Campbell v. Lloyd, 33911

• Decision Date: 17 November 1954
• Docket Number: No. 33911,33911
• Citation: 122 N.E.2d 695,162 Ohio St. 203
• Parties: , 55 O.O. 102 CAMPBELL, Ex'r, Appellee, v. LLOYD et al., Appellees; Lioyd, a Minor, Appellant.
• Court: Ohio Supreme Court

Page 203

162 Ohio St. 203

122 N.E.2d 695, 55 O.O. 102

CAMPBELL, Ex'r, Appellee, v. LLOYD et al., Appellees Lioyd, a Minor, Appellant.

No. 33911.

Supreme Court of Ohio.

Nov. 17, 1954.

Syllabus by the Court.

Where a widow elects under Section 10504-55, General Code, to take under the statute of descent and distribution and the applicable portions of that statute (Section 10503-4, (General Code) provide that 'personal property shall be distributed' and any 'real estate or inheritance shall descend and pass in parcenary' in part to the surviving spouse, the amount of the federal estate tax on the decedent's estate should be deducted therefrom before computing the widow's share thereof. Sections 10503-4, 10504-55, 10504-77, 10509-121, 10509-181, 10509-182 and 10510-2, General Code, and Section 812(e), Title 26 U.S. Code, construced and applied. The syllabus in Tax Commission of Ohio ex rel. Price v. Lamprecht, 107 Ohio St. 535, 140 N.E. 333, 31 A.L.R. 985, approved and followed. Paragraphs two, three and four of the syllabus and the decision in Miller v. Hammond, 156 Ohio St. 475, 104 N.E.2d 9, overruled. McDougall v. Central National Bank of Cleveland, 157 Ohio St. 45, 104 N.E.2d 441, distinguished.

Charles E. Roseman, Jr., herein referred to as decedent, died on March 26, 1952, leaving a will which was admitted to probate. Decedent was survived by a widow and by an infant daughter who is his only lineal descendant.

Under the terms of item II of decedent's will, his widow was given 'one-half of' his 'net estate * * * to be hers absolutely and in fee simple.' The will gave the remainder of the estate, after certain specific bequests, to a trustee for the benefit of decedent's child with the proviso that, if the child should not live to receive all the benefits provided for her, what was left should be distributed to certain charitable organizations.

Pursuant to Section 10504-55, General Code, decedent's widow duly elected to take under the statute of descent and distribution.

Decedent's gross estate had a value of approximately $2,275,326.36. Its amount is such as to involve a substantial federal estate tax.

Plaintiff, as the duly qualified executor of decedent's estate, instituted an action in the Probate Court of Cuyahoga County for a declaratory judgment to determine whether the amount of the federal estate tax should or should not be deducted from the estate before computing the widow's one-half share of the estate.

The Probate Court rendered a judgment holding that it should be deducted.

On appeal to the Court of Appeals, 117 N.E.2d 45, that judgment was reversed and the Court of Appeals held that the amount of the federal estate tax should not be deducted from the estate before computing the widow's one-half share of the estate.

The cause is now before this court on appeal from the judgment of the Court of Appeals, pursuant to allowance of a motion to certify the record.

Morley, Stickle, Keeley & Murphy and John D. Cannell, Cleveland, for appellant.

Merkel, Campbell, Dill & Clarke, Cleveland, for appellee Robert W. Campbell, executor.

J. Melvin Andrews, Eastlake, and Key, Butler & Harrison, Columbus, for appellee Ann B. Roseman Lloyd.

McAfee, Grossman, Taplin, Hanning, Newcomer & Hazlett, Cleveland, for appellee The Musical Arts Ass'n.

Baker, Hostetler & Patterson and Howard F. Burns, Cleveland, for appellee Western Reserve University.

TAFT, Judge.

As it did in Miller v. Hammond, 156 Ohio St. 475, 104 N.E.2d 9, the question to be determined in the instant case arose because of the enactment of Section 812(e), Title 26 U.S.Code, effective in 1948, by which Congress created the so-called 'marital deduction' under which bequests and certain transfers to a surviving spouse qualify as deductions from the gross estate of a decedent in the computation of the federal estate tax.

Decedent's widow contends that the decision of this court in Miller v. Hammond, supra, requires affirmance of the judgment of the Court of Appeals. On the other hand, the guardian ad litem of decedent's daughter, who will be herein referred to as the guardian, contends that, because of certain provisions of Section 10504-55, General Code, pursuant to which the widow made her election, the decision of this court in Miller v. Hammond, supra, does not apply.

Section 10504-55, General Code, reads so far as pertinent:

'After the probate of the will and filing of the inventory, appraisement and schedule of debts, the probate court on the motion of the executor or administrator, or on its own motion, forthwith shall issue a citation to the surviving spouse, if any, to elect whether to take under the will or under the statute of descent and distribution. In the event of election to take under the statute of descent and distribution, such spouse shall take not to exceed one-half of the net estate. * * *' (Emphasis added.)

The guardian contends that 'the net estate' is what remains of the estate after all debts and obligations of decedent and of the estate, including the federal estate tax, have been paid; and that the widow's election can entitle her to no more than one-half of that.

We are in agreement with the Court of Appeals that the words 'net estate,' as used in Section 10504-55, General Code, describe the same property as do those words of Section 10503-4, General Code, which describe the property to be distributed and to descend and pass pursuant to the provisions of the latter statute. We are further of the opinion that the decision of this court in Miller v. Hammond, supra, fully supports the judgment which the Court of Appeals rendered in the instant case.

Such a decision, however, results in the widow receiving as her 'one-half of the net estate', somewhere between $286,000 and $296,000 (or between 37 per cent and 42 per cent) more than all the others entitled to share in the estate. In view of this result, we are inevitably though reluctantly led to a reconsideration of our decision in Miller v. Hammond, supra.

At the outset, it may be noted that, in enacting the subsection of the statute providing for the marital deduction, Section 812(e), Title 26 U.S.Code, Congress disclaimed any intention that the marital deduction should not be burdened by the estate tax. Thus, in paragraph (1) of that subsection, in defining the marital deduction, it is stated:

'(E) Valuation of interest passing to surviving spouse. In determining for the purposes of subparagraph (A) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this subsection ----

'(i) There should be taken into account the effect which a tax imposed by this chapter * * * has upon the net value to the surviving spouse of such interest * * *.'

The words 'a tax imposed by this chapter' refer to the tax imposed by the chapter providing for the federal estate tax.

It is arguable that, in the absence of statutory provisions which would be inconsistent with such a result, this court should require an equitable apportionment of the estate tax which would relieve this widow's share of her husband's estate from part or all of the burden of the federal estate tax on his estate. The question remains whether the statutes, which provide for the rights which she claims in his estate, would be consistent with such a result.

The rights of the widow are admittedly dependent upon the provision of Section 10504-55, General Code, that she may 'elect whether to take under the will or under the statute of descent and distribution' and on the provisions of the statute of descent and distribution. The applicable portion of the latter statute is Section 10503-4, General Code, which provides so far as pertinent:

'When a person dies intestate having title or right to any personal property, or to any real estate or inheritance in this state, such personal property shall be distributed, and such real estate or inheritance shall descend and pass in parcenary, except as otherwise provided by law, in the following course:

* * *

* * *

'2. If there be a spouse and one child, or its lineal descendants, surviving, one-half to the surviving spouse and one-half to such child or its lineal descendants, per stirpes.

'3. If there be a spouse and more than one child, or their lineal descendants, surviving, one-third to the surviving spouse and the remainder to the children equally, or to the lineal descendants of any deceased child, per stirpes.

'4. If there be no children, or their lineal descendants, three-fourth to the surviving spouse and one-fourth to the parents of the intestate equally, or to the surviving parent; if there be no parents, then the whole to the surviving spouse.' (Emphasis added.)

As to personal property, the statutes of this state require an executor or an administrator to pay the debts or make provision for their payment before distribution of such personal property can be made. See Sections 10509-121, 10509-181 and 10509-182, General Code. As stated in the syllabus in Tax Commission ex rel. Price v. Lamprecht, 107 Ohio St. 535, 140 N.E. 333, 31 A.L.R. 985, 'in determining the value of the succession of any * * * beneficiary the amount of the federal estate tax should first be deducted, like other debts and expenses of administration.' See also Y. M. C. A. v. Davis, 106 Ohio St. 366, 140 N.E. 114, and Davidson v. Miners' & Mechanics' Savings & Trust Co., 129 Ohio St. 418, 430, 195 N.E. 845, 98 A.L.R. 1318.

Under the words of Section 10503-4, General Code, applicable in the instant case, the widow will be entitled to none of the personal property of her husband until it...