*1333 A gift to the National Girl Scouts, Inc., of the remainder interest in the decedent's residuary estate, upon the condition that it remain in possession of and continue to operate certain real property devised to it under the will, held, deductible as a charitable bequest.
*385 This proceeding involves a deficiency of $39,390.05 in estate tax of the estate of Carolyn G. Caughey, deceased. The petitioner, teh Union Trust Co. of the District of Columbia, is the executor and testamentary trustee under decedent's will. The only question in issue is whether in determining the net value of the estate for estate tax purposes there may be deducted as a charitable bequest the value of the remainder of the estate which the decedent devised and bequeathed to National Girl Scouts, Inc., or, upon failure of such bequest, to the Esther Chapter of the Order of the Eastern Star.
FINDINGS OF FACT.
The petitioner is a corporation of the District of Columbia and executor of the estate of Carolyn G. Caughey, a resident of*1334 the District of Columbia, who died July 24, 1936. It filed an estate tax return for the decedent with the collector at Baltimore, Maryland.
The decedent left a will in which, after making certain specific bequests not here involved, she devised and bequeathed the residue of her estate to the petitioner as trustee to pay the income thereof monthly to her husband, John Wilson Caughey:
* * * for his sole benefit and comfort during all his life so long as he remains unmarried, and to grant him the exclusive use of my home property, 3045 "N" Street, Northwest, and the furnishings therein, for his own use as a home, and should illness, accident or misfortune require more than the net income monthly for the proper care and comfort of my husband, then in such an event I direct my trustee to contribute from the corpus of my estate in trust such additional sum or sums as to sufficiently and properly care for my husband in his time of need.
The trustee was directed to consult with Henry F. Harding, an officer of the Union Trust Co., and Nora Huffman in matters pertaining to the management of the estate and to pay to them, respectively, $1,000 per annum and $50 per month for such services*1335 *386 so long as they should live, or so long as the trust estate continued. The trustee was further directed in paragraph 7E of the will:
E. To convey by proper deed of conveyance may country home known as Rockwood Manor to the proper officers or trustees of the NATIONAL GIRL SCOUTS, INC., to be utilized as a character building center for the National Girl Scouts, Inc., and there shall be reserved in the Manor House two rooms and private bath on the first floor, completely furnished, for the exclusive use of my husband whenever he wishes to go there and rest. This conveyance shall also be subject to the condition that should the National Girl Scouts, Inc., abandon the property or close it so it is not used as a means of character building or help to the cause, then said property, Rockwood Manor, shall go to the proper officers or trustees of the Esther chapter of the Eastern Star for their good work and use and I do direct my Trustee to execute the conveyance to the National Girl Scouts, Inc., subject to this reservation.
Paragraphs 7F and 7G provide that:
F. Upon the death or remarriage of my husband, John Wilson Caughey, I direct that all my other real estate be*1336 sold by my Trustee but not at a sacrifice or forced sale, and particularly I direct that the furnishings in my home, 3045 "N" Street, be sold at auction on the premises and that the sale be by catalogue and that each person attending the sale be required to purchase a catalogue at the price of three dollars (said sum to be refunded in all cases where the property purchased is sold for $3.00 or over) for the purpose of keeping the idle and curious from loitering about the premises, and that one-half of the net proceeds from said sales, together with one-half of my personal property exclusive of the furnishings sold out of 3045 "N" Street, be paid over by my Trustee to the proper officers or trustees of the National Girl Scouts, Inc., if they still be operating Rockwood Manor and the funds so paid over to them to be used in the development and improvement of the property and not in the paying of salaries to officers, and if at that time the National Girl Scouts, Inc., have abandoned the property or are not using it for the character building purposes, then my Trustee shall pay over the one-half of the net proceeds of the sales and one-half the personal property as above provided, unto*1337 the proper officers and trustees of Esther Chapter of the Eastern Star who shall also take the title to Rockwood Manor as hereinbefore provided.
G. The remaining one-half of the net proceeds from the sales and the remaining one-half of my personal property shall be held by my trustee for the period of twenty years from the death of my husband and at the end of said period of twenty years my Trustee shall pay over the entire remaining estate to the proper officers or trustees of the National Girl Scouts, Inc., if they then be in possession of Rockwood Manor or to the proper officers and trustees of the Esther Chapter of the Eastern Star if they be then in possession of Rockwood Manor, and I request that from the funds then turned over, a bell tower or be erected at Rockwood Manor to be enjoyed by those seeking sanctuary there.
At the date of decedent's death her husband, John Wilson Caughey, was 76 years of age and had a life expectancy, computed in accordance with the Actuaries or Combined Experience Table of Mortality, of 6.11 years. He was still living and unmarried at the time this proceeding was heard and was in good health for a man of his age. He has lived in the house*1338 at 3045 N Street, Northwest, *387 continuously since his wife's death. His yearly expenses for the past four years have amounted to approximately $4,000.
Also, at the date of decedent's death, Henry F. Harding was 41 and Nora Huffman was 52 years of age and both were still living at the time of the hearing of this proceeding.
Pursuant to the provisions of decedent's will, Rockwood Manor was conveyed to National Girl Scouts, Inc., hereinafter sometimes referred to as Girl Scouts, by the petitioner by deed dated January 21, 1938, and has been occupied by that organization continuously since that time. No other assets of the estate have ever been transferred to the Girl Scouts.
Decedent's gross estate amounted to $364,506.29. From the date of decedent's death to December 31, 1939, the gross income of the estate, the amounts distributable to John Wilson Caughey, after deduction of all proper charges, including the annual payments of $1,000 to Henry F. Harding and $600 to Nora Huffman, and the amounts distributed to him, were as follows:
| Period | Gross income | Amounts distributable to John Wilson Caughey | Amounts distributed to John Wilson Caughey |
| July 24 to Dec. 31, 1936 | $7,356.55 | $4,463.99 | $2,827.02 |
| 1937 | 17,071.05 | 9,056.19 | 6,584.37 |
| 1938 | 15,591.00 | 8,077.90 | 11,045.33 |
| 1939 | 16,304.73 | 10,513.54 | 10,576.40 |
| Total | 32,111.62 | 31,033.12 |
*1339 It is stipulated that National Girl Scouts, Inc., is a domestic corporation and that it was organized and operated solely for one or more of the purposes enumerated in section 303(a)(3) of the Revenue Act of 1926, as subsequently amended. It is further stipulated that the Esther Chapter of the Eastern Star is not such an organization, but is a "constituent chapter of the Grand Chapter of the Order of the Eastern Star of the District of Columbia."
In the estate tax return which the petitioner as executor filed on behalf of the decedent's estate a deduction of $281,363.11 was claimed under "Charitable, public, and similar gifts and bequests", which amount consisted of Rockwood Manor at a valuation of $38,375 and the residue of the net estate computed at a valuation of $242,988.11, after the deduction of all debts, administration expenses, etc., and also the value of the life estate of John Wilson Caughey computed with reference to mortality tables.
The respondent in his determination of the deficiency herein has allowed the deduction of the gift to the Girl Scouts of Rockwood Manor at the valuation of $38,375 but has disallowed the deduction of the item of $242,988.11 representing*1340 the value of the gift of the *388 net residuary estate, on the grounds (1) that the bequest was subject to a condition which may never be fulfilled, namely, that the Girl Scouts be in possession of and be operating Rockwood Manor at the time of the death of John Wilson Caughey, and (2) that by reason of the possibility of invasion of the principal during the continuance of the testamentary trust no value could be assigned to the bequest of the residue of the estate at the time of decedent's death.
OPINION.
SMITH: Our first question is whether under the decedent's will there was a completed gift of the residuary estate to the Girl Scouts, which admittedly is a charitable organization within the meaning of section 303(a)(3) of the Revenue Act of 1926, as amended.
It is to be noted that by the provisions of the decedent's will the remainder of her estate, upon the death or remarriage of her husband, was to be divided into two equal parts, one of which was to be paid over to the Girl Scouts "if they still be operating Rockwood Manor" and the other to be held in trust for 20 years and then paid over to the Girl Scouts upon the same condition. The use of the first half of*1341 the remainder estate was restricted to the "development and improvement of the property", but there was no restriction on the use of the other half except that from such funds a bell tower was to be erected at Rockwood Manor.
It was only in the event that the Girl Scouts should abandon Rockwood Manor or cease to use it "for character building purposes" that any of the residuary estate was to go to the Esther Chapter of the Eastern Star. This same condition attached to the conveyance of Rockwood Manor, that is, if it should ever be abandoned or cease to be used for character building purposes it was to go to the Esther Chapter of the Eastern Star.
We do not think that any of the conditions imposed upon the gift of the remainder of the estate to the Girl Scouts made it contingent or conditional, so as to prevent its vesting in the donee immediately upon the decedent's death. Article 47 of Regulations 80 provides as to "Conditional bequests" that:
If the transfer is dependent upon the performance of some act or the happening of some event in order to become effective, it is necessary that the performance of the act or the occurrence of the event shall have taken place before*1342 the deduction can be allowed.
The transfer of the remainder of the decedent's estate to the Girl Scouts was not dependent upon the performance of any act by the donee or the happening of any event. Neither was it dependent upon the voluntary act of any third party. Cf. . It was to take place, certainly, upon *389 the death or remarriage of John Wilson Caughey as to the first half, and 20 years from that date as to the second half, provided only that the Girl Scouts should not have abandoned Rockwood Manor but should have continued to operate it for character building purposes. We shall assume that the respondent does not regard the possibility of the use of the property by the Girl Scouts for purposes other than "character building" as a serious contingency. Actually, then, the Girl Scouts have only to remain in possession and operation of Rockwood Manor in order to qualify for the entire residue of the estate, after termination of the intermediate estates. Their duty is a passive and not an active one.
In *1343 , a bequest to a charitable institution of the income of a residuary estate after the death of the life tenant was held to vest at the time of the testator's death where at that time the institution was in existence and capable of taking the bequest.
The respondent has ruled in E.T. 13, Cumulative Bulletin 1939-2, p. 326, on facts quite similar to those in the instant case, that a bequest to an orphans' home of the income of a residuary estate, after a life estate in the testator's wife, was deductible from the gross estate although subject to the condition that the orphans' home should not move from a certain county in Arizona or cease to operate for the same purpose as it had operated before the testator's death. The ruling states that:
The M Association, by virtue of A's will, has a vested remainder in the trust income subject to being divested by reason of its removal from N County or the cessation of its operation of a home for orphan children, which are conditions subsequent. (See *1344 , acqiescence, C.B. X-2, 22 (1931).) Conditions subsequent are those whose effect is not produced until after the vesting of the estate. "* * * a condition subsequent defeats the estate in case it does not happen or is not performed." (.) * * *
Whether conditions imposed upon a testamentary gift to charity are sufficient to defeat the deduction of the gift in computing the Federal estate tax depends upon the degree of likelihood that the conditions will prevent the ultimate possession and enjoyment of the gift by the donee. The deduction must be denied where the bequest is so uncertain that its value can not be determined from any known data but depends upon mere speculation. . However, if the contingency is reasonably certain not to happen or is so remote as not seriously to affect the value of the gift the deduction will be allowed. *1345 ; ; .
*390 In , a bequest to a church on the condition that the church would contribute an equal amount, and other conditions not shown to have been complied with at the time of the testator's death, was held not deductible. See also ; ; ; ; affd., . The cases cited in which the deductions were disallowed all contain facts which distinguish them from the instant case.
In the construction of wills the intention of the testator is always the first consideration. There is no doubt that in the instant case it was the intention and purpose of the testatrix to leave all of the residue*1346 of her estate, after termination of the intervening estates, to the Girl Scouts. We do not think that the conditions which the testatrix imposed upon the gift negative that purpose. They serve merely as a precaution against the diversion of the gift from the charity for which it was intended.
The respondent further contends that, even though there was a completed, unconditional gift of the residue of the estate, the deduction claimed must be disallowed because the value of the gift is not definite in amount and can not be determined. The computation of the value of the gift, he contends, does not take into consideration:
(1) The possible or probable invasion of corpus of the trust estate upon the demand of John W. Caughey on account of some misfortune or for his comfort.
(2) The value of the right of John W. Caughey to the exclusive use of two rooms and private bath on the first floor of Rockwood Manor for life.
(3) The payment of $1,000.00 per year to Henry F. Harding and $600.00 per year to Nora Huffman for the life of John W. Caughey and for a period of 20 years thereafter.
In *1347 , the Supreme Court held that gifts to charity of the remainder of a trust estate after a life estate in the testator's wife, with authority to use from the principal any amount "that may be necessary to suitably maintain her in as much comfort as she now enjoys", were not so uncertain in amount as to prevent their deduction in computing the estate tax. The Court said in its opinion that:
* * * The principal that could be used was only so much as might be necessary to continue the comfort then enjoyed. The standard was fixed in fact and capable of being stated in definite terms of money. It was not left to the widow's discretion. The income of the estate at the death of the testator and even after debts and specific legacies had been paid was more than sufficient to maintain the widow as required. There was no uncertainty appreciably greater than the general uncertainty that attends human affairs.
In the case at bar the principal could be invaded only "should illness, accident or misfortune require more than the net income monthly for the proper care and comfort of my husband." Not only was the *391 *1348 standard fixed by the words "proper care and comfort", but even that invasion of the principal was permissible only if "illness, accident or misfortune require." The income of the estate here was more than ample for any probable requirements of the husband and, under the rule of , the right of the trustee to invade the principal did not render the gift to charity so uncertain in amount as to prevent its deduction. See also ; .
The right of the husband to the "exclusive use" of "two rooms and private bath" in Rockwood Manor for life did not in any manner affect the gift of the remainder of the estate. That was a condition subsequent imposed upon the gift of Rockwood Manor, and the respondent has allowed the deduction of that gift without question.
The payments of $1,000 per year to Henry F. Harding and $600 per year to Nora Huffman were for the purpose of compensating them for services which they were to render to the trustee so long as each should live but not beyond the term of the trust. In the*1349 administration of the trust estate these payments were treated by the trustee as a part of the expenses of the estate and were apparently claimed as deductions from gross income for the years 1936 to 1939, inclusive. We do not have before us in this proceeding the question as to the liability of the estate for income taxes for any year. There is nothing in the record, however, to indicate that the respondent ever questioned the right of the estate to claim that the payments were legal deductions from the gross income of the estate, or that John Wilson Caughey ever claimed that the net income of the estate distributable to him was greater than the amounts shown by the trustee's books. In this situation we do not think that it is necessary to take into account the payments to be made to Henry F. Harding and to Nora Huffman in the determination of the value of the remainder interest which was devised and bequeathed to the Girl Scouts. In any event there was only the remotest likelihood that the income from the trust estate would not at all times be more than ample to meet these payments. In the years 1936, 1937, 1938, and 1939 the net income of the trust after the deduction of the*1350 annuity payments amounted to over $8,000 a year, while it is stipulated that the yearly expenses of the husband for those years amounted to not more than $4,000.
The amount which is deductible from decedent's gross estate on account of the gifts to the Girl Scouts is the value of Rockwood Manor, which the respondent has allowed in the amount of $38,375, plus the value at the date of decedent's death of the remainder of the estate after termination of the trust, computed by the use of mortality tables. It is *392 stipulated that for the purpose of such computation the factor of .78264 may be taken as the present worth of $1 due at the death of a person 76 years of age.
Reviewed by the Board.
Decision will be entered under Rule 50.
MURDOCK, dissenting: The issue in this case is whether or not there was such a bequest or devise to the National Girl Scouts, Inc., a charitable organization, as to entitle this estate to a deduction. There was no absolute bequest or devise under the will. The bequest would be defeated to the extent that the corpus might have to be invaded to properly*1351 care for the husband of the decedent in case of illness, accident, or misfortune. The devise of the property known as Rockwood Manor was subject to the condition that the National Girl Scouts, Inc., would continue to use it for the specified purposes. One-half of the proceeds from the sale of certain property, after the death of the husband, was to go to the National Girl Scouts, Inc., but only for the development and improvement of Rockwood Manor and only upon condition that the National Girl Scouts, Inc., would continue to operate Rockwood Manor for the prescribed purposes. The remaining one-half of the proceeds of the sales was to go to the National Girl Scouts, Inc., 20 years after the death of the husband if they were still in possession of Rockwood Manor at that time.
The prevailing opinion starts off on a false foundation by assuming that the National Girl Scouts, Inc., will fully qualify and take the entire residue under the will by meeting all of these conditions. These are the very matters at issue in the case and should be decided upon proof or lack of proof and not upon assumption. The National Girl Scouts, Inc., was not in existence 25 years before the death of*1352 this decedent, and we have no right to assume, as a basis for decision for the petitioner, that it will be in existence 26 years after the death of the decedent and that it will remain in possession of Rockwood Manor and use it as required by this will in order to fully qualify and take all of the residuary estate. If the proof is difficult, or even impossible, the petitioner, upon whom the burden rests, is left with an unenforceable claim. . I think the proof is inadequate to show that the Commissioner erred.
STERNHAGEN and HARRON agree with this dissent.