Estate K. Starkey v. United States

In the

United States Court of Appeals

For the Seventh Circuit

No. 99-2357

Estate of Kenneth E. Starkey,

Plaintiff-Appellant,

v.

United States of America,

Defendant-Appellee.

Appeal from the United States District Court

for the Southern District of Indiana, Indianapolis Division.

No. 98 C 343--Larry J. McKinney, Judge.

Argued February 25, 2000--Decided August 17, 2000

Before Bauer, Ripple, and Manion, Circuit Judges.

Manion, Circuit Judge. Kenneth Starkey was

apparently both financially successful and

generous. As he neared death, he made out his

last will and testament and set up a charitable

trust. These documents were drafted by his

attorney son, who had little or no experience

drafting such instruments, and the inartful

language caused problems. The Internal Revenue

Service concluded that the charitable trust Mr.

Starkey created did not qualify for a charitable

deduction. As a result, it denied the Estate a

charitable deduction worth well over one million

dollars. This resulted in an estate tax

deficiency of over one half million dollars. The

district court entered summary judgment in favor

of the IRS in the Estate’s suit to recover a tax

refund. We hold that the documents, while

inartfully drafted, adequately demonstrate that

Mr. Starkey intended to create a charitable trust

that qualifies for the charitable deduction. We

therefore reverse the district court entry of

summary judgment in favor of the IRS./1

I. Background

Kenneth Starkey’s will created an educational

trust for his grandchildren and a charitable

trust. Section 5.02 of the will, the provision at

issue, instructed the trustees of the charitable

trust to distribute the income as follows:

Half of the income from the trust is to go to

Lawndale Community Church in Chicago, Illinois

provided that Wayne Gordon is still the pastor of

it at the time of my death and that church will

receive this until the time that he is no longer

pastor. The Trustees are to manage the property

of the Trust for the benefit of this beneficiary,

missionaries preaching the Gospel of Christ, and

Milligan College.

(Emphasis added.) Section 5.03 authorized the

trustees to distribute the net income or corpus

of the trust to or for the benefit of a

beneficiary "at any time and from time to time as

the Trustees deem advisable." One week later, Mr.

Starkey executed the following codicil to his

will:

My Last Will and Testament in Items IV and V,

created two trusts, the former an educational

trust and the latter a charitable trust. My Last

Will and Testament further provided that the

trusts would eventually end even though they were

educational and charitable in nature and

therefore not subject to the Rule against

Perpetuities twenty-one years after the death of

my last descendant alive at the time of my own

demise. My last Will and Testament did not

dispose of the residue of the trusts upon the

occurrence of the terminating events. I

specifically leave the residues of both trusts to

Milligan College.

Mr. Starkey died about three weeks later. The

Estate claimed a charitable deduction of about

$1.3 million on its federal estate tax return for

the amount Mr. Starkey had left to the charitable

trust and asked the IRS to determine that the

trust was exempt from taxation. The IRS declined

to do so. It noted various defects in the trust

instrument and issued a directive on how the

Estate might remedy them. See Estate of Starkey

v. United States, 58 F. Supp.2d 939, 944 (S.D.

Ind. 1999).

In response, the Estate petitioned the state

probate court to amend Section 5.02 of the will

to allow the trustees, in their discretion, to

distribute trust income to eight specific

beneficiary groups (in effect replacing the

"missionaries" phrase in Section 5.02 with the

eight specific groups). The motion stated that

the groups "all fit the description of those

intended by the testator to benefit from this

trust, "[Lawndale Community Church], missionaries

preaching the Gospel of Christ, and Milligan

College." The Estate then filed an amended

petition stating that the part of Section 5.02

referring to "missionaries preaching the Gospel

of Christ" had "created confusion as to whether

the phrase . . . defines the beneficiary Lawndale

Community Church or whether missionaries

preaching the Gospel of Christ creates a

[separate] class of beneficiaries." The amended

petition no longer sought to substitute

specifically named groups for the "missionaries"

phrase; it retained the phrase and argued that it

was meant simply to describe the Lawndale

Community Church. The Estate requested the state

court to construe the phrase accordingly.

In the verified petition, Mr. Starkey’s son

stated that the Lawndale Community Church was

well known for its missionary program and that,

in fact, its missionary program was the only such

program his father supported. The Estate also

offered the testimony of Dr. Lynn Franken, a

former associate dean of the College of Arts and

Sciences at Butler University, who received her

doctorate in English language and literature. Dr.

Franken is trained as a grammarian, someone who

studies the relationship between words and

meaning. She opined that the "missionaries"

phrase did not create a separate class of

beneficiaries, but merely described the Lawndale

Community Church. The probate court agreed and

construed the phrase "missionaries preaching the

Gospel of Christ" in Section 5.02 "as merely

descriptive of Lawndale Community Church" and "as

not creating a separate class of beneficiaries to

which the trustees could distribute income or

corpus."

The next day the IRS issued the Estate an estate

tax deficiency in the amount of $520,178 (plus

penalties). Despite the probate court’s

construction of the will, the IRS maintained that

the will created three trust beneficiaries: the

Lawndale Community Church, a group of

missionaries, and Milligan College. The IRS thus

disallowed the Estate a charitable deduction

because the trust assets were split between

charitable and noncharitable beneficiaries

(concluding that while the Lawndale Community

Church and Milligan College were both qualified

charities, a group of unknown missionaries was

not) and the amount of the charitable bequest was

unascertainable.

Shortly thereafter, the Estate petitioned the

probate court to appoint a guardian ad litem to

represent the interests of the unknown

"missionaries preaching the Gospel of Christ" so

they could appeal the probate court’s ruling that

they--whoever they might be--are not

beneficiaries. The Indiana Court of Appeals, in

an unpublished opinion, affirmed the ruling of

the probate court. It held that the

"missionaries" phrase "is most logically

interpreted in the context of the will as

standing in apposition to, and describing, the

Lawndale Community Church." The guardian sought

transfer to the Indiana Supreme Court, but it

declined to hear the case.

After the state court proceedings concluded, the

Estate paid the assessment and filed a refund

claim with the IRS. The Estate claimed that the

trust qualified for a charitable deduction

because in his will, as interpreted by the state

courts, Mr. Starkey had intended to create only

two beneficiaries (the Lawndale Community Church

and Milligan College), both of which are

charities. The IRS disallowed the refund claim,

and the Estate filed this action against the

United States under 28 U.S.C. sec. 1346(a)(1)

(allowing taxpayers to sue for relief from

erroneously assessed taxes).

Both sides moved for summary judgment. The

district court framed the issue as whether Mr.

Starkey had "intended that the portion of his

estate transferred to the [charitable] trust

would be used by the trustees exclusively for

charitable purposes, and whether the language he

used in the grant to the trust restricted the

trustees to such use . . . ." Estate of Starkey,

58 F. Supp.2d at 955. The district court held

that the probate and appellate courts’ decisions

did not bind it, and it was only required to give

them "proper" weight. The court determined that

"proper" was not much because the probate court

proceedings were not adversarial due to the

absence of the IRS. Id. at 951. Yet, although the

United States received notice of both the probate

and appellate proceedings, it did not contest

them or even appear. The district court disagreed

with the state courts’ interpretation of the

"missionary" phrase and concluded that Mr.

Starkey more likely intended to benefit a group

of missionaries in addition to the church and the

college. Id. at 956-57. Because the trustees had

the discretion to distribute an undesignated

amount of trust corpus or income to a group of

"missionaries" potentially for personal purposes,

the court held that Mr. Starkey had failed to

create a charitable trust. Id. at 957-58. The

district court ruled that the Estate was not

entitled to a charitable deduction and entered

judgment for the Government. The Estate appeals

this ruling.

II. Discussion

We review a grant of summary judgment de novo.

Miller v. American Family Mut. Ins. Co., 203 F.3d

997, 1003 (7th Cir. 2000). The IRS’s calculation

of tax assessments is presumed to be correct, and

the taxpayer bears the burden of rebutting this

presumption and proving he is entitled to a

refund. United States v. Janis, 428 U.S. 433, 440

(1976).

A. Relevant Tax Principles

The Internal Revenue Code imposes a tax "on the

transfer of the taxable estate of every decedent

who is a citizen or resident of the United

States." 26 U.S.C. sec. 2001(a). A decedent’s

gross estate includes "the value at the time of

his death of all property, real or personal,

tangible or intangible, wherever situated", id.

at sec. 2031(a), and the value of any property

interests the decedent has transferred (including

by trust) within three years of his death (with

some exceptions). Id. at sec. 2035. A decedent’s

taxable estate is determined by deducting from

the gross estate transfers for public, charitable

or religious uses (among other things). Id. at

sec. 2055(a). The entire amount transferred to a

trust for the benefit of a qualified charity is

deductible. Id. at sec. 2055(a)(3)./2

To qualify for the charitable deduction, the

charitable bequest must be ascertainable at the

time of the transfer. Estate of Marine v.

Commissioner of Internal Revenue, 990 F.2d 136,

138 (4th Cir. 1993) ("Ascertainability at the

date of death of the amount going to charity is

the test."). If a will provides a trustee with

discretion to distribute trust assets to

charities and to individuals for their personal

use, the amount bequeathed to the charities might

not be ascertainable at the time of the transfer.

See Merchants Nat. Bank of Boston v. Commissioner

of Internal Revenue, 320 U.S. 256, 257-58, 263

(1943); see also Estate of Marine, 990 F.2d at

138-39. Such a trust, where the assets are

"split" between charitable and noncharitable

beneficiaries, is known as a "split-interest"

trust. See 26 U.S.C. sec. 2055(e)(2). With such a

trust, the estate can only take a charitable

deduction if the charitable interest of the trust

is presently ascertainable. See id. at sec.sec.

2055(e)(2)(A) & (B), 2055(e)(3); see also Treas.

Reg. sec. 20.2055-2(a) ("If a trust is created or

property is transferred for both a charitable and

a private purpose, deduction may be taken of the

value of the charitable beneficial interest only

insofar as that interest is presently

ascertainable, and hence severable from the

noncharitable interest.").

The will’s codicil clearly states that Mr.

Starkey intended to set up a charitable trust,

and the IRS acknowledges that this was indeed his

intent. Its dispute with the Estate is over the

type of charitable trust he intended to create

and, more specifically, whom he intended to

benefit. The IRS acknowledges that if Mr. Starkey

intended the "missionaries" phrase to create two

beneficiaries (Lawndale Community Church and

Milligan College, both of which are qualified

charities), then the value of the charitable

interest would be ascertainable and hence

deductible. In that case, the trust would not be

a split-interest trust because both the trust

beneficiaries would be qualified charities and

the trust assets could only be used for their

benefit. As a result, the charitable portion of

the trust would be ascertainable (it would be the

entire value of the trust)./3 If, however, Mr.

Starkey intended to benefit a group of

missionaries in addition to the church and the

college, the IRS argues that then Mr. Starkey

will have created a split-interest trust with

both charitable and noncharitable beneficiaries.

In that case the trust assets would not have been

specifically divided among the charitable and

noncharitable beneficiaries. Because the

charitable portion of the trust would thus not be

ascertainable, the Estate would not qualify for a

charitable deduction. See Treas. Reg. sec.

20.2055-2(a). We agree with the IRS that this is

the "ultimate issue" and thus must now determine

whom Mr. Starkey intended to assist financially

in preaching the Gospel of Christ, and if the

will sufficiently expresses his intent.

B. Kenneth Starkey’s Probable Intent

Both parties agree that Indiana law governs our

analysis of Mr. Starkey’s will. Estate of Bowgren

v. Commissioner of Internal Revenue, 105 F.3d

1156, 1161 (7th Cir. 1997). In Indiana, the

primary goal in interpreting a will is to

determine and give effect to the testator’s

intent as expressed in the will, and determining

this intent is a question of law. Gladden v.

Jolly, 655 N.E.2d 590, 592 (Ind. Ct. App. 1995);

Hershberger v. Luzader, 654 N.E.2d 841, 842 (Ind.

Ct. App. 1995). The Estate notes that the probate

court determined that Mr. Starkey intended the

charitable trust to have only two beneficiaries,

and it argues that the district court should have

adopted this determination of Mr. Starkey’s

intent because it was affirmed by the Indiana

Court of Appeals, "the highest Indiana Court

which has addressed the issue."

The Supreme Court has made clear that we are not

bound by the probate court’s decision: "where the

federal estate tax liability turns upon the

character of a property interest held and

transferred by the decedent under state law,

federal authorities are not bound by the

determination made of such property interests by

a state trial court." Commissioner of Internal

Revenue v. Estate of Bosch, 387 U.S. 456, 457

(1967). Intermediate state appellate decisions,

however, are presumed to be a correct indicator

(or "datum") of state law which we may not

disregard unless other decisions convince us

"that the highest court of the state would decide

otherwise." Id. at 465 (emphasis omitted). But

Bosch also tells us that if a state’s supreme

court has not resolved an issue, we have to apply

what we "find to be the state law after giving

’proper regard’ to relevant rulings of other

courts of the State." Id.

While the Supreme Court did not expand upon what

it meant by "proper regard," we note that the

Indiana Court of Appeals did not publish its

decision. As a result, it is questionable whether

we may simply presume that it correctly indicates

Indiana law--whether we may "properly regard" it

as precedent--even though it is, of course,

directly on point. See Ind. R. App. P. 15(A)(3)

(unpublished decisions shall not "be regarded as

precedent nor cited before any court except for

the purpose of establishing the defense of res

judicata, collateral estoppel or the law of the

case."); Horn v. A.O. Smith Corp., 50 F.3d 1365,

1370 n.10 (7th Cir. 1995) (quoting Ind. R. App.

P. 15(A)(3)) ("Although admittedly on point,

Colglazier is an unpublished memorandum opinion,

and Indiana’s rules make plain that such opinions

shall not ’be regarded as precedent . . . .’").

But while an unpublished opinion is normally not

presumed to be an indicator or "datum" of state

law as a published (precedential) decision would

be, Bosch, 387 U.S. at 465, we note that arguably

(although no one seems to have made the argument)

it is the law of the case, which is one of the

exceptions under Ind. R. App. P. 15(A)(3) for

when unpublished decisions "may be regarded as

precedent." Supra. Anyway, regardless of the

extent to which it may be viewed as a "datum" of

state law, we are persuaded by the Indiana Court

of Appeals’ analysis in this matter.

The Court of Appeals concluded that the

"missionaries" phrase was ambiguous and then

construed this ambiguity. A will is ambiguous if

it is reasonably susceptible to different

interpretations. Hauck v. Second Nat’l Bank of

Richmond, 286 N.E.2d 852, 863 (Ind. Ct. App.

1972). In this case, the Estate contends that the

"missionaries" phrase is unambiguous and modifies

"this beneficiary" (which everyone agrees refers

to the Lawndale Community Church). This is an

entirely reasonable grammatical construction. See

In re City of Fort Wayne’s Petition to Establish

a Conservancy Dist., 484 N.E.2d 584, 589 (Ind.

Ct. App. 1985) ("in the phrase ’freeholder . . .

, who owns land,’ the clause ’who owns land’ is a

descriptive clause. Note the clause is set off

from the antecedent noun by a comma indicating a

rather loose relationship to ’freeholder.’")./4

The IRS, though, seems to contend that this

phrase is ambiguous and that it should be

construed to denote a second beneficiary in a

series of three beneficiaries. On its face, this

construction is also plausible. Cf. Pleasureland

Museum, Inc. v. Dailey, 422 N.E.2d 754, 756 (Ind.

Ct. App. 1981) (In "the phrase ’stores and

shops’. . . the words are connected with the

conjunctive ’and,’ and are set apart from the

other items in the [series] by a comma.").

Because the "missionaries" phrase is reasonably

susceptible to different meanings, we agree that

it is ambiguous. As a result, and like the

Indiana Court of Appeals, we must use rules of

construction to determine Mr. Starkey’s intent.

See id. (ambiguity must exist before a court may

construe a will)./5

Rules of grammar may be used to construe a will.

See Donahue v. Watson, 411 N.E. 741, 750 (Ind.

Ct. App. 1980); Nichols v. Alexander, 152 N.E.

863, 864 (Ind. Ct. App. 1926) (en banc); cf.

Faris Mailing, Inc. v. Indiana Dept. of State

Revenue, 557 N.E.2d 713, 716 (Ind. Tax 1990)

("rules of grammar can be used to construe an

ambiguous statute"). We are reluctant, however,

to hang our hat on the cases the parties have

cited to support their competing interpretations

of the "missionaries" phrase (modifier versus an

item in a series). In the case the Estate cites,

the court was determining what a phrase modified;

it was not passing upon the question presented in

this case: whether a phrase is a modifying phrase

or a separate item in a series. See Donahue (and

other cases), note 4, supra. And the case the IRS

cites, Cape v. State, 400 N.E.2d 161, 164 (Ind.

Ct. App. 1980), also did not address this

specific issue. See also Pleasureland Museum,

Inc., supra.

However, Dr. Franken (the English professor whom

the Indiana courts relied upon as a grammatical

aid) did address this precise question. She

concluded that the "missionaries" phrase most

likely modified "this beneficiary" because for

the phrase to denote an item in a series would be

"inconsistent . . . with the parity of value

generally intended by such a seriatim listing. It

is not a reasonable interpretation that the

decedent could have intended an elaborate item in

the middle surrounded by two very specific and

short items." She also rejected the notion of a

seriatim listing because "[r]ead as three items

in a series, the phrase fails to produce three

distinct categories." Dr. Franken’s expert

opinion provides a sound grammatical reason for

the Indiana Court of Appeals to conclude "that

the phrase ’missionaries preaching the Gospel of

Christ’ is most logically interpreted in the

context of the will as standing in apposition to,

and describing, the Lawndale Community Church."

Furthermore, all the evidence indicates that

Kenneth Starkey intended to benefit the

missionary program of the Lawndale Community

Church, not any and all Christian

missionaries./6 Specifically, his son stated in

the Estate’s verified petition in state court

that the Lawndale Community Church is well known

for its missionary programs that preach the

Gospel of Christ, and its missionary program was

the only such program his father was known to

support.

This case is thus similar to Chappell v.

Missionary Society of Churches of Christ in

Indiana, 29 N.E. 924 (Ind. Ct. App. 1892). Ms.

Chappell bequeathed $500 to the "Christian

Missionary Society of this state." The Missionary

Society of the Churches of Christ in Indiana

filed a petition claiming to be the missionary

society listed in the will. The Society averred

that Ms. Chappell was a member of the Church of

Christ in Indiana. Id. The Society also asserted

that it was the only missionary society in

Indiana affiliated with Ms. Chappell’s church,

and that it was commonly known as the "Christian

Missionary Society" of this state. Id. at 924-25.

Relying on the Indiana Supreme Court’s decision

in Skinner v. Harrison Tp., 18 N.E. 529 (Ind.

1888), the Chappell court held that because the

ambiguity concerned the "object of the testator’s

bounty," the ambiguity was latent, and therefore

it was proper for the trial court to rely on

extrinsic evidence in determining that Ms.

Chappell intended to benefit the Society. 29 N.E.

at 925./7

The Indiana Court of Appeals in this case

applied Chappell and observed that "there would

appear to be . . . no persons or corporations in

existence who precisely answer to the description

’missionaries preaching the Gospel of Christ.’"

(Emphasis in original.) "Therefore," it

concluded, "the trial court did not err in

admitting extrinsic evidence in determining the

testator’s intention regarding the object of his

bounty." The Court of Appeals’ analysis was

consistent with Indiana law. See Chappell and

note 6, supra. The evidence about the missionary

program Mr. Starkey supported was not introduced

to create a new instrument or vary the will’s

terms. See Hauck, 286 N.E.2d at 862. Rather, the

ambiguity in Section 5.02 "was easily explained

by resort to extrinsic evidence." Superbird

Farms, Inc. v. Perdue Farms, Inc., 970 F.2d 238,

244 (7th Cir. 1992) (emphasis added) (applying

Indiana law), overruled on other grounds by

Medcom Holding Co. v. Baxter Travenol Lab., Inc.,

106 F.3d 1388, 1397 n.3 (7th Cir. 1997). This

evidence compels us, as it did the Indiana

probate court and Court of Appeals, to conclude

that because Mr. Starkey intended to benefit the

missionary program of the Lawndale Community

Church, the "missionaries" phrase modifies or

describes "this beneficiary" (the Lawndale

Church), as opposed to listing another class of

beneficiaries.

The IRS offers three reasons why the

"missionaries" phrase should be interpreted as

referring to a distinct class of beneficiaries.

It first argues that it does not make sense to

interpret the "missionaries" phrase as modifying

the Lawndale Church ("this beneficiary") because:

a) Mr. Starkey already described the church in

the first part of Section 5.02 by specifying its

pastor (Wayne Gordon) and its location (Chicago,

Illinois); and b) the church is a singular noun

while "missionaries preaching the Gospel of

Christ" is plural. Dr. Franken, however,

explained away both of these asserted

difficulties with the state courts’

interpretation of Section 5.02: "Read as an

appositive renaming the noun ’beneficiary,’ the

phrase ’missionaries preaching the Gospel of

Christ’ characterizes the Lawndale Community

Church in a way that explains and justifies the

nature of the bequest."

The IRS next argues that the "spendthrift

clause" in Section 5.05 "serves no purpose if the

only beneficiaries of the will were Lawndale

Community Church and Milligan College, since

those entities do not have a ’life’ and are not

subject to claims for alimony or spousal support.

By contrast, the clause serves a purpose if the

trustees are authorized to distribute trust

assets to individual missionaries . . . ."/8

According to the IRS, the state courts’

interpretation of the "missionaries" phrase would

thus violate the principle that "in construing a

will effect should if possible be given to every

provision thereof and the will must not be

interpreted to render any part meaningless". See

Diaz v. Duncan, 406 N.E.2d 991, 1000 (Ind. Ct.

App. 1980).

We disagree with the IRS that the state courts’

interpretation of the phrase would render the

spendthrift clause meaningless. The church is a

(not-for-profit) corporation. Thus, under the

Estate’s interpretation of the phrase, the

"spendthrift clause" would still protect the

trust from claims of the Church’s creditors. The

clause would also protect the trust from claims

for alimony from a former spouse of Wayne Gordon.

Rev. Gordon is specifically referred to in the

will and, as pastor, he is either the perceived

or actual leader of Lawndale Community Church. It

is of course unusual for a testator to worry that

a pastor might have his assets (or those over

which he had some influence) subject to claims

for alimony. But it is just as unusual for a

testator to worry that Christian missionaries

might have their assets subject to claims for

alimony. See id. (Courts should not reject any

provision "to which a reasonable effect can be

given.") (emphasis added). These equally bizarre

scenarios lead us to agree with the Estate that

the "spendthrift clause" was most probably

included because the will’s drafter, Mr.

Starkey’s son, admittedly had little or no

experience drafting wills and inserted the clause

as boilerplate language from a form book.

In this situation, we will not reject the state

courts’ interpretation of the "missionaries"

phrase even if it renders part of the

"spendthrift clause" meaningless. Significantly,

the often-quoted rule the IRS cites states that

"if possible" a will should be interpreted to

give effect to every provision. Id. Indiana

courts have declined to apply this rule when

doing so would thwart the testator’s intent. See

Matter of Estate of Walters, 519 N.E.2d 1270,

1272-73 (Ind. Ct. App. 1988) (citing principle

from Diaz but then declining to give effect to

the "mischievous words per stirpes" to thwart an

intent which was otherwise clear: "We are of the

opinion that its use was merely a legalistic

flourish, devoid of any expression of intent.").

Here, under either the Estate’s or the IRS’s

interpretation, the phrase has little, if any,

applicable meaning. The extrinsic evidence,

however, is persuasive that the "missionaries"

phrase means the Church. Using the "spendthrift

clause" to create a separate class of

beneficiaries, then, would thwart the testator’s

intent. We do not believe that the Indiana

Supreme Court would agree with this use of Diaz.

See Keplinger v. Keplinger, 113 N.E. 292, 293

(Ind. 1916) (after testator’s intent has been

ascertained, "ambiguous terms not reconcilable

therewith may be disregarded.")./9

Lastly, the IRS argues that the state courts’

construction of the "missionaries" phrase should

be rejected because "the state court proceedings

. . . were instituted for the sole purpose of

decreasing the estate’s tax liability." We have

no doubt that they were; it is not unusual not to

want assets, which have already been taxed, to be

taxed again. This desire is not impermissible.

The only inquiry here is whether Mr. Starkey

intended to draft his will so as to permissibly

reduce, or even avoid, his estate’s tax

liability. In this regard, the IRS candidly

acknowledged at oral argument that Mr. Starkey

did not have an illegal intent. The charitable

trust was not a "tax dodge." Mr. Starkey was not,

for example, trying to shuffle money between

family members to "shelter it" from tax while

really keeping it within the family./10 His

charitable intent, and his estate’s attempt to

implement it, were both perfectly

permissible./11

III. Conclusion

Dr. Franken’s analysis of Section 5.02 of the

will and the extrinsic evidence of Mr. Starkey’s

intent show that he intended his charitable trust

to have only two beneficiaries (the church and

the college). Because our objective in construing

Mr. Starkey’s will is to determine and give

effect to his true intent, "rather than have that

intent frustrated," Gladden, 655 N.E.2d at 592,

we hold that "missionaries preaching the Gospel

of Christ" in Section 5.02 of Kenneth Starkey’s

will modifies "this beneficiary" ("the Lawndale

Community Church"). As so construed, the bequest

to the trust qualifies for a charitable deduction

under 26 U.S.C. sec. 2055(a)(3).

The judgment of the district court in favor of

the defendant is REVERSED and the case is remanded

for judgment to be entered in favor of the

plaintiff.

/1 The IRS also denied the Estate a marital

deduction it had claimed on its estate tax

return. The Estate does not challenge this denial

on appeal.

/2 "For purposes of the tax imposed by section 2001,

the value of the taxable estate shall be

determined by deducting from the value of the

gross estate the amount of all bequests,

legacies, devises, or transfers to a trustee or

trustees . . . but only if such contributions or

gifts are to be used by such trustee or trustees

. . . exclusively for religious, charitable,

scientific, literary, or educational purposes, or

for the prevention of cruelty to children or

animals, such trust . . . would not be

disqualified for tax exemption under section

501(c)(3) by reason of attempting to influence

legislation, and such trustee or trustees . . .

does not participate in, or intervene in . . . ,

any political campaign on behalf of (or in

opposition to) any candidate for public office.

Id.

/3 The IRS notes that the church and the college are

qualified charities, and since trust assets could

only be used for their benefit under this

interpretation of Mr. Starkey’s will, the IRS

agrees that the will would sufficiently limit the

trustees’ discretion. The IRS thus disagrees with

the district court, which held that even if the

"missionaries" phrase were interpreted simply to

refer to the church, the bequest still would not

qualify for a deduction because the will did not

sufficiently restrict the trustees’ discretion.

See Estate of Starkey, 58 F. Supp.2d at 952, 955-

57. We agree with the IRS that if the trust is

interpreted to have only the two beneficiaries,

then the trustees’ discretion is sufficiently

limited for the bequest to qualify for the

charitable deduction.

/4 Cf. Spears v. State, 412 N.E.2d 81, 82 (Ind. Ct.

App. 1980) ("Commas set off the modifying phrase

’by visible or audible means’ . . . ."); Donahue

v. Watson, 411 N.E.2d 741 (Ind. Ct. App. 1980)

("As an extension of the previous phrase the

provision for surviving issue can only be read as

a modification of the surviving child’s

interest."); Freigy v. Gargaro Co., 60 N.E.2d

288, 293 (Ind. 1945) ("The last phrase, set off

by commas, modifies all of the preceding phrase .

. . .").

/5 Before attempting to construe an ambiguity, a

court must determine whether Mr. Starkey’s

"intent is clearly articulated in other

provisions of the will." In re Estate of Grimm,

705 N.E.2d 483, 498 (Ind. Ct. App. 1999) (citing

Pleska v. Zakutansky, 459 N.E.2d 745, 748-49

(Ind. Ct. App. 1984)). Other provisions of Mr.

Starkey’s will do not clearly indicate his intent

with respect to the "missionaries" phrase.

/6 In Indiana, extrinsic evidence may be used to

resolve a "latent" ambiguity but not a "patent"

ambiguity. See McConnell v. Robbins, 140 N.E. 59,

61 (Ind. 1923); see also First Federal Sav. Bank

of Ind. v. Key Markets, Inc., 559 N.E.2d 600, 607

(Ind. 1990). Unlike a "patent" ambiguity, a

"latent ambiguity arises not upon the face of the

instrument by virtue of the words used, but

emerges in attempting to apply those words in the

manner directed in the instrument." Hauck, 286

N.E.2d at 862. Thus, with a latent ambiguity,

"introduction of extrinsic evidence merely

completes the instrument by identifying its

object or subject matter." Id. But with a patent

ambiguity, where "the writing is too uncertain

for a settled construction, admission of

extrinsic evidence would, in effect, create a new

instrument." Id. The ambiguity in this case is

latent. It arose when the IRS attempted to apply

the "missionaries" phrase to determine whom, if

anyone, besides the church and the college could

receive proceeds from the trust. Id.; see also

Eckart v. Davis, 631 N.E.2d 494, 497 (Ind. Ct.

App. 1994). Moreover, an ambiguity concerning

whom the testator intended to benefit is

typically latent. See Hauck, 286 N.E.2d at 862;

see also Huyler’s v. Gas Appliance Supply Corp.,

257 N.E.2d 831, 836 (Ind. Ct. App. 1970) (latent

ambiguity exists when description "is shown to

fit different pieces of property").

/7 The court stated that "[n]o principle is better

settled than that parol evidence is admissible to

remove latent ambiguities, and, when there is no

person or corporation in existence precisely

answering to the name or description in the will,

parol evidence may be given to ascertain who were

[the beneficiaries] intended by the testator."

Id. (emphasis added).

/8 Section 5.05 provides that "[n]o interest under

this instrument shall be transferable or

assignable by any beneficiary or be subject

during his life to the claims of his creditors or

to any claims for alimony or for the support of

his spouse."

/9 It is also difficult to believe that Mr. Starkey,

who was very specific about which church was to

benefit from his trust (the "Lawndale Community

Church in Chicago, Illinois"), and about the

conditions under which the church would be

allowed to do so ("provided that Wayne Gordon is

still the pastor of it at the time of my death"),

would then turn around and give his money to

unknown missionaries of whatever stripe--Baptist,

Catholic, Mormon--without any real conditions

(just that they preach "the Gospel of Christ").

/10 Indeed, because the money for the charitable

deduction was (and is) clearly going outside the

family one way or another, Mr. Starkey’s

relatives have nothing to gain or lose from the

outcome of this case. The only people who stand

to lose under the IRS’s proposed construction are

the charities themselves if half the trust corpus

goes to the United States. We believe an Indiana

court would not find this to be Mr. Starkey’s

intent. See Pleska, 459 N.E.2d at 749 ("The

specificity of Peter’s bequests supports a

determination that he did not intend for his

probate estate to be exhausted by the payment of

[estate] taxes on the non-probate assets.").

/11 The IRS points out that the Estate initially

petitioned the probate court to amend the will to

substitute eight specific groups for

"missionaries preaching the Gospel of Christ,"

stating that the groups "all fit the description

of those intended by the testator to benefit from

this trust, "[Lawndale Community Church],

missionaries preaching the Gospel of Christ, and

Milligan College." In light of this petition, the

IRS argues that the Estate cannot now maintain

that Mr. Starkey intended the "missionaries"

phrase merely to modify "this beneficiary." The

Estate’s course of action in this regard, though,

is understandable. At this time, the Estate was

still represented by Mr. Starkey’s son, who did

not have expertise in this area. He had been

corresponding with the IRS about how the trust

could qualify for a charitable deduction, and it

was in response to a directive from the IRS that

he filed the petition in question. The petition

was effectively withdrawn when the Estate filed

an amended petition in which the Estate

represented that the "missionaries" phrase was

descriptive. Under these circumstances, we do not

deem the Estate’s actions with the initial

(superceded) petition as indicative of Mr.

Starkey’s true intent.