WILMINGTON TRUST CO. et al.
COPELAND et al.
Petition by executors against beneficiaries of inter vivos trust for proration of estate taxes. The Orphans' Court, New Castle County, 91 A.2d 200, entered an order denying the petition, and petitioners appealed. The Supreme Court, Southerland, C. J., held, inter alia, that the statute providing for apportionment of estate taxes among those interested in the estate was merely declaratory of existing law, and, therefore, retroactive application of such statute to the inter vivos trust estate would not be violative of the due process and equal protection clauses of the federal constitution.
Reversed and remanded with directions.
Although part of estate taxes paid by executor were paid prior to enactment of act providing for apportionment of estate taxes among persons interested in the estate, beneficiaries of inter vivos trust, principal of which was included in gross estate of decedent, would be required to pay their proportionate share of entire amount of estate taxes.
[33 Del.Ch. 401] Appeal from an order of the Orphans' Court of New Castle County denying a petition for the apportionment of estate taxes. Reversed and remanded.
Caleb S. Layton, Charles F. Richards and William S. Potter, of Wilmington, for appellants.
Alexander L. Nichols, of Wilmington, for appellees Lammot duPont Copeland, Jr., Louisa D'Andelot Copeland, Gerret Van Sweringen Copeland and Wilmington Trust Co., trustee under an agreement dated April 4, 1930.
SOUTHERLAND, C. J., and WOLCOTT and TUNNELL, JJ., sitting.
SOUTHERLAND, Chief Justice.
This case presents the question whether the estate of the late Charles Copeland is subject to the provisions of the Act of April 2, 1947, as amended, which directs, in the absence of contrary instructions from a decedent, an equitable apportionment of the liability for the payment of estate taxes; and if subject to the act, to what extent.
The facts are these:
On April 4, 1930, Charles Copeland, a resident of New Castle County, Delaware, transferred to Wilmington Trust Company certain insurance policies on his life and certain securities, in trust to apply the income from such securities to the payment of the premiums due on the policies, and upon the death of the settlor to hold the proceeds of the policies upon further trusts for the benefit of the settlor's son, and of the son's widow and children.
[33 Del.Ch. 402] On December 16, 1942, Mr. Copeland (herein ‘ the decedent’ ) executed his will. On February 3, 1944, he died. The will was duly proved, and the plaintiffs duly qualified as executors thereof.
On April 13, 1945, the executors filed a federal estate tax return, and paid an estate tax of $5,605,870.11. On June 29, 1945, the Delaware estate tax return was filed and a tax of $700,000 was paid. The federal return reported the fact of the 1930 transfer in trust, above described, but did not include the property so transferred as a part of the gross estate of the decedent.
On April 2, 1947, there was passed the apportionment act, Vol. 46 Laws of Del. Ch. 119, amended on July 1, 1949, in respects not here pertinent, Vol. 47 Laws of Del. Ch. 405.
By letter of April 9, 1948, the Commissioner of Internal Revenue claimed a deficiency in federal estate taxes of upwards of $9,000,000. The proposed assessment of additional taxes was predicated chiefly upon a determination that there should be included in the gross estate of decedent the value of the property in the 1930 trust, as well as other property transferred by decedent in his lifetime. As to the 1930 trust the Commissioner claimed that the corpus thereof was includible under the provisions of one or more of certain sections of the Internal Revenue Code, Secs. 811(c), 811(d), and 811(g), 26 U.S.C.A. § 811(c, d, g).
The executors opposed the assessment and filed a petition in the Tax Court seeking
a redetermination of the deficiency. Thereafter a settlement of the matter was reached. The valuation of the testamentary estate was increased from $11,324,447.53 (as returned by the executors) to $11,552,906.59, and there was added to the value of the gross estate a percentage of the value of a part of the corpus of the 1930 trust, such additional value amounting to $3,447,321.31. On June 15, 1951, a judgment was entered in the Tax Court determining a deficiency in federal estate taxes in the sum of $3,332,505.40.
The executors have paid in full all federal and state estate taxes. Payments made before April 2, 1947, amounted to the sum of $6,305,870.11; payments after that date, to the sum of $3,119,574.35. On February 1, 1952, the executors petitioned the Orphans' [33 Del.Ch. 403] Court for an equitable apportionment of the entire amount. Showing that the proportion which the value of the nonprobate estate bears to the total value of the gross estate (after allowances and deductions) is 22.98179305 per cent, the executors sought to charge the corpus of the 1930 trust with the payment of a sum equal to .2298179305 of the total federal and state estate taxes, that is, with the sum of $2,166,973.99. The trustee of the 1930 trust (herein ‘ the trustee’ ) and the guardian of the minor defendants (the children of Lammot duPont Copeland, son of the decedent) resisted the application.
The court below denied the petition upon the authority of the decision in Equitable Trust Co. v. Richards, 31 Del.Ch. 564, 73 A.2d 437, which holds that the apportionment act, though by its terms retroactive, may not constitutionally be applied to estates of decedents dying prior to the date of its enactment. See Del.Orph.Ct., 91 A.2d 200. The executors have appealed.
In the court below the defendants made three contentions in opposing the relief sought and renew them here. They are as follows:
I. That the provisions of the decedent's will and of the 1930 trust agreement provide, at least by implication, for payment of all estate taxes from his residuary estate, and hence the apportionment act does not apply.
II. That to apply the apportionment act to the case would violate the due process clause and the equal protection clause of the Fourteenth Amendment to the federal Constitution.
III. That, even if the apportionment act may constitutionally be applied to the case, its application is by its terms limited to an apportionment of that part of the estate taxes ...