Wolfe v. Mid-Continent Corp., MID-CONTINENT

• Decision Date: 20 December 1968
• Docket Number: MID-CONTINENT
• Citation: 435 S.W.2d 836,26 McCanless 348,222 Tenn. 348
• Parties: , 222 Tenn. 348 William B. WOLFE, Jr., Teresa Wolfe, Elizabeth Wolfe, James Wolfe, Thomas Wolfe and Catherine Wolfe, Minors v.CORPORATION and the Estate of William B. Wolfe, Deceased.
• Court: Tennessee Supreme Court

Page 836

435 S.W.2d 836

26 McCanless 348, 222 Tenn. 348

William B. WOLFE, Jr., Teresa Wolfe, Elizabeth Wolfe, James Wolfe, Thomas Wolfe and Catherine Wolfe, Minors v. MID-CONTINENT CORPORATION and the Estate of William B Wolfe, Deceased.

Supreme Court of Tennessee.

Dec. 20, 1968.

George E. Morrow and James C. Warner, Memphis, of counsel, Martin, Tate & Morrow, Memphis, for appellants.

Donald A. Malmo, Memphis, of counsel, Heiskell, Donelson, Adams, Williams & Wall, Memphis, for appellee, Mid-Continent.

W. L. Nichol, IV, Memphis, of counsel, Evans, Petree, Cobb & Edwards, Memphis, in 1961, leaving six minor children.

OPINION

BURNETT, Chief Justice.

William B. Wolfe and his wife were killed simultaneously in an automobile accident in 1961, leaving six minior children. Wolfe had some four or five insurance policies on his life which totaled in excess of $84,000.00 and which were payable to his children. Although the estate was insolvent it consisted of some $10,000.00 or $15,000.00 in assets which was enough to pay the death taxes and other taxes and certain administration expenses, but was not sufficient to pay all creditors. As a result of this Mid-Continent Corporation, a creditor, filed the original action herein in the Probate Court against the minor children seeking to recover in excess of $5,000.00 which had been paid by the Executor for death taxes on the theory that it had a right to file such a petition pursuant to T.C.A. §§ 30--1117 and 30--1118, which constitute the proration statute for the allocation of Federal Estate taxes among the beneficiaries of an estate.

The Executor filed an answer and cross-petition against these same minors likewise requesting that the death taxes be allocated and paid to the Executor so that he could discharge his obligation to creditors. To this action as brought by the creditor and the Executor the guardians of the minor children demurred and answered together relying on the grounds that the proration statute conferred no jurisdiction upon the Probate Court to entertain a suit by a creditor or by an Executor on behalf of general creditors to recover non-probate assets from the beneficiaries of an estate; and on the further ground that the assets sought to be recovered in this action and cross-action against these minors was for the benefit of creditors and that said minors from the insurance money they would receive under these policies were expressly exempt from the claims of creditors of their father's estate.

The matter was heard upon the pleadings and stipulations of fact, and a final judgment entered against the guardians of the minors to pay the Executor $5,446.78 'in order that the Executor may use such funds for the payment of the outstanding debts of the estate of William B. Wolfe, deceased.'

There are three assignments of error, but we will not take these up seriatim but in the course of this opinion will answer all questions.

First, we should take up the question of the jurisdiction of the Probate Court to entertain a petition of the kind under T.C.A. §§ 30--1117 and 30--1118. It is our judgment that such a petition may not be brought for the benefit of the creditors of the estate but it may and is properly brought by an Executor to get from those receiving insurance, as these minors did here, the amount that they might owe the estate for Federal Estate and Tennessee Inheritance Taxes. The primary liability for the payment of both such taxes is on the Executor who must pay these taxes out of the assets at his hands prior to the payment of the debts of the estate. I.R.C. § 3467; T.C.A. §§ 30--520, 30--1634. Such taxes may be apportioned among the beneficiaries from any exemptions or deductions and from persons receiving the property. See Phillips' Pritchard Law of Wills, Vol. 2, § 932. In this section the writer says:

'The Internal Revenue Code expressly provides that, Unless the decedent otherwise directs by his will, the executor may recover from life insurance beneficiaries and persons receiving property by reason of the exercise, nonexercise or release of a power of appointment for their prorata part of the tax.' (Emphasis supplied.)

The statute under which proration here is sought is T.C.A. 30--1117 and which reads in part:

'Federal estate taxes to be prorated equitably among beneficiaries and persons interested in estate.--Whenever the personal representative of an estate has paid an estate or death tax to the government of the United States * * * the amount of the tax so paid, Except in a case where a testator otherwise directs in his will, shall be equitably prorated among the persons interested in the estate to whom such property is or may be transferred or to whom any benefit accrues. * * *' (Emphasis supplied.)

In the second paragraph of this statute we find this phrase again wherein it is said:

'So far as is practicable, And unless otherwise directed by the will of the decedent, the tax shall be paid by the personal representative, as such, out of the estate before its distribution. * * *' (Emphasis supplied.)

The following Section of the Code, T.C.A. § 30--1118, prescribes the procedure for the adjudication with reference to such allocation. Such procedure was followed herein, and so far as the Executor is concerned, if his purpose was merely to get the tax owed from these children, then we think that this statutory procedure has been complied with.

This statute does not create a cause of action in favor of creditors of a decedent's estate nor does it authorize an Executor of such estate to take such action for the benefit of the creditors. The purpose of the statute is to enable the Executor to cause such an action to be taken in behalf of 'persons interested in the estate' merely to prorate Federal Estate and death taxes among themselves on an equitable basis. It does not authorize an action of the kind on behalf of creditors of the estate. Those owing due taxes are not debtors of the estate in the sense that they owe the money to pay creditors. This is borne out by T.C.A. § 30--1117. It seems to us by reading this section the purpose there was merely to give the Executor, Unless the will provides otherwise, the right to equalize this tax burden among the beneficiaries by recovery from these children of their proportionate part of this money taken outside the will. This money, as said in the outset hereof, was not paid to the Executor but was paid directly to the children. We think there is no question but such statute supplements on the State level the corresponding provision of the Federal Internal Revenue Code, which accomplishes the same purpose on the Federal side, I.R.C. §§ 2205 and 2206.

In Item 1 of the deceased's will, he provides that:

'I direct my Executrix, hereinafter named, to pay as soon as practicable all of my just debts and expenses of administration, including legacy, succession, inheritance, estate and like death taxes or other impositions arising by reason of my death, the above charges to be considered a debt of my estate and not a charge against any beneficiary.'

When the will has such a provision in it, it is well stated by Phillips' Pritchard on Wills, supra, § 952, under an almost identical proposition that 'the above quoted provision may be used if the testator wishes to exempt all legatees and devisees from paying their prorata part of death taxes and to require the residuary estate to bear the entire tax. In the event the testator desires to exempt some legatees or devisees and not others, specific language may be used in the item of the will making the bequest or devise, such as 'free from all estate, inheritance, succession or other death taxes of any nature'. It has been held in Tennessee that where the testator directed his executor to rent out lands specifically devised to a named devisee for a sufficient length of time to pay all debts and costs of administration, the...