This is a suit brought by the executors of the estate of Alfred E. Vondermuhll against the trustees and beneficiaries of a trust created on August 19, 1931, by Mary A. Vondermuhll, seeking reimbursement from the trust for federal estate taxes and interest and New Jersey estate taxes which the executors are required to pay by reason of the inclusion of the trust in the taxable estate of the decedent.
The essential facts which have been stipulated by the parties in the pretrial order are as follows:
Alfred E. Vondermuhll died a resident of Monmouth County on June 5, 1947, leaving a will, admitted to probate by the surrogate of Monmouth County, in which he named the plaintiffs executors.
On July 17, 1920, Alfred Vondermuhll had executed a trust agreement providing in essence for a life estate for his mother, Anna Vondermuhll-Hoffman, with a reversion in himself. By agreement of all of the interested parties this trust was revoked on August 18, 1931, and all of the assets were turned over to Mary A. Vondermuhll, the wife of
Alfred E. Vondermuhll. On the next day she created a trust providing for a life estate for Anna Vondermuhll-Hoffman, a remainder for life in herself, and remainders over for life in part to Alfred E. Vondermuhll, and in part to the three children of Alfred E. Vondermuhll, who are defendants in this action but who have not answered. This agreement further provides for a general testamentary power of appointment of the remainder for each child with gifts over to those persons who would take under the intestate laws of New Jersey in the event of failure to exercise the power of appointment. Those persons are the spouses of the three children who are also defendants in this action and have defaulted, and the minor children of the three children who are also defendants and are represented in this action by a guardian ad litem.
The plaintiffs filed a New Jersey inheritance tax return, paying a small tax of $21.31, and a federal estate tax return showing no tax to be due. In the audit of the federal estate tax return, however, the value of the assets in the trust of August 19, 1931, $451,941.82, was included in the taxable estate on the ground that it represented the exercise of a power of appointment reserved in the July 17, 1920 trust, or in the alternative as a transfer intended to take effect in possession or enjoyment at or after death, since in either case the decedent was deemed to be the grantor of the trust. The other taxable assets in the net estate included life insurance amounting to $42,976.28 and a general estate of $10,572.85, a total of $53,549.13. With the trust included the net taxable estate was found to be $505,491.45. The inclusion of this trust in the decedent's taxable estate resulted in a deficiency tax assessment of $118,037.60. Interest at the rate of six per cent per annum is running on this tax from September 5, 1948.
The taxing of this trust resulted also in the bringing into being of a New Jersey estate tax in the amount of $10,219.66. Both the New Jersey estate tax and the federal estate tax deficiency with interest remain unpaid.
The right of executors to contribution for death taxes paid by them on assets not passing under the will has been the subject of much litigation in New Jersey. As a result of this litigation there has arisen the general proposition that such taxes are payable from the residuary estate unless the will provides otherwise. See Goldman v. Goldman , 2 N.J. Super. 412, 418 (Ch. Div. 1949).
In determining whether a testator has indicated an intention that the taxes shall not be payable entirely from his residuary estate, but shall be apportioned among the various beneficiaries, the courts have most frequently found such an intention where the testator has provided for the payment from his residuary estate of taxes on certain items, but has not mentioned other items. The rationale of these decisions is that the testator by specifying that certain taxes shall be paid from his residuary estate intended that other taxes or taxes on other assets should not be paid by his residuary estate. The leading cases on this subject are Gaede v. Carroll , 114 N.J. Eq. 524 (E. & A. 1933); Commercial Trust Co. v. Millard , 122 N.J. Eq. 290 (Ch. 1937); Fidelity Union Trust Co. v. Suydam , 125 N.J. Eq. 458 (Ch. 1939); Morristown Trust Co. v. Childs , 128 N.J. Eq. 524 (Ch. 1940); Commercial Trust Co. of New Jersey v. Thurber , 136 N.J. Eq. 471 (Ch. 1945), affirmed 137 N.J. Eq. 457 (E. & A. 1946); Brauburger v. Sheridan , 7 N.J. Super. 576 (Ch. Div. 1950).
The question of contribution has most frequently arisen in three situations: (1) where decedent and his wife owned real estate as tenants by the entirety; (2) where decedent left life insurance payable to a named beneficiary; and (3) where gifts (particularly inter vivos trusts) have been included in the taxable estate ...