Citizens First Nat'l Bank of Ridgewood v. Comm'r of Internal Revenue (In re Estate of Jones)
| Decision Date | 08 April 1971 |
| Docket Number | Docket No. 5138-69. |
| Parties | ESTATE OF EFFIE KELLS JONES, DECEASED, CITIZENS FIRST NATIONAL BANK OF RIDGEWOOD, ADMINISTRATOR C.T.A., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Joseph J. MacDonald, for the petitioner.
John James O'Toole, for the respondent.
A power of appointment authorized the decedent and a bank as cotrustees of a testamentary trust to pay over to the decedent part or all of the principal of the trust in cases of emergency or in situations affecting her care, maintenance, health, welfare and well-being. Held, the power exercisable in favor of the decedent was not limited by an ascertainable standard relating to the health, education, support, or maintenance of the decedent. Held, further, the decedent as coholder of the power had at the time of her death a general power of appointment created after Oct. 21, 1942. Held, further, the classification of the power of appointment as a power created after Oct. 21, 1942, does not require the application of retroactive legislation.
The respondent determined a deficiency in estate tax in the amount of $83,511.87. The ultimate issue in this case is whether Effie Kells Jones had a general power of appointment sufficient to cause the corpus of her husband's testamentary trust to be includable in her gross estate under section 2041. 1
The facts were fully stipulated, and these facts and exhibits incorporated therein are so found.
The petitioner is a fiduciary as administrator c.t.a. of the Estate of Effie Kells Jones, deceased, by appointment of the Bergen County Surrogate's Office, State of New Jersey, under date of December 6, 1965. Petitioner, at the time of filing the petition herein, had its principal office in Ridgewood, N.J. The Federal estate tax return was filed with the district director of internal revenue, Newark, N.J., on January 19, 1967.
Effie Kells Jones (hereinafter the decedent) married J. Morgan Jones in 1932. At that time, the decedent was 46 years of age, and her husband was 55 years of age. Each had been married previously and each had one child of the prior marriage. J. Morgan Jones' child, Emma Louise Rector, was already married in 1932 and bore children in 1935 and 1938.
J. Morgan Jones executed a will on April 29, 1940. The will provided for a testamentary trust in which the decedent and his daughter were given successive life estates. At his daughter's death, the trust principal was to be distributed to the surviving issue of his daughter or if there were no such issue then according to the terms of his daughter's will.
Article Sixth of the will provided, in part:
SIXTH: I give, devise and bequeath to my executors and trustees hereinafter named, all the rest, residue and remainder of my estate, real and personal, of whatever nature and wheresoever situate, including therein any property real and personal, over which I may have power of appointment by will, to collect, recover, receive and take possession thereof, to manage, control, administer, invest and reinvest the same and to receive, collect and recover the income thereon, and to hold and/or dispose of the principal thereof, and the income thereon according to the following terms and conditions and upon the following trusts:
(a) If my said wife, Effie K. Jones, survive me, to pay to her the net income of my residuary estate or of the trust thereof during her lifetime.
(b) If my said wife, Effie K. Jones, survive me, I authorize and empower my executors during the period of their executorship and my trustees thereafter, in cases of emergency or in situations affecting her care, maintenance, health, welfare and well-being to pay over to my said wife (in addition to the said income payments) part or all of the principal of my residuary estate or of the trust thereof, or to use and apply part or all of the principal of my residuary estate, or of the trust thereof, for such purposes. The judgment and discretion of my executors or trustees as to what constitutes an emergency or any such situation, and as to the continuation of any emergency or any such situation and as to how much of the principal of my residuary estate or the trust hereof shall be paid or used therein and to whom it shall be paid and as to how it shall be used and applied and the purposes for which it shall be paid, used or applied, shall be final and conclusive and not subject to inquiry or attack in any court, jurisdiction or proceeding and shall be binding upon all those who shall have or may become entitled to any right, title or interest in or to my said residuary estate or the trust thereof, including any who may be minors or under other legal incapacity or not in being.
In the event of any such payment or use of Principal, there shall not be any obligation to refund or reimburse the principal out of the income of my residuary estate or the trust thereof. My corporate executor or trustee shall not be under any duty to see to the application of any moneys so paid to my said wife.
(c) Upon the death of my said wife Effie K. Jones, or upon my death if my said wife Effie K. Jones predecease me, and if my said daughter Emma Louise Rector be then living, to pay to my said daughter Emma Louise Rector during her lifetime the net income of my residuary estate or of the trust thereof or of so much of my residuary estate or of the trust thereof as may then remain.
(d) Upon the death of my said wife, Effie K. Jones or upon my death, if my said wife Effie K. Jones predecease me, and if my said daughter Emma Louise Rector be then living, I authorize and empower my executors during the period of their executorship and my trustees thereafter, in cases of emergency or in situations affecting her care, maintenance, health and welfare and well-being to pay over to my said daughter (in addition to the said income payments) part or all of the principal of my residuary estate or of the trust thereof, or to use and apply part or all of the principal of my residuary estate, or of the trust thereof, for such purposes. * * *
Article Tenth of the will provided, in part:
TENTH: I nominate, constitute and appoint my wife, Effie K. Jones and Commercial Trust Company of New Jersey, a corporation of the State of New Jersey, having its principal office at 15 Exchange Place, Jersey City, New Jersey, Executors of and Trustees under this will.
J. Morgan Jones died on July 10, 1949. His will of April 29, 1940, was never republished by codicil or otherwise. J. Morgan Jones was survived by the decedent, his daughter, and his two grandchildren.
In addition to their interests in the testamentary trust, J. Morgan Jones distributed to the decedent and his daughter property included in his taxable estate in the following manner:
+------------------------------------------------------+
¦ ¦ ¦Emma Louise ¦
+-----------------------------+----------+-------------¦
¦ ¦Decedent ¦Rector ¦
+-----------------------------+----------+-------------¦
¦Common stock ¦ ¦$23,500 ¦
+-----------------------------+----------+-------------¦
¦Real estate ¦$34,500.00¦ ¦
+-----------------------------+----------+-------------¦
¦Savings bonds (jointly owned)¦12,311.75 ¦ ¦
+-----------------------------+----------+-------------¦
¦Insurance ¦5,000.00 ¦8,500 ¦
+-----------------------------+----------+-------------¦
¦Personal effects ¦1,030.00 ¦ ¦
+-----------------------------+----------+-------------¦
¦Total ¦52,841.75 ¦32,000 ¦
+------------------------------------------------------+
An annuity contract with Mutual Benefit Life Insurance Co. in favor of Emma Louise Rector as annuitant, was reported in the estate tax return of J. Morgan Jones, at no value. This contract was effective 20 years after the date of death of J. Morgan Jones and is payable at an annual rate of $600 per year for life.
The estate of J. Morgan Jones filed a Federal estate tax return under date of October 4, 1950, which resulted in a determination of total estate tax liability in the sum of $20,281.67. Said return and determination did not include in the marital deduction $52,841.75 any claim or allowance of any portion of the assets of the testamentary trust.
The decedent and the Commercial Trust Co. of New Jersey duly qualified on July 22, 1949, as trustees and served as trustees during the lifetime of the decedent. No invasions of principal were ever made by the trustees during the lifetime of decedent and no release, renunciation, disclaimer, or exercise of any power of appointment thereunder was made or effected by the trustees or beneficiary thereof during decedent's lifetime.
The decedent died on November 11, 1965, a resident of Damarest, Bergen County, N.J. She devised her entire estate to her natural daughter Alta Kells Barclay.
At the time of her death, the decedent was both the life beneficiary and the cotrustee of the testamentary trust established by her husband's will. At the time of her death, the decedent had a general power of appointment created after October 21, 1932, over the corpus of the trust established under the will of J. Morgan Jones and that power was not limited by an ascertainable standard relating to health, education, support, or maintenance of the decedent.
The value of the assets in the trust under the will of J. Morgan Jones as of November 11, 1965, totaled $303,805.76. The Federal estate tax return filed for the Estate of Effie Kells Jones used the optional valuation date, and the valuation of the assets in the trust under the will of J. Morgan Jones as of November 11, 1966, the actual valuation date, was $265,335.75.
The estate tax return did not include the value of the trust assets in the taxable estate. In his notice of...
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