Mathay's Estate, In re
| Decision Date | 03 October 1975 |
| Citation | 345 A.2d 623,463 Pa. 486 |
| Parties | In re ESTATE of Ralph H. MATHAY. Appeal of Mr. and Mrs. Howard McMILLAN. |
| Court | Pennsylvania Supreme Court |
Michael Halliday, Greenville, Frank Mast, Pittsburgh, Yates Mast, State College, for appellants.
William J. Joyce, Cusick, Madden, Joyce, McKay & Associates, Sharon, for appellee.
Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.
This is an appeal by Mr. and Mrs. Howard McMillan from a decree of the Orphans' Court in Mercer County, Pennsylvania, adopting the report of the auditor appointed by the court below and dismissing exceptions filed to the auditor's report. At the heart of the present controversy is appellants' challenge to the abatement of certain real property specifically devised to appellants in the residuary clause of decedent Ralph H. Mathay's will and to the application of such property to the marital deduction gift bequeathed to decedent's surviving spouse. Appellants contend that the surviving spouse's priority and the abatement of their devise resulted from erroneous computation of the Federal Estate Tax Marital Deduction, incorrect interpretation of decedent's will, misapplication of the Pennsylvania law of abatement and overfunding of a support annuity. We disagree with these contentions and for reasons hereinafter discussed affirm the disposition of the lower court.
The facts leading to the present action are not in dispute. On January 10, 1959, decedent married Hazel Simpson Mathay. On March 25, 1960, following Hazel Mathay's filing for an absolute divorce, the Mathays executed a property settlement agreement to be effective only if a divorce decree was entered. In this agreement the decedent proposed to provide for the 'sound and secure financial and economic future' of his ex-wife.
To effectuate this purpose the parties agreed to several transfers, the first of which being that the decedent would pay Hazel $2,500 in cash on execution of the agreement and deposit $22,500 in escrow with the First National Bank of Mercer County to be paid to Hazel Mathay upon entry of a valid divorce decree. In return, Hazel promised that she would vacate the Mathay household and remove certain household goods from an apartment belonging to the decedent. Further, and of particular concern in the present controversy, decedent agreed that he would pay his ex-wife the sum of $200 per month during her life 'for her support, maintenance and general use' with the commitment to be binding on decedent's executors and administrators.
To guarantee these payments after the decedent's death, the 1960 agreement required that the executors or administrators of the estate create an irrevocable trust in a recognized banking institute, with sufficient trust corpus to provide for the $200 monthly income. The agreement also specified that in determining the amount of the trust corpus the earnings were to be computed at four per cent per annum, and that the $200 payments were to be paid from earned interest with invasion being possible in the event the interest income was insufficient.
Lastly, and also of import to the current controversy, decedent promised that his estate would pay his ex-wife the sum of $25,000. A performance bond was given in connection with this last provision.
After the execution of this agreement, a divorce was granted. Thereafter, decedent married Dorothy Kibbe Mathay. On November 19, 1969, decedent died testate a resident of Mercer County, Pennsylvania. He was survived by his widow, Dorothy, a daughter Kathleen Mathay Ray and his ex-spouse, Hazel.
By his will dated December 29, 1967, the decedent devised a life interest in his residence and made certain other gifts of personalty to his widow. In addition, in item four of his will, the decedent provided for his wife as follows:
'I give and bequeath to my wife, Dorothy Kibbe Mathay, that portion of my estate equal to fifty per cent (50%) of the value of my adjusted gross estate as finally determined for Federal Estate tax purposes.
Item five of the will contained the following clause:
'I give and bequeath all of the rest, residue and remainder of my estate, of whatsoever kind and nature and wheresoever situate, of which I shall die seized and possessed, or to which at the time of my death I may be entitled, in the following manner: . . ..'
This 'residuary' language preceded eight sub-paragraphs. The first two of these contained dispositions which fulfilled those 1960 covenants that were binding at decedent's death (namely that $25,000 cash be given to Hazel Mathay and a trust fund established for her). The sub-paragraph which created the trust for Hazel Mathay also provided for the disposition of the trust income and corpus in the event of Hazel's death. 1
Thereafter, and still within item five, decedent listed certain specific gifts to be made to several different beneficiaries. Included in this listing was the devise of 211 Main Street, Greenville, Pennsylvania, to appellants.
On November 29, 1971, after the probate of the decedent's will the executor submitted a final accounting and proposed schedule of distribution. 2 On March 28, 1972 following an evidentiary hearing, the auditor filed a report containing a similar proposed schedule of distribution. For our purposes it is sufficient to note that there were insufficient assets to carry out all the terms of the decedent's will and that it was proposed that (1) the surviving spouse receive the property known as 211 Main Street to satisfy her marital deduction gift, (2) the trust corpus, provided for in the 1960 divorce agreement, be funded in the amount of $60,000, and (3) although the 1960 agreement covenants be treated as binding obligations on the estate with priority over other testamentary dispositions--none of the $25,000 sum or the $60,000 trust fund be deducted from the decedent's gross estate for Federal Estate Tax purposes. 3 This last fact is of particular significance since any deduction of the 1960 agreement obligations from the decedent's gross estate would reduce the marital deduction gift bequeathed to decedent's widow and could consequently make abatement of appellants' devise unnecessary. 4
Appellant took eight exceptions to the preceding distributional scheme. Since the issues raised are interrelated and since several exceptions restate the same objection, we have broken our discussion into four main areas.
Appellants first argue that if the testator's gifts exceed the assets available for distribution, the law of abatement, as set forth in Section 751 of the Fiduciaries Act of 1949, April 18, P.L. 512, Article VII, Section 751 (20 P.S. § 320.751) entitles their specific devise to priority over the surviving spouse's general bequest. This contention is frivolous. Section 751 clearly provides that any general bequest has priority over any property devised or bequeathed in a residuary clause. See Greenlee Estate, 14 Pa.D. & C.2d 627 (O.C. Allegheny 1958) affirmed in 394 Pa. 144, 146 A.2d 286 (1958). See also Heilman Estate 13 Pa.D. & C.2d 440 (O.C. Lehigh 1958). Just as clearly, item five of the will is a residuary clause, and appellants' devise is within that clause. Thus the appellants' devise was to be fulfilled only to the extent possible from assets Remaining after satisfaction of all other non-residuary legacies, debts and administrative costs. See Folwell Estate, 12 Pa.D. & C.2d 552 (O.C. Montgomery 1957).
Appellants also assert the ill-founded proposition that decedent's provision at the end of his will for his residuary estate to bear the burden of all state inheritance taxes constituted a 'general cash bequest' (to legatees 'who would otherwise bear the burden of such taxes') which must abate rpior to appellants' specific devise. Stated otherwise, the surviving spouse must be taxed on a pro rata basis before the appellants' devise can abate. The Inheritance and Estate Tax Act of June 1961, P.L. 373, § 718, 72 Pa.S. § 2485--718 specifically provides that a decedent may assign taxes to whichever beneficiaries he wishes but that if no assignment is made and if there is a residuary estate, it must bear the burden of inheritance taxes. Thus even without testator's directive, the residuary legatees would bear the tax burden. Woolett Estate, 461 Pa. 703, 337 A.2d 837 (1975). See Krogman Estate, 40 Pa.D. & C.2d 462, 464--65 (O.C. Phila, 1966). 5
Here, testator made clear his intent to benefit the non-residuary legatees by requiring that all legatees be given their dispositions in full to the extent there was any residuary principal. It would be absurd to reduce a favored legatee's gift in order to pay taxes as appellants suggest when such result would be against both the statutory tax scheme and the clear intent of this testator.
"The law is well-settled that where a testator in his will gives specified property or a share of his estate in exact or substantial compliance with the terms of his obligations under an inter vivos property settlement (or separation) agreement made with his wife, That wife is a creditor of the estate and not a legatee under his will" and that consequently the wife's claim is superior to the claims of other legatees and devisees. Zeitchick Estate, 426 Pa. 171, 175, 231 A.2d 131, 133 (1967); Pratt Estate, 422 Pa. 446, 450, 221 A.2d 117 (1966) (). Likewise, it is clear that a husband may assume a contractual obligation to his wife which will survive his death and bind his estate. Ervin Estate, 430 Pa....
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