Weinberg v. Safe Deposit & Trust Co. of Baltimore

• Decision Date: 06 December 1951
• Docket Number: No. 42,42
• Citation: 37 A.L.R.2d 188,198 Md. 539,85 A.2d 50
• Parties: , 37 A.L.R.2d 188 WEINBERG v. SAFE DEPOSIT & TRUST CO. OF BALTIMORE.
• Court: Maryland Court of Appeals

Page 539

198 Md. 539

85 A.2d 50, 37 A.L.R.2d 188

WEINBERG v. SAFE DEPOSIT & TRUST CO. OF BALTIMORE.

No. 42.

Court of Appeals of Maryland.

Dec. 6, 1951.

Richard W. Case, Baltimore (Semmes, Bowen & Semmes and Wm. D. Macmillan, Baltimore, on the brief), for appellant.

Redmond C. Stewart, Jr., and Carlyle Barton, Baltimore, amicus curiae for Alexander S. Cochran and others, executors.

McKenney W. Egerton, Baltimore, for James J. Ryan, guardian ad litem.

Morton E. Rome, Baltimore, for Safe Deposit & Trust Co., trustee, Samuel J. Fisher and Allan H. Fisher, Jr., Baltimore, on the brief for Safe Deposit & Trust Co., executor.

Before MARBURY, C. J., and DELAPLAINE, COLLINS, HENDERSON and MARKELL, JJ.

MARBURY, Chief Judge.

This case involves the Federal Estate Tax, the Maryland Apportionment Act, and the Maryland Distribution Statute. The chief question raised is whether a widow, who renounced her husband's will and elected to take her statutory share in his land and personal estate, receives that share without contribution to the Federal Estate Tax, or whether her share in the estate is to be calculated after the deduction of that tax. A subsidiary question is whether such a widow must contribute a part of the Federal Estate Tax because she received the proceeds of certain life insurance policies insuring her husband's life, which were includable in the decedent's gross estate for Federal Estate Tax purposes.

The facts are simple and uncontradicted. Louis Weinberg, a resident of Baltimore City, died testate on December 25, 1949. He was survived by a widow, the appellant, but by no descendants, nor was he survived by his father or his mother. His will was admitted to probate by the Orphans' Court of Baltimore City on January 5, 1950. On October 5, 1950, within the time given her by an appropriate enlargement, the widow delivered to the Register of Wills of Baltimore City her renunciation of the will, and her election to take, in lieu of bequests or devises therein, her legal share of the estate. On December 19, 1950, the Safe Deposit & Trust Company of Baltimore, executor of the will, filed a bill in the Circuit Court of Baltimore City, alleging that as a result of the renunciation, the estate was entitled to the marital deduction provided for in the Revenue Act of 1948, Internal Revenue Code, Sec. 812, U.S.C.A., Title 26, Section 812, asking the court to take jurisdiction, and to instruct it as to this and other features of the estate. After appropriate answers had been filed by the interested parties, including a guardian ad litem, appointed for persons not in being whose interests might be affected, the chancellor filed a memorandum opinion and passed a decree on April 9, 1951, directing that the Federal Estate Tax be deducted before computing the share of the appellant, and finding that the executor was entitled to recover from the appellant the portion of the Federal Estate Tax attributable to the life insurance proceeds received by her. From this decree the widow appealed.

The Federal Estate Tax is annotated in U.S.C.A. Title 26. It provides for the computation of a tax on the estates of decedents dying after the date of its enactment, and fixes a rapidly increasing per centum of the net estate to be paid. Section 810. The gross estate is determined by including the value, at the time of the decedent's death, of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States, to the extent of the interest therein of the decedent at the time of his death, with the addition of dower and courtesy interests, transfers in contemplation of or taking effect at death, proceeds of life insurance, etc. Section 811. The net estate is fixed for the purpose of the tax by Section 812, by deducting from the gross estate an exemption of $100,000, but see Section 935(c), and then funeral expenses, administration expenses, claims against the estate, unpaid mortgages, etc.

The marital deduction, which is the part of the statute which gives rise to the present controversy, is set out in Section 812, sub-section (e)(1), and the aggregate amount of the deductions allowed under this sub-section are not to exceed 50% of the adjusted gross estate, the computation of which is provided in Section 812, sub-section (e)(2).

The marital deduction is a new feature in the estate tax, and was passed by the Revenue Act of 1948, going into effect on April 2, 1948. Its purpose was to give to surviving spouses in all states rights equivalent to those which had formerly existed only in certain states which had statutes providing for community property. Its operation reduces the tax very considerably, not only because the base upon which the tax is calculated is reduced, but also because the rate is progressive, and a much higher percentage is taken on larger bases. In the case before us, the net estate, before taxes, was one million six hundred and forty-eight thousand and odd dollars. The Federal Estate Tax on this, without any marital deduction, was a little in excess of half a million dollars. By the appellant's renunciation, this tax is reduced about one half, if the chancellor's decision is correct. It would be reduced to two hundred and thirteen thousand dollars, if the appellant's theory is correct.

The Federal Estate Tax was before the Supreme Court of the United States in the case of Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 110, 87 L.Ed. 106. In that case, the State of New York had passed an apportionment act which, it was contended and decided by the New York Court of Appeals, conflicted with the federal act in the determination of who was to pay the tax, and had been held unconstitutional by that court. The Supreme Court reversed that holding, and said that Congress intended that the Federal Estate Tax should be paid out of the estate as a whole, but that the applicable state law as to the devolution of property at death should govern the distribution of the remainder and the ultimate impact of the tax. In so deciding, the court said: 'In the Act of 1916 Congress turned from the previous century's inheritance tax upon the receipt of property by survivors (see Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969; Scholey v. Rew, 23 Wall. 331, 23 L.Ed. 99) to an estate tax upon the transmission of a statutory 'net estate' by a decedent. That act directed payment by the executor in the first instance, § 207, but provided also for payment in the event that he failed to pay, § 208. It did not undertake in any manner to specify who was to bear the burden of the tax. Its legislative history indicates clearly that Congress did not contemplate that the Government would be interested in the distribution of the estate after the tax was paid, and that Congress intended that state law should determine the ultimate thrust of the tax.'

Some of the states, including Maryland, have passed apportionment acts directing what beneficiaries shall be liable for the payment of the tax after the amount of it is determined under the Federal law. There are also quite a number of states which have passed no such apportionment statutes. The Maryland statute is Article 81, Sec. 126. It was passed in its present form by Chapter 156 of the Acts of 1947, and therefore antedates the marital deduction. It has not, however, been changed since the marital deduction was inserted in the Federal Estate Tax, and, therefore, we must apply is as it stands to the new situation thus created. The statute under which the appellant here renounced her husband's will is Sec. 314 of Article 93 of the Code. It was last amended by Chapter 29 of the Acts of 1947, at the same session as that when the apportionment act was passed. Unless clearly contradictory, the two statutes must be construed together. Sec. 314 provides that if the renunciation, and the election thereby permitted, is of the legal share of both real and personal estate, the surviving wife shall take $2,000 and one-half of the residue of the lands as an heir, and one-half of the surplus personal estate remaining, if the deceased spouse shall not be survived by descendants or a father or mother (as is the case here), and no more. When a spouse renounces, her or she takes in opposition to the will and is entitled to no benefits given under such will. Kuykendall v. Devecmon, 78 Md. 537, 543, 28 A. 412. It seems to be clear, therefore, that by her voluntary act of renouncing, the appellant cannot become entitled to more than $2,000 and one-half of the surplus personal estate remaining. The term 'surplus personal estate' has been defined as meaning the entire balance, principal and income at the time of distribution, Gardner v. Mercantile Trust Co., 164 Md. 280, 283, 164 A. 663, which necessarily is the balance after all expenses of administration and debts, including taxes, have been paid. Article 93, Secs. 5, 123 and 127; Mercantile Trust Co. v. Schloss, 165 Md. 18, 31, 166 A. 599; Marriott v. Marriott, 175 Md. 567, 571, 3 A.2d 493.

Sec. 126 of Article 81 provides for the prorating of the Federal Estate Tax, for which an executor is liable, and sub-section (4) provides that if any person otherwise liable under the preceding sub-sections is a surviving spouse, such surviving spouse shall be exonerated under certain circumstances, but such exoneration is not intended to apply to or reduce the amount of the contribution otherwise due with respect to the share of the surviving spouse in the true estate of the decedent but in ascertaining 'his or her share in the true estate, whether upon testacy or intestacy or upon renunciation in case of testacy, the amount of the estate tax paid by the executor and not reimbursed by contributions under this section shall be deducted with the administration expenses of the decedent as a general obligation of the true estate, except to the extent the will of the decedent expressly otherwise...