Estate of Pierpont v. Commissioner, Docket No. 86052.

• Decision Date: 30 November 1962
• Docket Number: Docket No. 86052.
• Citation: 1962 TC Memo 286,21 TCM (CCH) 1515
• Parties: Estate of Mervin G. Pierpont, Deceased, Union Trust Company of Maryland and Ernest L. Poyner, Executors, v. Commissioner.
• Court: U.S. Tax Court

21 T.C.M. (CCH) 1515 (1962)

T. C. Memo. 1962-286. Estate of Mervin G. Pierpont, Deceased, Union Trust Company of Maryland and Ernest L. Poyner, Executors, v. Commissioner.

Docket No. 86052.

United States Tax Court.

Filed November 30, 1962.

John S. McDaniel, Jr., Esq., and Mannes F. Greenberg, Esq., for the petitioner. Joseph N. Ingolia, Esq., for the respondent.

Memorandum Findings of Fact and Opinion

DRENNEN, Judge:

Respondent determined a deficiency in estate tax due from petitioner in the amount of $32,542.48.

The only issue for decision is whether the estate of Mervin G. Pierpont is entitled to a marital deduction equal to the value of property devised and bequeathed in trust for the benefit of the surviving spouse of decedent, who was given under decedent's will a testamentary power of appointment with respect to the trust estate.

Findings of Fact

Some of the facts have been stipulated and are found accordingly.

Ernest L. Poyner (hereinafter referred to as Poyner) and Union Trust Company of Maryland, a Maryland corporation, are the duly appointed executors, by an order of the Orphans' Court of Baltimore City dated February 9, 1956, of the estate of Mervin G. Pierpont, deceased.

Mervin G. Pierpont (hereinafter referred to as decedent) died testate on January 31, 1956, survived by his wife, Lallah R. Pierpont (hereinafter referred to as Lallah), who was his second wife. The estate tax return of decedent's estate was duly filed by the executors with the district director of internal revenue at Baltimore, Maryland, on April 29, 1957.

Item Sixth of decedent's will, which was executed by him on January 10, 1951, provided as follows:

ITEM SIXTH: Provided my said wife shall survive me, I direct my Executors to determine an amount which will be equal to one-half of my "Adjusted Gross Estate" (as defined in Paragraph (2)(A) of subsection (e) of section 812 of the U. S. Internal Revenue Code as amended by the Revenue Act of 1948) and to deduct from such amount the total value, as finally determined for Federal Estate tax purposes of all other interests in property which are included in my Adjusted Gross Estate but which will pass or will have passed to my said wife, by operation of law or in any other manner, and assets of my estate equal in value (as finally determined for Federal estate tax purposes) to such resulting net sum I give, devise and bequeath unto UNION TRUST COMPANY OF MARYLAND, a body corporate organized under the laws of the State of Maryland (hereinafter called the "Trustee"), as Trustee and its successor in trust, to be held in trust for the uses and purposes hereinafter set forth, such trust to be known as the LALLAH R. PIERPONT TRUST. The Trustee shall collect the income, rents and profits from this Trust and after the payment of all taxes thereon and all expenses and charges incident to the management thereof, shall, accounting from the date of my death, pay over and distribute the net income and principal thereof in the following manner:

(a) The Trustee shall pay to my said wife, in quarter-annual installments, all of the income during the remainder of her lifetime.

(b) In addition, the Trustee shall pay to my said wife out of principal an amount equivalent to the income accumulated in the residuary trust established under the terms of Item Seventh of this Will, provided that the total amount of income and principal to be paid to my said wife in any one period of twelve (12) months shall be not less than the sum of Six Thousand Dollars ($6,000.00) and provided further, that if the income from this LALLAH R. PIERPONT TRUST plus the income accumulated under the terms of Item Seventh of this Will shall be in excess of Ten Thousand Dollars ($10,000.00) the Trustee shall pay from the principal of this LALLAH R. PIERPONT TRUST only such amount as is required to make the total payments of income and principal equal the sum of Ten Thousand Dollars ($10,000.00) for each period of twelve (12) months.

(c) In addition to the distribution of income and/or principal as provided for herein, the Trustee shall have authority in its sole and absolute discretion, to make payments out of principal to the extent that it may deem necessary and proper for the reasonable and comfortable support of my said wife in accordance with her station in life; and for the purpose of providing for her in the event of accident, illness, misfortune or other emergency. I direct that in exercising such discretionary powers the Trustee shall take into consideration the other financial resources of my said wife and shall make only such discretionary payments as may be necessary to supplement such other financial resources; provided however, that as a prerequisite to the making of such discretionary payments the Trustee shall not require the liquidation of such of her other financial resources as, in its sole and absolute discretion, it may deem inadvisable to liquidate under the existing circumstances. I further direct that in considering the other financial resources of my said wife the Trustee may accept as conclusive evidence thereof her written statement as to the amount of her financial resources.

(d) I desire to make clear my intention that the immediate and continuing welfare and comfort of my said wife are matters of primary concern to me rather than the retention and appreciation of the principal of this Trust Estate and I therefore direct that, notwithstanding anything in this Will to the contrary, each of the provisions hereof shall be construed liberally in order to accomplish such intention. In the event that any asset of this Trust Estate shall be non-income producing I direct the Trustee to liquidate such asset as promptly as is consistent with prudent investment management, and during the time such asset shall be non-income producing to pay to my said wife from principal such amounts as in the Trustee's judgment will compensate her for loss of income caused by undue delay in converting such non-income producing asset into an income producing asset.

(e) Upon the death of my said wife the entire remaining principal of the LALLAH R. PIERPONT TRUST, or such portion thereof as may be validly appointed, shall be paid over free of this Trust in such manner and proportions as my said wife may designate and appoint in her Last Will and Testament. The power of appointment herein granted to my said wife shall be exercisable by her alone and in all events. To the extent that my said wife does not exercise a valid power of appointment in accordance with the power herein granted, that portion or all, as the case may be, of the principal of the LALLAH R. PIERPONT TRUST over which my said wife has failed to exercise a valid power of appointment shall be distributed absolutely to the Trustee of the residuary Trust created by Item Seventh of this Will, to be retained in trust and/or distributed in the same manner and under the same conditions as though such additions had been a part of the original principal of such residuary trust.

By Item Seventh, decedent devised and bequeathed the residue of his estate to Union Trust Company of Maryland as trustee for the benefit of named beneficiaries and provided further:

(b) During such time as my said wife shall receive benefits from the LALLAH R. PIERPONT TRUST the Trustee shall accumulate the income and add the same to principal. Accounting from the date on which my said wife shall receive the final payment of income and/or principal to which she is entitled under the LALLAH R. PIERPONT TRUST, the Trustee shall pay her, until her remarriage or death, whichever event shall first occur, all of the net income but not less than the sum of Six Thousand Dollars ($6,000.00) and not more than the sum of Ten Thousand Dollars ($10,000.00) in any one period of twelve (12) months. To the extent that the net income in any such period shall total less than Six Thousand Dollars ($6,000.00) the Trustee shall pay out of principal an amount which when added to the net income will total such sum. To the extent that the net income in any such period shall be in excess of Ten Thousand Dollars ($10,000.00) the Trustee shall accumulate such excess and shall add it to principal.

(c) Upon the remarriage or death of my said wife, whichever event shall first occur, or upon my death if my said wife shall have predeceased me, the Trust Estate shall be held for the benefit of my said son William M. Pierpont upon the terms and provisions hereinafter set forth.

(d) The Trustee shall pay to my said son, William M. Pierpont, until his death or until he shall have withdrawn the entire principal of the Trust Estate as hereinafter provided, all of the net income. My said son, William M. Pierpont, may at any time upon written request to the Trustee, withdraw any or all of the principal of the Trust Estate.

(e) My said son, William M. Pierpont, shall have the right to appoint by Last Will and Testament who of his spouse and/or descendants shall be entitled to the remainder of the Trust Estate in the hands of the Trustee at the time of the remarriage of my said wife, or the death of my said wife, or the death of my said son, William M. Pierpont, whichever event shall last occur, and the portions to which such persons shall be entitled, either absolutely or in trust upon such terms and conditions as may be specified in such Last Will and Testament. Such appointment shall be exercised only by specific reference to the power herein granted. To the extent that a specific and valid limited power of appointment is not exercised, the Trust Estate shall be held under the terms of paragraph (f) of this Item Seventh for the descendants of my said son, William M. Pierpont, living at the time of the remarriage of my said wife, or the death of my said wife, or the death of my said son, William M. Pierpont, whichever event shall last occur.

* * *

(i) If at any time there shall remain in the hands of the Trustee any portion of the

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