Plaintiff, Herman Goldman, executor under the will of Louise G. Aldrich, deceased, seeks advice and instruction of the Court relating to the payment of taxes under the New Jersey Transfer Inheritance Tax Act, and the Federal Estate Tax Act.
The facts are stipulated and such as are pertinent, may be briefly summarized as follows:
The decedent entered into an inter vivos agreement of trust dated June 3, 1942, the entire principal of which was included in the gross taxable estate of the decedent for Federal Estate tax purposes and also for New Jersey Transfer Inheritance tax purposes. The will contains no provision relating to the payment of estate or inheritance taxes. The New Jersey Transfer Inheritance tax based upon the vested life interests in the trust has been allocated and charged against the trust and the allocation thereof appears in Schedule K of the accounting of the executor. The executor has paid out of the estate the amount of the Federal Estate tax allocable to the inclusion of the 1942 trust and also the amount of the New Jersey Inheritance tax, as compromised, applicable to the contingent remainder interests under the trust.
Plaintiff is likewise the sole trustee of the said inter vivos trust of June 3, 1942. In a proceeding for the judicial settlement of the account of the said trustee, in the Supreme Court for the County of New York, State of New York (the situs of the said trust) the trustee requested the advice of said Court as to the responsibility of the trustee in the event that he should be required to reimburse himself as executor of the estate with the amount of the Federal Estate Tax and New Jersey Transfer Inheritance tax arising from the inclusion of the principal of the trust in the gross taxable estate. The New York Supreme Court in settling the account of the trustee by order authorized the trustee "to pay to the Executor of the estate of
LOUISE G. ALDRICH, deceased, an amount equal to so much of the Federal Estate tax, the New Jersey Transfer Inheritance tax and the New Jersey Estate tax, if any, hereafter determined to be due and payable and which shall have been paid by the Estate of Louise G. Aldrich as shall be equitably chargeable against the said trust under agreement of June 3, 1942 by reason of the inclusion of the corpus of the said trust in the gross taxable estate of the said LOUISE G. ALDRICH for Federal Estate and New Jersey Transfer Inheritance and Estate Tax purposes * * *."
The tax imposed under the provisions of the New Jersey Transfer Inheritance Tax Act is a tax upon the right of succession to the property of the testator or intestate, and is calculated on the legacies or distributive shares. The tax under the provisions of the Federal Estate Tax Act is a tax imposed upon the net estate of the testator or intestate and is calculated on the net estate. That is the distinction between the two taxes.
The matter presented has been the subject considered in a number of reported decisions in our State.
In Gaede v. Carroll , 114 N.J. Eq. 524, 169 A. 172, it was determined that the widow of the testator was chargeable for federal estate taxes paid by the executor on the value of certain real property, title to which was in the testator and his wife as tenants by the entirety. There the will directed that any and all inheritance taxes whatsoever levied or assessed against the share given therein by any of the provisions to his wife be paid out of his estate, it being his intention that the bequest or provisions to her for her benefit should go to her free from any and all inheritance and other taxes. The Court said:
"With respect to the tax on the estate by the entirety, we feel that the provision of clause 9 of the will likewise controls. The federal statute provides that no apportionment of the tax among persons liable shall be made by the taxing authority. The cases hold that this is a matter for settlement in the state courts. Edwards v. Slocum , 287 Fed. Rep. 651, affirmed, 264 U.S. 61, 68 L. Ed. 564. It has been held in Massachusetts that, 'where no other provision is made, taxes must be paid out of the residue of the estate.' Bemis v. Converse , 246 Mass. 131, 140 N.E. Rep. 686. However, in the instant case there is another provision, because the fair interpretation
of the ninth clause of the will is that the residue is made liable for all taxes on provisions made for the wife by the will, and for nothing else in the way of taxes for her benefit. Mrs. Carroll, of course, took nothing by the will with respect to the real estate held by her and her husband as tenants by entireties. Her estate was not enlarged by the death of her husband, but she became entitled to the use and enjoyment of the whole. Den v. Hardenbergh , 10 N.J. Law 49. So that, without deciding what the result might be if there were no expression in the will, we ...