Bankers Trust Co. v. Hess

• Decision Date: 20 January 1949
• Docket Number: No. 158/581.,158/581.
• Parties: BANKERS TRUST CO. v. HESS et al.
• Court: New Jersey Superior Court

63 A.2d 712

BANKERS TRUST CO.

v.HESS et al.

No. 158/581.

Superior Court of New Jersey, Chancery Division.

Jan. 20, 1949.

Syllabus by the Court

1. Inheritance taxes in the absence of contrary testamentary provisions are assessed against and payable by each legatee or devisee, and if paid by the executor, he is entitled to reimbursement.

2. Federal estate tax is imposed on the transfer of the entire net estate of decedent and not upon any particular legacy, devise or distributive share. It is payable primarily by the executor of the estate before distribution. There is no regulatory statutory provision in New Jersey; hence, the federal estate tax falls upon and is payable out of the residuary estate, unless the will provides otherwise.

3. With respect to the payment of taxes, the intention of the testator is to be ascertained from the will.

4. Decedent transferred assets under a revocable inter vivos trust and made general bequests and specific legacies and devisees under her will. Plaintiff executor and trustee sought instructions regarding the payment of inheritance and federal estate taxes assessed on the assets transferred under the trust. The will provided that ‘all estate, transfer, succession, inheritance, legacy and similar taxes' be paid out of the general estate. Held, under the facts of this case, to be an unequivocal direction that executor pay the inheritance and estate taxes out of the general testamentary estate without reimbursement from cestuis under the inter vivos trust agreement.

5. Where the payment of taxes and other obligations more than exhausts the residuary estate, general legacies abate in full and specific legacies and devises contribute ratably. An executor may sell such personal property and real estate as may be necessary to provide sufficient funds to pay the obligations of decedent's estate.

6. The provision in a will for perpetual care of cemetery lots and mausoleum is in the nature of a funeral expense, and it is executor's duty to exercise its discretion in the amount to be expended, without instruction from the court.

Proceeding in the matter of the estate of Elsie Cable Hess, deceased, on petition of Bankers Trust Company, executor under decedent's will, against John Lawrie Hess and others for instructions.

Judgment in accordance with opinion.

Hobart, Minard & Cooper and John J. Gaffey, all of Newark, for plaintiff.

William A. Kaufmann, of Hoboken, for defendants John Laurie Hess, Barbara Halenbeck Hess and Barbara H. Patrono.

Stryker, Tams & Horner and Emory C. Risley, all of Newark, for defendant Dorothy H. Bigler.

Osborne, Cornish & Scheck, of Newark, for defendant Bonnie Brae Farm for Boys.

FREUND, Judge.

The plaintiff seeks instructions respecting certain matters which have arisen in the administration of the estate of Elsie Cable Hess, who died on June 20, 1947, a resident of Essex County. Her will, dated May 18, 1943, and two codicils thereto, dated June 30, 1944 and June 28, 1945, were probated. On the same day that the will was executed, she entered into a revocable inter vivos trust agreement, and on the same day that the second codicil was executed, she amended the trust agreement. Pursuant to and on the date of the trust agreement assets were transferred and thereafter several additional transfers were made, the last on December 30, 1945. The will, its codicils, the inter vivos trust agreement and the amendment thereto, were all drawn by the same firm of attorneys. The plaintiff, Bankers Trust Company, is executor and trustee under the will, and also trustee under the inter vivos trust.

The primary beneficiaries under the will and under the trust agreement are the decedent's four children, but under both, the decedent's son receives more than her other children. The approximate net value of the testamentary estate as of the date of death was $120,000 exclusive of taxes. The New Jersey inheritance tax is estimated at $9,000. The trust being revocable, the executor included in the federal estate tax return, at a value of $304,000, the as sets transferred by decedent under the trust agreement. The estimated federal estate tax is $89,000. Therefore, if the inheritance and estate taxes are to be paid out of the testamentary estate without reimbursement, it will be seriously depleted. The first question presented is whether the plaintiff, as executor, upon payment of the inheritance and estate taxes, is entitled to reimbursement from the inter vivos trust funds.

The distinction between federal estate taxes and inheritance taxes, and the obligations for the payment thereof, have been authoritatively adjudicated. Inheritance taxes, in the absence of contrary testamentary provisions, are assessed against and are payable by each legatee or devisee, and, if paid by the executor, he is entitled to reimbursement. Fidelity Union Trust Co. v. Hall, Ch.1939, 125 N.J.Eq. 419, 6 A.2d 124; Morristown Trust Co. v. Childs, Ch.1940, 128 N.J.Eq. 524, 17 A.2d 559; Montclair Trust Co. v. Spadone, Ch.1946, 139 N.J.Eq. 7, 52 A.2d 64. The federal estate tax is imposed on the transfer of the entire net estate of the decedent and not upon any particular legacy, devise or distributive share. It is payable primarily by the executor of the estate before distribution. 26 U.S.C.A. s 822(b). A state is free to regulate the apportionment of the burden of the federal tax. Riggs v. DelDrago, 317 U.S....