Watrous v. Connelly

• Decision Date: 12 May 1954
• Court: Connecticut Supreme Court
• Parties: WATROUS et al. v. CONNELLY. Supreme Court of Errors of Connecticut

Page 654

105 A.2d 654

141 Conn. 257

WATROUS et al. v. CONNELLY.

Supreme Court of Errors of Connecticut.

May 12, 1954.

Charles M. Lyman, New Haven, with whom was Cleaveland J. Rice, Jr., New Haven, for appellants (plaintiffs).

Herman Levine, Inheritance Tax Atty., New Haven, with whom, on the brief, were William L. Beers, Atty. Gen., and Frederic W. Dauch, First Asst. Tax Com'r, New Haven, for appellee (defendant).

Before INGLIS, C. J., and BALDWIN, O'SULLIVAN, WYNNE and DALY, JJ.

BALDWIN, Associate Justice.

The plaintiffs are two of the three executors and two of the devisees and residuary legatees under the will of Bertha A. Watrous. They have appealed from a judgment of the Superior Court sustaining a decree of the Probate Court for the district of New Haven which approved, as computed by the defendant tax commissioner, the succession tax laid upon the estate of Bertha A. Watrous and ordered it to be paid. The crucial question is whether the amount of the federal estate tax should be deducted from a decedent's gross estate in the determination of the net estate by which the succession tax is measured.

The trial court found that Bertha A. Watrous died on March 19, 1951, while a resident of New Haven. Her will, admitted to probate in the Probate Court for the district of New Haven, gave her residuary estate to her children 'absolutely in equal shares.' Four children survived--George D. Watrous, Jr., Katherine W. Miller, Charles A. Watrous and Frederick W. Watrous. The three sons were named as executors. In March, 1952, they filed a Connecticut succession tax return reporting the gross taxable estate, the amount of which was later corrected to be $454,839.84. The net estate, before payment of the federal estate tax, was $433,977.38. In schedule K of the return, wherein provision is made for listing bequests, legacies, devises, grants and distributive shares, the executors listed a federal estate tax estimated at $97,000 in addition to certain specific bequests and the distributive shares of the residue. They did not list the federal estate tax in the portion of the return devoted to deductions. In October, 1952, the tax commissioner filed his computation of the tax, based upon the return as corrected. All the deductions claimed as such were allowed. The tax was calculated on the basis that $432,977.38 passed to class A relatives and $1000 to class B relatives; a total tax of $17,528.64, with interest, resulted. In the net estate subject to tax, the tax commissioner included the sum of $97,000, which was the estimated amount of the federal extate tax listed in schedule K of the return. If this item had not been included, the amount of the succession tax would have been $12,274.26, with interest. The federal estate tax actually paid by the executors was $98,492.19. In her will, the testatrix directed that all taxes were to be paid out of the residuary estate.

The plaintiffs claim that the amount paid to the federal government for the federal estate tax should not be included in the net estate upon which a Connecticut succession tax is payable because (1) the statute, properly construed, does not require it and (2) the statute, if interpreted to require it, is an unconstitutional exercise of the taxing power.

The succession tax had its genesis in the so-called collateral inheritance tax law. Public Acts 1889, c. 180, 1893, c. 257, and 1897, c. 201. The act of 1897 laid a tax upon '[s]o much of the estate of any deceased person as exceeds ten thousand dollars in value'. No legislative provision was made for deductions of any kind, although certain exemptions were later granted. Public Acts 1901, c. 123; General Statutes, Rev.1902, § 2367; Public Acts 1909, c. 218, § 1; Public Acts 1911, cc. 148, 204; Public Acts 1913, cc. 73, 231, § 2. In 1913, the deduction of claims allowed and paid, funeral and administration expenses, allowances for the support of a widow and children, unpaid mortgages and losses incurred in the reduction of choses in action to possession was permitted for the first time in determining the taxable estate. Public Acts 1913, c. 231, § 9. In 1915, the phrase 'funeral and administration expenses' was changed to 'all funeral expenses and expenses of administration'. Public Acts 1915, c. 332, § 5. Subsequent amendments and revisions continued the deduction for expenses of administration in determining the net taxable estate. General Statutes, Rev.1918, § 1263; Public Acts 1921, c. 297, § 2.

We held in Corbin v. Townshend, 1918, 92 Conn. 501, 506, 103 A. 647, 648, that the federal estate tax imposed by the Revenue Act of 1916, 39 Stat. 777, as amended by the Revenue Act of 1917, 39 Stat. 1002, fell within the term 'expenses of administration' and was deductible in determining the net estate subject to the Connecticut succession tax. This decision in part, was incorporated in the statute in 1929, when the General Assembly expressly provided for the deduction of the federal estate tax. Public Acts 1929, c. 299, § 10(d); Rev.1930, § 1369(d); Rev.1949, § 2030(d). Beginning in 1929, also, '[t]hat percentage of the federal estate tax * * * which the fair market value of real estate and tangible personal property situated outside of this state shall be of the net estate subject to such federal estate tax' was specifically made nondeductible. Public Acts 1929, c. 299, § 11(a); Rev.1930, § 1370(a); Rev. 1949, § 2031(a). This provision was a limitation upon the broad rules stated in Corbin v. Townshend, supra, 92 Conn. 506, 103 A. 649.

A radical change in legislative policy occurred in 1949. Cum.Sup.1953, §§ 923c, 924c. Not only was the federal estate tax eliminated in the enumeration of deductible items but, to make assurance doubly sure, it was specifically stated that the federal estate tax was not a deductible expense of administration. It may well be that the General Assembly intended to compensate for this change by lowering the tax rate on net taxable estates in excess of $75,000. General Statutes § 2026; Cum.Sup.1953, Sup.1953, § 926c.

The plaintiffs have made an ingenious argument to obviate the effect given to the statute by the tax commissioner. They argue that General Statutes, § 2021, specifically enumerates the transfers which are taxable: Those made by will, by the statutes of descent, in contemplation of death, or by gift or grant intended to take effect in possession or enjoyment at or after the death of the transferor. They assert that the direction by the testatrix for the payment of the federal estate tax from the principal of her estate is, in effect, a transfer to the United States by testamentary direction and, as such, is a transfer which is not listed among the transfers which are taxable. Moreover, they say, it is a transfer specifically exempted by General Statutes, § 2027(a). They contend further that if it is not, in fact, such a transfer, it is still a recognition by the testatrix that a certain portion of her estate will be taken under some law paramount to the law of Connecticut, the amount transferred to them being thereby reduced, and that only upon the property transferred to them can a tax be laid. Stated another way, their claim is that the will provides for the payment § 926c. principal of the estate, that this payment constitutes a transfer to the United States which is exempt, that it reduces the 'beneficial succession' which passes to the legatees and that only so much of the estate as can be transferred to them is subject to the succession tax. To establish this position and to present this argument, the executors did not claim the federal estate tax as a deduction but listed the amount in schedule K of their return as a bequest, legacy or distributive share to the United States.

The decisions of this court appear to lend some support to the plaintiffs' claim. We have consistently held that our succession tax is a tax upon the privilege of beneficial succession and is levied with regard to that portion of the estate which will pass to the transferees. Hopkins' Appeal, 77 Conn. 644, 651, 60 A. 657; Sherman v. Moore, 89 Conn. 190, 193, 93 A. 241; Corbin v. Townshend, 92 Conn. 501, 503, 103 A. 647; Bankers Trust Co. v. Blodgett, 96 Conn. 361, 365, 114 A. 104; Blodgett v. Guaranty Trust Co., 114 Conn. 207, 217, 158 A. 245; Jerome v. Jerome, 139 Conn. 285, 288, 93 A.2d 139; 3 Locke & Kohn, Conn. Probate Practice, p. 29. Furthermore, the nature and extent of the deductions allowed under General Statutes, § 2030, and its predecessors, being primarily those expenses charged against the principal of the estate, would seem to indicate that the legislature proceeded upon the theory that, the principal of the estate having been reduced by their payment, only the part of the principal which is actually transferred is to be taxed. Locke & Kohn, op. cit., p. 84. An argument based upon these premises, however, must fail in the face of an obvious legislative intent, clearly expressed. Section 923c of the 1953 Cumulative Suplement provides that as regards resident transferors 'the net estate for the purposes of...