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Nardi v. United States

October 26, 1967

VICTOR G. NARDI, AS TRUSTEE OF THE RESIDUARY TRUST UNDER THE WILL OF HENRIETTA S. SEIPP, DECEASED, PLAINTIFF-APPELLEE,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLANT



Schnackenberg, Castle and Fairchild, Circuit Judges.

Author: Schnackenberg

SCHNACKENBERG, Circuit Judge.

The United States, defendant, has appealed from a judgment order against defendant, entered by the district court on December 30, 1966 for $100,462.96, plus interest, in favor of plaintiff, Victor G. Nardi, as trustee of the residuary trust under the will of Henrietta S. Seipp, deceased.*fn1 Taxpayer and defendant had each filed a motion for summary judgment.

Henrietta S. Seipp died testate on December 23, 1960, a resident of Illinois, leaving the residue of her estate at her death, in trust, with a life estate to her brother, Herman Seipp, and the remainder to the Shriners Hospital for Crippled Children in Chicago, an admittedly charitable donee. In her will she gave the trustee certain powers to invade the trust corpus for the benefit of her brother. Article VIII of the will provided:

I give, devise and bequeath all the rest, residue and remainder of my estate, real, personal or mixed, of every kind and nature, wheresoever situated, of which I may have been seized or possessed and to which I may be entitled at the time of my decease (including any and all legacies and bequests hereinbefore set forth which may have lapsed or failed by reason of the death of the legatee prior to my decease) to Victor G. Nardi, of Chicago, Illinois, (hereinafter for convenience called "TRUSTEE"), as Trustee, to have and to hold the same for and upon the following trusts, purposes and conditions, to-wit:

Paragraph 3 -- The entire net income from the trust estate, commencing at the time of my death, shall be paid to my brother Herman Seipp in convenient installments so long as he lives.

Paragraph 4 -- If, because of accident, sickness, or other emergency or unusual condition of any kind, my said brother shall be in need of extra funds, then Trustee shall pay to him for his benefit, for such purpose, such sum or sums from the principal of the trust fund as the TRUSTEE shall deem necessary therefor, and the judgment and determination of the TRUSTEE as to the necessity and amount of such payment shall be conclusive.

Paragraph 5 -- Upon the death of my said brother Herman Seipp, the TRUSTEE shall, as quickly as may be reasonably possible, pay over and deliver to the Shriners Hospital for Crippled Children, 2211 North Oak Park Avenue, Chicago, Illinois, the entire trust estate then remaining in his hands.

Taxpayer claimed a deduction for the present value of the remainder interest left in trust to the hospital, and determined that the net taxable estate was $140,634.19 and the net estate tax payable was $31,675.02, which he paid with his return. The Commissioner determined that the remainder interest to the hospital did not qualify for a charitable deduction under § 2055 of the Internal Revenue Code of 1954 (26 U.S.C. 1964 ed., § 2055) and in January, 1965 assessed a deficiency in estate tax and interest in the amount of $102,811.43. Taxpayer paid the deficiency and filed a timely claim for refund of $100,462.96.

At the time of decedent's death in December, 1960, Herman Seipp was approximately 66 years of age. He had established an inter vivos revocable trust in 1951, which had a market value on September 23, 1960 of $259,004 and which earned $9,533.98 of income during that year. Both the value of the trust corpus and the annual amount of income earned by the trust have increased from 1960 to 1966.

Herman Seipp purchased a home in 1961 for $19,700, which is free and clear of any mortgage and is presently worth approximately $25,000 and he spent over $10,000 for furniture and fixtures for the home. He is in good physical condition, lives frugally and has not invaded the principal of his trust for living and other expenses.

The court held that the language of the will contains an ascertainable standard by which the bequest of the remainder to the hospital can be presently ascertained and that, at the time of decedent's death, the probability of invasion by the trustee for the benefit of her brother was remote. Accordingly, the court held that the taxpayer was entitled to a deduction for the present value of the remainder interest to the hospital.

1. The theory of the defendant is that § 2055 of the Internal Revenue Code of 1954 allows a deduction from the gross estate of the value of a bequest to a charitable organization. If the decedent has left an amount in trust with a life estate to a noncharity and the remainder to a charitable organization and has given the trustee power to invade the trust corpus for the benefit of the life beneficiary, the estate may be entitled to a charitable deduction if, at the time of the decedent's death, the possibility that any portion of the corpus will be paid to the life beneficiary is so remote as to be negligible. Thus, the value of the charitable remainder may be deducted only if the will limits the trustee's power to invade the trust corpus by an objective standard which fixes the condition under which the minimum amount which ultimately will pass to the charity and the amount which ultimately will go to charity may be readily ascertained. If such a standard is not set forth in the will, the estate is not entitled to a charitable deduction since it is impossible to determine accurately what amount is likely to pass to the charitable organization. Moreover, if the will or trust does not meet the required standard, evidence of other facts may not be considered in determining whether the probability of an invasion of the corpus is sufficiently remote. Even though there may be little likelihood that the trustee will invade principal to confer additional benefits upon the life tenant, nevertheless he has the power to do so under the will.

Defendant contends that in the present case the decedent left a life interest in trust for her brother and the remainder to a charitable hospital, and that she gave the trustee power to invade the corpus for the benefit of her brother "because of accident, sickness, or other emergency or unusual ...


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