Meierhof v. Higgins, 276.

• Decision Date: 24 July 1942
• Docket Number: No. 276.,276.
• Citation: 129 F.2d 1002
• Parties: MEIERHOF v. HIGGINS, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Second Circuit

129 F.2d 1002 (1942)

MEIERHOF v. HIGGINS, Collector of Internal Revenue.

No. 276.

Circuit Court of Appeals, Second Circuit.

July 24, 1942.

Samuel R. Feller, of New York City (Leo H. Hirsch, Jr., of New York City, of counsel), for plaintiffs-appellants.

Mathias F. Correa, U. S. Atty., of New York City (David McKibbin, 3d Asst. U. S. Atty., of New York City, of counsel), for Collector of Internal Revenue, defendant-appellee.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The plaintiffs, as trustees under the will of Edward L. Meierhof, sued the defendant, a Collector of Internal Revenue, to recover an overpayment of the estate taxes which were assessed by the Commissioner. They were granted a recovery of $86.21 plus interest and costs because income between the dates of death and the date of optional valuation had been improperly included in the gross estate. Maass v. Higgins, 312 U. S. 443, 61 S.Ct. 631, 85 L.Ed. 940, 132 A.L.R. 1035. The plaintiffs appeal from the judgment so far as it failed to allow a recovery of taxes on an over-assessment occasioned by the refusal of the Commissioner to deduct from the gross estate the worth of a contingent charitable bequest to Columbia University which had a conceded actuarial value of $9,836.70.

The testator created a trust under the third paragraph of his will in which a fund of $30,000 was to be disposed of as follows:

The income of the fund was to be paid to decedent's sister Esther Hoffman, for life.

If upon the death of Esther Hoffman, her husband Sol Hoffman should not be then living, the corpus of the trust was to be paid to decedent's widow, Lina H. Meierhof, if she should then be living, and if not then living, the fund was to be paid to Columbia University.

If upon the death of Esther Hoffman, Sol Hoffman should then be living, one-half of the fund was to be held in trust for Sol Hoffman for the balance of his life. Upon his death, the one-half was to be paid to Lina H. Meierhof, if then living, or if not then living, to Columbia University. The other one-half of the fund was to be paid upon the death of Esther Hoffman to Mrs. Meierhof, if then living, or if not then living, to Columbia University.

At the time of the decedent's death on October 25, 1937, his sister Esther Hoffman was seventy-four years of age, her husband, Sol Hoffman, seventy-nine and the decedent's wife Lina Meierhof, seventy-one. Sol Hoffman died October 10, 1941; Mrs. Hoffman and Mrs. Meierhof are still living. The court below affirmed the action of the Commissioner in assessing a tax and sought to support it by the following findings:

"22. That the normal life expectancy of Lina H. Meierhof was greater than the normal life expectancies of either Esther Hoffman or Sol Hoffman.

"23. That the charitable bequest to Columbia University was contingent upon the death of a younger designated person prior to the death of two older designated persons.

"24. That it cannot be determined whether the contingent charitable bequest to Columbia University would ultimately take effect or not.

"25. That there was no practical certainty that the contingent charitable bequest to Columbia University would ever take effect.

"26. That the contingency dependent upon which the bequest to Columbia University was to take effect was not probable.

"27. That the contingent charitable bequest to Columbia University involved an uncertainty appreciably greater than the general uncertainty that attends human affairs."

The deduction was claimed under the provisions of Section 303(a) (3) of the Revenue Act of 1926, as amended, 26 U.S.C.A. Int.Rev.Acts, page 235, which reads as follows:

"Sec. 303. For the purpose of the tax the value of the net estate shall be determined * * *

"(a) In the case of a citizen or resident of the United States, by deducting from the value of the gross estate * * *

"(3) The amount of all bequests * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes."

It is to be observed that the deduction comprises: "The amount of all bequests to any corporation" of the class described in the statute. Contingent remainders, like the one to Columbia, have long been valued for purposes of taxation The ultimate vesting in this case depends on the order of survival of three legatees and the value is capable of actuarial computation. It is true that Lina Meierhof's survival of Esther Hoffman and Sol Hoffman would defeat the bequest to Columbia University altogether; yet it had a value and was an "amount" which courts have recognized in computing estate and succession taxes. The New York Court of Appeals recently dealt with the valuation of contingent remainders for estate transfer tax purposes and in an unanimous opinion approved their valuation upon an actuarial basis. Matter of Cregan's Estate, 275 N.Y. 337, 9 N.E.2d 953, 112 A.L.R. 260. In reaching this conclusion it relied on the decision of the Supreme Court in Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S.Ct. 291, 73 L.Ed. 647. There deduction was allowed of the value of certain charitable bequests determined by mortality tables, though the principal of the trust was subject to the power of the life beneficiary to deplete it by the use of any sum that might be necessary suitably to maintain the life beneficiary "in as much comfort as she now enjoys," and though she died within six months of the testator. The court held that the value of her interest should be estimated as of the date of death, rather than determined by subsequent events, and that in determining her interest her power to deplete the principal should be disregarded because the income from the trust was so large as to render the nonexercise of the power reasonably certain.

In Humes v. United States, 276 U.S. 487, 48 S.Ct. 347, 348, 72 L.Ed. 667, it was held that a contingent bequest to charities was not deductible where the value depended on mere speculation and could not be determined through any known data. There a bequest was made payable to charities if the beneficiary died without issue before attaining the age of forty, the income being paid to her in the meantime. There were no findings that the present value of the contingent bequest to the charities could be determined by the calculations of actuaries based on experience tables. Justice Brandeis, who wrote the opinion, stated that even if there had been findings no legal basis would have been laid for the deduction claimed. The taxpayer argued that such tables existed and that actuaries could determine "what the probability is that a woman dying at a given age will die unmarried; (and) * * * what the probability is that if she marries, she will die...