In re Louis C. Clark's Estate

• Decision Date: 25 February 1927
• Citation: 136 A. 389,100 Vt. 217
• Parties: IN RE LOUIS C. CLARK'S ESTATE
• Court: Vermont Supreme Court

136 A. 389

100 Vt. 217

IN RE LOUIS C. CLARK'S ESTATE

Supreme Court of Vermont

February 25, 1927

January Term, 1927.

APPEAL by State to Supreme Court, Chittenden County, from decree of probate court for the district of Chittenden, fixing amount of inheritance taxes payable on distribution of estate. The opinion states the case.

Decree of the probate court affirmed. Let the result be certified to the probate court.

Erwin M. Harvey, commissioner of taxes, for the State.

Henry B. Shaw and Root, Clark, Howland & Bollantine (of New York City) for the executors.

Present WATSON, C. J., POWERS, SLACK, FISH, and MOULTON, JJ.

OPINION

SLACK

This is an appeal from a decree of the probate court within and for the probate district of Chittenden, and involves the construction of certain provisions of our inheritance tax law. It appears from the findings of the probate court, which are unchallenged, that Louis C. Clark, who was a resident of the city of Burlington this State, died August 16, 1924; that by his will, which was duly probated, he left the bulk of his estate to residuary legatees; that on September 27, 1924, the executors voluntarily, and without a decree of the probate court distributed to such legatees, in kind, certain securities, having a value at that date (including accrued interest in the case of bonds) of $ 1,925,160.64; that such distribution was made to the proper persons, and that ample funds and assets were retained by the executors to pay all specific legacies, debts, expenses of administration, commissions and taxes; that the value of such securities (including accrued interest in the case of bonds) on August 16, 1925, one year after testator's death, was $ 2,086,333.63.

The first question for review is whether, in the circumstances, the inheritance tax for which such legatees and distributees were liable under our law should be computed on the value of such securities on the date of such partial distribution or at the expiration of one year from the death of testator. This depends upon the construction to be given the provisions of G. L. 1108, which reads as follows:

"The value of a legacy or distributive share mentioned in section one thousand and ninety or one thousand and ninety-one, except as otherwise provided in this chapter, shall be its actual market value at the expiration of one year from the death of the decedent; but if such legacy or share is sooner paid or delivered, the valuation thereof shall be determined as of the date at which the person entitled to the same comes into or is entitled to the possession or the beneficial use thereof."

It is evident that the Legislature intended that the tax imposed by G. L. 1090 and 1091 should be computed on the value of the legacy or distributive share at the time the same was turned over to the legatee or distributee, or he became legally entitled to the possession or the beneficial use thereof, which, speaking generally, is one year from the death of decedent (G. L. 3385), hence the general provision for the valuation of such property at that time. But the Legislature recognized the fact that a legacy or distributive share might be paid or delivered to the person entitled thereto within one year from the death of decedent, and to provide for such cases added the last clause of said section. It is the value of the property at the time it is actually delivered in the one instance, or when delivered in contemplation of law in the other, that forms the basis for the tax under the provisions of G. L. 1108.

The precise question is whether a voluntary payment or delivery of a legacy or distributive share made in the circumstances shown in the instant case falls within the provisions of the last clause of G. L. 1108, or whether such provisions apply only to a payment or delivery of such legacy or share in instances where the estate is settled within one year and after the determination of the distributive shares and a decree of distribution. The language of the clause is broad enough to include the former, and when considered as a whole convinces us that it was intended to do so.

The valuation is to be made as of the date when a legatee or distributee comes into the possession, etc., of a legacy or distributive share, or when he is entitled to the possession, etc., of such legacy or share. He is entitled, within the meaning of the word as here used, to the possession or the beneficial use of such legacy or share after a decree of distribution is made, and not before (Baldwin v. Percival et al., 88 Vt. 211, 92 A. 101; Davis' Admr. v. Flint's Estate, 67 Vt. 485, 32 A. 473); he may come into such possession or use, through the voluntary act of the executor or administrator, without such decree. Such, in effect, is the holding of this Court in In re Scott's Account, 36 Vt. 297; Babbitt v. Bowen, 32 Vt. 437; Taylor v. Phillips, 30 Vt. 238. See, also, Brown v. Forsche, 43 Mich. 492, 5 N.W. 1011, and Palmer v. Palmer's Estate, 106 Me. 25, 75 A. 130, 19 Ann. Cas. 1184. Mr. Woerner in his American Law of Administration (3rd. ed.) vol. III, § 519, states the law concerning voluntary payments by executors and administrators thus: "The executor or administrator may vest in the distributees both title and possession of their respective shares before an order of distribution is made, or without any such order. If he pays the right parties their proper shares, he is protected, whether it is done under the sanction of the court or not, or before or after the passing of an account." This is so because the rights and title of such distributees in the property acquired by them do not originate in the decree of distribution, but are derived from the decedent either by will or under the statute of distribution. See Alexander on Wills (3rd. ed.) vol. III. § 1579; Coolidge v. Taylor, 85 Vt. 39, 80 A. 1038. While under our law an executor or administrator holds the title to personal property, he holds it not in his own right, but as trustee for a particular purpose (Pond v. Pond's Estate, 79 Vt. 352, 65 A. 97, 8 L.R.A. [N.S.] 212), and when that purpose is declared to have been accomplished by a decree of the probate court, his title, such as it is, automatically ends; or it may terminate sooner if he voluntarily pays or delivers to the right parties such parties' proper legacy or distributive share in the estate.

The state contends that the word "entitled," which appears twice in this clause, is used in the same sense in each instance, namely, to designate the person who, after a decree of distribution, can maintain an action for the property, or its equivalent. We think otherwise. While such is undoubtedly its meaning as last used, as first used it manifestly means the person who is to receive the property ultimately, either by will or under the statute of distribution. It is used in the latter sense in In re Scott's Account, supra. Although the statute evidently contemplates that the value of all legacies and distributive shares subject to the tax, as well as the amount of the tax, shall be determined, and the tax be accounted for to the executor or administrator, and paid to the State treasurer, before or at the time, such legacies or shares are paid or delivered (G. L. 1106, 1095, 1097, and 1130), since the executor or administrator is made liable for such tax (G. L. 1098), these provisions of the statute, except G. L. 1130, appear to be primarily for the protection of such executor or administrator. Whether he avails himself of such protection concerns him, alone. In the instant case, the protection afforded by the statute was unnecessary since the executors retained sufficient funds to meet any possible exigency. G. L. 1130 does not provide who shall pay the tax as there required, but presumably it is the executor or administrator, if the estate is settled in court, since the law not only imposes upon him the duty of collecting the same from the legatees and distributees, but makes him liable therefor as well. It is not apparent how his failure to comply with the statute, especially when he has collected such tax, or has in effect done so, as in the instant case, can effect a voluntary payment or delivery by him of a legacy or distributive share. It may be that such legacy or share would still be liable for the tax, if unpaid, under the lien created by G. L. 1097, but as that question is not involved we express no view concerning it.

We think it clear that one purpose of the clause in question was to provide for just such instances as the one here presented, and we find nothing in the law itself, its legislative history, or the cases to which attention has been called by the State, to justify a different conclusion. We hold, therefore, that the tax was properly computed on the value of the securities as of the date of such partial distribution.

It logically follows that such income as the executors might have derived from such securities during the year following the death of the testator, had the same not been distributed, was properly excluded by the probate court in determining the legacies and distributive shares subject to tax.

The same is true respecting interest that the executors would have received on money which the findings show was paid to the legatees and distributees at different times within the year following the death of the testator, had the same not been so paid.

The next question is whether net income...