Matter of Mattes

• Citation: 205 Misc. 1098
• Parties: In the Matter of the Construction of The Will of Laura C. Mattes, Deceased.
• Decision Date: 30 March 1954
• Court: New York Surrogate Court

205 Misc. 1098

In the Matter of the Construction of The Will of Laura C. Mattes, Deceased.

March 30, 1954.

Henry S. Hooker and Irving L. Schanzer for Bankers Trust Company, as executor of Laura C. Mattes, deceased, petitioner.

Charles H. Tuttle, Alfred D. Clark and Allen F. Lovejoy for Harvey E. Lambeth, respondent.

Edmund B. Bellinger for James C. Lambeth, respondent.

Laurence D. Kieran for Edward C. Mattes, individually, respondent.

George L. Genung, special guardian for Harvey E. Lambeth, Jr., and another, infants, respondents.

FRANKENTHALER, S.

The main questions in this construction proceeding are whether and to what extent the surviving husband must contribute with other residuary legatees to the payment of estate taxes.

Testatrix died June 30, 1952, leaving a will executed December 6, 1948. Paragraph First provides: "I direct the payment of my just debts and funeral expenses, and all the expenses of the administration of my estate. I direct that all transfer, inheritance, death, succession and estate taxes, whether State or Federal, on all property taxed against my estate proper or otherwise, shall be paid out of my residuary estate." Paragraphs Third through Sixth direct payment of legacies totaling approximately $100,000 in value. Paragraph Seventh provides that "All the rest, residue and remainder of my estate, real, personal or mixed, of whatever kind and wheresoever situate, * * * I direct my executors to divide into twelve parts as nearly equal as possible, to be distributed * * * [f]our such twelfths * * * to my husband * * * if he survive me," one such twelfth outright to each of the two sons and three such twelfths in trust for each son with the income to be paid to him for life and the principal to be paid to his issue at his death.

The sons contend that the full amount of the estate taxes should be deducted before computation of the residuary, thereby opposing any method of apportionment which would give the spouse credit for the marital deduction under paragraph (ii) of subdivision 3 of section 124 of the Decedent Estate Law. They point out that the directions of testatrix with respect to administration expenses and payment of taxes are contained in the same paragraph of the will. From this they conclude that she intended that taxes be treated in the same manner as administration expenses and be paid before computation of the residuary shares and without further apportionment within the residuary. This contention disregards the fact that the directions to pay estate taxes and to pay administration expenses appear in different sentences and are phrased differently. The testatrix provided in one sentence for payment of administration expenses, which are paid before any distribution, and in the next sentence directed that estate taxes be paid from the residuary, which is computed after distribution of specific and general legacies. These two sentences spell out quite different treatments of the two types of estate obligations. The cases cited by the sons (Matter of Herz, 203 Misc. 1077; Matter of James, 180 Misc. 441, affd. 267 App. Div. 761, motion for leave to appeal denied, 292 N.Y. 724; Matter of Kruskal, 115 N. Y. S. 2d 181; Matter of Cromwell, 199 Misc. 143, affd. 278 App. Div. 649, 303 N.Y. 681), all concern wills which expressly directed that taxes be treated in the same manner as administration expenses or juxtaposed references to expenses and taxes and directed payment of both in identical language. The court holds that in the instant proceeding there is no basis under either the language of the will or the authorities for treating estate taxes in the same manner as administration expenses.

The sons contend further that the provision in paragraph First directing payment of taxes out of the residuary estate precludes application of section 124 to the allocation of taxes within the residuary itself. Although the quoted provision of paragraph First serves to exonerate the legacies of paragraphs Third through Sixth from paying their proportionate share of estate taxes, the will contains no express direction as to apportionment within the residuary estate, and is silent as to which one or more of the residuary legacies, if less than all, shall bear the taxes. Nor is there apparent any intent that the taxes are to be computed so as to deprive any legatee of deductions to which he might become entitled under the act imposing the tax. The mere presence in the will of a provision relating to apportionment is not sufficient to render section 124 inoperative. (See Matter of Blumenthal, 180 Misc. 895, 899, affd. 267 App. Div. 949, affd. 293 N.Y. 707; Matter of Frank, 195 Misc. 406, 407; and Matter of Bayne, 102 N. Y. S. 2d 525, 527.) Indeed, "except in a case where a testator otherwise directs in his will" this section "commands proration" (Matter of Mills, 189 Misc. 136, 140, affd. 272 App. Div. 229, affd. 297 N.Y. 1012).

If the question of allocating marital deduction benefits under paragraph (ii) of subdivision 3 of section 124 were not involved, it seems unlikely that any party would question the general applicability of section 124 to this residuary estate. Wherever life interests, such as those of the two sons in the residuary trusts here, are created, subdivision 2 of section 124 requires that the tax on both such temporary interests and the remainders thereafter be "charged against and * * * paid out of the corpus * * * without apportionment between remainders and temporary estates." The application of this part of section 124 to the residuary interests, despite the fact that the will contains an apportionment clause (which does not direct otherwise), has been approved by the courts. (Matter of Pratt, 123 N. Y. S. 2d 425; Matter of Blumenthal, 182 Misc. 137, affd. 267 App. Div. 949, affd. 293 N.Y. 707, supra.) In addition, it is noteworthy that the contention of the sons is, in effect, in favor of the application within the residuary of paragraph (i) of subdivision 3 of section 124 to the exclusion of paragraph (ii) of subdivision 3.

The history of section 124, as construed, is helpful to determine the effect of the direction of the testatrix upon the credit of the surviving spouse for the marital deduction. The section as enacted in 1930, provided that "except in a case where a testator otherwise directs in his will * * * in making such proration allowances shall be made for any exemptions granted by the act imposing the tax and for any deductions allowed by such act for the purpose of arriving at the value of the net estate" (L. 1930, ch. 709). Under this provision, the estate tax deductions on bequests to a charity have been held to inure to the benefit of such charity and the taxes are allocated within the residuary so as to credit the charity for the deduction (Matter of Blumenthal, 182 Misc. 137, affd. 267 App. Div. 949, affd. 293 N.Y. 707 supra; Matter of Dettmer, 179 Misc. 844, motion for leave to appeal to the Court of Appeals denied 266 App. Div. 923; Matter of Starr, 157 Misc. 103). The credit is given to the charity even in the case where the will directs payment of taxes from the residuary estate (Matter of Pratt, 123 N. Y. S. 2d 425, supra) and in a situation similar to the instant case where the will provided for the payment of estate taxes from the general or residuary estate, it has been held that the taxes are to be apportioned within the residuary to benefit the surviving spouse for the marital deduction (Matter of Bayne, 102 N. Y. S. 2d 525, supra).

In 1950, section 124 was amended, applicable to the estates of all persons dying after September 1, 1950, to provide in paragraph (ii) subdivision 3, that "[i]n the absence of directions to the contrary * * * any exemption or deduction allowed under the law imposing the tax by reason of the relationship of any person to the decedent * * * or by reason of the charitable purposes of the gift shall inure to the benefit of the person bearing such relationship or receiving such * * * charitable gift".

The draftsman's note to the amendment states that "[t]he amendment is mainly declaratory of existing law." And as Surrogate COLLINS pointed out in Matter of Wolf (204 Misc. 356, 363, affd. 282 App. Div. 1018), the Legislature in "lumping together" the references to the marital and charitable deductions in the 1950 amendment intended that they be treated in the same manner with respect to apportionment. Thus, under the cases construing section 124, the estate taxes are to be apportioned to credit the husband...