Appeal, No. 3, March T., 1956, from decree of Orphans' Court of Allegheny County, 1952, No. 2826, in re estate of Grace Miller Hitchcock, Deceased. Decree affirmed.
John G. Buchanan, with him Danald L. McCaskey, Cloyd R. Mellott and Smith, Buchanan, Ingersoll, Rodewald & Eckert, for appellant.
Ralph S. Snyder, Deputy Attorney General, with him Leo J. Kelly, Special Deputy Attorney General, and Herbert B. Cohen, Attorney General, for appellee.
Before Stern, C.j., Jones, Bell, Musmanno and Arnold, JJ.
OPINION BY MR. JUSTICE JONES
The question in this case arises out of a joint will of a husband and wife which they executed as a part of and in pursuance of their written agreement which combined their separate estates as a tenancy in common and provided for the ultimate disposition of the combined estates by their joint will upon the death of the survivor. The issue involved is whether claims of the husband's testamentary beneficiaries, which were "compromised" at the audit of the estate of the deceased wife, who survived her husband, were debts of her estate and chargeable as such in ascertaining the clear value of the estate subject to inheritance tax.
The learned auditing judge, in assigned reliance on Neller Estate, 356 Pa. 628, 53 A.2d 122, and Mills Estate, 367 Pa. 504, 80 A.2d 809, held the claims to be
debts of the deceased survivor and entered a decree nisi disallowing the Commonwealth's claim for taxes on the clear value of the estate without allowance of the alleged "debts" as deductions. The court en banc (the auditing judge dissenting) sustained exceptions to the decree nisi and held that the claims were inheritances and not debts and consequently were not deductible. A final decree was entered accordingly from which the executor has appealed. The facts are not in dispute.
On September 2, 1922, Halbert Kellogg Hitchcock and Grace Miller Hitchcock, his wife, executed a written instrument under seal which embraced both an agreement to make a joint will of certain terms and a joint will carrying into effect the provisions of the agreement. In addition to the signatures of the parties, the instrument contained the usual testamentary attestation clause signed by two subscribing witnesses. The instrument is quite extensive, showing in detail the respective beneficiaries and the extent of their prospective interests under the joint will according to schedule incorporated therein. The agreement contains, inter alia, the following.
"WHEREAS, Halbert Kellogg Hitchcock and Grace Miller Hitchcock, husband and wife, both of the City of Pittsburgh, County of Allegheny and State of Pennsylvania, have agreed with each other that they shall combine their respective estates and shall hold and enjoy the same as tenants in common and that the last survivor shall enjoy the joint estate or entire property possessed by both at the time of the death of the first to die so long as the other shall live, with the right of the last survivor to convert to his or her own personal use all of the income therefrom and as much of the principal as the last survivor may see fit to use without let or hindrance or accountability to anyone save the survivor; and that at the death of the last survivor,
one half of the then remaining estate shall be distributed to the devisees of the said Halbert Kellogg Hitchcock, as hereinafter provided and the other half shall be distributed to the devisees of the said Grace Miller Hitchcock, as hereinafter provided.
"Now, therefore, in order to carry out the intent and purposes of the foregoing agreement, the said Halbert Kellogg Hitchcock and Grace Miller Hitchcock, his wife, both being of sound mind, and memory, do hereby make and publish this their last will and testament in the manner following hereby revoking all former wills which they may have made."
The writing further declared: "THIRTEENTH SECTION. It is thoroughly understood by both of the parties making this will that the foregoing instrument is not only a will, but a binding contract existing between the parties hereto and that the same cannot be changed by either party without the consent of the other, except as to the distribution of that half of the joint estate, if any, which ultimately will go to the devisees of the last survivor, but it is hereby agreed between the parties hereto that the last survivor may advance to the devisees of the other party such a sum or sums as would reasonably not exceed one half of the amount which would eventually accrue to the said devisees upon the death of the last survivor, the same with simple interest at seven (7) percent to be deducted from the amount which the said beneficiary would receive at the death of the last survivor."
As contemplated by the above-quoted recital, the testamentary portion of the instrument provided for distribution upon the death of the survivor of one-half of the then remaining combined estates to named devisees and legatees of Halbert Kellogg Hitchcock and one-half to named beneficiaries of Grace Miller Hitchcock. A joint codicil, executed by Mr. and Mrs. Hitchcock on
March 12, 1928, altered the distribution to the relatives of the husband as contained in the joint will but made no other change therein.
Halbert Hitchcock died November 24, 1930. Thereafter his wife, who survived him, enjoyed the use of the combined estates of herself and her husband as her own, with absolute power of consumption, in accordance with the provisions of the agreement and joint will upon the final settlement of the husband's estate by his wife as executrix.
Twelve years after her husband's death (viz., on December 14, 1942), Mrs. Hitchcock executed a codicil to the joint will wherein she purported to be of the opinion that her obligation under the agreement and joint will was to distribute to the named relatives of her husband one-half of the value of the combined estates of herself and husband as of the date of his death and not of the survivor. In the time intervening since his death, the aggregate value of the combined estates had increased considerably. And, so, Mrs. Hitchcock, in apparent belief that the increase in the value of the combined estates over what it had been at the date of her husband's death was her own to do with by will as she chose, concluded that the participating interest of Mr. Hitchcock's relatives under the joint will was but one-half of the value of the combined estates at the date of his death. On December 15, 1942, Mrs. Hitchcock executed another codicil amending the codicil of the day before in certain particulars. The amendatory codicil did not alter the codicil of December 14, 1942, in any manner presently material.
Mrs. Hitchcock died on April 22, 1952, domiciled in Pittsburgh. After her death the joint will and codicils were duly admitted to probate by the Register of Allegheny County who granted letters testamentary thereon on to the Fidelity Trust Company as executor.
In direct opposition to the provisions of Mrs. Hitchcock's separate codicil of December 14, 1942, Mr. Hitchcock's relatives, who were named beneficiaries under the joint will, claimed one-half of the property owned by Mrs. Hitchcock at the time of her death. At the audit of the executor's account, a compromise was reached whereby the testamentary claimants, who were members of Mr. Hitchcock's family, were to receive forty-three percent of the assets accounted for by the executor of Mrs. Hitchcock's estate, subject to the payment by them of forty-three per cent of the debts, funeral and administration expenses and Federal estate and State inheritance taxes.
It is the contention of the appellant executor that the amount to be paid to the relatives of Mr. Hitchcock in settlement of their testamentary claims constitutes a proper deduction in calculating the clear value of the estate subject to tax under Section 2 of the Pennsylvania Transfer Inheritance Tax Act of June 20, 1919, P.L. 521, as amended, 72 PS § 2302. The Commonwealth, on the other hand, contends that the amount paid to the relatives of Halbert Hitchcock in discharge of their claims as devisees and legatees under the joint will of Mr. and Mrs. Hitchcock is an inheritance and not a debt of the deceased wife and consequently not an allowable deduction from the gross estate in ascertaining the clear value subject to tax.
An indebtedness of a decedent is deductible under the Pennsylvania Transfer Inheritance Tax Act in ascertaining the clear value of the estate subject to tax to the extent that it was "contracted bona fide and for an adequate and full consideration in money or money's worth ...." The Act of December 21, 1951, P.L. 1713, 72 PS § 2302, amending Section 2 of the Act of June 20, 1919, P.L. 521, as theretofore amended, expressly so provides.
The Commonwealth concedes that the contract between Mr. and Mrs. Hitchcock providing for their joint will was entered into bona fide, that the agreement was a binding and enforceable contract and that a donee beneficiary may enforce a contract made for his benefit. It is unnecessary, therefore, to repeat here the many citations of the appellant in support of the foregoing propositions which are not only uncontroverted but incontrovertible.
The question is whether the amounts paid by the executor of Mrs. Hitchcock's estate to the members of Mr. Hitchcock's family in settlement of their claims under the joint will of the Hitchcocks were contracted for an adequate and full consideration in money or money's worth. The plain and obvious answer is that they were not; they were testamentary benefactions and not debts.
The only consideration passing between Mr. and Mrs. Hitchcock for the agreement to make a joint will was their reciprocal promises, each to the other, as to the testamentary disposition to be made of what remained of their combined estates upon the death of the survivor. While such promises were sufficient to support the agreement and to constitute it a binding and enforceable contract, they were not an adequate and full consideration in money or money's worth. The appellant, however, contends that the payments were deductible debts (and induced the auditing judge into so believing) on the strength of an ingenious argument ostensibly founded on our decisions in the Neller and ...