1. The Estate Tax imposed by the Revenue Act of 1918, c. 18, 40
Stat. 1096, is not a succession tax upon the benefits received by
devisees and legatees, but an excise or death duty upon the
transfer of the decedent's estate. P.
264 U. S.
49.
2. In providing that bequests to religious and charitable
corporations shall be deducted in determining the value of the net
estate upon which the tax is imposed, § 403(3), the act does not
undertake to exempt the recipient of such charitable gifts from the
burden of the tax if placed upon them by the will. P.
264 U. S.
50.
3. Hence, where the charitable gifts are residuary, and are duly
taken into account in ascertaining the net taxable estate and the
amount of the tax, the act offers no obstacle to charging the tax,
with other costs and expenses, against the gross estate and
satisfying specific devises and bequests in full before the
charitable gifts are satisfied.
Id.
106 Oh.St. 366 affirmed.
Certiorari to a judgment of the Supreme Court of Ohio which
affirmed a judgment directing an executor to deduct a federal
estate tax from the residuary estate given by the will to the
present petitioners, and not from the specific devises and bequests
to the respondents.
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
Mary J. Sessions, a citizen and resident of Columbus, Ohio, died
on April 1, 1919, leaving a will executed September
Page 264 U. S. 48
17, 1914, and disposing of a considerable estate. The executor
paid a tax of $31,000 to the United States as the so-called "estate
tax" under the Revenue Act of 1918, enacted February 24, 1919, c.
18, 40 Stat. 1057, 1096.
The question in the case is what effect this payment shall have
in the distribution of the estate among the legatees and
beneficiaries under the will. After providing that her just debts
and funeral expenses be paid and making a number of specific
legacies and devises, the testatrix gave the rest, residue, and
remainder of all her property of every description, including
lapsed legacies, to the Young Men's Christian Association of
Columbus, the Young Women's Christian Association of Columbus,
Ohio, Berea College, and the American Missionary Association, to be
divided equally among them.
Section 401 of the Estate Tax Law,
ubi supra, imposes
"a tax equal to the sum of the following percentages of the value
of the net estate," determined as provided in § 403, "upon the
transfer of the net estate of every decedent dying after the
passage of this act." Then follow the percentages graduated
according to value.
Section 403 provides that, for the purpose of the tax, the value
of the net estate shall be determined in the case of a resident of
the United States by deducting (1) funeral and administration
expenses, claims against the estate, losses from casualties not
insured against and amounts which by law of the domicile are
required for support of dependents of testator, but not including
income taxes or estate, succession, legacy or inheritance taxes,
but (2) including property received by decedent by will or descent
within five years on which an estate tax was paid, and (3)
deducting:
"The amount of all bequests, legacies, devises, or gifts, to or
for use of the United States, any state, territory, any political
subdivision thereof, or the District of Columbia, for exclusively
public purposes, or to or for
Page 264 U. S. 49
the use of any corporation organized . . . exclusively for
religious, charitable, scientific, literary, or educational
purposes, . . ."
and (4) "an exemption of $50,000."
It is admitted that the corporations mentioned in the residuary
clause of the will come within the description of subdivision
(3).
The executor deducted from the gross estate the debts, losses,
and charges and the specific devises and bequests to find the value
of the residuary estate, which, together with the debts, losses,
and charges, and $50,000, he then deducted from the gross estate to
get the value of the net estate, by a proper percentage of which
the tax was measured and fixed. After paying the tax, he brought an
action in the Common Pleas Court of Franklin County, Ohio, asking
the direction of the court as to whether the tax should be deducted
from the amounts which were about to be distributed to the specific
legatees and devisees, or from the residuary estate given to the
charitable and educational institutions named. All those taking
under the will were made defendants. The Common Pleas Court and the
Court of Appeals of Franklin County and the state supreme court all
held that the tax must be paid out of the residuary estate, and a
judgment was entered accordingly. We have brought the case here by
certiorari because of the federal question, seasonably made in all
the courts by the residuary legatees, that, in the payment of the
federal estate tax out of their residuum, they are deprived of a
federal right of exemption from the tax intended to be secured to
them by subdivision (3) of § 403.
The argument of the petitioners is that, as the tax is expressly
made equal to a percentage of the value of the net estate and is
imposed upon the transfer of that net estate, Congress cannot have
intended that the tax
Page 264 U. S. 50
should be paid out of the very gifts which by subdivision (3)
are excluded from the net estate. It is further urged that the
manifest purpose of Congress was to exempt the beneficiaries under
subdivision (3) from tax, and the result of the construction by the
Ohio courts is, in this case, that they are the only ones to pay
it. These arguments are persuasive, but they derive much of their
strength from the special circumstances of the present case. They
are pressed from a different standpoint from that of Congress. What
was being imposed here was an excise upon the transfer of an estate
upon death of the owner. It was not a tax upon succession and
receipt of benefits under the law or the will. It was death duties,
as distinguished from a legacy or succession tax. What this law
taxes is not the interest to which the legatees and devisees
succeeded on death, but the interest which ceased by reason of the
death.
Knowlton v. Moore, 178 U. S.
41,
178 U. S.
48-49.
Congress was thus looking at the subject from the standpoint of
the testator, and not from the immediate point of view of the
beneficiaries. It was intending to favor gifts for altruistic
objects not by specific exemption of those gifts, but by
encouraging testators to make such gifts. Congress was in reality
dealing with the testator before his death. It said to him: "If you
will make such gifts, we will reduce your death duties and measure
them not by your whole estate, but by that amount, less what you
give." In § 408, it is declared to be the intent and purpose of
Congress that, as far as it is practicable and unless otherwise
directed by the testator, the tax is to be paid out of the estate
before distribution.
There is nothing in subdivision (3) of § 403 which exempts the
recipients of altruistic gifts from taxation; it only requires a
deduction of them in calculating the amount of the estate which is
to measure the tax. It exempts the estate from a tax on what is
thus deducted, just
Page 264 U. S. 51
as subdivision (4) exempts in terms the estate from taxation on
its first $50,000; but this does not operate to exempt any legatee
who may be entitled to the first $50,000 in the distribution from
deduction to contribute to the tax ultimately imposed if, by the
law of the state, such should be its incidence.
It was wholly within the power of the testatrix to exempt her
altruistic gifts from payment of the tax by specific direction to
her executor, if she chose. It must be presumed, when she failed to
exercise the power, that she intended the incidence of the tax to
be where otherwise by law it must be, and therefore that it was her
purpose that her residuary legatees were to receive all that was
left after paying all charges, including this tax, out of her
estate. The donees of the altruistic gifts profit much by the
deduction made under subdivision (3), even though they do receive
less by the amount of this tax. Had subdivision (3) not been in the
statute, the tax would have been much heavier, measured by a higher
percentage of the value of the whole estate, including their gifts.
It is hardly true to say that, under the judgment of Ohio courts,
these residuary gifts are taxed. The gifts are, and were intended
by the testator to be, indefinite in amount, and to be what was
left after paying funeral expenses, attorney's fees, executor's
compensation, debts of the decedent, and taxes. These donees do not
pay the taxes any more than they pay the funeral expenses, the
lawyers, the executors, and the testator's debts.
Judgment affirmed.