
    Memphis Trust Company v. R. A. Speed, Clerk.
    (Jackson.
    April Term, 1905.)
    X. COLLATERAL INHERITANCE AND SUCCESSION TAX. Property taken in kind by a widow in payment of a bequest of one-balf of the residue of the estate is not subject to, when.
    Where a nonresident devised and bequeathed one half of the residue of his estate to his wife, and died the owner of personal property in this State, which was a part of the residue of his estate, a portion of which she elected to take at a fair valuation as compared with the balance of the residuary estate wherever situated, and the executor transferred it to her in kind, in payment and satisfaction of her one-half interest in the residuary estate, such property so taken by the widow isi not subject to the collateral inheritance and succession tax.
    Code cited and construed: Secs. 724, 735.
    Acts cited and construed: 1893, eh. 174, secs. 1, 10; 1893, ch. 89, see. 7.
    Code cited and construed: Secs. 724, 735 (S.).
    3. SAME. Clear or net value of share of estate after deduction of debts, etc., subject to.
    Debts owed by the decedent must be deducted from the aggregate value of the estate before it can be ascertained what amount is subject to the collateral inheritance- and succession tax; for the tax shall be levied on the clear value of the estate so passing, and' it is the net value of the share of the estate inherited by or willed to the collateral kindred that is subject to the tax. (Post, p. 691.)
    Acts cited and construed: 1893, ch. 89, sec. 7; 1893, ch. 174, sec. 1.
    Cases cited and approved: Callahan v. Woodbridge, 171 Mass., 595; In re King, 172 N. Y., 616.
    
      3. SAME. Same. But Tennessee debts of a nonresident testator will not be deducted from Tennessee assets subject to, when.
    .But Tennessee debts paid by tbe executor before tibe institution of tax proceedings and not shown to have been paid out of tbe Tennessee assets cannot be deducted from tbe Tennessee assets passing to collateral kindred under tbe will of a nonresident and subject to tbe collateral inheritance and succession tax. [Post, pp. 691, 692.)
    FROM SHELBY.
    Appeal from the Circuit Court of Shelby County. —¡J. P. Young, Judge.
    S. J. Shepherd, for Trust Company.
    Attorney-General Cates, W. P. Eldridge. and . G. P. Smith, for Speed.
   Mr. Justice M’Alister

delivered the opinion of the Court.

The question presented for determination upon this record is whether $20,000 of stock in the Bank of Commerce is subject to a collateral inheritance tax. It appears that Bern Price died domiciled in the State of Mississippi, and left an estate in Tennessee appraised at the value of $84,000. The deceased left a last will and testament, of which the Memphis Trust Company was duly appointed executor by the chancery court of Mississippi, and ancillary letters testamentary have been granted to it by the probate court of Shelby county, Tennessee. It is averred that such ancillary letters testamentary were only granted to said trust company for the purpose of enabling it to collect and secure possession of certain assets, and also to enable it to pay off and discharge certain debts which were due and owing in the State of Tennessee. The will provides as follows:' “I give and bequeath and devise to my beloved wife, Mary D. Price, my home place consisting of 105 acres, more or less with all improvements thereon situated in the town of Oxford, Mississippi, and on the west side of North street in said town. I also, give to my wife all of the household furniture in said house, my carriage and horses and such of my milk cows as she may desire for her private use. I also give and devise to my wife, Mary D. Price, the tract of land containing 40 acres more or less and situated on the north side of the town cemetery in Oxford, Mississippi. I further give, bequeath and devise to my wife, Mary D. Price, one half of all the residue of my estate whether real or personal or mixed and wherever located and I request and desire her to entrust to the Memphis Trust Company that portion of my estate given to her except,” etc.

The trust compauy, in its answer, states that in the division of the estate of the late Bern Price his stock in the National Bank of Commerce embraced in the ap-praisement was selected by and set apart to Mrs. Mary D. Price, widow of testator, as a part and portion of one-half of Ms estate to which she was entitled under the terms of his will. Defendant further avers that Mary D. Price had the right ■ to select and insist upon the shares of stock in the National Bank of Commerce as a part and portion of her ojie-half interest in the .estate of her deceased husband, and that this respondent, as executor, had no rig’ht to> object to her selection of said stock, provided only it was taken at a fair valuation,, which was actually done.

Respondent therefore avers that, inasmuch as the shares of stock in the National Bank of Commerce were never held in any way by the collateral relatives of testator, it is not responsible or liable for any collateral inheritance tax thereon. Respondent further stated that said stock in the National Bank of Commerce was set apart for said Mary D. Price in kind, and so transferred to her.

Respondent further avers that at the time of the death of Bern Price, he was indebted to the National Bank of Commerce, which is a Tennessee corporation, in the sum of $7,539, and also owed to said National Bank of Commerce an additional sum of $5,000, thus making a total indebtedness of said Bern Price in the State of Tennessee of the sum of $12,539.

Respondent further avers that it is its duty to set off and charge against the value of stock in the Memphis Trust Company the indebtedness of said Bern Price due to Tennessee creditors, inasmuch as this stock constitutes a fund peculiarly and especially liable therefor. Eespondent therefore avers that after the allotment to-Mrs. Mary D. Price, widow of testator, of the stock in the National Bank of Commerce, which she selected in-kind, as she had a right to do, and after charging against the stock in the Memphis Trust Company the amount of' the indebtedness due to the estate of Bern Price, no personal assets or assets of any kind remain in the State of Tennessee subject to a collateral inheritance tax or other tax of any kind. It appears from the record that Gilmer P. Smith was appointed by E. A. Speed, county court clerk, to appraise the estate of Bern Price, deceased, situated in Shelby county, Tennessee, which was or might be liable-to taxation under the collateral inheritance tax law. The appraiser found that at the time of testator’s death he was the owner of one hundred shares of stock, par value, of the Memphis Trust Company, and also owned one hundred shares of stock in the National Bank of' Commerce, also at par value. The value of all this stock was assessed by the appraiser at $34,000. The appraiser-was asked the following question: “Question 4. In answer to question 2 you say that the Tennessee property of this estate amounted to $34,000, and in answer to question 3 you say you only appraised for taxation. $17,000 or rather you only found $17,000 subject to taxation. Explain why you only found this amount subject to taxation, and not the whole $34,000. Ans. The-$34,000 referred to in question 2 was the total valuation. •of tbe Tennessee property belonging to tbis estate, and by tbe terms of tbe will of Bern Price one-balf of tbis property went to bis wife, namely $17,000. Under tbe ■collateral inheritance tax law any property left to or inherited by tbe wife of tbe deceased from tbe deceased’s •estate is not subject to collateral inheritance tax. Now, by tbe will of Bern Price, one-balf bis property went to bis wife, and be did not designate any particular parts ■of tbe property to go to her, and as be gave no election of the kind she was to have, I assume she, of course, took ■one-balf of tbis $34,000 worth in Tennessee property; consequently only tbe half left to collaterals was subject to taxation, and I therefore only appraised half for taxation, and so reported.”

Tbe circuit judge, who beard the cause without tbe intervention of a jury, found that Bern Price, resident of the State of Mississippi, died, leaving an estate in Tennessee, which, from report of appraiser, appeared tobe of value of $84,000, “and it appearing that under tbe will ■of said Bern Price one-balf of bis entire estate (exclusive of specific bequests and legacies to bis wife) was devised •and bequeathed to bis wife, Mary D. Price, and tbe other one-half to said collateral relatives and strangers in blood mentioned in said will, it is therefore adjudged by tbe court that said estate pay a collateral inheritance tax of five per cent on one-balf of tbe valuation of said ■estate, or $17,000, amounting to tbe sum of $850, together with fee of $127.50 to W. B. Eldridge, attorney for R. A. Speed, together with tbe costs of this cause.” Tbe •court declined to allow exemption of $12,739 on tbe •debts clue by the estate of Bern Price in the State of Tennessee, though the court recites the fact that such debts existed and were Tennessee debts. The court further found that the setting apart to Mary D. Price, wife of testator, of the stock in the Bank of Commerce, did not exempt said stock, or any part thereof, from liability for the collateral inheritance tax. The Memphis Trust Company, as executor, appealed from this decree, and has assigned the following errors: (1) The court erred in estimating the stock in the National Bank of Commerce which had been set apart to Mrs. Mary D. Price, widow of testator, as a basis upon which collateral inheritance tax, or any part thereof, could be assessed. ■(2) The court erred in refusing to consider the indebtedness of |12,539, due by Bern Price to Tennessee creditors in estimating the collateral inheritance tax due on his estate or any part thereof.

In support of the first assignment of error counsel for the Memphis Trust Company propounds the proposition that there can be no claim for collateral Inheritance tax upon the stock in the Bank of Commerce, because that has been selected by, and has become the property ■of, the widow, and under the provision of the collateral inheritance tax law of 1893 property inherited by or bequeathed to the widow is exempt.

It is undoubtedly true that under the Act of 1893 property passing to the widow from the testator is not subject to collateral inheritance tax, for the plain reason that the widow is exempt from its provisions. But the contention is that tbe widow bad no right to elect under the will and its codicils to take any particular portion of decedent’s property after the payment of specific legacies and devises. As already seen, testator made specific bequests to his wife, and then a general bequest of one-half of the residuary property. The argument, is that, if the testator had intended that his widow-should have the right to make selection of one-half of the remainder of his property, he would have so directed in- his will. This intention, it is claimed, is excluded’ by the specific bequests and the general bequest of one-half of the remainder of the estate. It is further insisted that the fact that the executor permitted the-widow to take the National Bank of Commerce stock as-, her share of the residuary estate did not bind the estate,, nor relieve the executor of the payment of collateral inheritance tax on this stock. The argument seems to be based upon the following language in the Act of 1893, namely: “And all owners of such estates and all executors and administrators, and their sureties, shall only be discharged from liability for the amount of such taxes and duty, the settlement of which they may be charged with by having paid the same over for the use of the State-as hereinafter directed..” Shannon’s Code, section 724 section 1, c. 174, p. 347, Acts 1893. Counsel then cites, section 10, c. 174, p. 350, Act 1893, which provides as follows: “Whenever any foreign executor or administrator or trustee shall assign or transfer any stock, or loans, in this State standing in the name of decedent, such tax ■shall be paid, on transfer thereof, to the clerk of the •county court where such transfer is made; otherwise the corporation or person permitting such transfer shall become liable to pay such tax.” Shannon’s Code, section 735. It is therefore the contention of the State that, as Bern Price left property in the State of Tennessee, consisting of one hundred shares of stock in the National Bank of Commerce, and one hundred shares of stock in the Memphis Trust Company, it was the duty of the executor, when the National Bank of Commerce stock was turned over to Mrs. Mary D. Price, widow, to pay to the county court clerk collateral inheritance tax based upon the value of one-half of said stock, as under the will only one-half of said stock could go to the widow, and this property was clearly divisible in kind. It is further argued that the widow could make no selection of property she wished to take, nor could the executor assent to allotment of such specific property so chosen. Act 1893, p. 347, c. 174, section 1, and Act 1893, p. 146, c. 89, section 7, provides as follows: “All estates — real, personal and mixed, of every kind whatsoever, situated within this State, whether the person or persons dying seized thereof be domiciled within or out of this State, passing from any person who may die seized or possessed of such estates, either by will or under the intestate laws of this State, or any part of such estate or estates or interest therein transferred by deed, grant, bargain, gift or sale, made in contemplation of death, or intended to take effect in possession or enjoyment after the death of the grantor or bargainor to any person or persons, or to bodies corporate or politic, in trust or otherwise, other than to or for the use of the father, mother, brother, sister, the wife or widow of a son, or husband of a daughter, or any child or children adopted as such in conformity with the laws of the State of Tennessee, husband, wife, children, and lineal descendants bom in lawful' wedlock of the person dying seized and possessed thereof, shall be subject to a duty or tax of five dollars on every hundred dollars of the clear value of such estate or estates so passing, and at and after the same rate for any less amount, to be paid to the use of the State,” etc.. So it is very clear, and counsel concede the proposition,, that no property passing to the widow under the provisions of this act is subject to the payment of collateral inheritance tax; but the main contention of counsel for the State is that under the residuary clause of this will the wife has no right to make a selection of specific property left in the residuary estate. This question arose in the Matter of James, 144 N. Y., 6, 38 N. E., 961. In that case the question arose on a construction of the collateral inheritance tax law of New York, which is substantially similar to the Tennessee Act of 1893. The facts were that at the time of his death in Africa testator was a citizen of the Kingdom of G-reat Britain, and was domiciled there. By his last will, which he had made at the place of his domicile, he disposed of a very large estate. He left property in Great Britain, which was valued at $447,630, and property in this country, which was valued at |2,30B,472.53. He gave legacies to collateral relatives and charities, which in the aggregate amounted to $236,810. The residue of his estate was given to his. executors, upon trust for the benefit of his two brothers. The charitable bequests were to foreign corporations, and persons to whom legacies were given were residents of Great Britain, with the exception of two, who resided in this country. He left no debts here. His will was proven in England in June, 1890, and afterwards, as a. result of an action brought in the courts of this State-(New York) by the executors, was established here, and letters testamentary were issued thereon to John Arthur Jones, one of the executors named, and also a resident of Great Britain. He applied to the surrogate of the county of New York for the appointment of an appraiser for the purpose of appraisement under the laws of this State-imposing a tax upon gifts, legacies, and collateral inheritances. It appeared that by the will the legacies were-to be paid within three months of testator’s death free of duty; that a portion of the amount given as legacies-had already been paid in Great Britain out of the estate there, together with the duties imposed on legacies by the law of that country, and that the property in this country consisted, among other things, in stocks and bonds of corporations of this and other States, which securities were deposited in this State at the time of testator’s death.

On these facts the court of appeals of New York, in the midst of its opinion, said: “In the present case the property which testator died possessed oí in Great Brit-tain is largely in excess of the amount given by him in legacies. Some portion of that has already been paid from the English estate, and the executor has declared his determination of appropriating that part of testator’s property to their payment, so that the American ■estate shall constitute the residuary estate disposed of by the will in favor of the testator’s brothers. This he may rightly do, and thus save the estate from the payment of the succession taxes imposed by our laws. The fact of such an appropriation will, of course, appear upon his accounting. If the executor determines to pay the legacies from the English estate, the American estate is thereby freed from the burden of the special -taxes, the imposition of which depends upon the fact of •a succession by the legatee to some property which is within the State. If the American estate is appropriated ■to persons who are within the exempted degrees of relationship to testator, the right to claim the tax from executor is gone. It does not lie with the officers of the State to say in such a case which part of testator’s property shall be appropriated to the payment of the legacies. The law is not arbitrary in its application. It is simply ■absolute in its requirements, when the precise case arises which it was framed to meet; and where, as here, the •case is not presented of an appropriation of any. part of the American estate in payment of legacies to foreign legatees, this special tax law can not and should not apply-”

It will be seen from tlie excerpt of the opinion that tbe New York case bears a striking analogy in some of its essential features to tbe case now under consideration. Tbe reasoning of the court commends itself to our judgment, and without further elaboration we bold that tbe executor of tbe estate of Bern Price bad a right, upon the election of tbe widow, to transfer to her tbe stock in tbe Rational Bank of Commerce in payment of her one-half interest in tbe residuary estate; provided, of course, it was taken at a fair valuation as compared with tbe balance of tbe residuary estate wherever situated. Tbe stock in tbe Memphis .Trust Company, amounting to $14,000, which, under tbe will, goes to collateral kindred and strangers in blood, is clearly subject to tbe tax.

Tbe second assignment is that tbe court should have allowed, as against any collateral tax imposed on tbe stock in tbe Memphis Trust Company, and valued by the appraiser at $14,000, tbe indebtedness of $12,539 due creditors in the State of Tennessee. It is well to understand in tbe first place whether there are' any debts u outstanding in this State which are due from tbe estate of Bern Price, and the character of that indebtedness. We find this matter explained in tbe deposition of Mr. John H. Watkins, vice president of tbe Memphis Trust Company, as follows: “Q. State what debts, if any, were due by the estate of Bern Price to creditors in tbe ■State of Tennessee. Ans. At tbe time of tbe death of Bern Price be was indebted to tbe National Bank of Commerce in the sum of about $7,539. He also owed the National Bank of Commerce the sum of $5,000. This last item was two-thirds of a debt of $7,500 due by the firm of Price & Price, of which he was a member, and in which he had an interest of two-thirds, being responsible, of course, for two-thirds of its debts. These debts have been paid off, and the estate of Bern Price now owes no debts to creditors in Tennessee.” Again, the witness was asked: “Did the general estate of Price pay the firm debts, or were they paid out of his individual estate? Ans. The firm of Price & Price was solvent, and it paid the indebtedness of $7,500 to the Bank of Commerce, of which amount $5,000 was owed by Bern Price. The individual estate of Bern Price did not pay this $7,500.”

Again, the witness was asked: “What relationship did this Tennessee debt of $12,539.00 bear to his entire indebtedness? Ans. About fifty per cent. Q. For this debt did the Bank of Commerce have any security? If so, what was it? Was it exhausted before other property was used in paying these two debts? Ans. The indebtedness of Price & Price to the Bank of Commerce,, amounting to $7,500, was secured to the Bank of Commerce by eighty shares of stock in the Bank of Oxford, belonging to Bern Price, which was deposited as collateral. None of this security was used or exhausted in paying the debt.”

Again, this witness was asked: “What per cent or part of this whole estate were the Bank of Commerce stock and the Memphis Trust Company stock? Ans, Twelve and one-half per cent, or one-eighth.”

It may he conceded as sound law that debts must he deducted from the aggregate value of the estate before it can be ascertained what amount is subject to the inheritance tax. Callahan v. Woodbridge, 171 Mass., 595, 51 N. E., 176; Matter of King, 172 N. Y., 616, 64 N. E., 1122. The Tennessee Act of 1893, already quoted supra, provides that the tax shall be levied on the clear value of the estate so passing.

It is the net value of the share of the estate inherited by or devised to the collateral kindred that is subject to the tax. In the present case one of the debts due Tennessee creditors was an individual debt of the testator, and the other an indebtedness of a partnership wherein he owned a two-thirds interest. Both debts have been paid, and were paid before the institution of the tax proceedings herein. It does not appear that the individual debt was discharged with Tennessee assets, and we have no concern with the partnership debt, since that was discharged with firm assets. We infer that the individual indebtedness of Bern Price to the National Bank of Commerce for $7,539 was paid with Mississippi assets, since the appraiser found that the entire value of the estate in Tennessee was $34,000, and that amount still remained intact for distribution when the appraisement was made.

In addition to this, if the executor sought to deduct debts due Tennessee creditors from the shares of the estate passing to the collateral kindred, it was incumbent on it to show they were discharged with Tennessee assets. This fact does not appear in the record. We conciur with the circuit judge in disallowing these debts as credits on the stock of the Memphis Trust Company appraised for taxation at $14,000. We nonconcur with the circuit judge in his holding that the setting apart of the stock in the Bank of Commerce to the widow did not exempt said stock, or any part thereof, from liability for the collateral inheritance tax. We hold that the part of said stock so set apart to the widow is exempt from said tax. We think the fee allowed the attorney for the county court clerk was altogether proper and reasonable.

For the reasons stated herein, the judgment of the circuit court is affirmed.  