TIMBERS, District Judge.
Plaintiff's motion for partial summary judgment on the issue of liability, pursuant
September 16, 1958 decedent died a resident of Connecticut, leaving a will and codicil. October 6, 1958 they were admitted to probate by the Probate Court for the District of Hamden, Connecticut.
Plaintiff, named as co-executor in the will, was appointed co-executor by the Probate Court and is now serving as sole executor, the co-executor having resigned May 7, 1962.
Decedent's will, executed June 5, 1958 and modified by a codicil executed July 1, 1958, after providing for certain specific bequests, left the residue in trust, one-third for the benefit of his widow and two-thirds for the benefit of his grandchildren surviving at his death.
January 5, 1959 an application was filed with the Probate Court for an allowance for the support of decedent's widow during settlement of the estate. February 2, 1959, after hearing, the Probate Court entered an order granting such allowance in amount of $350,000. March 13, 1959, in compliance with the order, the executors paid to the widow the allowance in one lump sum.
December 16, 1959 a federal estate tax return was filed showing an estate tax liability of $4,028,613.85 based on a gross estate of $13,201,347.90 and a taxable estate of $8,392,892.80.
The federal estate tax return showed, as part of the marital deduction,
October 18, 1961, following an IRS audit of the estate tax return, there was forwarded to the executors a report of the examination showing a deficiency due in amount of $1,336,468.40. This deficiency resulted principally from two determinations made by the IRS: (1) disallowance of the $350,000 widow's allowance as part of the marital deduction (but allowance of a marital deduction for this payment in amount of $116,666.67); and (2) decreasing the marital deduction claimed by the estate from $3,630,243.95 to $1,682,846.59. The latter determination was based on the IRS' computation of the widow's share of the residuary estate after state and federal estate taxes had been paid, whereas the executors had computed the widow's share of the residue before estate taxes were taken into consideration.
November 10, 1961 the executors applied to the Probate Court for a determination of the proration of the federal estate tax.
April 6, 1962 the Commissioner sent to the executors a 90-day letter indicating that a deficiency of $1,333,194.35 in estate tax had been determined.
May 25, 1962 an assessment in amount of $1,333,194.35, plus interest of $195,285.58, was made against the estate.
June 7, 1962 a claim for refund in amount of $2,500,000 was filed.
August 14, 1962 the claim for refund was disallowed.
August 29, 1962 this action was commenced, pursuant to 28 U.S.C. § 1346(a) (1), to recover federal estate taxes claimed to have been erroneously assessed and collected.
By the instant motion for partial summary judgment on the issue of liability, plaintiff seeks a determination on certain questions of law, upon the resolution of which the amount of plaintiff's recovery, if any, in this tax refund action depends.
Three questions are presented, the answers to which are believed to be dispositive of this motion for partial summary judgment:
The Court holds that questions (1) and (2) must be answered in the affirmative, question (3) in the negative.
A widow's allowance granted pursuant to state law during administration of the estate is a "property interest passing from the decedent to his surviving spouse"
Plaintiff contends that under Connecticut law a lump sum allowance to a widow becomes absolute and indefeasibly vested as soon as the order of the Probate Court directing payment becomes final. Defendant contends that since the right to receive the allowance terminates upon the occurrence of such contingencies as the remarriage or death of the widow and the Probate Court decree may be modified, revoked or set aside on appeal, any award, whether lump sum or installment, is terminable.
A widow's allowance, although characterized as a "statutory right" in one decision,
Plaintiff in the instant case does not dispute the power of the Probate Court to revoke or modify its order granting an allowance to be paid in installments. Rather, plaintiff relies (i) on the fact that the allowance here was in the form of a lump sum award, and (ii) on language in Havens' Appeal
The Connecticut courts have not distinguished between lump sum and installment allowances in discussing the power of the Probate Court to revoke or modify their orders granting widows' allowances. Absent controlling authority and recognizing the power of Probate Courts to revoke or modify their decrees, this Court does not find the distinction between lump sum and installment allowances to be helpful in resolving the present question.
It appears that the Probate Court has the power to direct that the widow's allowance be charged against her interest in the estate.
The Court concludes that under Connecticut law, prior to the 1961 amendment to Section 45-250,
FEDERAL TAXATION OF RESIDUE OF ESTATE
A major issue before the Court on the instant motion — the issue to which the largest revenue tag is attached — is whether any part of the federal estate tax is chargeable to the interest passing to the widow under the will. This issue turns chiefly upon whether there is a clear and unambiguous direction in the will against proration of taxes.
The original will, executed June 5, 1958, left the residue in trust, one-third for the benefit of the widow and two-thirds for the benefit of the grandchildren surviving at decedent's death. The trust for the widow did not qualify as a marital deduction. All residuary shares were taxable alike.
Article One of the will, which contains the "tax clause", provides:
By a codicil executed July 1, 1958, the will was modified so that the residuary trust for the widow qualified for the marital deduction.
The codicil also provided, "In all other respects I hereby republish and confirm my said will."
The Internal Revenue Code of 1954 allows a marital deduction to the extent of fifty percent of the value of the adjusted gross estate.
Applicable state law governs distribution of the estate and the ultimate impact of the federal estate tax.
The specific question for determination is whether the testator intended, under Article One of his will, that the Connecticut proration statute should apply to the residuary shares of his estate.
Certain fundamental canons of construction must be followed.
Republication of a will in the codicil, as here, in effect is the making of a new will as of the date of the codicil, with such changes in the will as are contained in the codicil.
Moreover, in attempting to determine the intent of the testator, it is necessary to examine not only the particular phrase in question but the language of the entire will in the light of the circumstances which surrounded the testator at the time he executed it, "the real question being, not what did the testator mean to say, but what did he mean by what he did say."
Finally, the standard which the Court must apply in determining the legal effect of testator's will upon the question of proration of the federal estate tax is that, unless there is a "clear and unambiguous" direction in the will to the contrary, the federal estate tax is to be prorated as provided for in the Connecticut proration statute.
The first sentence of Article One of the will, in providing for the payment of death taxes, shifted the tax burden for the pre-residuary transfers to the residue of the estate.
Support for this construction may be found in a recent New York Court of Appeals decision:
Plaintiff in the instant case claims, and the Court agrees, that there also is a conflict within the "tax clause" which renders ambiguous the intention of the testator concerning proration. The first sentence shifts the tax burden to the residue; but, according to the second sentence of Article One, the "beneficiaries", assuming they are intended as the residuary legatees, are not to be held for the "ultimate payment" of death taxes. Such directions in the "tax clause" are at cross-purposes. Obviously some legatees must pay the death taxes out of their share of the estate. To direct that neither pre-residuary nor residuary legatees are to be liable for death taxes, although testator must have known that the taxes
In a similar situation the New York Court of Appeals held that conflicting directions in the tax clause precluded a clear and unambiguous direction against statutory apportionment:
Defendant's position, not wholly without appeal, may be summarized briefly: the bare wording of the "tax clause" does direct against proration; the joining of "death taxes" with "just debts" and "funeral expenses" does permit the inference that the testator intended federal estate taxes, as another expense, to be deducted from the residue prior to distribution; and the widow's share was to bear its proportionate burden.
Plaintiff's construction of the tax clause in this will squares, in the opinion of the Court, closer than does that of defendant, with a rational intent of the testator, "the real question being, not what did the testator mean to say, but what did he mean by what he did say."
The best that can be said for defendant's construction of the tax clause is that, considered in conjunction with that of plaintiff, it gives rise to the very ambiguity which robs the clause of that clarity and lack of ambiguity
EFFECT OF CONNECTICUT PROBATE COURT DECREES UPON RIGHTS OF FEDERAL GOVERNMENT UNDER REVENUE LAWS
In deciding the widow's allowance question in favor of defendant
The rationale for the decision of this Court that the decrees of the Probate Court are not binding in the instant case is found in the following statement by Judge Clark (in a case factually distinguishable from the instant case):
Judge Hincks, while a judge of this Court, although holding, as did the Probate Court, that the testator intended to create separate trusts, rejected any notion that the decree of the Probate Court was binding on this Court:
The Court of Appeals for the Tenth Circuit has stated succinctly the rule that a state court decree which adversely affects tax rights of the United States and is based upon a nonadversary or collusive proceeding
Some federal courts have held likewise;
Defendant does not contend that plaintiff failed to follow the required procedure in submitting the issues to the Probate Court and in obtaining the decrees. Defendant does contend that the decrees of the Probate Court were "the result of a collusive and/or nonadversary proceeding."
This Court, upon the record before it in the instant case, is not able to make a finding as to whether the proceedings in the Probate Court were collusive or nonadversary in nature. Nor does this Court believe such a finding is either necessary or appropriate to a determination of the questions presently before the Court. Suffice it to say that, as this Court understands the delineation of federal power indicated by Judge Clark
The basis upon which this Court rejects the claimed conclusive effect of the decrees of the Connecticut Probate Court is a broad one, and deliberately so.
For the reasons indicated above, summary judgment on the issue of liability may be entered (1) in favor of defendant on the question of the widow's allowance, and (2) in favor of plaintiff on the question of proration of estate taxes.
If any issues remain unresolved after the procedure suggested above, the Clerk is directed to set the case for trial at the head of the calendar for the next session of court cases to be tried at New Haven.
This amendment clearly makes the widow's allowance in Connecticut eligible for the marital deduction.
Defendant argues that this amendment confirms that prior thereto the widow's allowance was not a vested, non-terminable interest in Connecticut; otherwise "we can only assume that the Connecticut legislature enacted an unnecessary law, an assumption which should not be lightly made."
Plaintiff, on the other hand, argues that "There is no question of changing the law; it is merely a clarification, and the rule that `an amendment which in effect construes and clarifies a prior statute must be accepted as the legislative declaration of the meaning of the original act' is applicable. City of Hartford v. Town of Suffield, 137 Conn. 341, 346, 77 A.2d 760, 762 (1950)."
The Court holds this amendment to be not applicable to the instant case. Moreover, absent authoritative legislative history, the Court finds no basis in the amendment from which to draw inferences one way or the other with respect to the terminability of the interest in a widow's allowance under Connecticut law prior to the amendment.
Section 12-401(a), insofar as here applicable, provides:
The statutes of New York and Connecticut concerning proration of federal estate taxes are similar. See McLaughlin v. Green, supra note 28, at 142, 69 A.2d at 291.