The opinion of the court was delivered by: KNOX
We once again have before the court a suit for refund of federal estate taxes involving "one of the more abstruse and obscure branches of the Pennsylvania law of decedent's estates".
Once again we have the esoteric question as to how to treat for federal tax purposes a bequest of personal property to a life tenant for life with remainder over to a remainderman. Pennsylvania law, prior to the passage of the Pennsylvania Estates Act of 1947, 20 Purdon's P.S. § 301.13 effective January 1, 1948 and applicable to dispositions occurring on and after that date, held that such a bequest constituted the life tenant as a debtor to the remainderman in the amount of personal property received at distribution by the life tenant. The relationship was specifically held as that of debtor and creditor not trustee and beneficiary. The Estates Act of 1947, supra provides that in such cases a life tenant "shall be deemed to be a trustee of such property, and not a debtor to the remainderman . . .".
When Purnell v. United States, supra, was decided, it appeared that these problems would gradually come to an end with the lapse of time. However, since the Estates Act of 1947, is applicable only to dispositions made on and after January 1, 1948, it is apparent that, like the rule in Shelley's case abolished in 1935 in Pennsylvania, problems concerning it will continue to arise occasionally perhaps during the remainder of this century. For Example in Leggett's Estate v. U.S., 418 F.2d 1257 (3d Cir. 1969) the life tenant survived the decedent by 51 years when the problem of the federal estate tax arose upon her death.
The instant case arises on a claim for refund filed in the Estate of Rosa B. Schlotterer who died testate September 1, 1972, leaving a last will and testament which is in evidence in this case. She was life tenant during her lifetime of a bequest of personal property left to her in the estate of her husband George K. Schlotterer who died testate March 29, 1943.
The parties have stipulated as to the decree of distribution of the Estate of George K. Schlotterer, Deceased, and this shows a balance for distribution on January 5, 1944 of $57,827.83 which was distributed "to Rosa B. Schlotterer, widow under second paragraph of the will said balance viz: . . . "(listing the securities)". The amount distributed to Rosa in George's Estate at the time of her death had a net value according to the stipulation of the parties of $188,715.13 which amount was excluded from Rosa's federal estate tax return.
The pertinent portions of George's will are as follows:
"SECOND: All the rest, residue, and remainder of my estate, real, personal, or mixed and wheresoever found and situate I give, devise, and bequeath without bond or other security unto my wife, ROSA B. SCHLOTTERER, for her use and benefit and to receive the rents, issues, profits, and income thereof during the term of her natural life with power of consumption of such portions or all said residuary estate to the extent deemed by her to be desirable not only for her support and maintenance but also for her comfort and pleasure without recourse to any property of her own; and after her death any thereof not so used and consumed or all said residuary estate if my said wife should predecease me, I hereby give, devise, and bequeath equally share and share alike to my daughter, Jane Schlotterer (Cooper) Wilson, one-half and my son George E. Schlotterer, the other one-half, the share of either of them dying before me or before my wife to go to his or her lawful issue equally per stirpes." "I direct that my said wife shall have full power to make, execute, acknowledge, and deliver all deeds and other instruments proper in the law for the outright and absolute granting, conveying, assigning, and transferring any realty or personalty as she sees fit, together with the right to pledge or mortgage any of said property but otherwise none thereof shall be liable for her debts. Further I direct that such portions not so used and consumed by her shall following her death go directly to my other named beneficiaries without further administration of my estate. Any person dealing with my said wife in respect to said residuary estate is in no wise obligated to see to the application by her of the proceeds of any sale, transfer, exchange, or assignment. Appreciation in value of any property not consumed shall belong with that property and go to the remaindermen. No depreciation or losses shall be charged to the life tenant nor shall she and her estate be accountable in any wise whatsoever beyond turning over unconsumed property. Evidences of title may be taken or issued in the name of my wife and her powers and authorities shall include the power to make gifts to any persons designated in this my will as primary or secondary beneficiaries." (Emphasis by the court.)
In the third paragraph of Rosa's will she provided:
"THIRD: With respect to the life estate in my favor under the last will and testament of George K. Schlotterer, my deceased husband, I direct my executors to transfer, assign, and set over the unconsumed assets unto the persons designated as remaindermen under my husband's last will and testament without the necessity of accounting and without any further administration expenses whatsoever in such regard."
In accordance with this allocation the Orphan's Court Division of the Court of Common Pleas of Allegheny County, Pennsylvania by its decree of distribution entered October 16, 1973 distributed the assets in Rosa's Estate in two categories: first, those derived from the Estate of George K. Schlotterer and secondly, those which had been solely owned by the decedent. The decree provided that the total of $188,715.13 be awarded one-half to Jane S. Wilson, daughter and one-half to George B. Schlotterer "as remaindermen under the last will and testament of George K. Schlotterer, deceased."
Unlike Purnell v. U.S., supra, we do not have here any authoritative determination of the nature of the interest created by the will of the decedent by the Supreme Court of Pennsylvania as was the situation in that case. See Purnell's Estate, 424 Pa. 263, 226 A.2d 488 (1967) which authoritatively determined that the interest of the life tenant was that of debtor-creditor. The court of course was bound by the determination of the Supreme Court of Pennsylvania under the decision of the United States Supreme Court in Commissioner v. Bosch Estate, 387 U.S. 456, 87 S. Ct. 1776, 18 L. Ed. 2d 886 (1967). The federal courts therefore have to determine the nature of the interest based upon their own appraisals of the law of Pennsylvania.
It will be noted that the will provides that "appreciation and value of any property not consumed shall belong with that property and go to the remaindemen (sic). No depreciation and losses shall be charged to the life tenant nor shall she and her estate be accountable in any wise whatsoever beyond turning over unconsumed property".
This language completely takes the interest given in this will out from under the Pennsylvania debtor-creditor doctrine and makes it a trust. In the debtor-creditor relationship case the life tenant is responsible for the dollar value of the amount of securities turned over to her at the time of distribution. See Purnell v. U.S., supra. Purnell's Estate, supra, Powell's Estate, supra. The life tenant in such circumstances retains all appreciation in values of securities stock splits, stock dividends, etc. See Powell's Estate, supra. On the other side of the coin the life tenant is held to the cash value of the amount distributed at the time of distribution even though the securities may have ...