Estate of Sternberger v. Comm'r of Internal Revenue

Citation18 T.C. 836
Decision Date31 July 1952
Docket NumberDocket No. 31348.
PartiesESTATE OF LOUIS STERNBERGER, THE CHASE NATIONAL BANK OF THE CITY OF NEW YORK, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtUnited States Tax Court

OPINION TEXT STARTS HERE

1. A contingent remainder of a trust and the residue of a will went to charity, and a charitable deduction was claimed on the estate tax return. The will disposes of decedent's residuary estate by providing that the same be held in trust during the joint lives of decedent's wife and his daughter and the life of the survivor of them. Upon the death of the survivor the principal is payable to the descendants then living of the daughter. In the event there are no descendants of the daughter the principal is payable one-half to certain collateral relatives of the decedent then living and one-half to certain charitable organizations. In the event none of the collateral relatives are then living the entire principal is payable to said charitable organizations. Held, the contingent remainders to charitable organizations can and have been valued by competent actuarial methods and the Commissioner erred in refusing to allow a deduction under section 812(d) of the Code for the value of these contingent remainders to charity.

2. The executor sold real estate and deducted legal and brokerage expenses. Respondent argued that these were expenses of the trust. The trust also had the power to sell the property. Held, that the expenses were properly allowed as administration expenses under New York State law and are deductible under section 812(b) of the Internal Revenue Code. William F. Wolff, Jr., Esq., and Maurice C. Greenbaum, Esq., for the petitioner.

Thomas R. Charshee, Esq., for the respondent.

The respondent has determined a deficiency in estate tax against the Estate of Louis Sternberger of $195,035.65. The deficiency is due to several adjustments made by the Commissioner to the estate tax return filed by the estate. Only one of these adjustments is contested. The contested adjustment is the disallowance by the Commissioner of $179,154.19, claimed as charitable bequests explained in respondent's deficiency notice as follows:

+----------------------------------------------------------------+
                ¦Charitable, etc., Gifts and Bequests  :¦Returned   ¦Determined  ¦
                +---------------------------------------+-----------+------------¦
                ¦Items 2 to 5 inclusive                 ¦$179,154.19¦$0.00       ¦
                +----------------------------------------------------------------+
                

Items 2, 3, 4 and 5 claimed as deductions under Schedule N, are disallowed in full since their actual present value cannot be determined by any known data.

The petitioner assigned error as to the foregoing adjustment. It also assigned as error the failure to allow deductions not claimed on the return. Petitioner's two assignments of error still pressed are as follows:

(a) The Commissioner has erroneously disallowed a deduction for Charitable, Public and Similar Gifts and Bequests in the amount of $179,154.19.

(c) The Commissioner has erroneously failed to allow as a deduction from the gross estate, additional administration expenses in the sum of $3,315.15.

The remaining grounds of error assigned in the original petition have been settled by stipulation and will be given effect under Rule 50.

FINDINGS OF FACT.

Some of the facts have been stipulated and are found accordingly and the stipulation of facts is incorporated herein by reference.

The petitioner is the executor of the last will and testament of Louis Sternberger, deceased. The decedent Louis Sternberger died June 25, 1947, a resident of Scarsdale, New York. The Federal estate tax return was filed on September 24, 1948, with the collector of internal revenue for the 14th district of New York disclosing a gross estate of $2,406,541.71, a net estate for purpose of the basic estate tax of $2,024,346.55 and a net taxable estate for purpose of additional estate tax of $2,064,346.55.

Issue 1.

The gross estate of the decedent for Federal estate tax purposes consisted of certain assets which he owned at the date of his death and certain other assets held in a revocable trust of which the decedent was the settlor and primary life beneficiary. The revocable trust was created on January 20, 1931, and was amended from time to time by the decedent.

The last will and testament of the decedent is dated July 24, 1944, and the codicil thereto is dated October 20, 1945.

Paragraph FIRST of the codicil to decedent's last will and testament disposes of decedent's residuary estate by providing that the same be held in trust during the joint lives of decedent's wife, Eunice E. Sternberger, and decedent's daughter, Eunice P. Sternberger, and the life of the survivor of them. Upon the death of the survivor the principal is payable:

to the descendants then living of said Eunice P. Sternberger in equal shares, per stirpes.

In the event there are no descendants of the decedent's daughter, Eunice P. Sternberger, surviving the decedent's widow and daughter, the principal is payable, one-half to certain collateral relatives of the decedent then living, and one-half to certain charitable organizations. In the event none of the collateral relatives are then living the entire principal is payable to said charitable organizations.

The dispositive provisions of the inter vivos trust, effective at the date of the decedent's death, are (after a specific bequest of $5,000) in all respects identical with the dispositive provisions of the residuary clause of decedent's last will and testament.

In the Federal estate tax return of the decedent a charitable deduction was claimed in the amount of $180,154.19, of which $1,000 represented an outright bequest to the Seamen's Church Institute of New York. The sum of $179,154.19 represented the alleged value of the contingent charitable remainders provided for in decedent's last will and testament, and in the inter vivos trust of January 20, 1931.

The decedent's wife, Eunice E. Sternberger, survived the decedent and was 62 years of age at the date of decedent's death. She has always resided in the United States.

The decedent's daughter, Eunice P. Sternberger, survived the decedent and was 27 years of age at the date of decedent's death. She had been previously married, which marriage terminated in divorce on March 31, 1944. At the date of decedent's death she was then unmarried and had had no children. Said daughter is a white female and has always resided in the United States.

The probability of a divorcee remarrying may be measured by established and accepted actuarial principles based upon known and reliable data.

The probability of a white female, age 27, having children may be measured by established and accepted actuarial principles based upon known and reliable data.

The value of a remainder interest contingent upon a person dying without issue may be measured by established and accepted actuarial principles based upon known and reliable data.

The computation of the value of the charitable remainders provided for by decedent's last will and testament, and the inter vivos trust of January 20, 1931, was prepared by a recognized firm of actuaries in accordance with established actuarial principles based upon known and reliable data.

In making the computation of the present value of the charitable remainders it was assumed that if the decedent's daughter, Eunice P. Sternberger, married and became the mother of a child, the child would survive her.

In making the computation of the present value of the charitable remainders it was assumed that there would be someone in the group of collateral relatives who would be living at the date of death of decedent's wife and daughter so that not more than 50 per cent of the principal of the residuary trusts would pass to the named charitable organizations.

The computation of the present value of the charitable remainders by petitioner's actuaries was based upon the following factors:

(a) Joint life expectancy of the decedent's wife and daughter, as determined by the Combined Experience Mortality Table prescribed in Section 81.10 of the Estate Tax Regulations promulgated by the Commissioner of Internal Revenue.

(b) The probability of the remarriage of decedent's daughter, Eunice P. Sternberger, as determined from the American Remarriage Table, published by the Casualty Actuary Society, Volume 19, pages 279-394-which table is accepted as valid for estate tax purposes by the United States Treasury Department.

(c) The probability of a child being born to decedent's daughter, Eunice P. Sternberger, as determined from a table prepared in accordance with accepted actuarial principles based upon known and reliable data derived from the Vital Statistics of the United States, 1940, published by the Bureau of the Census.

The experience data from which the probability of issue being born to decedent's daughter Eunice P. Sternberger was computed, were compiled by the United States Bureau of the Census in connection with the 1940 Federal Census.

At the date of death of the decedent the present value of the charitable remainders provided in decedent's last will and testament and in the inter vivos trust of January 20, 1931, based on legitimate descendants only was $.24094 per dollar of trust corpus.

At the date of death of decedent the present value of the charitable remainders provided in decedent's last will and testament and in the inter vivos trust of January 20, 1931, based upon the same...

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12 cases
  • Posen v. Comm'r of Internal Revenue (In re Estate of Posen)
    • United States
    • U.S. Tax Court
    • December 10, 1980
    ...secs. 503 [1], 5.03[3](4th ed. 1978). 16. In so holding, we put to rest any question of the continued validity of Estate of Sternberger v. Commissioner, 18 T.C. 836, 842 (1952), affd. on other issues 207 F.2d 600 (2d Cir. 1953), revd. on other issues 348 U.S. 187 (1955), insofar as its lang......
  • Commissioner of Internal Revenue v. State Sternberger
    • United States
    • U.S. Supreme Court
    • January 10, 1955
    ...the foregoing reasons we would affirm the judgment of the Second Circuit. 1. These provisions appear more fully in Estate of Sternberger v. Commissioner, 18 T.C. 836, 837—838. 2. Originally § 403(a)(3) of the Revenue Act of 1918, 40 Stat. 1098. See also, Griswold, Cases and Materials on Fed......
  • Smith's Estate v. C. I. R.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • February 4, 1975
    ...347 F.2d 419, 423 (7th Cir. 1965); Commercial National Bank v. United States, 196 F.2d 182, 185 (4th Cir. 1952); Estate of Louis Sternberger, 18 T.C. 836, 843 (1952), aff'd, 207 F.2d 600 (2d Cir. 1953), rev'd on other grounds, 348 U.S. 187, 75 S.Ct. 229, 99 L.Ed. 246 (1955); see Dulles v. J......
  • Love v. Comm'r of Internal Revenue (In re Estate of Smith)
    • United States
    • U.S. Tax Court
    • February 23, 1972
    ...not challenged but the majority of the Court undertakes to decide they are valid. The opinion in Swayne distinguishes Estate of Louis Sternberger, 18 T.C. 836, (1952), affd. 207 F.2d 600 (C.A. 2, 1953), reversed on other grounds 348 U.S. 187 (1955). 1 It is distinguished on the ground that ......
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1 books & journal articles
  • Estate Administrative Expenses and the Personal Representative
    • United States
    • Colorado Bar Association Colorado Lawyer No. 29-9, September 2000
    • Invalid date
    ...App. 1903). 8. Jenner, supra, note 3 at 1106. 9. Smith, supra, note 3 at 482 [implies overruling of Estate of Sternberger v. Comm?r, 18 T.C. 836 (1952)]. See Estate of Joseph Vatter v. Comm?r, 65 T.C. 633, 639 (1975); Millikin, supra, note 3 at 344; Estate of Joslyn, 5500 F.2d 382, 385 (9th......

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