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

• Decision Date: 18 September 1945
• Citation: 62 N.E.2d 831,318 Mass. 563
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: THE MERCHANTS NATIONAL BANK OF BOSTON & another, executors, v. THE MERCHANTS NATIONAL BANK OF BOSTON & another, trustees, &

318 Mass. 563

62 N.E.2d 831

THE MERCHANTS NATIONAL BANK OF BOSTON & another, executors, v. THE MERCHANTS NATIONAL BANK OF BOSTON & another, trustees, &

Supreme Judicial Court of Massachusetts, Worcester.

September 18, 1945

March 7, 1945.

Present: FIELD, C.

J., LUMMUS, QUA DOLAN, RONAN, WILKINS, & SPALDING, JJ.

Taxation Apportionment of tax burden, Federal estate tax. Constitutional Law, Due process of law, Equal protection of laws, Taxation, Obligation of contracts, Separation of powers of government. Executor and Administrator, Taxes. Statute Retroactive. Devise and Legacy, Apportionment of tax burden. Equity Jurisdiction, Suit by fiduciary against himself in another capacity.

A petition on the probate side of a Probate Court was dismissed and relief was granted under a petition in equity containing the same averments and seeking the same relief, where the relief was sought by persons in one capacity against others and also against themselves in a different capacity. Under the new Sections 5, 5A, 5B, inserted in G. L. (Ter. Ed.) c. 65A by

St. 1943, c.

519, Section 1, and under Section 2 of said c. 519, a

Probate Court might, without violation of the due process clause or the equal protection of laws clause of the Fourteenth Amendment to the

Constitution of the United States or of art. 30 of the Declaration of Rights, and without impairment of contractual obligations, direct that a proper apportionment and proration be made of the amount of a deficiency

Federal estate tax assessed upon the estate of one who had died testate before the effective date of said c. 519 and paid by the executor after that date, and that the executor be reimbursed by the trustee of an inter vivos trust established by the testator, the property of which was undistributed at the time of such payment and properly had been included in the estate for the purpose of assessing the tax, and by the recipient of insurance money paid by reason of the death of the decedent before the payment of the tax and also properly included in the estate for such assessment, where it appeared that there was no provision "otherwise" in the will or in the instrument establishing the inter vivos trust or in the insurance policy.

No part of a deficiency Federal estate tax paid by an executor after the effective date of St. 1943, c. 519, Section 1, should be apportioned, under Sections 5, 5A, 5B, inserted thereby in G. L. (Ter. Ed.) c. 65A, to the trustee of a trust of timberlands created by the testator's will, where the terms of the will relieved such trust of all expenses of maintenance and placed them upon the residuary estate and thus provided

"otherwise" within the statute.

TWO PETITIONS, filed in the Probate Court for the county of Worcester on March 27, 1944, by the executors of the will of George C. Beals, late of Winchendon.

The cases here heard and reports to this court were made by Atwood, J. In this court the cases were argued at the bar in March, 1945, before Field, C.J., Lummus, Dolan, Ronan, & Spalding, JJ., and afterwards were submitted on briefs to all the Justices.

G. Newhall, stated the case.

F. G. Goodale, (C.

Y. Wadsworth with him,) for the trustees under an instrument of trust for the benefit of Philip C.

Beals, and another.

E. C. Parks, (F.

C. Hession with him,) for the trustees under the eighth clause of the will of George C.

Beals, and others.

J. G. Palfrey & C.

F. Albert, for the trustees under the fifth clause of the will of George C.

Beals.

RONAN, J. 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, Sections 5, 5A, 5B, inserted by St. 1943, c. 519, Section 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 . Johnson v. Johnson, 300 Mass. 24 . Smith v. Stratton, 302 Mass. 17 . Dansereau v. Dansereau, ante, 363. 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 property was 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 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, Sections 5, 5A, and 5B, inserted by St. 1943, c. 519, Section 1, and for appropriate decrees ordering them to pay the petitioners the amounts for which they may be found liable, together with interest from October 11, 1943.

The statute, St 1943, c. 519, Section 1, amended G. L. (Ter. Ed.) c. 65A by striking out Section 5 and inserting in place thereof three new sections, 5, 5A and 5B. The new Section 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...