Estate of Nunn

• Decision Date: 20 February 1974
• Citation: 518 P.2d 1151,10 Cal.3d 799,112 Cal.Rptr. 199
• Court: California Supreme Court
• Parties: , 518 P.2d 1151 In re Estate of Susan L. NUNN, Deceased. Houston L. FLOURNOY, as State Controller, etc., Petitioner and Appellant, v. BEVERLY HILLS NATIONAL BANK, as Executor, etc., Objector and Respondent. L.A. 30109.

Page 199

112 Cal.Rptr. 199

10 Cal.3d 799, 518 P.2d 1151

In re Estate of Susan L. NUNN, Deceased.

Houston L. FLOURNOY, as State Controller, etc., Petitioner and Appellant, v. BEVERLY HILLS NATIONAL BANK, as Executor, etc., Objector and Respondent.

L.A. 30109.

Supreme Court of California,

In Bank.

Feb. 20, 1974.

Myron Siedorf, Walter H. Miller and Edwin Rosenthal, Los Angeles, for petitioner and appellant.

Jones & Bednar, William E. Burby, Jr., and Philip C. Jones, Los Angeles, for objector and respondent.

WRIGHT, Chief Justice.

The Controller of the State of California appeals from an order fixing the inheritance tax in the matter of the estate of Susan L. Nunn, deceased. ¹ The basic question presented is whether Susan at the time of her death possessed a general power of appointment over the assets of a testamentary trust provided for by her predeceased husband, George Lee Nunn. We conclude that she possessed such a power and that the inheritance tax appraiser properly included the assets of the trust in Susan's estate. ² Accordingly, we reverse the order determining no part of the trust assets were taxable in her estate.

On April 24, 1952, George Lee Nunn and Susan L. Nunn executed a joint and mutual will. Insofar as is here relevant the will provided that all their property, with certain exceptions, was community property. Each bequeathed the survivor a life estate in his or her net estate with the power to invade the corpus for the life tenant's 'use and need' as the life tenant 'may determine.' Subject to the life estate and power to invade, each made bequests of the uninvaded corpus to identical remaindermen. The bequests of the life estates and powers to invade were made in lieu of any and all community property and other claims of interest which the survivor might have asserted in or against the estate of the other. ³

The mutual will further provided in paragraph Twelfth: 'GEORGE LEE NUNN and SUSAN LINTHICUM NUNN hereby jointly and mutually agree with each other, in consideration of our respective promises and of our reciprocal devises and bequests herein contained, that this Will shall not be revoked, changed or amended by us without the written consent of the other, and they further agree that after the demise of one of the parties hereto, the survivor shall not in any event revoke, change or amend this Will. They each further agree that the survivor will seriously endeavor to use only the income from the combined estates of husband and wife for the support, maintenance, care and comfort of said survivor, including a comfortable dwelling, good food and raiment, health and/or hospital service, travel and congenial diversions. This is not intended however to limit the right to invade the corpus given to said survivor as a part of his or her life estate, and pursuant to such right the survivor shall have the right to use all of any part of the corpus For the purposes hereinabove stated should circumstances develop which, in the discretion of said survivor, should require or justify such use of corpus.' (Italics added.)

George died on August 9, 1959, and the will was admitted to probate. His entire net estate was distributed pursuant to a decree of distribution to the Beverly Hills National Bank and Trust Company as trustee, with the net income to be distributed periodically to Susan for her life, subject to the following provision: 'Any net income of the Trust Estate which SUSAN L. NUNN shall not require, need or want which in her judgment she shall deem to be in excess of that necessary for her support, maintenance, care, comfort, the providing of a comfortable dwelling, good food and raiment, health or hospital service, travel and congenial diversions shall be accumulated by the Trustee and . . . reinvested in sound corporate stocks . . ..'

The decree additionally provided: 'SUSAN L. NUNN shall have and is hereby given the right during her natural life to invade the corpus of the Trust Estate For her own use and need as she may determine.' (Italics added.) The trustee was authorized in the following language to make still other payments from principal:

'If at any time in the absolute discretion of the Trustee SUSAN L. NUNN should because of disability Be in need of funds for her proper care, maintenance and support, the Trustee may in its absolute discretion pay to or apply for the benefit of SUSAN L. NUNN in addition to the payments hereinabove provided for her such amounts from the principal of the Trust Estate up to the whole thereof as the Trustee may from time to time deem necessary or advisable For her use and benefit.' (Italics added.)

The trial court in the instant proceedings found that Susan had received only income disbursements from the trust and that the consideration given by her for the life interest which she retained in the property subject to the trust 'was greater in value than such life interest.' It concluded that she held only a life estate with a limited power of appointment, that the named remaindermen held vested interests, and that because the contract embodied in the joint and mutual will became binding on her upon admission of the will to probate, no part of the trust assets were taxable in her estate.

The Controller argues that Susan's power of appointment was a general power taxable upon her death under Revenue and Taxation Code section 13696. ⁴ We perceive no disagreement that Susan's interest was a life estate coupled with some type of a power of appointment. The initial question is whether the 'use and need' standard for invasion established by the decree of distribution (see Estate of Callnon (1969) 70 Cal.2d 150, 156, 74 Cal.Rptr. 250, 449 P.2d 186) is 'an ascertainable standard relating to . . . health, education, support, or maintenance . . ..' (§ 13692, subd. (a).) If so, Susan was vested with only a limited power of appointment.

The current and controlling portion of the Revenue and Taxation Code concerning powers of appointment (div. 2, pt. 8, ch. 4, art. 5; § 13691 et seq.) was adopted in 1965. (Stats. 1965, ch. 1070, § 6, pp. 2716--2719.) The language as adopted is substantially identical to that of federal estate tax provisions dealing with powers. (Int.Rev.Code of 1954, § 2041, 26 U.S.C. § 2041, 68A Stat. 385--387.) ⁵ The manifest purpose of the 1965 revision was to conform state inheritance tax treatment of powers with the federal estate tax treatment and, consequently, we accord great weight to applicable federal administrative regulations and decisional law. (See Estate of Cohen (1971) 4 Cal.3d 41, 49, 92 Cal.Rptr. 684, 480 P.2d 300; Estate of Morse (1970) 9 Cal.App.3d 411, 415, 88 Cal.Rptr. 52.) Whether a given formulation constitutes an ascertainable standard, however, depends upon the effect given by state law to the language. (E.g., Peoples Trust Company of Bergen County v. United States (3d Cir. 1969) 412 F.2d 1156, 1159; see Morgan v. Commissioner of Internal Revenue (1940) 309 U.S. 78, 80--81, 626, 60 S.Ct. 424, 84 L.Ed. 585, 1035.)

The implementing federal administrative regulations provide some guidance in determining whether a given standard is properly ascertainable. 'A power is limited by such a standard if the extent of the holder's duty to exercise and not to exercise the power is reasonably measurable in terms of his needs for health, education, or support (or any combination of them). As used in this subparagraph, the words 'support' and 'maintenance' are synonymous and their meaning is not limited to the bare necessities of life. A power to use property for the comfort, welfare, or happiness of the holder of the power is not limited by the requisite standard. Examples of powers which are limited by the requisite standard are powers exercisable for the holder's 'support,' 'support in reasonable comfort,' 'maintenance in health and reasonable comfort,' 'support in his accustomed manner of living,' 'education, including college and professional education,' 'health,' and 'medical, dental, hospital and nursing expenses and expenses of invalidism.' In determining whether a power is limited by an ascertainable standard, it is immaterial whether the beneficiary is required to exhaust his other income before the power can be exercised.' (26 C.F.R. § 20--2041--1, subd. (c)(2).) These provisions are lenient to a fault, equating, for example, 'support,' whose 'meaning is not limited to the bare necessities of life,' with 'an ascertainable standard relating to . . . support' and 'health' with 'an ascertainable standard relating to . . . health.'

In determining whether Susan's power to invade 'for her own use and need as she may determine' was properly admitted so as to qualify as a limited power of appointment, we are not troubled by the meaning to be accorded the word 'use' or phrase 'her own use.' This part of the formulation limited the power to invade to Susan's personal use and precluded, for instance, invasions for gifts to others. (Hardy v. Mayhew (1910) 158 Cal. 95, 100, 110 P. 113.)

The principal difficulties are associated with the word 'need.' In one federal case 'needs' has been construed as creating a limited power, but only because the controlling state law required actual financial or physical necessity. (Pittsfield National Bank v. United States (D.C.1960) 181 F.Supp. 851, 853--854.) We on one occasion equated 'needs' with 'support.' (Taylor v. George (1949) 34 Cal.2d 552, 558, 212 P.2d 505.) We were not using 'support' in the manner now involved, however. Instead we were determining that a will provision that life insurance 'is and will be sufficient for his needs so far as any contribution from me is concerned' was intended to indicate that the insurance proceeds were intended as satisfaction of a court-imposed support obligation to a minor child and that, since they exceeded the obligation, no other claim for support would be allowed against the estate.

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