*169 Decision will be entered under Rule 50.
1. Estate Tax -- Notice of Deficiency -- Jurisdiction. -- A notice of deficiency sent to the decedent's executor more than 1 year after the date of the executor's request, pursuant to section 825 (a) of the Internal Revenue Code of 1939, for determination of estate tax liability, held to be a valid notice of deficiency and a petition based thereon confers jurisdiction to adjudicate the liability of the estate for estate tax.
2. Transfer of Property to Take Effect in Possession or Enjoyment At or After Death. -- An inter vivos transfer of property in trust, to pay the income to decedent's daughter for life, and remainder to the daughter's descendants, held intended to take effect in possession or enjoyment at or after decedent's death where, in the event of the existence of certain conditions at the date of death of decedent, or the death of the primary beneficiary prior to death of the decedent, the trust property would be payable to the testamentary trustee under decedent's will, and the full value of the trust corpus is includible in decedent's gross estate. Sec. 811 (c) (1) (C) and (c) (2).
3. Transfer of Property with Retention*170 of Right to Income. -- The decedent during his life transferred property in trust, the income to be used for upkeep of the property, payment of indebtedness on the property and interest, and payment of a sum certain to his wife for her life, the balance to be paid to the decedent for his life. Held, that the value of such property at date of death, less the value of the wife's life estate, is includible in decedent's gross estate, since he retained for his life the right to the income from the property. Sec. 811 (c) (1) (B). The fair market value of such property found.
4. Marital Deduction. -- Marital deduction disallowed since the right of the surviving spouse to invade trust corpus on demand, but limited to her use and the use and benefit of children, is not a sufficiently broad right of invasion to constitute a power of appointment as contemplated by sec. 812 (e) (1) (F).
*491 The respondent*172 determined a deficiency in estate tax in the amount of $ 66,095.46. Certain issues raised by the petitioner with regard to the proper additions to the value of the net estate on account of insurance and refund of Federal income tax for the year 1950 have been waived by the petitioner, and these concessions will be reflected in the redetermination under Rule 50. The parties have also stipulated that the issues in regard to the deductions for executors' commissions, attorneys' fees, and accountants' fees will be settled under Rule 50. The issues remaining for consideration are whether the notice of deficiency was addressed to the proper party, whether the value of properties transferred in trust by inter vivos conveyances should be included in the decedent's gross estate, and, if so, the value of the properties, and whether a marital deduction is allowable in respect of property placed in trust under the decedent's will. The respondent by amended answer affirmatively pleads for an increased deficiency, alleging that in the notice of deficiency he undervalued certain property includible in the decedent's gross estate.
FINDINGS OF FACT.
General Facts.
Some of the facts are stipulated*173 and as so stipulated are incorporated herein by reference.
Theodore Geddings Tarver, herein sometimes called the decedent, died testate on October 8, 1950, a resident of North Augusta, South Carolina. At the time of his death he was married to, and living with, his wife, Edith Stokes Tarver, who was then 67 years of age. He also left surviving four daughters, namely Mrs. (Dora) Elizabeth Tarver Thurmond, Mrs. Edith Tarver Wallenberg, Mrs. Grace Tarver Dubose, and Mrs. Berkeley Tarver Prichard Haynsworth, who were then 44, 42, 41, and 37 years of age, respectively. At that time each of the daughters was married and had children.
The decedent's will was probated on October 13, 1950, and the Citizens and Southern National Bank of South Carolina, nominated as executor in the will, duly qualified as such.
The Notice of Deficiency.
The Federal estate tax return for the estate of the decedent was filed with the collector of internal revenue for the district of South Carolina, on January 8, 1952.
*492 On the date the estate tax return was filed, January 8, 1952, the executor sent a letter to the respondent in which it referred to section 825 (a) of the Internal Revenue Code of*174 1939, and requested "that a final determination of the estate tax liability be made as early as practicable in order that the estate may be closed and the executor relieved from further liability on the matter."
The notice of deficiency dated January 7, 1955, was addressed to "The Citizens & Southern National Bank of South Carolina, Executor Estate of Theodore Geddings Tarver." The petition bears the caption "The Citizens and Southern National Bank of South Carolina, as Executor of the will of Theodore Geddings Tarver, Petitioner vs. Commissioner of Internal Revenue, Respondent," and is verified by such bank by its vice president and trust officer.
By order of this Court entered on April 8, 1955, the caption of the proceeding was made to read as set out at the head of this report.
The 1936 Trust.
On April 16, 1936, the decedent, as grantor, by written conveyance transferred 10 corporate bonds in trust to the Citizens and Southern National Bank, Augusta, Georgia, trustee. The corporate bonds, which constituted the entire corpus of the trust, were interest-bearing bonds in the face amount of $ 10,000, and were declared in the trust instrument to have a then value of that amount. *175 Under paragraph 8 of the trust instrument, the net income of the trust was, subject to other provisions of the trust, to be paid to the decedent's daughter, Dora Elizabeth Tarver (now Thurmond), monthly, semiannually, or annually, for the term of her life, with the remainder over to her children or the issue of any deceased children. If the daughter should predecease the grantor, leaving no child or children or representatives of a deceased child or children surviving her, the trustee was required to hold the corpus of the trust estate, add the income to corpus, and at the date of the death of the grantor transfer the corpus and accumulated income to the trustee of the trust created by the grantor's last will and testament. If the daughter should die after the death of the grantor, and leave no child or children surviving her, then the trustee was required to deliver at the time of her death the corpus to the trustee of the trust created by the grantor's last will and testament. It was provided, however, that at the time stated for distribution to the testamentary trustee, if such testamentary trustee should not have in its hands a trust estate of a value of $ 40,000 or more, *176 the property should not be delivered to the testamentary trustee but should be divided among the grantor's children then living and his wife, share and share alike.
*493 The foregoing provisions of the trust instrument were subject, however, to the provisions of paragraph 7 of the trust instrument. In that paragraph the grantor declared that it was his then intention to create trusts of equal amounts for each of his other three daughters, and to provide for each of them equally. It was then provided that if at the time of the grantor's death he had not created a trust fund in at least an equal amount for each of his other three daughters, and if the net value of his estate was greater than $ 40,000, then, and only if such were the facts, the trustee was to pay over the corpus to the grantor's testamentary trustee, the time of such payment being dependent upon whether the grantor's wife survived him. If his wife predeceased him, the trustee was to pay over the corpus to the grantor's testamentary trust upon the death of the grantor. If the grantor's wife survived him the trust for Dora was to continue until the death of the grantor's wife, at which time the trustee was required*177 to pay over the corpus to the grantor's testamentary trustee.
The grantor's wife and his four daughters survived him. At the time of the grantor's death Dora had three living children. At the time of his death the decedent had not created trusts for any of his daughters other than that of April 16, 1936, for Dora.
The fair market value, at the date of the decedent's death, of the property in the trust of April 16, 1936, was not less than $ 11,901.56. The value, at the date of decedent's death, of the interest of decedent's daughter, Dora, in the trust, based upon the life expectancy of decedent's wife, Edith Stokes Tarver, was $ 3,761.25.
In the estate tax return no amount was included in the gross estate on account of the property comprising this trust. In the notice of deficiency the respondent included such property at a value of $ 11,901.56.
The 1941 Trust.
By trust instrument dated August 1, 1941, the decedent, as "Grantor," conveyed to the Citizens and Southern National Bank at Macon, Georgia, as "Trustee," real estate in Macon known as the Massee Apartments. The conveyance was made expressly subject to a mortgage executed by the decedent on February 15, 1938, to Prudential*178 Insurance Company of America as security for the decedent's note of that date in the amount of $ 90,000.
Under the trust instrument of August 1, 1941, the grantor (the decedent herein) reserved the right for his life to "manage, operate and control" the Massee Apartments and to "collect the rents, issues and profits therefrom." All of the rents and profits were to be applied in the following manner and order of priority: (a) To the payment of taxes, insurance, maintenance, upkeep, and repairs of *494 the Massee Apartments; (b) to the payment of the principal, interest, and other sums required under the grantor's mortgage to the Prudential Insurance Company; (c) to pay $ 250 per month to the grantor's wife, Edith Stokes Tarver, for her life; (d) the balance of the income, if any, to be retained by the grantor.
In the event of default on the part of the grantor in the payment of any of the obligations to which the rents were to be applied, the trustee was to take over the management of the apartments and discharge the several obligations including the payment of $ 250 per month to the grantor's wife, and pay the balance to the grantor. Upon the death of the grantor the trustee*179 was to collect the income, discharge therefrom the several obligations above set out, including the monthly payment of $ 250 to Edith Stokes Tarver for life, and to divide the balance among his four daughters. The trust was to continue until the grantor's youngest grandchild attained the age of 21 years, at which time the corpus and any accumulated income were to be divided among the grandchildren, per stirpes.
The petitioner did not include the value of the Massee Apartments in the decedent's gross estate in the estate tax return. The respondent held that the value of the apartments, less the value of the life estate of decedent's widow, was includible. He determined the fair market value of the apartments to be $ 225,000, and the value of the $ 250 payable to Edith Stokes Tarver for life to be $ 22,045.02. He included the difference in the amount of $ 202,954.98 in the gross estate.
The property known as the Massee Apartments, which constituted the corpus of the trust of August 1, 1941, is located on College Street just off Georgia Avenue in Macon, Georgia, less than a mile from the downtown business section of the city. The property is situated in an old but substantial section*180 of the city which at one time was one of the most exclusive residential areas in Macon. In 1950 there remained in the neighborhood many prominent citizens and substantial families. The clientele of the Massee Apartments continued to be good, and the prospect was that the section would continue to be good for an indefinite time. The area was exclusively residential and there were no office buildings in the vicinity, although property two blocks distant from the Massee Apartments had been converted to a hotel and some of the homes had been converted to apartment dwellings. In 1950 the Massee Apartments was the only multistoried apartment building in Macon. It is 8 floors high and is served by elevators. It has a beauty parlor and a public dining room.
The Massee Apartments building was constructed in 1925 and contains efficiency, 1-bedroom, 2-bedroom, and 3-bedroom residential units. The building formerly had approximately 65 apartments and *495 at the present time it contains 76 residential units. The building is constructed of reinforced concrete, brick, and steel. The floor thickness is approximately 10 inches, and is comparatively soundproof. The building did not *181 entirely occupy the land owned by the decedent, as there were garages for the tenants located behind the building, and the decedent had purchased property immediately northeast of and adjoining the Massee Apartments.
The elevator service in the Massee Apartments was not automatic, but required operators 24 hours a day. Stoves and refrigerators were furnished in the Massee Apartments, although some tenants owned their own stoves and refrigerators.
In 1950 rent controls were in effect in Macon and rental properties, including the Massee Apartments, were not producing the amount of income which real estate operators felt they should produce. Between 1946 and 1949 the Office of Price Administration granted an increase in gross rentals that amounted to approximately $ 8,000 annually. Although real estate men in Macon were endeavoring to have rent controls lifted there, it was difficult to determine when such controls would be lifted, especially in view of the outbreak of the Korean conflict.
During the period of rent controls the roof and exterior of the Massee Apartments had been maintained by the owner, but the decorating and repainting of the interior largely was left up to the tenants. *182 In 1950 the plumbing was antiquated and in constant need of repair or replacement. The windows and the plastering also were in poor condition, necessitating painting or replacement. It had been necessary in some instances to extend or repair the building's electrical wiring, which was becoming obsolete.
Most of the Massee Apartments clientele are elderly or retired people, with many widows residing there. The residence of many of the tenants in the Massee Apartments has been of a fairly long duration. There were no vacancies in the Massee Apartments during the period 1946 through 1949, and there had been only a $ 15 loss in rent for the 8-year period prior to 1950. The only other practical use for the building would be as a hotel, and this would entail a substantial capital expenditure.
The gross rentals of the building and net income therefrom, before depreciation, were as follows in the period 1946-1949:
| 1946 | 1947 | 1948 | 1949 | |
| Gross rents | $ 40,535.60 | $ 44,649.60 | $ 48,969.50 | $ 48,508.25 |
| Net income | 10,092.89 | 14,938.19 | 19,495.04 | 19,976.80 |
The fair market value of the Massee Apartments on October 8, 1950, was $ 215,000.
*496 The Marital Deduction*183 .
Under the decedent's will, executed on April 16, 1936, after provision for payment of debts and taxes, and after certain specific bequests to the wife, including decedent's home and furnishings, all the residue of the estate was placed in trust with the Citizens and Southern National Bank as trustee. The will contained the following provisions relating to the trust:
Item III * * *
* * * *
(5) Said Trustee * * * in the event my wife, Edith Stokes Tarver, survives me shall pay the net income therefrom to her in installments, quarter-annually or otherwise (as she and said Trustee may determine upon) for and during the balance of her natural life, the same to be used by her for her support and maintenance, and for the education, support and maintenance of our children, in her discretion.
(a) I hereby authorize my Trustee to pay to my said wife such sums of money out of the principal account of this trust fund as and when she may demand, for her use and/or for the use or benefit of our children as she deems advisable.
1. She shall advise the Trustee in writing of all such sums so withdrawn for the benefit or use of each child respectively.
2. The trustee shall keep separate*184 records in the name of each child of all such sums so withdrawn for its respective use (of which the Trustee has such advice) and shall charge all such sums against the disbursements to each child of its portion of this trust estate upon the death of its mother. This record of such sums so withdrawn upon such written advice shall be conclusive as to all persons.
(b) Upon the death of my said wife, or if my said wife shall predecease me, then upon my death, said Trustee shall divide all moneys, properties and securities then held by it under the terms of the trust created by this instrument including the total of all such sums so advanced as evidenced by such records of the Trustee (as provided for in sub-paragraph A-2 above) into as many equal shares as I shall have children then living, and a share for the issue of any deceased child, per stirpes.
(c) The Trustee at the time of said division, (i. e., upon the decease of the survivor of my said wife and myself) shall charge against the share of each living child, and against the share of the issue of each then deceased child, all such sums withdrawn for the use or benefit of such child as shown by its record (as provided for in*185 sub-paragraph (a)-2 above).
The will then provided for the termination of the trust as to each child upon that child's death, and directed that the share be paid in accordance with such child's testamentary disposition or in the absence of testamentary direction, to such child's issue.
The will further provided that if at the time of division of the estate, as provided in paragraph (5) (b) of Item III of the will, any child should still be pursuing its education, the trustee should continue to expend income, and principal if necessary, to further the educative endeavors of such child "in the same manner as my said *497 wife would have been enabled to do hereunder, had she survived." It was further provided that at any time after the time of division, the trustee might sell a portion of any child's trust estate which might be necessary to support and maintain that child, in the event of illness, misfortune, or any other emergency occurring to such child. The trustee was required to furnish at least once a year, upon the request by any one of the beneficiaries, a statement as to the condition of the trust. In his will the decedent made reference to the fact of his intention*186 to set up certain trusts in favor of his four daughters and to provide in the trust instruments that under certain circumstances the corpus of each of those trusts might be paid over to the trust created by his will. He directed that if those circumstances should arise his testamentary trustee should receive such property, merge it with the corpus of the testamentary trust and treat such property as if it had originally been a part of the corpus of the testamentary trust.
It was further provided that if at the time of the decease of the survivor of the testator or his wife, no children or descendants of children should be living, the trustee should divide the principal of the estate into two equal parts and distribute them to the testator's heirs at law and to the heirs at law of his wife.
In the estate tax return a marital deduction in the amount of $ 48,557.44 was claimed. The respondent determined that the interest in property passing from the decedent in trust under Item III of the decedent's will did not qualify for the marital deduction and therefore increased the value of the net estate by the amount of $ 34,862.78. The amount allowed by the respondent as a marital deduction, *187 $ 13,694.66, related to property other than that in the testamentary trust.
OPINION.
The Notice of Deficiency.
The petitioner contends that since it made application under section 825 (a)1 for a determination of the amount of estate tax, and as the respondent did not send the notice of deficiency until after *498 the expiration of the period of 1 year, it is discharged from personal liability and the notice of deficiency is void as having been sent to an improper party. As we understand the petitioner, it contends that we should hold that it is not personally liable and also that a petition based on the notice of deficiency sent to it precludes our consideration of the estate tax liability of the estate.
*188 The notice of deficiency was addressed to the executor, as such, and set forth the respondent's determination of a deficiency against the estate. It does not purport to determine a personal liability against the executor. Certainly the failure of the respondent to determine the amount of the estate tax within the period prescribed by section 825 would not relieve the estate from liability or preclude the respondent from issuing a notice of deficiency in regard to the liability of the estate. Bessie M. Brainard, 47 B. T. A. 947. Nor can there be any question that the executor of an estate is a proper representative of the estate for the purpose of receiving a notice of deficiency and filing a petition with this Court, whether or not such executor is personally liable for the tax. Safe Deposit & Trust Co. of Baltimore, Executor, 35 B. T. A. 259, affirmed on other issues (C. A. 4) 95 F. 2d 806. As stated, the notice of deficiency does not purport to determine a personal liability against the executor. Accordingly, we do not have before us the question of whether the executor is personally liable. *189 Upon the record before us we hold only that the notice of deficiency was properly mailed to the bank in its capacity as executor and that the petition filed by the executor based upon such notice gives us jurisdiction to consider the estate tax liability of the estate.
The petitioner also alleges that any deficiency in estate tax should be assessed against the transferees of the property that is included in the estate, namely, the trustees of the 1936 and 1941 inter vivos trusts and of the testamentary trust. However, the notice of deficiency does not purport to assert any liability against such trustees as transferees, and accordingly the question of their liability is not before us in this proceeding.
The 1936 Trust.
We think that the provisions of section 811 (c) (1) (C) and 811 (c) (2)2 require that the value of the property in the 1936 trust be included in the decedent's gross estate.
*190 *499 The terminology "intended to take effect in possession or enjoyment at or after his death" has appeared in the various revenue acts through the years and such language has been the subject of litigation many times in the Supreme Court. 3 The present view of the Supreme Court as to the meaning of this expression is well stated in Fidelity-Philadelphia Trust Co. v. Rothensies, 324 U.S. 108">324 U.S. 108, as follows:
Section 302 (c) itself provides for the inclusion within the gross estate of property "to the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death." As we said in Helvering v. Hallock, supra, 309 U.S. at pages 110, 111, 60 S. Ct. at page 447, 84 L. Ed. 604, 125 A. L. R. 1368, this provision "deals with property not technically passing at death but with interests theretofore created. The taxable event is a transfer inter vivos. But the measure of the tax is the value of the transferred property at the time when death brings *191 it into enjoyment." Cf. Reinecke v. Northern Trust Co. 278 U.S. 339, 347, 49 S. Ct. 123">49 S. Ct. 123, 125, 73, L. Ed. 410, 66 A. L. R. 397. The taxable gross estate, in other words, must include those property interests the ultimate possession or enjoyment of which is held in suspense until the moment of the grantor's death or thereafter. [Emphasis supplied.]
In the instant case the trust instrument provided that the*192 net income of the trust should be paid to the decedent's daughter, Dora, for life with remainder over to her descendants. However, it was provided that if at the time of the grantor's death he had not created a trust fund in at least an equal amount for each of his other three daughters, and if the net value of his estate was greater than $ 40,000, *500 then the trustee was to pay over the corpus to the trustee of the trust created by the grantor's last will and testament. Furthermore, it was provided that if the decedent's daughter, Dora, should predecease the grantor without having children or issue thereof surviving her, the property was likewise to go to such testamentary trustee. Accordingly, it is clear that the ultimate possession or enjoyment of the corpus of this trust was held in suspense until the moment of the grantor's death. Whether the designated beneficiaries would take in accordance with the terms of the trust depended upon the situation existing at the time of the decedent's death. We accordingly conclude that the transfer effected by the inter vivos trust was intended to take effect in possession or enjoyment at or after the decedent's death within the*193 meaning of section 811 (c) (1) (C).
Section 811 (c) (2) (enacted by the Technical Changes Act of 1949) provides, however, with regard to transfers prior to October 8, 1949, that even though a transfer was intended to take effect in possession or enjoyment at or after the decedent's death the property transferred is not to be included in the gross estate unless the decedent has retained a reversionary interest in the property, arising by the express terms of the instrument of transfer, and the value of such reversionary interest immediately before the death of the decedent exceeds 5 per centum of such property. Section 811 (c) (2) states that the term "reversionary interest" includes the possibility that property transferred by the decedent may return to him or his estate, or may be subject to a power of disposition by him.
We think that upon the happening of either of the two contingencies mentioned above, the corpus of the trust would, pursuant to the trust instrument, be subject to a power of disposition by the grantor, inasmuch as up to the time of his death he could alter his will and the provisions thereof regarding the testamentary trust under which the ultimate takers would*194 be determined.
Here there is no showing that the value of the reversionary interest immediately before the death of the decedent did not exceed 5 per centum of the value of the property comprising the corpus of the trust. The burden of proof in this respect was upon the petitioner and in the absence of such proof we must assume that the value did exceed the necessary 5 per centum. Estate of Frank W. Thacher, 20 T.C. 474">20 T. C. 474.
We are also of the opinion that the amount to be included in the decedent's estate on account of the property in the 1936 trust is the entire value of the property at the date of death and that such value is not to be reduced on account of the interest of Dora, measured by the life of Edith Stokes Tarver, as contended by the petitioner. Section 811 requires the inclusion in gross estate of the value of all *501 property to the extent of any interest therein of which the decedent made a transfer intended to take effect in possession or enjoyment at or after death. This wording, in the language of the Supreme Court in Commissioner v. Field's Estate, supra, requires that where "the corpus does*195 not shed the possibility of reversion until at or after the decedent's death, the value of the entire corpus on the date of death is taxable." In that case the Court further said:
The estate tax is not based on the value of the reversionary interest of the decedent at the time of his death but on the value at the time of his death of the property to which that reversionary interest relates.
In this case Dora's right to any interest in the income or corpus of the 1936 trust was subject to contingencies that existed until the moment of the decedent's death. This situation requires the inclusion in the decedent's estate of the value of the entire trust corpus. Estate of Frank W. Thacher, supra.This conclusion is not in conflict with the case of Dominick's Estate v. Commissioner, 152 F. 2d 843, affirming a Memorandum Opinion of this Court. In that case the value of a beneficiary's right to income for a term certain, irrespective of the death of the decedent, was allowed as a reduction of the amount to be included in the decedent's gross estate, but no reduction was allowed on account of an additional interest that*196 was contingent upon the beneficiary's survival of the decedent.
The respondent has determined that the value of the corpus of the 1936 trust at the date of death was $ 11,901.56 and that value is accepted by the petitioner as correctly measuring the full value of the corpus. We hold that the respondent correctly included the full value in the decedent's estate.
The 1941 Trust.
The respondent included in the decedent's gross estate the amount that he determined was the value of the corpus of the 1941 trust, the Massee Apartments, less the value of the life estate of the decedent's widow. Although the petitioner assigns error as to this inclusion, it does not on brief argue against the inclusion as a matter of law but confines its argument to the matter of valuation.
It seems clear that under the provisions of section 811 (c) (1) (B) of the 1939 Code 4 the value of the interest in the Massee Apartments *502 transferred by the decedent in 1941 should be included in the gross estate. Under the trust instrument the decedent-grantor retained for his life an interest precisely prescribed by the statute, namely "the right to the income from the property * * *." We sustain the*197 respondent on this question of law. Estate of George L. Shearer, 17 T.C. 304">17 T.C. 304.
There remains the question of the fair market value at the time of decedent's death of the Massee Apartments. *198 The respondent determined the value to be $ 225,000, but by amended answer alleges that the value was $ 255,000 and prays for an increased deficiency The petitioner contends that the value was not in excess of $ 200,000.
We have set out in the findings, general facts concerning the property, including its location and condition, and the gross and net income derived therefrom. Both parties offered the testimony of expert witnesses as to the fair market value of the property. They took into consideration the factors that we have set out in our findings and based their opinions of value primarily on the expected rate of return from rentals. After taking into consideration all the evidence, including the testimony of the expert witnesses, we have concluded and found as a fact that the fair market value of the Massee Apartments on October 8, 1950, was $ 215,000.
The Massee property is to be included in the gross estate at the value of $ 215,000, less, however, the value of the life estate of the widow. The respondent determined the value of such life estate to be $ 22,045.02 and the taxpayer apparently does not contest that figure. In any event, there is no showing that the respondent's*199 valuation of the life estate was in error. It follows that the respondent is not entitled to the claimed increased deficiency.
The Marital Deduction.
The question presented is whether the petitioner is entitled to a marital deduction, under section 812 (e) (1) (F) of the Internal Revenue Code of 1939, based on the value of the residuary estate of the decedent which, by his last will and testament, he placed in trust.
Section 812 (e) (1) (F) provides for a marital deduction, in the case of an interest passing from the decedent in trust:
if under the terms of the trust the surviving spouse is entitled for life to all the income from the corpus of the trust, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire corpus free of the trust (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of the corpus to any person other than the surviving spouse --
* * * *
*503 if, under the terms of the trust, such power in the surviving spouse *200 to appoint the corpus, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.
The petitioner contends that all the conditions prescribed by section 812 (e) (1) (F) have been met, but the respondent argues on brief that the surviving spouse did not have the power to appoint the entire corpus free of the trust to herself or her estate. The respondent apparently recognizes that an unlimited power in the surviving spouse to invade the corpus would qualify as a power of appointment within the meaning of the statute. See Estate of Frank E. Tingley, 22 T.C. 402">22 T. C. 402, affd. (C. A. 1) 223 F.2d 163">223 F. 2d 163. See also Regulations 105, section 81.47a (c) which speaks of "an unlimited power to invade" corpus as an example of a power to appoint such corpus, free of the trust, in favor of the surviving spouse within the meaning of the statute. Respondent contends, however, that the surviving spouse here did not have an unlimited power to invade corpus.
Section 81.47a of Regulations 105 further provides that:
The power in the surviving spouse must be a power to appoint the corpus to herself as unqualified*201 owner or to appoint the corpus as a part of her estate, that is, in effect, to dispose of it to whomsoever she pleases. [Emphasis supplied.]
This provision of the Regulations is in accord with the intent of Congress, as evidenced by the Report of the Finance Committee on the bill which became the Revenue Act of 1948 (S. Rept. No. 1013, Part 2, 80th Cong., 2d Sess.), which enacted section 812 (e) (1) (F). That report contains the following statement regarding subparagraph (F):
These provisions have the effect of allowing a marital deduction with respect to the value of property transferred in trust by or at the direction of the decedent where the surviving spouse, by reason of her right to the income and a power of appointment, is the virtual owner of the property. This provision is designed to allow the marital deduction for such cases where the value of the property over which the surviving spouse has a power of appointment will (if not consumed) be subject to either the estate tax or the gift tax in the case of such surviving spouse. 5 [Emphasis supplied.]
*202 We turn then to a consideration of whether, under the terms of the testamentary trust, the surviving spouse had the unlimited right during her life to invade the corpus as though she were the virtual owner of the property.
*504 The courts of South Carolina in construing wills follow the generally accepted principles that "the cardinal rule of construction is to ascertain and effectuate the intention of the testator" and "that in the construction of a will all of the provisions are to be considered and given effect so far as possible, and the true intent gathered from the four corners of the instrument." Rogers v. Rogers, 221 S. C. 360, 70 S. E. 2d 637, in which case the Supreme Court of South Carolina quoted from the case of Smith v. Bell, 6 Pet. 68, 74, as follows:
The first and great rule in the exposition of wills, to which all other rules must bend, is, that the intention of the testator, expressed in his will, shall prevail, provided it be consistent with the rules of law.
The intent of the testator is to be gathered from the whole instrument, giving "due weight to all of its language, *203 considered in the light of the circumstances known to the testator at the time of execution." Shevlin v. Colony Lutheran Church, 227 S. C. 598, 88, S. E. 2d 674. In ascertaining the testator's intent from the language used in the will "force and effect must be given to all parts of it, every clause, phrase, and word, if it can be done by any reasonable method of construction, so as to harmonize them with each other and with the whole." Wates v. Fairfield Forest Products Co., 210 S. C. 319, 42 S. E. 2d 529. It was said in Lemmon v. Wilson, 204 S. C. 50, 28 S. E. 2d 792, 800, that "only a very strong reason can justify the treatment of any of the testator's words * * * as surplusage."
The part of the decedent's will with which we are most immediately concerned is Item III (5) (a) in which the trustee is authorized to pay to the surviving widow such sums out of the trust principal "as and when she may demand, for her use and/or for the use or benefit of our children as she deems advisable."
In the light of the rules of construction prevailing in South*204 Carolina, it is our opinion that this language does not confer upon the surviving spouse an unlimited right to invade the corpus and appropriate it as virtually her own property. In reaching this conclusion we have considered all the terms of the will, set forth in detail in our findings. It seems clear to us, when the will is read as a whole, that the decedent intended that his surviving spouse should have the right to draw down only so much of the corpus as might be necessary for her personal use or for the use or benefit of the children, and that he contemplated that there would be an unused part of the corpus which should be retained for the benefit of his children. We are unable to find in the above-quoted provision or in any other provision of the will an intent to give the wife the right in her untrammeled discretion to demand all of the corpus and thus to completely destroy the trust. "Such drastic power is not to be inferred in the absence of clear and definite expression by the testator * * *." *505 In re Morse's Will, 280 App. Div. 171, 112 N. Y. S. 2d 392. Where an absolute discretion is not clearly given to the beneficiary*205 an exercise of the power of invasion must be founded upon a reasonable judgment dealing with existing facts with due regard for the purposes for which the power is given and also for the rights of those whose interest may be injuriously affected by the exercise of the power. Lovett v. Farnham, 169 Mass. 1">169 Mass. 1, 47 N.E. 246">47 N. E. 246.
Throughout the will in the instant case the decedent indicated solicitude for his children, and a desire that they should be benefited by the trust property. Thus, the surviving spouse is required to report to the trustee the amounts appropriated for the use of any child for purposes of determining the amount of each child's share of the remainder of the trust property at the time of ultimate distribution. The decedent contemplated that even after the death of his wife, the trustee should sell any portion of any child's trust estate which might be necessary to support that child in the event of illness, misfortune, or other emergency. Furthermore, he contemplated that the corpus of each of certain trusts which he intended to set up during his life for the benefit of his children might under certain circumstances*206 become a part of his testamentary trust. Such expressed intention of the testator regarding the future benefits for the children negatives the petitioner's contention that the surviving spouse was given an unlimited power to invade the corpus of the trust.
Our conclusion that the surviving wife was not granted an unlimited power to appropriate the property as if she were the owner thereof is in general accord with the views expressed by the courts of South Carolina in cases involving the powers of life beneficiaries who have also the right to use corpus. See Lynch v. Lynch, 161 S. C. 170, 159 S. E. 26, and Blakely v. Blakely, 155 S. C. 123, 152 S.E. 24">152 S. E. 24.
The case of Comer v. Citizens & Southern Nat. Bank, 182 Ga. 1">182 Ga. 1, 185 S.E. 77">185 S. E. 77, which is quoted and relied on by the petitioner is not in point on the facts. There property was placed in trust for a child with power to use and dispose of it during his life as he might see proper. The court stated that the power given was much broader than the power to merely use the property, that*207 it was "almost as broad as testator could make it" and that it gave the beneficiary power to consume, sell, mortgage, or give away the fee.
We conclude that the surviving spouse in the instant case did not have the power to appoint the entire corpus free of the trust in her favor, and that no marital deduction is allowable under section 812 (e) (1) (F) on account of the property passing to the testamentary trust.
In accord with our holding on this point is the recent case of Matteson v. United States, (N. D., N. Y.) 147 F. Supp. 535">147 F. Supp. 535. In that *506 case the decedent left the residue in trust with the income payable to his wife for life, and with a provision that if the wife should find such income not sufficient -- "and of its sufficiency she shall be the sole judge" -- the trustees were to pay her so much of the trust corpus as she should desire. In holding that the transfer in trust did not qualify for the marital deduction the court said in part:
The only event which would allow the invasion of the corpus of the trust fund would be the insufficiency of the income as she decided it in good faith, and this seems far from a power to appoint*208 the entire corpus free of the trust in her favor or to her estate without qualification as provided in the statute and regulations involved.
It seems clear to me, in the law of New York, that a trust as created here confers only a life estate with remainder over and not an absolute fee with power to dispose either by will or by sale. ( Terry v. Wiggins47 N. Y. 512, 516; In the Matter of the Estate of Brower 278 App. Div., 851, aff'd. 304 N. Y. 661. See also Matter of Vanderbilt, 281 N. Y. 297, 308). Equally so, it seems clear and logical that the testator here so intended from the wording of his will and the family circumstances present, despite the grant of power to invade if necessary. * * *
From a reading of the briefs filed in this case there does not seem to be any difference between the parties as to the existence of other factors necessary to qualify for the marital deduction, such as the entire trust income being payable to the wife at least annually, and the lack of any power of appointment in any other person. However, in view of our holding that*209 the surviving wife did not have the necessary power of appointment of the corpus, we do not pass upon the question whether all the other factors enumerated by the statute have been satisfied.
Decision will be entered under Rule 50.
Footnotes
1. Section 825 (a) of the Internal Revenue Code of 1939 provides:
SEC. 825. DISCHARGE OF EXECUTOR FROM PERSONAL LIABILITY.
(a) Application for Discharge. -- If the executor makes written application to the Commissioner for determination of the amount of the tax and discharge from personal liability therefor, the Commissioner (as soon as possible, and in any event within one year after the making of such application, or, if the application is made before the return is filed, then within one year after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in sections 874 and 875↩) shall notify the executor of the amount of the tax. The executor, upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge.
2. SEC. 811. GROSS ESTATE.
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, except real property situated outside of the United States --
* * * *
(c) Transfers in Contemplation of, or Taking Effect at, Death. --
(1) General rule. -- To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise --
* * * *
(C) intended to take effect in possession or enjoyment at or after his death.
* * * *
(2) Transfers taking effect at death -- Transfers prior to October 8, 1949. -- An interest in property of which the decedent made a transfer, on or before October 7, 1949, intended to take effect in possession or enjoyment at or after his death shall not be included in his gross estate under paragraph (1) (C) of this subsection unless the decedent has retained a reversionary interest in the property, arising by the express terms of the instrument of transfer and not by operation of law, and the value of such reversionary interest immediately before the death of the decedent exceeds 5 per centum of the value of such property. For the purposes of this paragraph, the term "reversionary interest" includes a possibility that property transferred by the decedent (A) may return to him or his estate, or (B) may be subject to a power of disposition by him, but such term does not include a possibility that the income alone from such property may return to him or become subject to a power of disposition by him. The value of a reversionary interest immediately before the death of the decedent shall be determined (without regard to the fact of the decedent's death) by usual methods of valuation, including the use of tables of mortality and actuarial principles, pursuant to regulations prescribed by the Commissioner with the approval of the Secretary. In determining the value of a possibility that property may be subject to a power of disposition by the decedent, such possibility shall be valued as if it were a possibility that such property may return to the decedent or his estate.↩
3. May v. Heiner, 281 U.S. 238">281 U.S. 238; Klein v. United States, 283 U.S. 231">283 U.S. 231; Helvering v. St. Louis Union Trust Co., 296 U.S. 39">296 U.S. 39; Helvering v. Hallock, 309 U.S. 106">309 U.S. 106; Commissioner v. Field's Estate, 324 U.S. 113">324 U.S. 113; Commissioner v. Church's Estate, 335 U.S. 632">335 U.S. 632; Spiegel's Estate v. Commissioner, 335 U.S. 701">335 U.S. 701↩.
4. Section 811 (c) (1) requires that there be included in the gross estate of the decedent the value at the time of his death of all property:
(1) General rule. -- To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise --
* * * *
(B) under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (i) the possession or enjoyment of, or the right to the income from, the property, or (ii) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; * * *↩
5. In this connection it is to be observed that section 811 (f) (2) requires inclusion in the gross estate of property with respect to which any decedent has at the time of his death a general power of appointment created after October 21, 1942, but that under section 811 (f) (3) (A)↩ the term "general power of appointment" does not include a power to consume, invade, or appropriate property which is limited by an ascertainable standard relating to the health, education, support or maintenance of the holder of the power.