Good Samaritan Hospital v. Dugan

Pattisok, J., delivered the opinion of the Court. Thomas O’Neill, a well known merchant of Baltimore City, died on the sixth clay of April, 1919, after having first executed his last will and testament, by which he devised and bequeathed his large estate, consisting of real estate of the appraised value of more than one million dallara and personal property valued at over five millions of dollars. The testator by his will and codicils- thereto-, devised and bequeathed his entire residuary estate, after the; payment of certain legacies to the appellees, as trustee®, upon trust to pay out of the income certain annuities to his widow, his. sisters and his brother during their respective lives. The balance of the income the trustees- were directed to- accumulate and reinvest until the death of the widow, when they were to set aside sufficient- funds- to- support the- remaining annuities. if any, and to transfer the balance, both principal and accumulated income, to. the plaintiffs, (appellants in this Court) subject, however, as to- two hundred and fifty thousand dollars ($250,000) in value- of s-aid residuary estate to the exercise by the testator’s- widow of a general power of testamentary appointment given to her by s-aid will, and subject to the payment of $300,000 (reduced in ademption in ³⁷⁶ tbe testator’s lifetime to $218,277.50) to- the Associated Professors of Loyola College.

Tbe sanction of tbe General Assembly was duly given to said devises and bequests. After tbe death of tbe said testator, letters testamentary upon bis estate were duly granted tbe defendants wbo (as executors named in tbe will) took upon tbemseives tbe burden of administering tbe same. • As executors, tbe appellees paid ail debts, funeral expenses, tbe expenses of tbe administration, pecuniary legacies and tbe amount of federal estate tax conceded to be due, and distributed to tbemseives, as trustees, sums aggregating five million four bundred and fifty three thousand four bundred sixty-four dollars and thirty-three cents, leaving still undistributed in their bands', of tbe personal estate, ready for distribution, tbe sum of two bundred and sixty-five thousand dollars. Tbe residuary real and personal estate (exclusive of tbe two hundred and sixty-five thousand dollars undistributed in tbe bands of tbe executors) amounted to' six million four fiundred and sixty-two thousand and four bundred and twenty-six dollars and fifty-one cents. Of this amount, five hundred and thirty thousand two bundred ninety-four dollars and twenty-five cents were devised and bequeathed to persons or corporations other than tbe appellants, and the balance, five million nine bundred and thirty-two- thousand one bundred and thirty- two dollars and twenty-six cents represented the amount passing to- tbe trastees in trust for tbe appellants.

Tbe executors paid the collateral inheritance tax of five per cent, upon tbe real estate, which amounted to> fifty thousand four bundred and forty-eight dollars and eleven cents, and also the collateral inheritance tax on tbe full amount of the personal estate distributed to them as trustees less tbe amount held in trust for persons exempt from such tax, tbe •amount paid for collateral inheritance tax on tbe amount passing to the trustees for tbe appellants being two bundred ninety-six thousand six bundred and six dollars and sixty-one cents. ³⁷⁷ The executors then made out their federal estate tax return in which they deducted the entire amount passing to the trustees in trust for the appellants, including the amount paid by them as collateral inheritance tax thereon. This was not, as contended by the federal tax authorities, in conformity with the ruling of the Commissioner of Internal Revenue, based upon the decision of the Circuit Court of Appeals in Miles v. Curley, 291 Fed. 761 , construing the Maryland Statute providing for the payment of a collateral inheritance tax, holding that the entire charitable legacy should not be der ducted, but only the amount of the legacy remaining after the inheritance tax has been deducted therefrom; or, in other' words, by the ruling of the commissioner the amount of the inheritance tax, though charged against and paid out of the legacy passing in this case to the appellees in trust for the appellants, is subject to the federal estate tax, on the ground that it attached before distribution and never passed to the appellees in trust for the appellants. The federal authorities holding to this view of the law, levied an additional assessment upon the amount of the inheritance tax, which had not been included in the federal estate tax returns made by the executors, and it was to prevent the appellees from paying such additional tax, which would further reduce the amount passing to the appellants, that the latter filed their bill alleging the facts we have stated and others, and asking, among: other things, that the defendants, the appellees, be restrained from paying said additional federal estate tax. Upon the hearing of the bill and answer filed thereto, admitting the facts, but denying the conclusions of law stated in the bill, tlie court below, following' the decision in Miles v. Curley, supra, denied the plaintiffs the relief sought, and declared that “the Maryland collateral inheritance tax is really an estate tax levied in respect of the interest which came to an end at the death of the testator, Thomas O’Neill, deceased, and that the amount of said tax should not he treated as. paid by the legatees or devisees out of the property or ³⁷⁸ «stale bequeathed or devised to them, but should be treated as paid by aud out of the estate of the testator which as aforesaid came to an end upon his- death.” The sole question, in this ease- is whether the collateral inheritance tax imposed by .article 81, sections 120-144 of the Code of this State, is a tax upon the right of the beneficiary to receive the inheritance or legacy, or an estate tax on the right of the decedent to transmit the same.

Should it be held that such tax is a tax on the right of the beneficiary to receive the inheritance or legacy, then it is conceded that under the federal act no federal estate tax should in this case be levied oi’ assessed against the .amount of the collateral inheritance tax upon the legacy passing to the appellees, a charitable corporation; but should it be held that such collateral inheritance tax is -an estate tax on the right of the decedent to transmit the inheritance or legacy, then it is conceded that the federal estate tax should be assessed against the amount of such collateral inheritance tax. It, therefore, becomes necessary for us to decide .whether such inheritance tax is a tax on the right of the beneficiary to receive it, or an estate tax on the right of the decedents to- transmit the legacy. To reach a decision upon this question we must construe the statute imposing the tax. In section 120 of said article it is said: “All estates, real, personal and mixed, money, public and private securities for money of every kind passing from any person who may die seized and possessed thereof being in this State, or any part of such estate or estates, money or securities, or interest therein, transferred by deed, will, grant, bargain, gift or sale, made or intended to take effect in possession after the death of the grantor, bargainor, devisor or donor, to any person or persons, bodies politic or corporate, in trust or otherwise, other than to or for the use of the father, mother, husband, wife, children and lineal descendants of the grantor, bar-gainor or testator, donor or intestate, shall be subject to a tax of five per centum in every hundred dollars of the clear value of such estate, money or -securities; and all executors and administrators shall only be discharged from liability for ³⁷⁹ the amount of such tax, the payment of which, they be charged with, by paying the same for the use of this State.” Section 123 contains the provision that “every executor or administrator shall, within thirteen months from the date of his administration, pay said tax on distributive shares and legacies in his hands”; and section 132 provides that “the executor or administrator shall collect the same from the parties liable to pay said tax or their legal representatives,” within the time mentioned above; and where the tax is upon real estate the condition is attached thereto that, if the parties liable to pay said tax, neglect or fail to pay the same within the required time, the property upou which the tax is imposed shall be sold for the payment of such tax; and in section 133 it is provided that, “whenever any estate, real, personal or mixed, of a decedent shall he subject to the tax * * * and there he a life estate or interest for a term of years, or a contingent interest, given to one party and the remainder, or reversionary interest to another party, the orphans’ court * * * shall determine * * * what proportion the party entitled to said life estate, or interest for a term of years, or contingent interest, shall pay of said tax * * * and the party entitled to said life estate or interest for a term of years, or other contingent interest, shall * * * p,ay to the register of wills his proportion of said