On appeal from Superior Court, Law Division, Essex County.
Fritz, Bischoff and Morgan. The opinion of the court was delivered by Morgan, J.A.D.
Cancer Research Institute, Inc., a residuary beneficiary under the will of Catherine Alice Rankin, appeals from a final judgment denying appellant's exceptions to the account of the estate's executor concerning the manner in which the federal estate tax and the New Jersey transfer inheritance tax were charged against the respective shares of the charitable and noncharitable residuary beneficiaries of decedent's will.
The will of Catherine Alice Rankin, a resident of East Orange, who died on June 2, 1976, was admitted to probate on June 14, 1976 and letters testamentary were issued to The Howard Savings Bank as executor. Their gross estate was valued for federal estate tax purposes at $370,403.74, consisting of nonprobate assets in the amount of $15,862.16, specifically bequeathed tangible personal property valued at $4,892.00, and other probate assets worth $349,649.58. Debts and administration expenses of $38,900.23 are payable, leaving a distributable residue (before estate and inheritance taxes) of $310,749.35.
Article Second of the will requires the payment of all estate and inheritance taxes from the residue in the following words:
SECOND: All estate, inheritance, succession, transfer and legacy taxes payable by reason of my death under the laws of the United States or of any state, district or territory thereof with respect to any property included in my gross estate subject to such taxes, together with interest charges on such taxes, shall be paid from the residue of my Estate, and I hereby waive on behalf of my Estate any right to recover from any person, including any beneficiary or beneficiaries of insurance on my life, all or any part of the taxes, or interest on such taxes, so paid. I direct all the expenses involved in shipping specific items bequeathed be paid as an administration expense from the residue of my estate.
Article Seventh directs a division of the residue into "three (3) equal parts or shares." One of those three equal parts is bequeathed to a group of charities, and this constitutes a deduction for estate and inheritance tax purposes. Cancer Research Institute, Inc. (the appellant herein) is given half of that third, or one-sixth of the residue. The remaining half of that third is allocated to other charities, several of whom have joined in this appeal. The remaining two of the three shares of the residue are bequeathed to decedent's relatives consisting of an uncle and various cousins, and to individuals unrelated to decedent.
The executor's account, challenged by appellant, proposed that all estate and inheritance taxes be deducted from the residue before its division into the three equal shares. As a result of this procedure, approved by the trial court, one-third of all such taxes is to be charged against the charities' share of the residue even though that share generates no portion of the federal and state tax liability. The following is a tabulation of the residue shares calculated in that manner:
Total Charities' Individuals'
amount share (1/3) share (2/3)
Residue before taxes $310,749.35 $103,583.12 $207,166.24