Doyle v. United States

• Decision Date: 30 March 1973
• Docket Number: Civ. A. No. 69-916.
• Citation: 358 F. Supp. 300
• Parties: Leo Francis DOYLE, Administrator d. b. n. c. t. a. of the Estate of Ethel B. McIlvaine, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

358 F. Supp. 300

Leo Francis DOYLE, Administrator d. b. n. c. t. a. of the Estate of Ethel B. McIlvaine, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 69-916.

United States District Court, E. D. Pennsylvania.

March 30, 1973.

Daniel J. Ryan, Philadelphia, Pa., for plaintiff.

Warren Mulloy, Philadelphia, Pa., Robert M. Adler and David A. Wilson, Jr., Tax Div., Dept. of Justice, Washington, D. C., for defendant.

MEMORANDUM AND ORDER

HUYETT, District Judge.

This is a suit for recovery of U. S. Federal Estate taxes which plaintiff claims were illegally collected by defendant from plaintiff who is administrator d. b. n. c. t. a. of the estate of Ethel B. McIlvaine (decedent). Plaintiff seeks to recover the estate tax paid on the value of the corpus of a residuary trust established by decedent's husband in his will. The trust corpus was determined by the Internal Revenue Service to be includible in the decedent's gross estate because of a general power of appointment, within the meaning of 26 U.S.C. § 2041, the decedent was claimed to have by virtue of a power given her as a trustee to invade corpus. It is plaintiff's contention that (1) a general power of appointment did not exist since at the time of decedent's death there was no trust in existence, and (2) even if a general power of appointment did exist over the corpus of the trust, that power was limited by an ascertainable standard. The facts have been stipulated to by the parties, and this opinion represents our findings of fact and conclusions of law as required by Fed.R.Civ.P. 52. Jurisdiction is specifically conferred by 28 U.S.C. § 1346(a)(1).

I. FACTS

William S. McIlvaine (testator) died on May 13, 1959 leaving a Will dated November 2, 1949 and a Codicil thereto dated April 12, 1950. The Will and Codicil were admitted to probate on May 20, 1959, and letters testamentary were issued on the same date to the testator's widow, Ethel B. McIlvaine, the Fidelity-Philadelphia Trust Company, and an individual known as George E. Slaughter. In his Will, William S. McIlvaine established both a "marital" and a "non-marital" trust; the "non-marital" trust was of the residue of his estate, and was established as follows:

"ITEM: All the rest, residue and remainder of my estate, both real and personal, of whatsoever nature and character, and wheresoever situate at the time of my decease, I give, devise and bequeath unto my Trustees, hereinafter named, IN TRUST, NEVERTHELESS, to invest the same, and to keep the same invested, and to pay the net income derived therefrom quarter annually unto my wife, Ethel B. McIlvaine, for and during the full term of her natural life; and I authorize and empower my Trustees in the exercise of their uncontrolled discretion to also pay to my said wife, Ethel B. McIlvaine, such part or parts of the principal of said trust fund as may be necessary for her comfort, maintenance and support, or in the event of illness, accident or other case of necessity or emergency as the result of which she may be in need, or for her proper and reasonable funeral expenses in the event of the insufficiency of her individual estate for such purpose; and for the exercise of such discretion my said Trustees shall be without any liability or accountability whatsoever.

And upon the death of my said wife, Ethel B. McIlvaine, or upon my death, should my said wife predecease me, the then corpus or principal of my said residuary estate I give, devise and bequeath as follows, to wit:

A full equal one-half part or share thereof unto my brother, John W. McIlvaine, absolutely, if he be then living, and if he be then deceased, then as hereinafter provided for the remaining one-half thereof.

And the remaining full equal one-half part or share thereof, equally, share and share alike, absolutely, unto my nephew, Stewart Robinson, and my niece, Ruth Robinson Adams (children of my sister, Marguerite McIlvaine Robinson) or to the survivor of them, and to the issue of either of them who may then be deceased, such issue to take by representation, however, the share or shares his, her or their parent or parents would have taken if then living."

In addition to appointing the decedent as a co-executor of his estate, William S. McIlvaine also appointed the decedent as a co-trustee with Slaughter and the Fidelity-Philadelphia Trust Company of the two trusts established in his Will and Codicil thereto.

An account of the executors of William S. McIlvaine's estate, covering the period from May 15, 1959 to September 8, 1961 was called for audit in the Orphans' Court of Philadelphia County, Pennsylvania on November 6, 1961. On November 30, 1961 an Adjudication was filed confirming NISI the account, and awarding the balance of the estate to decedent, Slaughter and the Fidelity-Philadelphia Trust Company "in trust for the uses and purposes set forth in the Will." The Adjudication also granted the executors leave to make all necessary transfers and assignments and ordered that a Schedule of Distribution in conformity with the Adjudication be submitted to the Auditing Judge within ninety (90) days after the absolute confirmation of the account. The Adjudication of November 30, 1961 became final on December 15, 1961 pursuant to a Philadelphia Orphans' Court rule. The Schedule of Distribution required by the Adjudication could not have been filed and would not have been accepted until the absolute confirmation of the Adjudication on December 15, 1961.

Ethel B. McIlvaine, the decedent, died on January 5, 1962. At the time of the decedent's death the Schedule of Distribution required by the Adjudication of her husband's estate had not been filed, and no transfer or assignment of the assets of her husband's estate to any trust or trustees had been made by the executors of that estate. Nor was the Schedule of Distribution ever filed. In subsequent proceedings in the Orphans' Court the Adjudication was opened and a Re-Adjudication was filed on October 4, 1962, which awarded the balance of residue directly to the remainderman of the residuary trust without the intervention of a trustee or a trust. In effect the trust established by William S. McIlvaine's Will and Codicil never came into existence.

On April 15, 1966, a deficiency in the estate tax in the amount of $30,085.77 together with interest of $3,762.48 (for a total of $33,848.25) was assessed against the decedent's estate. A timely claim for refund of the additional estate tax and interest thereon was filed on March 7, 1967. Plaintiff claims that the Internal Revenue Service erred in including in decedent's gross estate the residuary ("non-marital") trust created under the Will of her deceased husband, William S. McIlvaine.

II. GENERAL POWER OF APPOINTMENT

Section 2041(a)(2) of the Internal Revenue Code of 1954, 26 U.S.C. provides for inclusion in the gross estate of a decedent the value of all property the extent to which the decedent "has at the time of his death a general power of appointment created after October 21, 1942."¹ Furthermore,

". . . the power of appointment shall be considered to exist on the date of the decedent's death even though the exercise of the power is subject to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise, whether or not on or before the date of the decedent's death notice has been given or the power has been exercised."

A general power of appointment is defined, with exceptions not relevant to the instant issue before us,² as "a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate." The Code does not provide a definition of a power of appointment. It is clear, however, that the term "includes all powers which are in substance and effect powers of appointment regardless of the nomenclature used in creating the power and regardless of local property law connotations. For example, if a trust instrument provides that the beneficiary may appropriate or consume the principal of the trust, the power to consume or appropriate is a power of appointment." 26 C.F.R. § 20.2041-1(b)(1).

Plaintiff contends that (1) there was no power of appointment in the decedent, and (2) there was no property subject to the power if a power did exist because the trust created in the testator's Will did not exist at the time of the decedent's death. Plaintiff reasons that the trust created by the testator's Will did not exist because at the time of the decedent's death the administration of testator's estate by his executors had not been completed. Since the trust did not exist, there could not have existed a power in the trustees to invade corpus. Therefore, a power to invade corpus held by the decedent in her capacity as trustee did not exist. Plaintiff further reasons that even if there was a power to invade corpus there was no property over which the power could be exercised because the executors of testator's estate had not transferred to the trustees of the trust prior to decedent's death the property intended to constitute the trust res. This they could not do, plaintiff argues, because the administration of testator's estate had not been complete.

Both these contentions are essentially variations on the same theme—that there did not exist a power of appointment at the time of the decedent's death. Neither argues against the existence of a general power of appointment assuming we find that a power of appointment did exist. Thus, assuming we conclude that the decedent had a power of appointment over the corpus of the non-marital trust by virtue of her power as trustee of the trust despite the failure of the trust to be established, it is clear that the power was a general power of appointment. As trustee of the trust, the decedent could pay to herself part or parts of the principal of the trust fund, i. e. the power to invade corpus was...