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Bach v. McGinnes

decided: June 30, 1964.


Author: Kalodner

Before KALODNER and HASTIE, Circuit Judges, and KIRKPATRICK, District Judge.

KALODNER, Circuit Judge.

This is an appeal from the Order of the District Court dismissing the plaintiffs' action for recovery of federal estate taxes paid following disallowance of a claimed charitable deduction under Section 2055(a) of the Internal Revenue Code of 1954.*fn1

Critical to our disposition are these undisputed facts:

Charles T. Bach, a resident of Pennsylvania died testate on May 3, 1955. After providing for certain legacies and bequests, he devised and bequeathed the residue of his estate, in trust, the income to be payable to his wife Ruth for life; upon her death the principal of the trust was to be divided into three equal parts and distributed as follows: one-third to his niece, Helen Gledhill, if then living; one third to his nephew, Elwood S. Kille, if then living, otherwise to his wife, if then living; one-third to another nephew, Charles T. Weidner, if then living, otherwise to his wife, if then living; in the event that any of the named legatees predeceased Mrs. Bach then his or her share was payable to the surviving legatees, and if none of them survived Mrs. Bach the principal of the trust was to be distributed to the Drexel Institute of Technology ("Drexel") a corporation organized and operated exclusively for literary, scientific and educational purposes, within the meaning of Section 2055(a) of the 1954 Code.

At the time of her husband's death Mrs. Bach was 52 years old; the five legatees ranged in age from 59 to 67 years*fn2 and all were in good health and there was an actuarial possibility of 60 per cent that Mrs. Bach would not survive all of them.

Under Pennsylvania law Mrs. Bach had the right to take against her husband's will and thereupon receive onehalf of his estate outright since there were no children. She was so advised by Charles J. Biddle, an attorney, whom she consulted at the suggestion of a fellow co-executor, Melvin C. Webb, who was at the time secretary of Drexel's Board of Trustees.Mr. Biddle was Drexel's counsel and a member of its Board of Trustees.

Mrs. Bach informed Mr. Biddle she was "perturbed" by reason of the fact that should she pre-decease the five individual legatees Drexel would not receive anything under her husband's will. Mr. Biddle advised Mrs. Bach she could take against the will and thereby receive one-half of the estate outright and that an arrangement could possibly be made with the legatees to accept a lump sum settlement for their interest in the remaining half of the estate with the balance to be paid to Drexel; "he wasn't sure what would happen to the other half so far as the Drexel Institute was concerned" if such arrangement could not be made; he "didn't know what the result of that [taking against the will] would be, whether or not the effect of that under the Pennsylvania law would be just as if she died, so that the others, these legatees, would move in and divide between them the whole balance of the estate, or whether they would have to wait before they got anything to see whether or not they survived Mrs. Bach.

Subsequently at a meeting on August 3, 1955 (three months after Mr. Bach's death), Miss Gledhill and Mr. and Mrs. Kille met with Mrs. Bach, Mr. Webb and Mr. Biddle, at the latter's invitation. Mr. Biddle told them that Mrs. Bach was considering taking against the will and that should she do so "it would raise a serious question as to the disposition of the other one-half of the estate; the Court might rule that such an election had the same effect as the death of Mrs. Bach, in which event the other one-half of the estate would be distributed outright to the individual residuary beneficiaries; on the other hand, the Court might hold that it was the decedent's intention that the individual residuary beneficiaries had to actually survive Mrs. Bach before receiving any part of the estate, in which event the other one-half of the estate would be held in escrow until the death of Mrs. Bach and while so held no individual beneficiary would receive any part of the estate; * * * if the one-half of the estate were so held in escrow, in the normal course of events the individual beneficiaries would receive nothing since all of them were much older than Mrs. Bach; * * * that in his opinion this question concerning the distribution of half of the decedent's estate in the event Mrs. Bach elected to take against the will should be settled by agreement among the beneficiaries and thus avoid litigation; he suggested to them for their consideration that each individual legatee receive the sum of $25,000 and that the balance of the estate be paid to Drexel Institute."

It should be stated, parenthetically, that the foregoing quoted account of what was said by Mr. Biddle is taken from his brief in behalf of the estate on this appeal.

Miss Gledhill agreed to accept $30,000 in lieu of her interest in the estate should Mrs. Bach elect to take against the will and so did Mr. and Mrs. Kille.

On August 9, 1955, Mr. Biddle wrote to the Weidners, then resident in Texas, that Miss Gledhill and Mr. and Mrs. Kille had agreed to accept $25,000 "as an outright payment", and asked them if they would do likewise. He said in his letter, that should Mrs. Bach not take against the will it was unlikely, "in the natural course of events" that any of the legatees would survive her, and, "if some should, they will probably be too old at the time of her death to derive a great deal of pleasure from their legacies"; and "under these circumstances, it seemed to Mrs. Bach that it would be better if an arrangement could be made so that all the residuary legatees could get something now for certain and when they were still young enough to get the maximum benefit from it." While Mr. Biddle, in his letter, stated that "certain problems have arisen in Mr. Bach's estate", and that should Mrs. Bach take against the will she would receive half of the estate, he made no mention of what would or could happen with respect to the remaining half.

On August 23, 1955 the Weidners wrote to Mr. Biddle accepting $25,000 as an "outright payment". On September 19, 1955 they, together with the other individual legatees and Drexel signed a "Settlement Agreement" which provided for a $30,000 payment to Miss Gledhill and a like payment to Mr. and Mrs. Kille and Mr. and Mrs. Weidner, and distribution of the ...

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