Ericson v. Childs
| Decision Date | 02 March 1938 |
| Citation | 198 A. 176,124 Conn. 66 |
| Court | Connecticut Supreme Court |
| Parties | ERICSON et al. v. CHILDS et al. |
Case Reserved from Superior Court, Litchfield County; Frank P McEvoy, Judge.
Action by Elmer Ericson and others, executors of the estate of Jane C. Childs, deceased, against Starling W. Childs and others trustees, for a determination as to whether federal and state estate and succession taxes levied upon the basis of an inter vivos trust established by Jane C. Childs should be borne entirely by the estate or should be prorated between the estate and the inter vivos trust. The trial court reserved the case for the advice of the Supreme Court of Errors.
Questions answered in accordance with opinion.
Robbins B. Stoeckel, of Norfolk, and Orlando B Willcox, of New York, for plaintiffs.
Albert H. Barclay, of New Haven, for Starling W. Childs and others.
Farwell Knapp, of Hartford, for Barbara Childs Lawrence.
William W. Hoppin, Jr., of Hartford, for Starling W. Childs, Jr., and others.
H. Roger Jones, of Winsted, for James F. Lawrence.
Cyril Coleman, Edward M. Day, and Julius G. Day Jr., all of Hartford, for Starling W. Childs, Jr., and others.
Argued before MALTBIE, C.J., and HINMAN, AVERY, BROWN, and JENNINGS, JJ.
This reservation raises the general question whether or not some portion of the federal and state estate and succession taxes levied upon the basis of an inter vivos trust established by Jane Childs, late of Norfolk, and upon the basis of the estate left by her at her death and disposed of by her will should be borne by the trust estate. In January, 1922, Mrs. Childs gave to trustees securities of an estimated value at the time the stipulation for a reservation was filed of about $2,470,000. In the agreement Mrs. Childs reserved the right ‘ during her lifetime’ to modify or alter its provisions in whole or in part or to add or take from the securities comprising the trust estate or any part of it. The agreement provided that during her life the net income should be paid to her; that after her death the income should be paid to her four children or the children of any who died, until the death of the longest living of her children and until the youngest living of the lawful issue of such children became 21, when the principal was to be distributed among her children and the children of any that had died, with other provisions as to the distribution of the principal of the fund adapted to meet various contingencies that might arise. The trust agreement contained this provision: ‘ The trustees are authorized and empowered to pay any and all proper costs, charges, and expenses arising hereunder including taxes and counsel fees, and if any of the trustees be a practicing lawyer he may be employed and compensated as counsel for the trustees.’
When Mrs. Childs died she left an estate estimated at the time the stipulation for a reservation was filed at about $2,240,000. In her will, after disposing of her real estate and making a few bequests, she directed that the residue of her estate should be divided into certain shares or portions which were to constitute trust funds for her children and the children of any child that had died, with provisions not greatly dissimilar to those in the trust agreement, except that the shares were not given in the same proportions. The concluding clause of the will was as follows: ‘ I direct that all taxes and imposts, Federal or State, which may become due upon or in respect to my estate or any of the bequests of this my will, be paid from my residuary estate and considered as part of the general expenses of the administration thereof.’
The amount of the taxes due to the federal government or to the state have not been paid or even finally determined. The parties have stipulated, however, that the questions included in the reservation are bound to enter into the final determination of the rights of the parties and that their present determination is in the interest of simplicity, directness, and economy of judicial action; and that this is so seems self-evident. Under the terms of the trust agreement there would seem no doubt that the value of the trust funds will be included in the computation of the federal estate tax upon the estate of Mrs. Childs, Reinecke v. Northern Trust Co., 278 U.S. 339, 49 S.Ct. 123, 73 L.Ed. 410, 66 A.L.R. 397; and that in the computation of the succession and estate taxes due the state of Connecticut the trust estate would also be included. Blodgett v. Guaranty Trust Co., 114 Conn. 207, 158 A. 245; Hackett v. Bankers Trust Co., 122 Conn. 107, 187 A. 653.
The act of Congress makes the federal estate tax payable by the executor of an estate. Revenue Act 1926, § 305(a), 26 U.S.C.A. § 422(b). It also provides that if not paid by him on or before the date it is due it may be collected by the sale of any property of the decedent and, if it is collected out of any part of the estate which has passed to or is in the possession of any person other than the executor, that person is entitled to reimbursement out of any part of the estate still undistributed or ‘ by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate’ ; and, further, that if any part of the gross estate consists of the proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary other than the executor, the latter shall be entitled to recover from the beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate. Revenue Act 1926, § 314(b), 26 U.S.C.A. § 426(b, c). Except for these provisions, neither of which are applicable here, the act of Congress in no way apportions the tax as regards beneficiaries of the estate or provides that an executor may impose its burden upon or secure reimbursement from any particular property or person.
The contention of all the parties before us, except certain who appear in the interest of minor or unborn grandchildren of Mrs. Childs, is that the trust estate is obligated to bear a fair proportion of the federal estate tax which will have to be paid by the executor on account of the property constituting the trust fund, and one of the principal issues argued before us is whether this would be legal under the terms of the act of Congress. As the executors must clearly pay the tax in the first instance, the question really is whether they are entitled on behalf of the estate to be reimbursed for a portion of that tax from the trust fund, and the equitable principal to which they appeal is that, where one pays a debt the obligation of which rests upon another, the former is entitled to reimbursement. Bailey v. Bussing, 28 Conn. 455, 462; Post v. Gilbert, 44 Conn. 9, 14; Farmers' Loan & Trust Co. v. Winthrop, 238 N.Y. 488, 498, 144 N.E. 769, 770.
Had Mrs. Childs in the trust agreement unequivocally directed that the trustees should pay a proportionate share of any federal tax which might be levied at her death in the computation of which the securities constituting the trust fund should be included, there seems little room for question, assuming that there is nothing in the federal law to prevent, that the executors would be entitled to reimbursement from the trust fund for such proportion of the federal estate tax. But she did not do this. She ‘ authorized and empowered [the trustees] to pay any and all proper costs, charges, and expenses arising hereunder including taxes and counsel fees.’ Under this provision the trustees no doubt would be authorized to pay such costs and charges as might properly be incurred in administering the trust, as well as such taxes as might be levied upon the trust fund or upon its income, for such charges would be included in the phrase ‘ arising hereunder.’ But the terms of the provision in question are not at all apt to impose upon the trustees an obligation which does not have its source in the performance of their duties under the agreement or is not founded upon the existence of the fund as such.
As we pointed out in Blodgett v. Guaranty Trust Co. supra, 114 Conn. 207, 217, 158 A. 245, 248, the federal estate tax is one ‘ upon the transfer of, rather than the succession to, property of the decedent.’ ‘ The tax is on the act of the testator not on the receipt of property by the legatees.’ Ithaca Trust Co. v. United States, 279 U.S. 151, 155, 49 S.Ct. 291, 73 L.Ed. 647. ‘ It comes into existence before and is independent of the receipt of the property by the legatee.’ Edwards v. Slocum, 264 U.S. 61, 62, 44 S.Ct. 293, 68 L.Ed. 564. In Reinecke v. Northern Trust Co., supra, 278 U.S. 339, 347, 49 S.Ct. 123, 125, 73 L.Ed. 410, 66 A.L.R. 397, wherein it was held that trusts inter vivos were to be included in the computation of the federal estate tax where the testator reserved a right to terminate the trust at any time before his death, the court said: ‘ In its plan and scope the tax is one imposed on transfers at death or made in contemplation of death and is measured by the value at death of the interest which is transferred.’ In sustaining the levy of an income tax upon the income of a fund given in trust to pay the income to the settlor's wife, the remainder over to their children, where the settlor reserved the power to alter or abolish the trust at will, the court, after referring to cases involving the imposition of estate taxes, said: ...
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