MOORE, Circuit Judge.
The Second National Bank of New Haven, Executor of the Will of Frederick F. Brewster (referred to as the executor
Frederick F. Brewster, a resident of Connecticut, died on September 16, 1958. By will dated June 5, 1958, he made certain specific bequests and directed that "the rest, residue and remainder" be distributed: one-third "thereof" to the Bank as trustee in trust to pay the income
The will in its first paragraph
When the federal estate tax return was filed, Margaret's one-third share of the residue was computed before the residue was reduced by federal taxes, thus placing the entire tax burden on the two-thirds share passing to the testator's grandchildren. Accordingly, the executor reported a gross estate of $13,201,347.91 from which it deducted specific bequests, debts and administration expenses, the marital deduction comprising Margaret's undiminished share of the residue augmented by a "widow's allowance" of $350,000 made by the Connecticut Probate Court for the District of Hamden but reduced by $281,752.70 of "other death taxes." A taxable estate of $8,392,892.80 was declared on which a tax liability of $4,028,613.85 was reported.
Upon audit, the District Director of Internal Revenue (the Director) disallowed the $350,000 widow's allowance as a part of the marital deduction (one-third, $116,666.67 was allowed because it would otherwise have passed to the marital trust) and decreased the marital trust from $3,630,243.95 to $1,682,846.59. The latter reduction was based upon the Director's construction of paragraph "One" of the will as requiring the deduction from the gross estate of all federal, state and state succession taxes before the marital trust of one-third of the residue could be computed. Thus, all the residuary legatees were required to share the tax burden equally. To arrive at his figure, he submitted an "explanation of items" showing an adjusted gross estate of $12,380,897.22 from which he deducted certain bequests, various state taxes and a federal estate tax ($5,108,442.48), leaving a residue of $5,048,539.76, one-third of which, $1,682,846.59, he allowed as the marital trust. Upon the basis of this adjustment, the Director by 30-day letter asserted a tax deficiency of $1,336,468.40 which the executor paid. This suit for refund followed on the theory that Margaret's
After receipt of the 30-day letter, the executor in November 1961 applied to the Probate Court in Connecticut for a determination as to how, under Conn.Gen. Stat. sections 12-400, 401(a), 404, 405 (1964 Rev.), the federal estate tax on the residuary bequests should be prorated between those bequests.
Upon motion by the plaintiff-executor for summary judgment, the District Court held (1) that the widow's allowance of $350,000 did not qualify as part of the marital deduction; (2) that the Connecticut proration laws apply because there was no "clear and unambiguous direction" to the contrary; (3) that the federal court was not bound by the Probate Court's determination in virtually a non-adversary proceeding; and (4) that the marital trust was not to be reduced by any portion of federal estate tax liability.
Upon appeal the Government asserts error in the trial court's conclusion that the language of paragraph "One" of the will is not a clear and unambiguous direction against proration.
The problem to be resolved is succinctly stated (in its brief) by the Executor:
It would be difficult to conceive of a clearer direction expressing the thought
Any far-fetched doubt as to the testator's intent in the first sentence of paragraph "One" is quickly dispelled by the second sentence in which he specifically declares that "the provisions of any statute requiring the apportionment or proration of such taxes among the beneficiaries * * * shall be without effect in the settlement of my estate." The trial court conceded that "the first sentence shifts the tax burden to the residue"; but was of the opinion that "the clause in the second sentence of Article one referring to the ultimate payment of taxes by them [the beneficiaries]" created a conflict with the first sentence and, therefore, an ambiguity in the direction against proration.
There are two fallacies in the trial court's position. First is the assumption that the "beneficiaries" in the second sentence are intended as the residual legatees only and, second, is the assumption, built upon the first, that the residuary legatees "are not to be held for the `ultimate payment' of death taxes." From these assumptions, the court reaches the conclusion that, since "some legatees must pay the death taxes out of their share of the estate," "[t]o direct that neither pre-residuary [in the first sentence] nor residuary legatees [in the second sentence] are to be liable for death taxes, although testator must have known that the taxes must come from one or the other of these sources, renders such directions ambiguous." 222 F.Supp. at 454-455. But such ambiguity results only from the court's assumptions — not from the language of the will. The testator was not directing that his beneficiaries were not to be affected in any way by the payment of death taxes. His very explicit treatment of the subject in the initial paragraph evidences his awareness of the necessity of their payment. The sentence deals with the possible provisions of "any statute requiring the apportionment or proration of such taxes" or of [any statute requiring] "the ultimate payment of such taxes by them." The "them" refers to "the beneficiaries of this will or the transferees of such property." The words "ultimate payment" can refer only to the type of statute which might require ultimate payment on an apportioned basis. Such statute the testator declared was to be "without effect in the settlement of my estate." Thus, in summary, the testator specifically wished to have death taxes paid out of his estate but without proration. Once these were paid, the executor could undertake to comply with his remaining wishes. Ultimately there would be a residue. A fortiori without tax deductions from the pre-residuary bequests, the residue would be diminished by the federal estate tax and each of the three trusts equally diminished by one-third of that amount.
Nor can ambiguity be found in the testator's republication of his will to qualify the marital trust under section 2056. The trial court also found an ambiguity in the fact that a direction against statutory proration was included in the original will although the marital trust was then not qualified as a deduction under section 2056 and was not insulated from the burden of federal estate taxes by the Connecticut proration statutes. The court reasoned that "[t]o attribute to the testator a direction against proration where no proration was possible,
The courts would indeed be making a new will for the testator if paragraph "One" were to be interpreted as a direction that federal estate taxes not be paid "out of my estate" but that they be borne solely by the "two-thirds" trusts for the grandchildren. The codicil shows a desire to qualify one-third of the residue as a marital deduction. It does not disclose an intention to have this part of the residue in effect tax free and grossly disproportionate to the other two-thirds. That which the testator did not choose to do during his lifetime the courts should not do after his death.
The executor and the Government have made extensive arguments as to the effect of the Connecticut Probate Court's adjudication that the Connecticut proration statutes applied. The trial court after carefully considering the arguments and the many relevant decisions concluded that "the decrees of the Connecticut Probate Court — which is not a court of record and most of the judges of which are laymen, not lawyers — under no circumstances can be construed as binding and conclusive upon a federal court in construing and applying the federal revenue laws." 222 F.Supp. at 457. This court is in accord with the trial court's conclusion as to the effect of the state decree, see Estate of Peyton v. Commissioner, 323 F.2d 438 (8th Cir. 1963), since under Connecticut law the Probate Court's decisions are not binding on the state's higher courts, Heiser v. Morgan Guaranty Trust Co., 150 Conn. 563, 192 A.2d 44 (1963), and are even subject to collateral attack in another probate district, Culver's Appeal from Probate, 48 Conn. 165, 172-174 (1880). Under the circumstances, it was unnecessary "to make a finding as to whether the proceedings in the Probate Court were collusive or nonadversary in nature" and the court properly refrained from so doing.
The question of the District Court's failure to include the $350,000 widow's allowance is no longer before this court because the executor concedes that the Supreme Court's decision in Jackson v. United States, 376 U.S. 503, 84 S.Ct. 869, 11 L.E.2d 871 (1964), handed down after the trial court's decision and before argument of this appeal, is controlling. In that decision, the Supreme Court held,
Nor is the question of the proper computation of the judgment before us in view of our conclusion that the proration statutes do not apply.
As the Government states (in brief), "In this unusually complicated estate tax case the sole issue is the amount of the marital deduction allowed by Section 2056 of the Internal Revenue Code of 1954 * * *." The intricate algebraic formulae and the arithmetical backing and filling required to compute the tax attest to this complexity. See, e. g., 1 CCH Fed. Est. & Gift Tax Rep., ¶ 2090, at 3056-3087, dealing with the valuation of the marital deduction.
By this decision construing paragraph "ONE" to direct that the proration laws of Connecticut do not apply, we do not intend to foreclose the executor or the Government from making such adjustments or revisions in the federal estate tax as may be necessary to give full advantage to the estate of the marital deduction as it may be properly computed in accordance with such construction.
The judgment of the District Court is reversed.
Judge Marshall heard oral argument and participated in the decision in this case, formally concurring therein prior to his becoming Solicitor General.