Good Samaritan Hospital, Inc. v. Dugan

• Decision Date: 22 July 1924
• Docket Number: 28.
• Citation: 126 A. 85,146 Md. 374
• Parties: GOOD SAMARITAN HOSPITAL, INC., ET AL. v. DUGAN ET AL.
• Court: Maryland Court of Appeals

126 A. 85

146 Md. 374

GOOD SAMARITAN HOSPITAL, INC., ET AL. v. DUGAN ET AL.

No. 28.

Court of Appeals of Maryland

July 22, 1924

Appeal from Circuit Court of Baltimore City; Charles F. Stein Judge.

"To be officially reported."

Suit by the Good Samaritan Hospital, Inc., and others, to restrain Hammond J. Dugan and others, executors and trustees under the will of Thomas O'Neill, deceased, from paying an additional federal estate tax. Judgment for defendants, and complainants appeal. Reversed and remanded.

Argued before PATTISON, URNER, ADKINS, OFFUTT, DIGGES, and BOND, JJ.

Arthur W. Machen, Jr., and Harry N. Baetjer, both of Baltimore, for appellants.

Ferdinand C. Dugan, of Baltimore, for appellees.

PATTISON J.

Thomas O'Neill, a well-known merchant of Baltimore City, died on the 6th day of April, 1919, after having first executed his last will and testament, by which he devised and bequeathed his large estate, consisting of real estate of the appraised value of more than $1,000,000 and personal property valued at over $5,000,000.

The testator, by his will and codicils thereto, devised and bequeathed his entire residuary estate, after the payment of certain legacies to the appellees, as trustees, upon trust to pay out of the income certain annuities to his widow, his sisters, and his brother during their respective lives. "The balance of the income the trustees were directed to accumulate and reinvest until the death of the widow, when they were to set aside sufficient funds to support the remaining annuities, if any, and to transfer the balance both principal and accumulated income, to the plaintiffs (appellants in this court), subject, however, as to $250,000 in value of said residuary estate, to the exercise by the testator's widow of a general power of testamentary appointment given to her by said will, and subject to the payment of $300,000 (reduced in ademption in the testator's lifetime to $218,277.50) to the Associated Professors of Loyola College. The sanction of the General Assembly was duly given to said devises and bequests. After the death of the said testator, letters testamentary upon his estate were duly granted the defendants, who (as executors named in the will) took upon themselves the burden of administering the same."

As executors, the appellees paid all debts, funeral expenses the expenses of the administration, pecuniary legacies, and the amount of federal estate tax conceded to be due; and distributed to themselves, as trustees, sums aggregating $5,453,464.33, leaving still undistributed in their hands, of the personal estate, ready for distribution, the sum of $265,000.

The residuary real and personal estate (exclusive of the $265,000 undistributed in the hands of the executors) amounted to $6,462,426.51. Of this amount, $530,294.25 were devised and bequeathed to persons or corporations other than the appellants, and the balance, $5,932,132.26 represented the amount passing to the trustees in trust for the appellants.

The executors paid the collateral inheritance tax of 5 per cent upon the real estate, which amounted to $50,448.11, and also the collateral inheritance tax on the full amount of the personal estate distributed to them as trustees less the amount held in trust for persons exempt from such tax; the amount paid for collateral inheritance tax on the amount passing to the trustees for the appellants being $296,606.61.

The executors then made out their federal estate tax return, in which they deducted the entire amount passing to the trustees in trust for the appellants, including the amount paid by them as collateral inheritance tax thereon. This was not, as contended by the federal tax authorities, in conformity with the ruling of the Commissioner of Internal Revenue, based upon the decision of the Circuit Court of Appeals in Miles v. Curley, 291 F. 761, construing the Maryland statute providing for the payment of a collateral inheritance tax, holding that the entire charitable legacy should not be deducted but only the amount of the legacy remaining after the inheritance tax has been deducted therefrom; or, in other words, by the ruling of the commissioner the amount of the inheritance tax though charged against and paid out of the legacy passing in this case to the appellees in trust for the appellants is subject to the federal estate tax, on the ground that it attached before distribution and never passed to the appellees in trust for the appellants.

The federal authorities, holding to this view of the law, levied an additional assessment upon the amount of the inheritance tax, which had not been included in the federal estate tax returns made by the executors, and it was to prevent the appellees from paying such additional tax, which would further reduce the amount passing to the appellants, that the latter filed their bill alleging the facts we have stated and others, and asking, among other things, that the defendants, the appellees, be restrained from paying said additional federal estate tax.

Upon the hearing of the bill and answer filed thereto, admitting the facts, but denying the conclusions of law stated in the bill, the court below, following the decision in Miles v. Curley, supra, denied the plaintiffs the relief sought, and declared that--

"The Maryland collateral inheritance tax is really an estate tax levied in respect of the interest which came to an end at the death of the testator, Thomas O'Neill, deceased, and that the amount of said tax should not be treated as paid by the legatees or devisees out of the property or estate bequeathed or devised to them, but should be treated as paid by and out of the estate of the testator which as aforesaid came to an end upon his death."

The sole question in this case is whether the collateral inheritance tax imposed by article 81, §§ 120-144, of the Code of this state, is a tax upon the right of the beneficiary to receive the inheritance or legacy, or an estate tax on the right of the decedent to transmit the same. Should it be held that such tax is a tax on the right of the beneficiary to receive the inheritance or legacy, then it is conceded that under the federal act no federal estate tax should in this case be levied or assessed against the amount of the collateral inheritance tax upon the legacy passing to the appellees, a charitable corporation; but should it be held that such collateral inheritance tax is an estate tax on the right of the decedent to transmit the inheritance or legacy, then it is conceded that the federal estate tax should be assessed against the amount of such collateral inheritance tax. It therefore becomes necessary for us to decide whether such inheritance tax is a tax on the right of the beneficiary to receive it, or an estate tax on the right of the decedents to transmit the legacy. To reach a decision upon this question we must construe the statute imposing the tax.

In section 120 of said article it is said:

"All estates, real, personal and mixed, money, public and private securities for money of every kind passing from any person who may die seized and possessed thereof, being in this state, or any part of such estate or estates, money or securities, or interest therein, transferred by deed, will, grant, bargain, gift or sale, made or intended to take effect in possession after the death of the grantor, bargainor, devisor or donor, to any person or persons, bodies politic or corporate, in trust or otherwise, other than to or for the use of the father, mother, husband, wife, children and lineal descendants of the grantor, bargainor or testator, donor or intestate, shall be subject to a tax of five per centum in every hundred dollars of the clear value of such estate, money or securities; and all executors and administrators shall only be discharged from liability for the amount of such tax, the payment of which they be charged with, by paying the same for the use of this state."

Section 123 contains the provision that "every executor or administrator shall, within thirteen months from the date of his administration, pay said tax on distributive shares and legacies in his hands"; and section 132 provides that "the executor or administrator shall collect the same from the parties liable to pay said tax or their legal representatives," within the time mentioned above; and where the tax is upon real estate the condition is attached thereto that if the parties liable to pay said tax neglect or fail to pay the same within the required time, the property...