Isaacson v. Boston Safe Deposit & Trust Co.

• Decision Date: 08 March 1950
• Parties: , 16 A.L.R.2d 1277 ISAACSON v. BOSTON SAFE DEPOSIT & TRUST CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 334

91 N.E.2d 334

325 Mass. 469, 16 A.L.R.2d 1277

ISAACSON v. BOSTON SAFE DEPOSIT & TRUST CO.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Oct. 6, 1949.

Decided March 8, 1950.

Lee M. Friedman, Boston (P. D. Turner, Boston, with him) for plaintiff.

J. E. Rogerson, Boston (L. F. Eaton, Jr., Boston, with him) for defendant.

Before QUA, C. J., and RONAN, WILKINS, SPALDING and COUNIHAN, JJ.

QUA, Chief Justice.

This is a bill in equity for declaratory relief brought by the executor of the will of Guy L. Smith, late of Auburn in the State of Maine, against the present trustee of a trust created by Smith while he resided in Massachusetts. The object of the suit is to charge the defendant as trustee with a pro rata share of the Federal estate tax assessed upon Smith's estate based upon the inclusion by the Federal tax authorities of the trust fund in Smith's gross estate for the purposes of the tax. The plaintiff is both executor of Smith's will in Maine and ancillary executor in this Commonwealth.

Smith created the trust by indenture dated July 17, 1930, whereby he assigned to the defendant's predecessor trustee certain money, property, and securities in trust to pay the income therefrom to Smith during his life, thereafter to his widow for her life (with power also to make to her any necessary payments from the principal), and upon the decease of the survivor of himself and his widow to pay small sums to certain charities and the remainder of the fund to the parents of Smith or the survivor of them, or if both should have deceased, to Smith's heirs at law. Smith reserved to himself the right at any time to alter, amend, or revoke the indenture and to 'withdraw' any portion or the whole of the trust property.

Smith's will, dated January 12, 1943, gave his entire estate in trust for the benefit of his widow and her sister successively until the decease of the survivor of them, and provided for the distribution of the principal then remaining among certain charities.

Smith died January 10, 1944. His will was allowed in Maine March 14, 1944. He left a substantial estate in Maine. The value of the inter vivos trust fund at Smith's death, as adjusted, was $132,165.71. This and the proceeds of a life insurance policy payable to the widow, when added to the Maine property, brought the 'gross estate,' upon which, after allowable deductions, the Federal tax was calculated to nearly $620,000. On April 9, 1945, the plaintiff paid on account of the tax $87,154.74. On May 12, 1945, he made an additional payment of $12,875.69. The commissioner of internal revenue has assessed a further sum of $19,859.64, which at the time of the decree in the court below was in dispute in the Tax Court. Smith left no assets in Massachusetts except the 'claim' which his executor makes in the present suit.

On July 21, 1945, a statute of Maine, being c. 269 of the Public Laws of 1945, took effect. That statute added sections 39-A to 39-E, inclusive, to c. 142 of the Revised Statutes of Maine. These sections provided in substance, omitting words and qualifying phrases not pertinent to this case, that whenever an executor had paid or might be required to pay an estate tax under the provisions of any estate tax law of the United States with respect to any property required to be included in the gross estate of a decedent under any such law, the amount of the tax so paid or payable should 'be equitably apportioned and prorated among the persons interested in the estate' in proportion to the value of their respective interests. Taxes with respect to both temporary interests and remainders in a trust fund were to be payable out of corpus. The expression 'persons interested in the estate' was defined as including all persons who had received or might be entitled to receive any property, benefit, or interest required to be included in the gross estate of a decedent, whether under a will or intestacy or by reason of any transfer or trust. It was provided that, where any property required to be included in the gross estate did not come into the possession of the executor, he should be entitled to recover the proportionate amount of the tax from the fiduciary in possession of a trust or the persons interested in the estate. There were provisions for contribution by any person who should have paid less than his proportionate share to any person who should have paid more than his proportionate share.

This statute was repealed by c. 220 of the Laws of 1947, effective August 13, 1947. The repealing statute, however, contained a provision preserving rights and remedies existing by virtue of the repealed statute.

From a decree for the plaintiff charging the defendant with such proportion of the Federal estate tax upon the estate of Smith as the value of the trust fund bears to the total net estate the defendant appeals.

The parties have stipulated that if any tax apportionment statute is applicable to this proceeding such statute is the now repealed statute of Maine, hereinbefore summarized. The parties have therefore excluded from consideration G.L. (Ter.Ed.) c. 65A, §§ 5 and 5A, as appearing respectively in St.1948, c. 605, §§ 1 and 2, probably for the reason that these sections apply only where a decedent is an inhabitant of this Commonwealth, but see also section 3 of the 1948 act.

It has been argued that the Maine statute should not be construed as applying 'retroactively' in the case of a decedent who died before it took effect, and that, if so applicable, it was unconstitutional. But we are unable to see how resort can be had to it here for a more fundamental reason. The trust upon which it is now sought to fasten a liability by virtue of a statute of Maine was created by the decedent while he was a resident of Massachusetts. The original trustee was a national bank located in this Commonwealth, and the present trustee is a corporation of this Commonwealth. The trust indenture was acknowledged in this Commonwealth. By fair inference from the facts agreed it appears that the indenture was delivered in this Commonwealth, and that the trust property was then and has since remained here. It is apparent that the trust owes its validity to the law of this Commonwealth. All rights of the beneficiaries of the trust are derived from our law. The trust is from every point of view a Massachusetts trust. The laws of Maine never had anything to do with it. The trustee has done nothing by which it has submitted itself to the jurisdiction of Maine. The persons who succeeded to Smith's interest in the trust upon his decease did so not through the laws of Maine but according to the terms of the trust as previously established under Massachusetts law. The fact that Smith was a resident of Maine when he died is of no consequence. His interest in the trust ceased upon his death. The trust fund did not become part of his estate in Maine or anywhere else. The only possible connection between this trust and the State of Maine which we are able to discover is that the Federal government in imposing an estate tax has seen fit to aggregate the probate estate in Maine and the trust fund in Massachusetts into a single 'gross estate.' We cannot see how this circumstance gives power to either State to impose by statutory fiat liabilities upon the fiduciary or the property under the...