Turner v. Cole

• Decision Date: 17 May 1935
• Docket Number: No. 12.,12.
• Citation: 179 A. 113
• Parties: TURNER et al. v. COLE et al.
• Court: New Jersey Supreme Court

179 A. 113

TURNER et al.

v. COLE et al.

No. 12.

Court of Errors and Appeals of New Jersey.

May 17, 1935.

Appeal from Court of Chancery.

Suit by John Turner and others against Clarence. L. Cole, Sr., Vincent Jerome Johnson, and others. From an adverse decree of the Court of Chancery (116 N. J. Eq. 368, 173 A. 613), last-named defendant appeals.

Affirmed.

Thompson & Hanstein, of Atlantic City, for appellant.

Wm. M. & Thos. R. Clevenger, of Atlantic City, for complainants-respondents.

HEHER, Justice.

The decree herein is affirmed for the reasons stated in the opinion of Vice Chancellor Sooy.

The tax questions raised were not dealt with in the opinion below (presumably because they arose out of it), and we proceed to consider them.

There is no substance to the claim that the decree is erroneous, "in that it does not direct the payment of the inheritance taxes (assessed by the State of New Jersey) by the Turners, in cash." The decree provides for the transfer to the Turner line of their "undivided interest" in the investments of the proceeds of the sale of the real estate, "at par"; and that "the difference between the sale prices and the investments aforesaid, shall be made up by investments made from income after deducting $2,910.49 from the $5,891.02 paid out for court costs, expenses and counsel fees in making said sales through the several proceedings conducted through this court and the amount paid to the State of New Jersey for transfer inheritance taxes assessed against the said parties for interest in the real estate of the deceased lunatic." The ground of complaint is that "from that proportion which each Turner is entitled to in any mortgage, there is to be withheld by the guardian a certain proportion of the mortgage, out of which either the guardian, or the administrators pendente lite, must pay the * * * tax due * * * on the inheritance of that particular Turner"; and that in the event the retained interest in the investment is liquidated at a loss, the difference "will have to be paid out of the Johnson share in the estate."

But this fear of loss is, in our opinion, entirely unfounded. The provision in question was a practical adjustment of the rights and obligations of the several parties in interest, including the administrator, upon whom the statute imposes a personal liability. We regard the pertinent provisions of the decree as entirely adequate to safeguard all parties in interest against an inequitable distribution of the burden of these taxes. Paragraph 21 of the decree reserves the right, "if occasion shall require," to apply to the court for directions "in aid of the practical distribution or division of the investment among the parties in interest." Moreover, the guardian seems to have been directed, by a prior order, to set up an ample reserve fund ($40,000) for the payment of taxes. The provisions of paragraph 21 may be invoked at any time to secure the parties against inequality in the distribution of the common property.

Nor do we find any merit in the contention that the decree should have provided for the payment by each of the Turner line "of his proportionate share of the federal estate tax."

The Johnsons take the entire personal estate; and the insistence of appellant is that "there is no statute that requires the personal estate of the Johnsons to pay the tax on the real estate inherited by the Turners"; that the sum set aside for the payment of taxes was a part of the residue that would ultimately go to the Johnsons, and that the decree, in effect, requires the Johnsons to pay the federal estate tax. To be more specific, the contention is that there is no analogy between this and a testamentary disposition "wherein certain specific legatees, or devisees, and certain named persons inherit the residuary estate," in which event it is conceded the federal tax would be chargeable to the residuary estate; but that here, if the appellant's contentions on the main case are rejected, "the Johnsons and the Turners inherited that which was representative of real property, without either being entitled to preference of payment as against the other." This claim is not well founded. These cases do not admit of a distinction in principle.

The federal estate tax falls upon the residuary estate, while the state transfer tax is assessed against the inheritance, and is chargeable against the recipient. Although this court did not pass upon the question when the case came before it, we concur in the view expressed by Vice Ordinary Backes in the Roebling Case, 89 N. J. Eq. 163, 104 A. 295, 296, dismissed 91 N. J. Eq. 72, 108 A. 359, that "there is no apportionment" of the federal estate tax "among the various transferees," and that "the real estate, devised or descending," is not liable to contribution. The federal death duty is significantly denominated an "estate tax." It is not a property tax; it is a tax "imposed upon the transfer of the net estate" of the decedent. 26 USCA § 1092. It is not an inheritance tax. It is calculated on the net estate, and not on the legacies or distributive shares.

There is a well-defined distinction between an estate tax and a legacy or succession tax. "The right or privilege tax can, perhaps, be regarded either as the right or privilege of the owner of property to transmit it on his death, by will or descent, to certain persons, or as the right or privilege of these persons to receive the property." Minot v. Winthrop, 162 Mass. 113, 38 N. E. 512, 516, 26 L. R. A. 259. See, also, United States v. Perkins, 163 U. S. 625, 16 S. Ct. 1073, 41 L. Ed. 287. But as pointed out in Hanson's Death Duties, p. 63, the federal death duty is levied not upon "the interest to which some person succeeds on a death, but the interest which ceased by reason of the death." And while an inheritance tax is not "one on property, but one on the succession," the property is chargeable with the tax, and "is called a succession." Knowlton v. Moore, 178 U. S. 41, 20 S. Ct. 747, 750, 44 L. Ed. 969; Hanson's Death Duties, p. 40. A distinguishing characteristic is that the estate duty is payable "out of the general revenue of the estate." Mr. Chief Justice White, in Knowlton v. Moore, supra, stated the apposite principles in dealing with a somewhat similar statute: "Taxes of this general character (death duties) are universally deemed to relate, not to property eo nomine, but to its passage by will or by descent in cases of intestacy, as distinguished from taxes imposed on property, real or personal, as such, because of its ownership and possession. In other words, the public contribution which death duties exact is predicated on the passing of property as the result of death, as distinct from a tax on property disassociated from its transmission or receipt by will, or as the result of intestacy. * * * This (the estate tax), like the probate duty,...