43 Misc. 2d 932 | N.Y. Sur. Ct. | 1964
In this final accounting of the executors objections are filed by the respondent trustee. Objection is made to a proposed method of distribution of securities in kind in partial satisfaction of a marital deduction legacy which decedent made to his wife.
The issues raised require a construction of the will to determine (a) the nature of the bequest, whether it is to be regarded in effect as a general legacy for a definite dollar amount ascertained by computation, or whether it is to be regarded as a fractional interest of indefinite dollar amount of the residuary estate, and (b) whether, under the provisions of the will and to the extent that the legacy may be satisfied by distribution of securities in kind, tax date values or distribution date values are to be used.
Decedent died December 22, 1961, leaving a will dated June 17, 1955, survived by his wife and an adult son. He was also survived by three grandchildren who are infant children of his son. By his will he gave his wife certain personal items, gave general monetary legacies to his son, daughter-in-law and grandchildren. He then gave a direct legacy to his wife under article seventh as follows: ‘1 seventh : If my wife, jessie n. hmpleby, shall survive me, then and in such event I give, devise and bequeath to my wife, absolutely and forever, such part of any property, real, personal, or mixed, of which I die seized or possessed or over which I may have a power of appointment, other than and excluding property with respect to which the marital deduction is not authorized for Federal Estate Tax purposes, which is equal in value to 50% of my adjusted gross estate as finally determined for Federal Estate Tax purposes, but minus property passing to my wife other than under this paragraph and minus property, including the proceeds of life insurance, which has passed or will pass to my wife by means other than this will and which will qualify for and be allowed under the marital deduction for Federal Estate Tax purposes. For the purpose of determining the value of my property passing to my wife, including the proceeds of life insurance and other property which has passed or will pass to my wife by means other than under this will, the valuation placed on such property in the final determination for Federal Estate Tax purposes shall be conclusive on all parties interested in my estate.”
He then disposed of his residuary estate by article eighth. This created a residuary trust with income to his wife, remainder on her death to his son or to his grandchildren if his son predeceased his wife, with a grant of full discretionary power to
‘ ‘ EIGHTH * * *
“ (A) If my wife, jessie h. umpleby, shall survive me, then I give, devise and bequeath said residuary estate to my Trustees hereinafter named, iu trust, nevertheless, to hold, manage, invest and reinvest the same, and to collect and receive all income, interest and profits therefrom and, after paying all necessary and proper charges, to pay over the net income therefrom to my wife, jessie n\ umpleby, in monthly installments during her life, and upon her death I direct that the trust shall terminate and the principal thereof, together with any accumulated income thereon be disposed of as hereinafter provided in subparagraph (B) hereof.
“(B) Upon the death of my wife, jessie h. umpleby, if she shall survive me, or upon my death, if my wife, jessie nt. umpleby, shall predecease me, I give, devise and bequeath the remaining principal of the trust hereinabove established, together with any accumulated income thereon, or my residuary estate, as the case may be, to my son, johe l. umpleby, if he shall then survive, but if my said son shall have predeceased the survivor of my wife, jessie n. umpleby, and myself, then and in such event I give, devise and bequeath the then remaining principal of the trust together with any accumulated income thereon, or my residuary estate, as the case may be, equally to such of my grandchildren who may be alive at the death of the survivow [sia] of my wife, jessie u. umpleby, and myself.
“ (0) If my wife, jessie h. umpleby, shall survive me, then and in such event my Trustees hereinafter named are hereby authorized to pay from the principal of the said trust such amount or amounts thereof as they in their absolute and uncontrolled discretion shall deem necessary for the proper support and maintenance of my said wife in accordance with her present standard of living and without regard to any other assets or sources of income which my said wife may have.”
He appointed his wife and son executors, and his son and the respondent, Chemical Corn Exchange Bank, as trustees; directed that estate taxes be paid from the residuary estate; and gave express authorization to his executors and trustees to make distribution in kind by article twelfth (e) as follows: “twelfth * * * (e) to make distributions in kind or partly in kind, either in payment of any legacy or bequest or for tiie purpose of setting up any trust hereunder, or upon final distribution of any such trust, and to evaluate (for the
It seems to the court that decedent’s will quite clearly states the method to be followed to determine the value of the direct bequest decedent made to his wife by article seventh. It is to be such part of his estate as “is equal in value to 50% of my adjusted gross estate as finally determined for Federal Estate Tax purposes ” minus certain property passing to his wife under other provisions of the will and property passing to her outside of the will. He expressly provides in the same article that for the purpose of determining 1 ‘ the value ’ ’ of the property so “ passing ” to his wife including insurance and property passing outside the will the Federal tax values be used. There is no difficulty in ascertaining the amount of such legacy according to his directions: (a) The adjusted gross estate as finally determined for Federal estate tax was $1,033,392.99, 50% thereof is $516,696.50; (b) deduct, using Federal tax valuations, the qualified property “ passing ” to the wife under other provisions of the will and outside of the will consisting of personal property, jointly owned real estate and insurance amounting to $50,948.17; (c) the resulting amount is $465,748.33. The direct legacy so given the wife is therefore the part of his estate “ equal ” in value to this figure of $465,748.33. Decedent did not give his wife a legacy which was to be in excess of this exact figure nor was it to be less than such definite amount. It was to be “ equal ” to it. How is it to be satisfied?
The executors propose in their account to partially satisfy the legacy by a distribution of securities in kind, not at the “market value or the fair value ” at the time of distribution, as directed by article twelfth (e), but by use of Federal tax values. The Federal tax values are less than present distribution values. The effect of the proposal would be to give the wife, who is also an executor, securities having a present value of about $565,000 in payment of her legacy which was to be “ equal ” in value to $465,748.33. This proposal would of course reduce the amount of securities left for the residuary estate and for the residuary trust for the benefit of the wife, son and grandchildren.
The proposal of the executors is to divide the residuary estate on a fractional interest basis on a numerator-denominator formula so that the assets distributed in kind are shared by the wife and the trust. Since the securities still on hand have
It appears to the court that decedent by the express provisions of his will gave two directions. First, he made a direct legacy to his wife and specified how the dollar value of such legacy should be computed. In the opinion of the court the reference to Federal tax valuations in article seventh means only that they are to be used to determine the value of the adjusted gross estate and value of items ‘ ‘ passing ’ ’ to the wife to compute the “ value ” of her legacy. In the context used, such Federal valuations do not and were not intended to govern distribution values which are governed by the usual rules and article twelfth (e). Second, he gave his executors and trustees the privilege of making a distribution of property in kind in full or partial payment of “ any legacy or bequest ” or for “ setting up any trust,” or for “final distribution ”, but provided that if they do elect to make any such distributions in kind, any property or securities so distributed must be “ evaluate [d] (for the purpose of determining any distributive shares) [of such securities] at the then market value or the fair value thereof ”. This obviously insures that each general legatee including the wife will not suffer should assets depreciate before distribution if they are compelled to accept in kind. Without such privilege all legacies, including the share to the wife, would have to be satisfied in cash.
It is the usual rule that a legacy is payable in cash unless the will authorizes payment by distribution in kind. (Villard v. Villard, 219 N. Y. 482; Matter of Valionis, 176 Misc. 110 [1941]; Matter of Weiser, 9 Misc 2d 113 [1957].)
The general rule also is that when a legacy is paid by distribution of property in kind, the property is taken and distributed at its value determined as of the date of distribution. Such rule applies unless the will authorizes or directs that distribution be at values determined at a different time. (Matter of Valentine, 165 Misc. 863 [1937]; Matter of Gauff, 27 Misc 2d 407 [1960]; Matter of Bush, 2 A D 2d 526, affd. without opinion 3 N Y 2d 908 [1956].)
In addition to the usual questions incident to finding the testator’s intent when the meaning is not clear from the words used in the will, other problems arise from marital deduction legacies because testators often fail to foresee and provide for certain effects and because some matters have not as yet been settled by clear case law. The adjusted gross estate and the amount of allowable deduction may be affected by numerous factors which tend to influence the viewpoints of interested parties. Some of such factors are: Whether deductions are used for income or estate tax, whether tax values are fixed at date of death or at an optional date, whether distribution can be made at other than distribution date values, whether actual or potential capital gain taxes should fall on the estate or on legatee, whether the spouse should receive part of the appreciated value of assets enhanced in value when distributed in kind or should suffer a reduction in the tax value of the marital legacy when assets have depreciated in value before distribution. It is perhaps a bit easier to construe testator’s language in a way enabling the spouse, usually the wife, to share in increases in value, than it is to give the same construction when the effect is to diminish the value of her legacy.
The problems mentioned are reflected in the decisions. In Matter of Bush (2 A D 2d 526, affd. without opinion 3 N Y 2d 908 [1956], supra) the will gave a husband a total sum 11 as shall equal ’ ’ one half of the adjusted gross estate and
It appears that two questions are usually involved in the cases mentioned. First, does the will give the spouse a legacy definite in amount, which is either stated or derived by compu
The rules indicated by the cases cited would seem to be: When the legacy is found to be of a definite dollar amount payment is in cash unless distribution in kind is authorized, and in that case property must be distributed at distribution date values unless the will directs otherwise. The spouse thus receives the full dollar value of the legacy, no more, no less, with no loss if assets have depreciated and no increase if assets have appreciated. (Matter of Gauff, supra; Matter of Gilmour, supra.) If distribution at a value other than the distribution date is authorized, then any distribution in kind must be made fairly so that any increase or decrease in asset values are shared proportionately. (Matter of Bush, supra; Matter of Inman, supra.) When the marital legacy is found to be a fractional interest in the residuary distributable estate, it is likewise payable in cash unless distribution in kind is authorized; if distribution is in kind assets must be distributed at distribution date values unless the will otherwise directs. When distribution is at another valuation date the fractional interest participates in any increase or decrease in the value of assets distributed. (Matter of Bing, supra; Matter of Ossman, supra; Matter of Mueller, supra.)
It is the opinion of the court that the express language of the present will indicates testator’s intent that any distribution in kind be at distribution date values, that he intended his wife to have a legacy in a definite amount regardless of subsequent change in asset values, that it is mandatory for the executors to satisfy such legacy in cash or property which will pay the amount in full at distribution date values. Decedent’s objectives stated and implicit in his will are thereby accomplished: (1) his wife receives her marital legacy equal to 50% of the adjusted gross estate determined on the basis of Federal tax values, (2) the wife is protected against loss, and will receive her legacy having a definite dollar value in full, neither increased nor diminished if assets change in value before distribution, (3) if distribution is made in kind the wife’s distributive share must be paid at distribution date values which are mandatory as expressly directed, (4) the estate benefits by receiving the maximum marital deduction.
The will is construed accordingly to the effect that the marital legacy to the wife is in the definite amount indicated, and that any distribution in kind must be at distribution date values. The objection of the trustee is sustained. The executors are directed to amend their account in accordance with this determination. Proceed accordingly.