In re Diehl

• Decision Date: 19 December 1917
• Citation: 102 A. 738,88 N.J.Eq. 310
• Parties: In re DIEHL.
• Court: New Jersey Supreme Court

102 A. 738

88 N.J.Eq. 310

In re DIEHL.

Prerogative Court of New Jersey.

Dec. 19, 1917.

Appeal from Orphans' Court, Essex County.

In the matter of the final account of the executor of Henry C. Diehl, deceased. Appeal from an order overruling an exception to an item of the executor's final account. Reversed in part and affirmed in part.

J. Harry Hull, of Nutley, and Joseph C. Levi, of New York City, for appellant.

Absalom P. Bachman, of Orange, for respondent.

FOSTER, Vice Ordinary. This appeal is from an order of the Orphans' court of Essex county, overruling an exception to an item of the executor's final account in which allowance was asked for the sum of $2,295.44 paid from the income of the estate to the state treasurer for the transfer tax assessed against the life estate of Mary J. Whaley. In overruling the exception to this item the orphans' court held that the tax was properly paid and deducted from income, and should not be paid from or charged to the corpus of the estate.

Under the will of Henry C. Diehl, a resident of Essex county, who died on December 7, 1915, his estate was left to his executor, in trust for the benefit of Mary J. Whaley, a cousin, to whom the income thereof was to be paid semi-annually, during her life, and upon her death the principal of the estate is to be held in trust for testator's nephew until he attains the age of 40 years, when he is to receive the same absolutely. It is admitted that the Value of the life estate was properly ascertained, and that the correct amount of the tax was assessed and paid.

The question for determination is therefore whether the tax on the life estate of Mary J. Whaley should be paid from the income or principal of the estate. This question does not appear to have been decided in this court or in the Court of Errors and Appeals, and counsel and myself have been unable to find any case in which the question has been decided, based upon statutory provisions similar to the provisions of our Transfer Tax Act, which is entitled "An act to tax the transfer of property, of resident or nonresident decedents, by devise, bequest," etc. (C. S. p. 5301), except in the case of In re Peirce, 39 N. J. Law J. 234, where Judge Salmon, in the Morris county orphans' court, held the tax was payable out of corpus. The question seems to have been raised, but was not decided, in Stengel v. Edwards, 98 Atl. 424. Section 2 of the act provides that: "When any persons shall bequeath or devise * * * any property or interest therein, or income therefrom, to any person * * * for life * * * and a vested interest in the remainder or corpus of said property to any person, * * * the whole of said property, so transferred as aforesaid, shall be appraised immediately at its clear market value, and after deducting from such appraisement the value of the estate for life * * * shall be immediately levied and assessed, and the tax on the remainder * * * shall be levied and assessed immediately, but such tax shall not become due or payable until the time or period arrives when said remainderman * * * shall become entitled to the actual possession or enjoyment of such property, and shall then become due and payable immediately."" 4 Comp. St. 1910, p. 5304.

Sections 3 and 5 provide in effect that the tax levied and assessed upon a life estate shall be due and payable at the death of the testator. Section 26 defines the word "transfer" as used in the act to mean "the passing of property." And section 7 directs the executor to deduct or collect the tax therefrom before delivering any legacy or property subject to the tax.

In a normal case a legacy becomes payable in one year after the death of the testator, and the right to income in ordinary cases begins at that time. Welsh v. Brown, 43 N. J. Law, 37. All income in the meantime falling into the residue. In re Adrain, 101 Atl. 52. In determining the construction to be placed upon the provisions of the act, under the facts now present, regard must be had not only to the nature of the tax, but also to the apparent reason for its imposition and the means provided to compel its payment.

Our courts have held that the tax imposed under this act is a premium or privilege upon the devolution of property, resting fundamentally upon the sovereign right of a state to withhold, and hence to limit, the right of testamentary disposition or of intestate succession; that it is a legacy or succession tax. Wyckoff v. O'Neil, 72 N. J. Eq. 880, 67 Atl. 32; Neilson v. JRussell, 76 N. J. Law, 655, 71 Atl. 286, 19 L. R. A. (N. S.) 887, 131 Am. St. Rep. 673; Parrott v. Rogers, 86 N. J. Eq. 311, 98 Atl. 638. Prom the rate of taxation and also from the penalties imposed for nonpayment, it is apparent that this tax is imposed as a source of revenue for the state. It is clear from the provisions of section 2 that an estate for life is subject to the tax, and the value of the life estate on which the tax is assessed is determined, under the act, by multiplying the life tenant's expectancy in years by the...