## Facts

- Fred H. Bixby died testate in 1952, leaving an estate valued at roughly $4.57 million, largely consisting of shares of the Fred H. Bixby Company.
- The will specifically bequeathed 19,000 shares of the company’s stock (and certain personal property) to the widow, Florence G. Bixby (incompetent, acting through a guardian ad litem).
- The residue was placed into four equal testamentary trusts for the decedent’s four children as income beneficiaries, with remainder interests ultimately to the grandchildren.
- During administration, the executor received about $76,000 in dividends on the 19,000 shares specifically bequeathed to the widow.
- For federal tax purposes, those dividends were treated as taxable income of the estate during administration.
- The executor elected to deduct administration expenses for federal income tax purposes rather than for federal estate tax purposes, affecting the overall tax burden and distributions among beneficiaries.
- In an order for preliminary distribution, the probate court directed that the widow receive the dividends minus the portion of income tax allocable to those dividends.
- The trustees appealed aspects of the preliminary distribution order, and the widow cross-appealed the allocation of income tax against the dividend distribution to her.

## Issues

1. Whether federal income taxes attributable to dividends earned during administration on stock specifically bequeathed to the widow must be charged against those dividends (income), or instead paid from the residuary estate (principal) so the widow receives the dividends tax-free.
2. Whether the executor’s election to deduct administration expenses against income tax (rather than estate tax) alters the proper allocation of income-tax burdens between specific beneficiaries and the residue.

## Decision

- The Court of Appeal affirmed the preliminary distribution order as to the challenged tax allocation.
- The court held the widow was entitled to the dividends only after deducting the portion of income taxes allocable to those dividends.
- The executor’s tax election did not justify shifting the dividend-related income tax from the dividend distribution to the residuary principal.

## Legal Principles

- Absent contrary testamentary direction, income taxes on post-death income earned during administration are chargeable to the income that generated the tax, not to the residuary principal.
- A specific legatee entitled to dividends on specifically bequeathed stock during administration takes that income subject to proper charges attributable to producing and receiving it, including allocable income taxes.
- An executor’s lawful election between available tax deductions does not recharacterize income-tax liabilities as general administration expenses payable from principal; tax burdens are allocated according to whether they arise from income or principal.

## Conclusion

The court upheld a preliminary distribution requiring that dividends earned during administration on stock specifically bequeathed to the widow be distributed net of the portion of estate income tax attributable to those dividends, rather than shifting that tax burden to the residuary estate.


Estate of Bixby, 295 P.2d 68 (Cal. Ct. App. 1956)