26 Haw. 219 | Haw. | 1921
In this opinion where the petitioners would properly be referred to as executrix and executors they will for the sake of brevity be referred to as executors.
The will and codicil of Albert Spencer Wilcox, after appointing the above named petitioners executors and trustees and providing for the payment of his just debts and funeral expenses, continues:
“Immediately upon and continuing after the date of my death, until my trustees shall receive and begin their administration of my residuary trust estate and until the income of said residuary trust estate shall be available and be regularly paid, in lieu hereof, under the provisions of paragraph Third’ of this will, I direct my executors to set apart and pay the following specific monthly sums to the persons therein named, to receive the same for their support, maintenance and disposition, preferably out of income, but resorting to principal if necessary, to wit:
“(1) To my wife, Emma Napoleon Wilcox, if she shall survive me, but to cease on her death, the sum of one thousand dollars ($1,000) per month” (raised by the codicil to $2500 per month) ;
“(2) To Ethel K. Mahelona Wilcox, daughter of my said wife by her former marriage to Samuel Mahelona, and now the wife of Gaylord P. Wilcox, the sum of one hundred and fifty dollars ($150) per month; or in case of her death, then to her lawful issue by right of representation;
“(3) To Allen G. K. Mahelona, son of my said wife by her former marriage to said Samuel Mahelona (uoav also known as Allen Wilcox) the sum of one hundred dollars ($100) per month; or in case of his death, then to his lawful issue by right of representation” (raised by the codicil to $150 per month);
“(4) To Mary Kaui (daughter of Mary Niu) uoav the wife of Archibald AndreAV,' the sum of one hundred and fifty.dollars ($150) per month; or in case of her death, then to her laAvful issue by right of representation.
“Subject only to the foregoing special provisions, I hereby give, devise and bequeath unto my trustees all of my property and estate, real, personal and mixed of every*221 kind and description and wheresoever situate, of which I shall die seized or possessed or to which I may be entitled at the time of my death, to have, hold, use and apply the same in trust for the following uses and purposes and according to the following terms, that is to say:
“First. Immediately upon my death to transfer and deliver to my said wife, Emma Napoleon Wilcox, if she shall survive me, as her own'absolutely, all of my household furniture ⅞ *. Should my said wife not survive me, this devise shall lapse, and said property shall become part of the residuary estate.
“Second. Also, immediately upon my death, to set apart and extend for the free use, occupancy, benefit and enjoyment of my said wife, Emma Napoleon Wilcox, if she shall survive me, and so long as she shall live, the several lands, with the improvements thereon, comprising my two separate residence premises at Lihue and at Hanalei, on the Island of Kauai, namely:” (Here follows a description of the two residence premises and provision for the partition thereof after the death of testator’s wife Emma Napoleon Wilcox, or if she should not survive him upon his death.) By the codicil the paragraph last above is revoked and the widow given a fee simple estate in said premises.
“Third. All of the residue and remainder of my estate shall be held by my trustees under this will as a capital fund for and during the joint lives of the said Emma Napoleon Wilcox, Ethel K. Mahelona Wilcox, Allen C. K. Mahelona, Mary Kaui Andrew, and any child or children of my marriage with said Emma Napoleon Wilcox, and until the death of the last survivor of them, and thereupon my trustees shall make final division and distribution thereof as hereinafter provided.
“The trust by this paragraph created with respect to my residuary estate shall be administered during the continuance thereof, according to the following specific provisions, that is to say:
“My trustees shall hold, manage and control the property thereof in such manner as in their discretion and best judgment shall seem for the best interests of the trust estate as a whole and of all of the beneficiaries thereof;*222 with full poAver,” etc. (Here follow provisions as to the authority of the trustees to sell, manage, etc.)
“They shall receive and collect the income of said residuary trust estate and after the payment therefrom from time to time of the costs of management, maintenance and administration of the trust estate, and also the taxes and the general expenses of maintenance and. upkeep of the buildings, fences, and other improvements on said homestead residence premises at Lihue and at Hanalei, during the lifetime of my said wife, as my trustees shall in their discretion deem proper therefor, and also after the payment of a reasonable commission to themselves as compensation for their services liei’e-under, to divide and apply the net income thereof as follows:
“First. Until the final payment in full of all of the pecuniary bequests in this will hereinbefore denominated ‘(a)’ to ‘(h)’ inclusive, to set apart therefrom, as a first and preferred charge or requirement to be met out of the same, the following yearly sums to be paid in monthly instalments to the following persons, to-wit:
“(1) To-my said wife, Emma Napoleon Wilcox, if she shall survive me, and so long as she shall live, the sum of twelve thousand dollars ($12,000) per annum” (raised by the codicil to $30,000 per annum);
“(2) To the said Ethel K. Mahelona Wilcox, or in case of her death, then to her lawful issue by right of representation, during the continuance of this trust, the sum of eighteen hundred dollars ($1800) per annum;
“(3) To the said Mary Kaui Andrew, or in case of her death, then to her lawful issue by right of representation, during the continuance of this trust, the sum of eighteen hundred dollars ($1800) per annum;
“(4) To the said Allen C. K. Mahelona, or in case of his death, then to his lawful issue by right of representation, .during the continuance of this trust, the sum of twelve hundred dollars ($1200) per annum” (raised by the codicil to $1800 per annum) ;
“Second, after the said fixed annual preferred payments of income shall be made or set apart each year, one-fifth (1/5) of the remaining net income of this trust*223 estate stall be set apart by my trustees and annually or oftener divided and paid in equal stares among all of my own nepliews and nieces during tte continuance of ttis trust, including by rigtt of representation, tte lawful issue of any of ttem wto stall die or tave died;
“Third, tte remaining four-fifths (4/5) of said net income (after said fixed annual preferred payments of income stall tave been set apart as aforesaid) stall be divided and applied as follows: Until tte final payment in full of all said pecuniary bequests hereinafter denominated ‘(a)’ to ‘(h)’ inclusive, said four-fifths of income stall be subject to be applied by my trustees in their absolute discretion and judgment toward tte payment of tte following pecuniary bequests, either any one or more of ttem in full in preference or priority over any otter or otters, or any one or more in part, or pro rata among all or any of ttem, as tte trustees may decide, and tte trustees may accordingly at any time or times and from time to time during the continuance of ttis trust, take, use and apply tte same, in whole or in part, or told or use any part of tte same for equalization of said fixed annual preferred payments of income. Tte pecuniary bequests herein mentioned are tte following:” (Here follows a list of tte pecuniary bequests “(a)” to “(h)” inclusive, amounting approximately to $50,000.)
“Fourth, after tte full and final payment of all of said pecuniary bequests hereinabove denominated ‘(a)’ to ‘(h)’ inclusive, all of tte said four-fifths portion of net income stall be divided and paid by my trustees annually or oftener as follows: One-talf thereof (equal to two-fifths of tte entire net income from tte whole residuary trust estate) to my said wife, Emma Napoleon Wilcox, so long as she stall live; and tte otter one-talf thereof (also equal to two-fifths of tte entire net income from tte whole residuary trust estate) stall be paid in equal stares to the said Ethel K. Mahelona Wilcox, Allen 0. K. Mahelona and Mary Kaui Andrew, and any child or children of my marriage with tte said Emma Napoleon Wilcox, tte lawful issue of any of ttem wto may die or tave died to take tte stare of tte deceased parent by rigtt of representation.
*224 “Fifth, upon and after the death of my said wife (or should she not suiwive me, then upon and after my own death), and after all of the said pecuniary legacies denominated as ‘(a)’ to ‘(h) ’ inclusive have been paid in full as aforesaid, all of said four-fifths portion of the net income from said residuary estate shall be divided and paid in equal shares to the said Ethel K. Mahelona Wilcox, Allen C. K. Mahelona, and Mary Kaui Andrew, and any child or children of my marriage with said Emma Napoleon Wilcox, the lawful issue of any of them who may die or have died to take the share of the deceased parent by right of representation.”
The further provisions of the will are not pertinent to the matter now before us. The testator died July 7, 1919, and his will and codicil were duly admitted to probate in the fifth circuit and the above named petitioners were duly appointed executors thereunder. Deceased left surviving him his widow, Emma Napoleon Wilcox, and two step-children, Ethel K. Mahelona Wilcox and Allen C. K. Mahelona, also known as Allen Wilcox, and an adopted daughter, Mary Kaui Andrew. He also left surviving him a number of nephews and nieces, all of whom are beneficiaries under the will and codicil either by name or by description. A further class of beneficiaries consists of the minor children of the nephews and nieces to whom the trust estate will he distributed upon the termination of the trust. The petitioners herein as executors filed an account in the probate court on May 18,1920, and prayed for a partial distribution of the assets of the estate. On-June 29, 1920, the court approved said account and directed the petitioners as executors to deliver over to themselves as trustees certain personalty of the estate, to wit, stocks, bonds and notes amounting to $4,250,000, and also cash in the sum of $200,000, this latter being income accruing after the death of the testator and received by the petitioners as executors. The actual transfer was made July 7, 1920. The petitioners as
In view’ of all of the foregoing the petitioners in their capacities both as executors and as trustees brought their bill for instructions in the fifth circuit court joining all parties interested and asked for the instruction of the court upon five questions, two of which are as follows:
“(a) Should the aforesaid two hundred thousand dollars paid as aforesaid by said executors to said trustees on July 7, 1920, and also any other additional accumulated income so paid by said executors to said trustees on the final closing of the probate administration of said estate and the final distribution of said estate, be considered and treated by said trustees as income of said trust estate to be paid out to the persons who are entitled to receive the income of said trust estate or as principal of said trust estate to be held as said principal by said trustees?”
“(e) Is a gain realized from the sale of an investment, capital to be held by the trustees or income to be paid to the life tenants of the estate, and if it is held to be capital should petitioners, as executors, pay the fedéral income tax for the calendar year 1920 out of the principal or out of the income of the estate, or should they pay said income tax partially out of the principal and partially out of income of said estate, and if so what proportion of the tax should each bear?”
The matter Avas presented by all of the parties before
“(a) The two hundred thousand dollars ($200,000) paid by said executors to said trustees on July 7, 1920, being accumulated income from personal property received by said executors prior to said dáte, and also any other additional accumulated income so paid by said executors to said trustees on the final closing of the probate administration of said estate and the final distribution of said estate, shall be considered and treated by said trustees as income of said trust estate and paid out to the persons who are entitled to receive the .income of said trust estate; and that * * *
“(e) The gain realized from the sale by said executors of investments owned by said estate at a profit, being the excess of the selling prices of said investments over their values on July 7, 1919, the date of the death of the testator, amounting to two hundred fourteen thousand three hundred seventy and 77/100 dollars ($214,370.77) is capital and not income and should be held as such by the trustees, and that portion of the federal income tax for the calendar year 1920 payable by said estate caused by the said profits realized by said sale, to wit, one hundred forty-seven thousand fifty and 56/100 dollars ($147,050.56) should be charged against and paid out of the principal of said estate, and the remainder of the said federal income tax for the calendar year 1920 payable by said estate, to Avit, seAmnty-tAVO thousand seAren hundred forty-six and 42/100 dollars ($72,746.42) should be charged against and paid out of the income of said estate by said executors.”
With the questions B, C and D and the decree rendered thereon the remaindermen are not concerned but they have brought their writ of error alleging error in paragraphs A and E of the decree, the assignments of error being as follows:
(1) “That the circuit judge erred in his decree heretofore and on, to Avit: the 14th day of June, 1921, rendered and filed by him in that he failed to order, adjudge and*228 decree that the sum of two hundred thousand dollars ($200,000) paid by the executors to the trustees on Ju]y 7, 1920, together with any other accumulated income so paid by said executors to said trustees on the final closing of the probate administration of the estate of A. S. Wilcox, deceased, and the final distribution of said estate should be considered, treated and held by said trustees as principal of the said estate, and in that he did order, adjudge and decree that the said sum of two hundred thousand dollars ($200,000) paid by the said executors to the said trustees on said July 7, 1920, together with any other accumulated income so paid by said' executors to said trustees on the final closing of the probate administration of the said estate, and the final distribution of-said estate, should be considered and treated by said trustees as income of said trust estate, and paid out to the persons who are entitled to receive the income of said trust estate.”
(2) “That the circuit judge erred in Ms decree heretofore and on, to wit: the 14th day of June, 1921, rendered and filed by him in the above entitled cause in that he failed to order, adjudge and decree that the executors of the said estate of A. S. Wilcox, deceased, should pay the federal income tax for the calendar year 1920 wholly out of the income from the said estate, and in that he did order, adjudge and decree that that portion of the federal income tax for the calendar year 1920, payable by said estate caused by the gain realized from the sale at a profit by said executors of investments owned by said estate (said profits amounting to the sum of $214,370.77) to wit: one hundred forty-seven thousand fifty and 56/100 dollars ($147,050.56) should be charged against and paid out of the principal of said estate.”
In the court below all of the parties conceded that the $214,370.77 profit realized by the executors from the sále of stocks owned by the estate at an advance over the value of said stocks at the testator’s death is capital and not income and the circuit judge so found—a finding with which of course the remaindermen are satisfied.
Wé will consider the two assignments of error in their
We must therefore examine tbe will to ascertain whether it fixes tbe time when tbe life tenants shall begin tbe enjoyment of tbe income for if it does tbe will must
On tbe other band tbe life tenants point out that tbe testator, immediately folloAving tbe provision for tbe payment to bis wife and children of tbe specific monthly sums, provided that “subject only to the foregoing special provisions I hereby give, devise and bequeath unto my trustees all of my property and estate, real, personal and mixed, of every kind and description and wheresoever situate, of wbicb I shall die seized or possessed, or to
The provisions of the will to which we have just referred so clearly indicate that it was the intention of the testator that the capital fund to be finally distributed should consist only of the property of which he died seized or possessed or to Avhich he might be entitled at the time of his death that the provisions of the will upon which the remaindermen rely do no more than make it doubtful what the testator’s intention was as to income
Second. Should that portion of the federal income tax for 1920 occasioned by the sale at a profit of securities owned by the trust estate be paid out of the ordinary income of the trust estate or should it be paid out of the principal of said estate as was held by the circuit judge? There is nothing contained in the will from which we can ascertain the intention of the testator as to which fund such a tax should be paid out of. It is admitted by all parties at interest that ordinary current taxes are as a general rule payable out of the income of a trust estate. The question then is whether this is an ordinary current tax. If it is obviously it must be paid out of the income. But in our opinion it is not an ordinary current tax. The argument of counsel for the guardian ad litem of the remaindermen that this is an ordinary tax because it is a tax which will run from year to year so long as the government has need of money the same as any other property or income tax is sound only when applied to the general nature of an income tax. The profit upon which this tax is levied is decidedly not ordinary income in the sense that dividends and interest are. It is true that under the federal income tax statute such a profit is held to be income and therefore taxable under that statute as such (Merchants’ Loan & Trust Co. v. Smietanka, Vol. 41 West. Pub. Co.’s Supreme Court Reporter, 386), but it is not such income as is likely to recur from year to year as is ordinary income from dividends, interest, etc. A tax levied upon such a profit as income is therefore not an ordinary current tax.
There is another reason why in our opinion this particular tax should not be paid out of income. The total
The decree of the circuit judge should be affirmed and it is so ordered.
