The claimant, T, was appointed one of four executors of the estate of his uncle, who died in February 1955 leaving an estate appraised at over two million dollars. The bulk of the estate consisted of more than $1,800,000 in stock issued by some 25 corporations. The remaining assets included over $113,000 in cash, government bonds, two vacant lots, a three-quarter interest in rental business property, and a half interest in 17 acres of land containing coal. There were virtually no debts and, after payment of estate and inheritance taxes amounting to approximately $600,000, there remained about $1,400,000 in the estate.
The net assets were disposed of by a will which named T and the three other individuals as co-executors. Under the will, cash bequests were made to a library and to certain colleges, and the remaining assets were to be distributed to abut 38 named beneficiaries, including T and his co-executors.
The will empowered the executors of the estate to distribute the assets, to sell the stock, bonds, and real estate, to sell or lease the coal lands, and to borrow money. Almost immediately after their appointment, the executors retained legal and investment counsel to assist them with the administration of the estate. Thereafter, both legal and investment counsel performed virtually all the work of settling the estate, including the obtaining of appraisals of estate assets, selling the stock, distribution of bequests, and management of all tax matters. Although all actions taken on behalf of the estate were subject to the approval of the executors, they largely accepted the advice given and executed the documents presented for their signatures by their advisers. T devoted very little time to settlement of the estate. He consulted periodically with the attorneys for the executors but his active participation in connection with such settlement was very limited. The will provided that the four executors were to be paid as fiduciaries a total of ten percent of the gross value of the estate. The evidence shows that the executors would be paid whether or not they personally performed any services for the estate. T received executor fees of $12,494.28 for 1955, $12,462.26 for 1956, and $12,842.90 for 1957.
The question to be decided is whether the fees T received in 1955, 1956, and 1957 as an executor of his uncle's estate may be included in computing his net earnings from self-employment.
Section 211(a) of the Social Security Act provides that the term "net earnings from self-employment" means the gross income, as computed under subtitle A of the Internal Revenue Code of 1954, derived by an individual from any trade or business carried on by such individual, less the deductions allowed under that subtitle which are attributable to such trade or business.
Section 211(c) of the Act provides in pertinent Part:
A professional fiduciary or executor who regularly engages in fiduciary services and handles a number of estates generally will be found to be engaged in a trade or business. A nonprofessional fiduciary (for example, a person who serves as executor or administrator in isolated instances, and then only as personal representative for the estate of a deceased friend or relative) generally is not engaged in a trade or business. A nonprofessional fiduciary who actually carries on a trade or business in connection with the administration of an estate, such as operating a store which is part of the estate, may have income includible as net earnings from self-employment if the trade or business is an asset of the estate and the executor actively participates in the operation of such trade or business. In this event only the fees which are compensation for services in operating the trade or business are includible in computing net earnings from self-employment.
In certain rare cases there may be a very large estate which is of such complexity and long duration that its administration requires extensive management activities on the part of the executor or administrator over a long period of time. In such instances, where the activities of a nonprofessional fiduciary are sufficient in scope and duration, they may constitute the conduct of a trade or business even though the assets of the estate do not include a trade or business.
In this case, T was a nonprofessional fiduciary who served as one of four executors of the estate of his uncle; the authority of such executors was limited to the liquidation and settlement of the estate in accord with the terms of the will; and management activities in connection therewith were pertinent to the sale and distribution of assets and winding up the estate; and the fact that several years were required for such activities was due to the large amount of assets. Moreover, T and his co-executors devoted little time to activities in connection with the settlement of the estate, since their appointed legal and investment counsel performed practically all the necessary work, and T's participation was limited, passive, and sporadic. Furthermore, the fees paid to T were established by the will and bore no relationship to the services he personally performed.
Accordingly, it is held that T's activities as executor did not constitute the conduct of a trade or business and, therefore, his fees for his fiduciary activities are excluded from "net earnings from self-employment" for social security purposes.
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