183 Misc. 382 | N.Y. Sur. Ct. | 1944
On May 31, 1922, deceased transferred to a trustee bonds in the face amount of $40,000 with direction that the income thereon be paid to a person described in the indenture of trust as the “ devoted and faithful personal maid and friend ” of the grantor. Full power to revoke or alter the trust indenture was reserved to the grantor. As originally drawn the indenture required payment of the trust capital to the grantor if she survived her beneficiary, and provided that if the beneficiary survived deceased but died before the latter’s husband the trust capital became payable to the husband. The indenture also provided originally that if the income beneficiary survived both the grantor and her husband the trust principal became payable to Trudeau Sanatorium, subject, however, to the right of the income beneficiary to appoint to whom she chose $10,000 out of the capital “ free of all taxes
Under the terms of the inter vivos indenture the trustee must now reserve $10,000 out of the trust capital and continue to hold it so long as the income beneficiary lives. It must pay over the balance in its hands. The executor of deceased demands that the trust fund contribute a sum in excess of $5,000 to the estate taxes imposed by reason of deceased’s .death. This amount is asserted to be the trust’s ratable share of estate taxes imposed on the entire tax estate of deceased. That tax estate included the inter vivos fund because of deceased’s reserved right of revocation of the indenture. Deceased’s executor invokes section 124 of Decedent Estate Law and asserts that its terms compel the contribution sought.
The trustee claims exoneration under article first of deceased’s will which says: “ I direct that all my just debts and funeral expenses be paid as soon as practicable after my decease, and that all inheritance, estate, transfer, succession, probate, legacy and death taxes or duties, imposed upon or in relation to any property owned by me at the time of my death, be paid out of my general estate as an expense of the administration thereof.”
It has already been noted that the trust indenture originally gave no part of the trust principal to the income beneficiary
The operative effect of the will and codicil is that the taxes on the $10,000 gift in the codicil, on the bequest of tangible personalty and on the devise of realty are charged wholly to the residuary which passes ultimately one third to the niece (if she survives the sister) and two thirds to the appointees of the niece if she exercises the power granted her. The residuary thus bears all estate taxes on the true estate of deceased. Parenthetic note should be made of the fact that deceased’s inter vivos beneficiary is also income beneficiary of a testamentary trust created by will of deceased’s husband. This fund was reported as part of the tax estate of deceased since she had, and exercised, a power of appointment over it. But because ■ her appointees are charities no tax liability results and so as to this fund no question of tax allocation arises.
In issues of construction the courts look, generally in vain, for a Rosetta Stone to enable them to decipher the hieroglyphs used by draftsmen of wills and trust indentures. Here the instruments bear internal evidence of informed draftsmanship. Since section 124 of Decedent Estate Law was nonexistent in 1922 the text of the original indenture does not envisage it. But when the indenture was amended in 1937 and when the will and codicil were drawn in 1936 and 1937 respectively the matter of estate taxes had become of prime importance to testators and the apportionment of the tax burden a major problem in estate administrations. The court may reasonably draw the inference from the ratification of the will by the codicil, subject to the legacy addition in the latter, that the draftsman of the codicil and deceased considered the first article'of the will and saw no need to enlarge its text respecting taxes. The exoneration clause is deemed to be republished as of the date of the codicil and clarification of the clause could readily have been effected then if desired. When the codicil
It was no new thing in 1936 and 1937 that property outside the true estate was includable in the tax estate. The informed Bar was then fully capable of stating with clarity the degree in which a testator desired his true estate assets to be burdened with taxes due to the inclusion of outside funds in his tax estate. It then was well known to the Bar that section 124 of Decedent Estate Law was passed for the express purpose of compelling beneficiaries of outside funds to bear an equitable share of tax burdens increased by their inclusion. It knew that the statute enforced, contribution “ except in a case where a testator otherwise directs in his will ”. It was mathematically demonstrable, of course, that the inclusion of. nonestate property generally caused the tax estate as a whole to pay taxes at a higher level and that even proration and contribution would still leave the true estate assets subject in most cases to heavier tax burdens than would have been incurred if true estate assets only had been taxed. If then this remedial statute is to serve its declared purpose, the courts should enforce contribution in every case where the will lacks clear direction that the tax burden due to inclusion of outside funds is to be discharged out of true estate assets. Lacking clarity in the language of the will the statute makes the rule and apportionment should be directed.
There is a tendency to deal with problems of tax apportionment as if dealing with dispositive text in which there is obscurity as to the extent of a gift or the identity of beneficiaries. As to such obscurities courts have as guides only the text of the will and the background against which it was drawn. Not so, in a problem of tax apportionment. There the statute states the rule. If those who contend for nonapportionment can point to nothing more than obscurity, the rule of
The verb “ directs ” is used in the statute in its dictionary meaning. In the Standard Dictionary, “ direct ” is defined thus: “To determine the direction • of; especially to cause to point or to go straight toward a thing ”. This dictionary also defines it thus: “ To instruct or guide with authority; order; command.” Among the synonyms given by this dictionary are “ dictate ” and “ govern ”. In the Century Dictionary the definition is: “To point or aim in a straight line toward a place or an object ”. Another meaning is: “ To control the course of; regulate; guide or lead; govern; cause to proceed in a particular manner ”. Still another meaning is given: “ To order; instruct; point out to, as a course of proceeding, with authority; prescribe to.” These dictionary meanings seem to the court to make it clear that the statutory exception is to be satisfied only if there is found in the will a command or dictation that the equitable statutory rule for apportionment is not to be applied. Lacking such command, apportionment must be made. Both command and direction import certainty
Here the parties speculate as to what deceased really meant. The very arguments advanced by them show that there is no certainty to be found in the text of deceased’s will. When she speaks of charges “ imposed upon or in relation to any property owned by me at the time of my death ” she is using language which in seventeen words says only the same thing as the five words “ imposed upon * * * my general estate ”. In one aspect her language can be treated as restrictive. When she says that the taxes to be paid are those “ imposed * * * in relation to any property owned * * * at the time of * * * death ”, she can be said to intend to make it clear that she did not want her general estate charged with taxes on funds which she did not own at her death. It is urged that since she had the power to cancel the inter vivos trust established by her and had the power to take the property back into her ownership she could have regarded it as “ property owned ” by her, though the legal
When the court looks at the contention of the trustee of the inter vivos trust and notes the result which would follow approval of such contention, it sees that there would be imposed upon the funds designed to reach the niece one third of the tax in controversy and that there would be imposed on the sister of deceased the loss arising from deprivation of interest on two thirds of the amount of the tax. The beneficence of deceased toward the beneficiary of the inter vivos trust is not to be doubted but there is no reason to assume that deceased intended any sacrifice of her sister’s benefits or of her niece’s benefits in order to exonerate the inter vivos fund from tax contribution. On the assumption that the inter vivos fund has now a capital value of $34,000, the result to the inter vivos trust beneficiary of that instrument, as amended, and of the codicil
Submit, on notice, decree settling the account, construing the will, and directing apportionment of estate taxes ratably as between estate and nonestate assets which have been taxed.