Wells Fargo Bank v. United States

FLETCHER, Circuit Judge,

dissenting:

I respectfully dissent.

We are faced with technical issues which require technical answers. The Tax Reform Act of 1969, Pub.L. No. 91-172, reprinted in 1969 U.S.C.C.A.N. 509, radically changed the rules and radically restricted charitable trust deductions. Ameliorative transition rules for instruments crafted under the old rules were adopted. But strict adherence to the exceptions contained in the transition rules is required.

To prevail in this case, Wells Fargo Bank (the taxpayer) must establish two things: (1) that the testatrix executed her will before January 1,1979; and (2) that the will met the requirements to qualify for a charitable deduction under pre-1969 tax law (the remainder had to be ascertainable at the time of death). Failing either of these two tests, the remainder interest was not “reformable” and would not qualify for a charitable deduction. The exercise is not simply post-death to make the remainder certain by amendment, reform, or disclaimer. The instrument must meet the threshold statutory criteria at the moment of death.

The majority’s argument that republication is not “execution” within the meaning of 26 U.S.C. § 2055 (e)(3)(C)(iv), because the 1974 amendment deletes certain language regarding “republish[ingj,” is appealing, but not fully persuasive. I do not rest my dissent, however, on my unease over the majority’s holding on that issue. The lack of a “presently ascertainable” remainder interest is the more significant obstacle. A charitable deduction may be taken for the value of Occidental College’s interest only insofar as that interest is, at the time of Anita Wand’s death, “presently ascertainable, and hence severable” from the noncharitable interest of James Fuller. See Merchants Nat’l Bank v. C.I.R., 320 U.S. 256, 260 , 64 S.Ct. 108, 111 , 88 L.Ed. 35 (1943) (internal quotation marks omitted). Fuller’s piece of the pie “em-bracéis] factors which cannot be accounted *837 for accurately by reliable statistical data and techniques.” See id. at 261 , 64 S.Ct. at 111 . Because “neither the amount which [Fuller] will use nor the present value of the gift [to Occidental College] can be computed, deduction is not permitted.” See id. (emphasis added).

Wand’s 1971 will provides that the trust’s principal be used to pay “all taxes, all expenses of maintenance, repairs or improvements on [the Santa Barbara] house” and that “[tjhe use of said house as so maintained shall be provided for ... JAMES M. FULLER, for the term of his natural life.” Maj. op. at 834. Contrary to the majority’s analysis, id. at 835, the phrase “as so maintained” is not limitational, in either a contextual or inherent sense. I suggest its most likely meaning is that any improvements made by Fuller also must be maintained at the expense of the trust. The vagaries of unspecified “improvements” is much closer to Merchants National Bank’s “happiness” provision than to Ithaca Trust Co. ’s more specific “comfort ... she now enjoys” clause. Compare Merchants Nat’l Bank, 320 U.S. at 258, 263 , 64 S.Ct. at 110,112 (trust corpus may be invaded when trustee deems appropriate to provide for “the comfort, support, maintenance and/or happiness of my said wife”; charitable deduction disallowed) with Ithaca Trust Co. v. United States, 279 U.S. 151,154, 155 , 49 S.Ct. 291, 291 , 73 L.Ed. 647 (1929) (principal may be invaded as “may be necessary to suitably maintain [my wife] in as much comfort as she now enjoys”; charitable deduction permitted).

The will further provides that the trust’s principal may be used to pay Fuller’s “unusual and exceptional expenses,” including (but not limited to) “hospital, medical, dental bills and to pay all income taxes due from said JAMES M. FULLER.” Op. at 834. The indeterminate scope of any expense, regardless of its novelty or unexpectedness, and of the amount of all of the income taxes owed by the life-time beneficiary on income from sources outside as well as inside the trust, makes present ascertainment of the remainder interest impossible.

In short, Wand’s 1971 will did not bequeath a noncharitable interest either “capable of being stated in definite terms of money” or otherwise “fixed in fact.” See Ithaca Trust Co., 279 U.S. at 154 , 49 S.Ct. at 153 . The bequests to the life tenant “are uncertain and cannot be measured with any precision, and therefore they make the amount going to charity unascertainable.” See Estate of Marine v. C.I.R., 990 F.2d 136, 139 (4th Cir.1993).

I would reverse the judgment. While I am not absolutely immune from the pull of a sympathetic case, I have no power under the tax laws to reform this ill-drafted will.