Merchants Nat. Bank of Boston v. Merchants Nat. Bank of Boston

• Decision Date: 18 September 1945
• Parties: MERCHANTS NAT. BANK OF BOSTON et al. v. MERCHANTS NAT. BANK OF BOSTON et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

318 Mass. 563

62 N.E.2d 831

MERCHANTS NAT. BANK OF BOSTON et al.

v.MERCHANTS NAT. BANK OF BOSTON et al.

Supreme Judicial Court of Massachusetts, Worcester.

Sept. 18, 1945.

Reservation and Report from Probate Court, Worcester County; Atwood, Judge.

Petitions in equity and in probate by the Merchants National Bank of Boston and another, as executors of the will of George C. Beals, against the Merchants National Bank of Boston and another, as trustees of trusts created by the will of George C. Beals, and as executors under the will of Edith J. Beals, and others, for apportionment of federal estate tax paid. On report after demurrers to the petition in equity were overruled and motions to dismiss the probate petition were denied.

Orders denying motions to dismiss the probate petition reversed, and probate petition dismissed, and interlocutory decrees overruling demurrers to the petition in equity reversed in part and affirmed in part.

Before FIELD, C. J., and LUMMUS, QUA, DOLAN, RONAN, WILKINS, and SPALDING, JJ.

G. Newhall, of Lynn, for petitioners stated the case.

F. G. Goodale and C. Y. Wadsworth, both of Boston, for trustees under instrument of trust for benefit of Philip C. Beals et al.

E. C. Parks and F. C. Hession, both of Boston, for trustees under eighth clause of will of G. C. Beals et al.

J. G. Palfrey and C. F. Albert, both of Boston, for trustees under fifth clause of will of G. C. Beals.

RONAN, Justice.

These are two petitions brought in the Probate Court of Worcester County by The Merchants National Bank of Boston and Philip C. Beals, as executors of the will of George C. Beals, seeking the apportionment under G. L.(Ter.Ed.) c. 65A, § 5, 5A, 5B, inserted by St.1943, c. 519, § 1, of that part of the Federal estate tax paid by them on October 11, 1943. The respondents The Merchants National Bank of Boston and Philip C. Beals are the trustees of the trust established by the fifth clause of the will and are the trustees of another trust created by the eighth clause of the will, and are also the executors under the will of Edith J. Beals, who was the widow of the testator. The respondents John W. Marno and Philip C. Beals are the trustees under a declaration of trust executed by George C. Beals under date of July 31, 1935. The remaining respondents are the said Philip C. Beals individually, the President and Fellows of Harvard College and the Attorney General. One petition is in equity and the other is a general petition brought on the probate side of the court. Both petitions make the same allegations and seek the same relief. After ordering the demurrers to the petition in equity overruled and the motions to dismiss the probate petition denied, the judge reported both orders to this court.

The petitioners in each of the petitions were also respondents in various representative capacities. Where the same persons in one capacity have a duty to perform in enforcing a claim against others and themselves but in a different capacity, an action at law will not lie but resort must be had to a suit or petition in equity. Pratt v. Dean, 246 Mass. 300, 140 N.E. 924;Johnson v. Johnson, 300 Mass. 24, 13 N.E.2d 788;Smith v. Stratton, 302 Mass. 17, 18 N.E.2d 328;Dansereau v. Dansereau, 318 Mass.-, 61 N.E.2d 661. We shall consider the petition in equity and dismiss the general probate petition.

The petition in equity alleges that George C. Beals executed his will on April 18, 1939, and died on September 8, 1940. The will was allowed on October 16, 1940. By the fifth clause of the will, the rest and residue of the estate with the exception of certain timberlands was put in trust primarily for the benefit of Edith J. Beals, his widow, and Philip C. Beals, his son, with a contingent remainder to certain charitable uses. Certain timberlands, located in New England and in Virginia, were devised in trust by the eighth clause of the will. The will gave directions to the trustees as to the upkeep of these lands and the marketing of the timber on a sound annual basis so that the timberlands should be ‘a perpetual timber forest with an annual crop and continually renewed.’ The management of the timberlands was to be turned over to Philip C. Beals after he became twenty-two years of age if he showed an active interest in them, and the trustees were to furnish him with the necessary funds to care for them, They were to be conveyed to him free from trust when he became thirty years of age if he was still interested in maintaining the timberlands, otherwise they were to become a part of the residuary trust. It is also alleged in the petition that the testator by a declaration of trust dated July 31, 1935, created a trust known as the Philip C. Beals Trust. Shares of stock representing the controlling interests in two corporations were transferred by the testator to himself as trustee, and the income was payable to his son Philip C. Beals. Provision was also made for the payment of a part of the corporate earnings to certain employees. The trust was irrevocable, and the testator provided for the appointment of the trustees who were to succeed him at his death. His son Philip C. Beals, having become twenty-one years of age a few weeks after his father's death, became one of the trustees in accordance with the terms of the trust. The testator expressed a hope that his son would ultimately take charge of the business of both of these corporations, and the trust was to terminate and the trust propertywas to be transferred to him at any time after he became thirty years of age if he showed an aptitude for and an interest in the business. The trustees were given broad powers with reference to the sale of trust property, the investment of funds and the apportionment between capital and income, but they were not to dispose of any of the shares of stock in either corporation unless they disposed of all the shares in that corporation.

The petition further alleged that all the legacies bequeathed in the first five clauses of the will were paid before January 1, 1943, and that neither the will nor the declaration of trust contained any express provision with reference to the payment of the Federal estate tax. The executors on December 8, 1941, paid an estimated Federal estate tax of $206,000, and on October 11, 1943, paid a deficiency tax of $216,994.49. The Federal estate tax was computed by including in the gross estate the assets in the Philip C. Beals Trust at a valuation of $741,573.13, the timberlands trust at a valuation of $62,867, and an item originally listed in the return as life insurance payable to the decedent's wife amounting to $40,094.84 but which was not a life insurance within the Federal estate tax law.

It is also alleged that the insurance company paid this sum to Mrs. Beals; that she died testate August 16, 1941; that her estate has not been completely settled; and that her executors have ample assets to pay any part of the Federal estate tax that they may be ordered to pay. The petition prays for an apportionment of the said tax of $216,994.49 among the parties respondent in accordance with the provisions of G.L.(Ter.Ed.) c. 65A, §§ 5, 5A and 5B, inserted by St.1943, c. 519, § 1, and for appropriate decree ordering them to pay the petitioners the amounts for which they may be found liable, together with interest from October 11, 1943.

The estate, St.1943, c. 519, § 1 amended G.L.(Ter.Ed.) c. 65A by striking out § 5 and inserting in place thereof three new sections, 5, 5A and 5B. The new § 5 provided that ‘Whenever it appears upon any accounting, or in any appropriate action or proceeding, that an executor, administrator, trustee or other person acting in a fiduciary capacity, has paid * * * an estate tax levied or assessed * * * under the provisions of any estate tax law of the United States * * * upon or with respect to any property required to be included in the gross estate of a decedent under the provisions of any such law, the amount of the tax so paid or payable, except as otherwise directed or provided in the decedent's will, and, where all or part of a fund created by written instrument executed inter vivos is included in the gross estate, except as otherwise provided in such written instrument, or amendment thereof, shall be equitably apportioned and prorated among the persons interested in the estate.’ The apportionment shall be made in the ratio that the value of the property received bears to the total value of all the property received by ‘all such persons interested in the estate; provided, that it shall accord with applicable estate tax laws of the United States where such laws specify with respect to an apportionment.’ Provisions are made for deductions and exemptions in making the apportionment. The ‘persons interested in the estate’ are those ‘who may be entitled to receive or who have received any property or interest which is so required to be included in the gross estate of a decedent, or any benefit whatsoever with respect to any such property or interest.’ Section 5A provides for the payment to the executor or administrator of the proportionate amount of the tax from those who received property included in the gross estate and which did not come into the possession of the executor or administrator. By § 5B the Probate Court having jurisdiction of the estate of a decedent is given jurisdiction to make the apportionment, to determine the amounts thereof and to make appropriate decrees. Statute 1943, c. 519, § 2, provides that this chapter ‘shall not apply to amounts paid as estate taxes nor to distributions made by an administrator, executor or trustee before’ the effective date of the chapter. This chapter became operative on September 9, 1943.

The trustees of the residuary trust join with the petitioners in seeking the application of the apportionment statute, but the remaining respondent trustees and executors and the respondent Philip C. Beals individually contend on various...