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ESTATE RALPH H. MATHAY. APPEAL MR. AND MRS. HOWARD MCMILLAN (10/03/75)

decided: October 3, 1975.

IN RE ESTATE OF RALPH H. MATHAY. APPEAL OF MR. AND MRS. HOWARD MCMILLAN


COUNSEL

Michael Halliday, Greenville, Frank Mast, Pittsburgh, Yates Mast, State College, for appellants.

William J. Joyce, Cusick, Madden, Joyce, McKay & Associates, Sharon, for appellee.

Jones, C. J., and Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ.

Author: Jones

[ 463 Pa. Page 489]

OPINION OF THE COURT

This is an appeal by Mr. and Mrs. Howard McMillan from a decree of the Orphans' Court in Mercer County, Pennsylvania, adopting the report of the auditor appointed by the court below and dismissing exceptions filed to the auditor's report. At the heart of the present controversy

[ 463 Pa. Page 490]

    is appellants' challenge to the abatement of certain real property specifically devised to appellants in the residuary clause of decedent Ralph H. Mathay's will and to the application of such property to the marital deduction gift bequeathed to decedent's surviving spouse. Appellants contend that the surviving spouse's priority and the abatement of their devise resulted from erroneous computation of the Federal Estate Tax Marital Deduction, incorrect interpretation of decedent's will, misapplication of the Pennsylvania law of abatement and overfunding of a support annuity. We disagree with these contentions and for reasons hereinafter discussed affirm the disposition of the lower court.

The facts leading to the present action are not in dispute. On January 10, 1959, decedent married Hazel Simpson Mathay. On March 25, 1960, following Hazel Mathay's filing for an absolute divorce, the Mathays executed a property settlement agreement to be effective only if a divorce decree was entered. In this agreement the decedent proposed to provide for the "sound and secure financial and economic future" of his ex-wife.

To effectuate this purpose the parties agreed to several transfers, the first of which being that the decedent would pay Hazel $2,500 in cash on execution of the agreement and deposit $22,500 in escrow with the First National Bank of Mercer County to be paid to Hazel Mathay upon entry of a valid divorce decree. In return, Hazel promised that she would vacate the Mathay household and remove certain household goods from an apartment belonging to the decedent. Further, and of particular concern in the present controversy, decedent agreed that he would pay his ex-wife the sum of $200 per month during her life "for her support, maintenance and general use" with the commitment to be binding on decedent's executors and administrators.

To guarantee these payments after the decedent's death, the 1960 agreement required that the executors or

[ 463 Pa. Page 491]

    administrators of the estate create an irrevocable trust in a recognized banking institute, with sufficient trust corpus to provide for the $200 monthly income. The agreement also specified that in determining the amount of the trust corpus the earnings were to be computed at four per cent per annum, and that the $200 payments were to be paid from earned interest with invasion being possible in the event the interest income was insufficient.

Lastly, and also of import to the current controversy, decedent promised that his estate would pay his ex-wife the sum of $25,000. A performance bond was given in connection with this last provision.

After the execution of this agreement, a divorce was granted. Thereafter, decedent married Dorothy Kibbe Mathay. On November 19, 1969, decedent died testate a resident of Mercer County, Pennsylvania. He was survived by his widow, Dorothy, a daughter Kathleen Mathay Ray and his ex-spouse, Hazel.

By his will dated December 29, 1967, the decedent devised a life interest in his residence and made certain other gifts of personalty to his widow. In addition, in item four of his will, the decedent provided for his wife as follows:

"I give and bequeath to my wife, Dorothy Kibbe Mathay, that portion of my estate equal to fifty per cent (50%) of the value of my adjusted gross estate as finally determined for Federal Estate tax purposes.

"My Executor shall assign, convey and distribute to my wife, the cash, securities and other property which shall constitute this bequest. No assets or proceeds of any assets shall be included in said bequest as to ...


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