Wachovia Bank & Trust Co. v. Green

• Court: North Carolina Supreme Court
• Writing for the Court: DEVIN
• Citation: Wachovia Bank & Trust Co. v. Green, 73 S.E.2d 879, 236 N.C. 654 (N.C. 1953)
• Decision Date: 06 January 1953
• Docket Number: No. 115,115
• Parties: WACHOVIA BANK & TRUST CO. et al. v. GREEN et al.

Page 879

73 S.E.2d 879

236 N.C. 654

WACHOVIA BANK & TRUST CO. et al. v. GREEN et al.

No. 115

Supreme Court of North Carolina.

Jan. 6, 1953

George H. Wright, Asheville,for Wachovia Bank & Trust Co. and Marion Green Johnston, executors, appellants.

Harkins, Van Winkle, Walton & Buck, Asheville, for defendant-appellant, Effie M. Green.

Hudgins & Adams, Greensboro, for defendants-appellees, Aileen Morel Johnston, and John Devereaux Johnston, guardian ad litem for John Devereaux Johnston, Jr.

Williams & Williams, Asheville, for defendants Ottis Green, Jr., and Virginia F. Green, guardian ad litem of Laura Adelaide Green, Mary Virginia Green and Michael Joseph Green.

John C. Cheesborough, Asheville, guardian ad litem for persons not now in esse who may hereafter acquire an interest in the estate of Gay Green, deceased.

DEVIN, Chief Justice.

Gay Green died in June 1951, leaving an estate valued at more than four million dollars, all of which he disposed of according to the terms of his will. He was survived by his widow Effie M. Green, who elected not to take under the will, and, within the time and in the manner provided by law, signified her formal dissent therefrom. There were no children born of the marriage and the next of kin and principal beneficiaries under the will were a niece and nephew. Consequent upon her dissent the widow became entitled to 'the same rights and estates in the real and personal property of her husband as if he had died intestate.' G.S. § 30-2. No question as to the real property of the decedent is presented. In case of intestacy of the husband the North Carolina statute of distribution, G.S. § 28-149, subd. 3, makes this provision for the surviving widow: 'If there is no child nor legal representative of a deceased child, then one-half the estate shall be allotted to the widow, and the residue be distributed equally to every of the next of kin of the intestate'.

The question here presented for decision is whether in the administration of the estate of Gay Green the statutory share of the dissenting widow in the personal property of the decedent under the facts agreed should be allotted to her after the payment of the federal estate tax, or whether the widow's share should be allotted undiminished by this tax.

The court below was of opinion, and so adjudged, that the share of defendant Effie M. Green, in the personal estate of her deceased husband, should be computed in the personal property remaining after the payment of all debts and taxes including the federal estate tax. Counsel for the appellant Effie M. Green argued with much earnestness that this Court should take in to consideration the effect of the 1948 amendment to the Federal Revenue Act, 26 U.S.C.A. § 812(e), and adopt the view which would permit the application of the marital deduction provision of the statute to this case, and thereby reduce the value of the decedent's gross estate by that passing by operation of law to his widow and free that share from the impact of the federal estate tax.

The pertinent portions of this amended section upon which the appellant Effie M. Green relies may be stated as follows: 'For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate * * * (A) In general. An amount equal to the value of any interest in property which passes or is passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate. * * * (E) Valuation of interest passing to surviving spouse. In determining for the purposes of subparagraph (A) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this subsection--(i) there shall be taken into account the effect which a tax imposed by this chapter, or any estate, succession, legacy, or inheritance tax, has upon the net value to the surviving spouse of such interest'.

This means that for the purpose of the tax the value of the decedent's net estate should be determined by deducting from the value of the gross estate the value of the interest which passes from the decedent to the surviving spouse, but only to the extent such interest is included in determining the value of the gross estate. All the property up to 50% of the adjusted gross estate of the decedent which passes to his widow as owner is treated as a marital deduction, and this marital deduction is deducted from the value of the estate to be taxed. That is, the basis for the incidence of the federal estate tax would be diminished by reason of and to the extent of the marital deduction which she is permitted to have free from the tax. It was argued by appellant that the widow should not be required to contribute to the federal estate tax for the reason that this tax is an excise tax upon the transfer of the estate at death of the owner rather than a tax imposed upon the interest received, and the interest of the owner in one-half of his personal estate ceased at his death, his widow then becoming the owner thereof. The federal statute does not tax this interest because the decedent could not control its devolution. It should be considered as that part of the husband's estate which ceased at his death.

It is urged that by adopting and promulgating this view as the basis of decision in this case this Court would give effect to the manifest purpose of the amendment of 1948 which was to equalize the federal estate tax in common law states with that imposed in those states where marital community of property is in effect. Appellant points out that if the ruling of the court below be upheld and the share of the personal estate passing to the widow be held chargeable with its proportionate part of the federal estate tax, the marital deduction otherwise allowable would be reduced accordingly, and the amount of the tax would be increased, while the widow's share would be materially reduced. The epitome of the appellant's argument is that the federal statute as amended has now opened the way to permitting the widow, a resident of this state, to receive the benefit of the full marital deduction whereby the burden of the tax would be lessened and the inequality suffered by citizens of this state removed. Hence this Court is urged to reverse the judgment below and authorize the executors of the Gay Green estate to allot to the widow her statutory share in the decedent's personal estate before payment of the federal estate tax.

Persuasive as these arguments would seem to be, we are constrained to hold that under the North Carolina statutes, and in the light of the decisions of this Court relating to the question presented, the onehalf share of the dissenting widow in the personal estate of the decedent should be paid to her by the executors after the payment of all taxes including the federal estate tax.

The judicial determination that the share of the estate of the husband dying intestate which passes by operation of law to his surviving spouse should be untouched by the federal estate tax is usually made to rest upon the premise that during the marriage the accumulation of property has been by the joint effort of both husband and wife, subject to the husband's control, and when the marriage is dissolved by the death of the husband his control ceases, and the wife resumes possession and control of that part of the estate which was her own. The federal estate tax is not an inheritance tax, nor is it imposed upon the property itself but upon its transition, and the share allotted to the widow out of her husband's estate is regarded not as part of the decedent's estate upon which the tax is computed but as the separate property of which she is the owner. Hence this property neither creates nor adds to the tax.

However, the doctrine of marital community of property is not recognized in North Carolina, nor do we have any statute which has the effect of bringing the administration of estates and the method of distribution into conformity with that principle. The federal tax statute as amended which makes provision for marital deduction does not have the effect of controlling the state statutes as to the administration of decedent's estate. Power in this respect has not been granted to the Federal Government, and the right of state control is reserved (10th Amendment). The Supreme Court of the United States has repeatedly declared the Federal Government is concerned only with the collection of the tax, leaving it to the states to determine how the burden shall be distributed and upon whom the impact shall fall. Y. M. C. A. v. Davis, 264 U.S. 47, 44 S.Ct. 291, 68 L.Ed. 558; Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106; Fernandez v. Wiener, 326 U.S. 340, 66 S.Ct. 178, 181, 90 L.Ed. 116. 'Although the share of the surviving spouse is subject to the lien and the tax must be paid out of the estate as a whole, the federal statute leaves it to the states to determine how the tax burden shall be distributed among those who share in the taxed estate.' Fernandez v. Wiener, supra. See also note in 1 A.L.R.2d 1107. The ultimate incidence of the federal estate tax is a matter of state law. In re Zahn's Estate, 300 N.Y. 1, 87 N.E.2d 558, 10 A.L.R.2d 652.

The public policy of the state is a matter for the legislative branch of the government and not for the courts. Whether any change should be made in the manner of distribution to the widow of her interest in the estate of her husband, in view of the provision for marital deduction contained in the federal statute, is a matter for the General Assembly.

The statute now in force in this state prescribes that the dissenting widow shall receive one-half the personal estate of her departed spouse as her distributive share, and directs the personal representative, in case of intestacy, after payment of debts in the...