780 F.2d 1147 (4th Cir. 1986), 85-1229, Martin v. United States

Docket Nº:85-1229.
Citation:780 F.2d 1147
Party Name:Walter A. MARTIN, Appellee, v. UNITED STATES of America, Appellant.
Case Date:January 09, 1986
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 1147

780 F.2d 1147 (4th Cir. 1986)

Walter A. MARTIN, Appellee,

v.

UNITED STATES of America, Appellant.

No. 85-1229.

United States Court of Appeals, Fourth Circuit

January 9, 1986

Argued Nov. 7, 1985.

Martha B. Brissette (Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Robert A. Bernstein, J. Frederick Motz, United States Atty., on brief), for appellant.

Albert J. Matricciani, Jr. (Clapp, Somerville, Honemann & Beach, Roy Dragone, on brief), for appellee.

Before HALL, MURNAGHAN, and WILKINSON, Circuit Judges.

MURNAGHAN, Circuit Judge:

Here the question is purely one of construction of a testamentary interest, raised by cross-motions for summary judgment, one by a taxpayer, one by the Government. We make the construction to ascertain whether the estate of a decedent, who was a life beneficiary of a testamentary trust with power of appointment, should, for federal estate tax purposes, have included the value of the property subject to the power of appointment. The decedent's estate paid an estate tax of $14,226.39, which was calculated on the basis that the trust property was includible. However, a claim for refund then was lodged on the grounds that the trust property should not have been included, in which case no federal estate tax would have been due. The district court granted summary judgment in favor of the taxpayer.

The testamentary provision with which we are concerned reads as follows:

I give and bequeath one hundred fifty thousand dollars ($150,000.00) to William S. Hart, as Trustee, IN TRUST to hold, invest and re-invest the same, to collect the income and to pay the net income in installments not less often than quarterly, to Theo N. Martin as long as she may live. In the event of the illness of Theo N. Martin, or other emergency, I authorize the Trustee, in his discretion, to invade the principal of the Trust for the

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benefit of Theo N. Martin. At the death of Theo N. Martin, the Trustee shall pay over and distribute the balance of the trust, principal and any accrued income, to such person or persons as Theo N. Martin may appoint by her Last Will and Testament, and if she shall not have exercised this power of appointment, the same shall be paid over and distributed to the Executor or Administrator of the Estate of Theo N. Martin as part of her personal estate.

In the great majority of American jurisdictions and perhaps in every other state besides the State of Maryland, we would have nothing to decide. A direction to pay over and distribute the balance of a trust's assets to such person or persons as the holder of the power may appoint would constitute a true general power (i.e., one exercisable in favor of creditors or in favor of the holder's estate) and estate tax liability on the death of the holder of the power would be unquestioned. 26 U.S.C. Sec. 2041(a)(2); Id. (b)(1) (a general power is one exercisable "in favor of the decedent, his estate, his creditors or the creditors of his estate."). 1

Just as clearly, however, in Maryland, there is a difference amounting to an anomaly. A power to appoint to such person or persons as the holder of the power may select is construed in Maryland to mean such person or persons other than persons meeting the description of the donee of the power, her estate or the creditors of her estate. Balls v. Dampman, 69 Md. 390, 16 A. 16 (1888). 2 The trust property escapes estate taxation on the death of a holder of such a Maryland "general" power (a special power elsewhere). Leser v. Burnet, 46 F.2d 756 (4th Cir.1931).

Concentrating solely on the language of the power of appointment itself, the district judge favored the taxpayer, 3 ordering refund of the tax. Regrettably, however, in doing so the district judge gave insufficient consideration to language closely connected by the associative word "and" to the power itself:

and if she shall not have exercised this power of appointment, the same shall be paid over and distributed to the Executor or Administrator of the Estate of...

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