Opinion
No. 39935.
April 21, 1947.
1. EXECUTORS AND ADMINISTRATORS: Husband and Wife: Real Estate Taxes Payable Prior to Widow's Dower. Real estate taxes are payable by the executors out of the personal assets of the estate before the determination of the widow's dower in personal property under Sec. 323 R.S. 1939.
2. EXECUTORS AND ADMINISTRATORS: Husband and Wife: Parties: Federal Estate Tax Properly Paid by Executors: Devisees of Real Estate Not Before Court. The executors properly paid the entire federal estate tax from the personal assets under their possession and control, and they were entitled to take credit therefor in their final settlement. The devisees of the real estate were not before the court, and the widow elected not to proceed in equity in the circuit court with all parties in interest to determine whether the real estate should be charged with part of such estate tax.
3. EXECUTORS AND ADMINISTRATORS: Allowance for Further Litigation Proper. An allowance of $750 to the executors to cover the incidental costs of further litigation was proper.
AFFIRMED.
Appeal from Circuit Court of City of St. Louis. — Hon. William K. Koerner, Judge.
Stephen C. Rogers for appellant.
(1) The trend of the courts in Missouri and elsewhere, is towards absolving statutory allowances to the widow from debts inclusive of taxes. In re Rogers Estate, 250 S.W. 576; In re Bernays' Estate, 344 Mo. 135, 126 S.W.2d 209; In re Dean's Estate, 350 Mo. 494, 166 S.W.2d 529. (2) $20,000 is the amount allowed by statute to a widow as tax free, and that amount should be so allowed appellant. Secs. 574, 576, Art. 21, R.S. 1939. (3) The real estate is liable for the Federal estate tax if the residuary half of the personalty is insufficient. Secs. 141 et seq., R.S. 1939; Bryant v. Green, 328 Mo. 1226, 44 S.W.2d 7; Federal Estate Tax, U.S.C.A. Title 26, Sec. 811. (4) The trial court erroneously based its decision on a case which is not germane. Woodruff v. Holmes, 328 Mo. 143, 40 S.W.2d 616. (5) Residuary estate is what remains after all charges against the estate (including widow's dower), and all special legacies and bequests have been discharged. (It should bear the burden of the estate tax, which was not a debt of deceased.) 54 C.J. 715, sec. 2; Woodruff v. Holmes, 328 Mo. 143, 40 S.W.2d 616; In re Bernheimer, 352 Mo. 91, 176 S.W.2d 15; 40 Col. L.R. 690 et seq.; Sec. 306, R.S. 1939. (6) The widow's dower is not subject to the husband's tax debts. Secs. 306, 323, R.S. 1939; Secs. 4, 5, 6, 7, p. 520, General Statutes Mo. 1865; Thompson v. Union and Mercantile Trust Co., 164 Ark. 411, 162 S.W. 324; Dalton v. Allen, 167 S.W. 893. (7) The Federal estate tax is not a debt of the husband. Hampton's Administrator v. Hampton, 188 Ky. 199, 221 S.W. 496. (8) The interest given under Section 323 is dower. Hallstrom v. Swaine, 234 Mo. App. 657, 115 S.W.2d 159. (9) A husband's creditors' claims as a general rule are subordinate to dower. 28 C.J.S. 106, sec. 40. (10) The right of dower is sacred. Nidy v. Rice, 226 Mo. App. 610, 44 S.W.2d 196; McFarland v. McFarland, 278 Mo. 1; 19 C.J. 460, sec. 10; 28 C.J.S. 69, sec. 6. (11) If the statutory allowances to the widow are not tax free to her and are not payable out of the residuary estate, then the taxes, including the Federal estate tax, should be allocated to the realty and not paid wholly out of the personalty. The Federal law provides a lien against the realty and personalty if the tax is not paid, and both are liable here. Federal Estate Tax, U.S.C.A., Title 26, Sec. 827; Baumgartner v. Commissioner of Internal Revenue, 51 F.2d 472; In re Bernheimer. 352 Mo. 91, 176 S.W.2d 15. (12) Appellant is entitled to at least one-half of the surplus personalty after debts, cost of administration without any deductions for the Federal estate tax except her pro rata part, such tax not being a debt. Hampton's Administrator v. Hampton, 188 Ky. 199, 221 S.W. 496; Martin v. Martin's Administrator. 142 S.W.2d 16; Sec. 124, New York Decedent Law. (13) Apportionment of the estate tax should be made according to Missouri laws. Riggs v. Del Drago, 317 U.S. 94, 63 S.Ct. 111; Edwards v. Slocum, 264 U.S. 61, 287 F. 651. (14) According to Missouri law the residuary estate should bear the whole burden of the Federal estate tax or at least its proportionate part. Bryant v. Green, 328 Mo. 1226, 44 S.W.2d 7. (15) The decision of the Federal Court. U.S. v. Field, 255 U.S. 257, upon which Bryant v. Green was decided, has been in effect overruled. Steedman v. United States, 63 Ct. Cl. 226, 33 F. Supp. 533, 48 S.Ct. 20; Federal Estate Tax, U.S.C.A. Title 26, Secs. 810, 811, 826d, 827. (16) Executors as trustees should have paid the tax out of the residuary estate, such was their duty. State ex rel. Yale University v. Sartorius, 349 Mo. 1054, 163 S.W.2d 987. (17) The theory in the past in requiring the costs to be paid out of the personal estate was the doctrine representative of a feudal age to preserve the standing and dignity of kings, nobles, land-gentry, etc. 40 Col. L.R. 690. (18) If the estate is distributed before the tax is paid it can be recovered of distributees or devisees for they hold it in trust. Baumgartner v. Comr. of Int. Rev., 51 F.2d 472. (19) The item of $750 to cover incidental costs of further litigation is improper and not allowable as it does not benefit the estate. In re Flynn's Estate, 338 Mo. 522, 142 S.W.2d 1069.
Bryan, Cave, McPheeters McRoberts and Edward A. Haid for respondents.
(1) The Federal Estate Tax is a tax on an interest which ceased by reason of death — a shifting of the economic benefits of property from the decedent. Y.M.C.A. v. Davis, 264 U.S. 47, 44 S.Ct. 291, 68 L.Ed. 558; Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106; Meyer v. Reinecke, 130 F.2d 350; Crooks v. Loose, 36 F.2d 571; In re Bernheimer's Estate, 352 Mo. 91, 176 S.W.2d 15. (2) In determining the gross estate for the purpose of computing the tax, the widow's dower and other statutory interests must be included. 26 U.S.C.A., Sec. 811 (b). (3) Where widow's dower interest matures, or she acquires a child's share, by reason of her husband's death, a transfer and succession by death is consummated. United States v. Waite, 33 F.2d 567; Fernandez v. Wiener, 326 U.S. 340, 66 S.Ct. 178, 90 L.Ed. 147. (4) The tax must be paid by the executors before distribution. Riggs v. Del Drago, supra. (5) The tax was properly paid by respondents (executors) and they are entitled to take credit therefor in their final settlement. 26 U.S.C.A., Sec. 822 (b); In re Roebling's Estate, 89 N.J. Eq. 163, 104 A. 295. (6) The tax is payable out of the whole estate being administered — not out of the residuary estate. Edwards v. Slocum, 264 U.S. 61, 44 S.Ct. 293, 68 L.Ed. 564; Fernandez v. Wiener, supra; Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106. (7) The act does not provide for apportionment. Riggs v. Del Drago, supra; Rogan v. Taylor, 136 F.2d 598. (8) Deceased having died February 26, 1943, real estate taxes for the year 1942 were a debt of his estate and properly paid by respondents and charged to his estate. Sec. 181, R.S. 1939; Riley v. Akin, 226 Mo. App. 735, 45 S.W.2d 122. (9) Appellant having appealed to the circuit court from the decision of the probate court approving the final settlement of respondents (executors), it was their duty to defend the action and they were properly allowed an attorney's fee for that purpose. Estate of Mecks, 45 Mo. App. 186; Jacobs v. Jacobs, 99 Mo. 427, 12 S.W. 457; Skinner v. Whitlow, 184 Mo. App. 229, 167 S.W. 463; Loud v. St. Louis Union Trust Co., 313 Mo. 552, 281 S.W. 744; In re Carlin's Estate, 226 Mo. App. 622, 47 S.W.2d 213.
This cause originated in the Probate Court of the City of St. Louis. Appellant, the widow of John D. Poe, deceased, filed exceptions to the amended final settlement of the estate of John D. Poe, deceased, as filed by the respondents-executors. The exceptions being overruled, an appeal was taken to the Circuit Court of the City of St. Louis where the exceptions were again overruled and a like judgment entered. The cause was then appealed to this court.
John D. Poe died on February 26, 1943, leaving a will dated January 4, 1938, by which he made provision for his wife, Mary, and set up a trust estate of "all the rest, residue and remainder" of his estate for the benefit of his wife, his son, his half sister and others. His wife, Mary, and his half sister predeceased him, and he remarried and died without making provision for his second wife, Virginia Doerr Poe, appellant. It is admitted that testator was survived only by his son, John S. Poe, a legatee under the will; that testator died intestate as to appellant; and that appellant became entitled to dower in real and personal property of her deceased husband and to other statutory allowances. Respondents concede that the personal property of the estate "aggregated $85,162.00" and that the balance on hand at the first settlement, after allowed claims and expenses had been paid, amounted to $56,176.48. The real estate was inventoried at $65,080.00, but respondents agree that it has a value of $108,300.00 and appellant offered evidence that its reasonable value is $143,400.00.
In their final settlement, respondents took credit for real estate taxes paid in the sum of $1783.72. These taxes were assessed June 1, 1942, and were payable in 1943, the year of testator's death. Respondents further took credit for Federal estate taxes paid in the sum of $27,350.02 and proposd to distribute to appellant one-half of the net personal estate remaining after the payment of debts, taxes and the expenses of administration. Appellant refers to her proposed share as amounting to $11,561.76, but this figure appears to be in excess of the amount as determined from facts shown in the agreed statement of the case.
By the exceptions filed, appellant contended (1) that the real estate taxes in question were not payable out of or chargeable to personal property; and (2) that the Federal estate tax charge was improper because the interest of appellant was "not subject to such tax, the same being chargeable to the individual interests of the several beneficiaries and should be allocated." The exceptions were overruled and, when the order of distribution was entered, the Probate Court permitted respondents to reserve $750 to cover the cost of his appeal.
Appellant first contends that the statutory allowance to her as widow under Sec. 323 R.S. 1939 should come to her tax free; that the real estate taxes and the Federal estate taxes, mentioned, should have been paid out of the residuary estate; and that the court erred in permitting respondents to take credit for these items out of personal property before a determination of appellant's distributive share. Appellant further contends that "if the statutory allowances are not tax free to her and are not payable out of the residuary estate, then the taxes, including the Federal estate taxes, should be allocated to the realty and not paid wholly out of the personalty." (All hereinafter references to sections are the Revised Statutes of Missouri, 1939, unless otherwise specified.)
Under Sec. 323, supra, appellant was "entitled absolutely to a share in the personal estate belonging to the husband . . . at the time of his . . . death, equal to the share of a child." No reference is made in this section to the payment of debts, although the next two sections 324 and 325 contain such a provision. Under Sec. 107, the widow, in addition to the absolute property specified by Sec. 106, may select additional personal property "not to exceed the appraised value of four hundred dollars." Section 108 provides that the widow shall apply for the property mentioned in the preceding section before its disposition or sale, and that such property "shall be deducted from her dower in the personal estate, if there be any; but the property so delivered shall in no case be liable for the payment of the debts of the deceased." (Italics ours.)
In support of her contention that her "dower in personal property" is not subject to "the husband's tax debts," appellant refers to Sec. 306, disposing of intestate real [443] and personal property of a deceased person, "subject to the payment of his debts and the widow's dower." The section, however, does not provide that "dower in personal property" under Sec. 323 is free of debts and taxes. On the other hand it has been held that, since the widow receives "a share in the personal estate . . . equal to the share of a child," of necessity the widow's share is equally subject to debts. In re Bernays' Estate v. Major, 344 Mo. 135, 126 S.W.2d 209, 215; Howard v. Strode, 242 Mo. 210, 219, 146 S.W. 792; Cox v. Dunn, 3 Mo. App. 348. Sec. also, United States v. Waite, 33 F.2d 567, 573, certiorari denied 50 Sup. Ct. 157, 280 U.S. 608, 74 L.Ed. 651. In further support of her contention, appellant refers to Sections 4, 5, 6 and 7, p. 520, R.S. 1865 and presents an argument on the theory overruled in Cox. v. Dunn, supra. Appellant further argues that "a husband's creditors' claims as a general rule are subordinate to dower"; that "the right of dower is sacred"; that testator could not have defeated her rights under Sec. 323 by a will, so they should not be defeated by taxes; that "the trend of courts . . . is towards absolving statutory allowances to the widow from debts inclusive of taxes"; that "$20,000 is the amount allowed by statute to a widow as tax free" under the state inheritance tax law (Sec. 576); and that that amount should be allowed appellant free from taxes.
As stated, the real estate taxes in question were assessed June 1, 1942 and were payable in 1943. These taxes were, therefore, a lien and a charge against the real estate of deceased prior to his death on February 26, 1943. St. Louis Provident Ass'n. v. Gruner, 355 Mo. 1030, 199 S.W.2d 409. A direct statutory provision required the payment of these taxes by the executors. Section 181; Riley v. Akin, 226 Mo. App. 735, 45 S.W.2d 122, 124. Payment necessarily had to be made from the personal estate in the hands of the executors. No authority had been granted to deal with the real estate of the deceased. Section 112 provides that "if the perishable goods be not sufficient to pay the debts, the executor or administrator shall, in the same manner sell other personal estate until the debts and legacies be all paid, but special legacies shall not be sold in any case, unless it becomes necessary for the payment of debts" (Italics ours). The sale of real estate for any purpose is authorized only in the event that the personal estate is insufficient. Sections 141 and 106. It is apparent that the public policy of this state as evidenced by the statutory enactments, supra, require the payment of debts, taxes and expenses of administration from the funds which have "come to the hands of such executor or administrator from all sources," until such funds are exhausted. Section 224. We hold that the real estate taxes in question were properly paid out of the personal assets in the hands of the respondents before the determination of appellant's dower in personal property under Sec. 323, supra, and that respondents-executors were entitled to take credit therefor in their final settlement. Woodruff v. Holmes, 328 Mo. 143, 40 S.W.2d 616, 619; Howard v. Strode, supra ( 242 Mo. 210, 219, 146 S.W. 792).
The Federal estate tax referred to was assessed under the provision of a Federal Statute, 26 U.S.C.A. sec. 810, et seq., which imposed "an excise upon the transfer of an estate upon death of the owner. It was not a tax upon succession and receipt of benefits under the law or the will. It was death duties, as distinguished from a legacy or succession tax. What this law taxes is not the interest to which the legatees and devisees succeeded on death, but the interests which ceased by reason of the death." Young Men's Christian Ass'n. v. Davis, 264 U.S. 47, 50, 44 Sup. Ct. 291, 68 L.Ed. 558, 560. In determining the value of the gross estate any interest of the surviving spouse "as dower, courtesy or by virtue of a statute creating an estate in lieu of dower or courtesy" is expressly included. 26 U.S.C.A. sec. 811 (b). "The statute does not tax the widow's dower, it merely uses it as a measure of that part of the deceased husband's interest in his realty which was beyond his testamentary control and which ceased at his death." Mayer v. Reinecke, [444] 130 F.2d 350, 353. Even where the widow acquires a child's share by reason of her husband's death, a transfer and succession by death is consummated and the interest must be included in determining the tax. United States v. Waite, supra, ( 33 F.2d 567, 573); Fernandez v. Wiener, 326 U.S. 340, 66 Sup. Ct. 178, 90 L.Ed. 116, 131. The tax imposed is required to be paid by the executor to the collector. 26 U.S.C.A. sec. 822(b). Riggs v. Del Drago, 317 U.S. 95, 98, 63 Sup. Ct. 109, 87 L.Ed. 106, 111. The purpose and intent is "that so far as is practicable and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution." 26 U.S.C.A. sec. 826(b). Provision for the collection of the tax was made in the event the tax was not so paid by the executor. 26 U.S.C.A. sec. 826. "Although the share of the surviving spouse is subject to the lien and the tax must be paid out of the estate as a whole, the federal statute leaves it to the states to determine how the tax burden shall be distributed among those who share in the taxed estate." Fernandez v. Wiener, supra (90 L.Ed. 116, 124). The tax is not a debt in a strict sense. Baumgartner v. Commissioner of Revenue, 51 F.2d 472, 473; Hampton's Administrators v. Hampton, 188 Ky. 199, 221 S.W. 496, 497). The tax is payable out of the whole estate and "the act does not designate or indicate out of what fund the tax is payable except that relating to insurance." Woodruff v. Holmes, supra. ( 328 Mo. 143, 40 S.W.2d 616, 619). It has been held that the legislative history of the act clearly indicates "that Congress intended that state law should determine the ultimate thrust of the tax: . . . resort must then be had to state law to determine whether personalty or realty, or general, demonstrative or special legacies abate first." Riggs v. Del Drago, supra, 317 U.S. 95, 98, 101. The Federal estate tax was a charge against the estate and was payable out of the estate. Woodruff v. Holmes, supra, ( 328 Mo. 143, 40 S.W.2d 616, 619). Also, see, Rogan v. Taylor, 136 F.2d 598, 600. It was in fact so paid by the executors out of the funds of the estate (personal property) in their hands.
Appellant's contention (that at least a pro rata part of the tax should be allocated to real estate) is argued as follows: (1) that the Federal statute provides a lien against both real estate and personalty to secure the payment of the tax (26 U.S.C.A. sec. 827; Baumgartner v. Commissioner of Internal Revenue, supra); (2) that a failure to apportion the tax will reduce her share of personalty below the $20,000 exemption allowed under the Missouri inheritance tax statute (Sec. 576); (3) that, if the tax is paid wholly out of the personal estate, "she would be paying the tax for the benefit of the residuary legatees, which is unjust, inequitable and down-right wrong"; and (4) that the theory of exhausting personal property before real estate "is representative of a feudal age when it was desirable to preserve intact the realty because of the appurtenant prestige and social advantage." (40 Col. Law Review, 690, 699). Appellant further points to the statutory law in New York (Sec. 124 of the New York Decedent Estate Law, requiring apportionment of Federal estate taxes among beneficiaries, when there is no direction by will), to the case law of Kentucky (Hampton's Administrators v. Hampton, supra), to the holding In re Bernheimer's Estate, 352 Mo. 91, 176 S.W.2d 15 (concerning the intention of the testator), and to the inheritance tax law of this state, where the tax is imposed upon and collectible out of each specific share or interest.
We think the exceptions to the settlement were properly ruled. Respondents had never had any possession or control of testator's real estate, which passed directly to the devisees under the will (to the trustees of the trust estate), subject to the widow's dower under Sec. 318 and subject to being leased or sold for the benefit of creditors of the estate, if required. State, to Use of Enyart v. Doud, 216 Mo. App. 480, 269 S.W. 923, 924. The record further shows that the probate court had taken no jurisdiction of the real estate under Sec. 141 or otherwise, since the personal [445] estate of the deceased had been entirely sufficient to pay debts. The devisees of the real estate had not been brought before the court under Sec. 143 or otherwise. The essential issue presented by appellant's exceptions to the settlement was to contest the right of the executors to take credit in their settlement for the funds so paid out for Federal estate taxes. The issue was presented between appellant, the widow, and respondents, the executors, that is, whether respondent's settlement of their administration of the estate was correct in the particulars excepted to. Browning v. Richardson, 186 Mo. 361, 382, 85 S.W. 518.
The proceedings in this cause, the parties here represented and the jurisdiction of the court itself are very different from that shown in many of the cases cited by appellant. Hampton's Administrators v. Hampton, 188 Ky. 199, 221 S.W. 496 (action in equity to determine where the Federal estate tax fell); In re Bernheimer's Estate v. Major, supra, (action for declaratory judgment and to construe will to determine which bequest should bear the Federal estate tax); Young Men's Christian Ass'n. v. Davis, supra (action in common pleas court of Franklin Co., Ohio, asking the directions of the court as to where the tax should fall).
Appellant insists that Bryant v. Green, 328 Mo. 1226, 44 S.W.2d 7 (an action and cross action at law between an administrator and the trustee of real estate in trust under the provision of a will to determine where the Federal estates taxes and other taxes should fall) has in effect been overruled in view of certain amendments and decisions. Appellant cites Steedman v. U.S., 63 Ct. Cl., 226, 233, certiorari denied 275 U.S. 528, 48 Sup. Ct. 20, 72 L.Ed. 408 and 26 U.S.C.A. secs. 810, 811, 826(d), 827. Appellant, however, elected not to proceed in equity in the Circuit Court with all of the parties in interest and the real estate in question before the court. Instead, appellant has proceeded by exceptions to respondents' amended final settlement, as stated, but appellant has pointed to no procedure under which respondents might have proceeded to apportion the Federal estate taxes or how they could have required the devisees of the real estate to bear any part of the tax. Whether the matter of apportionment of the tax is for the legislature or for the courts in a proper case is a matter we may not determine in this proceeding. See 40 Col. Law Review 690, 701; Edwards v. Slocum, 264 U.S. 61, 44 Sup. Ct. 293, 68 L.Ed. 564, 565. We can only determine the issues presented on the record and we, therefore, hold that the respondents properly paid the Federal estate taxes from the personal assets under their possession and control; and that they were entitled to take credit therefor in their final settlement. Woodruff v. Holmes, supra. Also, see In re Roebling's Estate, 89 N.J. Eq. 163, 104 A. 295, 296.
Finally, appellant contends that the allowance of $750 to cover incidental costs of further litigation was improper because such litigation was not for the benefit of the estate. Appellant's theory is that the executors have no interest in who pays the tax; that the contest is between appellant and the residuary legatee; and that the trustees of the trust estate are "the proper parties to contest appellant's contentions, not the executors." As we have stated, the issue presented by the exceptions is essentially respondents' right to take credit for the payments that they were required to make and which they have made from the only funds in their hands or under their control. The trustees and heir at law, referred to by appellant, were not before the court in this proceeding. The contest here is not between appellant and the trustees and heir at law. The court did not err in approving the allowance. Jacobs v. Jacobs, 99 Mo. 427, 436, 12 S.W. 457, 460; In re Estate of Mecker v. Swift, 45 Mo. App. 186, 197.
The judgment is affirmed. Bradley and Van Osdol, CC., concur.
The foregoing opinion by DALTON, C., is adopted as the opinion of the court. All the judges concur.