Love v. St. Louis Union Trust Company

497 S.W.2d 154, 70 A.L.R. 3d 676

• Court: Supreme Court of Missouri
• Decided: April 9, 1973
• Docket: 56270
• Status: Published

Opinions

HIGGINS, Commissioner.

Action by Andrew Sproule Love, Jr., Executor of the Estate of Andrew Sproule Love, deceased, to construe a trust created by, and the last will and testament of, Andrew Sproule Love; and to require St. Louis Union Trust Company, Trustee under Indenture of Trust of Andrew Sproule Love of December 30, 1941, to contribute from trust assets a pro rata share of federal estate or state inheritance taxes or succession duties. The Executor’s federal estate tax return showed a gross estate of $5,450,498.70, a taxable estate of $5,197,-176.78, and a net tax after credits for state death taxes and tax on prior transfers of $2,102,937.98. Included in the gross estate for purpose of federal estate tax was $290,376.96, being the value of the trust estate at the death of Andrew Sproule Love. The Executor seeks to recover for the probate estate $120,077.70 as the portion of federal estate tax attributable to the trust. The Trustee and two of its principal beneficiaries, Peter C. Robertson and John O. Robertson, half brothers of the remaining principal beneficiary, Andrew Sproule Love, Jr., claim to have been relieved from liability for any such tax by decedent’s will, and cross claim for judgment exonerating them and the trust from liability for contribution to federal estate taxes and all other death taxes. The trial court found and adjudged that the share of death taxes to be borne by the trust was $116,145.26, determined by multiplying the net tax payable, $2,102,937.98, by a fraction, the numerator of which was the federal estate tax value of the trust, $290,376.-96, and the denominator of which was the taxable estate, $5,197,176.78, plus the federal estate tax exemption, $60,000, i. e.:

Both sides have appealed:

Appellants contended the trust should be exonerated from all liability for contribution, and appeal from the judgment insofar as it requires any apportionment. They submit, however, “that if the federal estate tax is apportionable as between trust assets and probate assets, the apportionment should be made as it was made by the Circuit Court, i. e., on the basis that assets that cause taxes shall pay taxes in relation to the amount of taxes caused.” See Hammond v. Wheeler, Mo., 347 S.W.2d 884.

Andrew Sproule Love, Jr., both as Executor and as will beneficiary, contended the formula for apportionment should be:

The Executor-will beneficiary thus agrees with the trial court that there should be apportionment, but appeals from the decree “in that it does not apportion the tax attributable to assets exonerated by the Will at all, rather casting the entire tax burden of those assets on the probate estate.”

On December 30, 1941, Andrew Sproule Love, Sr., executed an Indenture of Trust in which his father, Edward K. Love, and St. Louis Union Trust Company were named as Trustees. The dispositive provisions of the original Trust Indenture later became obsolete; it contained no provision concerning the payment of federal estate taxes; and it was, by its terms, irrevocable by Mr. Love until the death of his father or until ten years after January 1, 1942, whichever event should occur first. Mr. Love’s father died on March 22, 1953.

Within a month after the original trust instrument was made, Mr. Love married Helen Smith Love. She had two sons, appellants Peter C. Robertson and John O. Robertson, by a prior marriage, and of the marriage of Mr. and Mrs. Love, Andrew Sproule Love, Jr., was born.

On April 14, 1959, after the Indenture of Trust had become revocable and amendable, Mr. Love executed an amendment by which he completely reconstructed his dis-positive provisions and provided that the corpus of the trust estate be held for the equal benefit of his son, Andrew Sproule Love, Jr., and his two stepsons, Peter C. Robertson and John O. Robertson, during their respective lives with remainders over to their respective descendants. Further provisions governed the disposition of the trust estate in the event of the death of the son or of a stepson without leaving descendants surviving him.

Helen Smith Love died December 15, 1959.

Mr. Love died May 10, 1967, without having further amended the trust instrument and without having remarried. He left a will, executed November 2, 1965, which left his residence properties and their contents in the City of Ladue, Missouri, and on Hart’s Neck at Tenants Harbor, Maine, to his son, but provided that certain fractional interests in property near the summer residence would go to his stepsons in one case or to his son and his stepsons in another case. Aside from the residence properties, the entire estate was devised to, or in trust for the benefit of, his son Andrew Sproule Love, Jr., with contingent remainders in the residuary trust estate, if the son should die without issue, in favor of the stepsons to the extent of ten per cent, and in favor of his collateral relatives as to the balance.

The tax clause in the trust amendment of April 14, 1959, follows:

“ARTICLE IX: Any federal estate or state inheritance taxes or succession duties which may be assessed by reason of the Grantor’s death or predicated upon such death as the taxable event shall be apportioned by the Trustees and by the Executors of the Grantor in proportion to the property held in trust hereunder and all other property which may be included as a part of the estate of the Grantor for tax purposes, except such property as may be specifically exonerated from the payment of any such taxes by the terms of the last will and testament of the Grantor, and the Trustees hereunder are specifically directed to pay direct to the persons entitled thereto, or to the Executors of the Grantor the proportionate share of such taxes arising by reason of such apportionment. Said Trustees, however, shall not be charged with the payment of any Missouri inheritance tax which cannot be determined finally as of the date of the death of the Grantor.”

The tax clause in the will of November 2, 1965, follows:

“ELEVENTH: I direct my Executor hereinafter named to pay out of the general assets of my estate all estate and inheritance taxes and succession duties assessed by the United States, or any state thereof, against my estate, including but not by way of limitation, any insurance policies, joint property, and tenancies by the entirety which may be included as a part of my estate for tax purposes or against any gift, devise or bequest, excepting however, the bequests to my son provided for by Item Fifth of this will; and no such taxes shall be charged against or deducted from any such gift, devise or bequest. The said bequests under Item Fifth of this will shall bear their proportionate share of all such taxes which shall be paid out of or deducted therefrom. My Executor shall not, however, be charged with the payment of any Missouri inheritance taxes which cannot be determined finally as of the day of my death. All such estate or state inheritance taxes or succession duties which may be assessed by reason of my death, or predicated upon such death as the taxable event, shall be apportioned by my Executor in proportion to the property devised by said Item Fifth of this will and my residuary estate. I hereby direct that my Executor shall have the same powers as are given my Trustees by Item Sixth of this will.”

In arriving at the judgment previously described, the court made the following pertinent conclusions of law:

“20. The Trust, by its terms, could be altered, amended or revoked only by a written instrument delivered to the Trustees during Mr. Love’s lifetime. The Will, being effective as a matter of law only upon Mr. Love’s death, could not in any way alter, amend or revoke the terms of the Trust. Mr. Love did not alter, amend or revoke the Trust in any way during his lifetime. Therefore, regardless of any provisions in the Will, the provisions of the Trust, and in particular, those relating to the death tax burden to be borne by the Trust, must be given effect.

“21. Article ELEVENTH of the Will refers to certain non-Probate assets which might pass to devisees and legatees free of the burden of death taxes, but neither the Trust nor any asset conceptually similar to the Trust is referred to in said Article ELEVENTH. The maxim of equity, inclusio unius est expressio alterius applies in interpreting the intent of Mr. Love reflected in Article ELEVENTH of his Will and such intent was that the Trust should bear its proportional share of all death taxes.

“22. The rule of equitable apportionment in the allocation of death taxes among probate and non-probate assets has been established by the courts of the State of Missouri as a means of determining the proper apportionment of death taxes in the case of decedents who die possessed of probate and non-probate assets which together generate and contribute to the burden of death taxes in a decedent’s estate.

“23. The theory of the rule of equitable apportionment of death taxes as established by judicial decision in this State is that probate and non-probate assets of a decedent are to be considered two separate estates and, absent a clear indication of intent to the contrary, allocation of death taxes should be based on the relative size of each estate. Even disregarding Article IX of the Trust, and in view of the application of the maxim of equity, inclusio tmius est expressio alterius, the rule of equitable apportionment requires that the Trust bear its proportional share of Federal Estate and Missouri inheritance taxes.

“24. Article IX of the Trust does not require that in determining the proportion of taxes to be borne by the Trust, the tax burden of assets exonerated from any taxes under the Will is to be borne proportionally between the Trust and the probate estate.”

The principal question is whether Mr. Love’s trust was exonerated by his will from liability for the portion of federal estate tax attributable to trust assets. If the trust was not so exonerated, a secondary question is whether apportionment should be made as made by the trial court, or whether it should be made as contended by the executor.

The trial court’s resolution of these questions was based on undisputed facts, and its judgment “shall not be set aside unless clearly erroneous.” Rule 73.01(d), V.A. M.R.

As suggested by the Trustee and the Robertsons, the Federal Estate Tax Act directed payment by the executor of such taxes in the first instance without specifying who was to bear the burden of the tax, and Congress thus intended that state law should determine the ultimate thrust of the tax. Riggs v. Del Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed. 106; Carpenter v. Carpenter, 364 Mo. 782, 267 S.W.2d 632, 637. Missouri does not have a statute dealing with the burden of the tax; and imposition or apportionment of the burden depends upon judicial decision where the basic concern is the intent of the decedent determined from the relevant instruments, with equitable principles to be applied when such intent is not expressed or discernible. Commerce Trust Co. v. Starling, Mo., 393 S.W.2d 489, 494 [1-6] ; Priedeman v. Jamison, 356 Mo. 627, 202 S.W.2d 900, 903. To these principles should be added that suggested by the Executor that a trustee is to be guided by the trust instrument in dealing with trust property. First National Bank of Kansas City v. Hyde, Mo., 363 S.W.2d 647, 652 [4],

In this case, Mr. Love's desire that the trust bear its share of death taxes is expressed in Article IX of the Trust Indenture. It has been set forth previously in full and it provided in pertinent part that “Any * * * succession duties which may be assessed by reason of the Grantor’s death * * * shall be apportioned by the Trustees and by the Executors * * * in proportion to the property held in trust hereunder and all other property which may be included as a part of the estate of the Grantor for tax purposes, except such property as may be specifically exonerated from the payment of any such taxes by the terms of the last will * * * of the Grantor, and the Trustees * * * are specifically directed to pay direct to the persons entitled thereto, or to the Executors of the Grantor the proportionate share of such taxes arising by reason of such apportionment.”

This direction is clear, complete and unambiguous ; and, under it, the Trustee is required to pay that fraction of death taxes which equals the proportion that Trust assets bear to the taxable estate.

Where instructions contained in a trust instrument are as clear and unambiguous as these, the intent of the grantor at the time of creation of the trust, as so indicated, governs, First National Bank v. Hyde, supra, 363 S.W.2d 1. c. 653 [9]; and subsequent modifying instructions are effective only in the manner expressed in the trust instrument under an expressly reserved power to amend. Krause v. Jeannette Inv. Co., 333 Mo. 509, 62 S.W.2d 890, 893; IV Scott, Trusts, §§ 330, 330.8, 331 (3d Ed. 1967). And see Restatement Trusts 2d, § 330, particularly Comment j., that “If the settlor reserves a power to revoke the trust only in a particular manner or under particular circumstances, he can revoke the trust only in that manner and under those circumstances. * * * If the settlor reserves a power to revoke the trust by a transaction inter vivos, as, for example, by a notice to the trustee, he cannot revoke the trust by his will.”

Mr. Love’s intention in this respect is expressed in Article VI of the Trust Indenture which provides in pertinent part that “it shall be subject to the express condition and reservation on the part of the Grantor to alter or amend the terms of this agreement, or to revoke this agreement in whole or in part, and to free any sums of money, securities or other property from the terms of this trust, at any time during the Grantor’s lifetime, upon written notification to that effect duly executed by the Grantor and delivered to the Trustees.”

This reservation of the power to alter, amend, or revoke the trust and the manner of accomplishment of such purpose is also clear, complete and unambiguous; and, under such provision, Mr. Love could alter, amend, or revoke his trust only by written instrument executed and delivered by him while living to his Trustee.¹

Accordingly, Mr. Love’s will, even though later in time, particularly paragraph Eleventh, could not serve as a modifying instrument for purposes of alteration, amendment, or revocation of his trust, and his directive with respect to the burden of succession duties stands. Restatement, Trusts, supra; and see also In re Estate of Anderson, 69 Ill.App.2d 352, 217 N.E. 2d 444; Merchant’s National Bank of Aurora v. Weinold, 22 Ill.App.2d 219, 160 N.E.2d 174; Leahy v. Old Colony Trust Co., Mass., 93 N.E.2d 238.

On this principal question the Trustee and the Robertsons argue that the tax clause in Mr. Love’s will, insofar as it would exonerate the trust from taxes contrary to the express terms of the trust, was, in fact, not an amendment of the trust but was simply a bequest to the trust of taxes otherwise chargeable to the trust. The answer to this argument is that there is no such bequest, express or implied, in Mr. Love’s will; and his trust provision is not to be defeated by reading a nonexistent bequest into his will. The expressed desire of the Grantor that the trust contribute toward succession duties is as legitimate as any other and entitled to remain inviolate against unauthorized change.

The Trustee and the Robertsons also argue on the principal question that the requirement of written notice to the trustees during the life of the grantor was solely for the benefit of the Trustee and may be waived by the Trustee. See St. Louis Union Trust Co. v. Dudley, Mo.App., 162 S.W.2d 290. The difficulty with such argument in this case is that the Trustee never waived the requirement and, consequently, neither the argument nor the authority applies.

Other facets of the argument on the principal question advanced by the Trustee and the Robertsons are that Article IX of the Trust Amendment shows an intention that the trust be amendable by will, that it indicates an intention to leave open the question of the burden of death taxes on the trust until final determination by will, and that clause Eleventh of the will exonerates the trust from payment of all death taxes. The argument emphasizes the language of Article IX that estate taxes he apportioned “in proportion to the property held in trust hereunder and all other property which may be included as a part of the estate of the Grantor for tax purposes, except such property as may be specifically exonerated from the payment of any such taxes by the terms of the last will * * * of the Grantor * * and restates the language of clause Eleventh.

This also would permit an amendment to Mr. Love’s trust in a manner contrary to the express language with respect to amendments in Article VI of the trust. Accordingly, it may not be said that the court’s rejection of such argument is clearly erroneous for the reasons given for the failure of prior similar arguments, Restatement, Trusts, supra; and denial of the claim of the Trustee and the Robertsons that the trust was exonerated by the will from liability for the portion of federal estate tax attributable to trust assets was not improper.

On the issue of apportionment or allocation of the tax burden, the Executor contends his formula is superior to that used by the court because it “scrupulously followed the directions of the trust while generally observing the formula of equitable apportionment.” In advancing this contention, he recognizes that “while several Missouri- cases have discussed apportionment of death taxes, no case has apparently approved an actual formula to be used in dividing the burden of death taxes between an inter vivos trust and probate assets.” He recognizes also that “the allocation ordinarily used is basically the same as that approved by the Court below,” Commerce Trust Co. v. Starling, supra, Carpenter v. Carpenter, supra.

To avoid the effect of these concessions and in urging use of his own formula, the Executor argues that subtraction of the estate tax value of exonerated assets is expressly contemplated by Article IX of the trust and “reaches the result all seemed to argue is desired, that assets which cause taxes should pay them.” Hammond v. Wheeler, supra. He also argues that the court’s formula throws the burden of taxes on exonerated assets on the residue which “did not give rise to them any more than did the Trust.”

In support of the formula adopted by the trial court, the Trustee and the Robertsons contend that the result of an apportionment as suggested by the Executor would have been that the trust would be required to contribute an amount of tax which was increased by a factor included in the denominator based upon exonerated property which had no relationship to the trust and which would vary depending upon the testator’s bounty in other directions.

Since there is no statute in Missouri directed to such apportionment, the court, of necessity, had to make an apportionment based on equitable principles, and the formula devised accords with those ordinarily used. The Executor’s argument is not persuasive to the extent of showing how the court’s choice of the usual formula for resolution of the tax burden in this case was erroneous, and, accordingly, it may not be said that the apportionment as made by the court is in error.

The Trustee and the Robertsons have a further contention that the court erred in receiving extrinsic evidence from the scrivener of the trust and will under Rule 73.01, V.A.M.R. It is not necessary to rule this contention because in this view of the case, such evidence has not been considered.

Judgment affirmed.

PER CURIAM.

The foregoing opinion by HIGGINS, C., is adopted as the opinion of the Court en Banc.

DONNELLY, MORGAN, HOLMAN, and HENLEY, JJ„ concur; FINCH, C. J., dissents in separate dissenting opinion filed; SEILER and BARDGETT, JJ., dissent and concur in separate dissenting opinion of FINCH, C. J.

1 . There was one amendment of the Trust to add John and Peter Robertson as beneficiaries and to specify apportionment of death taxes. It was accomplished by delivery to the Trustees of a written instrument executed by the Grantor, all in the manner expressed in the Trust Indenture. Paragraph 4 of the Amendment reaffirmed the original power to amend or revoke, “it being expressly understood and agreed that the same shall hereafter be subject to amendment, alteration or revocation by the Grantor as provided in Article VI thereof.”