Moorman v. Moorman , 340 Mich. 636 ( 1954 )

340 Mich. 636 (1954) 66 N.W.2d 248

MOORMAN
v.
MOORMAN.

Docket No. 65, Calendar No. 46,189.

Supreme Court of Michigan.

Decided October 4, 1954.

Dickinson, Wright, Davis, McKean & Cudlip (Robert E. McKean and Thomas C. Tilley, of counsel), for plaintiff.

Hill, Lewis, Andrews, Granse & Adams (Edward T. Goodrich and Marlin F. Scholl, of counsel), for defendants.

Amicus curiae:

Beaumont, Smith & Harris (U. George Krapfel, of counsel).

KELLY, J.

Achilles H. Moorman died intestate on July 23, 1951, leaving a Michigan gross estate of approximately $832,000. Plaintiff, the widow, and defendants, children of deceased, are the sole heirs-at-law of said deceased.

Plaintiff contends that the Federal estate tax ($142,800) should not be deducted from the gross estate before plaintiff's 1/3 share, as widow, is determined. Defendants contend the Federal estate tax is a charge which should be deducted from the gross estate before the widow's share is computed.

If plaintiff's contention is correct she will receive $244,000 as her share of the estate. Defendants contend her share should be $47,600 less, or $196,400. Under plaintiff's theory the children would each receive $119,800, whereas under defendant's contention each would be entitled to $130,933.

Decree was entered for defendants. Plaintiff appeals, claiming that the court erred in holding that under the Michigan statutes of descent and distribution the Federal estate tax must first be deducted in order to arrive at the amount to be used as the basis for computing the widow's statutory 1/3 interest in her deceased husband's intestate estate.

In 1916 congress abandoned the inheritance tax and since that time the Federal government has collected an estate tax. In 1948 congress provided for the "marital deduction" thereby adding to then existing exemptions and deductions, and providing for the marital deduction in the tax up to 50% of the gross amount of the estate. It is conceded in this case that plaintiff's share under the statute is less than 50% of the gross estate.

The Federal estate tax is an excise tax upon the transfer of an estate upon death of the owner and is not a tax upon succession and receipts of benefits under the law or will. It was created by congress as death duties as distinguished from a legacy or succession tax and imposes the tax not on the interest to which the legatees and devisees succeed to on death but upon the interest which ceased by reason of the death.

To determine whether plaintiff's distributive share as widow should be computed before or after deduction of the Federal estate tax requires interpretation of the Michigan statutes of descent as to intestate property. It is the State's function to determine the amount of the distributive share as well as those who shall inherit the property of an intestate estate. Plaintiff's rights are established by CL 1948, § 702.93, as amended by PA 1949, No 78 (Stat Ann 1949 Cum Supp § 27.3178 [163]), as to personal property; by CL 1948, § 702.80 (Stat Ann 1943 Rev § 27.3178 [150]), as to real property; and by CLS 1948, § 702.95, as amended by PA 1949, No 78 (CLS 1952, § 702.95, Stat Ann 1953 Cum Supp § 27.3178 [165]), as to priority of charges and assignment of residue of intestate estates.

The trial court in its opinion stated: "Plaintiff in the case at bar takes only by virtue of the statute. Her share is 1/3 of the ``residue'. ``Residue' is expressly defined by statute so as to require a deduction of the estate tax before a ``residue' is arrived at." We agree with the court's conclusion in this regard.

Plaintiff requests that this Court recognize equitable principles and interpret the Michigan statutes in conjunction with the Federal revenue law and construe the Michigan statutes as though "estate taxes" were not mentioned when computing the widow's intestate distributive share in this case. Plaintiff contends that "only by computing spouse's share before deducting Federal estate tax will purpose of marital deduction be given effect," and that "any other result would necessarily deprive her of the freedom from tax provided by congress." United States supreme court decisions do not sustain this theory.

In Riggs v. Del Drago, 317 U.S. 95 (63 S. Ct. 109, 87 L ed 106, 142 A.L.R. 1131), the court said (pp 97, 98):

"We are of opinion that congress intended that the Federal estate tax should be paid out of the estate as a whole, and that the applicable State law as to the devolution of property at death should govern the distribution of the remainder and the ultimate impact of the Federal tax. * * * Its legislative history indicates clearly that congress did not contemplate that the government would be interested in the distribution of the estate after the tax was paid, and that congress intended that State law should determine the ultimate thrust of the tax."

In Y.M.C.A. of Colombus Ohio, v. Davis, 264 U.S. 47 (44 S. Ct. 291, 68 L ed 558), the court dealt with the problem of residuary bequests to charities. The law then, as now, provided for the deduction of gifts to charities in arriving at the net estate subject to tax in a way similar to the marital deduction from the whole estate arrives at a taxable net estate. The laws of Ohio provided that in the absence of a contrary provision in the will, the Federal estate tax was to be paid out of the residue notwithstanding the leaving of the residue to qualified charities, and it was contended that congress could not have intended that the tax should be paid out of the very gifts which were excluded from the taxable net estate (subdivision 3). In deciding this question the United States supreme court said (pp 49-51):

"The argument of the petitioners is, that as the tax is expressly made equal to a percentage of the value of the net estate and is imposed upon the transfer of that net estate congress can not have intended that the tax should be paid out of the very gifts which by subdivision (3) are excluded from the net estate. It is further urged that the manifest purpose of congress was to exempt the beneficiaries under subdivision (3) from tax, and the result of the construction by the Ohio courts is in this case that they are the only ones to pay it. These arguments are persuasive, but they derive much of their strength from the special circumstances of the present case. * * *

"There is nothing in subdivision (3) of § 403^[*] which exempts the recipients of altruistic gifts from taxation; it only requires a deduction of them in calculating the amount of the estate which is to measure the tax. It exempts the estate from a tax on what is thus deducted just as subdivision (4) exempts in terms the estate from taxation on its first $50,000; but this does not operate to exempt any legatee who may be entitled to the first $50,000 in the distribution, from deduction to contribute to the tax ultimately imposed, if by the law of the State, such should be its incidence. * * *

"These donees do not pay the taxes any more than they pay the funeral expenses, the lawyers, the executors and the testator's debts."

An examination of the marital deduction provision discloses that congress did not determine the burden of the tax. 26 USCA, § 812 (e)(1)(E)(i), provides:

"There shall be taken into account the effect which a tax imposed by this chapter, or any estate, succession, legacy, or inheritance tax, has upon the net value to the surviving spouse of such interest."

The above-quoted language was held by the Wisconsin supreme court in In re Uihlein's Will (1953), 264 Wis 362 (59 NW2d 641), "to expressly negative any intent on the part of congress that the widow's share of the personal estate in the instant case should entirely escape the impact of all of the Federal estate tax."

Plaintiff's contention is that the estate tax should be borne by those whose bequests contribute to the tax burden and such has been provided for in 23 States by tax proration laws. The Connecticut supreme court of errors in Jerome v. Jerome, 139 Conn 285 (93 A2d 139), commented on proration laws as follows (pp 292, 293):

"Only through the allocation of the entire amount of the marital allowance to the value of the widow's bequest will the intent as well as the spirit of the proration statute be met, for the statute is based on the equitable principle that the estate taxes should be borne by those whose bequests contribute to the tax burden and, conversely, that all those whose legacies do not in any way create or add to that burden should not be required to bear it."

An Illinois statute provides that where a widow renounces her right to take under a will her share in the estate is determined after payment of all just claims. The Illinois court considered that the Federal estate tax constituted a just claim, the same as a debt, and, therefore, the Federal estate tax must be deducted before apportioning the renouncing widow's share. Northern Trust Co. v. Wilson, 344 Ill App 508 (101 NE2d 604).

In In re Uihlein's Will, supra, the material part of the statute under consideration read: "Provided, that when he shall have died testate the share of personal estate which she may so take shall not exceed the 1/3 part of his net personal estate." In that case the court said:

"It seems to us that the words ``net estate' of our statute are clear and unambiguous and are subject to no other interpretation than that they mean that part of the estate which remains after payment of all charges against the entire estate. Federal estate taxes stand in no different category than do debts or administration expenses. We deem that it would be unwarranted judicial legislation for this court to attempt to apportion the impact of the Federal estate tax as did the Kentucky and Ohio courts. The legislature has the power to enact an apportionment of Federal estate tax statute providing for a different method of bearing the impact of Federal estate taxes if it should determine the same desirable. However, 3 general sessions of the legislature have been held since congress amended the Federal estate tax statute so as to provide for the marital deduction, and to date our legislature has not seen fit to adopt such apportionment statute."

Plaintiff shares in the intestate estate of her deceased husband solely by virtue of the statute. The Michigan legislature could have provided that the widow should not be called upon to share any part of the Federal estate tax, as was done by approximately 1/2 of the legislatures of the other States. Although the Michigan legislature has convened in 5 regular sessions since congress amended the estate tax in 1948, no such action has been taken.

We have given careful consideration to supreme court decisions from 5 States: The decision of the Ohio court in the case of Miller v. Hammond (1952), 156 Ohio St 475 (104 NE2d 9), held that "fundamental principles of equity" should prevail and that the widow's share should be computed before deduction of Federal estate tax from the gross estate. A similar conclusion was arrived at by the Kentucky supreme court in Lincoln Bank & Trust Co. v. Huber (1951) (Ky), 240 S.W.2d 89.

The following 3 cases support defendants' position in the instant case: Northern Trust Co. v. Wilson, supra; Wachovia Bank & Trust Co. v. Green, 236 NC 654 (73 SE2d 879), and In re Uihlein's Will, supra.

The statutes of descent and distribution are created by the legislature. The Michigan legislature has exercised that privilege and right, and has specifically declared that estate taxes shall be considered as a charge against the gross estate in determining the net estate, in order to determine the residue and the widow's right to 1/3 of such residue. It was within the province of the legislature to enact the statutes applicable to this case and this Court has no control over matters of judgment exercised by the legislature in enacting laws.

Judgment affirmed. Costs to defendants.

BUTZEL, C.J., and CARR, BUSHNELL, SHARPE, BOYLES, REID, and DETHMERS, JJ., concurred.

NOTES

[*] The reference is to the revenue act of 1918, chap 18, 40 Stat 1057, 1096, 1098. — REPORTER.