The deceased owned three farm properties. He bequeathed one to the applicants but specified that "capital gains taxes and probate fees, if any, that are attributable to this property shall be charged to or paid by the beneficiaries of the said property." His will also stated that, unless otherwise provided, any taxes determined as of the date of his death be paid out of residue.
The defendant argued that the capital gains tax attributable to the applicants' property was the difference between the estate's tax payable, and the amount that would have been payable but for the existence of the farm property bequeathed to the applicants. This would have the effect of excluding the applicants from the benefit of the capital gains exemption for qualifying farm property.
Hockin J. agreed with the applicants that the capital gains tax (and hence the exemption) should be attributed to each property based on their value in proportion to the entire estate, because that approach accorded with the apparent intentions of the deceased. A taxpayer's capital gains are determined in aggregate, not on a property-by-property basis.