Marks v. Equitable Life Assur. Soc. Of United States

• Decision Date: 22 August 1944
• Docket Number: 139/536.
• Citation: 38 A.2d 833
• Parties: MARKS et al. v. EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES et al.
• Court: New Jersey Court of Chancery

38 A.2d 833

MARKS et al.

v.EQUITABLE LIFE ASSUR. SOC. OF UNITED STATES et al.

139/536.

Court of Chancery of New Jersey.

Aug. 22, 1944.

COPYRIGHT MATERIAL OMITTED.

Action by Rosalie D. Marks and another, executors and trustees under the will of Morris Dannendaum, deceased, against the Equitable Life Assurance Society of the United States and others for construction of the decedent's will and for reimbursement for monies paid for federal estate and New Jersey estate taxes assessed against decedent's estate.

Decree for defendants.

1. Executrix, as complainant, seeks a decree that defendant life insurance companies reimburse said executrix for monies paid for Federal estate and New Jersey estate taxes assessed against decedent's estate by reason of the inclusion in the gross estate of the proceeds of certain life insurance policies held by decedent during his lifetime.

2. Held, that the insurance company defendants are not liable to reimburse the executrix under Federal Statute 26 U.S.C.A. Int.Rev.Code, § 826(c), said companies not being ‘beneficiaries' as contemplated by said statute, and that in the absence of legislation, this Court is without jurisdiction to decree reimbursement against said insurance companies for the amount paid by said executrix for New Jersey estate taxes.

Lloyd, Horn & Perskie, of Atlantic City (David M. Perskie, of Atlantic City, of counsel), for complainants.

Collins & Corbin, of Jersey City (Edward A. Markley and James J. Langan, both of Jersey City, of counsel), for defendants.

Martin Bloom, of Atlantic City, for defendants Rosalie D. Denzer et al.

J. Albert Homan, of Trenton, guardian ad litem, pro se.

SOOY, Vice Chancellor.

This matter comes before me for final hearing on a bill filed by the executors and trustees of the estate of Morris Dannenbaum, late of the City of Atlantic City, against The Equitable Life Assurance Society of the United States, The Mutual Life Insurance Company of New York, New England Mutual Life Insurance Company, New York Life Insurance Company, Northwestern Mutual Life Insurance Company and The Penn Mutual Life Insurance Company, hereinafter referred to as the insurance companies.

Complainant, who is the sole surviving executrix and trustee under her father's will, has remarried since the filing of the bill and her name is now Rosalie D. Denzer.

The defendant insurance companies have on deposit approximately $300,000 which constitute the proceeds of life insurance policies issued on the life of said Dannenbaum. This $300,000 is held pursuant to the terms of settlement agreements selected by said Morris Dannenbaum during his lifetime. The policies do not designate specific beneficiaries to whom the proceeds were to be paid, but instead contain settlement agreements directing that the proceeds should be held by the companies and paid in the following manner:

1. Interest at a fixed rate to be paid annually to Mrs. Denzer for the term of her natural life, plus in the case of the mutual companies any additional interest allotted by the companies based on their general earnings.

2. Mrs. Denzer is granted the privilege of withdrawing $6,000 annually ($1,000 a year from each company) during her natural life.

3. On the death of Mrs. Denzer interest at a fixed rate plus in the case of the mutual companies any additional interest allotted by reason of excess general earnings of the companies to Alan and Sheila Marks, children of Mrs. Denzer, for the term of their natural lives, survivor of one to take other's interest if first to die leaves no issue.

4. Remaining principal to issue of Alan and Sheila Marks.

5. If no issue of Alan and Sheila Marks, remaining principal to be added to the corpus of an insurance trust established by Morris Dannebaum in 1934. This insurance trust provides for the receipt by the trustee of the proceeds of certain policies (not those involved herein) taken out by Morris Dannenbaum on his life and on which he paid the premiums and the transfer of those proceeds to the Federation of Jewish Charities. The trust deed contains a provision that the Jewish Hospital, Philadelphia, and Mt. Sinai Hospital, Philadelphia, be substituted and take equal shares if the Federation of Jewish Charities is not in existence at the time payments are to be made. The trust deed has a further provision that any charity may be substituted in the discretion of the trustee if none of the named charties is in existence at the time payments are to be made.

Testator's estate was a very substantial one and was, generally speaking, disposed of by him principally in trust, the trust res consisting of the residuary estate from which testator provided for an annuity to his son for life and gave to his daughter, complainant herein, the income on the balance of the residuary estate for life and upon her death her children are to take the income for life and on the termination of the trust the principal goes to certain charities.

The executrix paid Federal and New Jersey estate taxes in a total sum of $132,279.44. The amount paid for Federal and State estate tax by reason of the inclusion of the life insurance proceeds in the gross estate was $45,358.61; the amount paid to the State of New Jersey under its estate tax was $3,848.13 and the amount paid to the Federal Government was $41,510.48.

The prayer for relief is of a fourfold nature, (a) construction of the will of the decedent, (b) instructions to the executrix based upon such construction, (c) for an accounting and (d) that a decree be made against the six insurance company defendants requiring them to proportionately reimburse the executrix for the amount of Federal and State taxes paid by said executrix by reason of the proceeds of the life insurance policies having been included in the gross estate of decedent.

The relief sought is against the six insurance companies only, based on the allegations of paragraph 11 of the bill of complaint, as follows:

‘Complainants contend that by virtue of the Federal Statute in such case made and provided (26 U.S.C.A. Int.Rev.Code, § 826(c), and by virtue of the fact that decedent impliedly directed the insurance companies aforesaid to reimburse his executors, which implied direction is contained in paragraph 10 of decedent's will, a copy of which is hereunto annexed, marked exhibit A, the said’ six life insurance companies ‘are respectively required to reimburse complainants in the proportions mentioned in the bill of complaint.’

The question to which an answer is sought is that stated in the 13th paragraph of the bill of complaint, as follows:

‘Are the said six life insurance companies (naming them) liable to complainants for the payment to them of the proportionate amount of the Federal and estate tax and the New Jersey estate tax, together with interest from August, 2, 1940 assessed on account of the inclusion in decedent's gross estate of the proceeds of the insurance policies referred to in this bill?’

From the foregoing it is evident that the prayer for an accounting is merely incidental to the real relief which complainant seeks. In other words, there is no real necessity for an accounting because if the insurance companies are liable as suggested by complainant the respective amounts of their liability would be mathematically ascertained without the necessity of an accounting.

Jurisdictional questions are raised by the insurance companies which, in view of the rusult herein reached, will not be passed upon excepting as that result necessarily passes upon the question as to whether, under the circumstance of this particular case, the Court has jurisdiction to enter the decree asked for against the defendant insurance companies.

In order to answer the question as propounded by complainant as above set forth it is necessary to have before us the provisions of the 10th clause of the will aforesaid, as well as the provisions of the Federal Statute hereafter quoted. Paragraph 10 of the will reads as follows:

‘Tenth: I direct all inheritance, succession or legacy taxes of any sort on the legacies bequeathed by my Will, including also such taxes on life interest in the trust estates herein created, and including my residuary estate, shall be borne by the principal of said residuary estate, so that all legatees and beneficiaries shall receive the interests bequeathed to them free and clear of all such taxes.’

The cases construing like sections of the will are found in Gaede v. Carroll, 114 N.J. Eq. 524, 169 A. 172; Fidelity Union Trust Co. v. Suydam, 125 N.J.Eq. 458, 6 A.2d 392; Morristown Trust Co. v. Childs, 128 N.J.Eq. 524, 17 A.2d 559.

In the foregoing cases provisions as to the payment of Federal and State taxes very similar to the section 10 now under consideration were construed, with a uniform holding that results in my concluding that the monies accruing at the death of the testator under the life insurance policies did not pass ‘by my will’ and that testator did not, therefore, direct that the Federal and State taxes be ‘borne by the principal of said residuary estate, * * * free and clear of all such taxes,’ and that this being so, the implied direction of the testator was that ‘such taxes' be paid as directed by the statute in such case made and provided. That statute reads as follows:

26 U.S.C.A. Int.Rev.Code, § 826(c), ‘Liability of life insurance beneficiaries. If any part of the gross estate consists of proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net estate.

If there is more than one such beneficiary the executor shall be entitled to recover from such beneficiaries in the same ratio. 53 Stat. 127.’

A decree such as complainants seek from the defendant insurance companies, requiring them to pay the Federal...