Santa Barbara National Bank v. Shriners Hospitals For Crippled Children

[892]Opinion

FLEMING, J. Shriners Hospitals for Crippled Children appeals the denial of its motion to set aside preliminary distribution in the estate of Watson Dark and the overruling of its objections to the final account and petition for final distribution. The issue is proration of federal estate taxes.

Dark died testate in January 1972 leaving an estate of nearly $1 million. His brief will made six specific bequests to individuals of corporate stock comprising about half his estate and then provided: “Any and all costs, expenses and inheritance taxes that may arise from the probating of this Will shall be paid from the residue of my estate. The rest and remainder of my estate, I give, devise and bequeath to the Shriner’s Hospital for Crippled Children at Los Angeles, California.” In July 1972 the court granted the executor’s petition for preliminary distribution of the specific bequests of corporate stock. In December 1972 the executor filed its final account and petition for distribution. Thereafter Shriners moved to set aside the earlier preliminary distribution and objected to the executor’s final account and prospective distribution, claiming it should prorate the $150,000 federal estate tax among all beneficiaries rather than charge the entire amount against the residuary estate. The court rejected Shriners’ contention, concluding (1) the preliminary distribution impliedly ruled against proration, and Shriners’ objections were untimely, (2) Dark by his will intended to charge all federal estate taxes against his residuary estate.

On procedure we disagree with the probate court’s conclusion that the preliminary distribution impliedly concluded the issue of proration of federal estate taxes. Probate Code section 974 requires only that before final distribution the executor shall pay the federal estate taxes or file “evidence of a written agreement for the payment of the estate tax, executed between the federal taxing authority and the executor, administrator, or persons interested in the estate.” Determination of federal estate taxes may take several years (see Note, Testamentary Trusts: Tax Liability of Fiduciaries, 39 So.Cal.L.Rev. 567, 570), but the public policy of California favors the earliest possible distribution of estates. (Prob. Code, §§ 1000-1003; Estate of Toler, 49 Cal.2d 460, 467 [319 P.2d 337].) Since preliminary distribution of assets of an estate discharges neither the executor nor the distributees from liability for federal estate taxes (Int. Rev. Code, § 6901) and since the court may direct payment of federal estate taxes by those in possession of estate property (Prob. Code, § 975), the preliminary distribution undertaken here neither necessarily nor actually determined the proration of federal estate taxes.