Mercantile-Safe Deposit & Trust Co. v. Register of Wills

Hammond, C. J., delivered the opinion of the Court. In a deed of trust conveying securities, executed in 1934 to Safe Deposit and Trust Company (now Mercantile-Safe Deposit and Trust Company, the appellant), Dr. Alexius McGlannan of Baltimore provided (a) that the income should go to him for life, then to his widow for life and then to his son for life, and (b) that upon the death of the last survivor of the three the corpus of the trust estate should be distributed to the descendants of the son then living, and if none, to those of ten named nieces and nephews of the settlor who might then be living. Dr. McGlannan died in 1940, his wife in 1943, and the son, who never had a child, in 1967. Nine of the ten nieces and nephews survived the son.

On April 24, 1940, within ninety days after the death of Dr. McGlannan, the trustee, which also was executor of Dr. McGlannan’s estate, asked the Orphans’ Court to fix the inheritance tax due. The court appointed appraisers who valued the trust estate at $256,456.86. The ⁴⁵⁶ trustee paid an inheritance tax thereon of 1% of this amount, sending its check for $2,564.57 to the Register of Wills of Baltimore City with a letter stating that the check was “in payment of the entire amount of Maryland inheritance tax due by our company as Trustee.” On August 1, 1968, the trustee filed a bill in the Circuit Court No. 2 of Baltimore City against the Register of Wills of Baltimore City, the Comptroller of the Treasury of Maryland and the nine surviving nieces and nephews. The bill alleged that after the death of Dr. McGlannan in 1940 the trustee had proceeded under then §§ 124 and 125 of Article 81 of the Code (now §§ 160 and 161) to have ascertained the inheritance tax payable, and paid the amount assessed, that the assessment was not appealed, and that: “any modification or attempt to modify the said order of the said Orphans’ Court so fixing the said tax; or attempting to reopen said appraisement and assessment; was barred at the latest on April 24, 1944, by reason of the provisions of Maryland Code, 1989, Section 160, which now appears in the same form as Maryland Code, 1957, Article 81, Section 212.

The said Section reads in part as follows: ‘All State, County and City taxes of every kind for, which no other period of limitation is .prescribed by this Article shall be collected within four years after they shall have become due, or else shall be ultimately barred * * . • The bill further alleged that payment of the tax was made pursuant to then §§ 124 and 125 of Art. 81 of the Code (now §§ 160 and 161) and that those sections remained substantially unaltered until the passage of Ch. 696 of the Laws of 1966, which repealed and reenacted :yvith amendments § 161. (The essence of the amendment was to provide first that: “ (b) In the event any interest shall ultimately vest in possession in someone other than the ⁴⁵⁷ person by or on whose behalf application may have been made (and the tax paid thereon) under subsection (a) hereof, such person shall pay a tax according to his relationship to the original decedent and based upon the value of the property or interest therein at the time when the same vests in possession; provided, however, that the tax or taxes previously paid with respect to such property shall be credited to such new tax and only the balance shall be assessed,” and second that: “this Act shall take effect according to its terms June 1, 1966, regardless of the date of death of the decedent.”) The bill alleged that the trustee had been advised that the 1966 amendment of § 161, “did not affect or in anywise change the liability on account of inheritance taxes assessed and imposed upon interests created by the above mentioned trust. However, it is advised that it should obtain the instructions of this Court with regard thereto prior to making final distribution of the trust estate.” It was then alleged that if additional inheritance taxes were now assessed and paid, a portion of the Maryland estate tax that had been paid in 1941 should be refunded. The trustee prayed that the court assume jurisdiction of the trust (1) in order to determine that there are no further inheritance taxes due or, if there are, to fix the amount and the proper payors; (2) in order to determine whether there has been overpayment of Maryland estate taxes and, if so, the amount of refund payable; and (3) in order to direct the trustee with regard to final distribution of the estate.

The Register of Wills and the Comptroller demurred. Thereafter, Pohlhaus v. Register of Wills, 248 Md. 625 , ⁴⁵⁸ which was decided on February 7, 1968, came to the attention of counsel for the trustee. Pohlhaus decided that property not subject to probate is to be appraised as provided in § 169 of Art. 81 of the Code (1969 Repl. Vol.).

Thereupon the trustee amended its bill to eliminate references to §§ 124 and 125 (and so to their present counterparts, §§ 160 and 161) of Art. 81, and to refer to § 133 of Art. 81 (which is now § 169) as the section under which it proceeded in 1940. 1 The demurrer of the Register of Wills and the Comptroller was ordered by the court to be taken as refiled to the amended bill. The demurrer (1) said that the Circuit ⁴⁵⁹ Court lacked jurisdiction because the function of fixing inheritance taxes is “committed by law to the Register of Wills of Baltimore City subject to the appellate remedies provided by statute” (2) made similar statements as to the Maryland estate taxes by reason of §§ 215-219 of Art. 81, (3) alleged that §§ 160 and 161 of Art. 81, as amended, apply, and therefore § 161 requires payment of an additional inheritance tax on the property passing to the nieces and nephews at the collateral rate, with credit for the amount paid in 1940, and (4) that § 108 of Art. 16 and Maryland Rule V 71 do not contemplate the assumption of jurisdiction over trusts by equity courts where the only question at issue relates to determination of taxes. The case was referred to a Master, who correctly held under Garrett County Sanitary District, Inc. v. Mayor & Town Council of Oakland, 249 Md. 400 , that the bill of the trustee was in the nature of a bill for declaratory relief and, therefore, a demurrer could test only whether the complainant was entitled to any declaration, not whether it was entitled to that sought, and further held that the rights and duties sought to be declared were wholly legal in nature, and therefore the declaration should not be made by an equity court but by a law court. The Master’s recommendation that the demurrer be overruled and the case transferred to the Superior Court of Baltimore City was followed and effectuated by the chancellor.

Thereupon the parties stipulated as follows: “Without waiving objections to jurisdiction either in the Circuit Court or in this Court, it is agreed that, the facts not being in dispute, this case shall be submitted to the Court for decision upon the facts as stated in the Amended Complaint, with exhibits thereto attached, which, for purposes of this litigation, shall be taken as true.” Judge Sodaro, after a hearing, held that “a court of equity lacks the power to assume jurisdiction of a trust ⁴⁶⁰ for the sole purpose of determining the applicability of a tax statute to the corpus of said trust.” He held next that the declaration sought should not be made by the Superior Court because under the cases and § 6 of Art. 31A of the Code (1967 Repl. Yol.) (the Uniform Declaratory Judgment Act), declaratory relief is not appropriate “when * * * a statute provides a special form of remedy for a specific type of case, that statutory remedy must be followed.” He said in sustaining the demurrer: 2 “The mandatory statutory procedure for the contest of Maryland inheritance taxes is clear. The tax is to be paid to the Register of Wills of the appropriate subdivision (Article 81, Sec. 152) and a claim for refund is filed with the Comptroller of the Treasury (Article 81, Sec. 215). If the claim for refund is disallowed, the taxpayer may appeal to the Maryland Tax Court (Art. 81, Sec. 217) and from there to the circuit court and Court of Appeals (Art. 81, Sec. 229 (1) and (m)).

Or the taxpayer may refuse to pay the inheritance taxes and be.sued by the State of Maryland (Art. 81, Secs. 206-211). “This procedure bears a marked resemblance to that established for the contest of state income taxes, discussed in Williams v. Tawes, 179 Md. 224 ,(1941). There.the Court refused to permit