WILMINGTON TRUST CO. et al.
COPELAND et al.
Caleb S. Layton and Charles F. Richards, of Richards, Layton & Finger, and William S. Potter, of Berl, Potter & Anderson, all of Wilmington, for plaintiffs.
Lammot duPont Copeland and Pamela Cunningham Copeland, defendants, in propria persona.
Alexander L. Nichols, of Morris, Steel, Nichols & Arsht, of Wilmington, for defendants Lammot duPont Copeland, Jr., Louisa D'Andelot Copeland, Gerret Van Sweringen Copeland and Wilmington Trust Company, trustee.
The plaintiffs are the executors under the will of Charles Copeland, deceased. Pursuant to the provisions [33 Del.Ch. 98] of the Delaware Apportionment Statute , the plaintiffs seek proration of the Federal and Delaware estate taxes which have been levied against the estate of Charles Copeland and which have been paid by them as executors.
Insofar as need be stated here, the uncontroverted facts are these:
Charles Copeland died on February 3, 1944. His will, dated December 16, 1942, was duly probated and the plaintiffs qualified as executors thereunder. The plaintiffs filed Federal and Delaware estate tax returns and, in various remittances made in 1945, 1948, 1949 and 1951, they paid the estate taxes, both Federal and State, as ultimately levied and assessed upon the gross estate of the decedent. In the assessment of such taxes, the authorities included in the gross estate of the decedent the value of certain securities which had been transferred to the Wilmington Trust Company, as trustee, under a trust agreement with Charles Copeland, as trustor, dated April 4, 1930. The individual defendants are the beneficiaries of the trust created by that agreement.
The trust agreement of 1930 established a funded life insurance trust. Certain securities were transferred to the trustee together with certain life insurance policies. Under the agreement, the trustee was required to use the income from the securities for the purpose of paying the premiums on the insurance policies. Upon the death of the trustor, the trustee was
[33 Del.Ch. 99] It is agreed that 22.98179305% of the estate taxes paid was attributable to the requirement that the gross estate include property transferred under the trust agreement of 1930. Otherwise stated, the estate tax burden was increased substantially by reason of the requirement that the gross estate include the value of the securities involved in the inter vivos transfer.
The plaintiffs contend that the Apportionment Statute applies, that the trust estate is chargeable with the stated percentage of the taxes paid, and that the Wilmington Trust Company, as trustee, and the individual defendants, as beneficiaries of the trust, should be required now to pay their equitable portion of the estate taxes in accordance with the Statute.
The defendants, Lammot duPont Copeland and Pamela Cunningham Copeland, by their answer filed, admit the factual allegations of the petition and take a neutral position regarding the legal questions involved . The other defendants, by their answer filed, admit the factual allegations of the petition, but raise the following legal issues:
1. The will of Charles Copeland and the trust agreement of 1930 provide for allocation of estate taxes in a manner different from that provided by the Apportionment Statute and, therefore, the Apportionment Statute is not applicable to the trust estate.
2. Application of the Apportionment Statute to the trust estate would violate the due process clause and the equal protection clause of the Fourteenth Amendment to the Federal Constitution.
3. In any event, the Apportionment Statute may not be invoked with respect to estate taxes due and payable prior to the effective date of the Statute.
My conclusions upon the two following questions dispose of the cause in this Court:
I. Is the application of the Apportionment Statute to the trust estate barred by the trust agreement or the will?
[33 Del.Ch. 100] II. Is the application of the Apportionment Statute to the trust estate barred by the Fourteenth Amendment to the Constitution of the United States?
I. The Trust Agreement and The Will
Section 1(c) of the Apportionment Statute of 1949 provides that the Statute 'shall not apply where and to the extent that a testator provides in his will for another method of apportionment or allocation' of estate taxes 'or where and to the extent that the written terms of an inter vivos transfer provide for another method of apportionment or allocation of such taxes which may be imposed with respect to the specific fund so transferred'.
The method of apportionment or allocation of estate taxes enforceable under the Apportionment Statute may be stated to be the equitable proration of the tax paid among those persons interested in the estate and to whom property, which has been required to be included in the gross estate, is or may be transferred or to whom any benefit accrues. The Statute provides:
'* * *. Such proration shall be made in the proportion, as near as may be, that the value of the property, interest or benefit of each such person bears to the total value of the property, interests, and benefits received by all such persons interested in the estate
except that in making such proration allowances shall be made for any exemptions granted by the Act imposing the tax and for any deductions allowed by such Act for the purpose of arriving at the value of the net estate; and except that in cases where a trust is created, or other provision made whereby any person is given an interest in income or an estate for years, or for life, or other temporary interest in any property or fund, the tax on both such temporary interest and on the remainder thereafter shall be charged against and be paid out of the corpus of such property or fund without apportionment between remainders and temporary estates. For the purposes of this Section the term 'persons interested in the estate' shall with respect to both State and Federal Taxes include all persons who may be entitled to receive or who have received any property or interest which is required to be included in the gross estate of a decedent, or any benefit whatsoever with respect to any such property or interest, whether under a will or intestacy, or by reason of any transfer, trust, estate, interest, right, power, or relinquishment of power taxable under any of the aforementioned laws providing for the levy or assessment of estate taxes.'
Hence, the subordinate question here is whether, by the provisions of the trust agreement or of the will, the decedent indicated his intent that the trust estate and its beneficiaries be relieved of all or any part of the burden of estate taxes.
[33 Del.Ch. 101] The defendants contend that provisions of the will and of the trust agreement bring this case within the exception created by Section 1(c) of the Statute. They assert that the two documents manifest the intention of Charles Copeland that all estate taxes be borne by the residue of his testamentary estate and that, since the will and the trust agreement thus provide for another method of apportionment, the provisions of the Apportionment Statute are not applicable to the trust ...