Ervin v. Clayton

BOBBITT, Chief Justice. G.S. 105-212, in pertinent part, provides: “If any intangible personal property held or controlled by a fiduciary domiciled in this State is so held or controlled for the benefit of a nonresident or nonresidents, or for the benefit of any organization exempt under this section from the tax imposed by this article, such intangible personal property shall be partially or wholly exempt from taxation under the provisions of this article in the ratio which the net income distributed or distributable to such nonresident, nonresidents or organization, derived from such intangible personal property during the calendar year for which the taxes levied by this article are imposed, bears to the entire net income derived from such intangible personal property during such calendar year. ‘Net income’ shall be deemed to have the same meaning that it has in the income tax article. Where the intangible personal property for which this exemption is claimed is held or controlled with other property as a unit, allocation of appropriate deductions from gross income shall be made to that part of the entire gross income which is derived from the intangible personal property by direct method to the extent practicable; and otherwise by such other method as the Commissioner of Revenue shall find to be reasonable: [224] Provided, that each fiduciary claiming the exemption provided in this paragraph shall, upon the request of the Commissioner of Revenue, establish in writing its claim to such exemption. No provision of law shall be construed as exempting trust funds or trust property from the taxes levied by this article except in the specific cases covered by this section.” The stocks here involved were owned by Cleora C. Doane on September 27, 1964, the date of her death. On December 81, 1964, and on December 31, 1965, her estate was being actively administered by her executor who, on those dates, held and controlled the stocks. Nothing in the record indicates that Mrs. Mack exercised “the right and privilege of choosing which stocks and bonds” were to pass to her under Item Two(B) of Mrs. Doane’s will prior to the actual division of the stocks by the executor in September, 1966. Then, as shown by the receipts, the executor delivered to Mrs. Mack and to the First Union National Bank as trustee an equal number of shares of each block of stock. In Allen v. Currie, Commissioner of Revenue, 254 N.C. 636, 119 S.E. 2d 917, this Court considered whether intangibles of the estate of Samuel G. Allen were exempt from the tax imposed by G.S. 105-203. The testator and his widow, who qualified as co-executor of his will, were residents of Moore County, North Carolina. As co-executor, she filed returns and paid taxes on the intangibles held and controlled by her on December 31, 1956, and on December 31, 1957. She instituted the action to recover three-fourths of the amount of the intangibles taxes so paid, asserting that three-fourths of the gross estate of Samuel G. Allen, under the terms of his will, vested in and was distributable to nonresidents, and that the income received by the executors subsequent to the death of Samuel G. Allen had been so distributed. She based her asserted right to these refunds on the exemption provided in the quoted portion of G.S. 105-212. In Allen, no specific property, tangible or intangible, was bequeathed to any of the nonresident beneficiaries. Each was entitled to a specified portion of the residue of the testator’s estate. It was held that the exemption provided in the quoted portion of G.S. 105-212 “was not intended to apply, and does not apply, to intangibles constituting general assets held and controlled by an executor of an estate during the process of admin [225] istration.” Hence, the asserted right of the co-executor to recover for alleged overpayments was denied. Seemingly, Judge Arbuckle considered the opinion in Allen indicated that a different result would have been reached if the nonresidents involved had been legatees of specific intangibles. It was not so intended. The decision was based on the quoted portion of G.S. 105-212 as related to the facts then under consideration. Dicta in the opinion adumbrated the present decision. Under well established legal principles set forth in Allen, the personal property of the testatrix vested upon her death in her executor; and the fiduciary obligation of her executor was to pay her debts as provided by law and to administer her estate in compliance with the provisions of her will. The personal representative is responsible for the intangible personal property owned by the decedent and for the payment of intangibles tax thereon during the temporary period the intangibles are held and controlled by him in the course of his active administration of the estate. Here, pursuant to G.S. 105-206, the executor filed the required returns and paid the tax thereon. G.S. 28-162 provides that an executor, administrator or collector, immediately after the expiration of two years from his qualification, shall divide, deliver and pay to the persons entitled thereto under the will all of the estate remaining after payment of legal debts, charges and disbursements. Here, the executor delivered the intangibles listed on the receipts to Mrs. Mack and to the First Union National Bank as trustee within two years from the date of his qualification. Nothing in the record indicates that any beneficiary demanded or was entitled to these intangibles prior to the delivery thereof by the executor. Our decision on this appeal is not based on factual similarities or differences in Allen and in the present case. We deem it appropriate to decide whether the exemption provided in the quoted portion of G.S. 105-212 is available to any personal representative of a resident decedent in respect of intangibles held and controlled by him as such personal representative during the period he is engaged in the active administration of the estate in accordance with law. The exemption was incorporated in the quoted portion of G.S. 105-212 in 1947. Session Laws of 1947, Chapter 501, Sec [226] tion 7. It exempts intangible personal property held or controlled for the benefit of a nonresident or nonresidents by “a fiduciary domiciled in this State.” (Our italics.) In our consideration thereof in Allen, it was stated: “In our view, the intent and purpose of the 1947 amendment was not to exempt any intangibles theretofore subject to the intangible personal property tax but to dispel any idea that intangibles otherwise exempt would be subject to the intangible personal property tax because a fiduciary domiciled in this State held and controlled such intangibles. Under its provisions, a resident or nonresident creator of a trust, consisting wholly or in part of intangibles, can name as fiduciary a person, bank or trust company domiciled in North Carolina with the assurance that the interests of nonresident beneficiaries of the trust will not suffer on account thereof. Moreover, we think the 1947 amendment was intended to apply to an established or continuing trust, not to intangibles constituting general assets of an estate in process of administration.” The fiduciary obligation of the personal representative of a decedent is distinguishable from that of the trustee (by whatever name called) of an established or continuing trust. An executor, as the resident decedent’s personal representative, is obligated to administer the estate in accordance with law and the provisions of the will. As such personal representative, he must ascertain and pay the funeral expenses and debts, including inheritance and estate taxes as well as taxes on income received by the decedent prior to death and on income received by him as personal representative. Until this has been done, the status of intangibles constituting assets of the estate remains unsettled. What intangibles, if any, a particular beneficiary is entitled to receive cannot be determined with exactitude until the estate is ready for final settlement. As noted in Allen: “Ordinarily, distribution of assets or of income prior to final settlement is made by an executor at his own risk. Mallard v. Patterson, 108 N.C. 255, 13 S.E. 93.” We are of opinion and now hold that the exemption from intangibles tax provided in the quoted portion of G.S. 105-212 does not apply to intangibles held and controlled by the personal representative of a resident decedent during the period such personal representative is engaged in the active administration of the estate in accordance with law. This decision renders un [227] necessary a determination as to whether the “(o)ne-half of all stocks and bonds” owned by the testatrix at the time of her death, referred to in Item Two (B), are considered general assets of the estate or the subject of a specific bequest. On account of the death of Paul R. Ervin during the pend-ency of these appeals, Benj. S. Horack, the duly qualified administrator c.t.a., d.b.n. of the estate of Cleora C. Doane, has been substituted and is now acting as party plaintiff herein. Having reached the conclusion plaintiff is not entitled to any refund, the portion of the judgment which denies recovery for one-half of the amounts paid, involved in plaintiff’s appeal, is affirmed, but the portion which allows recovery for one-half of the amounts paid, involved in defendant’s appeal, is reversed. Hence, the District Court will enter a judgment in conformity with this decision and therein tax the plaintiff with all costs. On plaintiff’s appeal, affirmed. On defendant’s appeal, reversed. Justice Moore did not participate in the consideration or decision of this case.