Booher v. United States

• Citation: 363 F. Supp. 730
• Decision Date: 12 September 1973
• Docket Number: Civ. No. 4236.
• Parties: Ruby E. BOOHER, Executrix of the Estate of Harry W. Booher, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Ohio

363 F. Supp. 730

Ruby E. BOOHER, Executrix of the Estate of Harry W. Booher, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. No. 4236.

United States District Court, S. D. Ohio, W. D.

September 12, 1973.

Robert E. Harley, Springfield, Ohio, for plaintiff.

William W. Milligan, U. S. Atty., Columbus, Ohio, for defendant.

CARL B. RUBIN, District Judge.

This matter is before the Court upon an Agreed Statement of Facts and upon briefs filed by the parties. In accordance with Rule 52 of the Federal Rules of Civil Procedure, the following Findings of Fact and Conclusions of Law are filed.

I. FACTS

1. On January 21, 1955, the decedent, Harry W. Booher, executed an Indenture of Trust. He died November 14, 1967. As executrix, Ruby E. Booher timely filed a federal estate tax return for the decedent's estate and paid the tax due thereon ($4,688.97). The estate claimed a deduction of $135,628.00 for a charitable remainder interest in the decedent's trust under § 2055(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 2055(a)(2) (1967).

2. The Internal Revenue Service disallowed the claimed deduction and assessed a deficiency of $54,522.52¹ together with an assessment for interest in the amount of $7,231.33. The assessed deficiency and interest were paid by the Booher Estate on or about May 7, 1971, and on July 21, 1971, the Estate timely filed a claim for refund. Such claim was disallowed by the District Director of Internal Revenue Service at Cleveland, Ohio.

3. While the trust was created inter vivos, it survived the settlor's death with elective income to Ruby E. Booher, widow. A failure of the widow to elect income by February 15 of each year would cause such income to be divided between Wheaton College and Moody Bible Institute.²

4. Section 7 of the Indenture of Trust provides in part as follows:

In case, in the opinion of my wife, Ruby E. Booher, an emergency arises as the result of which her support and needs cannot be adequately met with the use of funds or income of her own, increased by income from this trust, then she may withdraw and the Trustees shall deliver to her, upon her written request, such amounts out of the principal of this Trust as shall be necessary when added to other available funds to meet her then needs. Her statement in such written request to the Trustee, as to the existence of the needs and the amount required to meet them shall be sufficient justification for the Trustee to permit withdrawal from principal under this clause.

5. § 2055 of the Internal Revenue Code of 1954, 26 U.S.C. § 2055 (1967), in effect at the decedent's death, stated:

(a) In general.—For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests, legacies, devises, or transfers. . .

(2) to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; . . .

6. The applicable Estate Tax Treasury Regulation³ § 20.2055-2, 26 C.F.R. § 20.2055-2 (1973) is as follows:

(a) Remainders and similar interests. If a trust is created or property is transferred for both a charitable and a private purpose, deduction may be taken of the value of the charitable beneficial interest only insofar as that interest is presently ascertainable, and hence severable from the non-charitable interest. The present value of a remainder or other deferred payment to be made for a charitable purpose is to be determined in accordance with the rules stated in § 20.2031-7. Thus, if money or property is placed in trust to pay income to an individual during his life, or for a term of years, and then to pay the principal to a charitable organization, the present value of the remainder is deductible. . . .

. . . . . .

(b) Transfers subject to a condition or a power. If, as of the date of a decedent's death, a transfer for charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible. If an estate or interest has passed to or is vested in charity at the time of decedent's death and the estate or interest would be defeated by the performance of some act or the happening of some event, the occurrence of which appeared to have been highly improbable at the time of the decedent's death, the deduction is allowable. If the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which would have rendered it, to the extent that it is subject to such power, not deductible had it been directly so bequeathed, devised, or given by the decedent, the deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise of the power. The deduction is not allowed in the case of a transfer in trust conveying to charity a present interest in income if by reason of all the conditions and circumstances surrounding the transfer it appears that the charity may not receive the beneficial enjoyment of the interest. . . .

II. OPINION

A determination of taxability or nontaxability requires the following inquiry:

(1) is the power to invade the trust corpus in terms of a measurable and ascertainable standard, and (2) if a fixed standard is ascertainable, is the possibility of invasion remote enough to insure the charitable remaindermen will, in all likelihood, take an actuarially calculable amount? Humes v. United States, 276 U.S. 487 48 S.Ct. 347, 72 L.Ed. 667 (1928); Ithaca Trust Co. v. United States, 279 U.S. 151 49 S.Ct. 291, 73 L.Ed. 647 (1929); Merchants National Bank v. Commissioner, 320 U.S. 256 64 S.Ct. 108, 88 L.Ed. 35 (1943); Henslee v. Union Planters National Bank & Trust Co., 335 U.S. 595 69 S.Ct. 290, 93 L.Ed. 259 (1949).

The Supreme Court has twice, under this two-pronged test, denied charitable deductions. A right of a trustee to invade corpus "for the comfort, support, maintenance, and/or happiness of my said wife, and it is my wish and will that in the exercise of its discretion with reference to such payments from the principal of the trust fund to my said wife, May L. Field, my said Trustee shall exercise its discretion with liberality to my said wife, and consider her welfare, comfort and happiness prior to claims of residuary beneficiaries under this trust" was denied. Merchants National Bank v. Commissioner, supra.

Instructions to a trustee "to use and expend in their discretion any portion of my estate, either income or principal for the pleasure, comfort and welfare of my mother . . . The first object to be accomplished in the administration and management of my estate and this trust is to take care of and provide for my mother in such manner as she may desire and my executors and trustees are fully authorized and likewise directed to manage my estate primarily for this purpose" likewise caused a denial of a charitable remainder deduction. Henslee v. Union Planters National Bank & Trust Co., supra.

In each instance the Supreme Court held the charitable interest not "presently ascertainable."

The criteria enunciated by the Supreme Court in Merchants National Bank and Union National Bank & Trust Co. have spawned numerous lower court cases interpreting the "presently ascertainable" standard to determine deductibility of charitable remainders. Where a trust provides generally that the trustee may invade corpus for the support and maintenance of an income beneficiary or an intervening holder of a life estate, courts appear to favor finding an ascertainable standard by which the charitable deduction may be had by the estate.⁴ This is particularly true where the instrument specifies or it can be implied that the standard of comfort and support is to be that which is the beneficiary's accustomed standard of living as of the decedent's death.⁵ Where considerations like comfort, happiness, or welfare are added to support and maintenance as elements, courts have evidenced a greater reluctance to allow a deduction.⁶

An application of the principles suggested in Merchants National Bank, supra, and Union Planters National Bank, supra, requires examination of the trust document and particularly Section 7. Section 7 of the Indenture of Trust is clear on its face on the powers and duties of the trustee and of the plaintiff income beneficiary. The instrument specifically provides that the opinion of the settlor's wife, Ruby E. Booher, as income beneficiary is controlling upon the trustee. When she, in her own unfettered discretion and opinion, decides money is needed to meet a future emergency or need, she may request the money and "the trustee shall deliver" the requested amount. It is difficult and overly strained to find any discretion lodged in the trustee when he cannot, under the express language of Section 7, refuse the wife's request.

The trust instrument also includes a standard for invasion of principal for emergency future needs. This standard might in some cases be deemed an ascertainable standard even though provisions for future needs have been found to render the remainder too unascertainable to allow deductions. Hartford National Bank & Trust Co., 327 F.Supp. 1138 (D.Conn.1971), rev'd, 467 F.2d 782 (2d Cir. 1972); Lincoln Rochester Trust Co. v. Commissioner, 181 F.2d 424 (2d Cir. 1950); Estate of G. H. Moses, 8 T.C.M. 641.

Where, however, the wife or income beneficiary has conclusive judgment as to the...