Appeal from decree of Court of Common Pleas, Orphans' Court Division, of Montgomery County, No. 71,654, in re estate of Edward Schwartz.
Daniel T. Deane, Jr., for appellants.
Harry C. Liebman, with him Samuel M. Liebman, for appellee.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Chief Justice Jones. Mr. Justice Eagen concurs in the result. Concurring Opinion by Mr. Justice Manderino. Dissenting Opinion by Mr. Justice Roberts. Mr. Justice O'Brien joins in this dissent.
Decedent died testate on December 11, 1969, leaving, inter alia, one half of his residuary estate to his wife, Pearl Schwartz (appellee). Approximately three and one-half months prior to his death, decedent transferred a $37,000 bond of the Natural Gas Pipeline Company of America to his son by a prior marriage, under the Pennsylvania Uniform Gifts to Minors Act, Act of June 21, 1957, P. L. 358, § 1 et seq., as amended, 20 P.S. § 3601 et seq. (Supp. 1971), wherein decedent named himself as custodian. By court appointment, decedent's divorced wife became successor custodian of the bond for her son*fn1 and one Irwin Kraus was appointed guardian of the son's estate. Thereafter, appellee elected to take against the will pursuant to the Wills Act of 1947, Act of April 24, 1947, P. L. 89, § 8, as amended, 20 P.S. § 180.8 (Supp. 1971), as well as against all inter vivos conveyances, including the bond in question, under the Estates Act of 1947, Act of April 24, 1947, P. L. 100, § 11, as amended, 20 P.S. § 301.11 (Supp. 1971). The Orphans' Court Division of the Court of Common Pleas of Montgomery County considered the transfer of the bond by decedent as a "testamentary disposition" and determined that appellee was entitled to one half the value of the bond and all income derived therefrom. Appellants, the court-appointed
custodian and the guardian of the son's estate, filed this appeal.
The overall issue presented by this appeal -- one of first impression -- is whether a corporate bond purchased by a decedent and registered in his name as custodian for his son under Pennsylvania's Uniform Gifts to Minors Act is subject to the widow's election under Section 11 of the Estates Act. Section 11 of the Estates Act of 1947 provides in pertinent part: "A conveyance of assets by a person who retains a power of appointment by will, or a power of revocation or consumption over the principal thereof, shall at the election of his surviving spouse, be treated as a testamentary disposition so far as the surviving spouse is concerned to the extent to which the power has been reserved . . . ." (Emphasis added). Section 5(b) of the Uniform Gifts to Minors Act grants the custodian the power to pay over to the minor or use the custodial property for the benefit of the minor at the discretion of the custodian "with or without regard to the duty of himself or of any other person to support the minor or his ability to do so." The precise issue before us is whether the statutory authority given a custodian to use the custodial property "with or without regard" to his duty to support the minor constitutes a "power of . . . consumption" under Section 11 of the Estates Act of 1947 when the donor-custodian is also the donee's father with a pre-existing duty of support.
Section 8 of the Wills Act of 1947, Act of April 24, 1947, P. L. 89, § 8, as amended, 20 P.S. § 180.8 (Supp. 1971), permits a widow to elect to take against her husband's will. The obvious philosophy of Section 11 of the Estates Act of 1947 as well as the common law, Montague Estate, 403 Pa. 558, 170 A.2d 103 (1961), is to prevent a husband from indirectly disinheriting his wife through an inter vivos transfer while retaining
control over the use and enjoyment of the property during his lifetime. As noted by the official comments to Section 11 of the Estates Act of 1947, the section preserves for the surviving spouse the right to share in the decedent's assets "where the decedent has retained important rights of ownership at death." (Emphasis added). In such cases the law treats the husband as the owner of the property during his lifetime. If, however, the husband makes an outright gift which divests him of any possible interest so that the property can no longer inure to his benefit, nothing in our case law or statutes would allow his widow to claim any part of this property.
This case falls somewhere between the two extremes and forces us to decide whether the potenial benefit which the father-donor-custodian could have derived by distributing the custodial property to fulfill his pre-existing support obligation amounts to such a retained "important right of ownership" that the transfer should be treated as a testamentary disposition under Section 11 of the Estates Act.*fn2
Our past cases interpreting the interests that must be retained by the settlor or donor in order to invoke
Section 11 of the Estates Act of 1947 -- "a power of revocation or consumption over the principal" -- have involved situations where the interest retained by the decedent could be exercised to his own advantage.*fn3 Thus, in Pengelly Estate, 374 Pa. 358, 97 A.2d 844 (1953), the settlor of the inter vivos trust reserved the power to consume the corpus of the trust for his maintenance and support "as may in [settlor's] opinion be necessary."
Unlike cases of this nature, a custodian under the Pennsylvania Uniform Gifts to Minors Act cannot consume the principal for his own benefit. While Section 5(b) of the Pennsylvania Uniform Gifts to Minors Act gives discretionary power to the custodian to pay over custodial property to the minor for the minor's "support, maintenance, education and benefit," the act nowhere permits the custodian to use the custodial property for the custodian's benefit. The appellee contends (supported by the dissent) that the decedent had precisely the same right over the property after he created the Uniform Gift fund as he had prior to the conveyance. However, under the provisions of the Act, this is clearly not the case. First, subsection (c) of Section 5 provides that the court may order the custodian to pay funds for the support, maintenance or education of the minor upon petition of a parent or guardian or of the minor himself if he has reached ...