Court Opinion

ID: 3158674
Source: CourtListenerOpinion
Date Created: 2015-11-30 19:09:03.831302+00
Date Added: 2024-06-11T07:38:40.073772
License: Public Domain

J-A19027-15

                             2015 PA Super 249

IN RE: ESTATE OF LEO I. DAVIS A/K/A            IN THE SUPERIOR COURT OF
LEO IGNATIUS DAVIS, DECEASED                         PENNSYLVANIA

APPEAL OF: MONSIGNOR RICHARD J.
SULLIVAN, EXECUTOR

                                                    No. 1347 WDA 2014

                Appeal from the Order Entered July 28, 2014
                In the Court of Common Pleas of Erie County
                     Orphans’ Court at No(s): 3 OF 2014

BEFORE: BENDER, P.J.E., JENKINS, J., and MUSMANNO, J.

OPINION BY JENKINS, J.:                        FILED NOVEMBER 30, 2015

      Appellant Monsignor Richard J. Sullivan (“Executor”), executor of the

Estate of Leo I. Davis a/k/a Leo Ignatius Davis, appeals from the July 28,

2014 order denying Executor’s exceptions to the order filed June 10, 2014,

which sustained the Commonwealth of Pennsylvania’s objections to the first

and final account of Executor and ordered Executor “to re-allocate any and

all taxes allocated to the sixty percent charitable interest.” We vacate the

order and remand for further proceedings consistent with this opinion.

      On April 28, 2010, Leo I. Davis (“Decedent”) died testate, having a will

dated November 20, 2007. Executor filed a petition for probate and grant of

letters.   The Erie County Register of Wills granted Executor the letters

testamentary.
J-A19027-15

       Decedent’s Will provided for a specific cash bequest of $10,000.00 to

his friend Elaine F. Chiaramonte. The residue of Decedent’s estate was to be

distributed between his nephew, Patrick W. Sheehan, who was to receive

40% of the residuary estate, and three charities, each of which was to

receive 20% of the residuary estate.              The charities were St. Andrews

Church, Cathedral Preparatory School, and Gannon University. In addition,

Decedent     had    a   non-probate      asset,   an   annuity   in   the   amount   of

$104,000.00. His nephew, Mr. Sheehan, and a niece, were beneficiaries of

the annuity.

       On January 8, 2014, Executor filed a first and final account for the

estate. This account directed that the inheritance tax on the distributions to

the residuary beneficiaries and the inheritance taxes on the annuity be paid

out of the residuary estate prior to allocation and distribution of the

residuary estate.

       On February 19, 2014, the Commonwealth1 filed objections to the

account, requesting the orphans’ court prohibit Executor from apportioning
____________________________________________

1
  The Commonwealth has standing in proceedings that affect a charitable
interest. In re Estate of Pruner, 136 A.2d 107 (Pa.1957). The Supreme
Court of Pennsylvania explained:

          [B]ecause the public is the object of the settlors’
          benefactions, private parties have insufficient financial
          interest in charitable trusts to oversee their enforcement.
          Consequently, the Commonwealth itself must perform this
          function if charitable trusts are to be properly supervised.
          The responsibility for public supervision traditionally has
(Footnote Continued Next Page)

                                           -2-
J-A19027-15

the inheritance tax to the charities. On May 7, 2014, Executor filed three

consents signed by the charities.          In the consents, the charities agreed to

Executor’s proposal, which paid the inheritance tax from the residuary

estate, prior to allocation and distribution to the beneficiaries.

      On May 12, 2014, the orphans’ court conducted a hearing and oral

argument.     The orphans’ court denied Executor’s request to present the

testimony of Darlene M. Vlahos, Esquire, scrivener of the Will, and two

documents from the scrivener’s estate planning file for Decedent.              The

parties submitted post-hearing briefs.

      On June 10, 2014, the orphans’ court sustained the Commonwealth’s

objections and directed that “Executor shall, in accordance with the statutory

scheme of taxation, re-allocate any and all taxes allocated to the sixty

percent charitable interest.”       On June 30, 2014, Executor filed exceptions to

the order. On July 28, 2014, the court denied the exceptions.

      On August 12, 2014, Executor filed a timely notice of appeal.           Both

Executor and the orphans’ court complied with Pennsylvania Rule of

Appellate Procedure 1925.

      Appellant raises the following claims on appeal:

                       _______________________
(Footnote Continued)

          been delegated to the attorney general to be performed as
          an exercise of his parens patriae powers.

Id. at 109.

                                            -3-
J-A19027-15

         I. Whether     the orphans’ court erred in holding the tax
         provision of   the Will as insufficient to require payment of
         inheritance    tax from the residuary estate before the
         division and   distribution of the residue.

         II. Whether the orphans’ court erred in not permitting the
         scrivener Darlene M. Vlahos, Esquire, to testify regarding
         the intent of the decedent.

         III. Whether the orphans’ court erred by not approving the
         settlement of the issue raised by the AG’s objections based
         on the subsequent signed consents of all three charities.

         IV. Whether the orphans’ court erred by not ordering, that
         the $1,500 of inheritance tax on the pre-residuary cash
         bequest of $10,000 be paid from and charged against the
         residue before the division and distribution of the residue.

Appellant’s Brief at 4 (internal capitalization omitted).

      The effect of a tax clause contained in a will involves a question of law.

In re Estate of Allen, 960 A.2d 470 (Pa.Super.2008). This Court’s scope

of review is plenary and our standard of review is de novo.              In re

Fridenberg, 33 A.3d 581, 584 (Pa.2010).

      In interpreting a will, this Court has stated:

         The testator’s intent is the polestar in the construction of
         every will and that intent, if it is not unlawful, must
         prevail.

         In order to ascertain the testamentary intent, a court must
         focus first and foremost on the precise wording of the will,
         and if ambiguity exists, on the circumstances under which
         the will was executed, only if the testator’s intent remains
         uncertain may a court then resort to the general rules of
         construction. The words of a will are not to be viewed in a
         vacuum but rather as part of an overall testamentary plan.

         When interpreting a will, we must give effect to word and
         clause where reasonably possible so as not to render any
         provision nugatory or mere surplusage. Further, technical
         words must ordinarily be given their common legal effect

                                      -4-
J-A19027-15

         as it is presumed these words were intentionally and
         intelligently employed, especially where they are used by
         someone learned in probate law.

         Courts are not permitted to determine what they think the
         testator might or would have desired under the existing
         circumstances, or even what they think the testator meant
         to say. Rather, the court must focus on the meaning of the
         testator's words within the four corners of the will. Finally,
         a court may not rewrite an unambiguous will.

In re Estate of Schulthesis, 747 A.2d 918, 922-23 (Pa.Super.2000)

(quoting In re Estate of Rider, 711 A.2d 1018, 1021 (Pa.Super.1998)).

Further, “[a]s most wills are seldom alike, it is necessary to interpret each

will according to its own peculiar terms.” In re Estate of Pyle, 570 A.2d

1074, 1077 (Pa.Super.1989) (citing In re Wahr's Estate, 88 A.2d 417, 419

(Pa.1952) (dissenting opinion, Bell and Musmanno, JJ.)).

      Pursuant to Pennsylvania law:

         (a) In the absence of a contrary intent appearing in the
         will, the inheritance tax, including interest, on the transfer
         of property which passes by will absolutely and in fee, and
         which is not part of the residuary estate, shall be paid out
         of the residuary estate and charged in the same manner as
         a general administration expense of the estate. The
         payments shall be made by the personal representative
         and, if not so paid, shall be made by the transferee of the
         residuary estate.

                                      ...

         (f) In the absence of a contrary intent appearing in the will
         or other instrument of transfer and except as otherwise
         provided in this section, the ultimate liability for the
         inheritance tax, including interest, shall be upon each
         transferee.

72 P.S. § 9144(a), (f).

                                      -5-
J-A19027-15

        Accordingly, unless the will provides otherwise, inheritance tax on

specific bequests shall be paid out of the residuary estate and charged in the

same manner as a general administration expense of the estate.              The

administration expenses are to be paid in full prior to paying other expenses

and prior to distribution to beneficiaries. 20 Pa.C.S. § 3392.2 In contrast,
____________________________________________

2
    Section 3392 provides:

           If the applicable assets of the estate are insufficient to pay
           all proper charges and claims in full, the personal
           representative, subject to any preference given by law to
           claims due the United States, shall pay them in the
           following order, without priority as between claims of the
           same class:

           (1) The costs of administration.

           (2) The family exemption.

           (3) The costs of the decedent’s funeral and burial, and the
           costs of medicines furnished to him within six months of
           his death, of medical or nursing services performed for him
           within that time, of hospital services including maintenance
           provided him within that time, of services provided under
           the medical assistance program provided within that time
           and of services performed for him by any of his employees
           within that time.

           (4) The cost of a gravemarker.

           (5) Rents for the occupancy of the decedent’s residence for
           six months immediately prior to his death.

           (5.1) Claims by the Commonwealth and the political
           subdivisions of the Commonwealth.

           (6) All other claims.

Further, the costs delineated in § 3392, are paid prior to distribution to
beneficiaries. See 20 Pa.C.S. § 3541 (delineating order of distribution to
(Footnote Continued Next Page)

                                           -6-
J-A19027-15

unless the will provides otherwise, the beneficiaries of the residuary estate

and non-probate assets must pay the inheritance tax liability for their

portion of the residuary estate.

        Decedent’s Will contained the following provision regarding inheritance

taxes:

           All estate, inheritance, and other death taxes (including
           interest and penalties, if any) together with the expenses
           of my last illness and all administration expenses including
           an appropriate marker for my grave, payable in any
           jurisdiction by reason of my death (including those taxes
           and expenses payable with respect to assets which do not
           pass under this Will) shall be paid out of and charged
           against my estate.

Last Will and Testament, Item I.

        Executor argues this provision contains the requisite contrary intent to

rebut    the   statutory      presumption        that   residuary   beneficiaries   and

beneficiaries of non-probate assets must pay the inheritance tax for their

bequests.3 He maintains the language that the “taxes . . . together with the

expenses of my last illness and all administration expenses, . . . shall be

                       _______________________
(Footnote Continued)

pay claimants and distributes if the assets are insufficient to pay all
claimants and distributees in full).
3
  There were three taxable transfers, two devised by the Will and one
transferred pursuant to a non-probate annuity. The AG does not dispute
that the taxes on the $10,000.00 gift to Decedent’s neighbor should be paid
by the residuary estate pursuant to 72 P.S. § 9144(a). Although the
Commonwealth’s brief focuses on the taxes owed by the nephew for the
devise of 40% of the residuary estate, it also maintains Decedent’s nephew
and niece are liable for the taxes on the annuity. Appellee’s Brief at 7.

                                            -7-
J-A19027-15

paid out of and charged against my estate” conveys Decedent’s intent that

the taxes on any taxable transfers were to be paid out of the residuary of

the estate prior to distribution to beneficiaries and were to be charged

against the entire residuary estate, not against only the beneficiary receiving

the taxable transfer. Appellant’s Brief at 17-20. Executor stresses that the

Will provides the taxes should be paid “together with” the administration

costs, which are paid prior to allocation and distribution and charged against

the estate.   Id.    Executor argues the orphans’ court interpretation of the

section renders the phrase “together with” meaningless. Id. at 18-19.

      The Commonwealth argues the Will does not contain the language

needed to unambiguously require payment of the inheritance taxes by

Executor out of the principal of the residuary estate before allocation to the

named beneficiaries.        Appellee Brief at 16. It notes the Inheritance and

Estate Tax Act exempts transfers to charitable organizations from application

of the inheritance tax. Id. at 17 (citing 72 P.S. § 9111(a), (c)). Therefore,

the bequests to St. Andrews Church, Erie Cathedral Preparatory School, and

Gannon    University,   all    charitable   organizations,   are   not   subject   to

inheritance taxes.    Id.     The Commonwealth argues that, pursuant to case

law, the Will must designate the source of the fund from which the

inheritance taxes would be paid to rebut the statutory presumption that the

residuary beneficiary is liable for taxes on his or her portion of the residuary

estate, i.e., a decedent’s will must designate that the taxes would be paid

from “the principal of the residuary estate.” Id. at 20. The Commonwealth

                                        -8-
J-A19027-15

maintains the orphans’ court’s interpretation does not render the words

“together with” meaningless because the clause directs that the taxes were

to be paid out of the estate, it just does not address the apportionment of

the taxes. Id. at 23. Therefore, it argues, the clause requires Executor to

pay the taxes from the residuary estate, but does not permit Executor to

allocate    the    taxes     among       all   beneficiaries,   including   charitable

organizations.4 Id. at 23-24.

____________________________________________

4
  Executor’s reply brief notes that the Inheritance Tax Act requires the
executor to file a tax return with respect to probate assets and imposes
personal liability if he does not withhold taxes before distribution to the
beneficiaries and remit the tax to Pennsylvania. Reply Brief at 6. The Act
states:

           Subject to the provisions of sections 2144 and 2154, every
           personal representative or other fiduciary . . . in charge of
           or in possession of any property, . . . the transfer of which
           is subject to a tax imposed by this article . . . shall deduct
           the tax from the property, if money, or shall collect the tax
           from the transferee. Any delivery of property or instrument
           by the fiduciary to a transferee, . . . shall not relieve him
           of personal liability for a tax imposed by this article. No
           personal representative or other fiduciary in charge of or in
           possession of any property subject to this article shall be
           compelled to pay or deliver it to the transferee except
           upon payment to him of the tax due other than tax on a
           future interest not yet delinquent. . . . All money retained
           by the personal representative or other fiduciary, or paid
           to him on account of the taxes imposed by this article,
           shall be remitted by him before the tax becomes
           delinquent or, if received after the tax becomes delinquent,
           shall be remitted by him promptly upon its receipt.

72 P.S. § 9146.

                                           -9-
J-A19027-15

      The parties cite three cases in support of their arguments, In re

Estate of Pyle, 570 A.2d 1074, 1077 (Pa.Super.1989), In re Horn’s

Estate, 40 A.2d 471 (Pa.1945), and In re Estate of Jones, 796 A.2d 1003

(Pa.Super.2002).

      In Pyle, the decedent’s will provided the residue of her estate would

be divided into three equal shares, one going to Melanie Bannon and the

other two shares going to two charities. The will then provided:

         I direct that all estate and inheritance taxes on any
         property passing under this Will, or by reason of my death,
         shall be paid out of the residuary portion of my estate, and
         that no beneficiary of mine shall be called upon or required
         to reimburse my Executors.

Pyle, 570 A.2d at 1076. This Court found the language not specific enough

to alter the statutory scheme.    The Court noted such a conclusion did not

render the taxation clause meaningless, reasoning, it “simply provided that

all estate and inheritance taxes are to be paid out of the residuary portion of

the estate, but does not explain how the taxes are to be apportioned among

the residuary beneficiaries. . . . [The clause] is merely a recitation of the law

as found in [the statute].” Id. at 1077. The Court then stated:

         If the testatrix had desired to disrupt the statutory
         scheme, she could have used the appropriate language
         and specifically stated that all taxes were to be paid from
         the residue prior to distribution and that no part of the
         taxes should be pro-rated or apportioned among the
         persons or beneficiaries receiving the taxable property.

Id. at 1078.   The Court concluded the decedent did not convey sufficient

intent to upset the statutory scheme. Id.

                                     - 10 -
J-A19027-15

     The Supreme Court of Pennsylvania decided Horn’s Estate in 1945,

when a different statutory scheme was in place. At that time, taxes on all

devises were “payable by the legatee or out of the estate passing to her,

unless the will clearly indicate[d], either expressly or by necessary

implication, that the legacy was given free of the tax.” In re Spanenberg’s

Estate, 59 A.2d 103, 104 (Pa.1948) (citing In re Anderson’s Estate, 167

A. 329 (Pa.1933)).    The will in Horn’s Estate contained the following

provision concerning the payment of taxes:

        I direct the payment of my just debts, the expense of
        probating my estate, and all inheritance and State taxes,
        as well as real estate, personal property taxes thereon,
        and all administration expenses, and all taxes of any
        character, to be paid out of my estate before the payment
        of the legacies and bequests and diveses [sic] hereinafter
        made.

In re Horn’s, 40 A.2d at 473.      The Appellant argued the word “before”

meant “prior in time,” and, therefore, the clause only directed the executors

to pay taxes before distribution, as the statute required them to do.    Id.

The Supreme Court found:

        Under appellant’s view the effect is the same as though
        the paragraph had been omitted entirely from the will.
        Such interpretation is forced and unnatural. A will should
        be read in the ordinary and grammatical sense of the
        words employed. A construction of a will which renders
        every word operative is to be preferred to one which
        makes some words and sentences idle and nugatory. As
        stated by the court below, the obvious meaning is that ‘the
        testatrix intended and directed that all transfer inheritance
        taxes and estate taxes upon all legacies and bequests
        should be paid out of the residuary estate by her
        executors.

                                   - 11 -
J-A19027-15

Id. (internal citations omitted). In Horn’s Estate, the Court further found

the word “residuary” was not mandatory and the “language used was

sufficiently precise and definite and the intent of testatrix ‘clearly and

unequivocally expressed.’” Id.

      In Jones, the will contained the following provision:

          All federal, state and other death taxes payable on the
          property forming my gross estate for tax purposes,
          whether or not it passes under this Will, shall be paid out
          of the principal of my residuary Estate just as if they were
          my debts, and none of those taxes shall be charged
          against my beneficiary.

Jones, 796 A.2d at 1004. Three months following execution of the will, the

decedent executed an inter vivos trust. The issue was whether the estate

was to pay taxes on the trust property. This Court found the will employed

“standard language that clearly and specifically states that all death taxes

should be paid from the principal of the residuary estate.” Id. at 1006. The

trust had a provision for payment of property taxes, but not death taxes.

The Court further found the provision “sufficiently clear and specific to

overcome the statutory scheme for apportionment of estate and inheritance

taxes.”   Id.   It provided the residuary estate would pay all death taxes,

including those attributable to property that does not pass under the Will.

Id.   The Court distinguished In re Estate of Erieg, 267 A.2d 841

(Pa.1970), where the will provided for payment of death taxes from the

residuary estate, but not from the principal of the residuary estate. Id. In

Ereig, the Supreme Court of Pennsylvania found the orphans’ court properly

                                     - 12 -
J-A19027-15

allocated 5% of the taxes to the wife’s share of the residuary estate and

95% of the taxes to the niece’s share.5            The Court found, although the

testator “had specifically directed that all death taxes be paid from the

residuary estate, the testator had not provided any guidance as to the

allocation of the tax liability between the two beneficiaries of the residuary

estate.” Id. at 1007. The Court in Jones found Ereig inapplicable because

in Jones there was only one beneficiary of the residuary estate and in

Jones the testator provided the taxes were to be paid from the principal of

the residuary estate. Id.

        Here, the tax clause of Decedent’s Will unambiguously requires that

the taxes be paid from the residuary of the estate prior to allocation among,
____________________________________________

5
    The Supreme Court in Ereig also noted:

          There is yet another reason for interpreting ITEM IV as we
          do: the decedent probably included ITEM IV because, at
          the time the will was written, October 20, 1965 the
          statutory scheme of proration required that All
          beneficiaries, including those receiving specific pecuniary
          legacies, had to share the burden of paying the estate
          taxes. Act of August 24, 1951, amended by Act of
          December 22, 1965, P.L. 1204, 20 P.S. s 883(d). In light
          of this provision the decedent might well have added ITEM
          IV, which is not an uncommon clause, in order to insure
          the integrity of his specific bequests and non-probate
          assets, and not with any thought to affecting the proration
          of taxes between the two residuary legatees. Given this
          highly probable alternative explanation for the inclusion of
          ITEM IV, we are hardly willing to give it the much broader
          interpretation urged on us by Jane Laher.

267 A.2d at 845-46.

                                          - 13 -
J-A19027-15

or distribution to, the residuary beneficiaries. Although the clause does not

state the taxes should be paid from the principal of the residuary estate or

paid prior to distribution, it requires the taxes to be paid “together with” the

administration expenses, and therefore, requires the taxes to be paid from

the “principal” prior to allocation and distribution, as that is how the

administrative expenses are paid.      Similar to Horn, the Commonwealth’s

interpretation would not read the clause, including its requirement that all

taxes “together with . . . all administration expenses . . . shall be paid out of

and charged against my estate,” in the “ordinary and grammatical sense of

the words employed.”     Unlike Pyle, which only stated the taxes “shall be

paid out of the residuary portion of my estate,” Decedent stated the taxes

should be paid “together with” the administration expenses, which are paid

prior to allocation among, and distribution to, the beneficiaries.

      Because we find Decedent’s Will unambiguously requires that the

taxes be paid out of the residuary of the estate prior to allocation among the

beneficiaries, we need not address Executor’s remaining issues, i.e., whether

the trial court erred in excluding the testimony of the scrivener of the Will,

whether the trial court erred in failing to accept the settlement of the issue

by the charitable beneficiaries, and whether the order needs to clarify that

the taxes for the specific bequest should be paid out of the residuary prior to

allocation among beneficiaries.

      Order vacated.      Case remanded to the trial court for further

proceedings consistent with this opinion. Jurisdiction relinquished.

                                     - 14 -
J-A19027-15

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 11/30/2015

                          - 15 -