Hamlin v. Wellington (In re Hamlin)

• Decision Date: 20 May 1919
• Citation: 226 N.Y. 407,124 N.E. 4
• Parties: In re HAMLIN et al. HAMLIN et al. v. WELLINGTON et al.
• Court: New York Court of Appeals Court of Appeals

226 N.Y. 407

124 N.E. 4

In re HAMLIN et al.HAMLIN et al.

v.WELLINGTON et al.

Court of Appeals of New York.

May 20, 1919.

Appeal from Supreme Court, Appellate Division, Fourth Department.

In the matter of the judicial settlement of accounts of Grace E. Hamlin and others, as executors of the estate of Mary E. Daniels. From an order of the Appellate Division (172 N. Y. Supp. 787,185 App. Div. 153) reversing a decree apportioning federal estate tax among legatees, executors appeal. Affirmed.

John Lord O'Brien and Richard L. Ball, both of Buffalo, for appellants.

G. B. Wellington, of Troy, for respondents.

Paul Armitage, Wilson M. Powell, Thomas N. Rhinelander, and M'Cready Sykes, all of New York City, amici curiae.

HOGAN, J.

Mary E. Daniels, a resident of Erie county, died January 3, 1917, leaving a will executed July 8, 1907, which will was admitted to probate on January 16, 1917. The executors named therein duly qualified.

The testatrix, by her will, bequeathed to her daughter certain articles of personal property and made bequests of money to nine individuals aggregating $160,000, amongst whom were George B., Mary and Grace Wellington, cousins, each of whom was given a legacy of $25,000. The residue and remainder of the estate was bequeathed and devised to trustees, for Grace E. Hamlin and Chauncey J. Hamlin, with remainder to the children of Chauncey J. Hamlin of whom there are three, all minors.

The executors of the will having paid to each of the legatees named in the will the amount of the legacies given them, after deducting from each legacy the amount of transfer or inheritance taxes, together with a proportionate amount of the federal estate tax, on the 6th day of April, 1918, filed their account with the surrogate of Erie county.

The account disclosed, so far as the federal tax is involved, that the net estate of the testatrix taxable was $1,170,449.29; that the federal tax as fixed thereon was $51,226.96 or .0437667 per cent. of the whole net estate; that the executors had deducted from each legacy on account of that tax the stated percentum upon the amount of the legacy, thus upon a legacy of $25,000 the deduction was $1,094.17.

Objections were filed on behalf of the three legatees in the $25,000 class to such deduction made against each of them, upon the grounds: (1) That said sum was not chargeable against them, but if chargeable should not exceed in amount $250 against each; (2) that under the act of Congress no apportionment of the federal tax can be made, but that the whole thereof is payable by the executors out of the estate, but, in the event that an apportionment is to be made, the method of apportionment applied is erroneous. The objections were overruled and a decree entered confirming the account of the executors.

From such part of the decree as approved, allowed, and confirmed the action of the executors, in apportioning pro rata the federal tax and dismissing the objections filed to the account the respondent legatees appealed to the Appellate Division. The latter court reversed the decree of the surrogate so far as appealed from (185 App. Div. 153,172 N. Y. Supp. 787) and remitted the matter to the Surrogate's Court with directions to strike from the account the amount of the federal tax charged against each of their legacies; the court unanimously holding that the tax was payable from the estate and the legacies were not chargeable with any part of the same.

The sole question presented for determination arises under the objections filed to the account of the executors, viz.: Was any portion of the federal tax chargeable against the legacies of the respondents? If so, what proportion of the same?

The act of Congress in force at the time of the death of the testatrix is contained in the Internal Revenue Law of September 8, 1916, chapter 463, designated under the title ‘Estate Tax.’ (Chapter 10A, vol. 6, United States Compiled Statutes 1916, p. 7364, sec. 6336 1/2 a, and following.)

Section 6336 1/2 b provides:

‘ Taxing Percentages Based on Value of Net Estate.-A tax (hereinafter in this title referred to as the tax), equal to the following percentages of the value of the net estate to be determined as provided in section two hundred and three [sec. 6336 1/2 d] is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this act. * * *’

Then follows a table of percentages, viz., ‘one percentum of the amount of such net estate not in excess of $50,000,’ and eight several specific percentages, of the amounts by which such net estate exceeds a stated sum, but does not exceed a sum mentioned and one additional rate, ‘ten per centum of the amount by which such net estate exceeds $5,000,000.’

The act then provides the manner in which the value of the gross estate and the net value of the estate shall be determined. Sections 6336 1/2 c, 6336 1/2 d. The latter section, in substance, is as follows:

‘ Net Value of Estate, How Determined.-For the purpose of the tax the value of the net estate shall be determined-(a) In the case of a resident, by deducting from the value of the gross estate-(1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages, losses incurred during the settlement of the estate * * * support during the settlement of the estate of those dependent upon the decedent, and such other charges against the estate, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered; and (2) an exemption of $50,000.’

The tax becomes due one year after a decedent's death. Section 6336 1/2 e. The executors were required within 30 days after qualifying as such or after coming into possession of the property of decedent to give written notice to the collector of internal revenue of the district in which the testatrix was domiciled at the time of her death and file with him a return under oath setting forth the value of the gross estate, the deductions allowed under section 6336 1/2 d, the value of the net estate as determined under that section, and tax paid or payable thereon. ‘The Commissioner of Internal Revenue shall make all assessments of the tax under the authority of existing administrative special and general provisions of law relating to the assessment and collection of taxes' (section 6336 1/2 f) which provisions were by section 6336 1/2 l made applicable to the estate tax law. Payment of the tax is required to be made by the executor to the collector or deputy collector of internal revenue. Section 6336 1/2 h.

In 1898, the Congress for the purpose of meeting existing conditions enacted a law known as the War Revenue Law (Act of Congress of June 13, 1898, c. 448, 30 Stat. 448). That law imposed various taxes, amongst which was one under the heading, ‘Legacies and Distributive Shares of Personal Property.’ Section 29, 30. Section 29 of the law provided:

‘That any person or persons having in charge or trust as administrators, executors or trustees, any legacies or distributive shares arising from personal property, where the whole amount of such personal property as aforesaid shall exceed the sum of ten thousand dollars in actual value, passing, after the passage of this act, from any person possessed of such property, either by will or by the intestate laws of any state or territory, or any personal property or interest therein, transferred by deed, grant, bargain, sale, or gift, made or intended to take effect in possession or enjoyment after the death of the grantor or bargainor, to any person or persons, or to any body or bodies, politic or corporate, in trust or otherwise, shall be, and hereby are, made subject to a duty or tax, to be paid to the United States as follows-that is to say: Where the whole amount of said personal property shall exceed in value ten thousand dollars and shall not exceed in value the sum of twenty-five thousand dollars the tax shall be.’

Then followed five classifications of beneficiaries, each varying in the rate of tax imposed, and a further provision of increase of rate of the tax dependent upon the amount or value of the property transferred. The validity and interpretation of the law of 1898 was the subject of consideration by the United States Supreme Court. Knowlton v. Moore, 178 U. S. 41, 20 Sup. Ct. 747, 44 L. Ed. 969. Mr. Justice White, writing for the court, reviewed at length the history of laws imposing death duties, impost and excise taxes, and various acts of the Congress in the enactment of revenue laws, and fully treated of the distinction between a tax imposed on the whole personal estate and a tax laid upon legacies or distributive shares, concluding that under the law of 1898, the validity of which was sustained, the tax therein provided for was not upon the whole estate of a decedent, but was one imposed upon particular legacies or distributive shares.

In 1916, when the Congress was again confronted with the necessity of providing revenue, we may assume that the framers of a proposed law would in the first instance recall the law of 1898, and the decision of the United States Supreme Court in the Knowlton Case, to the end that any proposed regislation should be within constitutional limitations and consonant with the decision of the court. Had the Congress of 1916 intended to impose a tax upon legacies or distributive shares, the task would be lightened by practically following the act of 1898, as construed by the court, with any changes deemed advisable in the rate of the tax imposed. That the Congress did intend by the law of 1916 to impose a tax on the value of the estate of a decedent at a flat rate dependent upon the amount of the same, rather than upon legatees or distributees, is evident by a comparison of the act of 1916 with the act of 1898. In the latter statute, the provision imposing the tax was embodied under a heading, ‘Legacies and...