*146 Decision will be entered under Rule 50.
1. Decedent's father created a testamentary trust which provided that the trustee should pay (a) $ 5,000 per year to the decedent for life; (b) the income from two-thirds of the remainder of the trust estate to decedent for life and upon her death the principal amount thereof as she should appoint by will; (c) the income from the remaining one-third to decedent's son, Thomas Cardeza, for life and upon his death, the principal, less an amount necessary to produce a life annuity for his widow, to his children or their issue. If the decedent died without executing the power of appointment, her share of the net income was to be paid to all the grantor's grandchildren in equal shares during the life of Thomas Cardeza, and upon his death the principal was to be distributed among the grantor's grandchildren or their issue. In the event decedent died without executing the power of appointment and without leaving anyone to whom grantor's estate could descend "by process of law," the trustees were directed to procure a charter for a college and apply the trust income to the maintenance thereof. Decedent was sole heir at law of her father and left*147 surviving her as her sole heir at law her son, Thomas Cardeza, who, at decedent's death, was 64 years of age and married, but without children.
In her will, decedent exercised her power of appointment in favor of her son. After her death, he renounced all right to receive the property under the power, which renunciation was given effect by the state court having jurisdiction over decedent's estate. Held:
(a) The value of two-thirds of the trust estate is not includible in decedent's gross estate under section 811 (f), Internal Revenue Code, as property passing under a general power of appointment, Helvering v. Grinnell, 294 U.S. 153">294 U.S. 153, followed; and, further, is not so includible as intestate property.
(b) In the absence of proof to rebutt the presumption that Thomas Cardeza may have issue, the remaining one-third of the trust estate, diminished by the value of Thomas' life estate and an annuity for his widow, is not includible in decedent's gross estate.
(c) The value of the principal producing the $ 5,000 annuity is not includible in decedent's gross estate as intestate property, but remains in the trust, to be administered according to its*148 terms.
2. During her lifetime decedent made various donations to the trustees of her father's trust to enable them to exercise certain stock subscription warrants which they held and which they were unable to exercise with trust funds because of limitations on investment in the grantor's will. Held, two-thirds of these donations are includible in decedent's gross estate under section 811 (d), Internal Revenue Code; held, further, the remaining one-third of the donations are includible under section 811 (c) as transfers intended to take effect in possession or enjoyment at or after death.
3. Amount bequeathed by decedent in trust for perpetual maintenance of a mausoleum previously erected, held deductible from gross estate as a funeral expense upon proof that it has been paid or will be paid.
4. Executors' fees allowed as a deduction from gross estate in the amount actually paid.
*203 The respondent determined a deficiency of $ 2,345,759.09 in estate tax against the estate of Charlotte D. M. Cardeza, deceased.
The issues involved are (1) whether any amount is includible in the decedent's gross estate as property passing under a general power of appointment; (2) whether any part of the corpus of a trust created by the decedent's father is includible in the decedent's gross estate as intestate property inherited by her; (3) whether payments made by the decedent to the trust*151 known as the Drake trust are includible in her gross estate; (4) whether an amount bequeathed by the decedent in perpetuity for the maintenance of her place of burial is deductible from her gross estate under section 812 (b) of the Internal Revenue Code; (5) the determination of the amount of executors' fees deductible from the decedent's gross estate.
An issue relating to property transferred in contemplation of death has been settled by stipulation, and effect to this and other stipulated matters will be given in the recomputation under Rule 50.
FINDINGS OF FACT.
All the facts have been stipulated and as so stipulated we adopt them as findings of fact. In so far as material to the issues here presented they are as follows:
The petitioners are the duly qualified surviving executors of the estate of Charlotte D. M. Cardeza, deceased. The Fidelity-Philadelphia *204 Trust Co. is a corporation, with its principal office at 135 South Broad Street, Philadelphia, Pennsylvania. The petitioner, Thomas D. M. Cardeza, is an individual, residing at 305 West Chestnut Hill Avenue, Philadelphia. The estate tax return was filed with the collector of internal revenue for the first district*152 of Pennsylvania on October 31, 1940.
Charlotte D. M. Cardeza, hereinafter called the decedent, was born on April 10, 1854, and died testate on August 1, 1939. Her will was admitted to probate by the Register of Wills of Philadelphia County, Pennsylvania, on August 8, 1939.
The decedent's father, Thomas Drake, died on April 18, 1890, leaving a will, hereinafter called the Drake will, which was admitted to probate by the Register of Wills of Philadelphia County on April 30, 1890.
Under clause sixth of the Drake will a residuary trust was created, hereinafter called the Drake trust, with the decedent, George Philler, and the Fidelity Insurance Trust & Safe Deposit Co. (now called Fidelity-Philadelphia Trust Co.) named therein as trustees. Under the terms of the will the trust was to be administered in the following manner:
Firstly. They [the trustees] shall pay to my daughter Charlotte Drake Martinez-Cardeza the sum of five thousand dollars ($ 5000) per annum * * * during all her life; the same to be used by her in such charitable works as she knows would be agreeable to me. And as I have the greatest confidence in her it is my will that she accounts to no one for what use she makes*153 of the same.
Secondly. They shall pay two-thirds of all the rest, residue and remainder of the net income of my estate unto my daughter Charlotte Drake Martinez-Cardeza for and during all the term of her natural life * * * and upon her death they shall dispose of the principal sum producing the same in such manner as she may by her Last Will and Testament direct. * * *.
Thirdly. They shall pay the other remaining one-third of the rest, residue and remainder of the net income of my estate unto my grandson Thomas Drake Martinez-Cardeza during all the term of his natural life * * *. Upon the death of my said grandson my Trustees shall pay out of said income such sum, not exceeding ten thousand dollars ($ 10,000) per annum, unto the widow of my said grandson, as he may in his discretion, by his Last Will and Testament direct; which power of disposition I hereby confer upon him, and the principal sum producing this one-third of the net income of my estate, with the exception of a sufficient amount to produce for the widow of my said grandson such annuity as he may see fit to leave her, in execution of the power herein given him, they shall pay over to and among his children or the issue*154 of any of his deceased children share and share alike, but in said distribution such issue shall take between them only such share as his, her or their deceased parent or parents would have taken if living. And upon the death of the widow of my grandson Thomas Drake Martinez-Cardeza, should he have exercised the power of disposition in her favor herein given him, they shall pay the principal sum retained in their hands, to produce such annuity, to and among his children or the issue of any of his deceased children in like manner, share and share alike. Should however there be no child, grandchild or other descendant of my said grandson *205 alive at the time of the death of his said widow, then said principal sum shall be divided equally among my other grandchildren or their descendants, a dead grandchild's issue taking between them his or her share.
Fourthly. Should my daughter die without having executed the power of disposition herein before given to her, then my Trustees shall pay her share of the net income of my estate to and among all my grandchildren share and share alike during all the natural life of my grandson, Thomas Drake Martinez-Cardeza and upon his death they*155 shall divide and distribute the principal sums producing said income to and among all my grandchildren and the issue of any deceased grandchild or children in equal shares; but in such distribution the children of a deceased grandchild shall take between them only such share as his, her or their deceased parent or parents would have taken if living. * * *
Fifthly. Should my daughter survive all her children and their issue, then my Trustees shall pay over to her the entire income of my estate during all her life and at her death dispose of the principal thereof in such manner as she may by her Last Will and Testament direct.
Sixthly. * * *
Seventhly. Should my daughter die without having executed the power of disposition hereinbefore given to her and without leaving any child, grandchild or other lineal descendant her surviving to whom my estate could descend by process of law, then my Trustees shall procure a Charter for a school to be known as the "Thomas Matilda Drake College" which shall be managed and conducted in the same way and upon the same principles as Girard College with the exception that it shall be for girls instead of boys; and they shall apply the net income of my*156 estate First to erect the necessary buildings therefor, * * * and Second to the maintenance of said College and the pupils therein forever.
At the death of Thomas Drake, the decedent was his sole next of kin and heir at law.
The decedent's only child, Thomas D. M. Cardeza, was born on May 10, 1875, and still lives. At the time of the decedent's death, he was married to Mary R. M. Cardeza, who was born on March 27, 1880, and died on November 11, 1943.
In her will the decedent made several specific bequests to certain named legatees. By article twenty-fourth of the will she created a trust of the residue of her estate, the income from which was payable to certain beneficiaries for life. Article twenty-fifth provided that upon the termination of each trust the principal remaining should be paid to her son, Thomas Drake Martinez Cardeza.
Article twenty-seventh of the decedent's will provided as follows:
Twenty-seventh. Whereas my father, Thomas Drake, died on the Eighteenth day of April, A. D. 1890, leaving a Will probated at Philadelphia on April Thirtieth, A. D. 1890 and recorded in the Register of Wills office, in Will Book No. 151, page 375, wherein he did confer upon me the power*157 of appointment, and the exercise of such power of appointment, I hereby give and devise unto my son, Thomas Drake Martinez Cardeza all of the property and estate of which I have the power of appointment to him and his heirs and assigns, absolutely, giving and granting unto him a right of appointment or disposal of any inheritance which I may receive from said estate.
On October 3, 1940, Thomas D. M. Cardeza, in writing, renounced the benefits he might receive under the exercise of the power by his *206 mother, reserving to himself all other benefits to which he was entitled under her will and the will of his grandfather, Thomas Drake.
At no time has Thomas D. M. Cardeza received or requested more than the income from the Drake trust.
Following the death of the decedent, who was both a trustee and life beneficiary thereunder, it became necessary for the surviving trustee of the Drake trust and the decedent's executors, in her behalf, to file an account of their administration of the trust. No prior account having been filed, it was necessary for this account to cover the period of administration of the trust from November 28, 1890, when the trust property was awarded to the trustees, *158 to March 7, 1940. On July 31, 1941, the Orphans' Court of Philadelphia County entered an adjudication confirming said account. No exceptions were filed thereto and the account was confirmed absolutely and became final on August 16, 1941.
The adjudication contained the following:
The petition for distribution recites that the said Charlotte D. M. Cardeza left a will, duly probated, wherein she exercised the power of appointment given her by the will of her father and appointed her share of the estate to her son, Thomas Drake Martinez Cardeza. By writing, dated October 3, 1940, a copy of which is attached thereto, the said Thomas Drake Martinez Cardeza, who is also a life tenant under the will of testator, renounced the benefits that he might be entitled to receive under the exercise of the power of appointment by his mother, reserving, however, all other benefits he might have under the terms of the will. Accordingly, the balance of principal will be held by the trustees and the entire net income therefrom paid to the said Thomas D. M. Cardeza for life.
By the terms of the adjudication the balance of the principal was awarded "to be retained by the accountants for the use and purpose*159 of the trust." Of the income, "so much of the annuity of $ 5,000 and two-thirds of the remaining income as accrued to the date of death of Charlotte D. M. Cardeza is awarded to the Executors of her will and the balance is awarded to Thomas D. M. Cardeza, absolutely."
On October 1, 1941, a schedule of distribution was filed as directed in said adjudication and on the same date it was approved by the auditing judge. No exceptions were filed thereto and the schedule of distribution became final on October 16, 1941.
The respondent determined that the value of two-thirds of the corpus of the Drake trust was includible in the decedent's estate as property passing under a general power of appointment. He likewise determined that the value of the remaining one-third of the corpus was includible in the decedent's gross estate as intestate property inherited by her from her father.
The trustees of the Drake trust received from Thomas Drake's executors certain common stock which the Drake will permitted them to retain. They are, however, restricted in their investment to the so-called *207 legal investments for trust funds. Under the laws of Pennsylvania, the stocks of private corporations*160 do not constitute legal investments for trustees (20 Pa. Stat. § 801). The corporations which had issued such common stocks issued stock subscription warrants for the purchase of further stock from time to time during the decedent's lifetime. Thus the trustees were unable to exercise these warrants because of the limitations in the Drake will.
The decedent from time to time during her lifetime donated to the trustees of the Drake trust the sums of money set forth below to enable them to exercise rights to subscribe to and purchase the particular amounts and kinds of stock set opposite each amount:
| Date of | Sums | |
| donations | donated | Shares subscribed by each donation |
| 4/10/13 | $ 200,000 | 2,000 shares Fidelity Trust Co. |
| 4/11/17 | 12,500 | 50 shares Fire Ass'n of Philadelphia. |
| 5/1/17 | 250,000 | 1,000 shares Fidelity Trust Co. |
| 7/2/17 | 250,000 | |
| 4/16/24 | 55,000 | 100 shares Pennsylvania Co., etc. (later exchanged for |
| 1,000 shares). | ||
| 2/1/29 | 137,500 | 1,375 shares Pennsylvania Co., etc. |
| 2/28/29 | 175,000 | 500 shares First Nat. Bank of Philadelphia. |
| 6/14/29 | 22,500 | 1,500 shares Pennroad Corporation. |
| Total | 1,102,500 |
At the decedent's death, the following shares so derived, of the*161 value set opposite each item, were still held by the trustees of the Drake trust:
| 3,000 | shares Fidelity-Philadelphia Trust Co | $ 744,000.00 |
| 119 | shares Fire Association of Philadelphia | 8,002.75 |
| 2,375 | shares Pennsylvania Co., etc | 78,375.00 |
| 500 | shares First Nat'l Bank of Philadelphia | 161,500.00 |
| 1,500 | shares Pennroad Corporation | 2,250.00 |
| Total | 994,127.75 |
Of this total the respondent determined that $ 877,523.19 was includible in the decedent's gross estate.
On May 1, 1931, the decedent caused title to certain securities, standing to her account with her brokers, to be transferred to Thomas D. M. Cardeza, reserving to herself certain rights in the income therefrom. It is now stipulated between the parties that, of the total amount so transferred, the sum of $ 862,970.55 is includible in the decedent's gross estate.
Under clause second of her will the decedent bequeathed $ 25,000 in trust for the perpetual maintenance of the Drake mausoleum, where she is interred. She directed in her will that the net income therefrom be used for the perpetual care, upkeep, maintenance, repairs and replacements of the mausoleum, and that flowers or other emblems be placed thereon*162 on Christmas Day, New Year's Day, April ninth, and *208 Easter Day each year thereafter. She further directed that after the death of her son, his wife, and all his lineal descendants, the mausoleum should be sealed and no others placed therein nor interred in the lot surrounding it.
The petitioners have not paid this bequest because, in accordance with the priority of the claims of the Federal Government, they have paid over to the collector of internal revenue all available funds in respect of the deficiency determined by the respondent. The respondent has disallowed this item as a deduction from the decedent's gross estate because it has not been paid, and for other reasons.
Commissions in the amount of $ 22,180.35 have been paid to the executors of the decedent's will. The Orphans' Court of Philadelphia County allowed credit for the full amount of these payments in its adjudication of the executors' accounts, but determined that only $ 13,308.21 is allowable as a deduction for Pennsylvania inheritance tax purposes. The petitioners claimed the full amount paid as a deduction from gross estate, but the respondent has allowed the deduction only to the extent of $ 13,308.21.
*163 In her will the decedent made bequests to the Society for the Prevention of Cruelty to Animals and to the Chestnut Hill Hospital in the respective amounts of $ 5,000 and $ 10,000. These bequests have not been paid because, in accordance with the priority of claims of the Federal Government, the petitioners have paid over to the collector of internal revenue all available funds in respect of the deficiency determined by the respondent.
The respondent has disallowed the bequests as deductions from gross estate because of nonpayment, but he does not question the exempt status of the legatees or the allowability of the deductions if the amounts in question are paid.
It was agreed that if C. H. Chetwood were present he would testify as follows:
That he is a duly qualified and licensed doctor of medicine in the State of New York, with his principal office located at No. 25 Park Avenue, City of New York, New York, where he is engaged in practice as a physician specializing in urology, and he has been so specializing since 1900.
That, in his professional capacity, he examined and observed Thomas D. M. Cardeza on April 13, 1939, and again on February 16, 1944, and at other times, and from*164 such examinations and observation, it is his opinion that there has not been and is not now any known physical impediment to the ability of said Thomas D. M. Cardeza to procreate.
OPINION.
The first issue for our determination is whether the value of two-thirds of the corpus of the Drake trust is includible *209 in the decedent's gross estate as property passing under a general power of appointment by virtue of the provisions of section 811 (f) of the Internal Revenue Code, prior to its amendment by section 403 (a) of the Revenue Act of 1942. 1
The *165 petitioners contend that nothing may be included in the decedent's estate by virtue of section 811 (f), since nothing in fact passed under the power. They contend that, although the decedent in her will attempted to exercise the power of appointment given to her by her father, her son renounced the benefits to which he was entitled thereunder; that this renunciation was accepted by the Orphans' Court and that Thomas Cardeza received no part of the property over which the decedent had the power of appointment; that the exercise was therefore rendered ineffectual and that nothing passed thereunder. In support of this contention, they rely upon Helvering v. Grinnell, 294 U.S. 153">294 U.S. 153.
In that case the decedent by will exercised a power of appointment in favor of the persons who would have taken the same estate in default of appointment. After her death, the appointees, in writing, renounced the right to receive the property under her will and elected to take under the will of the donor of the power.
The respondent attempted to include the value of the property in the decedent's gross estate upon the ground that it had passed under the power of appointment. *166 He contended that the tax was imposed upon the power to transmit or the transmission of property by death; that the shifting of the economic benefits in property is the real subject of the tax; and that the property had passed under the general power of appointment within the meaning of the statute.
The Supreme Court, however, held that no property passed under the power or as a result of its exercise "since that result was definitely rejected by the beneficiaries." In answer to the respondent's contention the Court said:
* * * But this [argument] involves the obviously self-destructive conclusion that an unsuccessful attempt to effectuate a thing required by the statute is the same as its consummation. The tax here does not fall upon the mere shifting of the economic benefits in property, but upon the shifting of those benefits by a particular method, -- namely, by their "passing under a general power of appointment," and not otherwise. Acceptance of the Government's contention would strip the italicized word of all meaning.
The respondent does not deny the similarity of the case at bar to Helvering v. Grinnell, supra. However, he contends*167 that the Grinnell*210 case is now applicable only where the beneficiaries' estate in default of appointment is the exact equivalent of that which they would have received under the exercise of the power. In support he contends that the Supreme Court in Rogers' Estate v. Helvering, 320 U.S. 410">320 U.S. 410, held that title passes within the meaning of section 811 (f) by the mere exercise of the power and that the Court thus overruled "by implication the Grinnell case as to the supposed rule that title could not pass because of renunciation as well as the supposed rule that the title did not pass by the exercise of power. All that remains of the Grinnell case is the theory of equivalence, where the exercise of the power merely echoes the will."
We are unable to agree. Rogers' Estate v. Helvering, supra, was a case in which the donee of a power of appointment gave to his appointees a lesser estate than they would have taken from the will of the donor had there been no exercise of the power. No renunciation was filed by the appointees and the donee's estate was distributed in accordance with the terms of his*168 will. It was contended that nothing passed under the power of appointment, since the appointees received less than they would have received had there been no appointment.
The Supreme Court held that the property passed under the power of appointment, since the precise estate which the appointees received came into being solely by virtue of the exercise of the power by the decedent. Said the Court:
* * * For the purpose of ascertaining the corpus on which an estate tax is to be assessed, what is decisive is what values were included in dispositions made by a decedent, values which but for such dispositions could not have existed.
Here, however, it is clear that no new values were brought into existence as the result of the exercise of the power by the decedent, since, in the language of the Grinnell case, "that result was definitely rejected by the [beneficiary]." Thomas Cardeza rejected the benefits to which he was entitled under the power, thus rendering the exercise thereof ineffectual and preventing anything from passing thereunder.
Apart from what we have said, there is another reason for holding that nothing passed under the power. In its adjudication, the Orphans' Court*169 of Philadelphia County gave effect to the renunciation and ordered that the property over which the decedent had the power of appointment should be held by the trustees and not distributed to the decedent's son, as it would have been had the exercise of the power been effective. The view of the state courts charged with the determination of these questions is the authority we should follow wherever ascertainable. Estate of Mary Adele Morris, 38 B. T. A. 408; cf. Estate of Cassius E. Wakefield, 44 B. T. A. 677; Estate of Frederick R. Shepherd, 39 B. T. A. 38.
This principle was recognized too in the Rogers case, the Court saying:
*211 Whether by a testamentary exercise of a general power of appointment, property passed under Section 302 (f) [now sec. 811 (f), I. R. C.] is a question of Federal law, once State law has made clear, as it has here, that the appointment had legal validity and brought into being new interests in property. See Helvering v. Stuart, 317 U.S. 154">317 U.S. 154.
Here the law of Pennsylvania, as declared by a court of that state, has made*170 it clear that the exercise of the power of appointment was ineffectual and created no new interests in property.
We hold, therefore, that the present case is governed by Helvering v. Grinnell, supra, and that no amount is includible in the decedent's gross estate under section 811 (f) as property passing under a general power of appointment.
In the alternative, the respondent contends that the value of two-thirds of the corpus of the Drake trust must be included in the decedent's estate as intestate property of Drake. His contention may be summarized as follows:
By item fourthly of the trust, Thomas Drake provided that should the decedent die without having executed the power of appointment, then the trustees should pay her share of the net income to the testator's grandchildren. The decedent, however (so the argument goes), did, in fact, exercise the power and this exercise defeated the estate in default of appointment under both the terms of the trust and the law of Pennsylvania; and, consequently, upon Thomas Cardeza's renunciation of the benefits to which he was entitled under the power, an intestacy occurred in the estate of Thomas Drake as*171 to this property, which intestacy related back to the date of his death, and the decedent inherited the property as his sole heir at law.
This contention can not be sustained. It has been held in Pennsylvania that in the absence of expressed contrary intention a legacy bequeathed in default of appointment vests in the legatee on the death of the testator, subject to be divested by the power of appointment. In re Freeman's Estate, 55 Pa. Super. 185; approved, In re Freeman's Estate, 280 Pa. 273">280 Pa. 273; 124 Atl. 435. And this rule applies although the estate limited over in default of appointment is an equitable estate rather than a legal one. Cf. Cowman v. Classen, 156 Md. 428">156 Md. 428; 144 Atl. 367; see Simes, Law of Future Interest, vol. 1, § 96, p. 162.
In In re Freeman's Estate, supra, the donor's will provided that the trust income should be paid to the donor's six children for life and, "from and after the death of either of my sons or daughters and until the death of all of them, to pay income which he or she would, if living, have received, *172 to such person or persons of kin to such son or daughter as he or she may by will have appointed and in default of appointment to the child or children of such son or daughter that may then be living or the issue of any child or children of such son or daughter that may then be dead."
*212 While the language used by the testator in the case at bar is not the same as that used in the Freeman case, it does not appear to be so substantially different as to take the instant case out of the rule expressed therein.
The question then is whether or not the exercise of the power by the decedent was sufficient to defeat the estate in default of appointment. The answer, we think, must be in the negative. The rule is stated thus in 41 Am. Jur., Powers, § 85:
There can, of course, be no doubt that the rule is that when an attempted appointment in pursuance of a general power completely fails, the subject of the power devolves uninfluenced by the attempt. In case of failure of remainders attempted to be created by the donee of a power, the estate represented by them will be distributed according to the provisions of the will of the donor of the power where it attempts to dispose of *173 the estate in case the power is not exercised. * * *
See also Graham v. Whitridge, 99 Md. 248">99 Md. 248; 57 Atl. 609; Northern Trust Co. v. Porter, 368 Ill. 256">368 Ill. 256; 13 N.E. 487">13 N. E. 487.
Here the attempted appointment failed because the beneficiary refused to accept the benefits attempted to be conferred thereby. In Matter of Lansing's Estate, 182 N.Y. 238">182 N. Y. 238; 74 N. E. 882, it was held that "An appointee under a power has the right of election the same as a grantee under a deed. * * * He can accept the title tendered or reject it, in his discretion. It cannot be forced upon him against his will. * * * Declining or refusing to take has the same effect as incapacity to take * * *. The title is not affected, but remains where it was before. * * *"
No case has been cited to us nor have we discovered any, holding the law of Pennsylvania to be different in this respect from the law of New York. 2 The Orphans' Court of Philadelphia County has distributed the trust estate in accordance with these principles, and, under the rule*174 stated in Estate of Mary Adele Morris, supra;Estate of Cassius E. Wakefield, supra; and Estate of Frederick R. Shepherd, supra, we must accept its action as an expression of Pennsylvania law.
Consequently, *175 the attempted exercise of the power, being ineffective, did not defeat the estate in default of appointment. Legal title to the trust corpus remained in the trustees to pay the income thereof to Thomas Cardeza during his life, in accordance with the will of Thomas Drake.
*213 A further question arises as to the disposition of the corpus producing two-thirds of the income on the death of Thomas Cardeza. If he has a child or children they, of course, will take the corpus under item fourthly. There are no other grandchildren of Drake, however, and there can be none. Consequently, if Thomas should die without issue an intestacy will result in Drake's estate, for reasons which we shall discuss later, as to the corpus producing the two-thirds of the trust income and the decedent or her estate will come into possession of the property, as she was his only heir.
We are of the opinion, however, that, even if such an intestacy is possible in the event Thomas Cardeza dies without issue, there is nothing that may now be included in the decedent's estate. Section 811 (a) of the code provides that the value of the gross estate shall be determined by including the value at the time of *176 the decedent's death of all property, "To the extent of the interest therein of the decedent at the time of his death." The regulations 3 contain a similar provision.
Here the decedent clearly had no interest in the principal producing two-thirds of the trust income at the date of her death. She had merely a life interest in the income, with a power to appoint the remainder, which power was not effectively exercised. The Drake will provides for the devolution of the trust corpus in the event of such a failure to exercise the power and it is only in the event of the death of her son without issue and the consequent failure of remaindermen, which event must necessarily take place long after her own death, that the decedent or her estate can have any interest in the property.
To attempt to value, as of the date of the decedent's death, such a highly contingent and remote interest and include anything in her gross estate on account thereof would, in our opinion, be "mere speculation bearing*177 the delusive appearance of accuracy." Humes v. United States, 276 U.S. 487">276 U.S. 487.
Therefore, we sustain the petitioner.
The next issue is whether the remaining one-third of the corpus of the Drake trust must be included in the decedent's gross estate as intestate property.
By item thirdly of the trust, Thomas Drake directed his trustees to pay "the other remaining one-third of the rest, residue and remainder of the net income of my estate unto my grandson, Thomas Drake Martinez-Cardeza, during all the term of his natural life * * *." Upon his death they were directed to pay the principal producing the same to his children or their issue, less an annuity to his wife for life in such an amount, not exceeding $ 10,000, as he might by will direct.
*214 The respondent has included in the decedent's gross estate the value of one-third of the corpus of the Drake trust, diminished by the value as of the date of the decedent's death of Thomas Cardeza's life estate and of a $ 10,000 annuity for his widow, on the ground that such one-third is intestate property in the estate of Thomas Drake, since Thomas Cardeza has no issue at present and the possibility of*178 his ever having issue is remote. He argues that it is, therefore, intestate property in the estate of the decedent, she being Thomas Drake's sole heir at law.
The petitioners contend that, even if an intestacy is possible in that Thomas Cardeza may die without issue, that possibility is not now certain or of sufficient standing to control the direction of property in the decedent's estate within the meaning of section 811 (a) of the code, since there is no presumption that a person will not have issue.
The respondent concedes the existence of a presumption that there is always a possibility of issue, but contends that it is rebuttable and that the possibility of Thomas' having issue was so remote at the date of decedent's death that the presumption should not be applied in the present proceeding.
To sustain the respondent's position we must not only value, as of the date of the decedent's death, the life estate of Thomas Cardeza, but must say conclusively that he will die without children. Such a holding would ignore the realities of the situation.
The presumption that there is always a possibility of issue is firmly established. It has been applied in Pennsylvania to women 63 *179 and 59 years of age ( Straus' Estate, 307 Pa. 454">307 Pa. 454; 161 Atl. 547) and in one case was applied to a woman 78 years of age ( Sterrett's Estate, 300 Pa. 116">300 Pa. 116; 150 Atl. 159).
The presumption is not irrebuttable, of course, and will fall before sufficient competent evidence that the possibility of issue is extinct by reason of an operation. See United States v. Provident Trust Co., 291 U.S. 272">291 U.S. 272; and City Bank Farmers' Trust Co. v. United States, 74 Fed. (2d) 692, where it was held not to apply to a woman 59 years of age where statistics showed overwhelmingly that there was little or no possibility of a child being born to a woman of that age.
In the instant case, however, there is no evidence to rebut the presumption. It is stipulated that in the opinion of a qualified physician there is no physical impediment to Thomas Cardeza's capacity to have children. At the time of the hearing he was a widower, but it is entirely possible that he may again marry and that issue may be born of this union. That the respondent*180 recognizes the possibility of remarriage is shown by the fact that, in determining the amount to be included in the decedent's estate, he has deducted an amount representing *215 the value of the life annuity to be paid to Thomas Cardeza's widow.
What we said above with respect to the speculative character of any attempt to value an interest of the decedent in two-thirds of the trust estate is equally applicable here. At the present time, we are unable to say that Thomas Cardeza will die without issue, or that any contingent interest or expectancy which the decedent had, or her estate may have, because of the happening of such an event is a property right capable of valuation on the date of her death. See Humes v. United States, supra.
The next issue is whether or not there is to be included in the decedent's gross estate the amount necessary to produce the $ 5,000 annuity given her by the will of Thomas Drake.
The respondent's contention as to this issue is substantially as follows: In item firstly of the trust, Thomas Drake directed his trustees to pay his daughter, the present decedent, the sum of $ 5,000 per annum for life, to be used *181 by her in charitable works. While he made provision for the disposition of the remainder of the trust estate, nowhere did he provide for the future disposition of either the corpus producing the $ 5,000 annual income or the income itself. Consequently, as to this amount Thomas Drake died intestate and the decedent inherited this property as his only heir at law. As an alternative argument, the respondent contends that, where a life estate is granted in property and no provision is made for a remainder or reversion, the grantor of the life estate must be presumed to have intended to convey the fee, and the life estate and fee are merged in the grantee, the decedent here. The respondent thereupon argues that the corpus is includible in her estate.
The petitioners contend that there is no intestacy in the estate of Thomas Drake; that, when properly construed, the Drake will provides for a complete devolution of all the testator's property, leaving no portion thereof undisposed of. They contend that provision for the disposition of the amount producing the $ 5,000 annuity is found principally in items fourthly and seventhly. They contend that should Thomas Cardeza have issue the *182 principal amount producing the annuity would be divided among such issue after his death, under item fourthly, since that clause of the trust provides that the "principal sums" producing the decedent's share of the income shall be distributed, and that the use of the plural denotes an intention on the part of the testator to dispose of this amount, as well as the two-thirds of the remainder of the trust estate; and that in the event Thomas should die without issue the amount in question would be held in trust for the college, in accordance with the terms of item seventhly.
The respondent does not seriously deny that the language of item seventhly is broad enough to include the principal sum producing the *216 annuity, but contends that this clause can not become effective, since the decedent left her son surviving her.
The petitioners assert, however, that the expression used in this paragraph of the will, "to whom my estate could descend by process of law," is the equivalent of "to whom my estate could decend under the terms of my will"; that under the terms of the will Thomas Cardeza can never receive the two-thirds part of the trust estate, since the date of his death is the*183 date fixed for distribution. Therefore, they argue, in the event Thomas dies without issue there will be no one to whom the estate can descend under the will and the principal sum producing the $ 5,000 annuity, together with the two-thirds of the remainder of the trust estate, will be disposed of according to the terms of item seventhly.
We believe the petitioners' interpretation of item seventhly is erroneous. There can be no doubt that the ordinary meaning of the words "descend by process of law" is to descend according to the laws of intestate succession. There is no evidence that Thomas Drake intended them to have any other than their ordinary meaning. Consequently, he must have intended to include thereby those persons to whom the estate could descend other than by the terms of his will.
Since this is so, item seventhly can not come into operation, since the decedent was survived by her son, Thomas Cardeza, a person to whom the estate "could descend by process of law."
It does not follow from this, however, that the corpus producing the $ 5,000 annuity is therefore to be included in the decedent's gross estate. By item fourthly of the trust, Thomas Drake provided that should*184 the decedent die without having exercised the power of appointment, then the trustees should pay her share of the net income to all his grandchildren in equal shares for the life of Thomas Cardeza, "and upon his death they shall divide and distribute the principal sums producing said income to and among all my grandchildren * * *." In item secondly he had directed that the "principal sum" producing the two-thirds of the net income should be paid to the decedent's appointees. We think the use of the plural "sums" in fourthly must reasonably be construed to indicate an intention on the part of the testator that the principal sums producing both the two-thirds of the net income of the estate and the $ 5,000 annuity should be distributed to his grandchildren and their issue on the death of Thomas Cardeza. Since there were no other grandchildren, distribution can be made only to the issue of Thomas Cardeza.
The question then arises as to what disposition will be made of the principal producing the $ 5,000 annuity and the two-thirds of the remainder of the income from the trust estate in the event Thomas Cardeza dies without issue. Apparently an intestacy would then result in Drake's*185 estate as to these amounts. This intestacy would *217 relate back to the date of his death and his heirs would be determined as of that time. In re Bell's Estate, 147 Pa. 389">147 Pa. 389; 23 Atl. 577; Moore v. Deyo, 212 Pa. 102">212 Pa. 102; 61 Atl. 884; In re Gorgas' Estate, 248 Pa. 343">248 Pa. 343; 93 Atl. 1073. As we have already noted above, however, nothing is now includible in the decedent's gross estate because of any remote contingency or possibility that she or her estate might, at some future time, come into possession of a part of the trust corpus as intestate property of Thomas Drake.
What we have said concerning the includibility in the decedent's estate of the corpus producing two-thirds of the trust income in the event Thomas Cardeza should die without children applies with equal vigor to the corpus producing the $ 5,000 annuity. We hold, therefore, that this amount is not to be included in the decedent's gross estate.
The next issue concerns the donations which the decedent made to the trustees to enable them to exercise*186 the stock warrants which they held but were unable to exercise with the trust funds because of Pennsylvania law and the limitations in the Drake will.
The issue is divided into two parts: As to two-thirds of these donations the respondent contends that they constituted transfers in trust or otherwise, the enjoyment of which was subject at the date of the decedent's death to change through the exercise of a power to alter, amend, or revoke, and are therefore includible in the decedent's gross estate under section 811 (d) of the code. 4
*187 He contends that the other one-third of the donations, less the value of Thomas' life estate, is includible in gross estate under section 811 (c).
The facts show that under the terms of the Drake trust the trustees were limited in their investment to legal investments for trustees. Under Pennsylvania law, they were thus prohibited from investing in stock of private corporations. Included in the original trust corpus were certain stocks which the trustees were permitted to retain. The corporations which had issued these stocks later issued stock subscription warrants which the trustees were unable to exercise because of the limitations in the Drake trust. Consequently, the decedent from time to time donated amounts to the trustees to enable them to exercise these warrants.
*218 The respondent contends that these funds and the investment into which they were converted became part of the Drake trust and as much subject to its terms as were the original holdings of the trust and that each time the decedent made a contribution to the trust she, in effect, adopted its provisions as her own to the extent of the amount of contribution made. Thus, he argues, she had a life interest*188 in two-thirds of the income produced by the contributions and also the power of disposal over the principal amounts thereof.
The petitioners contend that the decedent did not create trusts and that she did not spend these sums with any dispositive intent whatever. They contend that she did no more than spend cash to protect the holdings of the Drake trust and that the fact that the value of the trust estate was enhanced, or at least spared dilution, is of no consequence.
We think the respondent must be sustained. Manifestly, when the decedent made the donations to the trustees, such donations and the investment into which they were converted became part of the Drake trust. Indeed, the petitioners do not contend otherwise. As such, they became subject to all of the provisions of the original trust. Consequently, as to two-thirds of these contributions the decedent had the right to the income for life and the power to dispose of the remainder after her death. That such a power is sufficient to bring the transfers within section 811 (d) was decided in Commissioner v. Chase National Bank, 82 Fed. (2d) 157. See also Porter v. Commissioner, 288 U.S. 436">288 U.S. 436.*189
As to the remaining one-third of the decedent's donations, the respondent contends that these payments, in effect, also constituted an inter vivos trust of the decedent, having the same terms as the Drake trust. He points to the fact that, under the terms of the trust, the net income from one-third of the estate was to be paid to Thomas Cardeza for life and at his death the principal was to be divided among his issue; however, if the decedent should survive all her children and their issue, the entire income of the trust was to be paid to her for life and upon her death the principal was to be paid to whomsoever she should appoint by will. This provision, concludes the respondent, makes one-third of her donations includible in gross estate as transfers intended to take effect in possession or enjoyment at or after the decedent's death, under section 811 (c). 5
*190 *219 The petitioners contend that the possibility of the decedent's contingent power of appointment ever coming into being is too remote to warrant the inclusion of the amounts in question in her gross estate.
The problem is whether the property must be included in the decedent's gross estate under the doctrine of Helvering v. Hallock, 309 U.S. 106">309 U.S. 106, and related cases. It would serve no useful purpose to discuss the many cases which have been decided on this point. On the facts here presented, we think the respondent's determination must be sustained.
The income from the property was to be paid to the decedent's son for life and upon his death was to be distributed among his children and their issue per stirpes. However, if the decedent survived her son and all his descendants, the income was to be paid to her for life, with power to appoint the remainder. At the time the transfers were made and also at the date of the decedent's death, Thomas Cardeza was childless. There was only 21 years difference in their ages. Under such circumstances, we do not think it can be said that the decedent disposed of her property as completely as she*191 could or that there was only a very remote possibility that it would revert to her. There was, we think, a very real possibility that the decedent would survive her son. In this respect the case is similar to Fidelity-Philadelphia Trust Co. ( Stinson Estate) v. Rothensies, 142 Fed. (2d) 838; affd., 324 U.S. 108">324 U.S. 108.
There the grantor created a trust providing that the income should be paid to the settlor for life and upon her death to her daughters in equal shares during their respective lives, and at their deaths to their issue. In the event of the death of both daughters without leaving surviving descendants, the corpus was to be paid to such persons as the settlor should appoint by will. Both daughters survived their mother and at the date of her death were unmarried.
The trust property was held includible in the decedent's gross estate, since she had retained a "string or tie" whereby, on the happening of certain contingencies, she could regain control of the corpus of the trust, at least to the extent of making it subject to testamentary bequests. The following language of the court is particularly apposite to *192 the facts before us:
* * * The indenture in the case at bar * * * puts the remainders in the grantor's grandchildren, who were not in esse at the time the indenture was executed and the grantor could have recovered the right to dispose of the corpus on the happening of the specified contingencies. For these reasons, the case at bar is closer to Klein v. United States, 283 U.S. 231">283 U.S. 231, than to May v. Heiner, 281 U.S. 238">281 U.S. 238.
The possibility of reversion in the instant case is not so remote as it was in Lloyd's Estate v. Commissioner, 141 Fed. (2d) 758. There *220 the life beneficiaries were given general powers of appointment over the corpus and in the absence of such appointment the corpus was to go to their respective wives and issue. The grantor could recapture the trust corpus only in the event the beneficiaries failed to exercise their power and he survived their respective wives and issue.
We hold, therefore, that the value as of the date of her death of one-third of the decedent's donations to exercise the stock warrants is includible in gross estate under section 811*193 (c). Cf. Estate of William Walker, 4 T.C. 390">4 T. C. 390.
The next issue is whether the sum of $ 25,000 which the decedent's will directed to be held in trust for the perpetual maintenance of the Drake mausoleum is deductible from gross estate as a funeral expense under section 812 (b) (1). That section allows a deduction for such amounts as funeral expenses as are allowed by the laws of the jurisdiction under which the estate is being administered.
The petitioners contend that the amount in question is deductible under Pennsylvania law by virtue of 20 Pa. Stat., sec. 2302, which allows deductions for Pennsylvania inheritance tax purposes for "debts of the decedent, reasonable and customary funeral expenses, bequests or devises in trust, in reasonable amounts, the entire interest or income from which is to be perpetually applied to the care and preservation of the family burial lot or lots, their inclosures and structures erected thereon, reasonable expenses for the erection of monuments or gravestones, graves and lot markers and the expenses of administration of such estates * * *."
The respondent contends that this section is not determinative of a deduction*194 under the Federal estate tax law and that, in any event, since the Pennsylvania statute allows a deduction for such bequests, separate from that allowed for funeral expenses, it is doubtful whether such an expense is a funeral expense under Pennsylvania law.
The respondent's contention is without merit. The Pennsylvania inheritance tax law is the state counterpart of the Federal estate tax law and the deductions allowed thereunder are to be given due consideration. That the deduction of bequests for perpetual maintenance of burial lots is mentioned separately from the general provision for funeral expenses is of no consequence. The statute is not to be read so literally. This, we think, is shown by the decisions of the Pennsylvania courts prior to the enactment of the statute wherein such bequests were allowed as a part of the funeral expenses.
In Dingee's Estate, 14 Pa. Dist. 225, a maintenance fund of $ 5,000 in an estate of $ 800,000 was held deductible as a part of the funeral expenses. In Middleton's Estate, 13 Pa. Dist. 811, the court said:
* * * The purchase of a burial lot is often a necessary item in the list*195 of funeral expenses and the erection of a tombstone therein has been judicially *221 determined to belong to the same class * * *. The continued care of a grave, however, is almost as essential as its purchase and without undue straining may be said to belong to the original expenses.
We think this sufficient to show the deductible character of the bequest under section 812 (b).
The respondent also disallowed the deduction "because it has not been paid and it is not certain that it will ever be paid." He has agreed, however, that if it is allowable under section 812 (b) he will allow the deduction upon proof that it has been paid or will be paid prior to the end of this proceeding. Adjustment for this amount can, therefore, be made in the recomputation under Rule 50.
The final issue concerns the deduction of executors' fees. Commissions have been paid to the decedent's executors in the sum of $ 22,180.35. The Orphans' Court allowed credit for the full amount of these payments in the adjudication of the executors' account, but allowed only $ 13,308.21 as a deduction for Pennsylvania inheritance tax purposes. The petitioners contend that the full amount paid should be allowed*196 as a deduction from gross estate. The respondent, however, has limited the deduction to the amount allowed by the court for Pennsylvania inheritance tax purposes.
We think the petitioners must be sustained.
The regulations 6 provide that executor's and administrator's fees are properly deductible as a part of the administration expenses under section 812 (b). They further provide: "The executor or administrator, in filing the return, may deduct his commissions in such an amount as has actually been paid * * *."
It is not denied that the fees in question have been paid, nor does the respondent advance any reason why the regulations here should not be followed. Furthermore, considering the size and nature of the estate, we are of the opinion that the fees claimed are not unreasonable in amount. Cf. Estate of Otto Jaeger, 16 B. T. A. 897. Accordingly, we hold that the amounts paid are deductible.
In his deficiency notice, the respondent disallowed deductions*197 for bequests by the decedent to the Chestnut Hill Hospital and the Society for the Prevention of Cruelty to Animals in the respective amounts of $ 10,000 and $ 5,000, solely upon the ground that they have not been paid. He does not dispute their deductible character and has agreed that the deductions will be allowed upon satisfactory proof that the amounts have been paid or will be paid. These items can be adjusted upon the recomputation under Rule 50.
Decision will be entered under Rule 50.
Footnotes
1. 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 --
* * * *
(f) Property Passing Under General Power of Appointment. -- To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, * * *↩
2. In Rothensies v. Fidelity-Philadelphia Trust Co., 112 Fed. (2d) 758, at p. 763, the Circuit Court of Appeals for the Third Circuit draws a parallel between New York law and Pennsylvania law in dealing with a question akin to the one presented here, although it is not the same question. There the court says:
"It is clear that under the law of Pennsylvania * * * a devisee over under a donor's will in default of appointment who is also an appointee under the donee's will in the exercise of the power takes from the will of the donor and not from the donee. The law of Pennsylvania in such regard is similar to the law of New York by which the question of title was determined in the Grinnell case * * *."↩
3. Regulations 105, sec. 81.13↩.
4. 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 --
* * * *
(d) Revocable Transfers --
* * * *
(2) Transfers on or prior to June 22, 1936. -- To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend or revoke * * *↩
5. 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. -- 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 * * *.↩
6. Regulations 105, sec. 81.33↩.