decided: July 14, 1978.
IN RE ESTATE OF HARRY S. FLEISHMAN, DECEASED. IN RE TRUST FOR MILDRED S. FLEISHMAN. APPEAL OF HARRY S. FLEISHMAN, JR., FOSTER S. GOLDMAN AND FOSTER S. GOLDMAN, JR.
No. 79 March Term, 1977, Appeal from the Final Decree of Court of Common Pleas of Allegheny County, Orphans' Court Division, at No. 2821-B of 1955.
Bernard Eisen, Foster S. Goldman, Jr., Berkman, Ruslander, Pohl, Lieber & Engel, Pittsburgh, for appellant.
Robert G. Lovett, Pittsburgh, for Betty J. Cornell, beneficiary under Will of Mildred S. Fleishman.
S. Allen Vatz, Pittsburgh, for Mellon Bank, N.A., trustee under Will of Harry S. Fleishman.
Abraham Pervin, Pittsburgh, for Mellon Bank, N.A., trustee under Will of Mildred S. Fleishman.
Eagen, C. J., and O'Brien, Roberts, Pomeroy, Nix, Manderino and Larsen, JJ.
[ 479 Pa. Page 571]
OPINION OF THE COURT
In this appeal,*fn1 we affirm the decree of the Orphans' Court Division of the Court of Common Pleas of Allegheny County directing testator Harry Fleishman's residuary estate to pay additional inheritance tax owed the Commonwealth.
Harry Fleishman died testate in 1955. In Article THIRTEENTH of his will, Testator established a marital trust for the benefit of his wife Mildred:
"THIRTEENTH: If my wife, MILDRED S. FLEISHMAN, survives me or is presumed to have survived me, as hereinafter provided, I give, devise and bequeath to MELLON NATIONAL BANK AND TRUST COMPANY [(Mellon Bank)], IN TRUST, an amount equal to one-third (1/3) the value of my adjusted gross estate as finally determined for Federal estate tax purposes. This amount, undiminished and unaffected by any estate, inheritance, transfer, or succession taxes, shall be paid by my executors to the said Trustee, either in cash or in kind, or partly in cash and partly in kind, at the values finally determined
[ 479 Pa. Page 572]
for Federal estate tax purposes, to be held upon the terms and conditions hereinafter set forth."
Testator directed Mellon Bank to pay Mildred income quarterly for life and authorized it, in its discretion, to invade principal to provide adequately for her. Testator further directed Mellon Bank to pay over principal upon Mildred's death to whomever Mildred in her will appointed.
In Article FIFTH, Testator bequeathed various items of personal property to Mildred. In other articles, testator bequeathed personal property and sums of cash, both outright and in trust, to named relatives. Article FIFTEENTH disposed of the residue of testator's estate.*fn2
In 1956, the Commonwealth imposed an inheritance tax of $11,000 on the value of testator's bequests and reserved the right to assess additional tax if persons other than testator's "lineal heirs" received remainder interests in the bequests.*fn3 Testator's executors paid the inheritance tax from his residuary estate.
Testator's wife, Mildred, died testate in 1974. In her will, Mildred appointed the corpus of the marital trust to appellee Betty Cornell (her daughter by previous marriage) and grandchildren (also by previous marriage). The Commonwealth filed a second inheritance tax claim to collect the
[ 479 Pa. Page 573]
additional tax of $10,000 owed because of Mildred's appointment to heirs "collateral" to testator.*fn4
Article FOURTEENTH of testator Harry Fleishman's will provided:
"FOURTEENTH: I direct my Executors, hereinafter named, to pay out of the principal of my residuary estate, passing under Article Fifteenth hereof, all estate, inheritance, transfer and succession taxes, imposed upon or payable with respect to any property or interest in property which may be included as part of my estate for the purposes of said taxes, at such time and in such manner as my Executors in their sole discretion shall determine, and no part thereof shall be collected from or pro-rated among any persons receiving or in possession of, or receiving the benefit of, the property or interest in property taxed; it being my particular intention that the bequest to my wife under Article Fifth hereof and the bequest and devise for the benefit of my wife under Article Thirteenth hereof shall be free of all such taxes. In the absolute discretion of my Executors, such taxes may be paid immediately, or the payment of taxes on future or remainder interests under the residuary clause hereof may be postponed until the time possession thereof accrues to the beneficiaries, in which event such taxes shall be paid out of the principal of the trust subject thereto."
Upon Mellon Bank's Petition For Distribution of testator's marital trust, the orphans' court concluded that this tax
[ 479 Pa. Page 574]
clause manifests testator's intent that his residuary estate, not Mildred's, pay the additional tax. The orphans' court decreed accordingly and appellants Harry Fleishman, Jr., Foster Goldman, and Foster Goldman, Jr., beneficiaries of testator's residuary trusts,*fn5 appeal.*fn6
[ 479 Pa. Page 575]
Appellants argue that Article FOURTEENTH of testator Harry Fleishman's will, directing his executors to pay "all . . . inheritance . . . taxes" out of his residuary estate and stating his "particular intention" that the "bequest and devise for the benefit of [his] wife . . . shall be free of all such taxes," is not sufficiently explicit to justify the conclusion that testator intended his residuary estate to bear the burden of additional inheritance tax owed in the event Mildred appointed to collateral heirs. They contend that, had testator wished his children and grandchildren, residuary legatees, to pay taxes on property Mildred appointed to persons unrelated to testator, he would have expressly so provided. Accordingly, relying upon the "source of payment" section of the Inheritance and Estate Tax Act of 1961,*fn7 § 718(c), 72 P.S. § 2485-718(c), which places the "ultimate liability for inheritance tax . . . upon each transferee" where no contrary intent appears in "the will or other instrument of transfer," appellants argue that the residuary estate should be relieved of tax liability.*fn8
While the law presumes that testators most likely want transferees of bequests to bear attendant inheritance tax burdens, testators are free to allocate the burdens otherwise. E. g., Lander Estate, 416 Pa. 605, 207 A.2d 753 (1965); Horn Estate, 351 Pa. 131, 40 A.2d 471 (1945); accord, Inheritance
[ 479 Pa. Page 576]
and Estate Tax Act of 1961, § 718, 72 P.S. § 2485-718 (authorizing testators dying on or after January 1, 1962, to allocate tax burdens in manner other than that prescribed by statutory presumptions); Kleinhans Estate, 454 Pa. 539, 312 A.2d 366 (1973) (interpreting § 718(c) of Act); Zellefrow Estate, 450 Pa. 302, 299 A.2d 248 (1973) (interpreting § 718(a) of Act); cf. Neamand Estate, 456 Pa. 22, 318 A.2d 730 (1974) (same rule for apportionment of estate taxes); see generally II Casner, Estate Planning Ch. XIX Part 4 (3d ed. 1961). A testator's intent to allocate inheritance tax in a particular fashion "must be unambiguous and open to no other interpretation." Noteboom Estate, 473 Pa. 32, 38, 373 A.2d 737, 739 (1977) (interpreting tax clause in inter vivos deed of trust), quoting Erieg Estate, 439 Pa. 550, 556, 267 A.2d 841, 845 (1970); accord, e. g., Lander Estate, supra (citing cases).
Article FOURTEENTH of testator's will unambiguously demonstrates testator intended his residuary estate to bear the burden of all inheritance tax owed the Commonwealth, including the additional taxes at issue here. Testator directed that the residuary estate bear the burden of "all" taxes "imposed upon" "any property or interest in property which may be included as part of [his] estate" for purposes of taxation, which included the property Mildred's appointment transferred. See supra note 4. Any doubt that "any property" included property transferred through Mildred's exercise is resolved when it is considered that testator authorized his executors to pay the taxes "at such time and in such manner as [they] in their sole discretion shall determine." Thus, testator contemplated that certain transfer taxes would be payable both at and after death. Under applicable inheritance tax laws, these transfer taxes included those on property transferred through powers of appointment. Act of June 20, 1919, P.S. 521, § 3, 72 P.S. § 2304 (1964); Carver Estate, 422 Pa. 609, 222 A.2d 882 (1966).
Moreover, testator's tax clause contains two express provisions exonerating from taxation transferred property subject
[ 479 Pa. Page 577]
to transfer tax. First, testator directed that "no part [of the tax payments] shall be collected from or pro-rated among any persons receiving or in possession of, or receiving the benefit of the property or interest in property taxed." Further, with unmistakeable clarity, testator stated his "particular intention that the bequest to [his] wife under Article Fifth hereof [(bequeathing Mildred personal property)] and the bequest and devise for the benefit of [Mildred] under Article Thirteenth hereof [(creating the marital trust and power of appointment)] shall be free of all such taxes." Testator's wish that "any persons receiving the benefit of property" subject to tax should not bear the tax burden surely encompassed Mildred's appointees, for they gained through the appointment. Also, knowing Mildred would benefit from not only her lifetime interest in the trust but also the general power of appointment, testator used the terms "for the benefit of my wife," language unambiguously broad enough to relieve the entire transfer to Mildred of the burden of inheritance tax.
That the burden of additional inheritance tax falls upon testator's relatives, while "collateral heirs" enjoy the transferred property free of tax, does not alter testator's express intention that his residuary estate bear the tax burden. In clear, absolute, and definite terms, testator directed the source of payment of "all taxes" on "any property" "which may be included as part of [his] estate" and "no part thereof shall be collected from or pro-rated among any persons receiving or in possession of, or receiving the benefit of, the property or interest in property taxed." His intent must prevail.*fn9
[ 479 Pa. Page 578]
Appellants next contend that, notwithstanding any of the language in the tax clause of Harry Fleishman's will, his wife, in the tax clause of her will, assumed responsibility for inheritance taxes payable because of her appointment to heirs "collateral" to testator. Appellants have not cited, nor can we find, any decision of this Court authorizing the donee of a power of appointment to alter a donor-testator's express direction that his residuary estate pay "all taxes." Though the donee exercises a power and appointees benefit by its exercise, the donor's estate is the subject of tax, see supra note 4, and therefore it is the donor's intent which controls. See text supra; Inheritance and Estate Tax Act of 1961, § 718, 72 P.S. § 2485-718 (inquiry in determining where burden of inheritance tax falls first focuses on "will" or "other instrument of transfer"). Indeed, to accept appellants' contrary contention is to ignore testator's careful testamentary plan.*fn10
Decree affirmed. Each party pay own costs.