Farmers' Loan & Trust Co. v. Winthrop

• Decision Date: 05 July 1924
• Citation: 238 N.Y. 488,144 N.E. 769
• Parties: FARMERS' LOAN & TRUST CO. v. WINTHROP et al.
• Court: New York Court of Appeals Court of Appeals

238 N.Y. 488

144 N.E. 769

FARMERS' LOAN & TRUST CO.

v.WINTHROP et al.

Court of Appeals of New York.

July 5, 1924.

Action by the Farmers' Loan & Trust Company, as trustee under a certain deed of trust executed by Helen C. Bostwick, for the benefit of Helen C. Bostwick and remaindermen, against Egerton L. Winthrop, Jr., as executor of the last will and testament of Evelyn Bostwick Voronoff, and others. From a judgment of the Appellate Division of the Supreme Court (207 App. Div. 373,202 N. Y. Supp. 471), entered in the office of the clerk of the county of New York, which modified a judgment entered in the office of the same clerk on a previous date, on the report of Harry M. French, referee, certain parties appeal.

Modified, and, as so modified, affirmed.

See, also, 238 N. Y. 477, 144 N. E. 686.

Appeal from Supreme Court, Appellate Division, First department.

Charles Angulo, of New York City, for plaintiff appellant.

Charles Green Smith and Lawrence Atterbury, both of New York City, for appellants Dorothy S. B. Smith and others.

Albert Ritchie, of New Rochelle, for appellants New Rochelle Trust Co. and others.

Archibald R. Watson, John M. Harrington, and Ralph O. Willguss, all of New York City, for Francis J. Oakes, Jr., amici curiae.

Henry L. Stimson and Henry L. Steitz, both of New York City, for respondent Edgerton L. Winthrop, Jr.

John W. Davis, Edward R. Greene, and Hall Park McCullough, all of New York City, for respondents Evelyn Francis and others.

LEHMAN, J.

In June, 1918, Mrs. Helen C. Bostwick executed a deed transferring to the Farmers' Loan & Trust Company property of great value, in trust to apply the income to the use of the donor during her natural life, with remainder after her death to the surviving children of her son and daughter. The donor reserved the right to withdraw from the trust any part or the whole of the property at any time constituting the trust funds in the hands of said trustee and to amend or revoke the trust instrument. Mrs. Bostwick died on April 27, 1920. She did not revoke the deed during her life, and under its terms the transfer of the property in trust for the benefit of the donor's grandchildren took effect in possession or in enjoyment at the time of her death. Such a transfer in taxable under the laws of the United States and of a number of states where the trust property or some part of it is situated, and upon the settlement of the accounts of the trustee named in the deed of trust the court is called upon to determine whether all or any of such taxes must ultimately be paid out of the trust estate, or whether Mrs. Bostwick's executor must pay them out of her general estate without right of reimbursement from the trust estate.

Mrs. Bostwick made a will in November, 1919, about a year and a half after she created the trust fund, and she provided in that will:

‘First, I direct that all my just debts and funeral expenses be paid as soon as possible after my decease and that all inheritance taxes be paid out of my general estate.’

We construe these words as meaning that all taxes upon the transfer of property passing under her will and which, in common parlance, are known as ‘inheritance taxes,’ should be paid by the executor out of the general or residuary estate, even where, under the statute imposing the tax, such tax would ordinarily be payable by the legatee out of the legacy received. While perhaps the testatrix, in using the words ‘inheritance taxes,’ may not have had in mind any technical distinction between ‘inheritance’ taxes and ‘estate’ or ‘succession’ taxes, we believe that, if she had intended to make a specific direction to her executor to pay out of her general estate taxes on the transfer of property which did not pass under her will, and which was not subject to distribution as part of her estate, she would have used language which would have expressed her intention more aptly. On the other hand, we think that a direction by the decedent to her executor to pay inheritance taxes upon property passing under her will may not be construed as a direction that any tax or part of any tax which, but for such direction, would be paid out of her general estate should not be so paid. We conclude that the testatrix, in drawing her will, has not indicated that she had in mind any question of who should pay any tax imposed on the trnasfer of property passing under a deed of trust executed by her, either before or after the making of the will. The court must determine whether the trust estate or the general estate should ultimately bear the burden of the payment of such tax in accordance with the intention of Congress or the Legislature which has imposed the tax, since the decedent has made no direction either way for its payment.

Section 401 of the federal Revenue Act of 1918, enacted February 24, 1919 (U. S. Comp. St. Ann. Supp. 1919, § 6336 3/4 b), imposes a tax ‘upon the transfer of the net estate of every decedent dying after the passage of this act.’ The rate of the tax is graduated in accordance with the size of the net estate. Section 402 of the act (section 6336 3/4 c) provides ‘that the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, * * * to the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death.’ Section 403 (section 6336 3/4 d) provides ‘that for the purpose of the tax the value of the net estate shall be determined-- (a) In case of a resident, by deducting from the value of the gross estate’ certain expenses for administration and the amount of certain claims, liabilites, losses, charges, and allowances, including the amount of any bequest or gift to corporations organized exclusively for religious, chartiable, scientific, literary, or educational purposes.

The tax is calculated upon the value of the net estate as so determined and the rate of taxation is graduated in accordance with this value. Section 407 (section 6336 3/4 h) provides ‘that the executor shall pay the tax to the collector or deputy collector,’ but if this tax is not paid, provision is made under section 408 (section 6336 3/4 i) for its collection out of the gross estate of the decedent, and ‘if the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to...