Weinberg v. Safe Deposit & Trust Co.

Marbury, C. J., delivered the opinion of the Court. This case involves the Federal Estate Tax, the Maryland Apportionment Act, and the Maryland Distribution Statute. The chief question raised is whether a widow, who renounced her husband’s will and elected to take her statutory share in his land and personal estate, receives that share without contribution to the Federal Estate Tax, or whether her share in the estate is to be calculated after the deduction of that tax. A subsidiary question is whether such a widow must contribute a part of the Federal Estate Tax because she received the proceeds of certain life insurance policies insuring her husband’s life, which were includable in the decedent’s gross estate for Federal Estate Tax purposes.

The facts are simple and uncontradicted. Louis Weinberg, a resident of Baltimore City, died testate on December 25, 1949. He was survived by a widow, the appellant, but by no descendants, nor was he survived by his father or his mother. His will was admitted to probate by the Orphans’ Court of Baltimore City on January 5, 1950.

On October 5, 1950, within the time given her by an appropriate enlargement, the widow delivered to the Register of Wills of Baltimore City her renunciation of the will, and her election to take, in ⁵⁴³ lieu of bequests or devises therein, her legal share of the estate. On December 19, 1950, the Safe Deposit & Trust Company of Baltimore, executor of the will, filed a bill in the Circuit Court of Baltimore City, alleging that as a result of the renunciation, the estate was entitled to the marital deduction provided for in the Revenue Act of 1948 Internal Revenue Code, Sec. 812, U. S. C. A., Title 26, Section 812, asking the court to take jurisdiction, and to instruct it as to this and other features of the estate. After appropriate answers had been filed by the interested parties, including a guardian ad litem, appointed for persons not in being whose interests might be affected, the chancellor filed a memorandum opinion and passed a decree on April 9, 1951, directing that the Federal Estate Tax be deducted before computing the share of the appellant, and finding that the executor was entitled to recover from the appellant the portion of the Federal Estate Tax attributable to the life insurance proceeds received by her. From this decree the widow appealed.

The Federal Estate Tax is annotated in U. S. C. A., Title 26. It provides for the computation of a tax on the estates of decedents dying after the date of its enactment, and fixes a rapidly increasing per centum of the net estate to be paid. Section 810. The gross estate is determined by including the value, at the time of the decedent’s death, of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States, to the extent of the interest therein of the decedent at the time of his death, with the addition of dower and courtesy interests, transfers in contemplation of or taking effect at death, proceeds of life insurance, etc. Section 811.

The net estate is fixed for the purpose of the tax by Section 812, by deducting from the gross estate an exemption of $100,000.00, but see Section 935(c), and then funeral expenses, administration expenses, claims against the estate, unpaid mortgages, etc. ⁵⁴⁴ The marital- deduction, which is the part of the statute which gives rise to the present controversy, is set out in Section 812, sub-section (e)(1), and the aggregate amount of the deductions allowed under this sub-section are not to exceed 50% of the adjusted gross estate, the computation of which is provided in Section 812, subsection (e)(2). The marital deduction is a new feature in the estate tax, and was passed by the Revenue Act of 1948, going into effect on April 2, 1948. Its purpose was to give to surviving spouses in all states rights equivalent to those which had formerly existed only in certain states which had statutes providing for community property. Its operation reduces the tax very considerably, not only because the base upon which the tax is calculated is reduced, but also because the rate is progressive, and a much higher percentage is taken on larger bases.

In the case before us, the net estate, before taxes, was one million six hundred and forty-eight thousand and odd dollars. The Federal Estate Tax on this, without any marital deduction, was a little in excess of half a million dollars. By the appellant’s renunciation, this tax is reduced about one half, if the chancellor’s decision is correct. It would be reduced to two hundred and thirteen thousand dollars, if the appellant’s theory is correct.

The Federal Estate Tax was before the Supreme Court of the United States in the case of Riggs v. Del Drago, 317 U. S. 95 , 63 S. Ct. 109 , 87 L. Ed. 106 . In that case, the State of New York had passed an apportionment act which, it was contended and decided by the New York Court of Appeals, conflicted with the federal act in the determination of who was to pay the tax, and had been held unconstitutional by that court. The Supreme Court reversed that holding, and said that Congress intended that the Federal Estate Tax should be paid out of the estate as a whole, but that the applicable state law as to the devolution of property at death should govern the distribution of the remainder and the ultimate impact ⁵⁴⁵ of the tax. In so deciding, the court said: “In the Act of 1916 Congress turned from the previous century’s inheritance tax upon the receipt of property by survivors, see Knowlton v. Moore, 178 U. S. 41 , 20 S. Ct. 747 , 44 L. Ed. 969 ; Scholey v. Rew, 23 Wall. 331 , 23 L. Ed. 99 , to an estate tax upon the transmission of a statutory ‘net estate’ by a decedent.

That act directed payment by the executor in the first instance, Sec. 207, but provided also for payment in the event that he failed to pay, Sec. 208. It did not undertake in any manner to specify who was to bear the burden of the 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.” Some of the states, including Maryland, have passed apportionment acts directing what beneficiaries shall be liable for the payment of the tax after the amount of it is determined under the Federal law. There are also quite a number of states which have passed no such apportionment statutes.

The Maryland statute is Article 81, Sec. 126. It was passed in its present form by Chapter 156 of the Acts of 1947, and therefore antedates the marital deduction. It has not, however, been changed since the marital deduction was inserted in the Federal Estate Tax, and, therefore, we must apply it as it stands to the new situation thus created. The statute under which the appellant here renounced her husband’s will is Sec. 314 of Article 93 of the Code.

It was last amended by Chapter 29 of the Acts of 1947, at the same session as that when the apportionment act was passed. Unless clearly contradictory, the two statutes must be construed together. Sec. 314 provides that if the renunciation, and the election thereby permitted, is of the legal share of both real and personal estate, the surviving wife shall take $2,000.00 and one-half of the residue of the lands as an heir, and one-half of the surplus personal estate remaining, if the deceased spouse ⁵⁴⁶ shall not be survived by descendants or a father or mother (as is the case here), and no more. When a spouse renounces, he or she takes in opposition to the will and is entitled to no benefits given under such will.

Kuykendall v. Devecmon, 78 Md. 537, 543 , 28 A. 412 . It seems to be clear, therefore, that, by her voluntary act of renouncing, the appellant cannot become entitled to more than $2,000.00 and one-half of the surplus personal estate remaining. The term “surplus personal estate” has been defined as meaning the entire balance, principal and income at the time of distribution, Gardner v. Mercantile Trust Co., 164 Md. 280, 283 , 164 A. 663 , which necessarily is the balance after all expenses of administration and debts, including taxes, have been paid. Article 93, Secs. 5, 123 and 127.

Mercantile Trust Co. v. Schloss, 165 Md. 18, 31 , 166 A. 599 . Marriott v. Marriott, 175 Md. 567, 571 , 3 A. 2d 493 . Sec. 126 of Article 81 provides for the prorating of the Federal Estate Tax, for which an executor is liable, and sub-section (4) provides that if any person otherwise liable under the preceding sub-sections is a surviving spouse, such surviving spouse shall be exonerated under certain circumstances, but such exoneration is not intended to apply to or reduce the amount of the contribution otherwise due with respect to the share of the surviving spouse in the true estate of the decedent but in ascertaining “his or her share in the true estate, whether upon testacy or intestacy or upon renunciation in case of testacy, the amount of the estate tax paid by the executor and not reimbursed by contributions under this section shall be deducted with the administration expenses of the decedent as a general obligation of the true estate, except to the extent the will of the decedent expressly otherwise directs; provided, however, a spouse who renounces the will shall not benefit by any exoneration therein or herein in his or her favor.” (Emphasis supplied.) The “true estate” mentioned in this quotation is defined in sub-paragraph 1(f) as all the real and personal property owned by decedent which would pass ⁵⁴⁷ to his heirs at law and next-of-kin under the Maryland statutes of descent and distribution in case of intestacy. The last clause of sub-section (4) above quoted specifically directs that no exoneration in a decedent’s will, or in that section, shall apply to a spouse who renounces the will.

It is therefore obvious that the appellant is not entitled to any of the benefits mentioned in that section, and she is not claiming any, but it is not obvious, as appellant claims, that this section has no application to the case before us. On the contrary, there is in this section a very clear direction that in ascertaining the share of a surviving spouse under the circumstances of this case, the amount of the estate tax shall be deducted with the administration expenses. This is a general direction which clearly indicates the intention of the Legislature that the estate tax shall be deducted before the widow gets her share, under Article 93, Sec. 314. Article 81, Sec. 126(4), and Article 93, Sec. 314, are not only not contradictory, but they both clearly indicate the same result.

Under Article 93, a renouncing spouse, such as the appellant, can get no more than $2,000 plus half of the surplus personal estate, which, as we have already shown, is the personal estate remaining after payment of administration expenses and debts, including taxes. Since appellant can get no more than half, after taxes, it would be impossible for her, under Article 93, to get a half before taxes, which would be much greater. She attempts to get around this dilemma by contending that Article 93, Sec. 314, has been repealed by Article 81, Sec. 126(9), which she claims compels a contradictory result. If they are contradictory, the later act would control, but the entire Article 81, Sec. 126, must be construed together, and, as we have shown, sub-section (4) is entirely in harmony with Article 93, Sec. 314.

In order to avoid the statement in Article 81, Sec. 126(4), appellant says that this sub-section does not apply to her and that sub-section (9) authorizes the court to adopt her construction of the statute. Subsection (9) provides: “It is the intent of this section ⁵⁴⁸ and it shall be so construed and applied, to cast the burden of the estate tax proportionately and equitably upon all of those who benefit by reason of circumstances or transactions giving rise to the tax to the extent expressly provided by this section.” Appellant says correctly that her renunciation was not a circumstance or transaction giving rise to the tax, and says that since the burden of the estate tax is intended by this sub-section to be cast only upon those who benefit by reason of something which gives rise to the tax, she, by necessary implication, should bear no part of this burden as she did nothing to increase the tax. It seems to us, however, that she has overlooked the real circumstance which gives rise to the tax. That is the death of her husband, and the tax is upon the transmission of his net estate.

Her renunciation was voluntary and for her own benefit, and whether that benefit is larger or smaller in proportion to that received by other beneficiaries, is a result of the action she initiated and is controlled by the laws applicable to such a situation. By a combination of the marital deduction provided in the federal act, and the renunciation provided in the Maryland law, she has reduced her husband’s net estate subject to the tax, but she is still one of the persons who benefitted by the circumstance of the death of her husband, and is therefore obligated to pay her share of the burden of the tax. That share is a matter for the Maryland Legislature to determine. We think it has been so determined by Article 93, Sec. 314, and by the provisions of subsection (4), and we do not think this is in any way modified or changed by the general wording of sub-section (9), which only states a general intent which is to be subject to the express