Combs v. Eller

HEDRICK, Judge. We are first asked to determine whether the court erred in ordering a sale of the stock in order to pay the remaining liabilities of the estate after the general and residuary bequests to testator’s wife had been exhausted. Testator directed in his will that the property in the residuary and general estates be applied to payment of the estate’s liabilities and specifically directed that the bequest to the Trustee not go to payment of the liabilities of the estate. The liabilities of the estate total $199,602.57 and the property in the residuary and general estates have a value of only $82,830.19 leaving a deficit of $116,762.38. It is axiomatic that a testator has nothing to give away until his debts have been paid and the obligations of the estate have been fulfilled. In re Estate of Bost, 211 N.C. 440 (1937); Trust Co. v. Lentz, 196 N.C. 398 (1928). It is also clear that the direction from the testator that certain property in the estate not be applied to payment of estate liabilities cannot operate to prevent payment of debts, taxes and costs of administration which are justly owed. See Hedrick v. Hedrick, 214 N.C. 692 (1939). Equity and the law “require that a man shall be just before he is generous, for generosity ceases to be a virtue when indulged in at the expense of creditors.” Trust Co. v. Lentz, supra at 404. The life insurance proceeds and the real property owned as tenants by the entirety passed to testator’s wife outside the estate. Isaacs v. Clayton, 270 N.C. 424, 154 S.E. 2d 532 (1967); Honeycutt v. Bank, 242 N.C. 734, 89 S.E. 2d 598 (1955). At the time of death, they are not property owned by the testator and are not ordinarily liable for payment of the estate’s liabilities. Isaacs v. Clayton, supra; Honeycutt v. Bank, supra. The court’s finding that testator’s transfer of his interest in the savings account and certificate was a valid gift in [34] contemplation of death supports the conclusion that those assets are not available to pay the liabilities of the estate until the estate’s assets are exhausted. See 33 C.J.S., Executors and Administrators, § 123, p. 1076. All that remains to pay the liabilities of the estate after exhausting the general and residuary bequests to testator’s wife is the stock in the two corporations. Since the estate’s liabilities must be paid before any of testator’s bequests can be satisfied, the court was correct in ordering a sale of the stock to pay the estate’s liabilities. We are also asked to determine whether the court erred in ordering the sale of all the stock when sale of only a portion of it would be sufficient to pay the remaining liabilities of the estate. Included in the court’s order were the following findings of fact: “2. At the time of decedent’s death, all of the stock owned by decedent in Interstate Equipment Company and in Allstate Equipment Company was a single class of common stock, decedent owning fifty (50%) percent of the outstanding stock in each of said corporations. 3. Neither of the stocks described in the preceding paragraph has ever paid a dividend, nor it is (sic) likely that the payment of dividends is probable in the future with respect to either of said stocks. 4. The corporations described above have not elected to be treated as Subchapter S corporations under the Internal Revenue Code, nor is such election anticipated by the petitioner; indeed, no such election may be made by any corporation the stock of which is owned in whole or in part by a trust, which facts would prevail with respect to decedent’s stock in Interstate Equipment Company and in Allstate Equipment Company if the said stock were delivered, in whole or in part, to Franklin H. Eller, Trustee. 5. The enforcement of Item IV of decedent’s last will and testament resulting in the conveyance of the two above described stocks in trust for the minor children of decedent would not be to the best advantage or interest of any of the beneficiaries of the said trust, such stocks being presently non-income producing and there being no probability, in petitioner’s opinion, that said stocks would become income producing through payment of dividends or otherwise. [35] 6. In the event the Court should allow or order a sale of a portion of either or both of said stocks . . . for the payment of any of the costs of administration, debts or taxes of the estate of the decedent, such sale would result in there being available to the Trustee described in Item IV of decedent’s last will and testament only a minority interest in either or both of said stocks upon conveyance of the remaining portion by the petitioner to the Trustee under Item IV of the decedent’s last will and testament, such that the trust would thereafter be only a minority shareholder in either or both of said corporations. These findings support the conclusion that it would be in the best interest of the beneficiaries to sell all the stock, applying the proceeds first to pay the remaining liabilities of the estate, with the remainder to be given to the Trustee. The order appealed from is Affirmed. Judges Parker and Arnold concur.