Middlesex. Civil action commenced in the Probate Court for the county of Middlesex on November 10, 1975. The case was reserved and reported by Freedman, J., to the Appeals Court. The Supreme Judicial Court granted a request for direct review.
Hennessey, C.j., Quirico, Kaplan, Wilkins, & Liacos, JJ.
Jurisdiction, State law affecting Federal tax. Trust, Trustee's discretion, Use of principal, Construction.
The opinion of the court was delivered by: Hennessey
Executors of a will were entitled to maintain an essentially non-adversary proceeding in a Probate Court for instructions with respect to whether property held in trust for the testatrix was includible in her gross estate so that they could determine the value of the estate for Federal estate tax purposes and decide whether to pursue a Federal estate tax refund claim. [113-115]
A provision in a testamentary trust allowing the trustees to invade principal "as said Trustees . . . deem necessary or desirable for the purpose of contributing to the reasonable welfare or happiness of . . . [the testator's] daughter or of her immediate family" provided an objective, ascertainable standard which limited trustee discretion to distribute trust principal. [115-118]
In a provision in a testamentary trust which authorized the trustees, upon the request of a trustee-beneficiary, or "without such request when the other Trustees may deem it advisable, to pay over to her . . . such amounts of the principal . . . as said Trustees may deem necessary or desirable," the term "said Trustees" was construed to mean trustees other than the beneficiary. [118-119]
The plaintiffs, as executors of the will of Helen Barnet Gring (Gring), commenced this action in the Probate Court for Middlesex County by a complaint for instructions, seeking the proper interpretation of a testamentary provision contained in the will of Frank B. McQuesten, Gring's father. The executors sought instructions in order that they could (1) determine properly the value of Gring's gross estate for Federal estate tax purposes, and (2) determine their duties and obligations with respect to pursuing a Federal estate tax refund claim. Although the Internal Revenue Service (I.R.S.) was given timely notice and an invitation to intervene, it declined to participate in the probate proceedings. *fn1 The case was reserved and reported without decision to the Appeals Court on the pleadings and a statement of agreed facts. We granted direct appellate review on application by the plaintiffs.
Preliminarily this court must determine whether it is appropriate for us to decide this case, or whether we should dismiss the matter as a non-adversary proceeding. On the merits, the issue is whether property held in trust for Gring pursuant to a provision of her father's will is includible in her gross estate for the purpose of determining Federal estate tax liability. Under Int. Rev. Code of 1954, § 2041, the trust property is includible in Gring's gross estate if at her death it was held subject to a general power of appointment. Under the Internal Revenue Code, there is no general power of appointment if (1) the trustee's discretion to distribute trust principal to Gring during her lifetime was limited by an "ascertainable standard relating to . . . health, education, support, or maintenance," Int. Rev. Code of 1954, § 2041(b)(1)(A), or if (2) Gring had no power to participate in any decisions related to distribution of principal to her. Although the I.R.S. argues that there is no State law question directly in issue here, the plaintiffs urge this court to interpret the McQuesten will and to decide as a matter of State law that the terms of the trust set forth in that will (1) provided an ascertainable standard limiting trustee discretion to invade the principal, and (2) precluded Gring from participating in any decision concerning distribution of principal to her.
We conclude that it is appropriate for us to decide the issues raised. Further, as to the merits of those issues, we agree with both contentions asserted by the plaintiffs.
The facts are as follows. Frank B. McQuesten died in 1947, leaving a will which was admitted to probate the same year. Article Fourteenth of the will *fn2 provided that part of the residue of his estate was to be placed in trust, under which Gring was to receive income for life and as much of the principal as the trustees deemed necessary for "the reasonable welfare or happiness" of Helen Gring or her immediate family. Gring was given a special testamentary power to appoint the principal to any of McQuesten's lineal descendants then living. Additionally, Gring was named to serve as one of three trustees of the trust, in which capacity she served until her death in 1973. Finally, the trust provisions included a "spendthrift" clause purporting to limit Gring's right to alienate or assign the trust fund for the benefit of creditors.
By article Fifteenth of her will, Gring appointed the trust property outright to her issue living at the time of her death, her son and daughter, defendants herein. The plaintiffs, as executors of her will, filed a Federal estate tax return in 1973 which included the value of the property held in the trust ($449,214) in her gross estate and paid the Federal estate tax accordingly. The plaintiffs later decided that the inclusion of the trust property in Gring's gross estate had been erroneous, and in 1975 filed a claim for a refund of that portion of the Federal estate tax attributable to the inclusion of the trust property.
The I.R.S. advised the plaintiffs, by an agent's examination report dated July 25, 1975, that the trust property was properly includible in Gring's gross estate for Federal estate tax purposes. The plaintiffs filed a refund claim on August 5, 1975, and by letter dated August 6, 1975, protested the agent's determination and requested consideration of the refund claim by the Appellate Division of the office of the Regional Commissioner of Internal Revenue. The complaint for instructions was filed on November 10, 1975.
1. We conclude that it is appropriate for us to decide the merits of this case. First, there are questions of State law directly in issue. Although the decision whether to include the trust property in Gring's gross estate for the purposes of determining tax liability is undeniably a question of Federal tax law, see Morgan v. Commissioner, 309 U.S. 78, 80-81 (1940), a Conclusion as to the extent of Gring's power under the terms of the trust involves the interpretation of a testamentary instrument, and, as such, clearly turns on questions of State law. See, e.g., Mazzola v. Myers, 363 Mass. 625, 633 (1973); Old Colony Trust Co. v. Silliman, 352 Mass. 6, 8 (1967); Morgan v. Commissioner, supra at 80; Blair v. Commissioner, 300 U.S. 5, 9-10 (1937); Freuler v. Helvering, 291 U.S. 35, 44-45 (1934); Stedman v. United States, 233 F. Supp. 569, 571 (D. Mass. 1964); Pittsfield Nat'l Bank v. United States, 181 F. Supp. 851, 853 (D. Mass. 1960). Following the above principle, this court on numerous occasions has allowed petitions for instructions concerning the interpretation of a will, where such questions arose in the context of a controversy with the I.R.S. See, e.g., ...