Suffolk. Civil action commenced in the Supreme Judicial Court for the county of Suffolk on December 20, 1976. The case was reserved and reported by Quirico, J.
Hennessey, C.j., Quirico, Braucher, Kaplan, & Wilkins, JJ. Quirico, J., Dissenting.
Jurisdiction, State law affecting Federal tax, Declaratory relief. Devise and Legacy, Taxes, Marital trust. Trust, Taxation, Marital deduction trust.
The opinion of the court was delivered by: Hennessey
Despite the non-adversary nature of the proceeding, it was proper for this court to render declaratory relief in an action brought by the executors of a will pursuant to G. L. c. 231A seeking a declaration of the testator's intent with respect to provisions of the will which concerned the Federal estate tax marital deduction. [98-103]
Considering a will as a whole, with the accomplishment of identifiable tax objectives as an aid in the interpretation of the will, this court found that the testator intended to take advantage of the maximum estate tax marital deduction, notwithstanding the fact that the testator did not use the word "maximum" in the provision establishing the marital deduction trust. [104-106]
This is an action brought under G. L. c. 231A by the executors of the will of Paul T. Babson seeking declarations of the testator's intent with respect to those provisions of his will which concern the Federal estate tax marital deduction and which affect the amount of such tax. The action is brought against: (1) all legatees and beneficiaries under the Babson will, including two remote contingent legatees or beneficiaries whose interests may be affected by the amount of the disputed tax; (2) trustees of all trusts either established by or named in the will; (3) the Attorney General of the Commonwealth; and (4) the Commissioner of the Internal Revenue Service. Although process was served on all named defendants, none has appeared. *fn1 At the request of the plaintiffs, the single Justice reserved and reported the case to the full court.
The preliminary issue to be determined is whether the court should decide this case, in light of its non-adversary nature. On the merits, the issue is whether it was the intention of Babson, as shown by his will, to receive the benefit of the maximum possible Federal estate tax marital deduction. More particularly, this case raises the question whether or not provisions in the will direct the executors to charge inheritance taxes attributable to property in the marital deduction trust to the residue of the estate. Without such direction, the value of the marital deduction trust property would be reduced for Federal estate tax purposes by the amount of inheritance taxes attributable to it. See, e.g., Int. Rev. Code of 1954, § 2056(b)(4); Jackson v. United States, 376 U.S. 503 (1964).
We are advised that it is the position of the Internal Revenue Service (I.R.S.) that such maximum benefits were not intended because the Babson will did not contain the words "maximum estate tax marital deduction." The executors argue that, although the testator did not use these precise words, a Conclusion that he intended to take advantage of the maximum deduction is compelled by the provisions of the will as a whole.
For the reasons discussed below, we conclude that it is appropriate to render declaratory relief in this case, notwithstanding the fact that no adversaries appeared before this court. Primarily, we conclude that the case presents a bona fide controversy because the issues posed to us are directly related to the nature and extent of property interests passing to Babson's wife on one hand, and to the residuary legatees and beneficiaries on the other. On the merits, we hold that articles Seventh, Twelfth, and Eighteenth of the Babson will evidence an intent to receive the maximum possible benefit of the estate tax marital deduction. In particular, article Twelfth clearly directs the executors to charge all taxes and assessments to the residue of the estate, and not to the marital deduction trust property.
We accept as true the facts stated in the complaint. Mass. R. Civ. P. 8 (d), 365 Mass. 749 (1974). The testator, Paul T. Babson, died on February 13, 1972, survived by his wife, Edith Y. Babson. His will, with one codicil, was allowed on March 9, 1972. The relevant provisions of this will are set forth in the margin. *fn2
On November 10, 1972, the executors of Babson's estate filed a Federal estate tax return which claimed a deduction equal to the maximum allowable marital deduction under Int. Rev. Code of 1954, § 2056. The Federal tax shown due on the return was paid at the time the return was filed. Final payment of all Massachusetts inheritance taxes was made on October 29, 1974. Payment of State taxes included the sum of $110,840.15, which was determined to be the amount of State inheritance taxes attributable to future interests under the marital deduction trust. The payment was charged by the executors to the residue of Babson's estate.
On November 7, 1974, an I.R.S. agent auditing the Federal estate tax return asserted a Federal estate tax deficiency of $57,415.20, plus interest, attributable to a decrease of $110,840.15 in the allowable Federal estate tax marital deduction. Presumably, the deficiency was assessed pursuant to Int. Rev. Code of 1954, § 2056(b)(4), on the ground that the amount of the marital deduction should be decreased by the amount of the inheritance tax attributable to future interests in the marital trust. The Federal tax agent claimed that the estate tax marital deduction had to be reduced, despite the fact that all inheritance taxes had been paid out of the residue of Babson's estate, and had not to any extent been paid out of the marital deduction trust property. *fn3
The plaintiffs paid the asserted Federal estate tax deficiency on December 4, 1974, and thereafter filed a refund claim in the amount of $57,415.20, plus interest. This amount represented the increased tax liability due to the partial disallowance of the marital deduction claim. The district director of the I.R.S. notified the plaintiffs on June 17, 1976, that the I.R.S. intended to disallow the refund claim. The plaintiffs filed a protest and requested a conference with the Appellate Division of the Office of the Regional Commissioner. On August 31, 1976, the appellate conferee tentatively agreed that he would recommend that the plaintiffs' refund claim be granted if the highest ...