Pa. 583, 131 A. 361 (1925); In re Gillett's Estate, 130 Pa.Super. 309, 197 A. 517 (1938); In re Powell's Estate, 340 Pa. 404, 17 A.2d 391 (1941).

 For instance, in Weir's Estate, supra, it was held "the specific property never becomes the subject of credit in an accounting". In Letterle's Estate, supra, it was pointed out that the assets handed over to the life tenant in the decree of distribution were valued at $12,010.58 and this was what she was responsible for regardless of losses and gains in sales of securities.

 In Kirkpatrick's Estate, supra, the decree distributing the estate to the life tenant erroneously labeled it a trust but the Supreme Court treated this as a gratuitous statement in the decree and held that what the life tenant is liable for is the amount received by her.

 Again, in Gillett's Estate, supra, it was held that the life tenant was responsible for the value of the estate as received by her. "The net amount and value of the property which she took possession of * * *."

 Again, in Powell's Estate, supra, one of the leading cases in recent years in this field, there was a life estate with power to consume. The inventory showed the original value of $74,167.50 including certain securities which turned out to be the cause of the dispute. The second and final account filed five years after death of the original decedent showed the balance to be $36,391.28 which was awarded to the life tenant subject to her power to consume. It was held that the life tenant "was entitled to take the balance as shown by the account and assume a debtor creditor relation to the remaindermen for that sum less any part she should consume". (emphasis added). The court said "She is responsible to them only for the value of the estate at the date of distribution thereof ".


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