*2578 1. Where a decedent by her last will and testament directed that her executor hold together her residuary estate for a long period of years and gave him authority and power to sell any part of the estate as he should deem best, to reinvest the proceeds, and to pay the income to certain charitable institutions for such period of years and upon a certain date to distribute the estate to named beneficiaries, the administration expenses deductible from the gross estate do not include fees paid to the executor for the management of the estate when in effect acting as trustee.
2. The decedent directed that her executor hold the residuary estate together until the day upon which her grandson, if living, should attain, or, if dead, would have attained the age of 30 years, which date will be May 10, 1950, and until such date to collect the income and after applying such part of the income as may be necessary in the judgment of the executor for the maintenance and expenses of the estate to pay the balance of the income in excess of such amount as might be necessary to meet the actual need at any time of the two grandchildren to three charitable institutions. Held, that the value of*2579 such bequest of the income to charitable institutions is a legal deduction from the gross estate under section 303(a)(3) of the Revenue Act of 1924.
*875 This is a proceeding for the redetermination of a deficiency in estate tax of $20,249.22. The issues involved are (1) the amount properly deductible as executor's commissions and attorneys' fees in determining the net estate subject to tax; and (2) whether there may be deducted from the gross estate, under section 303(a)(3) of the Revenue Act of 1924, $408,275.25, the alleged value of certain bequests of income, to three charitable institutions.
FINDINGS OF FACT.
The petitioner is the executor of the estate of Mary Vermont Eagan who died a resident and a citizen of DeKalb County, Georgia, on December 12, 1924, leaving a last will and testament dated July 5, *876 1924. After making certain specific bequests the will provided as follows:
Item eight: I desire and direct that my executor, hereinafter named, shall hold together, with the authority hereinafter given of changing investments all*2580 of the residue of my estate, including all of my property, real and personal of every kind and description, until the day upon which my grandson, William Russell Eagan, if living, shall attain, or if dead would have attained, the age of thirty years. Until said day, my executor shall collect the income of said estate, and annually, after applying so much of said income as may be necessary in the judgment of said executor for the maintenance and expenses of said estate, said executor shall divide the balance of said income into three equal parts, which he shall pay to the Thornwell Orphanage of Clinton, South Carolina; the Central Presbyterian Church of Atlanta, and The Berry Schools Incorporated, of Mt. Berry Georgia, to which said three institutions I will and bequeath said three shares in the income from my said estate; providing however that if either my grandson, William Russell Eagan, or my grand-daughter Anna Young Eagan or both of my said grandchildren should, through no fault of their own, be in actual need at any time during the period named my executor is authorized and empowered in his discretion to relieve such need and charge the moneys so used as an expense against said*2581 estate, before making a division of the income between the institutions named in this item of my will.
Item Nine: Upon the day specified in Item eight (8) above namely the thirtieth (30th) birthday of my said grand-son, I desire and direct that my executor shall divide the residue of my estate into two equal shares, which said shares of my estate together with the income therefrom I will bequeath and devise to my grandson, William Russell Eagan, and my grand-daughter, Anna Young Eagan, share and share alike, for and during their natural lives, with remainder over at their respective deaths to their respective children, if children shall be born to my said grand-children, each child or children to take the share of the parent of said child or children.
If either of my said grand-children should die, leaving neither child or children nor descendant living the share of said deceased grandchild in my estate shall go to my surviving grand-child, for and during his or her natural life, with remainder over at his or her death to his or her child, or children or descendants if such shall have been born and are living at the time of the death of said surviving grand-child.
If both*2582 of my said grand-children should die leaving no child, nor children, nor descendants of a child or children living then and in that event, the entire estate, in remainder created under this Item Nine (9) of my will, is to go to the Thornwell Orphanage of Clinton, South Carolina, The Central Presbyterian Church of Atlanta, Georgia, and The Berry Schools, Incorporated, of Mt. Berry, Georgia, each of said institutions to receive one-third (1/3) of said estate, the division between said three (3) institutions to be made, either in cash or other property, by my executor, as he may deem best.
Item Ten: I hereby constitute and appoint Marion M. Jackson the sole executor of this my last will and testament, and I expressly confer upon him the authority and power to sell any part of my said estate, as he may deem best, at public or private sale, with or without notice, and without any order of court, for the purpose of paying legacies or for the purpose of changing investments or for the purpose of making a division, where a division is called for, under the terms of my will, between the legatees named therein.
*877 And I further confer upon said Marion M. Jackson the authority*2583 and power to nominate at any time another executor to succeed said Marion M. Jackson as executor of this my last will and testament, which said executor so nominated, when appointed by the court of Ordinary, shall be clothed with the same authority and power that I have conferred upon said Jackson by this item of my will.
The petitioner qualified as executor on or about December 19, 1924, and has been acting as such ever since.
At the date of decedent's death, her grandson, William Russell Eagan, was of the age of 4 years, 7 months, 2 days, having been born on May 10, 1920.
The gross estate of the decedent was valued for estate-tax purposes by the Commissioner at $826,607.92. The executor duly filed an estate-tax return in which he claimed the deduction from the gross estate of $42,780.64 for executor's commissions. Of this amount the respondent disallowed the deduction of $33,947.07 and allowed the deduction of only $8,833.57, which was the amount actually paid by the estate for executor's commissions at the time when the Commissioner made his examination of the accounts of the estate for the purpose of determining the correct estate-tax liability.
In the same estate-tax*2584 return there was also claimed as a deduction $408,275.25 representing the alleged value of a bequest of income of the residuary estate payable to the Central Presbyterian Church, Atlanta, Ga., the Berry Schools, Inc., Mt. Berry, Ga., and Thornwell Orphanage, Clinton, S.C. These are all charitable or educational institutions, no part of the net income of which inures to the benefit of any private stockholder or individual. The full amount of the claimed deduction of $408,275.25 was disallowed by the Commissioner in the determination of the deficiency, upon the ground that the bequests had no ascertainable value as of the date of decedent's death and further that the bequests were void under the laws of the State of Georgia.
The cash receipts and disbursements of the executor up to June 18, 1929, the date of the hearing in this proceeding, were as follows:
| Debit | Credit | |
| Dec. 19, 1924, to June 30, 1926, corpus | $129,304.38 | $172,518.37 |
| Dec. 19, 1924, to June 30, 1926, income | 59,308.04 | |
| July 1, 1926, to June 30, 1927, corpus | 7,000.00 | 39,214.80 |
| July 1, 1926, to June 30, 1927, income | 37,107.03 | |
| July 1, 1927, to June 30, 1928, corpus | 1 2,750.00 | |
| July 1, 1927, to June 30, 1928, income | 2 35,254.13 | 45,633.68 |
| July 1, 1928, to June 18, 1929, income | 32,541.41 | 30,911.80 |
| 74.98 | ||
| Total cash | 302,265.07 | |
| Total disbursements | 288,353.63 | |
| Cash balance June 18, 1929 | 13,911.44 |
*878 The amount of the commissions received by the executor up to the date of hearing was $14,396.41, in addition to which the executor has received $2,000 extraordinary commission allowed to him by the Superior Court of De Kalb County, Georgia, in the case of Marion M. Jackson v. William Russell Eagan et al., making the total commissions received by him to the date of hearing $16,396.41.
The mother of William Russell Eagan and Anna Young Eagan possessed a large estate in 1924 and in 1929, having a value of approximately $800,000 from which she received an income in 1928 of approximately $22,000. The estate was free of incumbrance. There was a probability that her income from the estate in future years would be as great as it was in 1928. She was amply able to support her children and was disposed to do so and had no expectation at the*2586 date of the death of the decedent or in 1929 that any part of the net income of the estate of the decedent would be required to meet the actual needs of her children until her son, William Russell Eagan, reached the age of 30 years.
Being in some doubt as to the proper construction of the will and as to whether the bequest of the income to charities violated section 3851 of the Code of the State of Georgia, the petitioner instituted a suit in the Superior Court of De Kalb County, Georgia (No. 4686), in February, 1927. The suit was brought against William Russell Eagan, Anna Young Eagan, Thornwell Orphanage, Central Presbyterian Church, and the Berry Schools, Inc. The petition represented in part:
V.By the terms of the Will of the said Mrs. Mary Vermont Eagan specific bequests of sums of cash were made in the sum of Twenty Thousand Two hundred ($20,200.) … Dollars, and certain jewelry is also specifically disposed of. All the rest and residue of said estate is directed by said will to be held by the executor until the defendant herein William Russell Eagan shall attain thirty years of age, or if he shall not live until his thirtieth birthday until his thirtieth birthday*2587 would have arrived should he have lived. During this period in which the residue of said estate is to be held intact by the executor the said will directs that the executor shall pay the balance of the income, after setting aside such amount as in the executor's judgment is necessary for the maintenance and expenses of the estate, in equal shares to the defendants, Thornwell Orphanage, Central Presbyterian Church and The Berry Schools, Incorporated; provided, however that if either the defendant, William Russell Eagan, or the defendant, Anna Young Eagan, or both of said defendants should, through no fault of their own, be in actual need at any time during said period, the executor is authorized and empowered in his discretion to relieve such need and charge the moneys so used as an expense against the estate before making the division of the income among the three defendants, Thornwell Orphanage, Central Presbyterian Church and The Berry Schools, Incorporated.
*879 VI.
The said Mrs. Mary Vermont Eagan died on the day of 192 and the said William Russell Eagan was born on the 10th day of May 1920.
VII.By the terms of Section 3851 of the Code of the State of Georgia, *2588 it is provided as follows:
"No person leaving a wife, or child, or a descendant of child, shall, by will, devise more than one-third of his estate to any charitable, religious, educational or civil institution to the exclusion of such wife or child; and in all cases the will containing such devise shall be executed at least ninety days before the death of the testator or such devise shall be void."
Under the fact hereinbefore alleged it is doubtful to your petitioner as to whether the gift of the income of the residue of said estate to the defendants, Thornwell Orphanage, Central Presbyterian Church and The Berry Schools, Incorporated is a gift of more or less than one-third of the estate of the said testatrix. If the gift of such income exceeds one third of said estate that gift falls within the terms of Section 3851 of the Code, and if such gift does fall within the terms of said Section 3851 of the Code it is not clear to your petitioner whether he should pay said income to the said Thornwell Orphanage, Central Presbyterian Church and The Berry Schools, Incorporated, or not. It is the opinion of your petitioner that if said will is properly construed and proper calculation*2589 made according to law that said gift to said three charitable institutions amounts to less than one-third of said estate and so does not fall within Section 3851 of the Code.
WHEREFORE, waiving discovery, this petitioner prays as follows:
(1) That process do issue requiring the said defendants to be and appear at the next term of this Honorable Court to answer your petitioner's complaint.
(2) That a guardian ad litem be appointed for the minor defendants, William Russell Eagan and Anna Young Eagan, so that they may be properly represented in this cause.
(3) That said will of Mrs. Mary Vermont Eagan, deceased, be construed and your petitioner directed as to whether the gifts of income of the residue of said estate for the period provided in said will to said Thornwell Orphanage, Central Presbyterian Church and The Berry Schools Incorporated, is a good and valid gift and not in violation of Section 3851 of the Code of this State, and direct your petitioner as to whether as executor of the estate of the said Mrs. Mary Vermont Eagan, deceased, he should pay said income to the said charities or not and if he should not pay said income to said charities to whom he should pay said*2590 income.
(4) That your petitioner have such other and further relief as in the premises may seem proper.
A guardian ad litem was appointed for the minor children and answer duly made to the petition. On or about June 25, 1927, the petitioner amended his petition to the following extent:
VII.The last paragraph in Item Nine of the will or Mrs. Mary Vermont Eagan which will is set out in full as an exhibit to the original petition in this cause is as follows:
*880 "If both of my said grandchildren should die leaving no child, nor children, nor descendants of a child or children, living, then and in that event, the entire estate in remainder created under this Item Nine (9) of my will, is to go to the Thornwell Orphanage of Clinton, South Carolina, The Central Presbyterian Church, of Atlanta, Georgia, and The Berry Schools, Incorporated, of Mt. Berry, Georgia, each of said institutions to receive one-third (1/3) of said estate, the division between said Three (3) institutions to be made, either in cash or other property, by my executor, as he may deem best."
The question has arisen as to whether the date of the death of the grand-children of Mrs. Mary Vermont*2591 Eagan as therein referred to, relates to the time when William Russell Eagan, if living, shall attain, or if dead, would have attained, the age of thirty years; or as to whether that date of death relates to that period and subsequent thereto. This question has been raised and it is desirable that it be settled by the authoritative Judges of this Court and its settlement is an element in the determination of the other questions now before this Court.
IX.Your petitioner represents that it has been necessary for your petitioner to employ counsel in this behalf and he, himself as executor, has rendered substantial services in connection with this part of its administration.
WHEREFORE, your petitioner prays that this amendment be allowed; that the will be construed in the respects herein set out as well as in the other respects mentioned in the original petition; that your petitioner be allowed extra compensation for himself, and that he be allowed compensation for his attorneys. Your petitioner prays for general relief.
The cause came on for trial on June 27, 1927, and the court, having heard the evidence and argument, entered the following decree on June 27, 1927:
2. *2592 It is ordered, adjudged and decreed that the proper construction of that part of Item Nine of the will of Mrs. Mary Vermont Eagan which reads as follows: "If both of my said grandchildren should die leaving no child, nor children, nor descendants of a child or children living, then and in that event; the entire estate in remainder created under this Item Nine (9) of my will, is to go to The Thornwell Orphanage of Clinton, south Carolina, The Central Presbyterian Church of Atlanta, Georgia, and The Berry Schools, Incorporated, of Mt. Berry, Georgia, each of said institutions to receive one-third (1/3) of said estate, the division between said three (3) institutions to be made, either in cash or other property, by my executor, as he may deem best" as though the same read as follows: "If both of my said grandchildren should die before the time specified in Item eight hereof that is, the date upon which my grandson, William Russell Eagan, if living shall attain, or, if dead, would have attained, the age of thirty years leaving no child, nor children, nor descendants of a child or children, living, then and in that event the entire estate in remainder created under this Item Nine (9) of*2593 my will, is to go to the Thornwell Orphanage of Clinton, South Carolina, The Central Presbyterian Church of Atlanta, Georgia, and the Berry Schools, Incorporated, of Mt. Berry Georgia, each of said institutions to receive one-third (1/3) of said estate, the division between said three (3) institutions to be made, either in cash, or other property, by my executor, as he may deem best." If either or both of the said testatrix grandchildren should be in life at the above mentioned date, or if either or both of them shall have died leaving a child, *881 children, or descendants of child or children living at that date neither the Thornwell Orphanage of Clinton, South Carolina, The Central Presbyterian Church of Atlanta, Georgia, or The Berry Schools Incorporated, of Mt. Berry Georgia, shall have any interest in and to the property of the estate of Mrs. Mary Vermont Eagan in whatsoever form the same may then be. The correct name of the school is The Berry Schools; and it is the corporation under the laws of Georgia of that name which is intended to be described by the will of Mrs. Mary Vermont Eagan.
3. It is further ordered, adjudged and decreed that the bequests to the above*2594 mentioned three institutions each of which is a charitable, religious or educational institution, does not equal one-third of the estate of the said Mrs. Mary Vermont Eagan, and that the said three institutions are entitled to the income of the said estate to be paid when and as set out in Item Eight of said will until the date upon which the testatrix grandson, William Russell Eagan, if living, shall attain, or if dead, would have attained the age of thirty years. This is subject to the provision contained in said Item eight of said will reading as follows: "Providing, however, that if either my grandson, William Russell Eagan, or my granddaughter, Anna Young Eagan, or both of my said grandchildren should, through no fault of their own be in actual need at any time during the period named, my executor is authorized and empowered, in his discretion, to relieve such need and charge the moneys so used as an expense against the said estate, before making a division of the income between the institutions named in this item of my will.
Said institutions are also entitled to the contingent remainder under said will as construed in this decree.
4. It is further ordered, adjudged and*2595 decreed that any and all taxes that may be due to the State of Georgia, or to the Federal Government on account of the death of the said Mrs. Mary Vermont Eagan, shall be paid by my executor out of the income of the said estate.
The executor is directed to pay out of the income of said estate the costs of this proceeding, including his own counsel fees and Two Thousand Dollars, to himself, as extraordinary compensation in this behalf.
The value of the gift to the three charitable institutions at the date of the death of the decedent was $199,343.81.
OPINION.
SMITH: Two errors are alleged in the petition filed in this proceeding - (1) that the Commissioner has disallowed the deduction of $33,897.07 of the $42,780.64 claimed as a deduction for executor's commissions, and (2) that he has disallowed the deduction of $408,275.25 representing the value of a bequest of the income of the estate payable to three charitable institutions.
In the estate-tax return the petitioner claimed the deduction of $42,780.64 for executor's commissions. The respondent has allowed the deduction of only $8,883.57 which he represents was the amount actually paid for executor's commissions up*2596 to May 9, 1927, the date of the mailing of the deficiency notice. He claims that the amount of $42,780.64 claimed by the petitioner is the amount of executor's commissions which would have been payable had the whole estate *882 been reduced to cash and distributed in a period ordinarily required to administer an estate. He submits, however, that under the provisions of the will the executor is constituted a trustee in respect of the residual estate and that the expenses connected with the administration of the residual estate are in reality expenses incurred in the management of a trust estate of which the executor is acting as trustee.
It is the contention of the petitioner, on the other hand, that the amount claimed in the return is not in excess of a reasonable amount; that it is equal to 5 per cent of the value of the corpus of the estate; that that is the ordinary commission of 2 1/2 per cent on all sums of money received and 2 1/2 per cent on all sums of money paid out, which commissions are authorized by the statutes of Georgia; that this amount takes no account of the income of the estate; that executors are entitled to at least 2 1/2 per cent on income paid out, *2597 except that paid to themselves; that the ordinary may allow 3 per cent on the value of the property for delivering it over in kind and that the executor is also entitled to extraordinary compensation in certain instances to be fixed by the ordinary.
The evidence shows that the executor had received commissions to June 18, 1929 (including $2,000 for extraordinary compensation connected with certain litigation with reference to the will), of $16,396.41; that in addition he had paid the following amounts which have not been allowed as deductions by the respondent:
| Court costs | $154.89 |
| Attorneys' fees | 4,200.00 |
| Surety-Bond premium | 700.00 |
| Total | 5,054.89 |
that he has also paid additional premiums on his surety bond not included in the proceeding; and that an additional amount of $1,500 to $2,000 will probably be paid as attorneys' fees. Petitioner also submits that if the income of the estate is $32,000 a year for 30 years, the aggregate gross income over that period will be $960,000; that 5 per cent of that amount is $38,000; and that "if this income were added to the value of the estate and 5% upon this aggregate amount were taken, the commissions would amount*2598 to Eighty-nine Thousand ($89,000) Dollars."
The applicable provision of the taxing statute is section 303(a)(1) of the Revenue Act of 1924, which permits an estate to deduct from gross income:
Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property (except, in the case of a resident decedent, where such property is not situated in the United States), to the extent that such claims, mortgages, or indebtedness were incurred or contracted bona fide and for a fair consideration in *883 money or money's worth, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, *2599 succession, legacy, or inheritance taxes.
The Commissioner's Regulations 68, relating to estate tax under the Revenue Act of 1924, recognizes that an executor may also act as a trustee and provides that expenses incurred by an executor as trustee in the administration of the estate may not be deducted from the gross estate. Article 32, Regulations 68, is as follows:
Administration expenses. - The amounts deductible from the gross estate as "administration expenses" are such expenses as are actually and necessarily incurred in the administration of the estate; that is, in the collection of assets, payment of debts, and distribution among the persons entitled. The expenses contemplated in the law are such only as attend the settlement of an estate by the legal representative preliminary to the transfer of the property to individual beneficiaries or to a trustee, whether such trustee is the executor or some other person. Expenditures not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees, or devises, may not be taken as deductions. Administration expenses include (1) executor's commissions; (2) attorney's fees; *2600 (3) miscellaneous expenses. Each of these classes is considered separately in Articles 33 to 35, inclusive.
Article 33, Regulations 68, relating to executor's commissions, further provides that:
Executor's commissions.. - The executor or administrator, in filing the return, may deduct his commissions in such an amount as has actually been paid or which at that time it is reasonably expected will be paid, but no deduction may be taken if no commissions are to be collected. Where the amount of the commissions has not been fixed by decree of the proper court, the deduction will be allowed on the final audit of the return provided: (1) That the Commissioner is reasonably satisfied that the commissions claimed will be paid; (2) that the amount entered as a deduction is within the amount allowable by the laws of the jurisdiction wherein the estate is being administered; and (3) that it is in accordance with the usually accepted practice in said jurisdiction in estates of similar size and character. Where the commissions claimed have not been awarded by the proper court the Commissioner on final audit may disallow the deduction in part or in whole, as the circumstances in his*2601 judgment justify, subject to such future adjustment as the facts may later require. If the deduction is allowed in advance of payment and payment is thereafter waived, it shall be the duty of the executor to notify the Commissioner and pay the tax resulting therefrom, together with interest. Executors should note that the commissions received as compensation for their services constitute taxable income and that the amounts received or receivable by them as such compensation are cross-referenced for income-tax purposes.
A bequest or devise to the executor in lieu of commissions is not deductible. Where, however, the decedent fixed by his will the compensation payable to the *884 executor for services to be rendered in the administration of the estate, deduction may be taken to the extent that the amount so fixed does not exceed the compensation allowable by the local law or practice.
Amounts paid as trustees' commissions do not constitute expenses of administration and are not deductible, whether received by the executor acting in the capacity of a trustee or by a separate trustee as such.
It will be noted that the statute allows the deduction from the gross estate*2602 of "such amount for funeral expenses, administration expenses * * * as are allowed by the laws of the jurisdiction, * * * under which the estate is being administered * * *." We have held that proper administration expenses actually paid or incurred, such as executors' commissions and attorneys' fees, are allowable deductions, even though they have not been allowed by order of the court having jurisdiction. Samuel E. A. Stern,2 B.T.A. 102">2 B.T.A. 102; Estate of Jacob Voelbel,7 B.T.A. 276">7 B.T.A. 276; John A. Loetscher,14 B.T.A. 228">14 B.T.A. 228; Irving Bank-Columbia Trust Co.,16 B.T.A. 897">16 B.T.A. 897.
The commissions of an administrator in Georgia are controlled by sections 4062 to 4068, both inclusive, of the Code of Georgia. These sections are as follows:
SEC. 4062. Ordinary commissions. As a compensation for his services, the administrator shall have a commission of two and one-half per cent. on all sums of money received by him on account of the estate (except money loaned by him and repaid to him), and a like commission on all sums paid out by him, either to debts, legacies or distributees. Such commissions are part of the expense of administration, *2603 and should be paid from the general estate, if any. If none, then to be deducted from the debt or legacy paid.
SEC. 4063. On interest made. If, in the course of administration, the administrator shall receive interest on money loaned by the intestate, or by himself as administrator, and shall return the same to the ordinary so as to become chargeable therewith as a part of the corpus of the estate, he shall be entitled to ten per cent. additional commission on all such amounts of interest made.
SEC. 4064. Has no commissions, when. The administrator is entitled to no commissions on debts, legacies, or distributive shares paid to himself; and if there are more administrators than one, the division of the commissions allowed them, among themselves, shall be according to the services rendered by each.
SEC. 4065. None for delivering property in kind. No commissions shall be paid to any administrator or executor for delivering over any property in king; but the ordinary may allow reasonable compensation for such service, not exceeding three per cent. on the appraised value. If, however, land is worked by any trustee for the benefit of the parties in interest, the*2604 ordinary may, in his discretion, allow to such trustee additional compensation for such services, in no case exceeding ten per cent, of the annual income of the property so managed.
SEC. 4066. Traveling and other expenses. An administrator, in the discharge of his duty, required to travel out of his county shall be allowed the amounts of his actual disbursements, to be ascertained by his own statements under oath. The ordinary may also allow him a reasonable compensation for the *885 time devoted to this service; Provided, under the circumstances, the ordinary adjudges such additional compensation a proper charge against the estate.
SEC. 4067. Extra compensation. In other cases of extraordinary services, extra compensation may be allowed by the ordinary. But in no case is the allowance of extra compensation by the ordinary conclusive upon the parties in interest.
SEC. 4068. No fund shall pay commissions but once. Where from any cause a trust fund shall pass through the hands of several administrators or other trustees, by reason of death, removal, resignation or otherwise of the first qualified trustee, such fund shall not be subject to diminution of*2605 charges of commissions by each successive trustee holding and receiving in the same right; but commissions for receiving the fund shall be paid to the first trustee, or his representative, and commissions for paying out shall be paid to the trustee actually disbursing the fund, and no commission shall be paid for handing over the fund to the successor of a trustee.
Commissions for an executor are the same as those for an administrator. (Sec. 3892.) Lamar v. Lamar,118 Ga. 684">118 Ga. 684; 45 S.E. 498">45 S.E. 498.
The provisions of the Code of Georgia are not unlike those of most States with respect to the settlement of the estates of deceased persons. The executor shortly after he qualifies is required to give notice to debtors of his appointment as executor and creditors of the estate are given one year in which to file claims against the estate. If claims are not duly filed the creditor loses his right to recover from the estate. Any person interested as distributee or legatee may after the expiration of one year from the grant of administration cite the administrator to appear before the ordinary for the settlement of his accounts, or, if the administrator chooses, *2606 he may cite all of the distributees to be present at the settlement of his accounts by the ordinary; such settlement shall be conclusive upon the administrator and upon all the distributees who are present at the hearing. (Sec. 403.)
Under the will of the decedent the executor is given the authority and power of a trustee. The decedent by "Item ten" of her will expressly confers upon him:
* * * The authority and power to sell any part of my said estate, as he may deem best, at public or private sale, with or without notice, and without any order of court, for the purpose of paying legacies or for the purpose of changing investments or for the purpose of making a division, where a division is called for, under the terms of my will, between the legatees named therein.
The respondent's regulations specifically provide that trustees' fees may not be deducted from the gross estate. Ordinarily they are paid out of the income of the estate and not out of the corpus.
A trust may devolve upon an executor where no trustee is named in the will. The rule is stated in 40 Cyc. 1764-1765, as follows:
* * * And a trust may devolve upon the executor by implication, as where he is directed*2607 to invest or hold the property and disburse the income, *886 or to perform other trust duties which are beyond the scope of his duties as executor. So, if the testator, by his will, has not placed his property in trust with any other trustee than the executor, it is the province and duty of the latter to act as trustee, and he may be held as such. * * *
It has also been held that under a will giving a share of testator's estate to his daughter to be invested by executors for her benefit, the interest to be paid semiannually, and providing that on her death without issue the proceeds of the shares should be divided between her brothers and sisters, a trust was created vesting legal title in executors as trustees. Close v. Farmers' Loan & Trust Co.,195 N.Y. 92">195 N.Y. 92; 87 N.E. 1005">87 N.E. 1005.
In Schouler on Wills, 5th ed., vol. 2, sec. 1248, the following is said in this connection:
The intent to create a trust under a will may be gathered from the scope of the instrument aside from technical words; and where consequently, the duties imposed are active so as to render the possession of the estate convenient and reasonably necessary, the executors will*2608 be deemed trustees for the performance of their duties to the same extent as though declared to be so by the most explicit language.
The respondent in his regulations has defined administration expenses as "such expenses as are actually and necessarily incurred in the administration of the estate; that is, in the collection of assets, payment of debts, and distribution among the persons entitled." (Art. 32, Reg. 68, quoted above.) This appears to us to be a reasonable regulation for the carrying out of the provisions of the estatetax law. It is not to be presumed that Congress intended that the question of the correct tax liability of a decedent's estate should await final discharge of the executor where in effect the executor acts as trustee of the estate over a long period of years. The executor is required under section 304 of the Revenue Act of 1924, within two months after the decedent's death or within a like period after qualifying as executor, to give written notice thereof to the collector and to file with the collector within one year from the death of the decedent a return under oath in duplicate setting forth the value of the gross estate of the decedent at the time*2609 of his death and the deductions allowed under section 303, and the tax is payable one year after the decedent's death. These provisions contemplate an early determination of the tax liability. They certainly do not contemplate a determination of a liability dependent upon circumstances which may eventuate in the distant future.
Although the executor in the instant proceeding was not designated a trustee by the will of the decedent, and although the administrator of the estate was still under the jurisdiction of the ordinary at the date of the hearing in 1929, we think that from and after the date in which the accounts receivable were collected and the debts paid, the *887 executor was acting as trustee. Apparently this was not later than May 9, 1927, the date of the mailing of the deficiency notice. No evidence has been submitted to the contrary. All of the expenses connected with the litigation in the case of Marion M. Jackson v. William Russell Eagan et al., referred to in our findings were paid by order of the court from the income of the estate and not as administration expenses. We are therefore of the opinion that upon the record the disallowance by the*2610 Commissioner of $33,897.07 of the executor's commissions is proper and the determination of the respondent upon this point is sustained.
In the estate-tax return petitioner claimed the deduction from the gross estate of $408,275.25 as the value of certain bequests of income to three charitable institutions. The respondent has disallowed this deduction "upon the ground that the bequests had no ascertainable value as at the date of decedent's death, and further, that the bequests were void under the laws of the State of Georgia."
The deduction was claimed under the provision of section 303(a)(3) of the Revenue Act of 1924, which, so far as is material, provides for the deduction from the gross estate of:
The amount of all bequests, legacies, devises, or transfers, * * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees, or a fraternal society, order, or association operating*2611 under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. * * *
Although the disallowance of the deduction of the claimed value of the bequest by the respondent was based upon the ground that they had no ascertainable value at the date of decedent's death and also that they were void under the laws of the State of Georgia, it is necessary first to consider whether the bequests are of such a character as to be a legal deduction from the gross estate in any event. The respondent contends that under the terms of the will the institutions named therein acquired no vested interest in the corpus of the residual estate; that at the most the charities acquired only a right to share in the annual income, if any, of the residual estate for a term of years; and that it is impossible to determine as of the date of the death of the decedent what amount, if any, of the annual income of the estate would be available for distribution to the various institutions. *2612 The petitioner, on the other hand, contends that the bequest to the charitable institutions is to pay over the net income to the legatees in periodical payments during a period of years and *888 possibly to pay both the corpus and the income to the charitable beneficiaries; that the legacy meets every requirement of a vested estate.
Remainders are either vested or contingent. A vested remainder is one limited to a certain person at a certain time, or upon the happening of a necessary event. A contingent remainder is one limited to an uncertain person or upon an event which may or may not happen. (Ga. Code, sec. 3676 (1910).)
Estate is the quantity of interest which an owner has in property. In this State it is applicable equally to realty and personalty. Any estate may be created in the latter that can be created in the former, and the rules of construction as to both shall be the same. (Ga. Code, sec. 3656.)
No question is raised in the present proceeding as to the value of the gross estate. It was $826,607.92. The value of any bequests to charitable institutions deductible under section 303(a)(3) of the Revenue Act of 1924 is deductible from the gross estate. *2613 The evidence conclusively proves that the institutions which were entitled to the net income of the residual estate of the decedent from the date of her death to May 10, 1950, were charitable institutions within the contemplation of the taxing statute. We assume that no question could be raised that if the charitable institutions were to receive the remainder of the estate subject to a life estate the value of such remainder would be deductible from the gross estate. Ithaca Trust Co. v. United States,279 U.S. 151">279 U.S. 151. It was there held that the value of bequests in trust to charitable purposes following a life estate is deductible from decedent's gross estate, where the residuary estate was bequeathed to the testator's wife for her life with authority to use from the principal any sum "that may be necessary to suitably maintain her in as much comfort as she now enjoys," the principal that could be so used being fixed in fact, and capital all being stated in definite terms of money, and the income of the estate being more than sufficient to maintain the widow as required. It seems selfevident that, where the estate of a decedent is made up of two estates, one an*2614 estate for life or for years, and the other a remainder, the values of the two estates constitute the gross estate of the decedent. It further appears to us that, where an estate for years is given to a charitable institution, the value of that estate constituting the substance of the bequest is a legal deduction from gross income under section 303(a)(3) of the taxing statute. The language used by the court in Irwin v. Gavit,268 U.S. 161">268 U.S. 161, is apposite here.
* * * Apart from technicalities we can perceive no distinction relevant to the question before us between a gift of the fund for life and a gift of the income from it. * * *
In the instant proceeding the respondent has made no argument that the value of the gift of the income of an estate to charitable institutions is not a legal deduction from the gross estate. Neither *889 has it been argued by the respondent that the bequest of the income had no value. The substance of the bequest was the right to receive the income of the net estate. If it had a value, we think it was a legal deduction from gross income.
The first objection made by the respondent to the disallowance of the deduction*2615 of any value for the bequests to charitable institutions is that they "had no ascertainable value as at the date of decedent's death." This is apparently predicated upon the provision of the will to the effect that the income of the estate might be utilized in the discretion of the executor to relieve the actual need arising through no fault of their own of two grandchildren of the decedent until William Russell Eagan should attain the age of 30 years. It is argued that it can not be determined what part of the net income, if any, of the estate in future years will be required to meet the needs of such grandchildren. The evidence is to the effect, however, that the mother of the testator's two grandchildren was in possession of an unencumbered estate of a value of $800,000, from which she was receiving a large income annually, which, in 1928, amounted to approximately $22,000; that she was able and willing to provide for her children without in any wise looking to the estate of the decedent; that she was willing and desirous that the income of the estate should be used for the purpose of supporting the charitable institutions to which she was devoted.
*2616 The respondent contends that the bequests to the charitable institutions were so contingent that the value of the bequests could not be determined. He relies upon Humes v. United States,276 U.S. 487">276 U.S. 487. In that case it was held that under section 403 of the Revenue Act of 1918, the present value of contingent bequests to charities in a will as determined by the combination and adjustment of mortality tables as to whether a 15-year-old girl would marry, or, if she did, would die without issue before the age of 30, 35, or 40, is not deductible from the gross estate in determining the value of the net estate, since neither the taxpayer nor the revenue officer could do more than guess at the value of the contingency. The court stated:
One may guess, or gamble on, or even insure against, any future event. The Solicitor General tells us that Lloyds of London will insure against having twins. But the fundamental question in the case at bar is not whether this contingent interest can be insured against or its value guessed at, but what construction shall be given to a statute. Did Congress, in providing for the determination of the net estate taxable, intend that a*2617 deduction should be made for a contingency the actual value of which cannot be determined from any known data? Neither taxpayer, nor revenue officer - even if eqipped with all the aid which the actuarial art can supply - could do more than guess at the value of this contingency. It is clear that Congress did not intend that a deduction should be made for a contingent gift of that character. * * *
*890 The facts before us in this proceeding are substantially different from those which were before the court in the above cited case. Here the charitable institutions were to receive the net income of the estate to May 10, 1950, whether William Russell Eagan were alive or dead on that date. If the amount of the annual net income of the estate from the date of the death of the decedent to May 10, 1950, can be determined, the computation of the present value at the date of the death of the decedent of the right to receive such net income of the estate presents no insuperable actuarial difficulty.
The situation in this case is not dissimilar to that which obtained in *2618 Herron v. Heiner, 24 Fed.(2d) 745. In that case the will disposed of a large estate in trust, the entire income from which was to be donated to religious, educational or charitable purposes, with the exception of certain annuities, with direction to appropriate so much of the income as was "deemed necessary and reasonable" to the support and maintenance of a brother and sister of testator who were incurably insane and in a hospital for the insance where they had been supported by testator for years. The court held:
* * * The latter provision could not be construed as giving the trustees power to appropriate the entire income of the estate for support and maintenance of such two persons and thus eliminate entirely the religious, educational, and charibable bequests, deductible under Revenue Act 1918, § 403 * * * for the purposes of estate tax, and render the entire estate taxable, but that effect must be given to the limitation of the trustees to such sums as were necessary and reasonable for support and maintenance.
See also *2619 First National Bank of Birmingham v. Snead, 24 Fed.(2d) 186; Mercantile Trust Co., Executor,13 B.T.A. 85">13 B.T.A. 85; Ithaca Trust Co. v. United States, supra.
In the light of all of the evidence in this case we think the possibility that in future years the executor of the estate acting as trustee and using any part of the income of the estate for the actual need of the two grandchildren is so remote that it may be disregarded.
The second objection of the respondent to the deduction of any amount in respect of the bequest of the income to the charitable institutions is that the bequest was void under the laws of the State of Georgia. This objection is based on section 3851 of Park's Annotated Code of Georgia, which provides:
Charitable devises. No person leaving a wife or child, or descendants of child, shall, by will, devise more than one third of his estate to any charitable, religious, educational, or civil institution, to the exclusion of such wife or child; and in all cases the will containing such devise shall be executed at least ninety days before the death of the testator, or such devise shall be void.
This was*2620 the point litigated in the case of Marion M. Jackson v. William Russell Eagan et al., referred to in the findings of fact. The court entered its decree holding that the charitable institutions were entitled to take the net income of the estate. No appeal was *891 taken from such decision. The court did not set out in any opinion brought to our attention the reasons for so deciding; but we must assume that it found that the bequest was not in conflict with the section above referred to. In any event the bequest would not be violative of section 3851 of the Code of Georgia unless its value were in excess of one-third of decedent's estate. Although the petitioner claims that the value of the bequest was in excess of one-third of the gross estate, we think that the evidence does not support such valuation.
The computation by which the petitioner arrived at a value of $408,275.25 for the bequest of income to the charitable institutions is not shown by the record. Neither does the record show the value of the net estate of the decedent. The evidence shows that the net income of the estate from the date of decedent's death to June 1, 1929, over and above that required*2621 for meeting the executor's fees, attorneys' fees, court costs, and operating expenses of the estate was $56,233.24, of which amount $42,321.80 had been paid to the charitable institutions, leaving a balance in the hands of the executor applicable for such payments of $13,911.44. The petitioner contends in his brief that the normal income of the estate was in excess of $30,000 per annum. The gross income of the estate for the fiscal year ended June 30, 1927, was $37,107.03; for the fiscal year ended June 30, 1928 (including a refund from the Government on account of income tax erroneously collected from the estate for prior years of $2,289.79), $35,254.13; and for the fiscal period July 1, 1928, to June 18, 1929, $32,541.41. The expenses of the estate for these periods are not in evidence. We simply know that the net income of the estate available for the charitable and educational institutions from the date of the decedent's death to June 1, 1929, was $56,233.24, or at the rate of $12,638.49 per annum. The evidence indicates that in future years the charitable institutions might expect to get at much from the estate annually as accrued to them annually from the date of the decedent's*2622 death to the date of hearing; in other words, that the net income of the estate accruing to the use of the charitable institutions would average as much as $12,638.49 per annum to May 10, 1950.
The present worth at the date of the death of the decedent of the right to receive that amount of money per annum, computed on a 4 per cent interest table (authorized by article 13 of Regulations 68), was $199,343.81. We therefore determine this amount to be the value of the bequests to charity and that such amount is a legal deduction from the gross estate in the determination of the net estate and of the tax liability involved in this proceeding.
Reviewed by the Board.
Judgment will be entered under Rule 50.
*892 MURDOCK, dissenting: I dissent from that part of the prevailing opinion and decision in this case which determines a value of the bequest to charity for the purpose of deducting the amount from the gross estate. In my opinion, it is impossible to determine the value of the bequest to charity at the time of the decedent's death for the purpose of this deduction.
STERNHAGEN agrees with this dissent.
Footnotes
1. The $2,750 here referred to as corpus was made up of $2,500 insurance on the old residence which was njured by fire and $250 from the wreckage of the building. ↩
2. This item of $35,254.13 covers a refund of $2,289.77 from the Government on account of income tax erroneously collected against the income of the estate. ↩