In Re: Estate of Davis, L., Appeal of: Sullivan, R

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2015 PA Super 249IN RE: ESTATE OF LEO I. DAVIS A/K/A IN THE SUPERIOR COURT OF
LEO IGNATIUS DAVIS, DECEASED PENNSYLVANIA
APPEAL OF: MONSIGNOR RICHARD J.
SULLIVAN, EXECUTOR
No. 1347 WDA 2014
Appeal from the Order Entered July 28, 2014
In the Court of Common Pleas of Erie County
Orphans’ Court at No(s): 3 OF 2014
BEFORE: BENDER, P.J.E., JENKINS, J., and MUSMANNO, J.
OPINION BY JENKINS, J.: FILED NOVEMBER 30, 2015
Appellant Monsignor Richard J. Sullivan (“Executor”), executor of the
Estate of Leo I. Davis a/k/a Leo Ignatius Davis, appeals from the July 28,
2014 order denying Executor’s exceptions to the order filed June 10, 2014,
which sustained the Commonwealth of Pennsylvania’s objections to the first
and final account of Executor and ordered Executor “to re-allocate any and
all taxes allocated to the sixty percent charitable interest.” We vacate the
order and remand for further proceedings consistent with this opinion.
On April 28, 2010, Leo I. Davis (“Decedent”) died testate, having a will
dated November 20, 2007. Executor filed a petition for probate and grant of
letters. The Erie County Register of Wills granted Executor the letters
testamentary.
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Decedent’s Will provided for a specific cash bequest of $10,000.00 to
his friend Elaine F. Chiaramonte. The residue of Decedent’s estate was to be
distributed between his nephew, Patrick W. Sheehan, who was to receive
40% of the residuary estate, and three charities, each of which was to
receive 20% of the residuary estate. The charities were St. Andrews
Church, Cathedral Preparatory School, and Gannon University. In addition,
Decedent had a non-probate asset, an annuity in the amount of
$104,000.00. His nephew, Mr. Sheehan, and a niece, were beneficiaries of
the annuity.
On January 8, 2014, Executor filed a first and final account for the
estate. This account directed that the inheritance tax on the distributions to
the residuary beneficiaries and the inheritance taxes on the annuity be paid
out of the residuary estate prior to allocation and distribution of the
residuary estate.
On February 19, 2014, the Commonwealth1 filed objections to the
account, requesting the orphans’ court prohibit Executor from apportioning
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1
The Commonwealth has standing in proceedings that affect a charitable
interest. In re Estate of Pruner, 136 A.2d 107 (Pa.1957). The Supreme
Court of Pennsylvania explained:
[B]ecause the public is the object of the settlors’
benefactions, private parties have insufficient financial
interest in charitable trusts to oversee their enforcement.
Consequently, the Commonwealth itself must perform this
function if charitable trusts are to be properly supervised.
The responsibility for public supervision traditionally has
(Footnote Continued Next Page)
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the inheritance tax to the charities. On May 7, 2014, Executor filed three
consents signed by the charities. In the consents, the charities agreed to
Executor’s proposal, which paid the inheritance tax from the residuary
estate, prior to allocation and distribution to the beneficiaries.
On May 12, 2014, the orphans’ court conducted a hearing and oral
argument. The orphans’ court denied Executor’s request to present the
testimony of Darlene M. Vlahos, Esquire, scrivener of the Will, and two
documents from the scrivener’s estate planning file for Decedent. The
parties submitted post-hearing briefs.
On June 10, 2014, the orphans’ court sustained the Commonwealth’s
objections and directed that “Executor shall, in accordance with the statutory
scheme of taxation, re-allocate any and all taxes allocated to the sixty
percent charitable interest.” On June 30, 2014, Executor filed exceptions to
the order. On July 28, 2014, the court denied the exceptions.
On August 12, 2014, Executor filed a timely notice of appeal. Both
Executor and the orphans’ court complied with Pennsylvania Rule of
Appellate Procedure 1925.
Appellant raises the following claims on appeal:
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(Footnote Continued)
been delegated to the attorney general to be performed as
an exercise of his parens patriae powers.
Id. at 109.
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I. Whether the orphans’ court erred in holding the tax
provision of the Will as insufficient to require payment of
inheritance tax from the residuary estate before the
division and distribution of the residue.
II. Whether the orphans’ court erred in not permitting the
scrivener Darlene M. Vlahos, Esquire, to testify regarding
the intent of the decedent.
III. Whether the orphans’ court erred by not approving the
settlement of the issue raised by the AG’s objections based
on the subsequent signed consents of all three charities.
IV. Whether the orphans’ court erred by not ordering, that
the $1,500 of inheritance tax on the pre-residuary cash
bequest of $10,000 be paid from and charged against the
residue before the division and distribution of the residue.
Appellant’s Brief at 4 (internal capitalization omitted).
The effect of a tax clause contained in a will involves a question of law.
In re Estate of Allen, 960 A.2d 470 (Pa.Super.2008). This Court’s scope
of review is plenary and our standard of review is de novo. In re
Fridenberg, 33 A.3d 581, 584 (Pa.2010).
In interpreting a will, this Court has stated:
The testator’s intent is the polestar in the construction of
every will and that intent, if it is not unlawful, must
prevail.
In order to ascertain the testamentary intent, a court must
focus first and foremost on the precise wording of the will,
and if ambiguity exists, on the circumstances under which
the will was executed, only if the testator’s intent remains
uncertain may a court then resort to the general rules of
construction. The words of a will are not to be viewed in a
vacuum but rather as part of an overall testamentary plan.
When interpreting a will, we must give effect to word and
clause where reasonably possible so as not to render any
provision nugatory or mere surplusage. Further, technical
words must ordinarily be given their common legal effect
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as it is presumed these words were intentionally and
intelligently employed, especially where they are used by
someone learned in probate law.
Courts are not permitted to determine what they think the
testator might or would have desired under the existing
circumstances, or even what they think the testator meant
to say. Rather, the court must focus on the meaning of the
testator's words within the four corners of the will. Finally,
a court may not rewrite an unambiguous will.
In re Estate of Schulthesis, 747 A.2d 918, 922-23 (Pa.Super.2000)
(quoting In re Estate of Rider, 711 A.2d 1018, 1021 (Pa.Super.1998)).
Further, “[a]s most wills are seldom alike, it is necessary to interpret each
will according to its own peculiar terms.” In re Estate of Pyle, 570 A.2d
1074, 1077 (Pa.Super.1989) (citing In re Wahr's Estate, 88 A.2d 417, 419
(Pa.1952) (dissenting opinion, Bell and Musmanno, JJ.)).
Pursuant to Pennsylvania law:
(a) In the absence of a contrary intent appearing in the
will, the inheritance tax, including interest, on the transfer
of property which passes by will absolutely and in fee, and
which is not part of the residuary estate, shall be paid out
of the residuary estate and charged in the same manner as
a general administration expense of the estate. The
payments shall be made by the personal representative
and, if not so paid, shall be made by the transferee of the
residuary estate.
...
(f) In the absence of a contrary intent appearing in the will
or other instrument of transfer and except as otherwise
provided in this section, the ultimate liability for the
inheritance tax, including interest, shall be upon each
transferee.
72 P.S. § 9144(a), (f).
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Accordingly, unless the will provides otherwise, inheritance tax on
specific bequests shall be paid out of the residuary estate and charged in the
same manner as a general administration expense of the estate. The
administration expenses are to be paid in full prior to paying other expenses
and prior to distribution to beneficiaries. 20 Pa.C.S. § 3392.2 In contrast,
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2
Section 3392 provides:
If the applicable assets of the estate are insufficient to pay
all proper charges and claims in full, the personal
representative, subject to any preference given by law to
claims due the United States, shall pay them in the
following order, without priority as between claims of the
same class:
(1) The costs of administration.
(2) The family exemption.
(3) The costs of the decedent’s funeral and burial, and the
costs of medicines furnished to him within six months of
his death, of medical or nursing services performed for him
within that time, of hospital services including maintenance
provided him within that time, of services provided under
the medical assistance program provided within that time
and of services performed for him by any of his employees
within that time.
(4) The cost of a gravemarker.
(5) Rents for the occupancy of the decedent’s residence for
six months immediately prior to his death.
(5.1) Claims by the Commonwealth and the political
subdivisions of the Commonwealth.
(6) All other claims.
Further, the costs delineated in § 3392, are paid prior to distribution to
beneficiaries. See 20 Pa.C.S. § 3541 (delineating order of distribution to
(Footnote Continued Next Page)
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unless the will provides otherwise, the beneficiaries of the residuary estate
and non-probate assets must pay the inheritance tax liability for their
portion of the residuary estate.
Decedent’s Will contained the following provision regarding inheritance
taxes:
All estate, inheritance, and other death taxes (including
interest and penalties, if any) together with the expenses
of my last illness and all administration expenses including
an appropriate marker for my grave, payable in any
jurisdiction by reason of my death (including those taxes
and expenses payable with respect to assets which do not
pass under this Will) shall be paid out of and charged
against my estate.
Last Will and Testament, Item I.
Executor argues this provision contains the requisite contrary intent to
rebut the statutory presumption that residuary beneficiaries and
beneficiaries of non-probate assets must pay the inheritance tax for their
bequests.3 He maintains the language that the “taxes . . . together with the
expenses of my last illness and all administration expenses, . . . shall be
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(Footnote Continued)
pay claimants and distributes if the assets are insufficient to pay all
claimants and distributees in full).
3
There were three taxable transfers, two devised by the Will and one
transferred pursuant to a non-probate annuity. The AG does not dispute
that the taxes on the $10,000.00 gift to Decedent’s neighbor should be paid
by the residuary estate pursuant to 72 P.S. § 9144(a). Although the
Commonwealth’s brief focuses on the taxes owed by the nephew for the
devise of 40% of the residuary estate, it also maintains Decedent’s nephew
and niece are liable for the taxes on the annuity. Appellee’s Brief at 7.
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paid out of and charged against my estate” conveys Decedent’s intent that
the taxes on any taxable transfers were to be paid out of the residuary of
the estate prior to distribution to beneficiaries and were to be charged
against the entire residuary estate, not against only the beneficiary receiving
the taxable transfer. Appellant’s Brief at 17-20. Executor stresses that the
Will provides the taxes should be paid “together with” the administration
costs, which are paid prior to allocation and distribution and charged against
the estate. Id. Executor argues the orphans’ court interpretation of the
section renders the phrase “together with” meaningless. Id. at 18-19.
The Commonwealth argues the Will does not contain the language
needed to unambiguously require payment of the inheritance taxes by
Executor out of the principal of the residuary estate before allocation to the
named beneficiaries. Appellee Brief at 16. It notes the Inheritance and
Estate Tax Act exempts transfers to charitable organizations from application
of the inheritance tax. Id. at 17 (citing 72 P.S. § 9111(a), (c)). Therefore,
the bequests to St. Andrews Church, Erie Cathedral Preparatory School, and
Gannon University, all charitable organizations, are not subject to
inheritance taxes. Id. The Commonwealth argues that, pursuant to case
law, the Will must designate the source of the fund from which the
inheritance taxes would be paid to rebut the statutory presumption that the
residuary beneficiary is liable for taxes on his or her portion of the residuary
estate, i.e., a decedent’s will must designate that the taxes would be paid
from “the principal of the residuary estate.” Id. at 20. The Commonwealth
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maintains the orphans’ court’s interpretation does not render the words
“together with” meaningless because the clause directs that the taxes were
to be paid out of the estate, it just does not address the apportionment of
the taxes. Id. at 23. Therefore, it argues, the clause requires Executor to
pay the taxes from the residuary estate, but does not permit Executor to
allocate the taxes among all beneficiaries, including charitable
organizations.4 Id. at 23-24.
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4
Executor’s reply brief notes that the Inheritance Tax Act requires the
executor to file a tax return with respect to probate assets and imposes
personal liability if he does not withhold taxes before distribution to the
beneficiaries and remit the tax to Pennsylvania. Reply Brief at 6. The Act
states:
Subject to the provisions of sections 2144 and 2154, every
personal representative or other fiduciary . . . in charge of
or in possession of any property, . . . the transfer of which
is subject to a tax imposed by this article . . . shall deduct
the tax from the property, if money, or shall collect the tax
from the transferee. Any delivery of property or instrument
by the fiduciary to a transferee, . . . shall not relieve him
of personal liability for a tax imposed by this article. No
personal representative or other fiduciary in charge of or in
possession of any property subject to this article shall be
compelled to pay or deliver it to the transferee except
upon payment to him of the tax due other than tax on a
future interest not yet delinquent. . . . All money retained
by the personal representative or other fiduciary, or paid
to him on account of the taxes imposed by this article,
shall be remitted by him before the tax becomes
delinquent or, if received after the tax becomes delinquent,
shall be remitted by him promptly upon its receipt.
72 P.S. § 9146.
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The parties cite three cases in support of their arguments, In re
Estate of Pyle, 570 A.2d 1074, 1077 (Pa.Super.1989), In re Horn’s
Estate, 40 A.2d 471 (Pa.1945), and In re Estate of Jones, 796 A.2d 1003(Pa.Super.2002).
In Pyle, the decedent’s will provided the residue of her estate would
be divided into three equal shares, one going to Melanie Bannon and the
other two shares going to two charities. The will then provided:
I direct that all estate and inheritance taxes on any
property passing under this Will, or by reason of my death,
shall be paid out of the residuary portion of my estate, and
that no beneficiary of mine shall be called upon or required
to reimburse my Executors.
Pyle, 570 A.2d at 1076. This Court found the language not specific enough
to alter the statutory scheme. The Court noted such a conclusion did not
render the taxation clause meaningless, reasoning, it “simply provided that
all estate and inheritance taxes are to be paid out of the residuary portion of
the estate, but does not explain how the taxes are to be apportioned among
the residuary beneficiaries. . . . [The clause] is merely a recitation of the law
as found in [the statute].” Id. at 1077. The Court then stated:
If the testatrix had desired to disrupt the statutory
scheme, she could have used the appropriate language
and specifically stated that all taxes were to be paid from
the residue prior to distribution and that no part of the
taxes should be pro-rated or apportioned among the
persons or beneficiaries receiving the taxable property.
Id. at 1078. The Court concluded the decedent did not convey sufficient
intent to upset the statutory scheme. Id.
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The Supreme Court of Pennsylvania decided Horn’s Estate in 1945,
when a different statutory scheme was in place. At that time, taxes on all
devises were “payable by the legatee or out of the estate passing to her,
unless the will clearly indicate[d], either expressly or by necessary
implication, that the legacy was given free of the tax.” In re Spanenberg’s
Estate, 59 A.2d 103, 104 (Pa.1948) (citing In re Anderson’s Estate, 167
A. 329 (Pa.1933)). The will in Horn’s Estate contained the following
provision concerning the payment of taxes:
I direct the payment of my just debts, the expense of
probating my estate, and all inheritance and State taxes,
as well as real estate, personal property taxes thereon,
and all administration expenses, and all taxes of any
character, to be paid out of my estate before the payment
of the legacies and bequests and diveses [sic] hereinafter
made.
In re Horn’s, 40 A.2d at 473. The Appellant argued the word “before”
meant “prior in time,” and, therefore, the clause only directed the executors
to pay taxes before distribution, as the statute required them to do. Id.
The Supreme Court found:
Under appellant’s view the effect is the same as though
the paragraph had been omitted entirely from the will.
Such interpretation is forced and unnatural. A will should
be read in the ordinary and grammatical sense of the
words employed. A construction of a will which renders
every word operative is to be preferred to one which
makes some words and sentences idle and nugatory. As
stated by the court below, the obvious meaning is that ‘the
testatrix intended and directed that all transfer inheritance
taxes and estate taxes upon all legacies and bequests
should be paid out of the residuary estate by her
executors.
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Id. (internal citations omitted). In Horn’s Estate, the Court further found
the word “residuary” was not mandatory and the “language used was
sufficiently precise and definite and the intent of testatrix ‘clearly and
unequivocally expressed.’” Id.
In Jones, the will contained the following provision:
All federal, state and other death taxes payable on the
property forming my gross estate for tax purposes,
whether or not it passes under this Will, shall be paid out
of the principal of my residuary Estate just as if they were
my debts, and none of those taxes shall be charged
against my beneficiary.
Jones, 796 A.2d at 1004. Three months following execution of the will, the
decedent executed an inter vivos trust. The issue was whether the estate
was to pay taxes on the trust property. This Court found the will employed
“standard language that clearly and specifically states that all death taxes
should be paid from the principal of the residuary estate.” Id. at 1006. The
trust had a provision for payment of property taxes, but not death taxes.
The Court further found the provision “sufficiently clear and specific to
overcome the statutory scheme for apportionment of estate and inheritance
taxes.” Id. It provided the residuary estate would pay all death taxes,
including those attributable to property that does not pass under the Will.
Id. The Court distinguished In re Estate of Erieg, 267 A.2d 841(Pa.1970), where the will provided for payment of death taxes from the
residuary estate, but not from the principal of the residuary estate. Id. In
Ereig, the Supreme Court of Pennsylvania found the orphans’ court properly
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allocated 5% of the taxes to the wife’s share of the residuary estate and
95% of the taxes to the niece’s share.5 The Court found, although the
testator “had specifically directed that all death taxes be paid from the
residuary estate, the testator had not provided any guidance as to the
allocation of the tax liability between the two beneficiaries of the residuary
estate.” Id. at 1007. The Court in Jones found Ereig inapplicable because
in Jones there was only one beneficiary of the residuary estate and in
Jones the testator provided the taxes were to be paid from the principal of
the residuary estate. Id.
Here, the tax clause of Decedent’s Will unambiguously requires that
the taxes be paid from the residuary of the estate prior to allocation among,
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5
The Supreme Court in Ereig also noted:
There is yet another reason for interpreting ITEM IV as we
do: the decedent probably included ITEM IV because, at
the time the will was written, October 20, 1965 the
statutory scheme of proration required that All
beneficiaries, including those receiving specific pecuniary
legacies, had to share the burden of paying the estate
taxes. Act of August 24, 1951, amended by Act of
December 22, 1965, P.L. 1204, 20 P.S. s 883(d). In light
of this provision the decedent might well have added ITEM
IV, which is not an uncommon clause, in order to insure
the integrity of his specific bequests and non-probate
assets, and not with any thought to affecting the proration
of taxes between the two residuary legatees. Given this
highly probable alternative explanation for the inclusion of
ITEM IV, we are hardly willing to give it the much broader
interpretation urged on us by Jane Laher.
267 A.2d at 845-46.
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or distribution to, the residuary beneficiaries. Although the clause does not
state the taxes should be paid from the principal of the residuary estate or
paid prior to distribution, it requires the taxes to be paid “together with” the
administration expenses, and therefore, requires the taxes to be paid from
the “principal” prior to allocation and distribution, as that is how the
administrative expenses are paid. Similar to Horn, the Commonwealth’s
interpretation would not read the clause, including its requirement that all
taxes “together with . . . all administration expenses . . . shall be paid out of
and charged against my estate,” in the “ordinary and grammatical sense of
the words employed.” Unlike Pyle, which only stated the taxes “shall be
paid out of the residuary portion of my estate,” Decedent stated the taxes
should be paid “together with” the administration expenses, which are paid
prior to allocation among, and distribution to, the beneficiaries.
Because we find Decedent’s Will unambiguously requires that the
taxes be paid out of the residuary of the estate prior to allocation among the
beneficiaries, we need not address Executor’s remaining issues, i.e., whether
the trial court erred in excluding the testimony of the scrivener of the Will,
whether the trial court erred in failing to accept the settlement of the issue
by the charitable beneficiaries, and whether the order needs to clarify that
the taxes for the specific bequest should be paid out of the residuary prior to
allocation among beneficiaries.
Order vacated. Case remanded to the trial court for further
proceedings consistent with this opinion. Jurisdiction relinquished.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/30/2015
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