Waterman v. Comm'r of Internal Revenue (In re Estate of Edelman), Docket No. 82436.

• Decision Date: 28 September 1962
• Docket Number: Docket No. 82436.
• Citation: 38 T.C. 972
• Parties: ESTATE OF REBECCA EDELMAN, DECEASED, SAMUEL B. WATERMAN, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

38 T.C. 972

ESTATE OF REBECCA EDELMAN, DECEASED, SAMUEL B. WATERMAN, EXECUTOR, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 82436.

Tax Court of the United States.

Filed September 28, 1962.

Morton Schimmel, Esq., for the petitioner.

Philip Shurman, Esq., for the respondent.

1. Held, that a power of appointment granted to the decedent under the will of her deceased husband, under which she was authorized to appoint to her estate (but not to herself) the whole or any part of the principal or a trust created under said will, is a ‘general power of appointment’ within the meaning of section 2041(a)(2) and (b)(1) of the 1954 Code.

2. Held, further, that the decedent held said power of appointment at the time of her death, although she was at that time mentally deranged but had never been adjudicated to be incompetent.

3. Held, further, that the value of the trust property over which the decedent had said power of appointment is includible in her gross estate under said section 2041(a)(2).

4. Held, further, that a constitutional issue, not pleaded and raised for the first time on reply brief, will not be considered. PIERCE, Judge:

Respondent determined a deficiency in estate tax in the amount of $4,482.24.

The issue for decision is whether there is includible in the gross estate of the decedent Rebecca Edelman, under section 2041(a)(2) of the 1954 Code, the value of the principal of a trust created under the will of her deceased husband, as to which she not only was given the right to receive the net income for her life, but as to which she also was granted a power to appoint the principal to her own estate, free of the trust. Decision of this issue depends on answers to the following questions:¹

(1) Was said power to appoint the trust principal a ‘general power of appointment,‘ within the meaning of section 2041(a)(2) and (b)(1) of said Code?

(2) Did the decedent Rebecca, who never exercised or released said power which concededly never lapsed, have and possess said power at the time of her death?

FINDINGS OF FACT.

Some of the facts have been stipulated. The stipulation of facts and all exhibits attached thereto are incorporated herein by reference.

The petitioner herein is the executor of the last will and testament of Rebecca Edelman, deceased, who died on November 12, 1955, a resident of the city, county, and State of New York. The Federal estate tax return for the decedent's estate was filed with the district director of internal revenue for the Lower Manhattan District of New York, New York.

Rebecca was the widow of Albert Edelman, who predeceased her on July 9, 1951. Albert, likewise died testate and a resident of the city, county, and State of New York. His last will and testament, dated December 8, 1950, was admitted to probate in the Surrogate's Court of New York County on July 12, 1951.

Albert's will, after making provision for certain specific bequests, provided insofar as here material, as follows:

FIFTH: All the rest, residue and remainder of my property, real, personal and mixed, of every kind and description whatsoever and wheresoever situate, I give, devise and bequeath to my Trustees named herein, to receive the income therefrom and after paying all lawful debts and expenses pertaining thereto, to pay over the net income derived from the said trust estate to my wife, REBECCA EDELMAN, during her life time. I give my wife, REBECCA EDELMAN, the right at any time and from time to time, beginning with my death and continuing during her life, to appoint the whole or any part of the principal of the trust created by this paragraph to her estate (but not to herself) free of the trust. Any such appointment shall be revocable by her at any time, and each exercise and each revocation of an exercise of the appointment shall be by written instrument (other than a Will) executed by my wife and delivered to my Trustees during her life. If and to the extent that my wife shall fail effectively to exercise completely such power of appointment, then upon her death the remaining principal of said trust shall be divided in equal shares and paid over to my grandson, SAMUEL EDELMAN and my granddaughter, LEANORE EPSTEIN.

NINTH: (a) I hereby nominate and appoint MORRIS A. EDELMAN (a son of Albert and Rebecca) and REBECCA EDELMAN, as Executors of this Will and Trustees of the trust herein created.

Rebecca, upon the death of her husband and the admission of his will to probate, became the life beneficiary of the trust created under said article Fifth of her husband's will; and she also became the donee and holder of the power of appointment over the principal of said trust, which was granted to her under said article. Rebecca did not during her lifetime execute any written instrument exercising this power of appointment, either in whole or in part; and petitioner has conceded that at no time during her life did the power lapse. At Rebecca's death, the fair market value of the principal of the trust, with respect to which she had been granted said power of appointment, was $16,658.16 (as determined by respondent in his notice of deficiency, and not here contested by petitioner).

In February 1955, which was about 10 months before Rebecca's death, she was placed in a nursing home in Brooklyn, New York; and she remained there until her death on November 12, 1955. The reason for her being placed in this home was that she had high blood pressure and arteriosclerosis; and that she was disoriented, confused, and totally unable to care for herself. During the period that she was in the nursing home, she was at times coherent and at other times incoherent; also, sometimes she would recognize her grandson when he visited her, and at other times she would not. Said grandson who was a doctor regarded her to be incompetent. She was never adjudicated to be incompetent, and there is no contention or suggestion, and no evidence, that a committee for her was ever appointed.

In the Federal estate tax return filed for Rebecca's estate, the value of the trust property over which said decedent had been granted the above-mentioned power of appointment, was not included in the gross estate. The respondent however, in his notice of deficiency herein, added to the decedent's taxable estate, the said amount of $16,658.16, which he determined to be—

the fair market value of trust corpus with respect to which the decedent had a general power of appointment within the meaning of section 2041 of the Internal Revenue Code of 1954, granted to her under the last will and testament of her deceased spouse, Albert Edelman.

OPINION.

Section 2041(a)(2) of the 1954 Code (the pertinent provisions of which, together with those of the related section 2041(b)(1), are set forth in the margin² ) provides in substance and material part, that the value of the gross estate of a decedent for Federal estate tax purposes, shall include the value of any property ‘with respect to which the decedent has at the time of his (or her) death a general power of appointment created after October 21, 1942.’

In the instant case, there is no dispute that the decedent, Rebecca, did acquire upon the death of her husband Albert in 1951, and in accordance with the provisions of his last will and testament, not only the right to receive the net income of the trust here involved, during her lifetime; but also the power to appoint, beginning with her husband's death and ‘continuing during her life,‘ the principal of said trust to her own estate, free of the trust. Also, it is here undisputed, that this power of appointment was created after October 21, 1942; that Rebecca at no time during her lifetime, either disclaimed or renounced, exercised, released, or revoked said power, either in whole or in part; and that at no time during her lifetime, did this power lapse. Accordingly, in determining the applicability of said section 2041(a)(2), the present controversy is narrowed to two underlying questions: (a) Whether said power of appointment was a ‘general power of appointment’ within the meaning of said statutory section; and (2) whether Rebecca had or possessed said power of appointment ‘at the time of * * * (her) death.’

1. As regards the first of these questions, petitioner contends, in substance: (1) That whether the power of appointment involved was a ‘general power of appointment,‘ must be determined by reference to the law of the State of New York, rather than by construction of the pertinent provisions of the Federal Revenue Act of 1954; and (2) that said power did not qualify as a ‘general power of appointment,‘ because Rebecca could thereunder appoint the principal of the trust only to her own estate, and then only by a written instrument (other than a will) executed by her and delivered to the trustees during her lifetime.

We do not agree with these contentions. First, it is to be observed that we are here concerned with the meaning and application of a statute enacted by Congress in the exercise of its plenary power to tax the estates of decedents. As was stated by the Supreme Court in Burnet v. Harmel, 287 U.S. 103, 110, wherein that Court was dealing with the meaning and application of a Federal income tax statue:

The exertion of that power (to tax) is not subject to state control. It is the will of Congress which controls, and the expression of its will in legislation, in the absence of language evidencing a different purpose, is to be interpreted so as to give a uniform application to a nation-wide scheme of taxation. * * * State law may control only when the operation of the federal taxing act, by express language or necessary implication, makes its own operation dependent upon state law. * * *

See also Lyeth V. Hoey, 305 U.S. 188, 193-194, in which the Supreme Court, in construing a provision of a Federal tax statute, said: ‘We are not concerned with the peculiarities and special incidences of state taxes or with the policies t...