Guiney v. United States

• Decision Date: 22 April 1970
• Docket Number: No. 13642.,13642.
• Citation: 425 F.2d 145
• Parties: Emily D. Leahy GUINEY, Executrix of the Estate of Arthur Hamilton Leahy, deceased, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

425 F.2d 145 (1970)

Emily D. Leahy GUINEY, Executrix of the Estate of Arthur Hamilton Leahy, deceased, Appellant, v. UNITED STATES of America, Appellee.

No. 13642.

United States Court of Appeals, Fourth Circuit.

Argued February 4, 1970.

Decided April 22, 1970.

William Graham Boyce, Jr., Baltimore, Md., for appellant.

Richard Farber, Atty., Dept. of Justice (Johnnie M. Walters, Asst. Atty. Gen., Lee A. Jackson and Loring W. Post, Attys., Dept. of Justice, and Stephen H. Sachs, U. S. Atty., on brief), for appellee.

Before SOBELOFF, BOREMAN and BRYAN, Circuit Judges.

SOBELOFF, Circuit Judge:

A widow, as executrix of her husband's estate, instituted an action for the recovery of federal estate taxes assessed and paid. The case is here on the taxpayer's appeal from an adverse judgment of the United States District Court for the District of Maryland, 295 F. Supp. 789 (1969).

The only question we need decide is whether the "general power of appointment" granted to the widow by Item Second of the will of Arthur Hamilton Leahy gave her the power to appoint the principal of the trust to herself or her estate as is required by section 2056(b) (5)¹ of the Internal Revenue Code in order to qualify for the marital deduction. If the will gave the widow this power, the Commissioner of Internal Revenue improperly denied the marital deduction and the District Court should have entered judgment in her favor.

Mr. Leahy made a bequest to trustees for his surviving wife for life, with a testamentary power of appointment. This was done in accordance with a standard formula clause to determine the property qualifying for the marital deduction. Item Second of the will then added the following relevant language:

However, I want to make it clear that I am giving my wife a general power of appointment over this trust in order that one-half of my estate may qualify for the marital deduction * * * as it is fully my intention to take advantage of the marital deduction as provided by the Internal Revenue Code of 1954, or amendments made thereafter.

According to the Commissioner, Item Second failed to achieve its purpose because in his view of the Maryland law the wife could not appoint the trust principal to herself or her estate. His ruling increased the federal estate tax liability by $12,467.02.

Considering the provisions of the testator's will in light of section 2056 of the Internal Revenue Code, as interpreted by section 20.2056(b)-5(e)² of the Treasury Regulations and Pierpont v. CIR, 336 F.2d 277 (4th Cir. 1964), the District Court correctly concluded that Maryland law was determinative of the extent of the power granted in the will.³ Then, reviewing the Maryland decisions, the court ruled that despite the language of the will, the widow was not authorized to appoint the principal of the trust to herself or her estate as required in order to qualify for the marital deduction under section 2056(b) (5) of the Code.

On appeal, both the taxpayer and the Government have renewed their substantive arguments; certain procedural arguments made by the Government in the District Court are not pressed in this court. With respect to whether the language used in the will was sufficient to allow the wife to appoint to herself or her estate, both sides have discussed Frank v. Frank, 253 Md. 413, 253 A.2d 377 (1969), which was decided subsequently to the District Court's decision. After examining the Code, the Treasury Regulations, and the applicable Maryland law, we agree with the taxpayer that the language used by the testator is effective to take full advantage of the marital deduction, in that it does allow the wife to appoint the trust principal to herself or her estate.

Section 20.2056(b)-5(e) of the Treasury Regulations provides that in determining whether the requirements of section 2056(b) (5) of the Code have been met, "regard is to be had to the applicable provisions of the law of the jurisdiction under which the interest passes * * *." Accordingly, as stated above, the law of Maryland must be applied in determining the character of the power given the wife. Pierpont v. CIR, supra, and cases cited therein, 336 F.2d at 281.

As Chief Judge Hammond, in Frank v. Frank, supra, at 415, 253 A.2d 377, characterized the Maryland law on testamentary powers of appointment, it is "unusual if not unique." This "rather strange animal"⁴ was born in Balls v. Dampman, 69 Md. 390, 16 A. 16, (1888). There, a husband gave his wife the power "to will and dispose of the real estate given her for life in such manner as she may see fit * * *." 69 Md. at 391, 16 A. at 17. The Maryland Court of Appeals held that she had

only the power to appoint — that is, to name by will — the person or persons to whom the property should go; and she had no authority to devise it for the payment of her debts, — that is, to encumber or consume it altogether for her own use. The construction insisted on by the donee would, if adopted, practically convert her from a mere life-tenant into an owner of the fee.

69 Md. at 394, 395, 16 A. at 18.

The reasoning of this decision is understandable in light of the legal concepts prevalent at the time it was rendered.⁵ In 1888, as is manifested by the last sentence quoted above from Balls, the Maryland Court of Appeals was primarily concerned that the creation of a life tenancy with an unrestricted power of appointment would merge the estates into a fee simple absolute, thus defeating the testator's intention. Therefore, the court held that the wife had been granted no power to encumber or consume the property entirely for her own use.

Later cases, both in the Court of Appeals of Maryland and in our court, have reiterated this Maryland rule where the language employed, in granting the power, was "to such person or persons as she may limit, nominate and appoint" (Lamkin v. Safe Deposit & Trust Co., 192 Md. 472, 475, 64 A.2d 704, 707, 1948), "for the use and behoof of such person or persons as she, by her last will * * * shall have named * * * to take and have the same" (Leser v. Burnet, 46 F.2d 756, 757-758 4th Cir. 1931), "in such manner and proportions as my said wife may designate and appoint in her Last Will and Testament" (Pierpont v. CIR, supra, 336 F.2d at 279), and "I hereby confer upon my said wife full and complete testamentary power of disposition" (Frank v. Frank, supra, 253 Md. at 415, 253 A.2d at 378).

However, with developments in the law of trusts and estates, the courts interpreting Maryland law have come to reflect a more modern view, viz., that while it would be an impermissible frustration of the donor's desire if creditors of the donee were allowed to benefit from the donor's property in the absence of a clear statement that the donor so intended, yet, where he sufficiently expresses his desire to give the donee the power to appoint to herself or her estate, this intent must likewise not be frustrated.

The current approach is illustrated by Leser v. Burnet, supra, where Judge Parker, speaking for this court, observed:

A general power i. e., a broad general power including the power of the donee to appoint to herself or her estate could doubtless be created in Maryland by expressing in the language creating it what is held to be implied in most other jurisdictions, viz., that the donee may exercise same for his own benefit or for the benefit of his creditors; but unless this is expressed, the power under the Maryland decisions is not general, but limited; and being limited, it does not come within the meaning of a general power of appointment as that term is used in the language of the revenue act.

46 F.2d at 761.

The present Maryland Court has shown itself hospitable to this approach. Referring to the above language of Judge Parker, Chief Judge Hammond noted in Frank that, "Leser v. Burnet has been considered as representing a valid expression of Maryland law by commentators." (citations omitted) 253 Md. at 418, 253 A.2d at 380. And Judge Bell, in Pierpont, stated, "We must conclude, therefore, that Leser v. Burnet, 46 F.2d 756 (4th Cir. 1931), is not at variance with the way the Maryland Court of Appeals would decide the issue were it called upon for a specific holding and is controlling on the question we face here." 336 F.2d at 283. This statement of the Maryland Law was endorsed in Frank, 253 Md. at 419, 253 A.2d 377.

We adhere to the Maryland law as enunciated by its highest court; in our view, however, the District Court erred in holding that the testamentary provisions in question failed to meet the statutory requirements of section 2056(b) (5) of the Internal Revenue Code. The words used by this testator go far beyond any language considered in the cases adjudicated under Maryland law.

In no case cited in either brief, or that has come to our attention, did the testator actually use the words "general power of appointment," much less did he in the same breath make specific reference to "the marital deduction as provided by the Internal Revenue Code of 1954." It is noteworthy that in Pierpont, the testator did not refer specifically to the marital deduction as such, although he adopted, to a certain extent, language of the Code. Pierpont is readily distinguishable, however, in that the testator's words were "in such manner and proportions as my said wife may designate and appoint in her Last Will and Testament." This language clearly fell short of the marital deduction requirements, since it did not, even by inference, authorize the wife to appoint to herself or her estate.

It is singularly important to note that in the instant case, by contrast, the testator employed unmistakably precise language. Mr. Leahy manifested a clear and forthright desire to clothe his widow with the "general power of appointment" necessary to accomplish the marital deduction and by express reference brought the power he created squarely within the Code's requirements.

Returning to the Internal Revenue Code, w...