Commercial Trust Co. Of N.J. v. Thurber

• Decision Date: 23 May 1945
• Docket Number: 149/406.
• Citation: 42 A.2d 571
• Parties: COMMERCIAL TRUST CO. OF NEW JERSEY v. THURBER et al.
• Court: New Jersey Court of Chancery

42 A.2d 571

COMMERCIAL TRUST CO. OF NEW JERSEY

v.THURBER et al.

149/406.

Court of Chancery of New Jersey.

May 23, 1945.

Suit by Commercial Trust Company of New Jersey, executor, etc., against Mary Brainard Thurber and others, involving questions as to liability for federal estate and state inheritance and transfer tax upon estate of plaintiff's decedent.

Decree advised in accordance with opinion.

1. Decedent's estate is entitled to reimbursement for state and federal taxes paid out of the estate on inter vivos gifts made by decedent in his lifetime although decedent's will directs his executors to pay any and all federal estate and state inheritance and transfer taxes upon his estate. Such taxes levied by reason of such gifts were not levied against decedent's estate passing under his will.

2. Insurance companies which issued annuity contracts to decedent providing for monthly payments to himself and his wife and to the survivor of them for life, are not liable to reimburse decedent's executors for state and federal taxes paid by the executors levied on or by reason of such annuity contracts.

Anderson, Rugge & Coleman, of Jersey City, for complainant.

Durand, Ivins & Carton, of Asbury Park, for defendant Mary B. Thurber.

Collins & Corbin, of Jersey City, for defendants Charles E. Ross, AEtna Life Insurance Co., et al.

W. Ludlow James, of New York City, for defendants John S. Sherman et al.

King & Vogt, of Morristown, for defendants Alton Hedden et al.

McCarter, English & Studer, of Newark, for defendant Union Central Life Ins. Co.

Stryker, Tams & Horner, of Newark, for defendants New York Life Ins. Co. et al.

FIELDER, Vice Chancellor.

Orray E. Thurber, a resident of this state, died April 23, 1941, leaving a will admitted to probate by the surrogate of Monmouth county May 9, 1941 on which letters testamentary were granted to complainant and to the defendants Mary B. Thurber (decedent's widow) and John S. Sherman. An addition by way of supplement to the original bill of complaint contains the following allegations and presents the following questions.

The State of New Jersey assessed against Mrs. Thurber transfer inheritance taxes with respect to transfers made to or for her benefit by decedent in his lifetime of annuities upon a valuation of $61,473.74 purchased December, 1937 from several insurance companies; also with respect to a bank account in a Palm Beach, Florida, bank standing in the joint names of decedent and Mrs. Thurber in which there was a balance of $7,811.21 as of the date of decedent's death; also with respect to a legacy of $100,000 bequeathed by decedent's will to Mrs. Thurber. Said transfer inheritance tax amounting to $3,721.40, has been paid by the executors.

The Federal Commissioner of Internal Revenue assessed federal estate taxes against decedent's estate including therein the annuities mentioned above at a valuation of $224,786.04; the transfer by decedent in his lifetime to Mrs. Thurber of property at Elberon in this state known as Cricket Lodge, at a valuation of $15,000; the balance of $7,811.21 in the Palm Beach bank; the sum of $12,800 contributed by decedent in his lifetime toward the purchase by Mrs. Thurber of 416 Sea Breeze Ave., Palm Beach. The executors have paid $122,337.03, the federal estate tax assessed against decedent's estate, and interest thereon of $4,411.97.

The questions presented by the supplemental bill are: (a) Whether Mrs. Thurber is obligated to reimburse decedent's executors for a portion of the aforesaid state transfer inheritance tax paid by them; (b) whether Mrs. Thurber is obligated to reimburse decedent's executors for a portion of the aforesaid federal estate taxes assessed against decedent's estate and paid by them; (c) whether the insurance companies from whom the annuities were purchased are liable to reimburse decedent's executors for part of the state inheritance and federal estate taxes paid by reason of including in the taxable estate of decedent, the aforesaid annuities.

The correctness of the foregoing allegations and of amount of the aforesaid taxes paid by the executors is not in dispute. Mrs. Thurber denies liability for any part of the state inheritance or federal estate taxes and contends that by the terms of decedent's will his residuary estate is charged with the payment of all such taxes. She also contends that if the taxes assessed by reason of the aforesaid annuity contracts are not properly payable out of decedent's residuary estate, then as between her and the insurance companies the burden should be borne by the latter. The insurance companies deny liability for any part of the aforesaid taxes. The residuary legatees assert that Mrs. Thurber is liable to reimburse decedent's executors for all state and federal taxes paid by them on account of said annuities and property or interests transferred to her by decedent in the latter's lifetime.

The decedent's will provides as follows:

‘Twenty-fifth: I order and direct my executors in the management and administration of my estate under this will; (a) to pay any and all federal, state and foreign, estate, succession, inheritance and transfer taxes upon my estate, real and personal, and upon any devise, legacy, estate or interest given or created by this will generally out of the capital of my residuary estate, and I give to them full power to agree with any taxing authority upon a compromise of any such tax upon any devise, legacy, estate or interest given or created by this will, vested or contingent * * *’

The state transfer inheritance tax assessed against a testamentary gift is payable by the recipient thereof. Turner v. Cole, 118 N.J.Eq. 497, 179 A. 113; Fidelity Union Trust Co. v. Suydam, 125 N.J.Eq. 458, 6 A.2d 392. The federal estate tax is imposed on the passing of property from a decedent at and by reason of his death and is payable out of his residuary estate (Turner v. Cole, supra; Fidelity Union Trust Co. v. Suydam, supra; Morristown Trust Co. v. Childs, 128 N.J.Eq. 524, 17 A. 2d 559), but if his will directs otherwise as to state and federal taxes, such direction is valid and controlling. Gaede v. Carroll, 114 N.J.Eq. 524, 169 A. 172; Fidelity Union Trust Co. v. Suydam, supra; Morristown Trust Co. v. Childs, supra.

Under the above quoted provision of decedent's will, it is clear that the taxes state and federal, levied because of or with respect to the $100,000 legacy bequeathed to Mrs. Thurber by decedent's will, are chargeable generally against decedent's residuary estate and not against Mrs. Thurber personally and the question here is whether that provision is broad enough to exempt Mrs. Thurber from liability for such taxes as were levied against or by reason of the inter vivos interests and property transferred to her by decedent prior to his death and taxable for state and federal purposes, although forming no part of decedent's estate at his death and in which Mrs. Thurber acquired no interest under decedent's will.

It is argued on behalf of Mrs. Thurber that at the time decedent executed his will he was a wealthy man (his gross estate amounted to...