In re Del Drago's Estate

CourtNew York Court of Appeals
Writing for the CourtRIPPEY
Citation38 N.E.2d 131,287 N.Y. 61
Decision Date27 November 1941

287 N.Y. 61
38 N.E.2d 131


Court of Appeals of New York.

Nov. 27, 1941.

Appeal from Surrogate's Court, New York County; Foley, Surrogate.

Proceeding in the matter of the accounting of Giovanni del Drago and Byron Clark, Jr., as executors of Josephine del Drago, deceased. From an order and decree of the Surrogate's Court, New York County (Foley, J.), 175 Misc. 489,26 N.Y.S.2d 943, settling the accounts of the trustee and directing payment of federal estate taxes out of the shares of the individual legatees, Giovanni del Drago, individually, and Marcel Del Drago appeal, opposed by Byron Clark, Jr., as executor, and others.

Order of Surrogate's Court reversed, and the matter remitted to Surrogate's Court.

DESMOND, J., LEHMAN, C. J., and LOUGHRAN, J., dissenting.

[38 N.E.2d 133]

Henry Cohen, Ludwig Wilson, and Robert W. Maloney, all of New York City, for appellants.

Lawrason Riggs, Jr., of New York City, for respondents Angela del Drago and others.

Littleton Fox and Anthony J. Caputo, both of New York City, for respondent Byron Clark Jr., as executor.

Harold W. Hastings and Sydney A. Hellenbrand, both of New York City, for respondent Harold W. Hastings, as special guardian.

RIPPEY, Judge.

Josephine del Drago died October 8, 1937, while a resident of New York State, leaving a last will and testament dated March 27, 1934, which was probated by the surrogate of New York County, and Giovanni del Drago and Byron Clark, Jr., were appointed and thereupon qualified as executors of her estate. Upon an accounting by the executors to which all parties interested in the estate were parties, it appeared that, although no final determination has been made as to the amount of State and Federal estate taxes properly assesable, the executors have already paid nearly $300,000 thereon out of the general assets of the estate. Before distribution to beneficiaries, the executors properly requested a determination of the question of whether the taxes so paid should be apportioned to, prorated among and deducted from the shares passing under the will to the several legatees and devisees or paid entirely from the remainder residuary estate.

The deceased left a substantial estate in the United States and also property in France and Italy which latter is not the subject matter of this accounting or involved in the point to be decided. Following small specific legacies for various persons, the deceased left to her husband, Giovanni del Drago, who is domiciled in the United States, various articles of personal property and effects by the sixth clause of the will, the sum of $300,000 by the seventh clause and the life use of the residuary estate under the ninth clause of the will. By the eighth clause of the will, she left to her stepson, Marcel del Drago of Rome, Italy, the life use of $200,000 with remainder over, per stirpes, to his surviving children born in lawful wedlock and/or the children born in lawful wedlock of any such child of her stepson who should then be deceased. In the event that Marcel del Drago should leave no such children or such grandchildren surviving, the remainer was directed to pass to the children of Clemente del Drago, son of Luigi del Drago, a brother of her husband, born in lawful wedlock and/or to the children born in lawful wedlock of any deceased child or children. By the ninth clause of the will, the residue of the estate upon the death of her husband was to pass to the children born in lawful wedlock of Mario del Drago, the second son of Luigi del Drago, or Rome, Italy, and/or the children born in lawful wedlock of any such child who might then be deceased.

The will contains no direction as to how, by whom or out of what portion of her estate so devised and bequeathed the estate taxes should be paid. By objections and answer to the account, specific legatees and guardians for infant legatees have suitably put in issue the constitutionality of chapter 709 of the Laws of 1930,

[38 N.E.2d 134]

Decedent Estate Law, Consol.Laws, ch. 13, s 124, and chapter 710 of the Laws of 1930, as amended, Tax Law s 249-t, Consol.Laws, ch. 60, in so far as such statutes or either of them provide for the imposition, assessment or apportionment of the federal estate tax or any portion thereof against their legacies or interests in the estate of deceased. It is alleged that those acts of the New York State Legislature are violative of the provisions of article I, section 8, and article VI of the Constitution of the United States and of the Fourteenth Amendment thereto and in conflict with and in violation of the provisions of the Federal Estate Tax Law, being title III of the Revenue Acts of 1926 and 1932, as amended by the Revenue Acts of 1935, 1936 and 1938 as amended, and known as section 826(b) of the United States Revenue Code, 26 U.S.C.A. Int.Rev.Code, s 826(b), and are consequently void. The surrogate overruled the objections and ordered and adjudged that the executors apportion and prorate all estate taxes, whether Federal or State, among the various persons who take under the will in accordance with State law. By direct appeal by Giovanni del Drago and Marcel del Drago from the final order of the surrogate, the constitutional question is properly before this court. The question propounded which we consider is whether the State of New York may by statute regulate and determine the incidence of the Federal estate taxes in the face of the uniformity, supremacy and due process clauses of the Federal Constitution and of a contrary congressional intent.

Article I of the Federal Constitution contains the uniformity clause and provides that ‘the Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises * * *; but all Duties, Imposts and Excises shall be uniform throughout the United States * * *’ and ‘To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers' (s 8). Article VI contains the supremacy clause and reads in part: ‘This Constitution, and the Laws of the United States which shall be made in Pursuance thereof * * * shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.’ Section 1 of the Fourteenth Amendment to the Constitution provides, among other things, that ‘all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.’

Prior to the act of 1916, all Federal acts imposing death duties made specific provision for the payment of the tax by the several legatees individually and severally out of their shares and not by the estate, 1 Stat. 527, July 6, 1797; 12 Stat. 433, 485, 486, July 20, 1862; 13 Stat. 223, 285-291, June 30, 1864; 30 Stat. 448, 464-466, June 13, 1898, as amended by 31 Stat. 946, March 2, 1901. They were emergency measures and made no provision for permanent excises. They provided for inheritance taxes and not estate taxes. A reading of the 1898 act would seem to indicate that the rate was based on the net estate but the individual legacies were taxes. The constitutionality of that scheme of death-duty taxation was sustained only by construction whereby it was held that the rate was fixed alone by the size of the legacy. Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969. By 1916, forty-two States (including the State of New York) were imposing death duties upon individual beneficiaries of decedent's estates. In no case was such imposition an estate tax. They were all strictly inheritance taxes and so defined. Never before 1916, except as emergency measures, had the Federal government invaded the field of inheritance taxation which the States considered their exclusive preserve. The proposal of Congress to tap that field for additional revenue met powerful opposition by the States with the result that political expediency and practical and constitutional considerations impelled Congress to abandon that idea and turn to a tax upon the net estate as a unit of taxation, a new and hitherto unused source of Federal revenue, and leave the imposition of a tax upon the

[38 N.E.2d 135]

separate successions to the property of each legatee or distributee to the several States. Congressional Record, 64th Congress, vol. 53, pt. 11, particularly at p. 10657, and pt. 15, Appendix, pp. 1942; Matter of Hamlin, 226 N.Y. 407, 124 N.E. 4, 7 A.L.R. 701;Matter of Sherman's Estate, 179 App.Div. 497, 166 N.Y.S. 19, affirmed, 222 N.Y. 540, 118 N.E. 1078;New York Trust Co. v. Eisner, 256 U.S. 345, 348, 41 S.Ct. 506, 65 L.Ed. 963, 16 A.L.R. 660;Young Men's Christian Ass'n of Columbus, Ohio v. Davis, 264 U.S. 47, 50, 44 S.Ct. 291, 68 L.Ed. 558;Edwards v. Solcum, 264 U.S. 61, 63, 44 S.Ct. 293, 68 L.Ed. 564; Gleason & Otis on Inheritance Taxation, 4th Ed., 1925, pp. 7-19. The Federal estate tax as then proposed and subsequently developed was fundamentally different from a State inheritance tax. Knowlton v. Moore, supra. The distinction is pointed out and the authorities reviewed in Farmers' Loan & Turst Co. v. Winthrop, 238 N.Y. 488, 144 N.E. 769, and in Young Men's Christian Ass'n of Columbus, Ohio v. Davis, supra, and needs no further elaboration or discussion here. The theory of the Federal estate tax is that the transfers are part of the estate and the tax thereon must be paid by the executor before distribution without recourse to the beneficiary. Farmers' Loan & Trust Co. v. Winthrop, supra. Congress decided that a net estate tax was the one that it could adopt for a permanent part of its tax system...

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