Trimble v. Hatcher's Ex'rs

• Decision Date: 25 June 1943
• Citation: 173 S.W.2d 985,295 Ky. 178
• Parties: TRIMBLE et al. v. HATCHER'S EX'RS.
• Court: Kentucky Court of Appeals

173 S.W.2d 985

295 Ky. 178

TRIMBLE et al. v. HATCHER'S EX'RS.

Court of Appeals of Kentucky

June 25, 1943

Rehearing Denied October 5, 1943.

Appeal from Circuit Court, Pike County; R. Monroe Fields, Judge.

Action by Hatcher's executors against Jack Trimble and others for a declaration of rights and duties of executors and trustees as to allocation of federal estate taxes. From adverse decree, defendants appeal.

Affirmed.

William Hays, of Winchester, for appellant Jack Trimble.

A. F Childers, of Pikeville, for appellant Joe Trimble.

J. J Moore, of Pikeville, for appellee Zach Justice and K. L Arnold.

J. P. Hobson, Jr., and Henry J. Scott, both of Pikeville, for other appellees.

MORRIS Commissioner.

James Hatcher died September 29, 1939; his will was executed October 10, 1938. The matters discussed arose in a suit for declaration of rights and duties of executors and trustees as to allocation of federal estate taxes. Within two years prior to his death Mr. Hatcher conveyed to his great nephews Jack and Joe Trimble the Hatcher Hotel in Pikeville, valued (for tax purposes) at $110,000; to Betty Hatcher the Vanover apartments, $5,000; to four Trimble girls, Locust Court, $35,000; to four Hatcher children, Caney Creek farm, $676. He made cash gifts to the Trimble girls, $4,500 each, a like sum to June Polly, not of kin.

The taxing authorities found all these to have been made in contemplation of death. The total was fixed by taxing authorities at $173,176, and the value of property passing by will, real estate, notes, cash, insurance, etc., at $313,625.33; after exemptions and deductions the net taxable estate was fixed at $412,931.29, upon which the tax was $61,236.60; $14,764.19 has been paid, leaving the unpaid balance $46,055.

Appellees asserting lack of funds to pay the balance asked advice as to whether or not they should collect a proportionate part of the federal estate tax from the beneficiaries of the gifts, admittedly made in contemplation of death. Two other questions are raised: Whether any beneficiary contesting the apportionment of taxes as sought, stands in danger of forfeiting rights to take under the will, and as to the right of trustees to mortgage the trust property for payment of taxes. Testator had written that any devisee or beneficiary who contested the will should take nothing under the trusts. The chancellor correctly held the proceeding to be only an effort of parties to assist the court in determining the tax burden. South Norwalk Trust Co. v. St. John, 92 Conn. 168, 101 A. 961, 963, Ann.Cas.1918E, 1090; Black v. Herring, 79 Md. 146, 28 A. 1063; Mallet v. Smith, 6 Rich.Eq.,S.C., 12, 60 Am.Dec. 107; In re Estate of Bergland, 180 Cal. 629, 182 P. 277, 5 A.L.R. 1363. The provision authorizing the pledging of property is copied infra. The court construed this item when read with the whole will to authorize representatives to mortgage the trust property for payment of estate taxes chargeable against the property devised by this will. As to power see Gaither v. Gaither, 288 Ky. 145, 155 S.W.2d 746.

After the customary declarations, testator provided that the executors "pay all my just debts out of the trust funds coming into their hands." The two trusts were created by item 8 of the will, which after small specific devises and bequests, gave to trustees the residue for the benefit of great nieces and nephews, and one nephew. The will provided: "I hereby authorize my trustees when necessary to borrow money and to mortgage my trust estate therefor for the sole purpose of paying the United States government, county and state, including income and inheritance taxes levied or assessed against my said estate, whether such taxes be against my trust estate or other estate left by me by this will."

In a codicil of November 1938, which modified a portion of clause 8, relating to the same subject, testator wrote: "I hereby authorize, empower and direct that out of the income from the trust property the trustees pay all taxes on all the property which I may own at the time of my death, whether the same be part of this trust estate or not, also to pay all taxes on that property deeded by me to the Trimble and Hatcher children on Ivy and Caney Creeks, alone, when and if there are sufficient funds in my general trust fund with which to make such payment of said taxes. But when and if there is no money available out of my general trust fund for such payment, then I hereby authorize my trustees to make such payment of such taxes for the Ivy and Caney tracts out of the separate trust estate or separate trust funds held by my trustees for my devisees as set forth on page 15 of my said will. If such payment is made out of my own general trust fund such payment shall be charged against the devisee for whom such payment is made. And if no funds are available out of either of my general trust fund, or out of the separate fund held by my trustees for the devisees, then such payment or any balance on said taxes shall be made by each devisee who owe such taxes."

The chancellor reserved, as we do, questions as to allocation of tax payments, except federal estate tax. The court concluded it was not testator's intention to provide for payment of estate taxes on the inter vivos transfers. That while the executors were primarily liable for payment they were to have pro rata contribution. He found the total tax to be 13.67 per cent of the taxable estate, and adjudged that each recipient of gifts, and those taking under the trust, should pay their proportionate part, based on the percentages.

Appellees, concerned chiefly for their protection, take the position as do some beneficiaries under the trust, that the judgment is correct, basing their conclusions on Hampton's Adm'rs v. Hampton, 188 Ky. 199, 221 S.W. 496, 10 A.L.R. 515; Martin v. Martin's Adm'r, 283 Ky. 513, 142 S.W.2d 164, further insisting that a construction of the will in respect of tax payments leads to the conclusion reached by the chancellor. The gift recipients contend that the will shows the intention of the testator to be that the federal tax should be paid from the trust property, the residuary estate, and if not so, then under the federal law, as construed, the tax must fall as other debts against the estate, payable as such under our laws of descent and distribution.

It is unnecessary to go into great detail in discussing arguments of the diverse claimants as to the meaning of the will with reference to taxes. The one class contends that by the clause of the will first above quoted, the testator meant that all taxes, including estate taxes, should be paid from the trusts. As against this contention it is argued that if it be conceded that the federal taxes should be paid from the trusts, the clause limited payment to taxes levied against "my trust estate or other estate left by me by this will."

It is also contended that the codicil, supra, showed an intention on the part of testator to have executors pay all taxes from the trusts. It may be noted that this portion of the will, if it is susceptible to the construction contended for by appellants, provided for tax payments, not out of trust funds, but out of the "income from the trust property." It also limits payment in this manner of taxes on property which "I may own at the time of my death." The reference to payment of taxes on the gift to the Hatcher and Trimble children (the Caney Creek farm) in connection with the provision for payment of all taxes from "income" clearly evinces the purpose of payment of ad valorem, and not estate taxes, which the testator no doubt knew would have to be paid promptly.

It is also argued, in attempt to show that the intention was that all taxes should be borne by the trust, that testator highly favored those to whom he had made inter vivos gifts, many of whom were beneficiaries of the trusts. In answer to this it is argued that testator showed more concern as to future interests of beneficiaries of the trust. From a reading of the entire will testator was apparently much concerned in the use and protection of all properties and income coming to the hands of beneficiaries.

We do not take these arguments to be conclusive as bearing on the question of the ultimate burden, and must agree with the chancellor that the will did not evince an intention that the trust should bear the estate taxes on gifts made in contemplation of death. As to whether the will manifested intention that the trust beneficiaries should bear their proportions need not be...