In re McKinney's Estate

• Decision Date: 07 September 1943
• Docket Number: 37612
• Citation: 173 S.W.2d 898,351 Mo. 718
• Parties: In the Matter of the Estate of Ida I. McKinney, Deceased; George N. Meissner, Executor, Appellant, v. State of Missouri
• Court: Missouri Supreme Court

173 S.W.2d 898

351 Mo. 718

In the Matter of the Estate of Ida I. McKinney, Deceased; George N. Meissner, Executor, Appellant, v. State of Missouri

No. 37612

Supreme Court of Missouri

September 7, 1943

Appeal from Circuit Court of City of St. Louis; Hon. William K Koerner, Judge.

Reversed and remanded.

Jones & Biggs and Wm. H. Biggs for appellant.

Trustee's commissions are deductible from the gross market value of an estate in arriving at its fair market value for inheritance tax purposes. In re Bernay's Estate, 126 S.W.2d 209; In re Rosing's Estate, 337 Mo. 544, 85 S.W.2d 495; Brown v. State, 323 Mo. 138, 19 S.W.2d 12; In re Zook's Estate, 317 Mo. 986, 296 S.W 778; Sec. 581, R. S. 1939; Sec. 226, N. Y. Inheritance Tax Law; In re Kinsella's Estate, 293 Mo. 545, 239 S.W. 818; In re Gihon's Estate, 62 N.E. 561; 92 A. L. R., p. 540; Estate of Vanneck, 175 A.D. 363, 161 N.Y.S 893; In re Boissevain, 137 Misc. 80, 243 N.Y.S. 121; In re Christie's Estate, 101 A. 64; Schott v. Continental Auto Ins. Underwriters, 31 S.W.2d 7, 326 Mo. 92; General Box Co. v. Mo. Utilities Co., 55 S.W.2d 442, 331 Mo. 845; Yost v. Union Pacific Railroad Co., 245 Mo. 219.

Roy McKittrick, Attorney General, Russell C. Stone and William C. Connett, IV, Assistant Attorneys General, for respondent.

(1) Trustees' fees or commissions are not deductible from the gross market value of the estate of the decedent, in arriving at its clear market value for inheritance tax purposes. Because the will of decedent contemplates the payment of the trustee's fee or commission from income derived from the management of the trust estate. In re Campbell's Estate, 274 Mo. 343, 202 S.W. 1114; State ex rel. Basting v. Probate Court of Hennepin County, 112 N.W. 878, 101 Minn. 485. (2) The remaindermen or beneficiaries, here involved, are subject to the tax when the trust res, under the provisions of paragraphs six and eight of the will of decedent, is delivered to the trustee. In re Rosing's Estate, 85 S.W.2d 495, 337 Mo. 544; In re Costello's Estate, 92 S.W.2d 723, 338 Mo. 673; Sec. 571 of R. S. 1939. (3) Appellant cannot invoke Section 581 of R. S. Mo., 1939, because no statute in this State has been enacted regarding trustees' fees. Sec. 581, R. S. 1939; State ex rel. Spillers v. Johnston, 214 Mo. 656, 113 S.W. 1083; State ex rel. v. Gehner, 11 S.W.2d 30, 320 Mo. 1172; In re Kinsella's Estate, 293 Mo. 545, 239 S.W. 818; In re Rosing's Estate, 85 S.W.2d 497, 337 Mo. 544; In re Gihon's Estate, 62 N.E. 561; Estate of Vanneck, 175 A.D. 363, 161 N.Y.S. 893; In re Christie's Estate, 101 A. 64, 97 N.J.Eq. 303; Annotation, 92 A. L. R. 540; In re Jacobs' Estate, 2 N.Y.S. (2d) 973; Montfort's Estate, 143 Misc. 763, 256 N.Y.S. 622; In re Boissevain, 137 Misc. 80, 243 N.Y.S. 121; Sec. 571, R. S. 1939; Chap. I, Arts. 2, 4, 7, R. S. 1939; 61 C. J., p. 1705.

Barrett, C. Westhues, C., concurs; Bohling, C., dissents.

OPINION

BARRETT

In this reassigned cause Ida I. McKinney, a widow without children, disposed of a large estate by will. Her brother, George N. Meissner, who was a beneficiary, was also designated the executor of her will and the trustee of two trusts created by the will. One of the trusts was of the sum of $ 75,000.00 for the benefit of two children and a grandchild of a deceased brother and was terminable on the death of the survivor, at which time the trust was to be distributed among the deceased brother's descendants, and if there were none to become a part of the residuary estate. This trust was provided by item six of the will and required the net income to be paid the beneficiaries "after payment therefrom of all reasonable and necessary expenses, including a reasonable allowance to himself for his services as trustee." The principal trust, provided by item eight of the will, was of the testatrix' residuary estate and was for the benefit of such of her named brothers and sisters, George Meissner, Charles Meissner, Nettie Williams, Bertha N. Rogers, and Mae M. Whittaker, as survived her and their descendants. As trustee of the residuary estate the trustee was to manage and control the estate and pay over the net income to the brothers and sisters during their lives and then to their descendants for a period of twenty-one years after the death of the last surviving brother or sister. Upon the termination of the trust, the trust funds were to be divided among the descendants of the named brothers and sisters and for the purposes of this case Gladys Chadwick and George M. Williams, a niece and a nephew, are the remaindermen entitled to the residue of the estate, (after the payment of specific devices and legacies and the termination of the estates contemplated by the will), for the purpose of determining inheritance tax liability. As to the trustee's compensation under this trust item eight of the will provided:

"Said trustee shall pay and deduct from the income, rents and profits collected and received by him from said estate all of the expenses, taxes, interest, charges, costs, attorneys' or accountants' fees, if any, and other disbursements, including the expense of a suitable office and of a competent secretary or accountant, and a reasonable compensation to himself for his services, which last item may be five per cent (5%) of the disbursements, both principal and income, and all other proper charges against said estate and the income therefrom, . . ."

Item eight also contained this provision:

"Said trustee shall have the right and power to determine how all receipts and disbursements to the trust estate shall be treated, credited or charged as between income and principal, and his or their decision in such matters shall be final."

Upon these facts the inheritance tax appraiser fixed and determined the value of Ida I. McKinney's property "at its clear market value" at the time of her death, and in so doing failed to allow as a deduction from the valuation of the residuary legatees' interests the fees and commissions payable to the trustee under item eight of the will. Upon exceptions to the appraiser's report the Probate Court expressed the view that Section 581 of the inheritance tax law was inapplicable because in using the phrase "prescribed by law" the statute only meant "prescribed by statute," and since no such fees are provided by statute in Missouri they could not be deducted. The court also observed that probate courts had nothing to do with fixing trustees' fees and further that there is no uniform rule as to fixing their compensation in any court. And finally, the court said the most important ground for denying the exception was that the will itself made the commissions paid to the trustee payable out of income and not corpus and the exceptions were overruled. On appeal to the Circuit Court it was found as a fact, by the court, that the appraiser placed the valuations upon the interests of the beneficiaries without deduction for fees or commissions payable to the trustee under item eight of the will, and concluded as a matter of law that the statutes relating to inheritance taxes did not contemplate such deductions. However, the court also found as a matter of law that such fees as the trustee would receive would be payable from the corpus of the trust estate. In a memorandum the trial court put his decision on the ground, largely, that a testamentary trustee served the beneficiaries and that his services equaled in value the amounts thus deducted from their estate and the tax should, therefore, be computed on the present value of the estate in remainder without deductions for the trustee's commission. The court was also of the view that Section 581 was inapplicable because the bequests to the trustee in the instant case were not in lieu of other fees or commissions.

In his reply brief the appellant expressly disclaims any deductions for "compensation the trustee will receive during the course of administration" and contends that the sole question presented is whether the five per cent fee received by the trustee upon and from disbursement of the principal of the trust is deductible in determining the beneficiaries' estate subject to the tax. We, therefore, eliminate from consideration whether the trustee's fees or commissions, if any, received from disbursements of income are also deductible in determining the clear market value of the beneficiaries' residuary estate subject to our inheritance tax and confine our decision to the one point presented and claimed by the appellant.

It is no longer debatable that our inheritance tax is a tax on the right to receive or take property rather than on the right to transfer property after death (In re Bernay's Estate, 344 Mo. 135, 126 S.W.2d 209; In re Zook's Estate, 317 Mo. 986, 296 S.W. 778) and, therefore, the incidence of the tax falls upon the recipient of the property, the amount of the tax being determined by the net value of the property received by the beneficiary from the gross estate. In re Estate of Rosing, 337 Mo. 544, 85 S.W.2d 495; In re Costello's Estate, 338 Mo. 673, 92 S.W.2d 723. Our concern is with how the net value of the beneficiaries' estate is to be determined. More particularly our problem is whether fees or commissions due the trustee from the principal fund may be deducted in determining the net or "clear market" value of the cestuis' estate in computing the inheritance tax.

Under our statutes the legislative formula for determining the property subject to the tax is the net or "clear market" value of all property actually coming into the possession and enjoyment of the intended beneficiary. Mo. R S. A., Secs. 571-574; In re Rosing, supra; In re Costello, supra. There is no express statutory provision for deductions and so what may or may not be deducted from the...