Opinion
November 20, 1931.
1. INHERITANCE TAX: State Law: Deductions. The State inheritance tax is levied on the right to receive property upon death. It is assessed against each beneficiary on the value of the property received from the gross estate, after deducting, among other things, the Federal estate tax. And the administrator, executor or trustee is charged with the duty of deducting the State tax from money transferred to a beneficiary. If the property transferred is not money, he is charged with the duty of collecting the tax from the legatee, grantee, donee, devisee or person entitled to the property.
2. ____: ____: Apportionment. No provision of the Missouri inheritance tax statute authorizes the apportionment of the tax between personal property and real estate. On the contrary, the administrator is directed by statute to collect the tax from the person entitled to the property.
3. ____: Federal Statute. Under the Federal statute the inheritance tax is levied on the right to transfer property upon death, and is assessed against the net estate.
4. ____: ____: Real Estate. In Missouri real estate is not subject to the expense of administration, and therefore real estate should not be included in determining the amount of inheritance tax due under the Federal statute.
5. ____: ____: ____: Contribution: Recovery. Real estate in Missouri is not subject to a Federal estate tax, and cannot be subjected to contribution to the payment of such a tax; and therefore the trustee to whom was devised the real estate is entitled to recover the amount of Federal estate tax apportioned to the real estate and paid by him to the administrator, where the question whether such payment was voluntary or involuntary is not involved.
Appeal from Jackson Circuit Court. — Hon. Willard P. Hall, Judge.
AFFIRMED.
Bruce Barnett for appellant.
(1) It appearing that all of the real estate of which Harriet M. Bryant died seized was by her will devised to trustees for the benefit of one class of beneficiaries and all her personalty was by said will bequeathed to another class of beneficiaries, her five children, the Federal estate taxes should have been so apportioned between the trustee and the administrator as to cast the burden thereof upon those to whom the property passed at the death of said decedent in proportion to the values of the property received by them respectively; as so apportioned, plaintiff was entitled to judgment for $16,656.32, whereas judgment was erroneously rendered in defendant's favor as against the plaintiff for $118,329.19, upon the theory that the burden of such taxes falls upon those who would receive such part of the personal estate as should be remaining after the discharge of all demands against the estate, treating the estate and inheritance taxes as being of the same character as debts of the decedent and costs of administration. Hampton's Administrators v. Hampton, 188 Ky. 199, 221 S.W. 496, 10 L.R.A. 515. (2) The estate and inheritance taxes, unlike the ordinary character of tax, constitutes a limitation upon the extent to which property may be devised, bequeathed or inherited, and is in the nature of a pro tanto escheat, leveled alike and without discrimination as against the passing of title to real estate and to personal property, and the theory of the decree herein that the entire tax should operate as against those inheriting the personal property of the decedent, so far as the personal estate is sufficient for such purpose, is offensive to and inconsistent with the spirit, purpose, intent and character of the tax, and manifestly unjust. State ex rel. McClintock v. Guinotte.
Lathrop, Crane, Reynolds, Sawyer Mersereau, John H. Lathrop and Henry W. Fox for respondent.
(1) Real estate owned by a Missouri decedent was not subject to the Federal estate tax under the Revenue Act of 1918. Consequently the appellant's theory that the real property constituting the trust should bear a proportionate part of the Federal estate tax is now without any basis whatever. Revenue Act of 1918; 40 Statutes at Large 1057, 1097-1098; Crooks, Collector of Internal Revenue, v. Harrelson, 28 F.2d 510, 35 F.2d 416; Crooks, Collector of Internal Revenue, v. Harrelson, 51 Sup. Ct. Rep. 49. (2) Aside from the decision in the Harrelson case the real estate held in trust should not be required to make any further payment on account of the Federal estate tax, but the trust fund should be reimbursed by a recovery from the administrator of the amount of the personal property remaining in his hands after the payment of all debts, charges, lawful commissions and expenses of administration. (a) The testatrix intended that her real estate should remain intact as a trust estate and should not be exhausted or used for the purpose of paying any part of a Federal estate tax as long as there was personal property in the hands of the administrator. (b) Aside from the decision in the Harrelson case, the Act of Congress and decisions thereunder place the burden of Federal estate tax upon property in hands of administrator before its distribution. As there is and will be personal property in the hands of the administrator when the estate is ready for distribution and as no real estate ever came into hands of administrator for distribution, the trustee is entitled to a recovery against him to the extent of the personal property so remaining not in excess of $118,329.19, the amount heretofore advanced to the administrator by the trustee or his predecessors in trust. New York Trust Co. v. Eisner, 256 U.S. 345; Plunkett v. Old Colony Trust Co. (Mass.), 124 N.E. 265; In re Hamlin, 124 N.E. 4; Brown v. State, 19 S.W.2d 16; Revenue Act of 1918, 40 Statutes at Large 1057, 1097-1098; Bemis v. Converse, 140 N.E. 686; Pratt v. Dean, 140 N.E. 924; Taylor v. Jones, 136 N.E. 382; In re Oakes, 162 N.E. 79; Jordan's Administratrix v. Richmond Home for Ladies, 56 S.E. 730; Rhode Island Hospital v. Hail (R.I.), 129 A. 835; Cooch's Executor v. Cooch's Administrator (Del.), 5 Houston 540, 1 Am. St. 161; Secs. 225, 238, 142, R.S. 1929; Young Men's Christian Assn. v. Davis, 264 U.S. 47; Crooks, Collector of Internal Revenue, v. Harrelson, 51 Sup. Ct. Rep. 49. (3) In any event, the amount of the administrator's commissions must come out of the personalty. Crooks v. Harrelson, 51 Sup. Ct. Rep. 49; Elstroth v. Young, 94 Mo. App. 351; Farrar v. Dean, 24 Mo. 18; Ritchey v. Withers, 72 Mo. 556; State v. Doud, 216 Mo. App. 480. (4) Under the Missouri Inheritance Tax Law (Laws 1917, p. 114) each beneficiary pays the tax levied on what each beneficiary receives. Brown v. State, 19 S.W.2d 16; Laws 1917, pp. 118, 122.
Suit by the administrator of the estate of Harriet M. Bryant deceased, to recover $16,994.61 from the trustee of real estate in trust under the provisions of the will of said Harriet M. Bryant. The plaintiff administrator and defendant trustee seek recovery under identical facts. Both filed a motion for judgment on the pleadings. Plaintiff administrator's motion was overruled and his bill dismissed. Defendant trustee's motion was sustained and judgment was rendered in his favor, as prayed for in the cross-petition. Plaintiff administrator appealed. The pertinent facts set forth in the pleadings follow:
Harriet M. Bryant died testate, seized of personal property and real estate. She appointed an executor, and upon his declining to act, plaintiff was appointed administrator with the will annexed. She bequeathed the personal property in equal shares to a son and four daughters, and devised the real estate to a trustee or trustees in trust, until a time named, with directions as to management and control of the property and with directions as to disposition of the net income. She also disposed of the real estate and undistributed income on the termination of the trust.
In due course a Federal estate tax of $106,630.32 was levied against the estate of decedent. Of this, 97.25 per cent was levied against the real estate, and 2.75 per cent was levied against the personal property.
Likewise, a Missouri inheritance tax of $19,578.08 was levied against the estate of decedent. Of this, 97.157 per cent was levied against the real estate and 2.843 per cent was levied against the personal property.
"The personal estate being inadequate for the payment of said taxes, the plaintiff administrator called upon the trustees, the predecessors in trust of the defendant trustee, for money with which to discharge said taxes, thereby to save their real estate from sale therefor by a proceeding in the probate court." Responding to said demand, the trustees paid to the administrator for said purpose sums of money aggregating $118,329.19. Thereafter the administrator paid both the Federal estate tax and the State inheritance tax.
On the trial plaintiff administrator contended, and he here contends, that defendant trustee should pay 97.25 per cent of the Federal estate tax, and that he as administrator should pay 2.75 per cent of said tax. On the trial he also contended and he here contends that defendant trustee should pay 97.157 per cent of the State inheritance tax and that he as administrator should pay 2.843 per cent of said tax. If it is proper to so apportion the payment of said taxes, the defendant trustee is indebted to plaintiff administrator in the sum of $16,994.61.
On the other hand, defendant trustee contended, and he here contends, that the real estate should not be subjected to the payment of said tax until the net personal estate has been exhausted for that purpose. There being a net personal estate in excess of $20,000, the defendant trustee filed a cross-petition praying for judgment against plaintiff administrator for a sum not exceeding $118,329.19, the amount paid by the predecessors of defendant trustee to plaintiff administrator on said taxes.
As stated, the chancellor found in favor of defendant trustee on the cross-petition. That part of the decree follows:
"It is further ordered, adjudged and decreed that the motion of the defendant for judgment upon the pleadings be, and the same is hereby sustained, and that the defendant on his cross-petition have and recover of and from the plaintiff as administrator such a sum of money, not in excess of the sum of $118,329.19, as shall be equal to the amount and value of all of the personal assets of said estate, which shall remain in the hands of the plaintiff as administrator of said estate, after all demands allowed against said estate and all costs of administration, including the administrator's commission, shall have been paid, and after the payment of all of the costs of this suit, which costs shall be and they are hereby taxed against the plaintiff."
I. Under the State statute the tax is levied on the right to receive property upon death. [Brown v. State, 19 S.W.2d 12, l.c. 16.] This tax is assessed against each beneficiary as per applicable rate on the value of the property Inheritance Tax: received from the gross estate, after State Statutes: deducting, among other things, the Federal Deduction: estate tax. The administrator, executor or Apportionment. trustee is charged with the duty of deducting the State tax from money transferred to a beneficiary. If the property transferred is not money, he is charged with the duty of collecting the tax from the legatee, grantee, donee, devisee or person entitled to such property. [Laws 1917, p. 118, secs. 6 and 7 (Secs. 578, 579, R.S. 1929.]
Plaintiff administrator directs attention to no provision of the Missouri inheritance tax statute authorizing an apportionment of the tax between personal property and real estate in the manner contended by him. On the contrary he is directed by said statute to collect the tax from the person entitled to the property. He cites Hampton's Administrators v. Hampton, 188 Ky. 199, 221 S.W. 496, 10 A.L.R. 515. The decision in that case turned on a construction of the U.S. statute providing for a Federal estate tax. It is not in point.
II. We next consider the contentions under the Federal statute. Under said statute the tax is levied on the right to transfer property upon death. It is assessed against the net estate. [Secs. 401, 402, Revenue Act of 1918 (40 Stat. 1057-1097).] The parties cite authorities in support of the Inheritance Tax: contentions made under this statute in the Federal Statute: trial court and in this court. Consideration of Real Estate. these authorities is unnecessary. The right of plaintiff administrator to contribution from defendant trustee under the facts of this case is determined by Harrelson v. Crooks, Collector of Internal Revenue, 28 F.2d 510, decided after the trial of the instant case in the circuit court. The Harrelson case was a suit in the U.S. District Court, W.D. Missouri, N.D., to recover money from defendant collector alleged to have been unlawfully collected as a Federal estate tax levied on real estate inherited by plaintiffs. The demurrer to the petition as stating no cause of action was overruled. The ruling was based on a construction of the governing statute, which in part follows:
"That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated —
"(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate. . . ." [Sec. 402, Revenue Act 1918 (40 Stat. 1057-1097).]
In construing the statute it was said:
"It will be noted that property may not be included in the value of the gross estate of a decedent, unless after his death three facts exist with reference to it. Of these one is that the property is subject to the expenses of the administration of the estate. If all three facts are not present, including this one, then the property may not be included in calculating the value of the estate to be taxed. [United States v. Field, 255 U.S. 257, 262, 41 S.Ct. 256, 65 L.Ed. 617, 18 A.L.R. 1461.]
"The theory of the case is that real estate in Missouri is not subject to expenses of administration, and that, therefore, the real estate here should not have been included in determining the amount of tax due. The defendant disputes this theory. The only question for consideration, then, is whether in Missouri real estate is subject to expenses of administration, and that question is to be determined by the state law.
"The question must be resolved in plaintiffs' favor. Repeated decisions of Missouri appellate courts announce the law of this State to be that real estate is not subject to administration expenses. Among other cases are the following: In re Motier's Estate, 7 Mo. App. 514; Ritchey v. Withers, 72 Mo. 556; Elstroth v. Young, 94 Mo. App. 351, 68 S.W. 100; State v. Doud, 216 Mo. App. 480, 269 S.W. l.c. 924."
This ruling of the district court was affirmed by the Circuit Court of Appeals for the Eighth Circuit (38 F.2d 416), and by the Supreme Court of the United States (51 Sup. Ct. Rep. 49).
Thus it appears that the real estate in question was not subject to a Federal estate tax. If so, said real estate cannot be subjected to contribution to the payment of such a tax. In this connection it should be stated that the question of whether the payments on said tax by the trustees were voluntary or involuntary is not presented for determination.
The judgment should be affirmed. It is so ordered. All concur.