Mercantile-Safe Deposit & Trust Co. v. Register of Wills for Baltimore City

• Decision Date: 06 February 1969
• Docket Number: No. 89,MERCANTILE-SAFE,89
• Citation: 252 Md. 311,250 A.2d 76
• Parties: DEPOSIT AND TRUST COMPANY, Trustee u/w Edward F. Burke v. REGISTER OF WILLS FOR BALTIMORE CITY et al.
• Court: Maryland Court of Appeals

Page 311

252 Md. 311

250 A.2d 76

MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, Trustee u/w Edward F. Burke v. REGISTER OF WILLS FOR BALTIMORE CITY et al.

No. 89.

Court of Appeals of Maryland.

Feb. 6, 1969.

Francis D. Murnaghan, Jr., Baltimore, for appellant.

George W. Liebmann, Asst. Atty. Gen. (Francis B. Burch, Atty. Gen., Baltimore, on the brief), for appellees.

Before HAMMOND, C. J., and BARNES, McWILLIAMS, SINGLEY and SMITH, JJ.

SINGLEY, Judge.

Edward F. Burke died domiciled in Baltimore County, Maryland on 23 December 1915, survived by his widow, and three children: Randolph Forrest Burke, Edwin (sometimes called Edward) Winslow Burke, and Madeleine Forrest Burke, later Madeleine Forrest Burke King. By the terms of his will he left the residue of his estate, amounting to some $198,000, in trust, income to be paid to his widow for life, the remainder to be divided at her death among such of his children as survived her. There were other limitations not pertinent to the issue before us. The widow, who had remarried, and at the time of her death was Madeleine, Countess Apponyi, died domiciled in New York on 17 September 1963, having survived her three children, all of whom had died without leaving descendants surviving. None of the children was domiciled in Maryland at the time of death.

By this time, Mercantile-Safe Deposit and Trust Company (the Trustee), which had succeeded to the trusteeship, held trust assets valued at some $346,000. As of the date of Mr. Burke's death, Maryland imposed no inheritance tax on property passing to a spouse or to lineal descendants, but taxed property received by collaterals at 5%. Annotated Code of Maryland (Bagby, 1911) Art. 81, § 120. The Trustee, being uncertain as to the manner in which the trust assets would devolve, paid to the Register of Wills of Baltimore City (the Register) collateral inheritance taxes in the amount of $17,224.73, representing 5% of the value of the trust assets at the widow's death. ¹

On 2 November 1964, the Trustee instituted a proceeding in the Circuit Court of Baltimore City for the construction of Mr. Burke's will. Among the defendants were:

The Chase Manhattan Bank, executor of the will of the Countess Apponyi Stephen de Horthy, the residuary legatee under the Apponyi will;

Atlantic National Bank, West Palm Beach, Florida, executor of the will of Randolph Forrest Burke;

Arthur N. Pierson, Jr., to whom Randolph Forrest Burke had assigned his interest in the estate on 8 June 1955;

Edith Lee Wilkinson, Kenneth S. Walker, Elizabeth Walker Stoddard, Mabel Walker Lewis and Yvonne Burke (all collaterals of Edward F. Burke, and referred to in this opinion as the 'Wilkinson Group').

There were other defendants joined, who were later deemed to have no direct interest in the proceeding. Edwin H. Hastings, administrator d. b. n. of the estate of Madeleine Forrest Burke King, later intervened in the proceedings. Edwin Winslow Burke had died intestate, and there had apparently been no administration of his estate.

Ultimately, an agreement of settlement was worked out, and the case was terminated by the entry on 25 June 1965 of a consent decree which adopted the terms of the agreement. The agreement provided that the trust assets were to be distributed among the next of kin of Edward F. Burke living at the time of his death, under the Maryland law of intestacy, subject, however, to the payment of the sum of $16,000 to the Wilkinson Group, to be charged equally against the shares of Edwin Winslow Burke and Madeleine Forrest Burke King, both of whom had died intestate. ²

As a result of the settlement agreement, the trust assets were distributed as in intestacy:

1. 1/3 to the widow, Countess Apponyi, payable to The Chase Manhattan Bank, her executor;

2. 2/9 to the son, Randolph Forrest Burke, payable to Arthur H. Pierson, Jr., his assignee.

3. 2/9 to the daughter, Madeleine Burke King (after the deduction of 1/2 of the $16,000 payment) payable to Edwin H. Hastings, her administrator d. b. n.

4. 2/9 to the son, Edwin Winslow Burke (after the deduction of 1/2 of the $16,000 payment) payable in proportions of 5/9 to The Chase Manhattan Bank, executor of the will of his mother, who had survived him, and 4/9 to Arthur H. Pierson, Jr., assignee of his brother, Randolph Forrest Burke, who also had survived him. ³

The construction case having been concluded by the entry of the consent decree, on 13 September 1965 the Trustee made application for a refund of $16,424.73 of the $17,224.73 in collateral inheritance tax which it had previously paid to the Register. Had this refund been granted, the sum of $800, 5% of the $16,000 paid in compromise of the claim of the Wilkinson Group, would have been left in the hands of the State. On the advice of the Attorney General, the Register denied the refund claim on 17 May 1966. The Trustee appealed to the Maryland Tax Court, Maryland Code (1957, 1965 Repl.Vol.), Art. 81, § 217, where the action of the Register was affirmed, and from the Tax Court to the Baltimore City Court, which affirmed the Tax Court and entered judgment absolute in favor of the Register for costs. It is from this judgment that the present appeal was taken.

Both parties agree that this appeal presents two questions, which they phrase differently, as do we:

1. For purposes of determining the incidence of Maryland inheritance tax, when an indefeasible future interest, non-possessory at the time of the death of a spouse or lineal descendant of the creator of the interest, vests in possession in the estate of the spouse or the lineal, is the interest to be treated as passing to the spouse or the lineal, without regard to the relationship of the distributees of the estate of the spouse or the lineal to the creator of the future interest?

2. For purposes of determining the incidence of Maryland inheritance tax, when an indefeasible future interest, non-possessory at the time when it is assigned to another by a lineal descendant of the creator of the interest, vests in possession in the assignee, is the interest to be treated as passing to the lineal, without regard to the relationship between the assignee and the creator of the future interest?

Since under our view of the case the answers to both questions are the same, as are the reasons which support them, we shall not deal with them separately.

It has long been held that the inheritance tax levied by the State, and now found in Code, (1957, 1965 Repl.Vol.), Art. 81, §§ 149, 150 is a succession tax imposed on the right to receive property, Pohlhaus v. Register of Wills, 248 Md. 625, 238 A.2d 91 (1968); Downes v. Safe Deposit & Trust Co., 164 Md. 293, 164 A. 874, 86 A.L.R. 1024 (1933); Good Samaritan Hospital v. Dugan, 146 Md. 374, 126 A. 85 (1924), and is therefore payable by the person to whom property passes and not by the estate of the person from whom it passes. Good Samaritan Hospital v. Dugan, supra, 146 Md. at 383, 126 A. 85.

Because the tax is imposed on the right to receive, in the usual case the relationship between the person from whom the property passes and the person to whom it passes determines the rate of the tax. As an example, in Bous v. Hull, 168 Md. 1, 176 A. 645 (1935), where a group of corporate legatees renounced their legacies, with the consequence that the legacies fell into the residuary estate and passed to direct descendants of the testatrix, our predecessors held that a collateral inheritance tax could not be imposed on the renounced legacies. A not dissimilar result was reached in Hart v. Mercantile Trust Company, 180 Md. 218, 23 A.2d 682 (1942). There a testator left each of his daughters an annuity and bequeathed the residue of his estate to a corporate legatee. The daughters filed a petition and caveat attacking the will, which was disposed of by an agreement of compromise, pursuant to which a verdict sustaining the will was entered. Under the agreement, the daughters assigned the benefits which they would have taken under the will to the corporate legatee, and the corporate legatee transferred to the daughters one-half of the net estate, not to exceed $100,000. The court looked to the substance and not the form of the...