Weeks v. Vandeveer
| Decision Date | 22 April 1966 |
| Docket Number | No. 681072,681072 |
| Citation | 216 N.E.2d 78,7 Ohio Misc. 51 |
| Parties | , 36 O.O.2d 127 James A. WEEKS, Executor of the Will of Welzie W. Vandeveer, Deceased, Plaintiff, v. Wilda Ruth VANDEVEER et al., Defendants. |
| Court | Ohio Court of Common Pleas |
James A. Weeks, Cleveland, for plaintiff, James A. Weeks, Exr. of will of Welzie W. Vandeveer.
Thompson, Hine & Flory, Cleveland, for defendant, Wilda Ruth Vandeveer.
Walter & Haverfield, Cleveland, for defendants, Central Nat. Bank of Cleveland, trustee, James W. Vandeveer and Ruth Vandeveer Basham, co-trustees.
FLETCHER R. ANDREWS, Chief Referee.
This case is concerned with the marital deduction; the burden of estate and inheritance taxes; and the effect of an election by the surviving spouse to take under the statute of descent and distribution.
Welzie W. Vandeveer died on October 31, 1964. His will was admitted to probate in this Court on November 10, 1964. Mr. Vandeveer is survived by a widow, Wilda Ruth Vandeveer; a daughter, Ruth Vandeveer Basham; and a son, James W. Vandeveer.
Plaintiff is the executor of Mr. Vandeveer's will, and he brings this action for a declaratory judgment.
Item One of the will contains a direction to the executor to pay all debts, charges, etc. out of the principal remaining after satisfaction of Items Two through Six, 'except the taxes for the payment of which provision is made in Item Seven hereof.'
Item Two contains a specific bequest, and Item Five a specific devise on condition. Item Four contains eight pecuniary bequests. Item Three provides for the sale of certain property in order to satisfy the bequests in Items Four and Six.
Item Six creates the 'marital deduction' trust. By its terms the testator bequeaths to Central National Bank of Cleveland and Wilda Ruth Vandeveer, trustees, 'as a monetary bequest, an amount equal to one-half of the value of all property owned by me at the time of my death * * *, excluding all property referred to or described in Item Two hereof, in trust * * *'
The net income from the trust estate is to be paid to Wilda Ruth Vandeveer during her lifetime, and provision is made for invasion of principal for certain purposes. Mrs. Vandeveer is also given a 'general' power of appointment by will. In case of her failure to exercise the power, the trust property is to be added in equal portions to the trusts provided for in Item Eight.
The terms of the Item Six trust make it eligible for the marital deduction, assuming, of course, that the property qualifies. See Lowndes and Kramer, Federal Estate and Gift Taxes secs. 42.8, 42.9 (2d ed. 1962).
Item Seven is of sufficient importance to be quoted in full:
I will refer to Item Seven as the 'tax clause.'
Item Eight bequeaths the residue of testator's property to Central National Bank of Cleveland, and provides for the establishment of two trusts, one for the benefit of testator's son, the other for the benefit of testator's daughter, each to become a co-trustee of the applicable trust.
Further provisions of the will are not pertinent to the issues in this litigation.
Mrs. Wilda Ruth Vandeveer elected, pursuant to Revised Code section 2107.39, to take under the statute of descent and distribution, section 2105.06 of the Revised Code.
It is this election which gives rise to the problems confronting us. Had Mrs. Vandeveer elected to take under the will, the tax clause would have governed, leaving the marital deduction trust created by Item Six free of the burden of estate and inheritance taxes. See Lowndes and Kramer, Federal Estate and Gift Taxes sec. 42.5, pp. 836-837 (2d ed. 1962).
We are asked the following question:
Mrs. Vandeveer having elected to take under the statute of descent and distribution, are the federal estate and Ohio Inheritance taxes nevertheless to be paid in accordance with Item Seven, the tax clause, or are they to be deducted from and paid out of the estate before computing the widow's one-third share?
Section 2107.39 of the Revised Code provides that if the surviving spouse elects to take under the statute of descent and distribution (section 2105.06 of the Revised Code), 'such spouse shall take not to exceed one half of the ent estate * * *.'
Section 2105.06 provides in part that when a person dies intestate, the personal property shall be distributed and the real estate shall descend and pass in parcenary 'in the following course:'
Paragraph (B) of the section states in part that where there is a spouse and one child, the property goes one half to the spouse and one half to the child. By paragraph (C), if there is a spouse and more than one child, as in the present case, one third goes to the spouse and the remainder to the children equally.
In Campbell v. Lloyd, 162 Ohio St. 203, 122 N.E.2d 695 (1954), the Supreme Court held, by its syllabus, that where a widow elects to take under the statute of descent and distribution, 'the amount of the federal estate tax on the decedent's estate should be deducted therefrom before computing the widow's share thereof.'
In the opinion, Judge Taft made the following statement:
'We are in agreement with the Court of Appeals that the words 'net estate,' as used in Section 10504-55, General Code (now Revised Code sec. 2107.39), describe the same property as do those words of Section 10503-4, General Code (now Revised Code sec. 2105.06), which describe the property to be distributed and to descend and pass pursuant to the provisions of the latter statute.' 162 Ohio St. at 205, 122 N.E.2d at 697.
In other words, the one-half or one-third share of the spouse under section 2105.06, Revised Code, refers to the respective share of the net estate as computed in Campbell v. Lloyd.
Furthermore, in determining the value of a succession under the Ohio inheritance tax law (Revised Code secs. 5731.01 through 5731.56), the federal estate tax must first be deducted. Tax Commission of Ohio ex rel. Price v. Lamprecht, 107 Ohio St. 535, 140 N.E. 333, 31 A.L.R. 985 (1923), approved and followed in Campbell v. Lloyd. Indeed, it is conceded by counsel that, except for the tax clause, Mrs. Vandeveer would be obliged to bear her share of the death taxes.
The Ohio rule prevents the widow from obtaining the full advantage of the federal marital deduction law. 26 U.S.C.A. § 2056. This was explained in Miller v. Hammond, 156 Ohio St. 475, 104 N.E.2d 9 (1952), where the court held that federal estate taxes should not be deducted before computing the surviving spouse's statutory share, as to do so would deprive the spouse of the benefit of the marital deduction law. However, Miller v. Hammond was expressly overruled by Campbell v. Lloyd.
Under the marital deduction law there can be a deduction for qualified property passing to the surviving spouse to the value of one-half the adjusted gross estate. The adjusted gross estate is determined by subtracting from the gross estate certain items such as funeral expenses and costs of administration. But the adjusted gross estate does not include a subtraction for death taxes. And without such a subtraction, the marital deduction will be greater and, consequently, the federal estate tax less. See 26 U.S.C.A. §§ 2056(a), 2056(c)(1), 2056(c)(2)(A), 2053, 2353(c)(1)(B), 2054.
For better or for worse, however, the final burden of death taxes depends upon state law. 26 U.S.C.A. § 2056(b)(4)(A); Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106 (1942); Merchants Nat. Bank & Trust Co. of Indianapolis v. United States, 246 F.2d 410 (7th Cir. 1957); Herson v. Mills, 221 F.Supp. 714 (Dist.Col. 1963); see 34 Notre Dame Lawyer 195 at 196-197 (1959). And if state law saddles property bequeathed to the widow with part of the death tax burden (as Ohio does), the value of the property 'passing' to her, and hence the marital deduction, is decreased and the federal estate tax increased, and the marital deduction falls below the possible maximum. See Reg. secs. 20.2056(b)-4(c)(1) and 20.2056(b)-4(c)(2) (1958); 4 Rabkin and Johnson, Federal Income, Gift, and Estate Taxation secs. 53.04B(3); 53.04B(6) (1965 with Supp.); Lowndes and Kramer, Federal Estate and Gift Taxes sec. 42.5, p. 836 (2d ed. 1962).
It should be noted that the marital deduction law applies not only to property passing by will, but also to property passing under the law, either by intestacy or by the surviving spouse's election. 26 U.S.C.A. § 2056(e)(2)(3); Reg. sec. 20.2056(e)-2(c) (1958); 34 George Washington L.Rev. 319 at 341 (1965); 1 Casner, Estate Planning 58 (3d ed. 1961, with 1965 Supp.); Lowndes and Kramer, Federal Estate and Gift Taxes sec. 17.5 (2d ed. 1962).
A great deal of material has been published on the seeming inequity resulting from a situation like that in Ohio, where the basic purpose of the marital deduction law is not fulfilled. See, for example, 34 Notre Dame Lawyer 195 (1959); 3 Kansas L.Rev 60 (1954); Perelman, Estate Tax Liability and the Marital Deduction, 5 Western Reserve L.Rev. 389 (1954); 52 Michigan L.Rev. 1078 (1954). Nevertheless, there is no doubt that, at least in the absence of a tax clause, the surviving spouse, under Ohio law, takes her statutory share on the basis of the net estate, arrived at after deducting death taxes.
However, Mr. Vandeveer's will contains a tax-clause (Item Seven), the effect of which is to relieve the marital...
To continue reading
Request your trial