Hendricks v. Shriners Hospital for Crippled Children

Opinion

FRIEDMAN, J. This appeal embodies a controversy between a residuary charitable legatee and relatives of the testatrix receiving specific bequests under the will. The relatives seek to have federal estate taxes and state inheritance taxes paid from the residue, and the probate court upheld their position. The charitable legatee, Shriners Hospitals for Crippled Children, appeals, contending that the death taxes should be prorated against the entire estate.

Elizabeth Hendricks, the testatrix, executed a 1954 will and a 1956 codicil which had the effect of leaving her personal belongings to several relatives; two parcels of Butte County real estate to certain relatives and their children; an interest in a corporate-held farm to certain relatives; the residue in trust to a bank, the bulk of the residue’s income to be paid to the Shriners Hospitals. Neither the will nor codicil contained any express provision for the payment of death taxes.

Probate Code section 970 calls for equitable proration of the federal estate tax among the persons interested in the estate “except in a case where a testator otherwise directs in his will. . . .” Section 970 expresses a state public policy that estate taxes be prorated. “. . . [Apportionment of the taxes is the general rule to which exception is to be made only when there is a clear and unambiguous direction to the contrary. Ambiguities are to be resolved in favor of apportionment.” (Estate of Armstrong (1961) 56 Cal.2d 796, 802 [17 Cal.Rptr. 138, 366 P.2d 490].) As the [207]statute distinctly declares, a direction against apportionment must appear in the will.

The state inheritance tax is a succession tax on the interest transferred to each beneficiary, generally payable out of that beneficiary’s share rather than the estate itself. (See Rev. & Tax. Code, §§ 14121, 14122, 14123; Cohn v. Cohn (1942) 20 Cal.2d 65, 68 [123 P.2d 833].) A testator may direct a bequest to be paid to the beneficiary free of the inheritance tax, a direction which causes the tax to fall upon the estate. (Estate of McLaughlin (1966) 243 Cal.App.2d 516, 521 [52 Cal.Rptr. 543]; Estate of Nesbitt (1958) 158 Cal.App.2d 630, 632 [323 P.2d 474].) California case law declares the necessity of “specific language” to free a special bequest from the financial burden of the inheritance tax. (Estate of McLaughlin, supra.) Some, but not all the cases, imply that this specific language must appear in the will (e.g., Estate of Nesbitt, supra). Since such a direction augments the net amount receivable by the beneficiary and decreases the net amount of the residuary estate, it is testamentary in character and should be expressed in the will.