Seattle-First Nat. Bank v. Macomber

• Decision Date: 07 March 1949
• Docket Number: 30764.
• Citation: 32 Wn.2d 696,203 P.2d 1078
• Court: Washington Supreme Court
• Parties: SEATTLE-FIRST NAT. BANK v. MACOMBER et al.

203 P.2d 1078

32 Wn.2d 696

SEATTLE-FIRST NAT. BANK v. MACOMBER et al.

No. 30764.

Supreme Court of Washington.

March 7, 1949

Department 2.

Action by the Seattle-First National Bank, as trustee, under the living trust of L. A. Macomber, against Marian Henderson Macomber, individually and as executrix of the last will of L. A. Macomber, deceased, and others. From a judgment holding that certain stocks specifically bequeathed to Isabel V Murphy were subject to federal estate taxes, Isabel V. Murphy appeals.

Affirmed in part, and reversed in part and remanded with instructions.

Appeal from Superior Court, King County; John A. Frater, judge.

Robert B. Walkinshaw, of Seattle (J. H. Sapiro, of San Francisco, Cal., of counsel), for appellant.

Emory Howe, Davis & Riese, of Seattle, for respondent.

Russell V. Hokanson, of Seattle, for guardian ad litem.

SCHWELLENBACH Justice.

This is an appeal from a judgment holding that certain stock specifically bequeathed to appellant in decedent's will is subject to Federal estate taxes.

On December 28, 1934, L. A. Macomber conveyed, assigned and set over to the First National Bank of Seattle (predecessor in interest of the respondent), as trustee, certain property of the value of $93,000. The trust agreement provided: That the trustee pay to the grantor during his lifetime the net income from the trust estate in monthly installments; that upon the grantor's death, the trust should continue for the benefit of the grantor's wife and daughter; that the income should be paid to the grantor's wife until the daughter reached the age of twenty-three years, when the income should be divided equally between the wife and the daughter.

The agreement further provided that in case the daughter should predecease the wife, without leaving any children, the wife should take all; that upon the death of the wife the trust should continue for the benefit of the daughter, until she reached the age of forty-five years. At that time she would have the privilege of receiving all the remainder of the trust outright, or she could continue to receive the income. It was also provided that, in the event the daughter did not survive to take final disposition of the trust estate, then if she should leave one or more children surviving, the trust should continue, and the trust be disbursed for their benefit until the youngest survivor should reach the age of twenty-one years, when the trust would be terminated and the remainder of the estate would be divided among the survivors.

Mr. Macomber added to the trust estate from time to time, until, at his death on December 3, 1944, the assets of the estate were valued at $333,354.99.

On February 20, 1935, Mr. Macomber executed his will. Paragraphs 2 and 3 provided: '2nd. I hereby direct that my executrix hereinafter named shall have and is hereby given the right and power to sell or otherwise dispose of any or all of my estate, real or personal, at such price and upon such terms as she may deem wise and advisable, and place the proceeds of such sale with the First National Bank of Seattle, and by said Bank to be placed in the L. A. Macomber Trust, which I have established, and now existing, in said Bank. And I direct that such proceeds shall be treated as part and parcel of such Trust and controlled and disposed according to the terms thereof.

'3rd. For the reason that the terms of said Trust, set forth in paragraph two hereof, make full detailed provision for my wife, Marian H. Macomber and my daughter, Marjorie Macomber, I make no special provision in this my last will and testament for my said wife or daughter, other than through said L. A. Macomber Trust.'

On October 3, 1944, one month prior to his death, he executed a codicil to his will. He therein devised an eighty-acre ranch in Riverside county, California, to a Mr. and Mrs. Reichert. Nothing was mentioned about this devise being exempt from taxes or other charges. The second paragraph of the codicil provided:

'I hereby give, devise and bequeath to my friend and most understanding companion, Isabel V. Murphy, of San Francisco, California, One Thousand shares of common stock of Shell-Union Oil Company, now held for my account by Merrill, Lynch, Pierce, Fenner and Bean, brokers in Seattle, Washingon. I direct that all estate, inheritance, transfer and other taxes and charges of every nature that may be made against the stock herein mentioned, be paid by my estate outside of said stock, so that the same may go to said legatee free from and without any deductions of any nature or kind.'

Upon his death he left surviving, his wife, Marian Henderson Macomber; his daughter, Marjorie Macomber Bray, and Marjorie's son, Richard V. Bray, Jr. He left property in the states of Washington, Oregon, and California, and in British Columbia. Mrs. Macomber was appointed executrix of his estate in Washington. The assets of the estate in British Columbia were insufficient to satisfy the charges against the estate there. The assets in Oregon were sold and the proceeds forwarded to the administratrix with will annexed in California. The assets of the estate in California, except the property specifically bequeathed to the Reicherts, were converted into cash, and the balance remaining after the payment of administration costs and debts against the estate, including the proceeds of the sale of the Oregon assets, in a total amount of $72,992.47, were forwarded to the trustee. The trustee refused to accept such funds as part of the trust assets, and Mrs. Macomber, as executrix of the probate estate, remitted the $72,992.47 to the Collector of Internal Revenue in partial payment of estate taxes Previously, she had applied $30,000 realized from the sale of Washington assets of the estate to Federal estate taxes, making a total of $102,992.47 paid for such purpose. There remains due the United States for Federal estate tax the sum of $27,715.60, plus interest.

The above described tax is based upon the valuation of the trust estate of $333,354.99; the Washington estate of $61,321.27; the California estate of $88,599.99; the Oregon estate of $3,000; the British Columbia estate of $943, and a life insurance policy in the amount of $100,000, of which Mrs. Macomber and the daughter are beneficiaries. The life insurance was not included as a part of the probate estate.

There now remains in the probate estate the sum of $3,000, and the one thousand shares of stock specifically bequeathed to Isabel V. Murphy, and valued at $30,500. The following costs of administration remain unpaid:

Family allowance

$ 4,000.00

Executrix Fees

2,000.00

Attorney's Fees

2,000.00

Balance Federal Tax

27,715.60

(plus interest)

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Total

$35,715.60

This action was commenced by the trustee seeking a declaratory judgment, declaring the respective duties and liabilities of the parties herein for payment of the balance of the Federal estate tax due to the United States and declaring the order in which the parties and estate are liable for the tax, and declaring the duties and liabilities of the parties with respect to the unpaid costs of administration.

The judgment decreed: That all of the residuary estate available to the executrix, consisting of approximately $3000, be first used toward payment of unpaid expenses of administration; if any further of the residuary estate remains available, it shall be used toward payment of any and all unpaid Federal estate tax, together with any interest and penalties due; that after all of the residue shall have been used, the one thousand shares of Shell-Union Oil Company stock, specifically buqueathed to Isabel V. Murphy, shall be subject to payment of the unpaid expenses of administration, if any, and subject to the payment of any unpaid Federal estate taxes and interest and penalties; that if there is any balance remaining after payment of the above, it shall be distributed to Isabel V. Murphy; that after the above payments shall be made, any balance of Federal estate taxes remaining due, shalll be paid by the trustee out of the trust estate. This appeal follows.

By far the greater portion of the Federal estate tax due is attributable to the inclusion in the gross estate of the trust property and the life insurance, for tax purposes. That the trust inter vivos is subject to the Federal estate tax under 26 U.S.C. 811(c), 26 U.S.C.A. § 811(c), is not disputed.

Before proceeding further, it might be advantageous to inquire into the nature of an estate tax. An estate tax is a tax upon the transfer of property by the decedent upon his death, and is to be distinguished from an inheritance or succession tax which is a tax upon the taking of property by a beneficiary or distributee. The estate tax is upon the entire estate, payable as an expense of administration, and not upon the particular...