Goldmann, Conford and Freund. The opinion of the court was delivered by Goldmann, S.j.a.d.
The executors of the estate of Ross Nadeau brought a Chancery Division action seeking construction of certain terms of decedent's will and also approval of their accounting. The residuary legatees appeal from that part of the final judgment determining that the residuary estate must pay administration expenses as well as the New Jersey transfer inheritance tax which the widow, a beneficiary under the will, would have had to pay but for testator's instruction that she be exonerated therefrom. Testator had designated his son Arthur and his brother Dorilas as specific legatees; Arthur and Dorilas' executrix cross-appeal from the determination that they must contribute to the federal estate tax in amounts proportional to their benefits under the will. The executors also cross-appeal, challenging that part of the judgment which awarded less than the full amount of the commissions they requested.
Ross Nadeau died a resident of this State on July 24, 1953, leaving a will dated May 4, 1953 and duly admitted to probate. Surviving him were his widow Lucille Nadeau (now Bennett) and his son by a former marriage, R. Arthur Nadeau. The net estate amounted to about a million dollars.
By paragraph Second of this will testator left one-half of his adjusted gross estate, as finally determined for federal estate tax purposes, to the widow. His obvious purpose was to take full advantage of the marital deduction formula in section 812 of the Internal Revenue Code of 1939 (26 U.S.C.A.), now section 2056 of the 1954 Code, 26 U.S.C.A. , which permits one-half of a decedent's taxable estate to pass tax-free to his surviving spouse. See In re Kantner's Estate , 50 N.J. Super. 582, 587-588 (App.
Div. 1958). Clearly underscoring that intention, he declared in paragraph Second:
"* * * It is my intention hereby to give to my wife the maximum value in property, but no more, that may be deducted from my estate as the marital deduction under the applicable Internal Revenue Code. * * *"
By paragraph Third testator bequeathed all his stock in Club Razor & Blade Manufacturing Corporation (a privately held corporation in which he held a two-thirds interest) in equal shares to his son Arthur and brother Dorilas, directing that the bequests "shall be construed as specific legacies."
By paragraph Fourth the residue of the estate was devised and bequeathed in equal shares to ten named beneficiaries, one an employee and the others relatives of decedent.
In addition to the property which passed under the will, testator had two life insurance policies, one payable to the widow, who eventually received $61,922.69, and the other to Arthur, who received $16,645.92. These amounts were included in computing the gross estate for federal tax purposes.
Paragraph Sixth of the will contains the language that has led to the present controversy over the payment of taxes charged against the estate. It reads:
"I direct that my wife as legatee and devisee under this will, and as transferee of any property outside of this will, or as beneficiary of any proceeds of life insurance on my life, and of any annuity policy purchased by me, shall not be liable and shall not be called upon to reimburse my estate for any portion of the Federal estate taxes or New Jersey inheritance taxes on property which may constitute part of my gross estate, it being my intention that she shall have all of said property, insurance proceeds and annuity entirely tax free.
As to all other legatees and devisees hereunder and beneficiaries under life insurance on my life, there shall be an apportionment of said taxes, in accordance with the laws of the State of New Jersey."
The will named Arthur, John F. McNamee (a friend and business associate), and The National State Bank of Newark,
N.J., co-executors. They duly qualified. Their account covers the period July 24, 1953 to October 10, 1957.
We shall first consider the tax apportionment questions raised, and then the issue of executors' commissions.
Under the marital deduction arrangement adopted by testator, the widow's share of the estate is by hypothesis exempt from federal estate tax. But it is not exempt from our state transfer inheritance tax. Since the latter is a succession tax, laid directly upon the transfer of property under the will rather than upon the estate itself, the widow would normally be required to pay it. Turner v. Cole , 118 N.J. Eq. 497 (E. & A. 1935); Goldman v. Goldman , 2 N.J. Super. 412 (Ch. Div. 1949); Case v. Roebling , 42 N.J. Super. 545 (Ch. Div. 1956). Here, however, testator in the first section of paragraph Sixth expressly directed that she be exonerated from payment -- a direction which all parties agree is fully effective to accomplish its purpose. The question is, who shall pay the state tax? Is it to be apportioned among the residuary beneficiaries and the two specific legatees, or paid from the residue, the specific legacies remaining unabated unless and until the residuary estate is exhausted?
The second tax apportionment question concerns the federal estate tax which must be borne by the estate, but it raises essentially the same problem. Shall the residuary estate, to the extent of its capacity, be charged with the entire federal tax, or should it be apportioned among all the beneficiaries, except the widow?
We deal with the federal estate tax issue, since its resolution sheds light upon the state transfer inheritance tax question.
The federal estate tax is imposed upon the estate as a whole. A testator may, of course, place the ultimate burden of the tax wherever he chooses by the terms of his will.
With two exceptions the question of whether a testator has, by his will, shifted the tax burden or whether the tax should be imposed as provided by law is for determination by the courts of the state of his domicile. Riggs v. Del Drago , 317 U.S. 95, 63 S. Ct. 109, 87 L. Ed. 106, 142 A.L.R. 1131 (1942); Hale v. Leeds , 28 N.J. 277 (1958). (The two exceptions relate to powers of appointment (26 U.S.C.A. § 2207) and to the proceeds of insurance policies on decedent's life (26 U.S.C.A. § 2206).) Under Riggs , the Federal Government is not concerned with the distribution of the tax among the testamentary beneficiaries; its only interest is that the tax be collected.
In the absence of an expressed intention by the testator to the contrary, the law of this State is that the tax is payable in the same manner as are other debts and administrative expenses -- from the residuary estate. Turner v. Cole , above, 118 N.J. Eq. 497 (E. & A. 1935). A contrary testamentary instruction will, however, be given effect. Morristown Trust Co. v. McCann , 19 N.J. 568 (1955).
Turning to paragraph Sixth of the will, we find testator's main intention clearly expressed in the first section: his widow is to pay no estate taxes whatever, state or federal. Directly following this, testator in the second section declares that as to all other legatees and devisees under the will, as well as beneficiaries of insurance policies on his life, "there shall be an apportionment of said taxes." Had the paragraph ended with these words there would have been no problem, for it would then have been clear that testator was directing an apportionment of the federal tax among the residuary legatees and the two specific legatees of the Club Razor & Blade stock. But he continued and said, "in accordance with the laws of the State of New Jersey." Since, under New Jersey law, there is no apportionment of federal estate taxes as to property passing under a will, in the absence of a direction to that effect, N.J.S. 3 A:25-30, 31, 33, the second section of paragraph Sixth poses a seeming contradiction.
The assumption is, of course, that testator intended all his words to have some meaning, and none to be mere excess verbiage. It is our function to reconcile, if possible, the apparent contradiction in this language so as to invest it with a consistent and reasonable meaning, and thereby give effect, as best we can, to the testamentary intention. Greene v. Schmurak , 39 N.J. Super. 392, 401 (App. Div. 1956); Brooks v. Goff , 127 N.J. Eq. 115, 118 (Ch. 1940).
The Chancery Division judge construed the closing words of paragraph Sixth, "in accordance with the laws of the State of New Jersey," as being merely testator's way of indicating that he was exercising a power granted him under our statutes. That is, he was saying, "The laws of New Jersey give me the power to direct an apportionment, and I hereby exercise that power."
While this view on the surface saves the construction below from the condemnation of treating the clause mentioned as surplusage, the explanation is not a satisfactory one. Although the words, "in accordance with the laws of the State of New Jersey," might conceivably serve a useful purpose in a situation where the law is unclear and the draftsman wants to underscore the fact that certain language is being used in a strict legal rather than in a lay sense, no such problem exists here.
It has long been settled that a New Jersey testator has the power to direct apportionment of the federal tax to be levied on his estate. See, e.g., Gaede v. Carroll , 114 N.J. Eq. 524 (E. & A. 1933); Morristown Trust Co. v. McCann , above, 19 N.J. 568. That power unquestionably existed when the will was drawn, as any experienced scrivener would well know. The Nadeau will is a carefully drawn instrument, fully exposing the testamentary pattern and reflecting an appreciation of estate problems. We perceive no reason why a draftsman as skilled as the one who prepared the will before us would want to state the obvious fact that the testator had the very power he had just exercised in the clause immediately preceding the words under consideration.
This, together with the fact that the words used would not normally convey the meaning the trial judge ascribed to them in his attempt to reconcile what appeared to be a contradiction, leaves us unconvinced, upon a reading of the entire will, that this is what the testator actually intended.
We find the argument advanced by the specific legatees and the executors far more persuasive. Their position is that the direction for apportionment contained in the second section of paragraph Sixth means that there should be apportionment only to the extent that New Jersey law, exclusive of any express testamentary direction, demands it. Thus, the state transfer inheritance tax would be "apportioned." (We recognize that this is not a strictly accurate statement of the effect of our Transfer Inheritance Tax Act, since that tax is levied directly on the transfer of property, and is by its very nature "apportioned" among the beneficiaries.) Also applicable would be the provisions of N.J.S. 3 A:25-30, 31 and 33, which, in the absence of a testamentary direction to the contrary, require apportionment of the federal estate tax attributable to property which does not pass under the will but is nevertheless ...