Appeals, Nos. 254, 255 and 279, Jan. T., 1957, from the decree of Orphans' Court of Clearfield County, estate No. 21090, in re estate of Abram K. Wright, deceased. Decree, as modified, affirmed.
Oscar M. Hansen, with him Arthur Littleton, Richard K. Stevens, Morgan, Lewis & Bockius and Stradley, Ronon, Stevens & Young, for residuary legatees.
Cuthbert H. Latta, with him William C. Chase and Barnes, Dechert, Price, Myers & Rhoads, for pre-residuary legatee and devisee.
Before Jones, C.j., Bell, Chidsey, Musmanno, Arnold, Jones and Cohen, JJ.
OPINION BY MR. CHIEF JUSTICE JONES
Abram K. Wright died June 15, 1951, at the age of 82. He had lived in the borough of Clearfield all of his life, had never married, and left no close relatives
to survive him at his death. His gross estate exceeded $2,6000.000 and had a net worth (after debts and administration expenses but before death taxes) of $2,450,000 which the decedent disposed of by a will executed approximately six months before his death.
The primary object of Mr. Wright's testamentary bounty is Miss Ruth S. Spence, who served him as secretary for the last 31 years of his life. Under his will she is to receive a cash legacy of $75,000, stocks of a value at the date of the decedent's death of $33,500, a life estate in a trust of other stock worth about $14,000, the decedent's house in Clearfield with its furnishings, his automobile and various tracts of coal lands. The largest beneficiaries under the will, in amount, are the two residuary charities, viz., Princeton College and University of Princeton, New Jersey, and the Presbyterian Hospital in Philadelphia, each of which is bequeathed a pre-residuary gift of $65,000 in stocks and one-half of the residuary estate as a memorial to the decedent who, incidentally, never went to college.
It was Miss Spence's contention in the court below that the whole of the death taxes (state and federal) should be borne by the decedent's residuary estate whereas the residuary charities contended that each beneficiary, whether individual or charitable, should bear his or its own state inheritance tax but that the federal estate taxes should be apportioned in accordance with the Estate Tax Apportionment Act of 1951, with the result that, by virtue of Section 4(b)4 of the Act, the entire burden of the federal estate taxes would fall upon the individual legatees and devisee notwithstanding that 46% of the federal estate tax was generated by the gifts to the charities.
The auditor held each of the testamentary gifts to be subject to deduction for the state inheritance tax but imposed the federal estate taxes on the residuary
estate. Both Miss Spence and the residuary charities filed exceptions to the auditor's report. The court dismissed all of the exceptions, confirmed the report and entered a final decree accordingly from which both Miss Spence and the residuary charities have severally appealed.
The apportionment for which the residuary legatees argue would place the whole of the federal estate tax burden, amounting to $118,116.43, upon the individual legatees and devisee although $54,448.72 of such taxes was generated by the gifts (pre-residuary as well as residuary) to the charities.*fn1 The effect of the residuary legatees' contention, if adopted, would be that Miss Spence, to whom the testator willed cash, stocks, and realty of a total approximate value of $152,000, would receive but $74,758, the other $77,903 going for taxes, of which amount $30,437 represents federal estate tax attributable to the charitable gifts. The same relativity is equally true of all of the testator's bequests to individuals. For example, a person bequeathed a legacy of $1,000 (the will actually contains ten such legacies) would receive but $490 net. Of course, these comparisons do not of themselves determine what the testator's intent was with respect to the charge for death duties but the highly inequitable results, which they portray, are relevant and material as depicting a situation which, judging from the will as a whole, the decedent can hardly be thought to have intended.
Undoubtedly Mr. Wright was well aware that the state and federal taxes on his estate would be large
even though he was bequeathing roughly nine-tenths of his property to charities. He had been well acquainted with the existence of taxation during his lifetime. It is stipulated of record that he "was highly successful, being at one time the largest shipper of coal" in the region, and that, upon withdrawing from the coal business in 1937, "thereafter his chief business activity consisted of managing his investments, which were composed mostly of high grade common stocks." The supplemental record filed with these appeals upon stipulation of all counsel shows that the decedent's executors paid $23,330.77 as his income tax liability for the five and one-half months of the year 1951 up to the time of his death on June 15th. His liability for a whole year's income, on its graduated basis, must have been several times that amount.
It is, of course, true as the residuary charities emphasize that the state inheritance tax is ordinarily deducted from the distributive shares of the beneficiaries of a decedent's estate. Section 16 of the Act of June 20, 1919, P.L. 521, as amended, 72 PS § 2352, expressly so provides. The tax is on the beneficiary's right of succession to, or the privilege of receiving, either by will or under the intestate law, property possessed by a decedent at his death: Shugars v. Chamberlain Amusements Enterprises, Inc., 284 Pa. 200, 205, 130 A. 426. But, it is also well established that a testator may direct, either expressly or by necessary implication, that his testamentary gifts shall be awarded to his beneficiaries without deduction for the state inheritance tax. Brown's Estate, 208 Pa. 161, 164, 57 A. 360; Spangenberg Estate, 359 Pa. 353, 355, 59 A.2d 103. Indeed, a decedent's relief of his beneficiary from any deduction on account of state inheritance tax on his legacy may rest solely upon testamentary implication. The residuary appellants do not question
that. The important inquiry in any instance is whether the language of the will involved implies an intent to such effect.
The requirement of a like testamentary direction or indication in order to place the burden of the federal estate taxes on the residuary estate grew out of this State's first apportionment Act (1937), which was superseded and repealed by the present Estate Tax Apportionment Act of August 24, 1951, P.L. 1405. The Act of 1951, just as its predecessor had done, provides for the apportionment of the federal estate taxes among the persons interested in the property included in the gross estate but confirms to a testator the right to determine by his will how the federal taxes on his estate are to be borne. In construing the Act of 1937, this court held that its effect was to create a presumption (and the conception continues to obtain under the Act of 1951) that a testator intends to have the Act's provisions apply to his estate, recognizing, however, that the presumption prevails "unless there is in the terms of the will some provision which is clearly inconsistent with such construction, and, when the will is construed as a whole, will override it." Harvey Estate, 350 Pa. 53, 56, 38 A.2d 262; Edwards Estate, 377 Pa. 606, 608, 105 A.2d 312.
Unlike the state inheritance tax, however, the federal estate tax is a tax upon the transmission of a decedent's property to others upon his death: Riggs v. Del Drago, 317 U.S. 95, 97, 95. The incidence of the federal estate tax is upon the property of the decedent: Mellon Estate, 347 Pa. 520, 532, 32 A.2d 749. The contrast between the respective incidences of the two kinds of death duties (i.e., a succession or legacy tax on the one hand and a transmission or estate tax on the other) was learnedly elucidated by Mr. Justice
(later Chief Justice) WHITE in Knowlton v. Moore, 178 U.S. 41. In Newton's Estate, 74 Pa. Superior Ct. 361, 365, that Court accepted what had been "so clearly stated" in Knowlton v. Moore, supra, as "the principles to be applied in determining where the burden [of estate taxes] must rest" and then cogently declared, "Probate or estate duties, tax the interest which ceased by reason of death, not the interest to which some person succeeds on a death. It is a charge upon and is payable out of the general revenue of the estate." Such was the applicable rule at the time of the creation by the Act of 1937 of the presumptive testamentary intent with respect to apportionment. Estate taxes had uniformly been paid out of and charged to the general funds of the decedent's estate in the absence of testamentary direction otherwise: Edwards Estate, supra. It is clear, therefore, that it is only the legal fiction created by the Apportionment Act as to its own presumed applicability - a presumption which can be overcome by testamentary implication alone (Edwards Estate, supra) - that brings about any controversy concerning the charging of the decedent's federal taxes to his general estate.
The question, then, is, what did the testator intend, as disclosed by his will, the intent being permissively ascertainable from implication no less than from express direction.
A study of Mr. Wright's will reveals a donative scheme which is utterly inconsistent with the idea that the gifts to the pre-residuary legatees and devisee were to be subject to deduction for any death taxes in connection with the decedent's estate.
The decedent's testamentary dispositions fall into three classes, (1) pre-residuary gifts to individuals totaling approximately $273,000, (2) pre-residuary gifts to charities aggregating $269,000, and (3) a gift
of the residue, amounting substantially to $1,918,000, to two charities which are also pre-residuary pecuniary legatees in large amounts.
The will contains 60 consecutively numbered Items, followed by two unnumbered Items and a concluding paragraph. The first 55 Items make specific bequests and devises of approximately $276,000 to a number of individuals and bequests aggregating $265,000 to charitable and other federally tax exempt organizations. By Item 56 the testator empowered his executors "to borrow money to pay any debts or pay any taxes if [the executors] decide the time is not right for the selling of [testator's] securities in paying [his] bequests and debts." Finally, by Item 60, he devised and bequeathed his residuary estate in equal shares to the Presbyterian Hospital in Philadelphia, and Princeton College and University. The other numbered Items (57, 58 and 59) and the two unnumbered Items and concluding paragraph, have no bearing on the question of testamentary intent relative to the payment of death duties in the settlement of the decedent's estate save for one of the unnumbered Items to which reference will hereinafter be made.
We think the decedent's will clearly evidences an intention that the pre-residuary legatees and the devisee were to receive their testamentary gifts without diminution for any of the death duties incident either to the transmission of the decedent's property at his death or to the beneficiaries' receipt of it.
By Item 1 of his will Mr. Wright gave and bequeathed to Miss Ruth S. Spence, his secretary, the sum of Seventy Five Thousand ($75,000.00) Dollars. By Item 2 he gave to a named bank in trust, 200 shares of Allied Chemical and Dye Co. common stock to pay the dividends therefrom to Miss Spence quarterly, for the duration of her life, with remainders over in the corpus
to the children of two named individuals. The testator also devised to Miss Spence (Item 47) his one-half interest in certain coal lands; bequeathed to her (Item 48) his stock and all of his interest in a specified coal company; devised to her (Item 49) his other coal lands in Clearfield County; gave her (Item 52) his house and lot in Clearfield and by Item 53 all of the furnishings of his house, his automobile, and silverware of all kinds; by Item 54, he ordered and directed his executors to employ Miss Spence for a period of three years to do the clerical work in connection with the management and settlement of his estate at a salary of $200 per month and expenses; and, by Item 55, he gave and devised to her all his coal lands in Decatur Township, Clearfield County, and his lots in Hyde, Pennsylvania. It is not open to reasonable question that Miss Spence, was indeed, the primary object of Mr. Wright's bounty. His concern for her and her future welfare, following her 31 years of faithful service in his employment down to the time of his death, stands out in the will in bold relief. Yet, although the decedent's testamentary gifts to Miss Spence aggregated all told approximately $152,000, the residuary charities would take from that amount slightly more than half toward paying the state and federal death taxes including even the federal taxes on the gifts to the charities. As the will clearly indicates, that is not what the testator intended.
In many instances among the pre-residuary Items, the testator bequeathed to the particular beneficiaries so many dollars "in stocks at the market value at the time of [his] death." Obviously, where this is the form of bequest utilized, it would not be possible to deduct therefrom for the state inheritance tax or an apportionment of estate taxes and, at the same time, give the beneficiary the quantum of stock which the
will expressly directs he shall receive. Such was the form of the testamentary gift in no less than 21 separate Items including a legacy of $65,000 "in stocks at the market value at the time of [testator's] death" to the Presbyterian Hospital of Philadelphia and a bequest in like amount and like terms to Princeton Colege and University. It was, moreover, the form of bequest utilized by the testator in his pre-residuary gifts to a number of other charities as well as in sixteen bequests to individuals in amounts ranging from $2,000 to $25,000. However, a bequest of so many dollars "in stocks at the market value at the time of [testator's] death" was not the exclusive form of gift used by the testator. There are eighteen Items containing bequests to individuals of sums of money ranging variously from $1,000 to $4,000 in addition to the $75,000 bequest to Miss Spence in Item 1.
The discrimination thus exhibited by the testator in making bequests" in stocks" to certain legatees and sums in money to others was no mere fortuity. He well recognized what he had done in such regard and had so intended. In the first unnumbered Item, immediately following Item 60, he expressly directed that "In every bequest of stock hereinabove contained, my Executors shall have the sole right to determine the nature and kind thereof to be delivered to the beneficiaries." It is clear, therefore, that the bequests "in stocks" in fixed amounts were to be paid in stocks at a market value on a date certain. What, then, did the donative scheme of bequests "in stocks" necessarily import? It meant, for example, that, in the case of a gift of "Five Thousand ($5,000.00) Dollars in stocks at the ...