170 Misc. 431 | N.Y. Sur. Ct. | 1939
The accounting in this estate presents one of the many problems arising in the allocation of the burden of estate taxes. Here the issue arises on the objection of an income beneficiary of a testamentary trust to a charge made to income account of the penalty imposed for late payment of the estate tax. The charge objected to operates to diminish the estate income payable to a trustee but objectant is a necessary party (Surr. Ct. Act, § 262, subd. 10) since the accounting executor is also the trustee; and objectant is, therefore, authorized to interpose the objection.
It is expressly conceded that the delays in the probate of the will and in the issuance of letters testamentary arose from no fault of any interested party. The accounting executor is a successor fiduciary. It acted promptly upon its appointment and paid the estate taxes with reasonable speed. Objectant concedes that no basis exists for surcharge because tax penalties were incurred. The question is, from what fund is the penalty to be paid?
For the solution of this problem no precise rule is to be found in section 124 of the Decedent Estate Law. That section does contain a broad direction to the court to deal equitably with the parties interested. It commands apportionment according to benefit received unless contrary command is found in the will. Concededly there is here no such contrary direction.
According to the command of the statute the court must first ascertain the factors which govern an equitable apportionment of the tax burden. The first and fundamental inquiry is into the nature of the tax. This was discussed at some length by the court
It follows from this toll concept of the tax that there never passed into the ownership of any legatee any share in the fund excised — in legal theory — from the property formerly owned by deceased and appropriated at the instant of death by the sovereign as its toll or tax on the privilege to pass on the balance. In con
This principle of apportionment operates whether the tax penalty involved is incurred on Federal or on State taxes. While the penalty interest, when exacted, is computed at rates which vary under different tax laws and under different types of default in payment and while the grace period for the tax payment varies also there is never a change in the basic fact that the interest at all times accrues from date of death on the principal sum exacted by the sovereign as its toll and that this sum has never ceased to be owned by the sovereign. It is in the custody pro tern of the estate fiduciary but the whole tax estate must respond when demand for payment is made. The toll never shrinks no matter what the shrinkage may be in the balance receivable by the beneficiaries. It is the fixed government share of deceased’s goods. On its value as of date of death is to be credited interest at the rate earned by the estate assets as a whole and such interest used for paying penalties.
The parties have stipulated that from the date of death, July 9, 1934, down to the date when the last tax payment was made the tax principal of $421,019.12 earned $17,713.49 gross. Income charges properly chargeable to this sum amount to $5,695.24, leaving a net of $12,018.25. The penalty interest on the tax amounts to $18,031.43. Pursuant to the views hereinabove expressed the court directs that the net earnings upon the capital of the tax, to wit, $12,018.25 be first applied in satisfaction of the penalty interest pro tanto. This sum is a proper charge to income account. In
As is stated in Matter of Kaufman (170 Misc. 436), released simultaneously herewith, the duty to make allocation of taxes is comprehensive and integral. Whether one party in interest or another raises an issue as to a proper allocation the court when reaching its decision must make it applicable to the whole burden of the tax and must make direction as to the interests of those who have not interposed in the discussion as well as to the interests of those who have championed one view or another of the problem. As among the parties interested in this estate the tax burden is hereby allocated in the proportion which their respective interests bear to the whole estate. Since most of the estate is now distributable to persons who are equally interested in principal and in income it is unimportant in their cases to make any special notation of the amounts chargeable to income and to principal account respectively. In respect of the portions of the estate which are held in trust their ratable shares of the $6,013.18 balance are to be charged to the principals of the respective trusts. Each income beneficiary of a trust who has been charged with any portion of this $6,013.18 is entitled to have his income account reimbursed out of the principal of his respective trust since the payment of the penalty interest was made out of income to his detriment so far as the payment exceeded the amount credited to income account from the net interest on the tax toll. The amount of such reimbursement is to be computed on the basis of the share of the respective beneficiary in the income account of his trust.
Submit, on notice or consent, decree settling the account and allocating according to this decision the burden of the estate taxes.