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Matter of Estate of Burnett

Decided: May 29, 1958.

IN THE MATTER OF THE ESTATE OF CORA TIMKEN BURNETT, DECEASED


Galanti, J.c.c. (temporarily assigned).

Galanti

[50 NJSuper Page 483] Cora Timken Burnett died on January 7, 1956, a resident of Alpine, Bergen County, New Jersey, leaving a last will and testament and codicil thereto, both dated June 18, 1943. The decedent and the defendant, John Clawson Burnett, were married on July 15, 1920, and lived together as husband and wife for more than 35 years prior to her death. By her

will Mrs. Burnett, a wealthy woman in her own right, left her husband a substantial portion of her probate estate. Under item Second of the will and item Fourth of the codicil he received more than $70,000 in tangible personal property, including jewelry, furs and valuable works of art. As contingent beneficiary of the 13 specific legacies contained in the item First of the codicil, he received cash legacies in the amount of $14,000 as a result of the prior death of five of the legatees named in that item.

In addition, by items Third and Fourth of the will Mrs. Burnett gave and devised to her husband real property in Bergen County, New Jersey, valued at more than $1,600,000.

Items Fifth and Sixth of the will read as follows:

" Fifth: I direct that all inheritance, legacy, succession or similar duties or taxes which shall become payable in respect to any property or interest passing under my Will, or any codicil which I may hereafter execute, shall be paid out of the capital of my residuary estate, consisting of stocks, bonds and uninvested money.

I was the Donor on July 14, 1920, of a trust fund with the Cleveland Trust Company of Cleveland, Ohio, as trustee, reserving the income for myself during my life, and reserving the right 'to dispose of the whole or any part of the principal of the trust estate by a Last Will and Testament.' I now exercise that right of disposition of said trust fund, and direct the Cleveland Trust Company to pay the income of the said trust fund, quarter-annually, to my husband, John Clawson Burnett, if he shall survive me, and upon his death I direct the Cleveland Trust Company of Cleveland, Ohio, to deliver and pay over the securities and cash constituting the principal of the said trust to The Timken Foundation of Canton, Ohio, a non-profit corporation, organized on December 28, 1934, under the laws of the State of Ohio, operated exclusively for charitable purposes. In the event that my said husband, John Clawson Burnett shall not survive me, or if we die by common disaster, I direct the said Cleveland Trust Company to deliver and pay over the said securities and cash constituting the principal of said trust and any accrued income to said The Timken Foundation.

Sixth: I give, devise and bequeath all the remainder of my estate, real and personal, as follows:

(a) One-half part thereof to my husband, John Clawson Burnett, and in the event that my husband, John Clawson Burnett, shall predecease me, I direct that one-fourth of said one-half part be placed in the trust hereinafter created for my brother, William Robert Timken, and his daughter, Valerie Timken Whitney, and three-fourths of said one-half part be placed in the trust hereinafter created for

my brother, Henry H. Timken's sons, Henry H. Timken, Jr., William Robert Timken and John M. Timken. In the event that my husband, John Clawson Burnett, and myself die by common disaster, his said one-half part shall be distributed according to his Will.

(b) One-eighth part thereof to my Executors and Trustees hereinafter named, In Trust Nevertheless, to pay the net income to my brother, William Robert Timken, in quarter-annually payments as long as he shall live and then to his daughter, Valerie Timken Whitney, until the termination of fifteen (15) years after my death when the trust shall end and the principal vest in and be turned over to the said Valerie Timken Whitney. If neither William Robert Timken, my brother, or Valerie Timken Whitney, my niece, shall be living at the termination of Fifteen (15) years after my death, the trust shall end and the principal shall be paid to her lawful issue and if there be no such issue living, the principal shall be divided equally between my nephews, Henry H. Timken, Jr., William Robert Timken and John M. Timken, sons of Henry H. Timken, my deceased brother, and if any of my said nephews is not living at that time, his lawful issue shall take his portion, and if there is no lawful issue, the said portion shall be divided equally among the remaining nephews.

(c) Three-eights part thereof to my Executors and Trustees hereinafter named. In Trust Nevertheless, to pay the income in quarter annual payments, in equal parts, to Henry H. Timken, Jr., William Robert Timken and John M. Timken, sons of my deceased brother, Henry H. Timken, until the termination of Fifteen (15) years after my death when the trust shall end and the principal shall be vested in and be turned over in equal parts to said Henry H. Timken, Jr., William Robert Timken and John M. Timken. In the event any of my said nephews is not living at the expiration of said Fifteen (15) years, the portion of the trust fund which would be distributed to any such deceased nephew, if living, shall immediately vest in and be distributed to his lawful issue then living, per stirpes and not per capita, and in the absence of such issue, the portion which such nephew would receive, if living, to the said nephew's wife if she survives such nephew, but if there is neither issue nor surviving wife, then the said portion shall be distributed in equal shares to any other nephews and to their lawful issue per stirpes and not per capita. In the event that one or more of my said nephews dies before the termination of the trust, any income which would otherwise be paid to such nephew or nephews until the termination of the trust shall thereafter be paid to his or their lawful issue per stirpes and not per capita, and if there is no lawful issue, be paid to the said nephew's wife if she survives such nephew, but if there is neither such issue nor surviving wife, then the income shall be paid in equal shares to my other nephews and to their lawful issue per stirpes and not per capita. In the event that there shall be no one living to take under this trust at the expiration of Fifteen (15) years, the trust shall end and the principal shall be paid to The Timken Foundation of Canton, Ohio."

Item Seventh of the will is a spendthrift clause applicable to the beneficiaries of any of the trusts.

Items Eighth, Ninth and Tenth of the will are concerned with administrative and investment provisions and item Eleventh is concerned with alternative dispositions of certain legacies, in the event the decedent's husband predeceased her.

Item Twelfth of the will gives the testatrix' husband, Dr. Burnett, "All the rest, residue and remainder of my estate, * * * together with any property that may revert to my estate because of the failure of any of the trusts or gifts contained herein * * *"

The codicil, also dated June 18, 1943, provides for certain general and specific legacies to friends, employees and the Metropolitan Museum of Art and the San Diego Museum.

On the date of the death of the decedent her probate estate was valued at some $6,640,694.77. The inter vivos trust was valued at approximately $16,400,000.

The question to be determined in this proceeding is whether Dr. Burnett's share of the residuary estate under Item Sixth of the will is to contribute to the payment of federal estate taxes to be assessed against the probate estate of the decedent. The accountants and Dr. Burnett have contended that Dr. Burnett is to receive one-half of the residuary estate before deduction of federal estate taxes, and that the estate taxes are to be paid solely from the corpus of the trusts created therein. The guardian ad litem , on behalf of the infant beneficiaries of said trust, and the adult beneficiaries of said trust contend, on the other hand, that the whole of the residuary estate of the decedent is to be made available for the payment of federal estate taxes prior to the division thereof, one-half to the husband and one-half to the trusts.

It has been determined in a prior proceeding with regard to Mrs. Burnett's will that item Fifth of the will does not specifically direct that federal estate taxes are to be paid from the residuary estate. In re Burnett's Estate , 43 N.J. Super. 534 (Ch. Div. 1957). Grimshaw, J.S.C., in his opinion with regard to liability of the inter vivos trust for

payment of its share of federal estate taxes, interpreted item Fifth of the will. The significant portion of the opinion is as follows:

"When she executed her will Mrs. Burnett was attended by legal advisors and accountants of the first rank. She was undoubtedly aware of the legal and tax consequences of the testamentary provisions which she was about to make. The phraseology of the will was unquestionably deliberate and meaningful.

To repeat, the provision in the Fifth paragraph of the will, having reference to taxes, is as follows:

'I direct that all inheritance, legacy, succession or similar duties or taxes which shall become payable in respect to any property or interest passing under my Will, or any codicil which I may hereafter execute, shall be paid out of the capital of my residuary estate, consisting of stocks, bonds and uninvested money.'

Estate taxes are not among those which were to be paid. The distinction between estate and inheritance taxes is clear." (43 N.J. Super. at page 537)

In the absence of a specific direction by the decedent, what assets of the estate are to be burdened with the payment?

N.J.S. 3 A:25-30 et seq. applies only to estates of persons dying testate on or after January 1, 1951, where their wills have been executed or republished after such date.

It is clear that the New Jersey apportionment statute is not applicable to these proceedings and, moreover, that statute deals only with the apportionment of the estate tax as between a fiduciary and a transferee of non-probate assets and does not guide the apportionment of the estate tax among beneficiaries. The act reads as follows:

"Whenever a fiduciary has paid or may be required to pay an estate tax under any law of the state of New Jersey or of the United States upon or with respect to any property required to be included in the gross tax estate of a decedent under the provisions of any such law, hereinafter called 'the tax', the amount of the tax, except in a case where a testator otherwise directs in his will, and except to the extent where by any instrument other than a will, hereinafter called a 'nontestamentary instrument,' a direction is given for apportionment within the fund of taxes assessed upon the specific fund dealt with in such nontestamentary instrument, shall be apportioned among the fiduciary and each of the transferees interested in the gross tax estate whether residents or nonresidents of the state, in accordance with the rules of apportionment herein stated, and the

transferees shall each contribute to the tax the amounts apportioned against them. Nothing in this article shall be taken to require an apportion of an estate tax inter sese among the legatees, devisees and beneficiaries under a will or among those who take as the next of kin and heirs at law of a person dying intestate, or against the interest of any surviving spouse in any real property which was held by the spouse and the decedent as tenants by the entirety." (N.J.S. 3 A:25-31) (Emphasis mine.)

In view of the lack of specific direction by the decedent (see In re Burnett's Estate, supra) and the inapplicability of the New Jersey apportionment statute, these taxes are to be paid from the residuary estate. In Case v. Roebling , 42 N.J. Super. 545 (Ch. Div. 1956), it was stated:

"The legal incidence of the federal estate tax is upon the entire estate and, prior to the adoption of a state apportionment statute in 1950, the rule in New Jersey had long been that, in the absence of testamentary provision to the contrary, the ultimate burden of the Federal estate tax fell upon the residuary estate." (42 N.J. Super. at page 559.)

The leading New Jersey case, the one most cited for this proposition, is Turner v. Cole , 118 N.J. ...


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