Warfield v. Merchants Nat. Bank of Boston

• Decision Date: 12 February 1958
• Citation: 147 N.E.2d 809,337 Mass. 14
• Parties: Ethelbert WARFIELD, Executor. v. The MERCHANTS NATIONAL BANK OF BOSTON, trustee.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 809

147 N.E.2d 809

337 Mass. 14

Ethelbert WARFIELD, Executor. v. The MERCHANTS NATIONAL BANK OF BOSTON, trustee.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Nov. 7, 1957.

Decided Feb. 12, 1958.

Leonard Wheeler, Boston (Paul H. Farrell, Boston, with him), for plaintiff.

Theodore Chase, Boston (Herbert P. Wilkins, Boston, with him), for defendant.

Before RONAN, SPALDING, WILLIAMS, COUNIHAN and WHITTEMORE, JJ.

WHITTEMORE, Justice.

The plaintiff is the executor by appointment of the Surrogate's Court for the County and State of New York, under the will of Bertha Coolidage Slade who died domiciled in New York City, January 9, 1953. The plaintiff seeks in these proceedings to recover the portions of Federal and New York estate taxes paid by him, which, according to decree of the Surrogate's Court, are apportionable to and payable by Day Trust Company, a Massachusetts corporation, as trustee under an inter vivos 'Massachusetts trust' created by Slade on February 13, 1951. The defendant is the successor trustee. The case is here on reservation and report by a single justice of this court.

The will was dated and executed on January 26, 1951. It provides as follows: 'I direct my Executor, hereinafter named, to pay all my just debts and funeral expenses as soon after my death as practicable and I further authorize and direct my said Executor to pay out of my residuary estate all transfer, inheritance, succession or estate taxes which may be imposed upon or with respect to the bequests and devises herein made (but not with respect to any transfers or gifts, if any, made by me prior to my decease).'

The trust instrument transferred to the trustees certain personal property in trust to pay the net income, and such parts of the principal as she might request in writing, to Slade for her life, and on her death to hold the trust property for other beneficiaries. The instrument provides that Slade by instrument in writing signed by her and the trustee might amend the trust or revoke it in part or in whole. The instrument also provides: '7. The Trustee is authorized in its discretion, but shall not be required, to pay any or all debts or expenses of administration which in its opinion constitute a proper charge against my estate, and to lend or give money or securities to my executor or administrator for that purpose.'

The parties are agreed that a citation, returnable July 12, 1955, was duly issued in the proceedings in the Surrogate's Court in New York, in accordance with the provisions of the New York statute relating to service of process on nonresidents, and duly served on the trustee in Massachusetts, directing it to show cause why the court should not construe the will and apportion the taxes and determine the amount apportionable to the trustee, and that the trustee did not appear and accordingly did not become subject in personam to the jurisdiction of the Surrogate's Court. The parties have agreed also that the situs of the trust at all times material herein has been in Massachusetts.

The Surrogate's Court on December 27, 1956, decreed 'that the express exception [in the provision of the will quoted above] relating to nontestamentary gifts was intended by said testatrix to charge such transfers with their proportionate share of the tax burden to the extent that they were included within the taxable estate, and * * * that the Federal estate tax apportionable against said Day Trust Company as trustee * * * is $28,026.95 and that the New York estate tax [so] apportionable * * * is $4,172.46, both said amounts being subject to adjustment on the final determination of said * * * taxes; and * * * that said * * * trustee * * * pay said sums to the * * * [executor]; and * * * that * * * [the executor] take such steps as may be reasonably necessary to enforce the obligation of * * * [the] trustee * * *.'

Although both Massachusetts and New York have estate tax apportionment statutes, the plaintiff recognizes that neither applies; the Massachusetts statute (G.L. [Ter.Ed.] c. 65A, § 5) because it applies only to residents, and the New York statute (Decedent Estate Law, McKinney's Consol.Laws, c. 13, § 124) because this court has held that extraterritorial effect is not to be given to the tax apportionment statutes of other States against trust property the situs of which is and always has been in Massachusetts. See as to both points Isaacson v. Boston Safe Deposit & Trust Co., 325 Mass. 469, 91 N.E.2d 334, 16 A.L.R.2d 1277.

The plaintiff recognizes also that the will did not operate to amend the trust and that the trust in its terms therefore does not require payment of the apportioned estate taxes. Leahy v. Old Colony Trust Co., 326 Mass. 49, 52-53, 93 N.E.2d 238, 18 A.L.R.2d 1006, and cases cited. See Phelps v. State Street Trust Co., 330 Mass. 511, 115 N.E.2d 382.

The plaintiff contends that it has been conclusively determined that the will directs apportionment against the trust, and that the United States Internal Revenue Code entitles the executor to apportionment of the Federal tax where the will so directs and that in any event such a right should be recognized as to both the Federal and the State taxes.

We are unable to construe the provisions of the Federal statute to create a right of apportionment against these trust assets. The plaintiff relies on Internal Revenue Code of 1939, § 826(b), Title 26, U.S.C. (1952 ed.) § 826(b) (see now Internal Revenue Code of 1954, § 2205, Title 26 U.S.C. [1952 ed.] Sup. IV, § 2205). 'Reimbursement out of estate. If the tax or any part thereof is paid by, or collected out of that part of the estate passing to or in the possession of, any person other than the executor in his capacity as such, such person shall be entitled to reimbursement out of any part of the estate still undistributed or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior liability for the payment of taxes, debts, or other charges against the estate, it being the purpose and intent of this subchapter that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution.'

At the threshold we notice that the policy declared in this statute is not, as the plaintiff contends, that if the will purports to direct that the tax be paid otherwise than out of the estate, it shall be so paid. The only policy declared is that, with a qualification, the tax shall be paid out of the estate before its distribution. The question is not presented, therefore, of whether the direct statement of the policy would stand as the equivalent of an express statutory provision directing that the tax burden fall in accordance with the policy. Such a question, which was presented in Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106, has been decided against the plaintiff's contention.

The court held in Riggs v. Del Drago, supra, 317 U.S. at page 101, 63 S.Ct. at page 112, that § 826(b) 'does not command that the tax is a non-transferable charge on the residuary estate' and said (317 U.S. at pages 100-101, 63 S.Ct. at page 111), 'But that section does not direct how the estate is to be distributed, nor does it determine who shall bear the ultimate burden of the tax. * * * By that section Congress intended to protect a distributee against bearing a greater burden of the tax than he would have sustained had the tax been carved out of the estate prior to distribution * * *. In short, § 826(b), especially when cast in the background of Congressional intent discussed before, simply provides that, if the tax must be collected after distribution, the final impact of the tax shall be the same as though it had first been taken out of the estate before distribution, thus leaving to state law the determination of where that final impact shall be.'

We do not find in the cases of other courts decided since Riggs v. Del Drago, and cited by the plaintiff, anything which leads us to think that the statute as applied to this case is subject to a different construction from that which we understand the Del Drago case to have given it.

We are unable to find a basis in reason or in our decisions for recognizing a right in the executor, apart from statute, to enforce against the trustee an intent of the donor of the trust, expressed by will alone, that the tax be paid by the trustee. No obligation having been created by statute to contribute to the tax, what the trustee is to do with the property is determined by the trust instrument and any instruments which lawfully amend its terms. The will, unless it conforms to the requirements of the trust instrument for amendment, is as inoperative upon the trust as is every other nonconforming expression of the donor's wishes however informal. We cannot accept the view expressed in Goodson v. United States, D.C.Minn., 151 F.Supp. 416, 420 (appeal pending), that the donor 'has enough interest in or connection with the property to provide a basis for his right to determine by a testamentary provision what property shall bear the estate tax burden attributable to his inter vivos gifts.' See also 43 Ill.L.Rev. 153, 168; 54 Harv.L.Rev. 10, 45. The accurate statement is, we think, that the donor has retained only enough interest to make such a determination if it is done by an act which operates to amend the trust in the way provided therein. We deem it irrelevant that the sovereign having jurisdiction may take the tax due it from the trust property if there is no other...