Gammons v. Hassett

• Decision Date: 27 June 1941
• Docket Number: No. 3673.,3673.
• Citation: 121 F.2d 229
• Parties: GAMMONS et al. v. HASSETT, Collector.
• Court: U.S. Court of Appeals — First Circuit

121 F.2d 229 (1941)

GAMMONS et al. v. HASSETT, Collector.

No. 3673.

Circuit Court of Appeals, First Circuit.

June 27, 1941.

Harold Williams, of Boston, Mass., for appellants.

Morton K. Rothschild, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key and Joseph M. Jones, Sp. Assts. to Atty. Gen., and Edmund J. Brandon and George F. Garrity, both of Boston, Mass., on the brief), for appellee.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAHONEY, Circuit Judge.

This action was brought in the District Court by the executors and trustees under the will of Bryan R. Houghton to recover $29,927.72, a part of the estate tax paid under protest and alleged to have been assessed illegally by the Commissioner of Internal Revenue. It is claimed that a deduction of $170,779.04 from the gross estate of the decedent should have been allowed on account of certain bequests to charities. The District Court sustained the action of the Commissioner in refusing to allow the deduction. The plaintiffs have appealed.

The following facts were either stipulated by the parties or found by the District Judge:

Bryan R. Houghton died June 30, 1936, at the age of 92, leaving a widow, Mary F. Houghton, aged 93. There were no children of the marriage, and Mr. Houghton had no near relatives. Mrs. Houghton had been bedridden for more than two years before her husband's death, and during this period he handled all her business affairs, though she was able to sign checks. Mrs. Houghton was and is mentally alert, but she is still confined to her bed. After her husband's death it was necessary to appoint a conservator for her because of her physical condition.

The decedent's will, dated October 24, 1934, was reaffirmed by a codicil, dated May 29, 1936. Article III of the will is in part as follows:

"1. All the rest, residue and remainder of my property, of whatever nature, and wherever situated, including all property over which I now have, or may hereafter acquire, the power of disposition, I give, devise and bequeath to my Trustees, in trust, nevertheless, for the following purposes: to be held by them, the income thereof, after paying all reasonable expenses of the trust, including a reasonable compensation for the services of my Trustees, and so much of the principal thereof as my said wife may at any time and from time to time need or desire, to be paid to my said wife during her life.

* * * * * *

"3. I direct my said Trustees to transfer, make over and distribute the rest, residue and remainder of my estate to the New England Grenfell Association, of 25 Huntington Avenue, Boston, Massachusetts, and the Society for Prevention of Cruelty to Animals, of Boston, Massachusetts, share and share alike, free and discharged of any trust."

It is stipulated that the New England Grenfell Association and the Society for the Prevention of Cruelty to Animals, of Boston, are charitable corporations within the Revenue Act of 1926, as amended.

When Mr. Houghton reaffirmed the will by the codicil of May 29, 1936, he did not expect that his wife would live long. On the same day that this codicil was executed, Mrs. Houghton executed a codicil to her will under which the residue of her estate, if her husband predeceased her, was to go to the same trustees and for the same purposes as those stated in the testator's will.

At the time of Mr. Houghton's death, his property had a valuation of approximately $275,000 and Mrs. Houghton's property had a valuation of approximately $190,000. Over a period of years their combined income had varied between $15,000 and $25,000 a year. They had always lived on a very simple scale and their combined income was in excess of that required to maintain their customary standard of living.

The plaintiffs maintain that the Commissioner should have allowed a deduction of $170,779.04 from the gross estate of the decedent on account of the bequests to the charities under Section 303(a)(3) of the Revenue Act of 1926,¹ 44 Stat. 9, 72, 26 U.S.C.A. Internal Revenue Acts, page 232.

They filed a claim for refund which the Commissioner denied on the ground that "the right given the life tenant to invade the corpus as she may at any time and from time to time need and sic desire, is too broad". He stated that he saw no reason "why, under the power so granted without any limitation, the fund may not become exhausted or so affected as to render unascertainable as of the date of death, the amount which might pass to the charities."

The only question presented is whether the bequests to the charities were sufficiently definite and ascertainable as of the date of the death of the testator to be deductible from the gross estate.

The rule is now well established that a deduction for a charitable gift will be allowed only if the value of the charitable gift can be ascertained definitely at the date of the testator's death. Humes v. United States, 1928, 276 U.S. 487, 48 S.Ct. 347, 72 L.Ed. 667; Ithaca Trust Co. v. United States, 1929, 279 U.S. 151, 49 S.Ct. 291, 73 L.Ed. 647; United States v. Provident Trust Co., 1934, 291 U.S. 272, 54 S.Ct. 389, 78 L.Ed. 793. We believe that the value of the charitable remainders could not be determined at that time and, consequently, no deduction can be allowed.

The plaintiffs contend that the value of the charitable remainders was ascertainable at the testator's death and a deduction should have been allowed under the principle of Ithaca Trust Co. v. United States, supra. In support of this contention they argue that construed in the light of all the circumstances in which the will was executed, the word "desire" meant a desire on the life tenant's part for use of the principal during her lifetime in order to maintain her existing standard of living; and that even if this interpretation of the word "desire" is rejected, under Massachusetts law the life tenant will not be permitted to destroy the charitable remainder by invasion of the principal at her mere whim, and any invasion of the principal in the special circumstances of this case would constitute a mere whim on Mrs. Houghton's part. They also maintain that even if it is held that an invasion of the principal by Mrs. Houghton is permissible under Massachusetts law, the likelihood that she would use the power of invasion of the principal was so remote at the testator's death that the value of the charitable remainders was ascertainable at that time. We cannot accept any of these contentions.

The will must be interpreted under Massachusetts law. "State law creates legal interests and rights. The federal revenue acts designate what interests or rights, so created, shall be taxed." Morgan v. Commissioner, 1940, 309 U.S. 78, 80, 60 S.Ct. 424, 426, 84 L.Ed. 585. Under Massachusetts law the extent of the beneficiaries' interests is determined by the intention of the testator, and that intention is to be ascertained by a reading of the will in the light of the circumstances under which it was executed. Mills v. Blakelin, 307 Mass. 542, 30 N.E.2d 873, January 2, 1941; Boston Safe Deposit & Trust Co. v. Park, 1940, 307 Mass. 255, 29 N.E.2d 977; Boston Safe Deposit & Trust Co. v. Doolan, 1940, 307 Mass. 233, 29 N.E.2d 844; Atkinson, Law of Wills, 755, 756 (1937); Newhall, Settlement of Estates and Fiduciary Law in Massachusetts, sec. 312, at 745 (1937), 3d Ed. Interpreting the will under these rules, we do not believe that the use of the word "desire" by the testator was intended to give the life tenant only a power to use the principal to maintain her existing standard of living. If this were all that the testator intended to accomplish by the use of this word, then it was unnecessary, for that objective had already been accomplished by the word "need". Moreover, in view of the fact that it was apparent to the testator that Mrs. Houghton's income from her own property and the property bequeathed in trust was in excess of that required to maintain her existing standard of living, the word "desire" was unnecessary if all the testator intended to give his widow was a power to use the property to maintain her customary mode of life. We cannot say that the word "desire" is a mere superfluity. When the testator gave his wife the power to invade the principal as she "may * * * desire," he meant what he said. He intended to give her a broad power of invasion of the principal, not restricted to a mere use of the corpus for the purpose of satisfying her needs.

It follows that the District Judge was not in error in refusing to grant plaintiffs' seventh request for a finding of fact "that by the word `desire' Mr. Houghton meant a desire on Mrs. Houghton's part for use of the principal during her lifetime in order to maintain her existing standard of living."

The Massachusetts case closest to the present case is Merchants' Trust Co. v. Russell, 1927, 260 Mass. 162, 157 N.E. 338, 339. There the life tenant was given "full power and authority to use the income and principal as he desires". He was given a power to sell the property, but he was not given a power to dispose of the property by will. The life tenant made a gift of the property to his son and in a proceeding brought by creditors of the life tenant, it was held that the gift was in excess of the life tenant's power. The court said: "He had no power to make a gift of the property, or convey it without consideration. He could sell it and dispose of the proceeds as he desired, but the language of the power must be so construed as to carry out the testator's intentions and regard must be had to the rights of the remaindermen". It would seem that the court held that the life tenant could make a gift of the proceeds of the property but not of the property itself. Such a holding imposes an extraordinary refinement on the character of the life tenant's power. Should the law of Massachusetts be that Mrs. Houghton under the power given in the present case could not make a gift...