RUPPRECHT R. SCHERFF, executor, vs. MARGARETHE SILINSKI & others.

CUTTER, J. This is a petition by the executor of the will of Erna P. Sievers, who died May 10, 1961, for instructions concerning what portion or portions of the testatrix's estate should bear the burden of Federal estate taxes and State inheritance taxes. There is no dispute about the facts, which are established by the pleadings. The probate judge reported the case, without decision, for the consideration of the full court.

The testatrix by her will (arts. Second to Twentieth, inclusive) made various devises and bequests, including gifts to each of the cafe employees mentioned below and to each of the residuary legatees. Articles Twenty-first and Twenty-second are not relevant. She then (art. Twenty-third) bequeathed to one Downey, as trustee, her "collection of steins, china and music boxes" and all her shares of the capital stock of Student Prince Cafe, Inc. of Springfield (the cafe), in trust under somewhat complicated provisions, which need not be stated in complete detail, [Note 1] for the benefit

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of Rupprecht R. Scherff and Margarethe Silinski (hereinafter called the cafe employees) who had been employed by her in the cafe. The residue (art. Twenty-fourth) was left in equal shares to the testatrix's niece Mrs. Dowd and to her nephew John Sievers Moran.

After payment of her debts and funeral expenses, the testatrix provided (art. First), "I desire that my executor require the Student Prince Cafe, Inc. . . . redeem its [$15,000] note to me . . . this redemption being for the purpose of affording liquidity to my estate both for paying legacies and estate and inheritance taxes. In the event that it shall become necessary to raise further cash for the payment of death taxes and the expense of administration, then and in that event, I direct my executor to cause the . . . [c]afe . . . to purchase or redeem such shares of its stock as I may hold at the time of my death, in order to provide such cash" (emphasis supplied). By art. Twenty-fifth, she directed "that all specific and pecuniary legacies and devises provided for by paragraphs 2-22 shall not be diminished by the payment of any inheritance, estate or succession taxes and that all such taxes shall be paid from other assets of my estate" (emphasis supplied). Article Twenty-sixth reads in part, "In order to provide money for the payment of debts, taxes and expense of administration, I direct my executor to cause the . . . [c]afe, . . . to redeem such of its shares . . . as may be necessary to provide funds for such purposes, and only as a last resort shall any of said shares be sold to third parties." [Note 2]

A further provision of the will which must be considered is art. Twentieth, by which the testatrix left to her half brother Albert, who predeceased her, "all of my bank accounts, bonds and stock certificates, wheresoever located except

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. . . [certain] bonds . . . and . . . [the] stock certificates of the . . . [c]afe . . .. But in the event that the said Albert . . . predeceases me then I give . . . all of my said bank accounts, bonds and stock certificates, wheresoever located, except the [specified] bonds . . . and . . . [the] stock certificates of the . . . [c]afe" to Mrs. Dowd and Moran "in equal shares, but if they not survive me then to their issue in equal shares per stirpes . . .. In the event Albert . . . receives the aforementioned bank books, I direct all inheritance and estate taxes be paid out of the . . . residue . . . of my estate" (emphasis supplied).

The cafe employees contend that, for the payment of debts, expenses, and death taxes, the executor must first exhaust all the general assets of the estate before resorting to redemption of any of the cafe's capital stock. Mrs. Dowd and Moran contend that the provisions of the will, especially arts. First, Twenty-fifth, and Twenty-sixth, make it clear that, first, the proceeds of the $15,000 cafe corporation note must be used, so far as the proceeds will go, for money legacies, debts, expenses, the Federal estate tax apportioned to the probate estate, and the State inheritance taxes with respect to the property dealt with in arts. Second to Twenty-second, inclusive, and that thereafter these items must be paid from the proceeds of the redemption of shares of the cafe stock. [Note 3]

1. Article Twenty-fifth establishes that the gifts made in arts. Second to Twenty-second, inclusive, are not to be diminished by any estate or inheritance taxes. This explicit direction by the testatrix relieves these bequests and

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legacies of all such taxes. Accordingly, such taxes must be paid (a) from the proceeds of the $15,000 note, or (b) from the redemption of shares of the cafe stock or (c) from general assets of the estate not bequeathed by arts. Second to Twenty-third.

2. In the absence of any direction by the testatrix the burden of State inheritance taxes upon each testamentary gift would be borne by the recipient of that gift. See McLaughlin v. Codman, 332 Mass. 514, 519; Newhall, Settlement of Estates (4th ed.) Sections 159, 160. See also G. L. c. 65, Sections 6, 7 (as amended through St. 1957, c. 429, Section 1), 17, 18. The language of art. Twenty-fifth, although it relieves from this tax the gifts made in arts. Second to Twenty-second, does not itself designate what other assets of the estate are to bear this tax burden. The Federal estate tax is assessed on the gross estate of the testatrix after certain deductions. See Buffinton v. Mason, 327 Mass. 195, 198-199; McLaughlin v. Codman, supra, at p. 519; Newhall, Settlement of Estates (4th ed.) Sections 163, 164. The parties' agreement (see fn. 3, supra) shows that the estate tax apportioned under G. L. c. 65A, Section 5, as amended, to the insurance proceeds and other property passing outside the will, will be borne by the recipients of those items. "[E]xcept as otherwise provided or directed by the will," however, the Federal estate tax properly apportionable to the probate estate would be borne by the "general funds" of the testatrix's estate, thus reducing the residue. See G. L. c. 65, Section 5, par. 1, as amended; Weingartner v. North Wales, 327 Mass. 731, 734-735. "[T]he testatrix had the right to shift the burden of [each of] those taxes as she saw fit." Malden Trust Co. v. Bickford, 329 Mass. 567, 569. [Note 4]

Although an exception to general rules of apportionment of death taxes and allocating their burden is not lightly to

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be inferred (see Merchants Natl. Bank v. Merchants Natl. Bank, 318 Mass. 563, 577), the directions of art. First with respect to the $15,000 note and the cafe shares seem to us explicit. The testatrix states her desire that the note be liquidated to pay legacies and death taxes, and that, if "it shall become necessary to raise further cash for . . . death taxes and the expense of administration," she directs redemption of the cafe shares "to provide such cash." The most obvious reference intended by the words, "in the event that it shall become necessary to raise further cash," is to the preceding sentence, that is, the words mean merely "if the proceeds of the $15,000 note are insufficient." It would be a strained construction of the language to treat the words as meaning, in effect, "after the exhaustion of general assets of the estate not specifically devised or bequeathed." Accordingly, although the provision is not as clear as the language considered in some earlier cases (see e.g. Whitbeck v. Aldrich, 341 Mass. 326, 327), we interpret art. First, standing alone, as a direction that monetary legacies (which the testatrix knew to be only $9,000 in all) and death taxes payable by the probate estate are to be paid from the proceeds of the $15,000 note, so far as these proceeds will go, and, to the extent that they are insufficient, such taxes and expenses of administration are to be paid from the proceeds of redeeming cafe shares. This interpretation of art. First is reinforced by the somewhat more inclusive provisions of art. Twenty-sixth which directs redemption of cafe shares "to provide money for the payment of debts, taxes and expense of administration."

The only direct statement that any taxes are to be paid "out of the . . . residue of" the estate (i.e. out of the general assets before the amount of the residue is determined) is the last sentence of art. Twentieth. Since Albert Sievers died before the testatrix, this sentence never had operative effect. It may be considered, however, in determining the testatrix's intention. The sentence shows that the draftsman knew how to impose a tax burden on the general estate (thus reducing the residue) if he wished to do so.

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Although the provisions of the articles which have just been discussed are somewhat repetitive and confused, we think their necessary import is a testamentary direction that all death and estate taxes with respect to the property passing under arts. Second to Twenty-second be paid out of the proceeds of the $15,000 note and of the redemption of the cafe shares. The intention, however, with respect to taxes on the trust's cafe shares and other assets (art. Twenty-third) and on the residue (art. Twenty-fourth) is somewhat less clear. In the absence of any contrary direction by the testatrix, the State inheritance tax on the trust property would rest on the trust shares. See Ferguson v. Massachusetts Audubon Soc. 316 Mass. 436, 447-448. The same result will follow if this tax on the trust fund is held to be payable from proceeds of redeemed shares by virtue of arts. First and Twenty-sixth. Article Twenty-fifth plainly does not change this result for it refers only to the gifts in arts. Second to Twenty-second. The State inheritance tax on the trust shares not redeemed in any event must be paid out of the proceeds of those shares redeemed.

As already stated, the Federal estate tax with respect to the trust shares would be paid out of the general estate, in the absence of a contrary testamentary provision. Articles First and Twenty-sixth themselves make no distinction between taxes payable by the probate estate on the gifts made in arts. Second to Twenty-second, inclusive, and those on the gifts made in arts. Twenty-third and Twenty-fourth. The juxtaposition of art. Twenty-fifth and art. Twenty-sixth, however, affords some basis for the contention that art. Twenty-sixth provides only for the payment of the Federal estate tax with reference to the property passing under arts. Second to Twenty-second, which has just been mentioned. We think that, in the light of the broad language of art. Twenty-sixth, this juxtaposition is not significant and that the direct liability of the estate itself for all the Federal estate tax apportioned to the probate estate (including the portion of that tax caused by the residue) must be paid from the proceeds of the $15,000 note and of the redemption of cafe shares, so far as they are sufficient.

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With respect to the Massachusetts inheritance tax upon the residuary gift (art. Twenty-fourth) the breadth of the language of arts. First and Twenty-sixth might permit the same result. Nevertheless, the State inheritance tax on the residue is unlike the Federal estate tax which is a direct liability of the estate. The burden of the inheritance tax on the residue (which, of course, is severable from the inheritance tax on other interests) normally would be borne by the recipients of the residue. Article Twenty-fifth does not purport to relieve the residuary gift of the inheritance tax. That it relieves the gifts made earlier in the will from inheritance taxes suggests that inheritance taxes on other interests, which are not to be paid as an estate liability, must be borne by the persons on whom they would normally fall. We hold that the State inheritance tax with respect to the residue is to be borne by the recipients of the residue.

3. A decree is to be entered in the Probate Court making the following declarations. (a) In accordance with the agreement of the parties at the arguments, it is to be declared (1) that the bequest in art. Twentieth is a specific legacy which receives the benefit of arts. Twenty-fifth and Twenty-sixth of the will, and (2) that State inheritance taxes with respect to the proceeds of the life insurance policy and to certain other property passing outside the will are to be borne by the recipients of such property, respectively, and that a proper apportionment of the Federal estate tax is to be made to, and be borne by, such property in accordance with G. L. c. 65A, Section 5 (as amended through St. 1948, c. 605, Section 1). (b) It is also to be declared (1) that the proceeds of the $15,000 note of the cafe are to be applied, first, to the payment of monetary legacies and then to the payment of State inheritance taxes on the property passing by arts. Second to Twenty-second and of the estate's liability for the Federal estate tax apportioned to the property passing by the will; (2) that any balance of such apportioned part of the Federal estate tax is to be paid from the proceeds of the redemption of cafe shares; (3) that the Massachusetts inheritance taxes with respect to the

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gifts and provisions in arts. Second to Twenty-second, inclusive, are to be paid from the proceeds of the redemption of cafe shares (to the extent that the proceeds of the $15,000 note are insufficient); (4) that the Massachusetts inheritance tax with respect to the trust gift is to be paid from proceeds of trust shares redeemed or by the beneficiaries of the trust; (5) that the Massachusetts inheritance tax with respect to the residue is to be paid therefrom or by the recipients of the residue; (6) that debts and expenses of administration are to be paid from the proceeds of the redemption of cafe shares; and (7) that, if the proceeds of the $15,000 note and of the redemption of cafe shares are insufficient to pay (A) the Federal estate tax with respect to property passing by the will, (B) the debts, (C) the expenses of administration, (D) the monetary legacies, and (E) the Massachusetts inheritance tax with respect to the gifts and provisions under arts. Second to Twenty-second, inclusive, then resort is to be had to the general assets of the estate not required for the gifts in arts. Second to Twenty-third, inclusive. Costs and expenses in this court and in the Probate Court are to be in the discretion of the Probate Court.

So ordered.