Plaintiff-executor of the last will and testament of John A. Roebling, deceased, seeks a construction of the decedent's will as it relates to the apportionment of the ultimate burden of the federal estate tax levied or to be levied upon the estate by the United States Government. The action was dismissed as to the United States of America and two federal taxing officials on the ground of want of jurisdiction over the persons of said defendants, and the remaining defendants constitute all of the beneficiaries under the decedent's will against whose shares the burden of the federal estate tax might be apportioned. The case has been submitted on pretrial order, stipulations, memoranda of law and oral argument.
John A. Roebling, a resident of the Borough of Bernardsville, Somerset County, New Jersey, died on February 2, 1952, at the age of 84. The following beneficiaries survived him: his widow, Helen Price Roebling; a son, Donald Roebling; a grandson, Paul Roebling, child of testator's deceased son, Siegfried Roebling; and a daughter-in-law, Mary G. Roebling, mother of Paul Roebling. Helen Price
Roebling was the testator's second wife. No child was born of this marriage. By his last will and testament, executed on July 1, 1942, he gave to his widow his residence in Bernardsville, "Boulderwood," and certain of its furnishings and equipment. His daughter-in-law received a legacy of $250,000. The residuary estate was given outright in equal shares to the above-named son, grandson and widow.
While the precise value of the estate for federal estate tax purposes cannot be determined until certain issues, including the valuation of a large block of unlisted stock, are settled by the estate with the United States Internal Revenue Service, the pretrial order indicates that on the basis of the position presently taken by the Internal Revenue Service the estate will be valued at $15,198,884 before deductions for debts, administration expenses and taxes. On this basis the estate is $14,318,226.27 without, however, taking into account the marital deduction phase of the estate tax. The amounts of each beneficiary's interest in the net estate before taxes, as stipulated in the pretrial order, are as follows (the percentages are computed):
Helen Price Roebling $4,742,190.09 33.12%
Donald Roebling 4,663,018.09 32.57%
Paul Roebling 4,663,018.09 32.57%
Mary G. Roebling 250,000.00 1.74%
The widow's share is larger than those of the son and grandson because, in addition to a one-third interest in the residue, she also receives the residence and some of its tangible personalty, as mentioned above.
The determination of this case depends upon the construction of paragraph Eighth of the decedent's will. It reads as follows:
"Eighth: I further order and direct that each beneficiary under this my last Will and Testament shall be chargeable with all inheritance, succession, transfer or estate taxes upon the legacies, devises or shares to her or him hereinbefore given, to be computed in manner following:
Where the tax is computed on the value of the whole estate, she or he shall be chargeable with such a proportion of the whole tax imposed against my estate as the taxable valuation of the legacy, devise or share hereinbefore given to her or him, shall bear to the valuation of my entire taxable estate and where the tax is computed on the valuation of the legacy, devise or share, she or he shall be chargeable with the whole tax imposed on said legacy, devise or share."
Counsel state that there is no dispute as to the manner in which New Jersey transfer inheritance taxes are to be apportioned under the provision quoted above. I do not, therefore, need consider the state transfer inheritance tax problem, but I limit -- as do counsel -- the issue to the allocation of the burden of federal estate taxes under the will. I suggest, however, that if an appeal is taken, the Attorney General be requested to appear as amicus curiae.
Its resolution depends upon the application of the marital deduction provided by sections 812(e)(1)(A); (e)(1)(E)(i); and (e)(1)(H) of the Internal Revenue Code of 1939, as amended in 1948. Plaintiff-executor has taken the position throughout the course of administration of this estate that, under the decedent's will, his widow, whose share of the estate is considerably less than 50%, is not required to pay any part of the federal estate tax and that the widow's share is relieved from federal estate tax by the marital deduction. That the results are therefore: (1) the taxable estate for federal tax purposes is reduced by a marital deduction consisting of the full value of the share of the estate passing to Mrs. Roebling; (2) the federal estate tax on this reduced estate is computed, and (3) the resulting tax is apportioned among the shares of the other beneficiaries, which form the basis for the taxable estate. The defendant widow is in accord with plaintiff's constructions.
Plaintiff contends that upon an examination of paragraph Eighth, two points at once become apparent: (1) the testator was fully aware of the distinction between inheritance taxes, which are "imposed" directly upon the "legacy,
devise or share" of each beneficiary, and estate taxes which, as a matter of law, are levied upon the entire taxable estate; and (2) while cognizant of this basic difference, the testator, nevertheless, looked to the realities of the tax situation and knew that the ultimate burden of two very sizeable taxes, i.e. , New Jersey transfer inheritance taxes levied directly on his beneficiaries' shares and a federal estate tax levied on the whole taxable estate, would have to fall on the shares of the beneficiaries under his will. That with these two fundamentals in mind, the testator set out to apportion the burden of both of these taxes, choosing what he must have considered the most equitable system of apportionment available.
Plaintiff states that testator first expressed his general intent with regard to all taxes in the unmistakable language of the first paragraph:
"Eighth: I further order and direct that each beneficiary under this my last Will and Testament shall be chargeable with all inheritance, succession, transfer or estate taxes upon the legacies, devises or shares to her or him hereinbefore given, to be computed in manner following: * * *" (Italics added)
Thus all taxes, be they inheritance, succession, transfer or estate, are to be deemed imposed upon the legacies, devises or shares passing to each particular beneficiary and no beneficiary should or can under this will be charged with any tax upon the share or shares of others. Moreover, the testator went further and, in the light of the distinction between inheritance and estate taxes referred to above, devoted the second paragraph of Eighth to clarification of the application of his general intent by setting up a formula for dealing with taxes "computed on the value of the whole estate," i.e. , estate taxes, and in the second he declared his intent with regard to taxes "computed on the valuation of the legacy, devise or share" of a beneficiary, i.e. , inheritance taxes such as the New Jersey transfer inheritance tax.
Taking this second clause first, the testator directed that
"* * * where the tax is computed on the valuation of the legacy, devise or share, she or he shall be chargeable with the whole tax imposed on said legacy, devise or share."
The New Jersey transfer inheritance tax automatically apportions the tax to each beneficiary in accordance with his share and status -- by levying it directly upon each beneficiary in accordance with the size of his share and the degree of consanguinity to decedent. Thus, the legal incidence of the New Jersey transfer inheritance tax completely accorded with the testator's basic aim: that each beneficiary should bear the tax attributable to his share. The testator, finding such a tax fully consonant with his belief that each beneficiary should pay his or her own way, contented himself with reiterating the formula of the taxing statute and allowing the tax and any benefits granted thereunder to fall upon and to inure to the benefit of the particular beneficiary.
An argument made by the other defendants is that plaintiff's position if sustained would create a non-equal distribution -- i.e. , a distorted distribution instead of an equal distribution. They say that an analysis of Mr. Roebling's will reveals a simple, dominant purpose, that is, to distribute the great bulk of his estate in equal shares to his widow, his son, and the child of a deceased son, and that in order to ensure an ultimate equal distribution it might be found necessary to distribute the burden of the taxes payable out of the estate equally among all the main beneficiaries. That therefore the residue of the estate, amounting to 97.71% of the whole, should be divided equally among the widow, the son and the grandson -- all members of his immediate family and all admittedly sharing his love and affection.
These defendants also contend that when the testator drew his will, his intention was to equalize the tax burden among the residuary beneficiaries. They maintain that the will clearly and unambiguously declares that each beneficiary
was to bear a proportionate share of the tax based on the ratio which the value, as determined for tax purposes, of the property given him bears to the valuation, as determined for tax purposes, of the testator's entire disposable estate.
They further contend that the subsequently enacted marital deduction amendment, being a deduction strictly for the benefit of the estate, had no effect on the proportions of the tax which the respective beneficiaries would bear, and that the construction as to the effect of the marital deduction sought by the executor and widow would completely thwart the testator's scheme for equal distribution of his estate.
Defendants also contend that the tax clause must be considered in the light of this testamentary intent and of the situation existing in 1942. It seems to them that it effected only two slight changes in the incidence of death taxes. Firstly, it shifted from the residuary estate to the testator's daughter-in-law, Mary G. Roebling, the proportionate part of the federal estate tax chargeable to her bequest. To this extent the three principal beneficiaries were equally relieved of a tax burden. Secondly, it shifted to the testator's widow the proportionate part of the federal tax chargeable to her legacy of "Boulderwood" and its furnishings. By thus increasing the widow's share of the tax, her net distributable share, hitherto slightly larger than the other two shares, was reduced to a more exact parity with these other two shares.
It altered in no way whatsoever the incidence of the New Jersey transfer inheritance tax. In respect to the federal estate tax, it did two things, tending in the one case to relieve the primary beneficiaries to some degree of their common tax burden and in the other case to equalize even more exactly the net distributable shares payable to these same primary beneficiaries. They conclude that it is perfectly plain that the effect of the tax apportionment clause at the time it was drawn was to achieve even more precise equality of distribution than would otherwise have been the case. It had no other effect.
The parties stipulated that: "(d) The following table illustrates the difference in distribution of the decedent's estate depending on whether his widow's share of the estate is chargeable with no portion of the federal estate tax, as contended by the plaintiff and the defendant, Helen Price Roebling, or whether said share is chargeable with its pro rata share of the federal estate tax, as contended by the other defendants. The figures, with some minor adjustments, are based upon the position taken by the United States Internal Revenue Service in its 90 day notice of deficiency, dated April 16, 1956, inasmuch as the ultimate value of the estate for estate tax purposes cannot be determined until other matters, particularly the value of a large block of unlisted stock in a closely held corporation, are settled by the estate with the Internal Revenue Service.
"On the basis of the valuations used by the Internal Revenue Service in its 90 day notice of deficiency, the decedent's total gross estate for federal tax purposes is $15,198,884.00. The adjusted gross estate, after proper allowance for debts, executor's commissions and counsel fees, would be approximately $14,318,226.27. On this basis, the table below indicates the approximate federal estate tax, if any, which may be chargeable to the share of each beneficiary under the decedent's will and the approximate net share which will remain to each beneficiary after the payment of said taxes, as well as the total taxes and the total net estate after taxes under each of the constructions of said will referred to above. In said table, the beneficiaries are referred to as follows: the defendant, Helen Price Roebling, the decedent's widow, as HPR; the defendant, Donald Roebling, the decedent's son, as DR; the defendant, Paul Roebling, the decedent's grandson, as PR, and the defendant, Mary G. Roebling, the decedent's daughter-in-law, as MGR.
Adjusted gross estate before marital deduction $14,318,226.27 Division of Adjusted Gross Estate Among Beneficiaries Without Deduction for Estate and Inheritance Taxes
HPR pays no part of HPR pays proportionate share
federal estate tax of federal estate tax
N.J. inheritance taxes * N.J. taxes
HPR $425,990.00 HPR $425,990.00 $39,520.53
DR 397,550.00 DR 397,550.00 60,230.13
PR 397,550.00 PR 397,550.00 60,230.13
MGR 12,500.00 MGR 12,500.00 11,956.17
------------ ------------ ----------
$1,233,590.00 $1,233,590.00 ...