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Equitable Trust Co. v. Richards

Orphans' Court of Delaware, New Castle County

May 5, 1950

EQUITABLE TRUST CO. et al.
v.
RICHARDS et al. EQUITABLE TRUST CO.
v.
NOBLE et al.

Page 438

[31 Del.Ch. 566] Petitions by the executors of Elizabeth M. Richards, deceased, and by the executor of Florence Mae Ely Beacom, deceased, pursuant to Chapter 119, Volume 46 Laws of Delaware, seeking an equitable proration of the federal estate taxes paid by them from the residuary personal property of the decedents among the persons to whom any benefits accrued at their respective deaths.

The proceedings were in the nature of petitions for instructions, and both cases were argued together.

The following respondents appeared and answered the petition of the executors of Elizabeth M. Richards, deceased, either denying or asserting the right of this court to prorate the taxes paid:

1. Rebecca F. McDonald and Phebe C. McDonald.

2. Equitable Trust Company, Trustee under an agreement of trust, dated February 20, 1935, between Elizabeth M. Richards and Equitable Trust Company, as amended.

3. Equitable Trust Company, Trustee under the will of Elizabeth M. Richards, deceased, of trusts for (1) Ruth Weir, (2) Edward L. Richards, Jr., (3) Taylor W. Richards, (4) Hanna R. Thompson, Elizabeth Van Hart, Ruth Thompson Grassman and Edith Thompson Cauffman, and (5) Rebecca F. McDonald and Phebe C. McDonald.

[31 Del.Ch. 567] 4. Trustees of Philadelphia Yearly Meeting of Friends, a corporation of the State of Pennsylvania, Trustee under the will of Elizabeth M. Richards, of a contingent remainder interest for George School, Bucks County, Pennsylvania, under the trust created by Item 17 of the will, and American Friends Service Committee, a corporation of the State of Pennsylvania, remainderman of the trust created under Item 17 and contingent remainderman of the trust created under the same item.

An answer was filed by Equitable Trust Company, Trustee of the residuary estate of Florence Mae Ely Beacom, deceased, for the benefit of her husband, William H. Beacom, during his lifetime, denying the right of this court to prorate the federal estate tax paid.

Other respondents in that proceeding failed to appear.

[31 Del.Ch. 565] Clement C. Wood, Wilmington, for Equitable Trust Co. and Edward L. Richards, Jr., executors of the last will and testament of Elizabeth M. Richards, deceased.

William H. Foulk, Wilmington, for Rebecca F. McDonald and Phebe C. McDonald, equitable life beneficiaries of the residue of decedent's testamentary estate.

Caleb S. Layton, Wilmington, for Equitable Trust Co., trustee under the trust agreement executed by Elizabeth M. Richards on February 20, 1935.

Henry M. Canby, Wilmington, for Equitable Trust Co., trustee under the last will and testament of Elizabeth M. Richards, deceased.

Albert J. Stiftel, Wilmington, guardian ad litem for Jack Van Hart and T. George Van Hart, minors, interested under the will of Elizabeth M. Richards, deceased.

William Poole, Wilmington, and Sanford D. Beecher, of Duane, Morris & Hecksher, Philadelphia, Pa., for American Friends Service Committee, Inc., and Trustees of Philadelphia Yearly Meeting of Friends.

Clarence A. Southerland, Wilmington, filed a brief as amicus curiae [31 Del.Ch. 566] in the Richards case in support of the entry of an order pursuant to the prayers of the petitions.

Caleb S. Layton, Wilmington, for Equitable Trust Co., executor of the last will and testament of Florence Mae Ely Beacom, deceased, one of the petitioners.

Henry M. Canby, Wilmington, for Equitable Trust Co., trustee under the last will and testament of Florence Mae Ely Beacom, deceased.

E. Ennalls Berl and James L. Latchum, Wilmington, for Equitable Trust Co., trustee for William H. Beacom and others.

HARRINGTON, President Judge.

The question is whether the Delaware act, Chapt. 119, Vol. 46 Laws of Del., providing for the equitable proration of federal

Page 439

[31 Del.Ch. 568] Elizabeth M. Richards bequeathed specific legacies amounting to $13,861.50 to her sisters, Rebecca F. McDonald and Phebe C. McDonald. She devised and bequeathed the residue and remainder of her estate to Equitable Trust Company, in trust, to pay the net income to her said two sisters during their lives, and the life of the survivor. Upon the death of both, the trustee was directed to pay the fund, discharged of the trust, to American Friends Service Committee, Inc., Philadelphia, Pennsylvania. Ultimate contingent rights in remainder in other trust funds were given to Trustees of Philadelphia Yearly Meeting of Friends, a corporation of the State of Pennsylvania, to be used for the benefit of George School in Bucks County, Pennsylvania, American Friends Service Committee, Inc., of Philadelphia, and The Friends Home, Kennett Square, Pennsylvania.

Florence May Ely Beacom devised and bequeathed the remainder of her estate to Equitable Trust Company, in trust, to pay the income therefrom to her husband, William H. Beacom, during his lifetime. There were various directions with respect to the disposition of both income and portions of the principal at his death, but The Home of The Merciful Rest Society, the Masonic Home of Delaware, Inc., and Minquadale Home were the ultimate contingent beneficiaries in remainder of portions of the fund.

The Internal Revenue Act imposes a tax upon the 'net estate' of a person dying after its enactment, Title 26 U.S.C.A. Chapt. 3, §§ 810-812, which 'shall be paid by the executor to the collector.' 26 U.S.C.A. § 822(b), supra. It also provides: 'So far as practicable and unless otherwise directed by the will * * * the tax shall be paid out of the estate before its distribution.' § 826(b).

If the tax is not paid, with certain exceptions which need not be considered, it remains a lien upon the decedent's 'gross estate' for ten years. § 827(a), (b). Moreover, [31 Del.Ch. 569] under the provisions of Section 826(b) the Tax Commissioner is 'not hampered by those equitable rules ordinarily inherent in imposing transferee liability and is not required to exhaust the assets of the estate before taking steps to collect a tax from a transferee of taxable property.' Equitable Trust Company, Trustee & Transferee v. Com'rs, 13 T.C. 731. But if any of the tax is collected from persons having possession of a part of the decedent's gross estate, reimbursement from the executors can be compelled if there are assets. 26 U.S.C.A. § 826(a), supra.

Both Elizabeth M. Richards and Florence Mae Ely Beacom died possessed of considerable personal property which passed to their executors for distribution to legatees after the payment of debts and charges. It is conceded that other personal property which did not pass to their executors composed a part of their gross taxable estates under the Internal Revenue Act. On the death of Elizabeth M. Richards, her surviving sisters, Rebecca F. McDonald and Phebe C. McDonald became the owners and possessors of the following non-testamentary personal property:

   (1) U.S. Defense Bonds, Series E and G, jointly owned with the       $3,879.51
     decedent, in the face amount of $4500 but having a value at her
     death of
   (2) The balance in a joint bank account with the decedent amounting  9,713.41
     to
   (3) U.S. Savings Bonds, Series E and G, in which they were           6,824.82
     designated as the payees on the death of the decedent, in the
     face amount of $6,000, but having a value at her death of
   (4) The proceeds of insurance policies on the life of the decedent   37,810.09
     amounting to
   (5) The remainder interest in a fund transferred by Elizabeth M.     22,188.64
     Richards during her lifetime to Equitable Trust Company, in
     trust, by deed dated February 20, 1935, on which she reserved the
     right to receive the income during her lifetime, amounting to
                                                                        $80,416.47
   

Page 440

Rebecca F. McDonald and Phebe C. McDonald also [31 Del.Ch. 570] ultimately received the specific legacies under the will of Elizabeth M. Richards above referred to, amounting to $13,861.50. On October 16, 1947, the executors of Elizabeth M. Richards filed a federal estate tax return which included the testamentary property in their hands as well as the non-testamentary property composing a part of the decedent's taxable gross estate and showed a tax due the United States of $83,165.77. The tax was paid and deducted from the decedent's residuary estate and the payment appears in an account thereafter passed by the executors before the Register of Wills for New Castle County. The balance in hand, amounting to $226,018.58, was paid to Equitable Trust Company, Trustee, in accordance with the directions of the residuary clause of the will.

It appeared from an agreed statement of facts, signed by Clement C. Wood, Esquire, attorney for the executors of Elizabeth M. Richards, deceased, and William Poole, Esquire, attorney for the Trustees of Philadelphia Yearly Meeting of Friends and American Friends Service Committee, Inc.: (1) that the Delaware state inheritance taxes, in the amount of $10,708.45, on the estate of Elizabeth M. Richards, deceased, were paid by the executors from the residuary estate of the said deceased on September 23, 1947, and (2) that the amount of the Delaware state inheritance taxes allowed as a credit against the federal estate taxes on the estate of Elizabeth M. Richards, deceased, under the provisions of Section 813(b) of the United States Internal Revenue Act was $6,296.19.

On the death of Florence Mae Ely Beacom, her husband, William H. Beacom, as the survivor immediately became the sole owner and possessor of the jointly owned non-testamentary personal property composing a part of the decedent's taxable gross estate in the amount of $13,972.11. On May 26, 1947, her executor filed the federal estate tax return which included both testamentary and non-testamentary property and paid a tax of $34,862.86 to the collector. [31 Del.Ch. 571] On March 8, 1948, an additional sum of $63.68, with $2.97 interest, was demanded and paid. These payments appeared in an account subsequently passed before the Register of Wills for New Castle County and were deducted from the decedent's residuary testamentary property in the hands of her executor. The balance in hand was paid to Equitable Trust Company, Trustee under the residuary clause of the decedent's will, but the amount paid does not appear.

With some unimportant exceptions [see Title 26, U.S.C.A. Chapt. 3, ยง 826(c), (d)], the Internal Revenue Act does not provide for the equitable proration of federal estate taxes paid by ...


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