SCOTUS Reports

Tag: ascertainable standard

  • Estate of Penner v. Commissioner, 67 T.C. 864 (1977): When a Power of Appointment for ‘Business Purpose’ is Not Limited by an Ascertainable Standard

    Estate of Alice B. Penner, Deceased, Abraham Penner, David I. Penner, and Daniel B. Penner, Executors, Petitioner v. Commissioner of Internal Revenue, Respondent, 67 T. C. 864 (1977)

    A power of appointment to withdraw trust principal for a ‘business purpose’ is not limited by an ascertainable standard under section 2041(b)(1)(A) of the Internal Revenue Code.

    Summary

    In Estate of Penner v. Commissioner, the U. S. Tax Court held that Alice B. Penner’s power to withdraw up to $50,000 from a testamentary trust for a ‘business purpose’ was not limited by an ascertainable standard, as required by section 2041(b)(1)(A) of the Internal Revenue Code. The court reasoned that the term ‘business purpose’ was too broad and not clearly linked to the decedent’s needs for health, education, support, or maintenance. Consequently, the full $50,000 was includable in her gross estate for tax purposes. This decision underscores the importance of precise language in drafting powers of appointment to avoid unintended tax consequences.

    Facts

    Alice B. Penner’s mother, Rena H. Bernheim, created a testamentary trust for her children, including Alice. Under the trust, Alice could withdraw up to $7,500 annually and $35,000 in total for any purpose. Additionally, she could withdraw up to $50,000 for a ‘business purpose,’ as she desired, without any requirement that the withdrawal be linked to her needs. Alice died in 1971, and the Commissioner of Internal Revenue determined a deficiency in her estate tax, arguing that the power to withdraw for a ‘business purpose’ constituted a general power of appointment under section 2041 of the Internal Revenue Code.

    Procedural History

    The executors of Alice’s estate filed a petition with the U. S. Tax Court challenging the Commissioner’s determination. The court reviewed the case based on stipulated facts and focused on the interpretation of the ‘business purpose’ power under Mrs. Bernheim’s will.

    Issue(s)

    1. Whether Alice B. Penner’s power to withdraw trust principal for a ‘business purpose’ was limited by an ascertainable standard under section 2041(b)(1)(A) of the Internal Revenue Code.
    2. If not, what amount was subject to this power of appointment?

    Holding

    1. No, because the term ‘business purpose’ was not clearly linked to Alice’s needs for health, education, support, or maintenance.
    2. The full $50,000 was subject to the power of appointment and includable in Alice’s gross estate.

    Court’s Reasoning

    The court applied section 2041(b)(1)(A) of the Internal Revenue Code, which excludes from a general power of appointment any power limited by an ascertainable standard relating to the holder’s health, education, support, or maintenance. The court found that the term ‘business purpose’ was too broad and not clearly linked to Alice’s needs. The court emphasized that the trust language allowed Alice to withdraw funds as she ‘desired,’ not as she ‘needed,’ and did not require the trustees to exercise discretion over the withdrawal. The court distinguished this case from others where the power of appointment was more clearly limited to the decedent’s needs. The court also rejected the argument that the power was limited to $15,000, finding that the ‘business purpose’ power allowed Alice to withdraw the full $50,000.

    Practical Implications

    This decision highlights the importance of precise drafting in estate planning to avoid unintended tax consequences. Estate planners must ensure that powers of appointment are clearly linked to the holder’s needs for health, education, support, or maintenance to fall within the safe harbor of section 2041(b)(1)(A). The case also demonstrates that broad terms like ‘business purpose’ may be interpreted as granting a general power of appointment, subjecting the property to estate tax inclusion. Estate planners should consider using more specific language or imposing trustee discretion to limit the scope of such powers. Subsequent cases have cited Estate of Penner to support the principle that broad powers of appointment are not limited by an ascertainable standard.

  • Estate of Cutter v. Commissioner, 62 T.C. 351 (1974): When Trust Powers Lack Ascertainable Standards

    Estate of Fred A. Cutter, John W. Cutter and Patricia Cooley, Co-Executors, Petitioners v. Commissioner of Internal Revenue, Respondent, 62 T. C. 351 (1974)

    The absence of an ascertainable standard in a trust’s discretionary income distribution power results in inclusion of the trust’s assets in the settlor’s gross estate under IRC Section 2036(a)(2).

    Summary

    Fred A. Cutter established eight irrevocable trusts for his grandchildren, serving as the sole trustee until his death. The trusts allowed Cutter to distribute income at his discretion ‘for the benefit of’ each beneficiary. The U. S. Tax Court held that this discretionary power did not meet the criteria for a judicially ascertainable standard, necessitating the inclusion of the trusts’ principal and accumulated income in Cutter’s estate under IRC Section 2036(a)(2). The decision underscores the importance of clear, enforceable standards in trust instruments to avoid estate tax inclusion.

    Facts

    Fred A. Cutter created eight irrevocable trusts for his grandchildren between 1951 and 1965, naming himself as the sole trustee. Each trust was funded with Cutter Laboratories stock. The trust instruments granted Cutter the power to distribute income ‘in his sole discretion’ as he deemed ‘necessary for the benefit’ of each beneficiary. Cutter retained this power until his death on February 22, 1967. At his death, the trusts had a combined value of $279,708. 50, with only the portion attributable to Cutter’s contributions at issue for estate tax inclusion.

    Procedural History

    The Estate of Fred A. Cutter filed a timely estate tax return and elected to value the estate’s assets as of the alternative valuation date. The Commissioner of Internal Revenue determined a deficiency of $117,719, asserting that the trusts’ assets should be included in Cutter’s gross estate. The Estate contested this, leading to the case being heard by the U. S. Tax Court.

    Issue(s)

    1. Whether the discretionary power to distribute trust income as deemed ‘necessary for the benefit of’ each beneficiary constitutes a judicially ascertainable standard under IRC Sections 2036(a)(2) and 2038(a)(1).

    Holding

    1. No, because the phrase ‘necessary for the benefit of’ lacks the specificity required to create an ascertainable standard, resulting in the inclusion of the trusts’ principal and accumulated income in the decedent’s gross estate under IRC Section 2036(a)(2).

    Court’s Reasoning

    The Tax Court analyzed whether the discretionary power to distribute income met the criteria for an ascertainable standard. The court noted that terms like ‘support, education, maintenance, care, necessity, illness, and accident’ typically create ascertainable standards, while ‘happiness, pleasure, desire, benefit, best interest, and well-being’ do not. The phrase ‘necessary for the benefit of’ was deemed too broad to create an ascertainable standard, as ‘benefit’ suggests more than just support and ‘necessary’ does not sufficiently limit this broad discretion. The court rejected the Estate’s argument to interpret ‘necessary for the benefit of’ narrowly, emphasizing that the language of the trust must be unambiguous and that extrinsic evidence of intent was inadmissible. The court concluded that the power to distribute income was not constrained by a judicially enforceable standard, thereby triggering estate tax inclusion under IRC Section 2036(a)(2).

    Practical Implications

    This decision highlights the critical need for precise language in trust instruments to avoid unintended estate tax consequences. Practitioners should ensure that trust provisions for discretionary distributions include clear, enforceable standards to prevent the inclusion of trust assets in the settlor’s estate. This case has influenced subsequent estate planning practices, emphasizing the use of terms like ‘support, maintenance, and education’ to create ascertainable standards. It has also been cited in later cases to distinguish between trusts with and without such standards, affecting how trusts are drafted and interpreted in estate planning and taxation.

  • Wier v. Commissioner, 17 T.C. 409 (1951): Ascertainable Standard Prevents Trust Inclusion in Gross Estate

    17 T.C. 409 (1951)

    When a trustee’s power to distribute trust income or corpus is governed by an ascertainable standard (like health, education, or support), the trust assets are not included in the grantor’s gross estate for federal estate tax purposes, even if the grantor is a trustee.

    Summary

    Robert W. Wier and his wife created trusts for their daughters, with Wier as a co-trustee. The IRS sought to include the trust assets in Wier’s gross estate, arguing the trusts were created in contemplation of death, and that Wier retained the right to designate who enjoys the property. The Tax Court held that the transfers to the trusts were not made in contemplation of death, and the trustee’s powers were limited by an ascertainable standard, preventing inclusion in the gross estate. The court also found a gift of stock to the daughters was not made in contemplation of death, and a transfer of a homestead to Wier’s wife was a completed gift and not includable in the gross estate.

    Facts

    Robert W. Wier died in 1945. In 1935, he and his wife established two trusts, one for each of their daughters. The trusts were funded with gifts from Wier and his wife. The trust instruments directed the trustees to use income and corpus for the “education, maintenance and support” of the daughters, “in the manner appropriate to her station in life.” Wier was a co-trustee and never made distributions from the trusts. Wier also gifted Humble Oil stock to his daughters in 1943. In 1931, Wier conveyed his interest in the family homestead to his wife.

    Procedural History

    The IRS determined a deficiency in Wier’s estate tax, including the value of the trusts, the Humble Oil stock, and the homestead in his gross estate. The Estate challenged the deficiency in the Tax Court.

    Issue(s)

    1. Whether the assets of the trusts are includable in Wier’s gross estate under Section 2036 or 2038 of the Internal Revenue Code (formerly Section 811 of the 1939 Code)?

    2. Whether the gift of Humble Oil stock was made in contemplation of death and therefore includable in the gross estate?

    3. Whether the value of Wier’s former interest in the homestead, gifted to his wife, is includable in his gross estate?

    Holding

    1. No, because the trustee’s power to distribute funds was limited by an ascertainable standard, meaning Wier did not retain the right to designate who should enjoy the property.

    2. No, because the gifts of stock were motivated by life-related purposes and not made in contemplation of death.

    3. No, because the transfer of the homestead to Wier’s wife was a completed gift, and Wier retained no interest in the property.

    Court’s Reasoning

    The court reasoned that the trusts were not created in contemplation of death, given Wier’s good health and active life. Regarding the trusts, the critical issue was whether Wier, as trustee, retained the right to designate who should enjoy the trust property. The court emphasized that the trust instrument limited the trustees’ discretion to distributions for the daughters’ “education, maintenance and support” which constituted an ascertainable standard. This standard was enforceable by a court of equity, making the trustees’ actions ministerial rather than discretionary. The court distinguished this case from others where the trustee had broad discretion. Citing Jennings v. Smith, 161 F.2d 74, the court found the restrictions on the trustees were akin to an external standard that a court could enforce. Regarding the Humble Oil stock, the court found the gifts were motivated by a desire to provide the daughters with business experience, a life-related motive. The court noted, “The evidence concerning the condition of decedent’s health, his activities, the size of the gifts, and decedent’s motives was overwhelming to the effect that these gifts were made from motives of life and not in ‘contemplation of death’.” As for the homestead, Wier had transferred his interest to his wife with no strings attached, relinquishing all control. The court cited Texas law confirming that a deed from husband to wife vests the homestead interest solely in the wife.

    Practical Implications

    This case clarifies the importance of ascertainable standards in trust instruments for estate tax purposes. It provides a roadmap for drafting trusts that avoid inclusion in the grantor’s gross estate. Attorneys must carefully draft trust provisions to ensure that any powers retained by the grantor-trustee are clearly limited by standards related to health, education, maintenance, or support. This case emphasizes that vague or subjective standards (like “best interest”) will likely result in inclusion. Later cases have continued to apply this principle, focusing on the specific language of the trust instrument to determine whether an ascertainable standard exists. This case also serves as a reminder that gifts must be evaluated for potential inclusion in the gross estate based on the donor’s motivations at the time of the gift.

  • Jennings v. Commissioner, 10 T.C. 323 (1948): Valuing Charitable Remainders Based on Life Tenant’s Actual Health

    10 T.C. 323 (1948)

    When valuing charitable remainder bequests for estate tax deductions, the actual health and life expectancy of the life tenant at the time of the decedent’s death should be considered, especially when the power to invade the principal is limited by an ascertainable standard like “care and maintenance”.

    Summary

    The Estate of Nellie H. Jennings sought to deduct charitable bequests to two charities from her gross estate. Jennings’ will established a trust providing a life estate for her invalid husband with the remainder to charities. The trustee was authorized to invade the principal for the husband’s “care and maintenance.” The Tax Court held that the charitable bequests were deductible because the power to invade principal was limited by an ascertainable standard. Further, the court determined that the valuation of the remainder interest should be based on the husband’s actual, severely diminished life expectancy at the time of Nellie’s death, not solely on standard mortality tables.

    Facts

    Nellie H. Jennings died on September 17, 1941, leaving the residue of her estate in trust. Her will provided a life estate for her husband, James W. Jennings, with the remainder to two named charities. The will authorized the trustee to use income or principal for James’s “care and maintenance.” At the time of Nellie’s death, James was 73 years old, bedridden since January 1940 due to a series of severe cerebral attacks, suffering from complete memory loss and near-total paralysis. He required constant care from nurses and physicians and was receiving maximum care. His condition was not expected to improve, and his life expectancy was estimated to be no more than one year. He died approximately two months after Nellie. The estate’s annual income was approximately $9,600, while James’s monthly expenses were about $780.

    Procedural History

    The Commissioner of Internal Revenue disallowed the estate’s deduction for charitable bequests, arguing they were incapable of valuation due to the trustee’s power to invade the principal. The Tax Court initially heard the case. Prior to the Tax Court case, the will’s construction was litigated in Tennessee state courts. The Chancery Court of Knox County, Tennessee, and subsequently the Supreme Court of Tennessee, affirmed the will’s validity, confirming the life estate for the husband and the remainder to the charities.

    Issue(s)

    1. Whether the power granted to the trustee to invade the principal of the trust for the “care and maintenance” of the life beneficiary rendered the charitable remainder bequests so uncertain as to be non-deductible for estate tax purposes?

    2. If the charitable bequests are deductible, whether the valuation of the remainder interest should be determined using standard mortality tables or by considering the actual, known health condition and significantly reduced life expectancy of the life beneficiary at the time of the decedent’s death?

    Holding

    1. No, because the term “care and maintenance” establishes an ascertainable standard, limiting the trustee’s power to invade the principal, thus making the charitable bequests capable of valuation.

    2. Valuation should be based on the life beneficiary’s actual health and life expectancy at the time of the decedent’s death because standard mortality tables are evidentiary only and should be superseded by known facts indicating a significantly shorter life expectancy.

    Court’s Reasoning

    The court reasoned that the power to invade the principal for “care and maintenance” provides a sufficiently definite, ascertainable standard. Quoting Ithaca Trust Co. v. United States, the court noted that similar standards like “to suitably maintain her ‘in as much comfort as she now enjoys’” have been deemed ascertainable. The court emphasized that phrases like “care and support” or “care and maintenance” are interpreted by courts to refer to maintaining the beneficiary’s accustomed standard of living. The court found that the trustee’s discretion was limited to providing reasonable care and support, preventing unlimited invasion of the principal. Regarding valuation, the court cited United States v. Provident Trust Co., stating that valuation must be based on data available at the time of death. Referencing Estate of John Halliday Denbigh, the court held that mortality tables are not conclusive when actual facts demonstrate a significantly different life expectancy. In this case, the overwhelming evidence of the husband’s terminal condition and extremely short life expectancy justified departing from standard mortality tables and valuing the life estate based on his actual condition.

    Practical Implications

    Jennings v. Commissioner provides crucial guidance on valuing charitable remainder interests when a life estate is involved and the trustee has power to invade the principal. It clarifies that the “ascertainable standard” doctrine applies to terms like “care and maintenance,” allowing for deductibility when such standards limit invasion. More significantly, it establishes that in cases with compelling evidence of a life tenant’s drastically reduced life expectancy due to health at the time of decedent’s death, valuation should be based on those actual facts, not just broad actuarial tables. This case is important for estate planning and litigation involving charitable deductions, emphasizing a fact-specific approach when valuing life estates and remainders, particularly when health conditions significantly deviate from average life expectancies. Later cases have cited Jennings to support the use of actual health data over mortality tables in similar valuation scenarios.

  • Toeller v. Commissioner, 6 T.C. 832 (1946): Trust Inclusion in Gross Estate When Grantor Retains Right to Corpus Invasion

    6 T.C. 832 (1946)

    The corpus of a trust is includible in the gross estate of the decedent for estate tax purposes if the grantor retained the right to have the trust corpus invaded for their benefit during their lifetime based on ascertainable standards, even if the trustee has broad discretion.

    Summary

    John J. Toeller created a trust in 1930, reserving a portion of the income for himself and granting the trustee discretion to invade the corpus for his benefit in case of “misfortune or sickness.” Upon his death, the trust corpus was to be distributed to his wife and children. The Tax Court addressed whether the trust corpus should be included in Toeller’s gross estate for federal estate tax purposes. The Court held that because Toeller retained a right, albeit conditional, to the trust corpus during his life, the trust was includible in his gross estate. The Court also addressed deductions for a charitable bequest and trustee expenses.

    Facts

    John J. Toeller established a trust in 1930, naming Continental Illinois Bank & Trust Co. as trustee. The trust provided income to his estranged wife, Myrtle, his children, and himself. Critically, the trust instrument stated that “should misfortune or sickness cause the expenses of Trustor to increase so that in the judgment of the Trustee the net income so payable to Trustor is not sufficient to meet the living expenses of Trustor,” the trustee was authorized to invade the principal. The trustee had “sole right” to determine when and how much to pay. Upon Toeller’s death, the corpus was to be divided among his wife and children. Toeller died in 1942, and his will left the remainder of his estate to the Society of the Divine Word, a charitable organization.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in Toeller’s federal estate taxes, including the trust corpus in the gross estate and disallowing deductions for a charitable bequest and certain expenses. The administrator of Toeller’s estate petitioned the Tax Court for review. Toeller’s daughter contested the will, resulting in a compromise. The trustee also sought a construction of the trust provisions in state court. The Tax Court then reviewed the Commissioner’s deficiency determination.

    Issue(s)

    1. Whether the trust transfers were intended to take effect in possession or enjoyment at or after Toeller’s death, making the trust corpus includible in his gross estate under Section 811(c) of the Internal Revenue Code.

    2. Whether the amount paid to the Society of the Divine Word pursuant to the compromise of the will contest is deductible from the gross estate.

    3. Whether certain expenses of the trustee are deductible from Toeller’s gross estate.

    Holding

    1. Yes, because Toeller retained a conditional right to the trust corpus during his life, the transfer did not take effect until his death.

    2. Yes, because the amount paid to the charity pursuant to the compromise is deductible from the gross estate.

    3. No, because the trustee expenses do not constitute allowable deductions for expenses of administration under the statute and regulations.

    Court’s Reasoning

    The Tax Court relied on the principle established in Blunt v. Kelly, 131 F.2d 632, distinguishing it from Commissioner v. Irving Trust Co., 147 F.2d 946. The key distinction was whether the trustee’s discretion to invade the corpus was governed by external standards. In Toeller, the trust instrument specified that the trustee could invade the corpus if “misfortune or sickness cause the expenses of Trustor to increase so that in the judgment of the Trustee the net income so payable to Trustor is not sufficient to meet the living expenses.” Even with the “sole right” of the trustee to determine payments, the Court found that the trustee’s discretion was not absolute but governed by the ascertainable standard of Toeller’s needs due to misfortune or sickness. The court reasoned that the language of the trust instrument created external standards that a court could use to compel compliance. Because Toeller retained the right to receive the trust corpus under certain circumstances, the transfer was not complete until his death, making it includible in his gross estate. Regarding the charitable deduction, the Court held that because the amount was ascertainable, it was deductible. However, the trustee’s fees and expenses were deemed not deductible as administration expenses of the estate.

    Practical Implications

    Toeller v. Commissioner clarifies that even broad discretionary powers granted to a trustee are not absolute if the trust instrument provides external standards for the trustee’s decision-making. When drafting trust instruments, attorneys must carefully consider the implications of discretionary clauses, especially those related to the invasion of the trust corpus for the benefit of the grantor. The case emphasizes that the presence of ascertainable standards, even if broadly defined, can result in the inclusion of the trust corpus in the grantor’s gross estate for estate tax purposes. Later cases have cited Toeller when determining whether a grantor has retained sufficient control or benefit in a trust to warrant inclusion in the gross estate. This case serves as a reminder that seemingly broad discretion can be limited by the overall context and language of the trust document. As the court noted, “All discretions conferred upon the Trustee by this instrument shall, unless specifically limited, be absolute and uncontrolled and their exercise conclusive on all persons in this trust or Trust Estate.”

  • Estate of Jack v. Commissioner, 6 T.C. 241 (1946): Deductibility of Charitable Bequests When Principal Can Be Invaded

    6 T.C. 241 (1946)

    A charitable bequest is deductible from a gross estate when the possibility of invading the trust principal for the benefit of a life beneficiary is remote due to the beneficiary’s ample independent resources and a clearly defined standard for invasion (comfort and support).

    Summary

    The Estate of Edwin E. Jack sought to deduct charitable bequests from the gross estate. Jack’s will established a trust providing his widow with income for life, and authorized the trustees to invade the principal for her “comfort and support” if the income was insufficient. The remainder was primarily designated for charities. The Commissioner disallowed the charitable deduction, arguing the potential invasion rendered the bequest too indefinite. The Tax Court, relying on prior precedent, held the charitable bequests were deductible because the widow had ample independent means and the standard for invasion was ascertainable, making invasion unlikely.

    Facts

    Edwin E. Jack died in 1942, leaving a gross estate of $731,107.31. His will created a trust with income to his wife, Mary Denny Jack, for life. The trustees had discretion to invade the principal for Mary’s “comfort and support” if the income was deemed insufficient. Upon Mary’s death, the remainder was to be distributed to various charities. At the time of Edwin’s death, Mary, age 77, had her own securities valued at $99,462.66 and cash of $4,143.32. Her income from her own assets was approximately $7,000 per year, and she received $24,000-$30,000 annually from the trust. Her annual living expenses were less than $9,000 and her assets increased after Edwin’s death.

    Procedural History

    The executors filed an estate tax return claiming a deduction for the charitable bequests. The Commissioner of Internal Revenue disallowed the deduction, determining a deficiency. The Estate petitioned the Tax Court for a redetermination of the deficiency.

    Issue(s)

    Whether the estate is entitled to a deduction for charitable bequests under Section 812(d) of the Internal Revenue Code, when the trust authorized the trustees to invade the principal for the benefit of the life beneficiary (decedent’s widow) based on the standard of “comfort and support.”

    Holding

    Yes, because the standard of “comfort and support” provided a fixed and ascertainable standard, and the likelihood of invasion was remote due to the widow’s substantial independent resources, making the charitable bequests deductible.

    Court’s Reasoning

    The Tax Court relied on Ithaca Trust Co. v. United States, 279 U.S. 151, which established that a charitable deduction is permissible if the power to invade the principal is governed by a fixed and ascertainable standard. The court distinguished Merchants Nat. Bank of Boston v. Commissioner, 320 U.S. 256, where the standard included the widow’s “happiness,” making it too speculative. The court reasoned that “comfort and support,” while not expressly limited to the widow’s current standard of living, effectively limited the trustees’ discretion. The court stated, “With due regard to changes in cost, the power is intended only to secure to the beneficiary the kind of living to which she was accustomed.” The court emphasized that the widow’s substantial independent income, low living expenses, advanced age, and increasing assets made it unlikely that the trustees would need to invade the principal. The court concluded, “In these circumstances, we think there was no likelihood that the trustee would ever find it necessary to use the corpus for her support and comfort and that we are justified in concluding that it was reasonably certain that the remaindermen would come into the principal undiminished by any distribution to her.”

    Practical Implications

    This case clarifies the circumstances under which charitable bequests are deductible, even when a trustee has the power to invade the principal for the benefit of a life beneficiary. It underscores the importance of a clearly defined standard for invasion, such as “comfort and support,” and the significance of the beneficiary’s independent resources. Legal practitioners should analyze similar cases by considering both the language of the will or trust instrument and the financial circumstances of the life beneficiary. Subsequent cases cite Estate of Jack for the proposition that a charitable deduction is allowable where the likelihood of invasion is remote and the standard for invasion is ascertainable. This case also emphasizes that terms like “comfort and support” provide an ascertainable standard, while terms like “happiness” do not.

  • Estate of Edwin E. Jack v. Commissioner, 6 T.C. 241 (1946): Charitable Deduction Must Be Presently Ascertainable

    Estate of Edwin E. Jack v. Commissioner, 6 T.C. 241 (1946)

    For a charitable bequest to be deductible from a gross estate, its value must be presently ascertainable at the time of the testator’s death, considering any potential diversions of the bequest.

    Summary

    The Tax Court addressed whether a charitable deduction should be allowed for a bequest where a trustee had the power to invade the corpus for the benefit of a life beneficiary. The court held that because the extent of the potential invasion was not limited by an ascertainable standard at the time of the testator’s death, the value of the charitable bequest was not presently ascertainable, and the deduction was disallowed. The court emphasized that mere approximations of the charitable bequest’s value are insufficient; a highly reliable appraisal is required.

    Facts

    Edwin E. Jack’s will established a trust with income payable to his wife for life, and the remainder to several charities. The trustee had the power to invade the corpus of the trust for the “comfortable maintenance” of the wife. The wife died within a year of Edwin. The estate sought to deduct the value of the charitable remainder from the gross estate for tax purposes.

    Procedural History

    The Commissioner disallowed the charitable deduction claimed by the Estate of Edwin E. Jack. The Estate then petitioned the Tax Court for a review of the Commissioner’s determination.

    Issue(s)

    Whether the value of the charitable remainder bequest was “presently ascertainable” at the time of the testator’s death, given the trustee’s power to invade the corpus for the life beneficiary’s “comfortable maintenance.”

    Holding

    No, because the power granted to the trustee to invade the corpus for the “comfortable maintenance” of the decedent’s wife provided no ascertainable standard to determine how much of the corpus might be diverted from the charitable bequest at the time of the testator’s death.

    Court’s Reasoning

    The court relied heavily on Merchants National Bank of Boston v. Commissioner, 320 U.S. 256 (1943), which established that the value of a charitable bequest must be measurable as of the date of the decedent’s death, considering the potential for corpus diversion. Treasury Regulations further stipulate that any power in a private donee or trustee to divert property from the charity limits the deduction to only that portion of the property exempt from such power. The court stated that the death of the life beneficiary shortly after the testator is irrelevant for valuation purposes. The court found the trustee’s power to invade the corpus for the “comfortable maintenance” of the wife was not limited to her prior standard of living or any other ascertainable standard. Given the potential for the corpus to be diminished significantly over time, a “highly reliable appraisal” of the amount the charity would receive could not be made as of the testator’s death. The court emphasized that “[r]ough guesses, approximations, or even the relatively accurate valuations on which the market place might be willing to act are not sufficient.”

    Practical Implications

    Estate of Edwin E. Jack underscores the necessity of clearly defined standards when drafting wills and trusts that include charitable bequests and powers of invasion. To ensure a charitable deduction is allowed, the power to invade the corpus for the benefit of a non-charitable beneficiary must be limited by an ascertainable standard, such as the beneficiary’s health, education, maintenance, or support. Vague or broad standards like “comfortable maintenance” without further limitations are unlikely to be sufficient. This case serves as a reminder that the potential impact of invasion powers on the charitable remainder must be predictable and reliably measurable at the time of the testator’s death. Later cases have consistently applied this principle, often focusing on the specificity of the language used to define the trustee’s invasion powers and whether that language provides a basis for objective valuation.