Pfeufer v. Cyphers

BELL, C.J. The instant case involves the interpretation of language in the Last Will and Testament of James Russell Hoffman, the testator, and the effect of that language in light of Maryland Code (1988, 2004 RepLVol.), § 7-203(b)(2) of the Tax-General Article. 1 The testator left his residuary estate to four people, three of whom are relatives of the testator and, therefore, pursuant to the above statute, each of whom is exempt from paying inheritance taxes on his or her share of the residuary estate. That is not the case with Bruce Pfeufer, the fourth residuary legatee, the appellant. He is not a relative of the ⁶⁴⁶ testator and, thus, he does not enjoy any such exemption. Nevertheless, the appellant contended in the Orphans’ Court for Montgomery County that, even though the statute does not contain an exemption from paying inheritance tax for him, Article III of the testator’s will, because it requires that any inheritance tax be paid prior to apportionment or, “off-the-top,” in effect, does.

The Orphans’ Court did not agree and, rather than apportion the tax, ordered the tax to be paid solely by the appellant. The appellant noted an appeal to the Court of Special Appeals. He asked that court to decide whether a testator may provide in his will that inheritance taxes be paid from the entire residuary estate prior to apportionment among the residuary legatees when a statute provides that some of the residuary legatees are not required to pay inheritance taxes. 2 On our own motion and prior to proceedings in the Court of Special Appeals, we issued a writ of certiorari, Pfeufer v. Cyphers, 385 Md. 161 , 867 A.2d 1062 (2005). We shall hold that a testator may direct inheritance taxes to be paid from the entire residuary estate prior to apportionment among residuary legatees even when a statute exempts some of the residuary legatees from the payment of inheritance taxes.

Thus, we shall reverse the judgement of the Orphans’ Court. I. The testator’s will provided that his residuary estate be distributed equally to Pamela J. Cyphers, his daughter, the appellee, 3 to James Russell Hoffman, Jr., his son, to Janice Carol Hoffman, his sister, and to the appellant. Section 7-203(b) exempts from payment of inheritance taxes enumerated relatives of the testator, including children and siblings. As ⁶⁴⁷ the appellant is not one of such enumerated relatives, the statute does not exempt him from the payment of such taxes.

In an amended First and Final Administration Account for the estate, the appellee deducted the inheritance tax due on the appellant’s residuary bequest 4 from the entire residuary estate before allocating the balance of the residuary estate in equal shares to each of the four residuary legatees. She did so on the authority of Article III of the testator’s will, which provides: “I direct that all estate, inheritance, transfer, legacy or succession taxes, or death duties (including interest and penalties thereon) which may be assessed or imposed with respect to my estate, or any part thereof, of whatever nature and description and wheresoever situated, ... shall be paid out of the principal of my residuary estate; and such payment shall be made as an expense of the administration of my estate without apportionment. ” (Emphasis added.) Over a month later, apparently prior to distribution of the residuary estate, the appellee filed an Amended Schedule G to the Account, which reallocated the payment of the inheritance tax. Rather than from the residuary estate, the inheritance tax now was to be paid entirely from the appellant’s share of the residuary estate. Excepting to the reallocation, the appellant argued that the appellee’s initial allocation of the inheritance tax burden was correct, Article III of the will required that such taxes be paid out of the entire residuary estate and not solely from his portion of the residuary estate.

The Orphans’ Court for Montgomery County overruled the exception, holding that the allocation of the tax burden reflected in Amended Schedule G was appropriate. It reasoned: “All right. Well, this may be one of those battle-of-the-forms kind of situations, where you have boilerplate language that is, in most cases, not a problem, but in a rare ⁶⁴⁸ case such as this, a problem is created when sort of stock boilerplate language is used and that may be what happened here. I think the legislative intent, as indicated by Section 7-203(b) of the Tax-General Article, is very, very clear that lineal legatees are exempt from inheritance tax pursuant to that section.

That is the clear intent of the legislature. And, for those reasons, the exceptions are overruled.” This appeal ensued. For the reasons that follow, we shall reverse the judgment of the Orphans’ Court.

II

It is well settled that the “findings of fact of an Orphans’ Court are entitled to a presumption of correctness.” New York State Library School Ass’n v. Atwater, 227 Md. 155, 157 , 175 A.2d 592, 593 (1961); Shapiro v. Marcus, 211 Md. 83, 88 , 124 A.2d 846, 849 (1956). It is equally well settled, however, that interpretations of law by such courts are not entitled to the same “ ‘presumption of correctness on review: the appellate court must apply the law as it understands it to be.’ ” Comptroller of Treasury v. Gannett Co. Inc., 356 Md. 699, 707 , 741 A.2d 1130, 1141 (1999) (quoting Rohrbaugh v. Estate of Stern, 305 Md. 443 , 447 n. 2, 505 A.2d 113 , 115 n. 2 (1986). Thus, an appellate court, including this Court, must determine whether the conclusions of law made by a trial court in the first instance are “legally correct under a de novo standard of review.” Banks v. Pusey, 393 Md. 688, 697 , 904 A.2d 448, 454 (2006) (quotations omitted)); see Bern-Shaw Ltd. Partnership v. Mayor and City Council of Baltimore, 377 Md. 277, 291 , 833 A.2d 502, 510 (2003); J.L. Matthews, Inc. v. Maryland-National Capital Park and Planning Comm’n, 368 Md. 71, 93 , 792 A.2d 288, 301 (2002). 5 ⁶⁴⁹ III. When construing a will, the “paramount concern of the court is to ascertain and effectuate the testator’s expressed intent.” Emmert v. Hearn, 309 Md. 19, 23 , 522 A.2d 377, 379 (1987) (citing LeRoy v. Kirk, 262 Md. 276, 279 , 277 A.2d 611, 613 (1971); Wm.

D. Shellady, Inc. v. Herlihy, 236 Md. 461, 471 , 204 A.2d 504, 509 (1964); Marty v. First Nat’l Bank of Baltimore, 209 Md. 210, 216-17 , 120 A.2d 841, 844 (1956)). In other words, the search is not for the testator’s “presumed [intention] but for his expressed intention.” LeRoy, 262 Md. at 279 , 277 A.2d at 613 (citing Marty, 209 Md. at 216-17 , 120 A.2d at 844 ) (emphasis added). Generally, that intent is “gathered from the four corners of the will, Reedy v. Barber, 253 Md. 141, 148 , 251 A.2d 882 [, 887] (1969), with the words of the will given their ‘plain meaning and import.’ ” Emmert, 309 Md. at 23 , 522 A.2d at 380 (quoting LeRoy, 262 Md. at 280 , 277 A.2d at 613 ). Words having legal significance, however, “will be construed in that sense unless the will clearly indicates otherwise.” Emmert, 309 Md. at 23 , 522 A.2d at 380 (citing Patched v. Groom, 185 Md. 10, 15 , 43 A.2d 32, 35 (1945)).

In Johnson v. Had, 283 Md. 644 , 392 A.2d 1103 (1978), this Court was asked to resolve who, as between the residuary legatee and the beneficiaries named in the last will and testament at issue, has the obligation for the payment of the federal estate taxes “assessed on the worldly goods owned by the testatrix at the time of her death.” Id. at 645-46 , 392 A.2d at 1105 . Maryland Code (1974), § 11-109 of the Estates and Trusts Article required federal and Maryland estate taxes to be apportioned “among all persons interested in the estate,” ⁶⁵⁰ unless “otherwise provided in the will.” 6 The personal representative, apparently in reliance on this provision, sought the permission of the Orphans’ Court to apportion the estate taxes due in respect to the testatrix’s death among all of the beneficiaries named in the will. Id. at 646-47, 392 A.2d at 1105-06 . Two of the beneficiaries opposed such an order.

They relied on that provision of the testatrix’s will that declared: “I direct that all lawful debts I owe at the time of my death, including funeral and administration expenses and the expense of my last illness (but not including debts secured by mortgages on real property, except matured obligations as they fall due), and all estate and inheritance taxes, be paid as soon after my death as can lawfully and conveniently be done.” They argued that this provision expressed the intention of the testatrix that the burden of the taxes be borne by the residuary estate. Id. at 647 , 392 A.2d at 1105 . The Orphans’ Court rejected the beneficiaries’ argument and entered an order apportioning the taxes, pro rata, among all of the beneficiaries, a ruling that was reversed by the Court of Special Appeals. Hall v. Johnson, 38 Md.App. 589 , 382 A.2d 332 (1978).

Agreeing with the Orphans’ Court, we reversed the judgment of the intermediate appellate court. At the outset, we pointed out that § 11-109 envisioned the supremacy of the intention of the testator or testatrix, as reflected in the ⁶⁵¹ language of the will, stating that its “application of the rule of apportionment set out in subsection (b) is mandatory, ‘unless the will evinces an expression of intent to the contrary,'’ ” Johnson v. Hall, 283 Md. at 648 , 392 A.2d at 1106 (emphasis in original), and noted its consistency with, thus reiterating and emphasizing, “the firmly established rule[ 7 ] that, unless prohibited by statute or public policy, the intent of the testator as ascertained from the four corners of the will controls the disposition of a decedent’s estate.” Id. at 648-49 , 392 A.2d at 1106 . We also observed: “under tax apportionment statutes an intention not to apportion must be plainly stated in the will or other controlling instrument before the legislative scheme can be ignored. ... In examining a will for the purpose of fixing estate tax responsibility, the court should not try to discern what the testator meant to say, but what he meant by what he did say, for a few simple words, which need not be couched in terms of a negative direction against apportionment, will be sufficient if they demonstratively express the testator’s intent.” Id. at 649 , 392 A.2d at 1106-07 (citations omitted).

We held that the language of the will, on which the beneficiaries relied, did not sufficiently express the intention of the testatrix that the estate taxes be paid in a manner different from, or otherwise than, that required by § 11-109. We explained: “Accepting the premise, as all courts on both sides of this controversy do, that a statute directing apportionment will only be ignored if the testator clearly and unambiguously indicates that to be his intention, we fail to see how the first clause, whether read in isolation or examined in the context ⁶⁵² of the entire will, in any way expresses Dr. Johnson’s desire that all the beneficiaries should not share proportionately the bite of the federal estate tax.” Id. at 652, 392 A.2d at 1108 (footnote omitted). Further elucidating, the Court stated: “We recognize, of course, that our failure to give the language of the first clause the import respondents assert it deserves relegates it to little more than a restatement of the statutory duties of the executor.... Yet, we do not think this interpretation in any way vitiates the rule of construction that ‘words in a will are never to be rejected as meaningless or repugnant if by any reasonable construction they may be given effect and made consistent and significant.’ ...

Simply because the words of the will restate the law or add nothing of substance to what would have occurred without them does not deprive those words of their effect for they are indicative of the testator’s intent and must be respected and carried out independently of any parallel, consistent provisions of the law----Further, the logic of respondent’s argument that by mentioning taxes the testatrix must have intended something other than what the law provides requires that they likewise be able to assign some special role, other than one parroting the law, to the remainder of the words of the first clause directing payment of expenses and debts. This they make no effort to do. “No magic or mystical word or phrase is required to shift the burden of estate taxes from the legatees and devisees to the residue; however, for us to recognize that the testatrix’s ritualistic, ‘boiler plate’ reference to the payment of debts, expenses, and taxes in the first clause of her will states an intent not to apportion would require that we be clairvoyant. In short, we detect no direction by the decedent in the first paragraph of her will not to apportion taxes as section 11-109 provides.” Id. at 654-55 , 392 A.2d at 1109-10 (citations omitted) (footnote omitted). ⁶⁵³ Bouse v. Hutzler, 180 Md. 682 , 26 A.2d 767 (1942) is to like effect. In that case, involving calculation of inheritance tax when a testator directs that it be paid from the residuary-estate, we commented: “The Maryland inheritance tax is imposed on the privilege of becoming a beneficiary under a will or of succeeding to an inheritance.

Under the Maryland statute, the executor, administrator, or other person making distribution is charged with the payment of inheritance taxes to the Register of Wills for the use of the State. Code 1939, Art. 81, § 112.[ 8 ] “However, since the tax is a charge against each distributive share according to its value, the executor, administrator or other person must pay the tax out of the legacy, devise, or distributive share of the estate or with money collected from the legatee, devisee, or heir. Of course, a testator has the ⁶⁵⁴ right to direct that the tax he paid out of the residuary estate. In case he so directs, he thereby increases his gift to the legatee to the extent of the tax, for he is providing for the payment of an obligation which the legatee would have been obliged to pay if the testator had not directed otherwise____” Bouse, 180 Md. at 685 , 26 A.2d at 768-69 (citations omitted) (emphasis added).

Once again, we recognized the testator’s intent as paramount. So, too, is Smith v. State, 134 Md. 473 , 107 A. 255 (1919). That case involved the exercise by the testatrix of a power of testamentary appointment reserved to her when she executed a deed of trust, declaring certain trusts. In the will executed in the exercise of the reserved power, and a codicil executed subsequently, the testatrix directed her executor to: “[P]ay all collateral or other inheritance taxes out of my estate, to the end that each legatee above named may receive, free of any such tax the full amount of his or her legacy hereinbefore given.” “[P]ay out of the residue of my estate any and all collateral, inheritance, succession, or other like tax or taxes, federal, state or municipal, upon each of the legacies given and bequeathed both in this codicil and in my said will, to the end that each legatee named may receive free of any tax the full amount of his or her respective legacy.” 134 Md. at 477 , 107 A. at 256 .

The court below having passed a decree requiring the payment of taxes on “estates, real, personal and mixed, money, public and private securities for money of every kind ... transferred by ... will,” out of the residuary estate, rejecting the argument made by the testatrix’s executor that no taxes were payable or they were the responsibility of the legacies, 134 Md. at 478 , 107 A. at 257 , the executor appealed. This Court affirmed the decree. On the issue of where the burden of the taxes fell, we said: “The remaining question which was suggested by the argument was the fund from which the money was to be paid, if the tax was valid. It is entirely clear what the intent of the ⁶⁵⁵ testatrix was from the quotation made already from her will and codicil.

It is true that the decree appealed from might have been a little clearer in its phraseology, but that is a verbal matter only, and will occasion no practical difficulty in the conduct of the executors and trustees.” Id. at 480 , 107 A. at 257-58 . It is clear that the testamentary language used by the testator in the case at bar clearly expresses the testator’s intent that any, and all, inheritance