Morgan v. COMMISSIONER OF INTERNAL REVENUE

• Decision Date: 30 September 1937
• Docket Number: Docket No. 82771.
• Citation: 36 BTA 588
• Parties: J. EARL MORGAN, EXECUTOR OF THE ESTATE OF ELIZABETH S. MORGAN, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

36 B.T.A. 588 (1937)

J. EARL MORGAN, EXECUTOR OF THE ESTATE OF ELIZABETH S. MORGAN, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 82771.

Board of Tax Appeals.

Promulgated September 30, 1937.

A. M. Kracke, Esq., for the petitioner.

H. F. Noneman, Esq., and Frank T. Horner, Esq., for the respondent.

OPINION.

ARUNDELL:

Petitioner seeks the redetermination of a $43,977.93 deficiency in estate tax. All the issues, except one, have been agreed upon by stipulation and effect will be given thereto under Rule 50. The issue remaining is whether two certain powers of appointment were "general" as determined by respondent, or "special" as contended for by petitioner. The parties filed a stipulation of facts which we incorporate herein by reference and briefly summarize only those facts which are material to a clear understanding of the issue we are to decide.

The decedent, Elizabeth S. Morgan, died testate May 3, 1933, a citizen of the United States and a resident of the State of Wisconsin, and petitioner is the duly appointed executor of her last will and testament. Isaac Stephenson, decedent's father, died testate on March 15, 1918. He was also a citizen of the United States and a resident of the State of Wisconsin. By his last will and testament and several codicils thereto, he conveyed certain property in trust for the benefit of his children. The children were to receive the income annually and a certain portion of the principal at the end of four, eight, and twelve years after his death, and the entire remaining principal at the end of sixteen years after his death, provided they were living at the end of each of the four stated periods. The trust estate was divided into nine parts, part numbered five being conveyed in trust for decedent's benefit as follows:

ITEM FIFTEEN: I direct said trustees to pay to my daughter Elizabeth S. Morgan annually the net annual income from part numbered five (5) into which my trustees shall have divided my estate * * *.

I give, devise and bequeath to the appointee or appointees of my daughter Elizabeth S. Morgan by her last will and testament all property of any nature and kind in the hands of my said trustees at the time of her death constituting said part five (5) * * *.

The trust further provided that, should decedent die without exercising the power, then whatever portion of the principal remained should go to her issue, and, in the event of her death without issue, then such remaining portion of the principal should be equally divided and distributed among the other remaining parts into which the estate was divided.

On May 12, 1917, Isaac Stephenson executed a deed of trust reading in part as follows:

7. After my death and during the continuance of the trust hereby created, said Trustees shall pay annually to my daughter ELIZABETH S. MORGAN the net annual income from said part numbered five (5).

If my daughter Elizabeth S. Morgan shall be living at the time of the termination of this trust, said Trustees shall transfer to her all property then in their possession constituting said part five (5).

If my daughter Elizabeth S. Morgan shall die prior to the termination of said trust, then said Trustees shall pay annually the net annual income from said part five (5) to such person or persons as she may appoint by her last will and testament duly admitted to probate, and at the termination of this trust said Trustees shall transfer the property then in their possession constituting said part five (5) to such person or persons as she may appoint in the manner aforesaid.

If my daughter Elizabeth S. Morgan, dying as aforesaid, should fail to make such appointment * * * then and in any such event the annual income from said part five (5), * * * shall be paid annually by said Trustees to her issue surviving * * * and at the termination of said trust, said Trustees shall transfer all the property then in their possession, constituting said part five (5), * * * to the then surviving issue of my said daughter * * *.

During her life decedent received the distributions payable to her at the end of the fourth, eighth, and twelfth years after the death of her father, as provided for in his will, but she did not receive the distribution payable to her at the end of the sixteenth year, owing to the fact that she only lived fifteen years, one month, and eighteen days after her father's death.

By her last will and testament decedent exercised the power of appointment under her father's will as to that portion of the property which she would have received at the end of the sixteen years after her father's death, had she lived, and she also exercised the power of appointment given her by her father's deed of trust, the appointments being in the following words:

TWENTY-SECOND: Under the last will and testament of my father * * * I do hereby nominate, constitute, authorize and appoint my husband, J. Earl Morgan * * *.

TWENTY-THIRD: Under the Deed of Trust dated May 12, 1917, * * * I do hereby appoint my husband, J. Earl Morgan * * *.

The respondent determined that both powers which decedent exercised by will were "general" powers of appointment; that the value of the property passing under such powers was $41,212.82 and $325,613.51, respectively; and that these values should be included in decedent's gross estate under section 302 (f) of the Revenue Act of 1926, as amended by section 803 (b) of the Revenue Act of 1932.

Petitioner contends that the two powers in question were "special" powers, rather than "general" powers, as was determined by the respondent. Petitioner does not question the respondent's determination of the value of the property passing under the powers.

Section 302 (f) of the Revenue Act of 1926, as amended by section 803 (b) of the Revenue Act of 1932, provides in part as follows:

SEC. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated * * *

* * * * * * *

(f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will * * *.

It has been held that in determining the nature and effect of powers we look to the law of the state having jurisdiction, Leser v. Burnet, 46 Fed. (2d) 756; Christine Smith Kendrick et al., Executrices, 34 B. T. A. 1040, 1044. In this case the powers were created while the donor was a resident of Wisconsin; the donee was a resident of that state; the property affected is in that state, and the estate of the deceased donee is being administered in the courts of that state.

The...