Barnhart's Estate, In re

• Decision Date: 27 June 1960
• Parties: In re William G. BARNHART'S ESTATE.
• Court: New Hampshire Supreme Court

Page 168

162 A.2d 168

102 N.H. 519

In re William G. BARNHART'S ESTATE.

Supreme Court of New Hampshire.

Argued April 6, 1960.

Decided June 27, 1960.

Nighswander, Lord & Bownes, Laconia, and Robert G. Wakefield, Plymouth, and Arthur H. Nighswander, Laconia, for petitioners.

Louis C. Wyman, Atty. Gen. and Frederic T. Greenhalge, Asst. Atty. Gen., for the State.

KENISON, Chief Justice.

The major issue in this case is concisely stated in Casner, Estate Planning (2nd Ed. 1956 and 1959 Supp.) p. 55, note 25 in the following language: 'Will the surviving spouse's share be based on what is left after payment of debts, funeral and administration expenses, and the estate tax, or on what is left after the payment of debts, funeral and administration expenses but before the payment of the estate tax.' The cases are conflicting as appears from the citations in Casner pp. 22, 55 and annotation 37 A.L.R. 2d 7, 56. See Sutter, How to Plan for Apportionment of Estate Taxes (1955 and 1959 Supp.) in 2 Lasser, Estate Tax Techniques 2137 (1959). This conflict is due in part to differences in testamentary clauses and variations in state statutes controlling the apportionment of estate taxes and rights of a surviving spouse to elect to take against the provisions of a will.

When the widow waived the provisions of her husband's will she was entitled by statute to $7,500 and one-half the remainder above that sum from his personal estate 'remaining after the payment of debts and expenses of administration.' RSA 560:10, subd. II. The meaning of this statute is a matter of state law and not federal tax law. Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106; note, The Role of State Law in Federal Tax Determinations, 72 Harv.L.Rev. 1350 (1959); 2 Rabkin and Johnson, Federal Income, Gift and Estate Taxation § 53.04(5) (1958).

The binding effect of state court decisions for federal tax purposes in the construction of wills and the interpretation of state statutes regulating the devolution of property is well established. Babcock's Estate v. Commissioner, 3 Cir., 1956, 234 F.2d 837; Oliver, The Nature of the Compulsive Effect of State Law in Federal Tax Proceedings, 41 Calif.L.Rev. 638 (1953). See Gallagher v. Smith, 3 Cir., 223 F.2d 218. There is some authority for an exception to this general rule if the probate proceedings are nonadversary. Merchants Nat. Bank & Trust Co. of Indianapolis v. United States, 7 Cir., 1957, 246 F.2d 410. Whatever the effect of this exception may be, it has no application to the present case since the proceedings in it are devoid of any semblance of collusion and are truly adversary in character. See Northrup, The Marital Deduction: The Street Case and The Need for Indiana Legislation, 34 Notre Dame Lawy. 195 (1959).

In this state the widow's statutory share in personal property 'remaining after the payment of debts and expenses of administration' is $7,500 and one-half the remainder. RSA 560:10, subd. II. The state taxing authorities contend that the federal estate tax is either a debt or an expense of administration within the meaning of RSA 560:10, subd. II and in any event should be treated as one or the other in computing the marital deduction. Int.Rev.Code of 1954 § 2056, 26 U.S.C.A. § 2056. Cf. Amoskeag Trust Co. v. Trustees of Dartmouth College, 89 N.H. 471, 473, 200 A. 786, 117 A.L.R. 1186. While the federal estate tax constitutes a lien on the gross estate which in all events must be paid, it is not a debt within the meaning of RSA 560:10, subd. II. The payment of debts under this section refers to debts of the testator such as real estate taxes, income taxes and other obligations incurred by the deceased before his death. See In re Grondin's Estate, 98 N.H. 313, 316, 100 A.2d 160. This meaning is indicated by RSA 554:19, subd. IV which gives priority over legacies to the 'just debts owed by the deceased.' Nor are federal estate taxes considered to be 'expenses of administration' in this state. The frequent practice of attorneys in providing in wills that federal and state taxes shall be paid 'as an expense of administration' is an indication that the federal estate tax is not in the same category as the executor's and his attorney's fees, commissions and probate expenses generally in this state. We conclude that the payment of the federal estate tax is not a debt or an expense of administration in computing the widow's share under RSA 560:10, subd. II.

By the twenty-third paragraph of the will the testator provided that 'transfer, inheritance, succession and estate taxes that may be imposed in any jurisdiction' should be paid out of the residuary estate and this was not limited to bequests in the will but also included taxes 'upon any part of my estate.' This was a testamentary declaration of a purpose to charge the residue with the payment of estate taxes upon any part of his estate whether transferred by probate or inter vivos and whether passing as testate or intestate. This he had a right to do under state law. Although New Hampshire is one of the few states that have enacted the Uniform Estate Tax Apportionment Act...