Hammond v. Wheeler

• Decision Date: 10 July 1961
• Docket Number: No. 48498,No. 1,48498,1
• Citation: 347 S.W.2d 884
• Parties: Wallice HAMMOND and Earl E. Roberts, Executors of the Will of Cooper S. Hammond, Deceased, Plaintiffs-Respondents, v. Charles C. WHEELER, Executor of the Will of Clara Wheeler Hammond, Deceased, Defendant-Respondent, Wallice Hammond, Mary Hammond, Mollie Millsap, Cooper S. Hammond, Ethel Bay, Virginia Amis, Thomas B. Hammond, and Joseph H. Hammond, Defendants-Appellants
• Court: Missouri Supreme Court

Page 884

347 S.W.2d 884

Wallice HAMMOND and Earl E. Roberts, Executors of the Will of Cooper S. Hammond, Deceased, Plaintiffs-Respondents, v. Charles C. WHEELER, Executor of the Will of Clara Wheeler Hammond, Deceased, Defendant-Respondent, Wallice Hammond Mary Hammond, Mollie Millsap, Cooper S. Hammond, Ethel Bay Virginia Amis, Thomas B. Hammond, and Joseph H. Hammond Defendants-Appellants.

No. 48498.

Supreme Court of Missouri, Division No. 1.

July 10, 1961.

William C. Connett IV, William M. Van Cleve, St. Louis, for all defendants-appellants. Bryan, Cave, McPheeters & McRoberts, St. Louis, of counsel.

Thompson & Shewmaker, Richard D. Shewmaker, Bernard N. Frank, St. Louis, for respondent Charles C. Wheeler.

COIL, Commissioner.

Cooper S. Hammond died testate in 1954 survived by his widow, Clara Wheeler Hammond, and left no children or other descendants. His widow died in 1958. Respondents Wallice Hammond and Earl Roberts, executors of Cooper's will, brought this declaratory judgment action. Charles Wheeler, who was a defendant below and is a respondent here, is executor of Clara's will, and certain defendants below and appellants here are the heirs and, as such, the residuary legatees, under Cooper Hammond's will. Clara renounced her deceased husband's will and elected to take the share provided for her in that event by then applicable section 469.090(2), RSMo 1949 (repealed, Laws Mo.1955, p. 385, Sec. A), V.A.M.S., c. 475 Appendix, which provided that she receive 'one-half of the real and personal estate belonging to the husband at the time of his death, absolutely, subject to the payment of the husband's debts.'

The first question is what portion of the federal estate tax on Cooper Hammond's estate is properly allocable to his widow's share of his estate. The answer to that question depends upon whether a surviving spouse who has renounced her decedent spouse's will takes the amount of the marital deduction provided for in the federal estate tax law free of any burden to pay federal estate tax by reason of having received that share.

The parties agree that Clara's statutory one-half share of her deceased husband's estate qualified for the marital deduction and that she received from her husband (part of his gross estate for federal estate tax purposes) an additional sum of $38,773.43 consisting of life insurance proceeds, jointly-held property, and an allowance for a year's support. The trial court found that Mrs. Hammond took the statutory one half 'free and clear of any charge for Federal Estate Tax, except she should pay as much of the federal tax as may be allocable to that portion of her husband's property passing to her which does add to the amount of such tax * * *.'

The pertinent provisions of the 1939 Internal Revenue Code, as amended in 1948, applicable to this case, ¹ 26 U.S.C.A. I.R.C.1939, as amended, Secs. 810, 811, and 812, pp. 380-397, impose a tax on the transfer of a decedent's net estate (called 'taxable estate' in the 1954 Code). To determine the 'net estate' the value of the decedent's 'gross estate' is first determined by including the value of specified assets and by deducting from the value of the 'gross estate' so determined an amount as an exemption and other amounts as deductions for specified items. One such deduction, called the marital deduction, is an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse up to an amount equal to 50 per cent of the value of the 'adjusted gross estate.' (The adjusted gross estate is the value of the gross estate less the value of the amount of the deductions; the exemption is not deducted.) The marital deduction was enacted along with changes in the law as to income taxes and gift taxes, in an attempt to provide or to enable states to provide for equality in taxation among the residents of community-property states and noncommunity-property states. An effort had been made to eliminate the inequality by certain 1942 amendments, but those proved unsatisfactory and, consequently, in 1948, the marital deduction was proposed and enacted to enable residents of common-law states to have equality with residents of community-property states in so far as concerned the assessment and burden of the federal estate tax. See 2 U.S. Code, Congressional Service, 1948, pp. 1188-1190 and 1270-1272.

It is apparent that the 1948 marital deduction feature intended to and did enable the states to permit a decedent to pass half of his net estate to his surviving spouse free of federal estate tax (with certain exceptions not applicable here set forth in Secs. 826(c) and 826(d), 26 U.S.C.A. I.R.C.1939, p. 405). It is equally apparent, however, that the Code did not specify but was silent as to who was to bear the ultimate burden of the federal estate tax. In Fernandez v. Wiener, 326 U.S. 340, 345, 66 S.Ct. 178, 181, 90 L.Ed. 116, the United States Supreme Court said: 'The revenue laws make no provision for the distribution of the burden of the tax beyond providing that the tax shall be a lien on all of the property included in the decedent's gross estate. Section 827(a) I.R.C., 26 U.S.C. Sec. 827(a), 26 U.S.C.A.Int.Rev.Code, Sec. 827(a). See Detroit Bank v. United States, 317 U.S. 329, 331-333, 63 S.Ct. 297, 87 L.Ed. 304. Section 826(b) of the I.R.C., 26 U.S.C.A.Int.Rev.Code, Sec. 826(b), contemplates that the tax 'be paid out of the [taxable] estate before its distribution,' unless otherwise directed by decedent's will. Although the share of the surviving spouse is subject to the lien and the tax must be paid out of the estate as a whole, the federal statute leaves it to the states to determine how the tax burden shall be distributed among those who share in the taxed estate. See Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106.'

Consequently, the fact, standing alone, that a surviving spouse's share of the deceased's estate constitutes a marital deduction does not mean that the surviving spouse should or should not pay a portion of the federal estate tax assessed on the decedent's net or taxable estate.

It is clear that a surviving spouse who renounces his deceased spouse's will takes only that which is provided by the applicable Missouri statute. It is appellants' contention that the then applicable state statute quoted above, RSMo 1949, Sec. 469.090(2), reasonably construed, meant that the surviving widow's one-half share was one half the estate which remained after the payment of the federal estate tax; that the word 'debts' included in the phrase 'subject to the payment of the husband's debts' encompassed all taxes including the federal estate tax. Appellants concede that technically a tax is not a debt, but argue that because RSMo 1949, Sec. 464.010(3), ¹ relating to classification of demands (repealed Laws Mo.1955, p. 385, Sec. A), provided in part, 'All debts, including taxes due the state or any county or incorporated city or town,' the word 'debt' as used in section 469.090(2) had a broader meaning than simply the contractual obligations of the decedent. Appellants cite State ex rel. Karrenbrock v. Mississippi Valley Trust Co., 209 Mo. 472, 108 S.W. 97, for the proposition that a tax is not a debt in a strict sense, but they fail to point out that the court in that case, referring to the identical argument made with respect to the same language in the classification statute (Sec. 184 RSMo 1899), said 108 S.W. at page 101: '* * * the dominant idea of that section is classification of demands against estates, not the definition of taxes or debts, and the third subdivision (unfortunately punctuated) is merely a direction that all debts due the state or any county or incorporated city or town, together with taxes due the one or the other, should be put in the third class of demands and paid accordingly.'

To further support their contention, appellants rely on three Missouri cases. In re Rosing's Estate, 337 Mo. 544, 85 S.W.2d 495, held that the entire federal estate tax paid by an estate was to be deducted in computing the Missouri inheritance tax. In the case of In re Bernays' Estate, 344 Mo. 135, 126 S.W.2d 209, 122 A.L.R. 169, it was, as appellants say, held that a wife's interest in her husband's personalty, except for absolute allowances, is subject to the payment of her husband's debts. We think it is apparent that neither of those cases is controlling or particularly helpful in determining the meaning of the phrase in question in the present case. In re Poe's Estate, 356 Mo. 276, 201 S.W.2d 441, 443, as appellants correctly state, pointed out that the federal estate tax is on the interest of the decedent which has ceased by reason of his death and that the tax is payable initially out of the personal assets in the hands of the executor. We cannot agree with appellants, however, that the holding in the Poe case constituted an interpretation that the word 'debts' as used in section 469.090(2) included 'costs of administration and Federal estate taxes.' In the Poe case, the decedent's widow was entitled to dower in the real and personal property of her deceased husband and to other statutory allowances. There was both real and personal property. In their final settlement the executors took credit for real estate taxes paid which had been assessed in 1942 and were payable in 1943, the year of the testator's death, and also took credit for the full federal estate tax which they had paid. The executors proposed to distribute to the widow one half of the net personal estate remaining after the payment of 'debts, taxes and expenses of [the] administration.' The widow's contention as to the federal estate tax was that a pro rata part of it should have been allocated to the real estate which had passed to her deceased husband's beneficiaries. She assigned various reasons in support of her contention. All those reasons tended to support the argument that...