Kritz Estate

5 Pa. D. & C.2d 586, 1956 Pa. Dist. & Cnty. Dec. LEXIS 278

• Court: Pennsylvania Orphans' Court, Philadelphia County
• Decided: February 10, 1956
• Docket: no. 2161 of 1954
• Status: Published

Opinions

Lefever, J.,

The narrow issue in this case is whether a debt of a decedent (leaving no testamentary estate), which is paid by the surviving owner of jointly owned nontaxable property, is allowable as a deduction in determining the transfer inheritance tax due upon other property jointly owned by decedent and a third person.

Decedent died on October 30, 1953. She was survived by her husband, Frank J. Kritz, and by her sister, Grace L. McMullin. At the time of her death she and her husband, as tenants by the entireties, owned the real property at 4201 Tyson Street, Philadelphia, which was subject to a joint bond and mortgage, and she and her sister, as joint tenants with right of survivorship, owned a piece of real property in Montgomery County. Decedent owned no other real or personal property. Accordingly, no administration was raised on her estate.

The sister reported for Pennsylvania inheritance tax purposes $8,000 gross, being one half of the appraised value of the Montgomery County property, and claimed a deduction of $538.98, which was one half the amount of the principal and interest due upon the bond and mortgage secured upon the Philadelphia property.¹ The sister had no obligation to pay this debt and did not. pay any part of it. It has been paid by decedent’s husband.

As stated in the Commonwealth’s brief:

“The Pennsylvania Inheritance Tax Act is made up of a series of taxable subjects which have been added at various times over the years. The first one covered by the Act was the general estate of the decedent left by Will, the Intestate Laws, or other testamentary device. Another subject of taxation, later added, was transfers, intended to take effect in possession or enjoyment at the time of the decedent’s death where the establishment of the gift or transfer is deemed to be testamentary in nature. The next subject added for taxation was transfers made in contemplation of death. . . . The last subject for taxation added by the Legislature is that of jointly-held property. . . .”

The tax is specifically imposed “upon the transfer of any property, real or personal . . : Act of June 20, 1919, P. L. 521, article I, sec. 1; as amended, 72 PS §2301.

Section 2 of the Transfer Inheritance Tax Act, as amended, 72 PS §2302, provides: “All taxes imposed by this act shall be imposed upon the clear value of the property subject to the tax. ... In ascertaining the clear value of such estates, the only deductions to be allowed from the gross values of such estate by the Register of Wills shall be the debts of the decedent, reasonable and customary funeral expenses . . also expenses of care of burial lots, erection or gravestones, and administration expenses. There is no limitation in the statute on these “deductions”.

It is well settled that tax statutes shall be strictly construed. However, in this case, there is no need to resort to rules of construction for the words here used are precise. The statute specifies that, “the only deductions to be allowed from the gross values of such estates by the Register of Wills shall be the debts of decedent . . .”. The statute does not provide: “debts of the decedent for which the property subject to tax is liable for payment”. One half of the balance of the principal and interest due on the bond and the mortgage secured upon the entireties’ property was a debt of decedent. Therefore, this debt constitutes a deduction within the strict meaning of the language of the statute.

The theory of the Pennsylvania Transfer Inheritance Tax Act, as amended, and the practice which has developed under it is that all of the testamentary and extra-testamentary estate shall be lumped into one gross estate, and all of the deductions shall be subtracted therefrom. The inheritance tax is then assessed upon the net estate. This was the original theory when only the testamentary estate was taxed, and there is nothing in the amendments to indicate that that theory was changed when extra-testamentary property was made subject to tax. It follows, therefore, that the specified deductions are allowable whether the estate consists of testamentary or extra-testamentary property.

It has been urged that “such estates” in the statute apply only to testamentary property and, therefore, the deduction , of “debts of the decedent” is not available to taxpayers on extra-testamentary property. But the statute itself refutes this. Section 45, art. V of the Act of June 20, 1919, P. L. 521, 72 PS §2461, provides:

“The words ‘estate’ and ‘property’, wherever used in this act, except where the subject or context is repugnant to such construction, shall be construed to mean the interest of the testator, intestate, grantor, bargainer, or vendor, passing or transferred to the individual or specific legatee, devisee, heir, next of kin, grantee, donee, or vendee, not exempt under the provisions of this act, whether such property be situated within or without this Commonwealth.”

The situation before the court is unique. There is no reported case exactly on point. The precise situation of a decedent dying without any testamentary estate and a joint owner of two pieces of real property, one held with her husband and the other held with her sister, is not apt to occur very frequently. There is no reason to change the general theory and interpretation of the inheritance tax act for this unusual case. We conclude, therefore, that the debt in question is a proper deduction.

It is urged that the interpretation of the inheritance tax statute herein set forth may lead to a race by recipients of extra-testamentary property for deductions in the estate where no administration is raised. We doubt that this will occur. Such has not been the situation during the many years that the Transfer Inheritance Tax Act has been in existence. If this be so, it is perhaps unfortunate that the legislature repealed the provision in the earlier acts specifying: “That no deductions shall be allowed for any debts of the decedent of which notice is not given to the executor, administrator or the register of wills within one year of the date of the death of the decedent”. That provision gave a measure of control to the register and placed a time limit upon claims for deductions. But the legislature has eliminated this time limitation and we must observe the legislative mandate. We shall meet the suggested problems if, as and when they arise.

The conclusion here reached is supported by Kershaw Estate, 352 Pa. 205 (1945). There it was held that one half of the mortgage debt for which decedent and his wife were jointly and severally liable was a proper deduction for inheritance tax purposes, although the mortgaged premises had been owned by them as tenants by the entireties and, therefore, formed no part of the taxable estate. The court stated: “If the collateral securing a debt for which a deduction is claimed is owned by the decedent, it is, of course, included in the appraisement of the gross assets; if for any reason, as in the present case, it is not so owned and therefore not so included, this does not affect the deductibility of the debt in computing the clear value of the property subject to the tax, for the debt, no matter how secured, is nonetheless a debt, and, as such, falls within the express wording of the act”.

In Mellor’s Estate, 286 Pa. 149 (1926), the court allowed the wife’s funeral expenses as a deduction, saying at page 152: “The Commonwealth argues that the husband is primarily liable for his wife’s funeral expenses and, this being so, we should read into the act a limitation of deductibility to such expenditures as the wife’s estate would be primarily liable for, citing to us such cases as Waesch’s Est., 166 Pa. 204, and Mitchell’s Est., 79 Pa. Superior Ct. 208, but the legislature in determining what deductions it would allow before assessing the tax said in explicit terms that allowance should be made for ‘reasonable and customary funeral expenses’ and placed no other limitation thereon. We think this plain language negatives the idea that the deduction was to be made only in the event that the husband is unable to pay.”

In Rex’s Estate, 46 D. & C. 443, the court allowed as a deduction the entire principal and interest, on the joint and several note of decedent and his wife, secured by stock owned by obligors, as tenants by entireties. President Judge Holland reasoned, page 445: “The Act of June 20, 1919, P. L. 521, art. 1, sec. 2, as last amended by the Act of June 24, 1939, P. L. 721, sec. 1, 72 PS §2302, provides that the clear value of a decedent’s estate subject to inheritance tax shall be ascertained by taking the gross value, and then by deducting therefrom, inter alia, ‘the debts of the decedent’ (italics supplied). The Inheritance Tax Act nowhere, by express words or implication, makes any distinction between secured and unsecured debts. To break down secured debts into sub-classifications, depending upon the nature and ownership of the collateral security, is to take still another step further away from the statute. The one and only way to find the correct answer is by looking at the alleged debt and by determining whether or not it actually is a debt of the decedent. Inquiry into the collateral security is wholly immaterial.”

It is significant that in the instant case the Commonwealth has allowed decedent’s hospital bill, physician’s bill and funeral expenses, as- deductions against the gross value of taxpayer’s real estate (see footnote 1). It may be argued that this is a matter of grace. Nonetheless, the chief law enforcement officer of the Commonwealth has manifested by this action his approval of the practice of allowing deductions against the gross extra-testamentary estate of “funeral expenses” and other debts of decedent paid by the taxpayer. There is no real difference as to this debt which was paid by decedent’s husband. The policy and practice has been established.

The Commonwealth relies strongly upon O’Donnell Estate, 85 D. & C. 573 (1953). In that case two sisters owned a joint bank account with right of survivorship and the surviving sister claimed that she was not subject to a tax on one half of the amount of the account because the debts of the deceased sister exceeded that amount. President Judge Brady refused to allow the debts of the deceased sister as a deduction. We disagree with Judge Brady’s conclusion, but concur with him in his statement: “The troublesomeness of this problem is enhanced by the scantiness of appositive authorities. Indeed, diligent canvass of the precedents has failed to yield a precise pattern for this case. In my opinion, this is a matter for the legislature to clarify and establish the rights of creditors in joint tenancy cases and not for me.” It should be added that the Transfer Inheritance Tax Act, with its many amendments, badly needs revision and codification. If, as and when this is done, the legislature can make clear whether or not it wishes to change the practice inherent in the act and herein approved. However, the liability of individuals to pay inheritance taxes is peculiarly the province of the legislature, not the judiciary.

The Federal courts are faced with a similar problem under the Federal Estate Tax Law. The Federal courts construed the statute strictly and allowed deductions in an insolvent estate against the tax due on extra-testamentary estates: Commissioner of Internal Revenue v. Hallock et al., 102 F. 2d 1 (C. A. 6th 1939); Helvering v. O’Donnell, 94 F. 2d 852 (C. A. 2d, 1938); Commissioner of Internal Revenue v. Lyne, 90 F. 2d 745 (C. A. 1, 1937); Helvering v. Northwestern Nat. B. & T. Co., etc., 89 F. 2d 553; Commissioner of Internal Revenue v. Windrow, 89 F. 2d 69 (C. A. 5th, 1937); Commissioner of Internal Revenue v. Strauss, 77 F. 2d 401 (C. A. 7th, 1935). We recognize that the Federal Estate Tax Law is founded upon a different theory from the Pennsylvania Transfer Inheritance Tax Act. However, interpretation of all tax statutes is based upon the same fundamental principles. Therefore, we quote in extenso from the compelling language of Circuit Court Judge Hamilton in Commissioner of Internal Revenue v. Hallock et al., supra.

“. . . the statute² contains neither patent nor latent ambiguities, and means the same whether read as an excerpt isolated from its context or in pari materia. It is too plain in language to need the aid of contemporaneous administrative construction. Houghton v. Payne, 194 U. S. 88, 104, 24 S. Ct. 590, 48 L. Ed. 888.

“The application of the estate tax law presents a simple mathematical calculation to reach its end. On one side is valued certain assets specifically enumerated in the statute; on the other, certain statutory defined deductions. The last subtracted from the first constitutes the net estate which is taxed at given percentages. The elements of both sets of factors are specifically enumerated in the Act and to some extent items going into the gross estate as well as deductions have been arbitrarily chosen by the Congress. . . .

“The Commissioner contends in effect that Section 303(a) should have read into it a proviso limiting the deductions to claims which are actually possible of payment from the assets of the estate. This would make the section in substance provide that only deductions should be permitted for claims against the estate which constitute legally enforceable demands and which are actually payable from its assets. .

“To depart from the meaning expressed by the words is to alter the statute, to legislate and not to interpret. The responsibility for the justice or wisdom of legislation rests with the Congress. It is the province of the courts to construe, not to make laws.”

The exceptions are dismissed, the appeal is sustained, and the record is remanded to the Register of Wills for disposition in accordance herewith.

1 In addition to this debt the sister originally claimed deductions for obligations of decedent’s estate which the sister herself paid as follows: Funeral bill, $1,324.29; cemetery lot, $400; decedent’s funeral clothing, $47.90; Oncologic Hospital, $240.47; Dr. Hahn, $500, and nursing services, $84. The Commonwealth allowed all of these additional items (reducing the funeral bill to $1,000) as deductions, in reliance upon the opinion of Deputy Attorney General George W. Keitel, in the Estate of Lawrence Daniel, deceased, issued June 11, 1945, that if decedent leaves no testamentary or administrative estate for payment of administration expenses or debts of last illness and the surviving joint tenant voluntarily makes payment of these items the same shall be allowed as deductions in fixing “the clear value” of jointly held property. This is now apparently accepted practice.

2 Sections 301 (a) and 303 of the Revenue Act of 1926, 26 U. S. C. A. §§410 and 412(b).