De Oliveira v. U.S.

• Decision Date: 07 August 1985
• Docket Number: No. 84-2477,84-2477
• Citation: 767 F.2d 1344
• Parties: -6541, 85-2 USTC P 13,633 Jose DE OLIVEIRA, Jr., as Executor of the Estate of Serafina de Oliveira, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1344

767 F.2d 1344

56 A.F.T.R.2d 85-6541, 85-2 USTC P 13,633

Jose DE OLIVEIRA, Jr., as Executor of the Estate of Serafina de Oliveira, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 84-2477.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 12, 1985.

Decided Aug. 7, 1985.

John M. Youngquist, San Francisco, Cal., for plaintiff-appellant.

Steven I. Frahm, Michael L. Paup, Glenn L. Archer, Jr., Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of California.

Before SNEED and BEEZER, Circuit Judges, and STEPHENS, ^* District Judge.

SNEED, Circuit Judge:

Jose de Oliveira, Jr., executor of the estate of Serafina de Oliveira, appeals from a judgment entered in proceedings for the determination of entitlement to an estate tax refund. The district court held that estate taxes were properly assessed against Serafina's estate and granted the Internal Revenue Service's (IRS) motion for summary judgment. The district court had jurisdiction under 28 U.S.C. Sec. 1346(a)(1). This court has jurisdiction over the executor's timely appeal under 28 U.S.C. Sec. 1291. We affirm.

I. FACTS AND PROCEEDINGS BELOW

Jose de Oliveira, Sr. (the testator) died testate in 1956. His last will and testament created a testamentary trust to hold his half of the community property and named his wife, Serafina, as lifetime beneficiary and trustee. The will also gave the trustee certain powers. The nature and scope of those powers are the principal matters of dispute between the parties in this action.

In 1972, Serafina executed a document entitled "Power of Attorney." Under that document Serafina agreed to confer with the family members and to abide by a majority vote on any proposed sale, lease, loan or transaction regarding any of the family property.

Serafina died testate in 1978. Her son, Jose Jr., was appointed executor of her estate. A timely federal estate tax return was filed for the estate. This return did not include as assets of the estate the property in the testamentary trust established by the testator, Jose Sr.

On audit, the IRS determined that the provisions of the testator's will creating the In February 1982, the executor paid the assessed deficiency plus penalties and interest in the total sum of $179,893.91. On September 16, 1982 he filed a claim for refund of this sum in district court. The parties then filed cross-motions for summary judgment. On July 9, 1984, the district court granted the government's motion and on July 23, 1984, entered judgment for the government.

trust gave Serafina the power, exercisable in favor of herself, to consume, appropriate, or dispose of the corpus of the trust. Based on this determination the IRS concluded that Serafina possessed a general power of appointment and that the trust assets were required to be included in her gross estate for estate tax purposes under the provisions of 26 U.S.C. Sec. 2041.

The provisions of the testator's will that gave rise to this dispute are the sixth, seventh, and ninth paragraphs.

Paragraph six reads in part:

Said estate to be held and administered thereafter by said Trustee in trust ...

a) for the benefit of my said wife so long as she lives,

b) with all the powers and subject to the conditions specifically designated hereinafter in paragraph Ninth for my said Trustee and/or Executrix.

c) and shall continue until the death of my said wife. Upon the death of my said wife, this trust to cease and terminate and all the rest, residue and remainder of my trust estate I hereby give, devise and bequeath to my ten children....

(emphasis added).

Paragraph nine gives the trustee various powers "[i]n addition to any inherent or implied or statutory powers" and places no limitations on the use of the trust assets. ¹

Paragraph seven contains the following language: "I hereby direct that all provisions for support herein are intended to take effect as of the date of my death." (emphasis added).

II. DISCUSSION

To determine whether the trust assets were properly included in Serafina's gross estate, we must determine whether the testator's will created a general power of appointment in the trustee (Serafina), and, if so, whether this power was terminated by Serafina's execution of the "Power of Attorney" document in a manner that removed the trust assets from Serafina's gross estate.

A. Standard of Review

The executor appeals from the district court's grant of the government's motion for summary judgment. He contends that the court erred in granting the motion because questions of latent ambiguity in written instruments are questions of fact to be adjudicated by a jury.

A grant of summary judgment is subject to our de novo review. Haluapo v. Akashi Kaiun, K.K., 748 F.2d 1363, 1364 (9th Cir.1984). Our inquiry is governed by the same standard used by the district courts under Fed.R.Civ.P. 56(c). Twentieth Century-Fox Film Corp. v. MCA, Inc., 715 F.2d 1327, 1328 (9th Cir.1983). Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

Because the testator lived in California, California law governs the construction of his will. See Helvering v. Stuart, 317 U.S. 154, 162, 63 S.Ct. 140, 145, 87 L.Ed. 154 (1942); Estate of McMillan v. Commissioner, 670 F.2d 788, 789 n. 2 (8th Cir.1982). Under California law, the construction of a will is a question of law unless the construction turns on the credibility of extrinsic evidence. Estate of Dailey, 130 Cal.App.3d 993, 999, 182 Cal.Rptr. 95, 98 (1982); see Estate of Russell, 69 Cal.2d 200, 213, 70 Cal.Rptr. 561, 570, 444 P.2d 353, 362 (1968).

The district court concluded, after considering all the extrinsic evidence presented by the executor, that there was no ambiguity in the testator's will. The intent of the testator was found to be clear and unambiguous upon the face of the document. We affirm this finding.

Since no "uncertainty arises upon the face of the will" within the meaning of Cal.Prob.Code Sec. 105, ² any proferred evidence attempting to show an intention different from that expressed is inadmissible. Estate of Russell, 69 Cal.2d at 212, 70 Cal.Rptr. 561, 444 P.2d 353. Therefore, interpretation of the testator's will is a matter of law since it does not turn on extrinsic evidence and summary judgment is a proper means of adjudication in this case.

B. The Existence of a General Power of Appointment

The executor argues that the language in the testator's will creating the trust did not expressly grant to Serafina a general power of appointment. If such a power might be implied, he argues, the will is latently ambiguous since this was not the testator's intent. The executor maintains that certain extrinsic evidence offered below proves that the testator intended that the trust could be invaded only for Serafina's support.

Our analysis begins by recognizing that state law determines the property rights and interests created by a will, but federal law determines the tax consequences of those rights and interests. Morgan v. Commissioner, 309 U.S. 78, 80, 60 S.Ct. 424, 425, 84 L.Ed. 1035 (1940); Little v. United States, 704 F.2d 1100, 1105 (9th Cir.1983). No one disputes this principle.

The district court concluded that the will created a power of appointment under California law. The executor does not contest that conclusion on appeal. Rather, the issue on appeal is whether the power of appointment created by the will was a general power of appointment within the meaning of the federal estate tax law.

Section 2041 of the Internal Revenue Code includes within the gross estate of a decedent the value of property over which the decedent possessed a general power of appointment. Such a general power is defined by section 2041(b)(1), relevant portions of which are set forth in the margin. ³ Serafina's power of appointment is derived from paragraphs six and nine of the testator's will. Paragraph six provides that the trust was "for the benefit" of Serafina. In addition, paragraph nine grants extensive powers to Serafina as trustee to own, control, possess and use the trust assets, to collect and receive rents, issues and profits for the benefit of the trust, and to sell, convey, lease or mortgage property of the trust as deemed necessary or convenient. ⁴ Serafina's power to consume, invade, or appropriate property is limited only by the requirement that it be exercised for her "benefit."

The executor does not deny that "benefit" is not an "ascertainable standard" sufficient to bring the power within the exception stated in subsection 2041(b)(1)(A). See, e.g., Lehman v. United States, 448 F.2d 1318 (5th Cir.1971) (holding that the words "comfort" and "welfare" rendered a power of appointment general); Treas.Reg. Sec. 20.2041-1(c)(2) (1954). Accordingly, Serafina power remains one exercisable in her favor, her estate, or the creditors of her estate.

Paragraph seven of the will states that "all provisions for support herein" shall take effect on the day of the testator's death and directs the executrix "to make the same provisions for the beneficiary [Serafina] as provided in said trust" during the probate administration of the estate. This does not alter the conclusion that Serafina's power was a general power. The purpose of paragraph seven was to free Serafina from the need to seek court-ordered maintenance pursuant to Cal.Prob.Code Secs. 680-684 (West 1956). ⁵

Nonetheless, the executor argues that the use of the "provisions for support" creates an ambiguity which requires that extrinsic evidence be examined to determine the testator's intent. The extrinsic evidence offered below, the executor insists, shows that the testator intended that the trust could be invaded only for Serafina's support. Thus, her power was not general because limited by an ...