Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

PROVIDENT NATL. BANK v. UNITED STATES

December 16, 1980

PROVIDENT NATIONAL BANK WILLIAM WHITE, Co-Executors of the ESTATE OF HELEN BONNELL SCOTT
v.
UNITED STATES OF AMERICA



The opinion of the court was delivered by: SHAPIRO

MEMORANDUM AND ORDER

NORMA L. SHAPIRO, J.

 Plaintiffs are Provident National Bank and William White, duly appointed and acting co-executors of the Estate of Helen Bonnell Scott, a resident of Haverford, Pennsylvania who died on October 6, 1973. Within the time prescribed by law the plaintiffs filed the federal estate tax return for the Estate of Helen Bonnell Scott with the District Director of Internal Revenue at Philadelphia, Pennsylvania. The tax shown to be due thereon in the amount of $ 239,223.03 was paid by the application of a portion of an advance deposit made by plaintiffs on July 5, 1974 in the amount of $ 246,471.96. A statutory notice of deficiency of tax principal in the amount of $ 197,531.11 was timely received by the plaintiffs on November 28, 1977. A timely assessment in the amount of $ 197,531.11 plus $ 50,866.97 in interest was made on March 8, 1978, and paid on or about March 16, 1978 by the application of an unapplied advance deposit of $ 7,248.93, plus an additional remittance of $ 239,339.44, for a total payment of $ 246,588.37. The unpaid balance of the assessment represents interest. A timely claim for refund of estate tax and interest paid was filed on March 31, 1978, and a supplement thereto was filed on November 3, 1978, with the Philadelphia Service Center, Philadelphia, Pennsylvania. This suit was timely filed on February 20, 1979.

 Helen Bonnell Scott died testate, survived by one natural child, Gregory Sherman Scott (born September 15, 1952) and two adopted children, Warren Houston Scott (born July 24, 1948) and Meredith Scott Winslow (born December 9, 1949). Henry H. Bonnell, the father of Helen Bonnell Scott, had died testate on November 7, 1926. Under the will of Henry H. Bonnell, Helen Bonnell Scott was given the power to appoint the principal of a trust to "such person or persons, and under such conditions and limitations" as she might provide in her last will. In default of appointment, the principal was to be paid to her "issue... in such shares and proportions as the said issue would be entitled to take under the intestate laws of the State of Pennsylvania."

 Helen Bonnell Scott dealt with the power to appoint the principal of the trust in Paragraph Fourth of her last will and testament (she also dealt with a power of appointment under the will of her mother, which is not here relevant). As of the alternate valuation date, timely elected by the executors of the Estate of Helen Bonnell Scott, the aggregate value of the combined trust over which Helen Bonnell Scott had the power of appointment was $ 1,211,917.37.

 By adjudication of the Philadelphia Court of Common Pleas, Orphans' Court Division (Shoyer, J.) dated June 1, 1976, the Auditing Judge ruled that Helen Bonnell Scott validly exercised her power of appointment to a partial extent only and therefore awarded principal and income, less a reserve for possible liabilities, to Gregory Sherman Scott, Warren Houston Scott and Meredith Scott Winslow in the shares and proportions set forth in Subparagraph II of Paragraph Fourth of the will in which Helen Bonnell Scott exercised her power of appointment over the trust fund.

 The issue to be decided by this court is whether the decedent, Helen Bonnell Scott, exercised her power of appointment wholly or partially. Since this power of appointment was created prior to 1942, assets subject to the power are includable in the federal taxable estate only to the extent the will is deemed to have "exercised" the power. § 2041(a)(1)(A) Internal Revenue Code, 26 U.S.C. § 2041(a)(1)(A). If Mrs. Scott failed to exercise the power and the trust principal passed to her "issue" in default of appointment, the trust assets would be completely exempted from her taxable estate.

 Because of her concern that her adopted children might not be held entitled to the principal of the trust as "issue," Mrs. Scott dealt with her power of appointment by alternative provisions in the Fourth Paragraph of her will. The first, Paragraph Fourth I, was to become operative "[If] it is finally determined by the court having jurisdiction over the trusts created by the Will of my father" that decedent's adopted children shared equally with her natural child in default of appointment. In that event, the will disposed of the entire trust fund by a full exercise of the power. Paragraph Fourth II was to be operative "[I]f, but only if, it is finally determined by the court having jurisdiction over the trusts created under the Will of my father" that the adopted children did not share equally with the natural child in default of appointment. Under this provision, the power of appointment was only partially exercised.

 Therefore, a determination of whether "issue" included adopted children by the court with jurisdiction over the Henry Bonnell trust was a condition precedent to the testamentary exercise of the power of appointment in whole or in part. The government does not dispute that the court with such jurisdiction was the Philadelphia Court of Common Pleas, Orphans' Court Division. By Order of that court, the account was listed for re-audit on March 2, 1976, after notice to the Internal Revenue Service, because a resolution of whether the donee had fully or partially exercised her power of appointment under her father's will was declared essential to a determination of the liability for federal estate tax and possible inheritance taxes.

 On June 1, 1976, Judge Shoyer rendered an adjudication in the Bonnell Estate holding that Mrs. Scott had validly exercised her power of appointment to a partial extent. (Stipulation of Facts, Exhibit N, p. 6). Unappealed by any party in interest after notice, this determination was final. Notwithstanding this final determination by the court having jurisdiction over the trusts, the government argues that decedent exercised her power of appointment not partially but wholly. According to the government, Paragraph Fourth II of the decedent's will was never operative: first, because Judge Shoyer never decided whether "issue" included adopted children, but avoided that specific ruling; and second, if he did so decide, his decision was (a) wrong under the later decision of the Pennsylvania Supreme Court in Sykes Estate, 477 Pa. 254, 383 A.2d 920 (1978), which held "issue" presumptively to include adopted children, and (b) not binding on this court under the doctrine of Commissioner v. Bosch, 387 U.S. 456, 87 S. Ct. 1776, 18 L. Ed. 2d 886 (1967). We disagree with both these contentions.

 Concededly, Judge Shoyer did not specifically hold that "issue" included adopted children. However, Judge Shoyer was keenly aware of the question before him and his role in resolving that question. The Judge noted:

 The statement of Proposed Distribution and the notice to the parties in interest point out that on the one hand, Mrs. Scott exercised her power of appointment fully to accomplish certain purposes, if the Court should determine that her adopted children are includable as her 'issue' under her father's will, and partially, if the Court ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.