1934 BTA LEXIS 1496">*1496 1. A general power of appointment by will is exercised by a general devise of real and personal property by the donee of the power if there is nothing in the will of the latter evidencing a contrary intention, and the value of the property subject to the power is includable in the gross estate of the donee of the power.
2. The use by the donee of the power of the phrase "all the property owned by me at the time of my death" and expressions making certain bequests dependent on the value of his estate does not indicate an intention not to exercise the power.
3. Where the power was exercised and a contest of the will arose and was compromised and the will established, the value of the property subject to the power is a proper subject for Federal estate tax purposes, and it is immaterial whether the contesting claimants received their part under the will or by contract of settlement under state law.
29 B.T.A. 677">*678 This case involves a deficiency in estate tax of $21,034.79. The decedent, Vredenburgh Minot, was the donee of a general power of appointment under a1934 BTA LEXIS 1496">*1497 deed of trust, and also under the will of his father, to be exercised by will. It is claimed by the petitioner that the decedent did not exercise the power, while the respondent determined that he did exercise it and included the value of the property subject to the power in decedent's estate. This created the deficiency.
FINDINGS OF FACT.
The petitioner is the Massachusetts executor of the Will of Vredenburgh Minot, who died in 1928, a resident of Point Loma, California.
The decedent had a vested remainder interest under the will of his grandfather, William Minot, of the value of $29,243.51, which petitioner admits is properly includable in the gross estate of the decedent, but points out that it would not be of sufficient value to subject the estate of Federal estate tax, except for the inclusion of the property subject to the power of appointment.
On February 15, 1900, William Minot, the father of decedent, a resident of Massachusetts, created a trust by which, after providing for certain annuities, he directed that the net income should be paid to his four children for life and provided that each child should have the right to direct and appoint, by last will lawfully1934 BTA LEXIS 1496">*1498 established, to whom his or her share of the principal should go. The deed of trust is incorporated herein by reference.
Decedent's father, William Minot, died in 1900 and by his will, which is incorporated herein by reference, left the residue of his estate to his four children upon trusts similar to those contained in the deed of trust above mentioned and with the same powers of appointment, except that the will contained the following:
* * * I further authorize them [my trustees] at discretion from time to time to set aside and add to the principal of the trust fund held for any child of mine such portion of the net income of the trust property as in their judgment is not required for the confortable support and maintenance of such child * * *.
In 1918, when the decedent was about thirty years of age and about ten years before his death, he made his will, which provided in part as follows:
Secondly, - I give, bequeath, and devise one-half (1/2) of all my property of whatever kind, and wherever situated, owned by me at the time of my death, 29 B.T.A. 677">*679 to my wife, Hazel Sheldon Minot; except that I give and bequeath to my wife Hazel Sheldon Minot all personal property1934 BTA LEXIS 1496">*1499 in the way of clothing, household furnishings, books, musical instruments, printed music sheets and volumes, pictures, photographs, and the like, situated at Lomaland, Point Loma, California, and which may be owned by me at the time of my death.
Thirdly, - If the total value of all personal property and real estate, of whatever kind and wherever situated, owned by me at the time of my death, shall equal the monetary value of not less than one hundred thousand dollars ($100,000.00), I give and bequeath to my Aunt, Gertrude Wyckoff Van Pelt of Point Loma, San Diego County, California the sum of five thousand dollars ($5,000.00); to my Sister, Katherine Minot Channing of Wareham, Massachusetts, one thousand dollars; to my brother William Minot, of Wareham, Massachusetts, one thousand dollars; to my brother Sedgwick Minot, of Wareham, Massachusetts, one thousand dollars.
Fourthly, - I give, bequeath, and devise, after all my just debts and expenses of Administration have been paid, all the rest, residue, and remainder of my property, of whatever kind and wherever situated, owned by me at the time of my death, and which has not already been given, bequeathed, and devised by and under1934 BTA LEXIS 1496">*1500 this Will, to Katherine Tingley, of Point Loma, San Diego County, California.
Other provisions of the will merely provided for the disposition of his remains and the appointment of petitioner as executor of his will as to property located in Massachusetts, and the Union Trust Co. of San Diego as to property located in California. There is no specific reference in the will to the powers of appointment vested in him under his father's deed of trust or will, or to the exercise thereof.
The testator, Vredenburgh Minot, left no children. It was provided in both his father's will and the deed of trust that in case of no issue and in default of appointment the property subject to the power should pass to the father's heirs. After the death of Vredenburgh Minot the will was contested by his two brothers and sister on the ground that the powers of appointment granted decedent under the deed of trust and will of his father had not been exercised and that therefore the property subject to the power did not pass under his will. Claims of the contestants were compromised and settled, and the settlements were approved by the courts of California and Massachusetts and the will was duly1934 BTA LEXIS 1496">*1501 established. Copies of the petition by the trustees under the deed of trust and will of William Minot asking authority to settle, the decree thereon, and the settlement agreement are incorporated herein by reference.
The following facts were stipulated by the parties and are adopted as part of our findings:
That the value of the fraction of the trust property held under the will and indenture of trust over which Vredenburgh Minot had a power of appointment was at the time of the execution of his will approximately two hundred and ninety-eight thousand dollars ($298,000).
That Vredenburgh Minot at the time of the execution of his will was familiar with the amount of property over which he then had a power of appointment,
29 B.T.A. 677">*680 That the share of the income of the trust property held under the will and indenture of trust of William Minot, deceased, which the trustees could, in the exercise of their discretion, have paid to Vredenburgh Minot during the years beginning with the year in which the will of Vredenburgh Minot was executed and ending with the year of his death, and the amounts actually paid him during such years were as follows:
| Year | Discretionary | Actual |
| amount | payment | |
| 1918 | $11,708.29 | $6,210.46 |
| 1919 | 12,498.67 | 7,614.99 |
| 1920 | 12,578.67 | 8,081.06 |
| 1921 | 12,694.42 | 6,594.78 |
| 1922 | 15,407.58 | 6,895.04 |
| 1923 | 17,114.08 | 7,740.12 |
| 1924 | 16,719.09 | 4,429.07 |
| 1925 | 19,598.91 | 7,541.57 |
| 1926 | 20,746.72 | 7,723.97 |
| 1927 | 21,202.20 | 8,280.40 |
| 1928 | 21,783.14 | 9,000.00 |
1934 BTA LEXIS 1496">*1502 That Vredenburgh Minot at the time of making his will, and also at the time of his death, owned a vested remainder under the will of his grandfather, William Minot, to come into possession upon the death of an aunt who was considerably older than he.
That the following are the values at the time of the death of Vredenburgh Minot of the only classes of property involved in the present proceeding:
| Property owned outright by decedent | $11,247.01 |
| Property owned by decedent and wife jointly | 500.00 |
| Remainder interest under will of his grandfather | 29,243.51 |
| Property over which decedent had power of appointment under will | |
| and trust indenture of his father | 639,947.29 |
| $680,937.81 |
That there are allowable deductions of one hundred ten thousand two hundred forty-two and 3/100 dollars ($110,242.03).
That there has been assessed and paid Massachusetts inheritance tax in respect of the property under the will of William Minot of seven hundred forty-five and 35/100 dollars ($745.35).
OPINION.
SMITH: Section 302(f) of the Revenue Act of 1926, which applies in this case, provides:
SEC. 302. The value of the gross estate of the decedent shall be determined1934 BTA LEXIS 1496">*1503 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 * * *.
This case turns on whether or not the decedent, Vredenburgh Minot, exercised the power of appointment vested in him under the deed of trust and will of his father so as to bring that property within the terms of the above section.
29 B.T.A. 677">*681 There is no specific reference in decedent's will to the power of appointment or the exercise thereof. The respondent claims that this is unnecessary and that a general power of appointment by will is validly exercised by a general devise of real or personal property unless a contrary intention should appear in the will. ; ; .
Petitioner concedes the above rule, but insists that it applies only where the testator was the owner of the life estate and entitled to the income thereof. As further limitations on the rule petitioner urges that the language of1934 BTA LEXIS 1496">*1504 the will must be susceptible of including the property subject to the power of appointment, and there must be nothing in the will to show a contrary intent. From this it is argued that the power given the trustees in the will of decedent's father to limit decedent's income to his necessities and add the remaining income to his part of the principal, the use of the phrase "all the property owned by me at the time of my death," and making certain bequests dependent on the value of his estate show that decedent never intended to exercise the power of appointment, and if he did, it was ineffectual because he was not entitled to the whole of the income from the life estate.
Formerly in England and perhaps in some states in this country a general power of appointment was not validly executed unless the testator specifically mentioned the power, but because of injustice resulting in many cases from this technicality the law in England was changed by act of Parliament to do away with this technicality and the law in this country is now generally the same as it is in England.
In our opinion the objections urged by petitioner to the application of the rule are not tenable. Under both1934 BTA LEXIS 1496">*1505 the deed of trust and the will the decedent was entitled to the income for life from one fourth of the trust property, but in the will it was provided in substance that the trustees are authorized in their discretion to set aside and add to the principal so much of the income of any child as is not required for his or her comfortable support and maintenance.
Massachusetts cases cited to us are to the effect that if a testator has a power of appointment over property in which he has a life estate, in the absence of anything to show a contrary intention, the power is well executed by a general residuary clause. ; ; ; ; ; . We think this case clearly falls within the rules laid down in those cases. The decedent was expressly designated as being entitled to one of the four equal shares in his father's estate and the trustees were directed to pay him the income therefrom, but in certain contingencies were given the right to withhold part of the income and1934 BTA LEXIS 1496">*1506 add it to the 29 B.T.A. 677">*682 principal of the one from whom withheld. It will be observed that in the will of William Minot there is no limitation over to any other person or for any other purpose and consequently the income not currently paid over to the decedent became subject to the power.
The use in the decedent's will of the words "I give, bequeath, and devise one-half of all my property of whatever kind, and wherever situated, owned by me at the time of my death, to my wife," and a similar expression in the bequest to Katherine Tingley, is not exclusive, but inclusive. They are comprehensive expressions and the natural conclusion to be drawn from their use is that decedent had in mind and meant to dispose of every and any thing which he had a right to dispose of at the time of his death. A will speaks from the time of death and this was apparently in testator's mind.
The making of several minor bequests dependent on a $100,000 value of his estate in our opinion does not show any intention not to exercise the power of appointment. There may have been many reasons for this limitation and we will not undertake to speculate upon them. We are of opinion that the limitation1934 BTA LEXIS 1496">*1507 was a precautionary measure merely and is entitled to no other significance. Being of this opinion, we hold that the powers of appointment vested in Vredenburgh Minot under the deed of trust and the will of his father were validly exercised.
It is next contended by petitioner that the property subject to the power of appointment is not subject to estate tax because it passed by the agreement of compromise and not by the exercise of the power.
We are not concerned with the terms of the settlement. It is only necessary to state that the probate of the will was objected to, or contested after probate, and a settlement was arrived at by which the beneficiaries under the will surrendered part of their rights thereunder on consideration that the contest be withdrawn and the will established. It is immaterial what form of procedure was adopted to accomplish this purpose and obtain the approval of the courts, or whether the legal steps were initiated by the trustees of the father's estate or the personal representative of the decedent.
We believe petitioner's contention is not sustained by the decisions of the Massachusetts courts. While the contestants may take under the compromise1934 BTA LEXIS 1496">*1508 settlement, the entire will is established and the estate first passes under it. ; ; ; ; ; .
We do not think the case of ; affd., , holds to the contrary, for we there said:
However, even assuming that the law of Massachusetts applies and that the petitioner took under the compromise agreement and not under the will, 29 B.T.A. 677">*683 we are still unable to agree with the conclusion which the petitioner would have us reach. If there had been no contest over the will and the will had been probated and the property administered in accordance with its terms, there could be no possible doubt that the income received by the petitioner thereunder would have been subject to the tax imposed by the revenue statutes. Then, why should the settlement agreement, provided for by law in order to effect harmony and accord among heirs and legatees and for the amicable settlement of their disputed1934 BTA LEXIS 1496">*1509 claims, affect the rights of the Government to collect taxes rightfully due it under normal circumstances. The character of the thing received, or to be received, does not suddenly change from income to something that is not income and make that which is taxable under the law nontaxable merely because the disputants under the will happen to have been mollified by a compromise agreement adjusting or modifying their rights under the will. Such a rule would "not only defeat the reiterated purpose of Congress as expressed in various provisions of the Act, but would invite as well as permit, to an unlimited extent, subterfuges whereby those entitled to large incomes could avoid their just obligations to the government." ; certiorari denied, .
In the recent case of , which affirmed , the decedent, a resident of Pennsylvania, was the donee of a general power of appointment under the will of his father. He exercised the power of appointment in favor of his two daughters, who would have taken the property under the will of his1934 BTA LEXIS 1496">*1510 father had he failed to exercise the power. Under the law of Pennsylvania in such circumstances the daughters took under the will of the donor and not as appointees under the will of the donee. This Board and the Circuit Court of Appeals for the Third Circuit both held that, notwithstanding the Pennsylvania law, the power had been exercised, that the tax was on the exercise of the power, and that it was measured by the value of the property.
In , the testator bequeathed the income from the residue of his estate to an educational institution which was not subject to tax. A contest of the will was compromised by the educational institution giving part of the residue to the contestants and the question arose as to whether or not the entire bequest was deductible. We held that it was, since it had been permanently set aside by the terms of the will for the educational institution.
Reviewed by the Board.
Judgment will be entered for the respondent.