Estate of Mose Sumner v. Commissioner, 59 T. C. 565 (1973)

A charitable remainder deduction is allowed if the trustee’s discretionary powers do not render the charitable interest unascertainable, considering the testator’s intent and applicable state law.

Summary

In Estate of Mose Sumner, the Tax Court examined whether the charitable remainder in a testamentary trust was ascertainable for estate tax purposes despite the trustee’s broad discretionary powers. Mose Sumner’s will established a trust with income to be distributed to his wife and relatives, with the remainder to charities. The court held that the trustee’s powers did not make the charitable remainder unascertainable because Texas law and the testator’s intent limited these powers, ensuring the corpus was preserved for charity. Additionally, the court determined that the value of the charitable remainder should not be reduced by property interests passing to Sumner’s wife, as she effectively received nothing under the will, having relinquished greater community property interests.

Facts

Mose Sumner died in 1966, leaving a will that established a perpetual trust managed by Citizens National Bank & Trust Co. The trust was funded by his residuary estate and community property, which his wife, Mrs. Sumner, elected to renounce in favor of taking under the will. The trust’s income was to be distributed annually to various charities and monthly to Sumner’s cook, with the remainder allocated to his wife and other relatives. Upon the death of a beneficiary, their income share would accumulate until reaching $10,000, then be distributed to specified Jewish organizations. The will granted the trustee broad discretionary powers regarding investments, sales, and allocation between income and principal.

Procedural History

The estate filed a tax return claiming a charitable deduction, which the Commissioner disallowed, asserting the charitable remainder was unascertainable due to the trustee’s discretionary powers. The estate appealed to the Tax Court, which heard the case and issued the reported decision.

Issue(s)

1. Whether the trustee’s discretionary powers regarding investments, payments, and allocations rendered the value of the charitable remainder unascertainable for estate tax purposes.
2. Whether the value of the charitable remainder should be calculated without reduction for the property interests that passed to Mrs. Sumner as a result of her election to take under the will and surrender her interest in community property.

Holding

1. No, because the trustee’s powers were not absolute under Texas law and the testator’s intent was to preserve the corpus for charity.
2. Yes, because Mrs. Sumner effectively received nothing under the will, having relinquished greater community property interests.

Court’s Reasoning

The court applied Texas law, which requires ascertaining the testator’s intent from the will and surrounding circumstances. The will’s language suggested broad trustee powers, but Texas case law and the testator’s intent indicated these powers were not absolute. The court emphasized that the trustee must act within the bounds of reasonable judgment and treat both life beneficiaries and remaindermen evenhandedly. The court cited cases where similar trustee powers were limited, noting that the testator’s actions (choosing a bank as trustee, not granting express powers to invade the corpus, and the wife’s independent income) suggested an intent to benefit charity primarily. The court distinguished this case from others where the trustee’s powers were found to render the charitable remainder unascertainable, citing the testator’s clear intent to favor charity. Regarding the second issue, the court relied on United States v. Stapf, holding that Mrs. Sumner received no net benefit under the will, as her relinquished community property interest exceeded the value of what she received.

Practical Implications

This decision clarifies that a charitable remainder deduction can be allowed despite broad trustee powers if those powers are limited by state law and the testator’s intent to preserve the corpus for charity. Practitioners should carefully review wills and consider state law when advising on estate planning to ensure charitable deductions are not jeopardized by overly broad trustee powers. The decision also impacts how community property elections by surviving spouses are treated for tax purposes, potentially affecting estate planning strategies involving such elections. Subsequent cases have followed this reasoning, reinforcing the importance of clear intent in wills and the role of state law in interpreting trustee powers.