CENTRAL HANOVER BANK & T. CO. v. COM'R OF INTERNAL REV.

• Decision Date: 17 March 1941
• Docket Number: No. 66.,66.
• Citation: CENTRAL HANOVER BANK & T. CO. v. COM'R OF INTERNAL REV., 118 F.2d 270 (2nd Cir. 1941)
• Parties: CENTRAL HANOVER BANK & TRUST CO. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Second Circuit

118 F.2d 270 (1941)

CENTRAL HANOVER BANK & TRUST CO. v. COMMISSIONER OF INTERNAL REVENUE.

No. 66.

Circuit Court of Appeals, Second Circuit.

March 17, 1941.

Hall Hammond, of Baltimore, Md., and Leonard A. Blue and Larkin, Rathbone & Perry, all of New York City, for petitioner-executor.

Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and Morton K. Rothschild, Sp. Assts. to the Atty. Gen., for the Commissioner.

Before SWAN, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The principal question raised by the appeal of Central Hanover Bank and Trust Company, as executor of the will of William H. Morgan, deceased, is whether remainder interests created by the will of his sister Laura Louise LaMontagne over which he was given a testamentary power of appointment under her will were properly included in his gross estate within the meaning of Section 302 (f) of the Revenue Act of 1926, 26 U.S.C.A. Int.Rev.Acts, page 227.

In assessing estate taxes, Section 302 (f) provides that the value of the gross estate of a decedent shall be determined "by including the value at the time of his death of all property,

* * * * * * * *

"(f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, * * *".

Laura Louise LaMontagne, who died March 21, 1912, leaving four sons, bequeathed her estate to her brother William H. Morgan and the Central Hanover Bank and Trust Company in trust to divide it into as many equal parts as she left children her surviving, to invest each of such parts and to pay over the income derived therefrom to the use of the child for whom the share is set apart during his natural life, and immediately upon his death, she bequeathed the principal of his share to her brother William H. Morgan. If William H. Morgan should not be living at the time he would become entitled to receive any such principal, the testatrix bequeathed the same "to such person or persons, as he, my said brother may designate in and by any instrument in writing in the nature of a last Will."

The four sons of Laura Louise LaMontagne, who were her only heirs and next of kin, all survived William H. Morgan. At the time of his death on October 12, 1934, their ages were as follows: Montaigu 54; Rene M. 51; Morgan E. 49 and William A. 48. They were the persons entitled to share in any portion of her estate of which she died intestate. When William H. Morgan died, the only son of his sister Laura who then had issue was Morgan E., who had two infant children, one born in September, 1922, and the other in February, 1927. None of her sons had any issue born after the date of the death of William H. Morgan and none of them has died since except Montaigu, who died without issue on January 19, 1938.

William A. Morgan left a will whereby he exercised the power of appointment as follows over the remainder interests in the four trusts which were granted to him by his sister's will: "Now Therefore, exercising the power given to me by said Will, upon the death of each of said sons, to wit: Montaigu LaMontagne, Rene M. LaMontagne, Morgan E. LaMontagne and William A. LaMontagne, I herewith designate his issue, him surviving, and if he should leave no such surviving issue, then his brothers who shall have survived him and/or the issue of any brother or brothers who shall have predeceased him, as the person or persons to receive and to have said Principal or Corpus share and share alike, but the issue of each predeceased brother to take share and share alike, per stirpes and not per capita, the share to which the predeceased parent would have been entitled had such parent survived him; and in the event of the death of the last survivor without leaving him surviving any issue of any of said sons, then, in such event, I hereby designate The Metropolitan Museum of Art in the City of New York, * * * to receive and to have the same."

In March, 1936, each of the sons of Laura Louise LaMontagne executed and delivered to Central Hanover Bank and Trust Company, the surviving trustee under her will, a separate instrument wherein he renounced and disclaimed all right to take any interest in remainder in any trust created by her will which might be appointed to him by the will of William H. Morgan in the exercise of the power of appointment granted by her will.

In determining the gross estate of William H. Morgan the Commissioner included the value of the remainder interests in the trusts appointed by the will of William H. Morgan. The Board of Tax Appeals affirmed the Commissioner and assessed the estate tax accordingly. The taxpayer contends that because of the renunciations by the four sons of Laura Louise LaMontagne the remainder interests in the principal of the respective trusts did not pass through the exercise of the power of appointment and therefore were not to be reckoned as part of the gross estate of William H. Morgan. We think that the remainder interests did not wholly pass under his will and that the proceeding must be remanded to the Board for a recomputation of the estate tax.

If we should assume that the life beneficiaries would die in the order of their respective ages, and that the issue of Morgan E. LaMontagne who were living at the date of the death of the donee of the power would remain the only issue of any of the equitable life tenants, and if we should also assume that the several renunciations were valid, one-half of the total capital of the trusts would pass by intestacy and one-half by virtue of the exercise of the power. Upon such an assumption the following devolutions would...