Old Colony Trust Co. v. McGowan

• Decision Date: 01 June 1960
• Citation: 156 Me. 138,163 A.2d 538
• Parties: OLD COLONY TRUST COMPANY, Executor and Trustee under the Will of Edwin W. McGOWAN, v. Irma G. McGOWAN et al.
• Court: Maine Supreme Court

Page 538

163 A.2d 538

156 Me. 138

OLD COLONY TRUST COMPANY, Executor and Trustee under the Will of Edwin W. McGOWAN, v. Irma G. McGOWAN et al.

Supreme Judicial Court of Maine.

June 1, 1960.

Weeks, Hutchins & Frye, Waterville, for plaintiff.

Linnell, Perkins, Thompson, Hinckley & Thaxter, Portland, Ralph G. Boyd and William D. Weeks, Boston, Mass., Hutchinson, Pierce, Atwood & Allen, Verrill, Dana, Walker, Philbrick & Whitehouse, Portland, Sanford L. Fogg, Augusta, Arthur T. Schmidt, New York City, Hirshberg, Pettingill & Strong, Greenwich, Conn., for defendants.

Before WILLIAMSON, C. J., and WEBBER, TAPLEY, SULLIVAN, DUBORD and SIDDALL, JJ.

WEBBER, Justice.

On report. The will of Edwin W. McGowan, who died on May 12, 1955, was duly admitted to probate and thereafter the widow, Irma G. McGowan, seasonably filed her waiver and elected to claim her statutory interest. The Old Colony Trust Company, having qualified as executor and trustee, seeks the aid of this Court in settling the interests of the parties who share the estate and in fixing the proportions of state and federal taxes to be borne by the respective takers.

The will is a lengthy one and for the most part expresses the wishes of the testator and defines the powers and duties of his trustee in clear and unambiguous language. There are certain important phrases, however, which create uncertainty, especially when read in the light of the widow's waiver--a contingency which the testator may well not have contemplated. The testamentary pattern was to provide for (a) the payment of debts; (b) a specific legacy of $10,000 to one Dr. Hiden; and (c) creation of two trusts, the first of which will be referred to as the 'Dartmouth Trust' and the second as the 'Family Trust'. In addition, there was life insurance in force, some payable to named beneficiaries and some to the testator's estate. There were also building and loan shares in the name of the testator which, like insurance proceeds, in the absence of appropriate testamentary disposition pass outside the will, but nevertheless play a part in settling the interests of the claimants. Real estate in Massachusetts passed to the widow as surviving joint tenant.

The parties in interest include the widow, the son, and the granddaughter of the testator, his nephews, the guardian ad litem of the infant parties and unborn children, and Dartmouth College.

The plaintiff first seeks instruction as to the composition of the widow's share. R.S.1954, Chap. 170, Sec. 20, provides the applicable rule for descent of personal property which governs here since there was no real estate passing through the estate. The statute provides: 'The personal estate of an intestate, except that portion assigned to his widow by law and by the judge of probate, shall be applied first to the payment of his debts, funeral charges and charges of settlement; and the residue shall be distributed * * *' (1/3 to the widow by reference to R.S. Chap. 170, Sec. 1, governing the descent of real estate.) By force of R.S. Chap. 170, Sec. 14, the widow who has waived the provisions of a will in a case such as this takes a share composed as above set forth as though by intestacy.

In the instant case the widow applied for and was awarded $9,000 as her reasonable sustenance for a period of ninety days as provided by R.S. Chap. 156, Sec. 17. This sum will be first deducted before computing the widow's share as expressly provided by the above quoted portion of R.S. Chap. 170, Sec. 20. The same statute directs the deduction of debts owed by the testator at his death and of his funeral expenses before computing the widow's fractional interest. The 'charges of settlement', also to be first deducted, will include along with the usual costs of administration certain counsel fees and expenses attributable to this litigation as may later be determined. The widow suggests that some portion of this expense should be treated as pertaining only to trust matters and therefore not first deductible as a 'charge of settlement', but in our view the matters pertaining to the composition of the trusts, the impact of taxes upon them, and related matters are so inseparably associated with other legal issues to be resolved that no such separation can fairly or properly be made. It will therefore be necessary to include all such allowable fees and expenses within the deductible category of 'charges of settlement'. It is well settled that the widow's statutory share takes precedence over any legacy and will be determined without regard to the specific legacy to Dr. Hiden. Fogg, Appellant, 105 Me. 480, 74 A. 1133.

As already noted, there was in force insurance payable to the estate and certain building and loan shares in the testator's name. We find no language in the will which in our view purported or was intended by the testator to dispose of either the insurance proceeds or the shares. Accordingly, as provided by R.S. Chap. 170, Sec. 21, the insurance premiums paid within three years together with interest thereon form part of the estate of which the widow takes her fractional interest as a result of her waiver, but the balance of proceeds of insurance forms no part of the estate and by force of the insurance statute itself passes directly to the persons and in the proportions fixed by that statute. In short, the executor will disregard this excess of insurance proceeds in computing the widow's share of the estate. The same treatment will be accorded the building and loan shares which pass by virtue of the provisions of R.S. Chap. 59, Sec. 177 (in effect at the date of death) and do not become part of the McGowan estate.

The executor will compute the widow's share without deduction for Maine inheritance taxes which are neither 'debts' nor 'charges of settlement' within the intendment of R.S. Chap. 170, Sec. 20. Having thus established her statutory interest, the executor will subsequently deduct and pay to the State of Maine the tax on the widow's 'privilege of receiving property by * * * inheritance' before making distribution to her, all as required by R.S. Chap. 155, Sec. 14. See MacDonald v. Stubbs, 142 Me. 235, at page 240, 49 A.2d 765, at page 767. The tax falls not upon the estate but upon the recipient, and the executor is in effect made a tax collector by the statute. Assuming for the moment the existence of a 'tax clause' in the will, the widow who has waived the will neither claims nor receives any benefit therefrom. We will have occasion later to discuss the contention of the widow that she should have equitable relief from the burden of state inheritance tax because, as she argues, credit therefor is allowed in the computation of the federal estate tax. All parties agree that there is no practical likelihood of the assessment of a Maine 'estate tax' but principles announced in this opinion would govern such an eventuality.

A much more difficult question is presented with reference to the status of the federal estate tax in the computation of the widow's share and the ultimate impact, if any, of that tax upon her interest. As already noted, the computation of the widow's interest depends upon the construction of R.S. Chap. 170, Secs. 1, 14 and 20 when read together as applicable to the situation which exists when the widow has renounced the will and only personal estate is involved. As we have seen, Sec. 20 provides that the widow's fractional share of the personal estate is subordinated to (a) that portion which she receives otherwise by law or by order of the probate court; (b) the debts of the estate; (c) the funeral charges; and (d) the charges of settlement. We may disregard at once (a) and (c) in determining whether her interest is subordinated to the federal estate tax. We are satisfied also that such taxes are not included in the category of 'debts'. It has frequently been stated that taxes are not debts. The latter are obligations created by the decedent and founded upon contract express or implied. The former, however, are imposts levied to finance the lawful purposes of government and enforceable without the consent of the texpayer. Meriwether v. Garrett, 1880, 102 U.S. 472, 26 L.Ed. 197; Hepburn v. Winthrop, 1936, 65 App.D.C. 309, 83 F.2d 566, 105 A.L.R. 310; see City of Augusta v. North, 57 Me. 392; Boston v. Turner, 1909, 201 Mass. 190, 87 N.E. 634. No different meaning was assigned to the word 'debts' in Sec. 20.

The phrase 'charges of settlement' has long been in the statute and has apparently never been construed. Obviously it embraces all of the ordinary costs and expenses of administration of the estate. We must now determine whether or not it includes more. The phrase does not stand alone but must be read in the light of the whole statute of which it forms a part. We note that after provision has been made for the categories described above as having priority, the statute contemplates that a 'residue' is then available to be 'distributed'. In Fogg, Appellant, supra, [105 Me. 480, 74 A. 1134] a case dealing with a widow's election to renounce the will, the court lumped all the priority items together as 'debts and expenses' and clearly recognized that the widow is taking a 'distributive share' of a 'residue' available for distribution as in cases of intestacy. This 'residue' was referred to as a 'net balance in the hands of the administrator' in Smith, Appellant, 107 Me. 247, 78 A. 97, and again in Hussey v. Titcomb, 127 Me. 423, 144 A. 218. We are satisfied that no such 'net balance' can be computed until a deduction has first been made for the federal estate tax. Moreover, by force of law the executor must discharge by payment the liability of the estate for the tax and there is certainly no 'settlement' of the estate until he has done so.

In Wisconsin, a statute provided that a widow after waiver took a fraction of the 'net personal estate'. Stats. § 233.14. The court construed those words as meaning the estate...