Davis v. Commissioner , 26 T.C. 549 ( 1956 )

Estate of Harley J. Davis, Lincoln National Bank and Trust Company, Executor, Petitioner, v. Commissioner of Internal Revenue, Respondent

Davis v. Commissioner

Docket No. 57320

United States Tax Court

26 T.C. 549; 1956 U.S. Tax Ct. LEXIS 158;

June 14, 1956, Filed

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">*158 Decision will be entered under Rule 50.

Decedent bequeathed the residue of his estate to a bank in trust with directions to use the income and the principal, if necessary, to make payments of specific amounts to the student nurses enrolled in the Lutheran Hospital School of Nursing at the time of his death or thereafter attending such school. Held, the bequest is deductible under section 812 (d) of the Internal Revenue Code of 1939.

C. Severin Buschmann, Jr., Esq., and David Peters, Esq., for the petitioner.

John L. Carey, Esq., for the respondent.

Bruce, Judge. Pierce, J., dissenting.

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BRUCE

">*549 Respondent determined a deficiency in the estate tax of the Estate of Harley J. Davis in the amount of $ 10,034.46.

">*550 The sole issue is whether the">*159 bequest by decedent of his residuary estate in trust to make awards to the student nurses of the Lutheran Hospital School of Nursing is deductible as a charitable or educational bequest under section 812 (d), Internal Revenue Code of 1939.

The parties have agreed that certain adjustments respecting inheritance taxes and expenses arising out of this litigation may be made upon recomputation under Rule 50.

FINDINGS OF FACT.

The stipulated facts are so found and are incorporated herein by this reference.

The decedent is Harley J. Davis, who died testate June 15, 1952, a resident of Fort Wayne, Indiana. His will was admitted to probate on June 18, 1952. The Lincoln National Bank and Trust Company of Fort Wayne, Indiana (hereinafter referred to as the bank), was named and qualified as executor. It filed the Federal estate tax return for decedent's estate on September 14, 1953, with the district director of internal revenue for the district of Indiana.

The Lutheran Hospital School of Nursing (hereinafter referred to as the school) is a nonprofit corporation owned and operated by the Lutheran Hospital Association of Fort Wayne, an association consisting of 19 Lutheran churches. The school">*160 is attached to and conducted by the Lutheran Hospital of Fort Wayne, and is fully accredited, among others, by the American Hospital Association, the American Medical Association, and the American College of Surgeons. Young women interested in the nursing profession may make application to the school, the only qualifications for admission being academic. The complete course requires 3 years, covering five services: Internal medicine, surgery, pediatrics, psychiatric, and maternity. The course is carried on through a number of classroom hours and then the nurses are placed on the floors of the hospital under the supervision of the clinical instructors and the head nurses.

The student nurses must pay their own tuition, furnish their own uniforms and books, and pay their own hospitalization insurance and incidental expenses. The total cost is approximately $ 700 for the 3 years.

Decedent knew the student nurses at the school were not paid and wanted to do something about it. He accordingly provided in his will as follows:

Item V.

All the rest, remainder, and residue of my estate, real, personal, and mixed of whatsoever nature and wheresoever situated which I may own or have any ">*161 interest in at the time of my death, I give, devise, and bequeath to the Lincoln National Bank & Trust Company to be invested by said Trustee and the income and whatever principal required to be used and appropriated in meeting the following purposes of this trust:

">*551 1. The Trustee is directed to pay One Hundred Fifty Dollars ($ 150.00) to each of the nurses in training at the Lutheran Hospital School of Nursing, Fort Wayne, Indiana, immediately following my death, upon certification to said Trustee of the names of the student nurses then in training. Those nurses receiving said sum under this paragraph shall not be eligible for any benefits under the succeeding paragraph.

2. I direct that the said Trustee pay to each nurse in training at the end of each school term the sum of One Hundred Dollars ($ 100.00) upon certification to it by the Lutheran Hospital School of Nursing of the names of those student nurses then enrolled. It is my intent that said sums shall not be paid to those receiving the One Hundred Fifty Dollars ($ 150.00) benefit under paragraph one.

The amount to be paid each student nurse was sufficient to cover at least the tuition of most of the nurses.

Under">*162 paragraph 1 of Item V of the will, $ 18,150 of the assets of the estate were paid by the bank and $ 103,598.77 has been set aside by the bank for the purposes set forth in paragraph 2 of Item V.

The school does not receive any of the payments under the will directly from the trustee. The checks are made out to the individual nurses.

Mention is made of the provisions of the will of decedent in the literature sent by the school to potential students. To some extent the school's increased enrollment is attributable to the benefits available under decedent's will.

Item IV of the decedent's will provides as follows:

I give, devise and bequeath the sum of Five Thousand Dollars ($ 5,000.00) to the Fort Wayne Bible Institute to be used by said Bible Institute in the payment of tuition and other incidental expenses of needy students. I repose complete discretion in said Fort Wayne Bible Institute in the carrying out of the charges against this bequest. I anticipate and direct that the income and principal of this fund be used immediately upon my decease and subsequently thereto.

In the Federal estate tax return filed for decedent's estate, a deduction in the amount of $ 117,748.77 ¹ was">*163 claimed as representing a bequest for educational purposes under Item V of the will. Respondent disallowed the deduction on the ground that the bequest did not constitute an allowable deduction under section 812 (d) of the Internal Revenue Code of 1939.

OPINION.

The sole issue is whether the bequest in Item V of decedent's will is a charitable or educational bequest and thus deductible under section 812 (d), Internal Revenue Code of 1939, in arriving at the net estate for Federal estate tax purposes. That section provides that, for the purpose of computing the Federal estate tax, the value of the net estate should be determined by deducting from the value of the gross estate:

">*552 (d) * * * The amount of all bequests * * * to a trustee * * * but only if such contributions or gifts are to be used by such trustee * * * exclusively for religious, charitable, ">*164 scientific, literary, or educational purposes * * *

Respondent contends that the bequest is not deductible on the ground that there is no religious, charitable, or educational purpose in the bequest, that decedent indicated no desire to control or direct the use to which the awards might be put by the student nurses, and that the awards were intended as "compensation" for the nurses.

Preliminarily it should be pointed out that the payments to the student nurses in no way constituted compensation. Compensation connotes payment for services rendered. Here the student nurses rendered no services to the decedent. There was no contractual relation, past or present, between the decedent and the recipients and no legal or moral obligation for him to pay them anything. What the knowledge that the students were not paid for their work at the hospital did do, however, was to call the attention of the decedent to the needs of student nurses for some financial help in meeting the expenses of their training. Thus the lack of compensation for their work did furnish the motive for the creation of the trust fund out of which such assistance might be rendered.

The bequest was not made directly">*165 to the student nurses, as respondent appears to have treated it, but was one in trust to a bank with directions to invest it and use the proceeds and whatever principal might be required in making awards to the student nurses enrolled in the school at the time of decedent's death, or who might thereafter attend the school. The trust was one for the benefit of a general class without personal specification or identification, none of whom were in any way related to or even known to the decedent.

Under the statute, the word "exclusively" has been liberally construed, and a bequest is deductible if its general or predominant purpose is religious, charitable, scientific, or educational. Estate of Robert Marshall, 2 T.C. 1048, 1051, affd. 147 F.2d 75, certiorari denied 325 U.S. 872">325 U.S. 872, rehearing denied 326 U.S. 804">326 U.S. 804; Huntington National Bank, 13 T.C. 760. In our opinion the bequest herein meets every requirement of the statute and is deductible under the provisions of section 812 (d) of the Internal Revenue Code of 1939. Cf. Amy Hutchison Crellin, 46 B. T. A. 1152, 1155;">*166 Estate of Carolyn E. Gray, 2 T.C. 97; Eagan v. Commissioner, 43 F.2d 881.

The fact that the student nurses were not limited in the application of the amounts to the payment of their tuition is not material. The furnishing of their own uniforms, books, hospitalization insurance, and other incidental expenses is just as necessary to their training as the payment of their tuition. Had the application of their award been limited, it might not have been of any benefit to those student nurses who were already enrolled in the school at the time ">*553 of decedent's death and who may have already paid their tuition, but who did have need of financial assistance in meeting their other expenses. The bequest does not lose its character as a gift for charitable or educational purposes merely because some of the recipients may not have had need for such assistance, particularly where, as here, the class is not so small that the community does not benefit from the aid given them. Cf. Estate of Carolyn E. Gray, supra;Bok v. McCaughn, 42 F.2d 616.

Nor, finally, ">*167 does the bequest made in Item IV of decedent's will negate the educational character of the bequest in Item V, as respondent suggests. In our view the one is as much a charitable or educational bequest as the other.

Accordingly we hold that the bequest by decedent of his residuary estate in trust for the benefit of the student nurses then enrolled in or thereafter attending the Lutheran Hospital School of Nursing, as provided in Item V of his will, is deductible as an educational bequest under section 812 (d) of the Internal Revenue Code of 1939.

Decision will be entered under Rule 50.

PIERCE

Pierce, J., dissenting: In my opinion, gifts made to or for the benefit of all individuals who happen to be enrolled as students in a particular school as of a particular date, do not qualify for deduction as gifts "to be used * * * exclusively for * * * charitable * * * or educational purposes"; and this seems especially true where the individuals composing such class are to be determined without regard to financial need and without regard to whether even their own educational expenses have been paid by them personally, and where there is no restriction whatever on how the gifts may">*168 be used by such individuals.

Nor do I think the result is different where the money for such gifts is transferred in the first instance to a bank, as trustee, which is not a charitable or educational organization, which has no control or discretion respecting how the gifts shall be used by the individual beneficiaries, and which is directed to indentify such beneficiaries merely by inspection of the enrollment records of the particular school.

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Footnotes

• 1. The difference between this amount and the total sum ($ 121,748.77), stipulated to have been paid and set aside by the bank as trustee, is not explained.↩