No. 91-225
IN THE SUPREME COURT OF THE STATE OF MONTANA
1992
IN RE THE MATTER OF THE ESTATE OF
DOROTHY E. MORRIS,
Deceased,
LINDA WELLS, MARY ELIZABETH DUBOIS,
DONNA JUNE WOOD, BETTY SUE MATNEY,
BILL E. WOOD AND MAY NA MORRIS GAGE,
Appellants,
-Vs-
ROBERT W. THOMPSON,
Respondent.
APPEAL FROM: District Court of the Ninth Judicial District,
In and for the County of Toole,
The Honorable R. D. McPhillips, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Marc G. Buyske argued, Anderson, Beatty & Buyske,
Shelby, Montana
For Respondent:
Donald R. Marble argued, Marble Law Office, Chester,
Montana
Submitted: May 5 , 1 9 9 2
Decided: August 19, 1992
Filed:
.
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Clerk
Justice R. C. McDonough delivered the Opinion of the Court.
This is an appeal from an order of the Ninth Judicial
District, Toole County, requiring state inheritance taxes from the
estate of Dorothy Morris to be apportioned pursuant to 872-16-603,
MCA. The appellants contend that the language of the will provides
an alternative method of apportionment which should govern. The
respondent, Robert Thompson, has cross-appealed on the issue of
attorney fees. We reverse on the apportionment question and affirm
on the attorney fees.
There are two issues for our review:
1. Did the District Court err in determining that the
testamentary intent, as expressed in the will of Dorothy Morris,
was not sufficiently clear so as to overcome the statutory
directive as to apportionment of state inheritance taxes?
2. Did the District Court err in denying Thompson's request
for attorney fees?
Dorothy Morris, a widow, who had no surviving descendants,
died testate on December 29, 1988. The Last Will and Testament of
Dorothy Morris was informally admitted to probate by order of the
District Court. The will provided that after the payment of
certain expenses and specific bequests the residue of the estate
was to be divided between two groups of beneficiaries, the Thompson
heirs and the Morris heirs. The Thompson heirs represent the only
blood relatives of the decedent, while the Morris heirs are
relatives of the deceased husband of the decedent. On the Thompson
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side, there are twenty beneficiaries and on the Morris side there
are seven beneficiaries.
The Thompson heirs, as blood relatives of the decedent, are
entitled to an exemption and their inheritances are taxed at a
lower rate. The Morris heirs would not receive the exemption and
would be taxed at a higher rate. The Morris heirs contend that the
taxes should be paid first and the remainder of the residue should
then be equally divided between the two groups. The Thompson heirs
petitioned the court requesting that the residue should be equally
divided between the two groups and that the state inheritance taxes
should then be apportioned to each individual according to § 72-16-
603, MCA. The District Court agreed with Thompson and ordered
apportionment pursuant to 5 72-16-603, MCA. Additionally, the
District Court denied Thompson's request for attorney fees. The
Morris beneficiaries appealed the decision of the District Court
concerning apportionment and the Thompsons cross-appealed on the
issue of attorney fees.
Montana's statutory scheme for apportionment of state
inheritance taxes is found at 3 72-16-603, MCA, which states:
(1) Except as provided in subsection (3) and unless
the will otherwise provides, the tax shall be apportioned
among all persons interested in the estate. The
apportionment is to be made in the proportion that the
value of the interest of each person interested in the
estate bears to the total value of the interests of all
persons interested in the estate. The values used in
determining the tax are to be used for that purpose.
(2) If the decedent's will directs a method of
apportionment of tax different from the method described
in this part, the method described in the will controls.
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( 3 ) If the liabilities of persons interested in the
estate as described in this part differ fromthose which
result under the federal estate tax law, the liabilities
imposed by the federal law control and the balance of
this part applies as if the resulting liabilities had
been prescribed in this part.
The statute places the burden of the inheritance tax on the
recipients of the decedent's bounty. The Thompsons argue that
under subsection 1 of the statute, all state inheritance taxes
should be paid by the residuary beneficiaries in the proportion
that the value of the interest of each person interested in the
residuary estate bears to the total value of the interests of all
persons interested in the estate. However, subsection 2 of the
statute allows the tax burden to be shifted and taxes to be
apportioned by an alternative method if the will so provides.
The question before the Court is whether the will provides a
method of apportioning state inheritance taxes different from that
set out in the statute. As such, the issue presented is a question
of law and our review will be plenary. We will decide if the
District Court's determination as to law is correct. Steer Inc. v.
Department of Revenue (1990), 245 Mont. 4 7 0 , 803 P.2d 601.
The significant provisions of the will relating to payment of
the taxes are as follows:
SECOND
I direct my Personal Representative hereinafter
named to pay all of my just debts, my funeral expenses,
the expenses of administering my estate, and all taxes
both State and Federal which become payable by reason of
my death, out of my estate.
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Paragraphs THIRD and FOURTH provided for specific bequests to
various people and are not at issue in this case. The FIFTH
paragraph states as follows:
I direct my Personal Representative to convert all
the remaining assets of my estate to cash, and after
payment of the items mentioned at Paragraph Second above,
and the specific legacies mentioned in Paragraph Third
and Paragraph Fourth above, 1 hereby give and devise the
residue of my estate as follows:
1. The one half thereof unto the grandchildren, living
at the time of my death, of the following: [the Thompson
grandchildren]
. . . .
2. The remaining part thereof unto the children, living
at the time of my death, of the following: [the Morris
grandchildren]
....
The District Court relied on a Wyoming case, In Re Ogburn's
Estate (Wyo. 1965), 406 P.2d 655, for its finding that Dorothy
Morris's will was insufficient to show her intent to bypass the
statutory apportionment provisions of the state inheritance taxes.
In Ocrburn, the disputed language in the will stated: "1 direct the
payment of all my just debts, taxes, funeral expenses and expense
of administration of my estate."
The Wyoming Supreme Court initially set out the distinction
between federal estate taxes and state inheritance taxes.
According to the Wyoming Court, because federal estate taxes are a
tax on the privilege of transferring an interest in the property
upon death it is generally considered an obligation of the estate.
However, state inheritance taxes are an obligation upon the
c
recipients of the testatrix's bounty. The Wyoming Court then held
that the statement "all my . . . taxes . . . of my estate" referred
only to federal estate taxes and was not sufficiently clear and
unambiguous to include state taxes as well. The Wyoming Court
concluded that the will was ambiguous and did not provide for an
alternative method of apportioning state taxes because it failedto
expressly provide the testators' intent to include state as well as
federal taxes.
In the instant case, the District Court determined that the
language in the will might have been sufficient to shift the burden
of the federal estate taxes, but was not sufficiently clear to
shift the burden of the state inheritance taxes to the residuary
estate. Considering the entire will, we disagree. Dorothy Morris
refers specifically to "all taxes both State and Federal which
become payable by reason of my death". This provision explicitly
refers to all state taxes, which become payable by reason of her
death, which language is missing in the will in Oqburn. State
inheritance taxes are clearly a state tax which becomes payable as
a result of Dorothy Morris's death. The District Court's reliance
on Oqborn is misplaced. We conclude that the language of the will
is clearly sufficient so as to include state inheritance taxes.
The intention of the testatrix is to be ascertained from the
words of the will which are to be taken in their ordinary and
grammatical sense. In re the Estate of Delong (1990), 242 Mont.
15, 788 P.2d 889. The plain and clear language of the will
indicates that the specific bequests, costs of administration, and
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all state and federal taxes are to be paid first. The remainder of
the residuary estate is to be equally divided between the two
families. The intent of the testatrix must be found from all parts
of the will which are to be construed in relation to each other so
as, if possible, to form one consistent whole. Estate of Evans
(1985)' 217 Mont. 89, 704 P.2d 3 5 .
Looking first at Paragraph Second, as stated above, we
conclude that it was Dorothy Morris's expressed intent to have the
estate pay all state taxes which include inheritance taxes. Moving
then to Paragraph Fifth, Dorothy Morris provides clear instructions
regarding the calculation and distribution of the residue of her
estate, and how the amount of distribution to each side of the
family is to be calculated. First, the personal representative is
instructed to convert the residuary estate to cash. Second, the
personal representative is instructed to pay the items listed in
paragraph second. Third, Dorothy Morris clearly instructs the
personal representative that "after payment of the items listed in
Paraqraph Second above" (the state inheritance tax included) and
after payment of the specific legacies of paragraphs third and
fourth, the personal representative is then to divide the amount of
the residue one-half to the Thompson heirs and the remaining one-
half to the Morris heirs.
Reading Paragraphs Second and Fifth together, we conclude the
will clearly and unambiguously demonstrates that Dorothy Morris
intended and directed the amount of the residue of her estate to be
calculated, divided and distributed after payment of the state
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inheritance taxes. To calculate and compute in accordance with
Thompson's position, the personal representative would omit the
amount of all of the state inheritance taxes from the deductions to
be paid first in Paragraph Fifth, then divide the balance of the
residue 50 percent to the Thompson devisees and the remaining 50
percent to the Morris devisees, and then deduct from each devisee
his/her proportionate share of the state inheritance tax. However,
Dorothy Morris provided an alternative method.
Clear and unambiguous provisions in a will expressing the
intent of the decedent can shift the tax burden from those upon
whom the statute imposes it. 972-16-603(2), MCA. The respondent
argues that the will fails to specifically mention apportionment,
non-apportionment or the controlling statute and therefore fails to
properly express any intent to shift the tax burden. However, an
express reference to 572-16-603, MCA, is neither mandated by the
statute nor necessary to clearly and unambiguously state a desire
for an alternative method of apportionment. The will need only
provide direction for "a method of apportionment of tax different
from the method described" in the statute. 972-16-603 (2), MCA.
When the will so directs, "the method described in the will
controls". 572-16-603 ( 2 ) , MCA.
We conclude that the will of Dorothy Morris by not only
designating the shares and the beneficiaries, but by also mandating
how to calculate each of these shares, provides a clear and
unambiguous method of apportionment that is an alternative to the
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method provided by statute. Therefore, the method described in the
will is controlling and the District Court is reversed.
11.
Did the District Court err in denying Thompson's request for
attorney fees?
The District Court denied Thompson's request for attorney fees
on the grounds that neither case law nor statutes had been cited
which would permit an award of attorney fees in this situation.
Thompson relies on 572-12-206, MCA, which provides:
When the validity or probate of a will is contested
through court action, the fees and expenses must be paid
by the party contesting the validity or probate of the
will, if the will in probate is confirmed. If the
probate is revoked, the costs must be paid by the party
who resisted the revocation or out of the property of the
decedent, as the court directs.
The instant case does not involve the validity or probate of a will
and as such, we agree with the District Court that 572-12-206, MCA,
does not apply. The District Court is affirmed in its denial of
attorney fees.
Justice /
9
Justices
Justice William E. Hunt, sr., dissenting.
I dissent. I would affirm the order of the District Court in
which the court determined that the language in the will was not
sufficiently clear so as to override the statutory directive in
§ 72-16-603, MCA, concerning the apportionment of state inheritance
taxes.
Under the common law, the residuary estate was obligated to
pay the death taxes. Appellants argue that in this situation the
residuary estate should pay the state inheritance taxes. This
would greatly benefit appellants in that they can avoid paying at
the higher rate which would be required if all the heirs paid the
state inheritance taxes at their individual rates. However, the
legislature, for good reason, has changed the method of payment of
taxes that existed under the common law. They provided, in
g 72-16-603, MCA, that:
(1) Except as provided in subsection (3) and unless
the will otherwise provides, the tax shall be apportioned
among all persons interested in the estate. The
apportionment is to be made in the proportion that the
value of the interest of each person interested in the
estate bears to the total value of the interests of all
persons interested in the estate.
(2) If the decedent's will directs a method of
apportionment of tax different from the method described
in this part, the method described in the will controls.
The strong policy arguments in support of this change in the
common law were explained in the case of New York Trust Co. v.
Doubleday (Conn. 1956), 128 A.2d 192. In Doubleday, the testator's
children from a previous marriage sought to benefit from his
widow's marital exemption by paying taxes out of the residuary
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estate prior to dividing it between the parties. This is exactly
what appellants are attempting to do in this situation. In finding
in favor of apportionment, and allowing the widow the full value of
her exemption, the court stated:
Only through the allocation of the entire amount of the
marital allowance to the value of the widow's bequest
will the intent as well as the spirit of the proration
statute be met, for the statute is based on the equitable
principle that the estate taxes should be borne by those
whose bequests contribute to the tax burden and,
conversely, that all those whose legacies do not in any
way create or add to that burden should not be required
to bear it.
Doubledav, 128 A.2d 196-97.
While 5 72-16-603(2), MCA, permits the results argued for by
appellants in this case, it is clear that the direction of the
statute in favor of apportionment and the policy reasons which led
to the enactment of the statute, require clear and unambiguous
language to override the statutory directive in favor of
apportionment. The language in this will which appellants contend
expresses the testatrix's desire to avoid apportionment pursuant to
5 72-16-603, MCA, is less than clear and unambiguous.
The language in this will is similar to the language in the
will in In Re Ogburn's Estate (Wyo. 1965), 406 P.2d 655. In
Oaburn, the will read "1 direct the payment of all my just debts,
taxes, funeral expenses and expense of administration of my
estate." Oaburn, 406 P.2d at 657. The Wyoming Court initially set
out the difference between federal estate taxes and state
inheritance taxes. Federal estate taxes are taxes upon the estate
for the privilege of transferring the property upon death. State
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inheritance taxes are not taxes upon the estate at death, but
rather are taxes which are the burden of the recipients of the
testatrix’s bounty. Under this analysis the phrase in the will
“all my just . . . taxes” was construed to include only the federal
estate taxes. The language used was simply insufficient to
override the apportionment statute as to the state inheritance
taxes. The Wyoming court stated that:
Practically all of the cases agree that a directive
against apportionment should be expressed in clear and
unambiguous language. ...
In case of doubt the burden
of the taxes must be left where the law places it.
[Citation omitted.] It has been said that a sufficient
tax clause should expressly state “(1) what gifts or
beneficiaries are freed of the burden of taxes, (2) what
taxes are affected, and ( 3 ) where the burden of taxes is
shifted.
Osburn, 406 P.2d at 657-58.
The District Court found that this criteria was not met and
that the intent of the testatrix was not clear from the language
used in the will. The will states that the personal representative
is directed to pay “all taxes both state and federal which become
payable by reason of my death, out of my estate.” State
inheritance taxes are imposed upon the recipients of the property
for the privilege of receiving that property.
There is no language in the will that clearly and
unambiguously sets forth any authority on the part of the personal
representative to pay taxes other than by apportionment. When, as
here, there is ambiguity and doubt as to the intent of the
testatrix, the burden of the state inheritance taxes should remain
were the law places it. It appears that the majority opinion here
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requires a surviving spouse to show that any bequest to any other
person is not to be apportioned, rather than the other way
around--the other way around being the intention of the legislature
to change the common law that required that inheritance taxes be
paid from the residual estate.
I would affirm the District Court.
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Justice Fred. J. Weber dissents as follows:
I agree with the reasoning of the dissent of Justice Hunt. I
believe additional comments are appropriate.
The key holding of the majority opinion is the following
conclusion:
We conclude the will clearly and unambiguously
demonstrates that Dorothy Morris intended and directed
the amount of the residue of her estate to be calculated,
divided and distributed after payment of the state
inheritance taxes.
In substance the majority concludes that the residue is to be
calculated, divided and distributed after payment of the Montana
inheritance taxes. That conclusion ignores the factual necessity
of both dividing and calculating before distribution of the residue
can be accomplished. Federal estate tax is levied against the
entire estate and therefore can be paid and deducted prior to any
computation of the residue. In contrast, the Montana inheritance
tax is levied upon the share passing to each of the twenty-seven
individual residuary devisees.
We agree that the personal representative can be properly
required to pay the just debts, funeral expenses, and expenses of
administration as well as the estate taxes before any computations
are required with regard to the residue. All of those can be paid
without any division of the residuary estate or calculation.
However, when it comes to the Montana inheritance tax, that no
longer is true. Under the Montana inheritance tax, the residue
must be divided and the tax computed before the Montana inheritance
tax can be paid.
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I suggest that the only reasonable method to be followed is
that after payment of the just debts, funeral expenses, expenses of
administration and the federal estate tax, the personal
representative must make the following division and calculations:
1. Divide the amount on hand in the estate at that point so
that one-half will be listed as going to the Thompson
grandchildren, and the remaining one-half to the Morris
grandchildren.
2. Divide the one-half going to the Thompson grandchildren
into twenty equal parts. Next calculate the Montana inheritance
tax which is due from each of such twenty grandchildren.
3. In a similar manner, divide the remaining one-half between
the seven Morris grandchildren. Then calculate the Montana
inheritance tax due from each of those seven grandchildren, taking
into consideration both the exemption and the tax rates.
I suggest that it is only after a division and calculation as
above described that the Montana inheritance taxes can be paid.
Once those Montana inheritance taxes have been calculated, such
taxes properly may be paid by the estate. Distribution then would
follow to each of the twenty-seven residuary legatees based upon
the share attributable to each less the Montana inheritance tax
paid for that person.
I concur in the conclusion by Justice Hunt that essential
fairness requires the type of division described above and adopted
by the District Court. It is unfair to require a tax to be paid by
persons who are not actually receiving the property as is proposed
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by the majority opinion. Such action is not contemplated by the
statute.
I would affirm the District Court.
L
Justice Terry N. Trieweiler concurs in the foregoing dissent.
Justice
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