Hitchcock Estate

124 A.2d 360, 385 Pa. 569, 1956 Pa. LEXIS 509

• Court: Supreme Court of Pennsylvania
• Decided: June 25, 1956
• Docket: Appeal, 3
• Status: Published

Opinions

Opinion by

Mr. Justice Jones,

The question in this case arises out of a joint will of a husband and wife which they executed as a part of and in pursuance of their written agreement which combined their separate estates as a tenancy in common and provided for the ultimate disposition of the combined estates by their joint will upon the death of the survivor. The issue involved is whether claims of the husband’s testamentary beneficiaries, which were “compromised” at the audit of the estate of the deceased wife, who survived her husband, were debts of her estate and chargeable as such in ascertaining the clear value of the estate subject to inheritance tax.

The learned auditing judge, in assigned reliance on Neller Estate, 356 Pa. 628, 53 A. 2d 122, and Mills Estate, 367 Pa. 504, 80 A. 2d 809, held the claims to be debts of tbe deceased survivor and entered a decree nisi disallowing the Commonwealth’s claim for taxes on the clear value of the estate without allowance of the alleged “debts” as deductions. The court en banc (the auditing judge dissenting) sustained exceptions to the decree nisi and held that the claims were inheritances and not debts and consequently were not deductible. A final decree was entered accordingly from which the executor has appealed. The facts are not in dispute.

On September 2, 1922, Halbert Kellogg Hitchcock and Grace Miller Hitchcock, his wife, executed a written instrument under seal which embraced both an agreement to make a joint will of certain terms and a joint will carrying into effect the provisions of the agreement. In addition to the signatures of the parties, the instrument contained the usual testamentary attestation clause signed by two subscribing witnesses. The instrument is quite extensive, showing in detail the respective beneficiaries and the extent of their prospective interests under the joint will according to schedule incorporated therein. The agreement contains, inter alia, the following.

“Whereas, Halbert Kellogg Hitchcock and Grace Miller Hitchcock, husband and wife, both of the City of Pittsburgh, County of Allegheny and State of Pennsylvania, have agreed with each other that they shall combine their respective estates and shall hold and enjoy the same as tenants in common and that the last survivor shall enjoy the joint estate or entire property possessed by both at the time of the death of the first to die so long as the other shall live, with the right of the last survivor to convert to his or her own personal use all of the income therefrom and as much of the principal as the last survivor may see fit to use without let or hindrance or accountability to anyone save the survivor; and that at the death of the last survivor, one half of the then remaining estate shall be distributed to the devisees of the said Halbert Kellogg Hitchcock, as hereinafter provided and the other half shall be distributed to the devisees of the said Grace Miller Hitchcock, as hereinafter provided.

“Now, therefore, in order to carry out the intent and purposes of the foregoing agreement, the said Halbert Kellogg Hitchcock and Grace Miller Hitchcock, his wife, both being of sound mind, and memory, do hereby make and publish this their last will and testament in the manner following hereby revoking all former wills which they may have made.”

The writing further declared: “Thirteenth Section. It is thoroughly understood by both of the parties making this will that the foregoing instrument is not only a will, but a binding contract existing between the parties hereto and that the same cannot be changed by either party without the consent of the other, except as to the distribution of that half of the joint estate, if any, which ultimately will go to the devisees of the last survivor, but it is hereby agreed between the parties hereto that the last survivor may advance to the devisees of the other party such a sum or sums as would reasonably not exceed one half of the amount which would eventually accrue to the said devisees upon the death of the last survivor, the same with simple interest at seven (7) percent to be deducted from the amount which the said beneficiary would receive at the death of the last survivor.”

As contemplated by the above-quoted recital, the testamentary portion of the instrument provided for distribution upon the death of the survivor of one-half of the then remaining combined estates to named devisees and legatees of Halbert Kellogg Hitchcock and one-half to named beneficiaries of Grace Miller Hitchcock. A joint codicil, executed by Mr. and Mrs. Hitchcock on March 12, 1928, altered the distribution to the relatives of the husband as contained in the joint will but made no other change therein.

Halbert Hitchcock died November 24, 1930. Thereafter his wife, who survived Mm, enjoyed the use of the combined estates of herself and her husband as her own, with absolute power of consumption, in accordance with the provisions of the agreement and joint will upon the final settlement of the husband’s estate by his wife as executrix.

Twelve years after her husband’s death (viz., on December 14, 1942), Mrs. Hitchcock executed a codicil to the joint will wherein she purported to be of the opinion that her obligation under the agreement and joint will was to distribute to the named relatives of her husband one-half of the value of the combined estates of herself and husband as of the date of Ms death and not of the survivor. In the time intervening since his death, the aggregate value of the combined estates had increased considerably. And, so, Mrs. Hitchcock, in apparent belief that the increase in the value of the combined estates over what it had been at the date of her husband’s death was her own to do with by will as she chose, concluded that the participating interest of Mr. Hitchcock’s relatives under the joint will was but one-half of the value of the combined estates at the date of his death. On December 15, 1942, Mrs. Hitchcock executed another codicil amending the codicil of the day before in certain particulars. The amendatory codicil did not alter the codicil of December 14, 1942, in any manner presently material.

Mrs. Hitchcock died on April 22, 1952, domiciled in Pittsburgh. After her death the joint will and codicils were duly admitted to probate by the Eegister of Allegheny County who granted letters testamentary thereon to the Fidelity Trust Company as executor.

In direct opposition to the provisions of Mrs. Hitchcock’s separate codicil of December 14,1942, Mr. Hitchcock’s relatives, who were named beneficiaries under the joint will, claimed one-half of the property owned by Mrs. Hitchcock at the time of her death. At the audit of the executor’s account, a compromise was reached whereby the testamentary claimants, who were members of Mr. Hitchcock’s family, were to receive forty-three percent of the assets accounted for by the executor of Mrs. Hitchcock’s estate, subject to the payment by them of forty-three per cent of the debts, funeral and administration expenses and Federal estate and State inheritance taxes.

It is the contention of the appellant executor that the amount to be paid to the relatives of Mr. Hitchcock in settlement of their testamentary claims constitutes a proper deduction in calculating the clear value of the estate subject to tax under Section 2 of the Pennsylvania Transfer Inheritance Tax Act of June 20, 1919, P. L. 521, as amended, 72 PS §2302. The Commonwealth, on the other hand, contends that the amount paid to the relatives of Halbert Hitchcock in discharge of their claims as devisees and legatees under the joint will of Mr. and Mrs. Hitchcock is an inheritance and not a debt of the deceased wife and consequently not an allowable deduction from the gross estate in ascertaining the clear value subject to tax.

An indebtedness of a decedent is deductible under the Pennsylvania Transfer Inheritance Tax Act in ascertaining the clear value of the estate subject to tax to the extent that it was “contracted bona fide and for an adequate and full consideration in money or money’s worth . . . .” The Act of December 21, 1951, P. L. 1713, 72 PS §2302, amending Section 2 of the Act of June 20, 1919, P. L. 521, as theretofore amended, expressly so provides.

The Commonwealth concedes that the contract between Mr. and Mrs. Hitchcock providing for their joint will was entered into bona fide, that the agreement was a binding and enforceable contract and that a donee beneficiary may enforce a contract made for his benefit. It is unnecessary, therefore, to repeat here the many citations of the appellant in support of the foregoing propositions which are not only uncontroverted but incontrovertible.

The question is whether the amounts paid by the executor of Mrs. Hitchcock’s estate to the members of Mr. Hitchcock’s family in settlement of their claims under the joint will of the Hitchcocks were contracted for an adequate and full consideration in money or money’s worth. The plain and obvious answer is that they were not; they were testamentary benefactions and not debts.

The only consideration passing between Mr. and Mrs. Hitchcock for the agreement to make a joint will was their reciprocal promises, each to the other, as to the testamentary disposition to be made of what remained of their combined estates upon the death of the survivor. While such promises were sufficient to support the agreement and to constitute it a binding and enforceable contract, they were not an adequate and full consideration in money or money’s worth. The appellant, however, contends that the payments were deductible debts (and induced the auditing judge into so believing) on the strength of an ingenious argument ostensibly founded on our decisions in the Heller and Mills cases, cit. supra. The defect in the contention is that it entirely misses the point of those cases, which depended upon a controlling circumstance wholly wanting here.

The crucial factor in the Heller case, which served to make the husband and wife’s reciprocal promises and undertakings, in respect of their several property rights and liabilities, an adequate and full consideration in money or money’s worth, was the fact that the contract of settlement (under which the wife’s claim against the husband’s estate later arose) was a bona fide separation agreement.

That such was the ratio decendendi in the Neller case (which the Mills case later followed in principle) is not open to cavil. The effect of the separation agreement was very earnestly mooted in this court as a reading of the majority and dissenting opinions in the Neller case will readily reveal. Under the Federal Estate Tax Act, the relinquishment of a marital right was not a consideration in money or money’s worth for the creation of a debt deductible in ascertaining the clear value of the estate subject to tax. And, the requirement in the Pennsylvania Transfer Inheritance Tax Act in such regard was ipsissimis verbis with the cognate Federal provision. Nevertheless, this court held in Neller Estate, in a four to three decision, that the adjustment and relinquishment of marital property rights by the husband and wife in their bona fide separation agreement constituted consideration in money or money’s worth. The determinative element was that the contract creating the debt wás a separation agreement between the husband and wife settling for good their material affairs and not an amicable arrangement between them while they would continue to live together in amity.

The rationale of the Neller case is patent. Mr. Chief Justice Maxey, speaking for the court in that case, declared that “when this husband and wife decided to separate and the husband promised his wife in writing that he would support her by paying the sums stipulated, this promise gave rise to a debt. The amount of support due at his death was as much a debt as would have been any arrearages in the weekly sums he had agreed to pay her for her support” (Emphasis supplied). And, in Mills Estate, supra, Mr. Justice Stearns, who there spoke for a unanimous court, after quoting the foregoing from the Weller case, said that “Since the decision in Weller Estate, supra, it is no longer an open question in Pennsylvania that a bona fide separation agreement between a husband and wife providing for a payment at the husband’s death, constitutes a debt and is consideration in money or money’s worth.” Elsewhere, the opinion in Mills Estate confirmed the statement of Mr. Justice (now Chief Justice) Steen in Stadtfeld Estate, 359 Pa. 147, 58 A. 2d 478, that “Neller Estate . . . held that the share of a decedent’s estate due to his widow under a separation agreement is not subject to the Pennsylvania transfer inheritance tax since the payment made to the widow out of the estate is not in the nature of a legacy but is merely the liquidation of a debt” (Emphasis supplied).

In Mills Estate, where the rule of the Weller case, that the reciprocal promises and undertakings of a husband and wife in a bona fide separation agreement constitutes consideration in money or money’s worth, was followed, there were no findings from which it could be inferred that the consideration was also “adequate and full”. For that reason, Mills Estate was remanded for findings appropriate to the question of the adequacy and fullness of the consideration after “a more searching inquiry ... in the court below concerning the ages of the parties, the extent of their respective property, the prospects of financial advancement and the earning capacity of the husband and an analysis of that which the wife relinquished and what she was to receive.” Such inquiry had nothing to do, however, with whether the consideration was in money or money’s worth. Where, as in the instant case, the consideration for the agreement is not in money or money’s worth, it is unnecessary to consider the further requirement of adequacy and fullness.

The meaning of Neller Estate is plain and now firmly fixed; and we have no intention of departing from it. But, at the same time, we are not disposed to see its true intendment stretched into authority for a proposition that has neither reason nor merit to justify it. If what the appellant here contends for were to receive judicial sanction, the intended impact of the Pennsylvania transfer inheritance tax could be successfully avoided by any husband and wife by the simple expedient of a contract to make a joint will disposing of their combined property on the death of the survivor to persons to whom they wished it to go, coupled with the execution of a joint will in pursuance of their agreement.

It has been argued, however, that the Hitchcocks entered into their agreement for a joint will without any intention of freeing their estates from liability for transfer inheritance taxes. So much may readily be conceded. But, a taxable’s motive in minimizing his liability is irrelevant so long as his tax return does not exceed the law’s relevant allowances. In Superior Oil Company v. State of Mississippi, 280 U.S. 390, 395-396, Mr. Justice Holmes succinctly expressed the law’s attitude to tax avoidance when he said, — “The only purpose of the vendor here was to escape taxation. . . . The fact that it desired to evade the law, as it is called, is immaterial, because the very meaning of a line in the law is that you intentionally may go as close to it as you can if you do not pass it.” See, also, Bullen v. Wisconsin, 240 U.S. 625, 630. In Atlantic Coast Line Railroad Co. v. Phillips, 332 U.S. 168, 172-173, Mr. Justice Frankfurter said that “As to the astuteness of taxpayers in ordering their affairs so as to minimize taxes, we have said that ‘the very meaning of a line in the law is that you intentionally may go as close to it as you can if you do not pass it.’ . . . This is so because ‘nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions.’ ” In City Stores Co. v. Philadelphia, 376 Pa. 482, 488, 103 A. 2d 664, Mr. Chief Justice Steen aptly recognized for this court that “If a person is about to conduct a transaction which is taxable in one jurisdiction but not in another, there is no apparent reason why he should be barred from performing it in the jurisdiction where it would be tax-free, and this is true even if the only reason for the choice was that of escaping the tax, since, if one has a legal right to do a particular thing, the law will not inquire into his motive for doing it [citing cases].”

The appellant’s remaining contention is that Mrs. Hitchcock, by her codicil of December 14, 1942, breached her agreement with her husband and nullified, pro tanto, their joint will and that the compromise of the claims of Mr. Hitchcock’s relatives was in settlement of “a genuine dispute” over the amount payable to the claimants as damages for Mrs. Hitchcock’s breach of contract and, hence, a debt paid by the estate —a truly fanciful proposition. Mrs. Hitchcock was incapable of breaching her agreement with her husband, containing the joint will, so long as a court of competent jurisdiction was sitting to adjudicate disputes arising out of wills or agreements relating thereto. The joint will agreement was not an ambulatory document. It was executed in triplicate, and proof of its existence was at all times certain. By its express terms, it was “not only a will, but a binding contract between the parties.” It is indeed anomalous to have the appellant argue, in one breath, the binding and enforceable effect of the agreement and then, in the next, have it assert that Mrs. Hitchcock’s alleged breach of the agreement had rendered it unenforceable.

The joint will agreement was not susceptible of being breached by Mrs. Hitchcock’s sole action. If her separate codicil was in accord with the intent of the joint will, then what she provided by the codicil was but superfluous confirmation of what the husband’s relatives were entitled to receive by virtue of the will. If, on the other hand, the codicil violated the intent of the joint will, the husband’s relatives would still take according to the provisions of the will. The above quoted Thirteenth Section of the agreement expressly provided that the will could not “be changed by either party without the consent of the other, except as to the distribution of that half of the joint estate, if any, which ultimately will go to the devisees of the last survivor . . . .” It is plain enough, therefore, that, while Mrs. Hitchcock, as the survivor, could change the distribution of the half of the joint estate going to her devisees, she was powerless to change the distribution of the half that was to go to the husband’s beneficiaries. Nor could she change what, according to the will, constituted the quantum of half of the estate for distribution to the testamentary beneficiaries. Whatever the husband’s relatives were entitled to receive of the estate remaining after Mrs. Hitchcock’s death they took under and by virtue of the joint will and not otherwise.

Decree affirmed; the estate for costs.