On appeal from Superior Court, Chancery Division, to the Appellate Division, certified by the Supreme Court on its own motion, prior to hearing in the Appellate Division.
For reversal -- Chief Justice Vanderbilt, and Justices Heher, Wachenfeld, Burling, Jacobs and Brennan. For affirmance -- Justice Oliphant. The opinion of the court was delivered by Burling, J.
Plaintiffs, as substituted administrators c.t.a. and substituted trustees under the will of Henry Welsh Rogers, sought reimbursement of a proportionate share of federal and state death duties on testator's taxable estate from the defendant-appellant, Josephine Chesney McCann (hereinafter referred to as Josephine McCann). The latter had been the recipient of several inter vivos gifts which, upon the death of the donor, constituted a portion of his taxable estate. Plaintiffs were successful in the trial court and Josephine McCann addressed an appeal to the Superior Court, Appellate Division. We certified the cause prior to an appellate review below.
Henry Welsh Rogers, a resident of West Orange, New Jersey, died testate on January 22, 1951. Under the terms of his will, dated July 18, 1950, and duly admitted to probate, the testator bequeathed to Josephine McCann all his personal property and real estate, excepting money or securities. A proviso directed that if he conveyed the real estate to a corporation during his lifetime she was to have all the corporate stock. The bulk of the estate was designed to fall within the operation of the residuary clause by which a trust was created to benefit Josephine McCann for life and thence to support certain scholarships to be established by Princeton University and Columbia University.
The value of the gross estate was approximately $1,300,000. This figure includes the value of the following gifts which Henry Welsh Rogers made to Josephine McCann during the latter years of his life:
1. In September, 1943, a gift of $5,000 United States Savings Bonds, Series "G", registered in the name of "Henry Welsh Rogers p/oø Josephine Chesney Sorensen" (defendant-appellant's former name).
2. On August 10, 1950, a gift of 7 1/2 shares of H.W.R. Inc., stock, valued for death tax purposes at $36,248.45. (Rogers had organized this corporation and conveyed his real property to the entity. The gift represented one-half of the corporate stock outstanding.)
3. On December 27, 1950, a gift of $60,000 in cash.
Plaintiffs or their predecessors have paid federal estate and state transfer inheritance taxes upon these inter vivos gifts and by this action sought reimbursement from Josephine McCann. Their cause is supported by the trustees of the two universities having a remainder interest in the testamentary trust. Josephine McCann denied liability, contending that the testator intended all death duties to be paid from the residuary estate.
The fifteenth paragraph of the will of Henry Welsh Rogers contained the following direction:
"I direct that any and all inheritance, estate and transfer taxes that may be imposed upon my estate or any part thereof, or any estate or any interest herein given, by the State of New Jersey, or any other State, or by the United States, shall be paid out of the corpus or principal of my residuary estate; * * *"
The trial court considered it likely "that the will was executed with no thought of the possible taxes on the inter vivos transfers or gifts" and applied what was deemed to be an unyielding rule of construction to the phrase "upon my estate" which equates "estate" with property passing under the will. The "rule" has a further ramification to the effect that recipients of non-probate property are to bear the tax burden attributable to such transfers. The trial judge considered the rule "harsh" but considered his disposition governed by the cases of Morristown Trust Co. v. ...