Riggs v. Del Drago

Background

A New York woman died in 1937 leaving a will that gave one beneficiary $300,000 outright and created a $200,000 life trust for another, with the remainder in trust. The will said nothing about who should pay estate taxes. The executors paid about $230,000 in federal estate tax and asked a New York court to apportion that tax among all beneficiaries under a state law that spreads federal death taxes proportionately. Two heirs objected, and the New York Court of Appeals held the state law conflicted with federal estate tax law and was unconstitutional.

Reasoning

The Supreme Court considered whether the New York rule (§124) was preempted by federal estate tax statutes. The Court reviewed the Revenue Act of 1916 and later legislation and Treasury guidance and concluded Congress intended the tax be paid from the estate but did not fix how the burden should fall among beneficiaries. The Court explained that provisions like §826(b) protect distributees who pay the tax after distribution but do not prescribe state distribution rules. Special federal rules for property not handled by the executor (like some insurance or power gifts) are consistent with leaving most distribution questions to state law. Concluding there is no conflict, the Court reversed the state high court and allowed the New York apportionment rule.

Real world impact

Executors and beneficiaries in New York can rely on the state apportionment rule to share federal estate taxes unless a will directs otherwise. The decision makes state law central to who ultimately bears estate taxes and will affect estate planning and how wills address tax clauses. The case was reversed and remanded for further proceedings under that view.