*1005 The will of petitioner's testator gave the income from a trust fund to a daughter of the testator for her life, with the power of appointment by will to Amherst College of any amount, not in excess of $250,000. Upon contest of the will, an agreement of all interested parties modifying it, in which the daughter renounced the power of appointment, was approved, when the will was probated, by the Probate Court, which directed the administration of the estate under the terms of the will and this agreement. That agreement provided that the income of the trust fund should be payable to one daughter of the testator for her life, and thereafter to another daughter for her life, and upon the death of the survivor, Amherst College was to receive $250,000 or one-third of the fair market value of the principal of the trust fund at the date of the death of the survivor, "whichever sum is the lesser." Held, no such certainty of basis for the computation of the value of any bequest to a charity, as is required, existed at the death of the testator. If follows no deduction therefor is permissible.
*599 This is a proceeding to redetermine a deficiency in estate tax of $19,949.15. Decedent died in 1934. The only issue is whether there should be allowed a deduction from the gross estate because of a provision in decedent's will concerning Amherst College. The material facts are found pursuant to the stipulation of the parties.
*600 FINDINGS OF FACT.
Petitioner is one of the duly appointed executors of the estate of Charles H. Allen, who died a resident of Massachusetts on April 20, 1934. By paragraph 12 A of his will, decedent left his residuary estate in trust, the trustees to invest and reinvest it and pay over the net income to decedent's daughter, Bertha Allen Logan, during her life. Bertha Allen Logan was given a power to appoint by her last will and testament to Amherst College up to but not in excess of the sum of $250,000 from the principal of the trust fund. In the event that she should fail to exercise this power, the trustees were directed to pay $250,000 to Amherst College upon her death.
Amherst College is a corporation organized and operated exclusively for religious, scientific, *1007 literary and educational purposes, no part of the net earnings of which inures to the benefit of any private stockholder or individual and no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation.
Decedent left him surviving two daughters, Bertha Allen Logan, aged 62 years at the time of his death, and Louise Allen Atkins, aged 59 years at the time of his death.
Following decedent's death and prior to the probate of his will a controversy arose between the devisees and legatees named in the will and the persons entitled to share in the estate had decedent died intestate, and objections to the probate of the will were filed. This controversy was compromised by an agreement of all interested parties, dated June 21, 1934. Among other things, this agreement provided that paragraph 12 A of the will should be stricken out and a different provision substituted. The new paragraph directed that the income from the trust estate should be paid to Bertha Allen Logan for life and thereafter to Louise Allen Atkins for life. Upon the death of the survivor, Amherst College was to receive $250,000, or one-third of the fair market*1008 value of the principal of the trust fund at the date of death of the survivor, whichever sum should be the lesser.
On June 25, 1934, the Probate Court of Middlesex County, Massachusetts, entered a decree probating decedent's will, issuing letters testamentary to the executors and directing them to administer the estate in accordance with the terms of the will and the agreement of compromise. The last paragraph of the decree is:
Now, after a hearing, it appearing that all parties interested have consented to the allowance of the said instrument presented for probate as the last will of the deceased, it is hereby ordered and decreed that said instrument so presented for probate be proved and allowed as the last will of said deceased, that letters testamentary be issued to said petitioners, they being competent *601 and suitable persons to be appointed to that trust, they first giving bond with sufficient sureties for the due performance of said trust, and that they be directed to administer the estate of said deceased in accordance with the terms of said will and said agreement of compromise.
The petitioner seeks to deduct the present value of the $250,000 gift to Amherst*1009 College subject to the two life estates, or the present value of one-third the value of the corpus of the trust at the death of the survivor of the two life beneficiaries, whichever sum shall be the lesser. The respondent takes the position that this deduction is not allowable, because, under the will, no basis for the computation of any present value of such gift existed.
OPINION.
LEECH: The only question submitted is whether the petitioner, as executor of the will of Charles H. Allen, deceased, is entitled to have any amount deducted from the gross estate in determining the net estate for purposes of taxation, because of the provisions of the testator's will in reference to Amherst College.
Section 303(a)(3) of the Revenue Act of 1926 is applicable. 1
*1010 The following expression of the Board in ; affd., ; certiorari denied, ; rehearing denied, , applies here:
The so-called estate tax, by virtue of which this disputed deficiency arises, is not a succession tax, but an excise on the transfer of the decedent's estate at his death.The rights of the parties hereto are determined entirely by the will of decedent. They accrued finally when the will became effective, the date decedent died, December 18, 1929. Knowlton v. Moore, supra; Y.M.C.A. v. davis,; ; ; . * * *
In that case the Board observed further that the tax was "on the transfer from decedent of rights extinguished by his death. It is imposed at death and before the beneficiary receives the gift." The tax is measured by the net value of the decedent's estate at death *602 when the transfer*1011 occurs. So, bequests to charity, to be deductible here, and their value, must be reasonably certain at the time of the testator's death. . The Supreme Court has simply and clearly defined the approach to the determination of the existence of that certainty in , in these words:
Congress was thus looking at the subject from the standpoint of the testator and not from the immediate point of view of the beneficiaries. It was intending to favor gifts for altruistic objects, not by specific exemption of those gifts, but by encouraging the testator to make such gifts. Congress was in reality dealing with the testator before his death. It said to him:
"If you will make such gifts, we will reduce your death duties and measure them, not by your whold estate, but by that amount, less what you give."
Clearly, under the terms of the will here, as it existed at the death of the testator, the amount which could be appointed to Amherst College, after the intervening life estate of Bertha Allen Logan, the daughter of the testator, was any sum between one cent and $250,000. Obviously, *1012 therefore, at the death of the decedent, there existed no such certainty as the law requires as to the basis for and therefore the computation of the present value of any bequest to Amherst College. ; ; However, petitioner argues that the agreement, including the modification of the will and the renunciation of the power of appointment to Amherst College, which was approved by the proper Probate Court at the time the will was probated, under a decree of that court directing that "said instrument [will] so presented for probate be proved and allowed as the last will of said deceased, that letters testamentary be issued to said petitioners, * * * and that they be directed to administer the estate of said deceased in accordance with the terms of said will and said agreement of compromise", supplies the certainty of basis for the computation of the value of the provision for Amherst College and is effective for present purposes as a part of the will of the testator as of his*1013 death. We disagree.
It may here be observed that the decree of probate did not purport to effect a merger of the will and the agreement of compromise into one testamentary document. The compromise retained its status as an act of the heirs, so that by no fiction of law can it be said that the testator made a definite and certain bequest to Amherst. The decree only validated the will as originally written and only directed petitioners in the administration of the estate to follow both the will and the compromise agreement. The right to the contested deduction depends alone upon what the testator did.
*603 But, in any event, the validity of petitioner's position is a question of Federal and not local law. . In that case the Supreme Court held that where an heir acquired property in excess of that to which he was entitled under a contested will, by virtue of a compromise agreement, such property was acquired "by inheritance" under the Federal statute controlling. The Court held that petitioner took "as in case of intestacy." The conclusion there was that:
* * * Whether he*1014 would receive any property in that capacity depended upon the validity of his ancestor's will and the extent to which it would dispose of his ancestor's estate. When, by compromise and the decree enforcing it, that disposition was limited, what he got from the estate came from him because he was heir, the compromise serving to remove pro tanto the impediment to his inheritance. * * *
But Amherst College was not an heir of the testator here. It was not a legatee, certainly, unless the contested will was valid. And then only to the extent provided in the will. Thus, anything it derived in the premises could not have been as in intestacy. Nor did it thus acquire anything in excess of the right to the discretionary minimum of one cent, as provided in the will. By virtue of that contested will, as a legatee, Amherst College took such excess, upon which alone the basis for any deduction here rests, solely by virtue of the compromise agreement, and that agreement occurred subsequent to the effective date of the will, the date of the testator's death.
Although no formal renunciation of the power of appointment to Amherst College was executed by Bertha Allen Logan, the agreement*1015 which she signed and which was attached to the will when probated contained a surrender and renunciation of that power.
In the case of , affirming , the facts were somewhat similar except that in the Davison case the renunciation of the power of appointment occurred six years after the death of the testator and the probate of his will. In that case the Circuit Court affirmed the Board in its holding that such renunciation did not remove the uncertainty existing at the testator's death. It is true the court there commented on the length of time during which the power of appointment remained "in vacuo." However, we think, the basic premise of the result the Circuit Court reached in that case controls the disposition of this question here. The court there said:
It is hard to see how the executor of the will of Mr. Eldridge is in any better position to claim that the corpus of the trust, which had been bequeathed to the charitable corporations, should be deducted in order to ascertain the net taxable estate than he would be if Mrs. Eldridge had died shortly after her husband [the testator] *1016 without exercising the power of appointment given her by his will. In the latter case it can hardly be supposed that a deduction would have been *604 allowable, otherwise the practice of determining the value of the remainders as of the date of the testator's death by the use of mortality tables, rather than by eventualities, would be erroneous. * * *
See
In our opinion, no such certainty of basis for the computation of the value of a charitable bequest to Amherst College, necessary to support the deduction of such bequest, existed here.
None of the authorities cited by the petitioner seem to us to contradict this conclusion. In , the court held that the decedent's net taxable estate should be determined by giving effect to a compromise agreement which made gifts to charities for which the original will did not provide. In so doing the court expressly followed a state statute, a procedure which had been disapproved by *1017 Furthermore, to follow local law would not benefit petitioner here, for in Massachusetts it has been held that an estate tax applies according to the disposition made in the original will and not to the will as modified by the compromise. ; . , and , were both cases in which there was no uncertainty in the will itself as to the charitable bequests. These bequests were neither void nor uncertain. They were voidable, in part, only because in excess of the proportionate part of estates allowed to be given to charity by local mortmain statutes. Waivers of the right to object executed by the heirs between the date of death and the date of probate merely allowed the property to pass by the original terms of the will, instead of seeking to alter the will or to render it certain, as in the present case. See *1018
Our opinion that no deduction for any gift to Amherst College is permissible, is strengthened by another circumstance. Assuming, as petitioner contends, that the compromise agreement, including the renunciation of the power of appointment, is a part of the testator's will for present purposes, it is not established that there would even be a sufficiently certain basis for the computation of the value of the gift for Amherst College to warrant its deduction for estate tax purposes.
The compromise agreement provides that Amherst, at the expiration of the lives of the two beneficiaries of the income of a trust, shall take one-third of the then "fair market value of the principal of the trust fund", or $250,000, "whichever sum is the lesser."
One of these income beneficiaries was 62 and the other 59 years of age when the testator died. The only indication in the record of the net value of the estate is furnished by the statement attached to the *605 deficiency notice which fixes the net taxable estate at about $1,000,000. The will, as modified by the agreement of compromise, makes specific bequests aggregating in excess of*1019 $400,000. Certainly there is no proof in the record that the value of the property which Amherst will receive at the termination of the lives of the two income beneficiaries will not be less, much less, than $250,000. That uncertainty makes impossible the use of any basis upon which the value of the gift to Amherst College could be computed as of the death of the testator, and so prevents the deduction here of any amount as a gift to Amherst. ; affd., on this point, .
Reviewed by the Board.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 303. For the purpose of the tax the value of the net estate shall be determined -
(a) In the case of a resident, by deducting from the value of the gross estate -
* * *
(3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. The amount of the deduction under this paragraph for any transfer shall not exceed the value of the transferred property required to be included in the gross estate * * *. ↩