Case Title: Sarah Scholl, as cotrustee of the Family Trust created in the will of Maxine Krout Murphy, deceased v. Bernice K. Stacy, as executor of the estate of Maxine Krout Murphy

Citation: 

Docket Number: 1060112

State: alabama

Court: Alabama Supreme Court

Date: 2007-09-21T00:00:00Z

Document:
REL: 09/21/07
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2007
____________________
1060112
____________________
Sarah Scholl, as cotrustee of the Family Trust 
created in the will of Maxine Krout Murphy, deceased
v.
Bernice K. Stacy, as executor of the 
estate of Maxine Krout Murphy
Appeal from Bibb Circuit Court 
(CV-03-166)
STUART, Justice.
Sarah Scholl, a cotrustee of the family trust created in
the will of Maxine Krout Murphy, deceased, appeals the trial
court's judgment interpreting the language of Murphy's will
1060112
2
regarding the creation and the order of the funding of the
spousal and family trusts and ordering that the spousal trust
be funded first.  We reverse the judgment and remand.
Facts and Procedural Background
Maxine Krout Murphy died on December 23, 2001.  Her will,
executed on September 16, 1996, was admitted to probate on
January 29, 2002.  Pursuant to a provision in the will, M.C.
Murphy, 
Murphy's 
surviving spouse, was issued letters
testamentary as executor of Murphy's estate.  Approximately a
year and a half later, M.C. Murphy removed the administration
of Murphy's estate to the circuit court.
M.C. 
Murphy 
petitioned 
the 
circuit 
court 
for 
an
interpretation and declaration of the legal effect of items
three and four of Murphy's will with regard to the creation
and funding of the two trusts created in her will –- a spousal
trust and a family trust.  Items three and four read, in
pertinent part:
"ITEM THREE
"B. ...
"If my spouse survives me, all the rest,
residue, and remainder of the property which I may
own at the time of my death, real, personal, and
mixed, tangible and intangible, of whatever nature
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3
and wheresoever situated, ... I give to the Trustee,
hereinafter designated, as a general legacy, to be
held, as of the date of my death, in a separate
trust named for my spouse that pecuniary amount
which is equal to the value as finally determined
for federal estate tax purposes of 'qualified
property' (as defined in this paragraph) reduced by
the largest amount, if any, which, if allocated to
the Family Trust ..., would result in no increase in
federal estate tax payable at my death by reason of
taking in[to] account the unified credit and the
credit for state death taxes ... allowable to my
estate, but no other credits.  As used in this
paragraph, 'qualified property' is all property
disposed of by this will and property, the proceeds,
investments, or reinvestments of which are disposed
of by this will, in either case which is included in
my gross estate for federal estate tax purposes and
which is not otherwise effectively disposed of by
(i) ITEM TWO of this will, or (ii) the payment of
debts, 
expenses 
of administrations, and other
charges payable from principal by my executors,
including the death taxes.  The Trust named for my
spouse shall be administered as follows:
"1.  Commencing as of the date of my death and
during the life of my spouse the trustee shall
distribute to my spouse:
"(a) The entire net income of the
trust in convenient installments, at least
as frequently as quarterly;
"(b) As much or all of the principal
of the trust as the trustee from time to
time determines to be required for the
health and support in reasonable comfort of
my spouse, considering all circumstances
and 
factors 
deemed 
pertinent 
by 
the
trustee; and
1060112
Item six provides for the distribution of the family
1
trust, stating that the funds in the family trust are to be
distributed to M.C. Murphy for his lifetime as required for
his health and support in reasonable comfort, then at his
death are to be distributed to Murphy's nieces and nephews.
4
"(c) As much of all of the principal
of the trust as my spouse from time to time
may direct in writing.
"ITEM FOUR
"I give to the trustee or co-trustees designated
in ITEM ELEVEN of this will, to be held as a
separate trust named the Family Trust, all my
residuary estate, which shall not include any
property over which I have power of appointment.
The Family Trust shall be administered as provided
in ITEM SIX
 of this will.
[1]
"A.  I recognize that under some circumstances
no property may be allocated to the Family Trust
pursuant to the formula set forth in paragraph B of
ITEM THREE.
"B.  For the purposes of determining the
pecuniary amount to be allocated to the Family
Trust, I direct that:
"1.  Adjustments shall not be made between ...
income and principal or in determining the pecuniary
amount to compensate for the effect of certain tax
elections made by my executor or the Trustee;
"2.  None of the provisions of ITEM THREE,
including for example the use of the term 'largest,'
shall be construed as requiring any particular
exercise 
or 
non-exercise 
of 
tax 
 
elections,
regardless of their affect on the determination of
the pecuniary amount; and
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"3.  The pecuniary amount shall be determined
assuming a federal estate tax marital deduction is
allowed for property allocated to my spouse, and
shall be increased if and to the extent required by
subparagraph B of paragraph 4 of this ITEM.
"4.  For purposes of funding the Family Trust:
"A.  Property allocated in kind shall
be valued at its fair market value as of
the date of its allocation to the Family
Trust; and
"B.  All property or proceeds of
property with respect to which the federal
estate tax marital deduction would not be
allowable, if distributed outright to my
spouse, shall be allocated to the Family
Trust."
M.C. Murphy, in his request for a declaratory judgment,
argued that the language in items three and four required that
the spousal trust be funded before the family trust.  Scholl,
as cotrustee of the family trust, answered, asserting that the
language required that the family trust be funded first, so as
to exhaust Murphy's unified tax credit, then any additional
funds were to be placed in the spousal trust to avoid estate
taxes by taking advantage of the marital deduction.
At 
trial, 
M.C. 
Murphy 
argued 
that 
the 
language
establishing the spousal trust and the family trust created a
latent ambiguity regarding the order in which the trusts were
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to be funded.  According to M.C. Murphy, this latent ambiguity
authorized the trial court to admit extraneous evidence of
Murphy's intent.  The trial court agreed and permitted M.C.
Murphy to admit evidence from the attorney who drafted the
will and himself, stating in essence that Murphy's intent was
to fund the spousal trust before funding the family trust.
Scholl presented evidence from Cynthia G. Lamar-Hart, an
attorney specializing in estate planning, estate and trust
administration, and estate and trust litigation.  She
testified that the language in items three and four was
unambiguous, stating:
"My opinion is that the will is a typical two
trust will that includes the unified credit or
family trust [and] a marital trust.  The funding
clause, as I read it, directs that the largest
amount possible without increasing estate tax be
funded to the family trust, such that ... [Murphy's]
entire unified credit would be used in funding the
family trust.
"....
"In my opinion, the funding clause that's
relevant is the second paragraph under item three B.
... And ... [this] language is the operative
language: '[R]educed by the largest amount, if any,
which, if allocated to the Family Trust created in
ITEM FOUR of this will, would result in no increase
in federal estate tax payable at my death for reason
of taking in[to] account the unified credit and the
credit for state death taxes.'
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7
"In my opinion what that means is that the
intent of the testator, as expressed in this
document, is to use her unified credit so as to
protect the husband's estate from inclusion of that
amount in his estate at his death.
"This is advantageous to the entire estate
because it allows the first spouse to die to use his
or her credit to protect property from estate tax,
allowing the second spouse to use his or her estate
tax credit or unified credit at ... death[, t]hereby
doubling the amount of property that is excluded
from the estate tax.
"....
"The correct interpretation of this will is to
use the unified credit by funding the family trust
first.  That's the only way to give any meaning
whatsoever to the language that the testatrix has
used: '[R]educ[ing] by the largest amount, if any,
which, [if] allocated to the Family Trust ..., would
result in no increase in federal estate tax payable'
....
"My opinion is that the will simultaneously
creates the two trust[s] and then directs funding
first of the family trust to use the unified credit.
If Mrs. Murphy had not had sufficient unified credit
to soak up her entire estate, then the remaining
estate would have been put in the marital trust.
"And I'd like to clarify that, ... if the estate
is left to the [surviving] spouse, there's never any
tax consequence at the first death.  What you're
doing is protecting the estate at the second death.
".... 
"... [W]hat this will directs, and what the only
sensible reading of the will is, [is] 'use my
1060112
8
unified credit and protect the second spouse at his
death from estate tax inclusion with the maximum
amount possible that can go into the family trust
without creating any estate tax.'  And the maximum
amount possible here was the entire residuary
estate." 
The trial court held that the language directing the
funding of the spousal and the family trusts was ambiguous.
After considering extrinsic evidence of Murphy's intent with
regard to creating and funding these trusts, the trial court
held that Murphy intended to fund the spousal trust first.
Scholl appeals.   After Scholl filed her notice of appeal,
M.C. Murphy died.  Bernice K. Stacy, Murphy's sister, was
issued letters testamentary to replace M.C. Murphy as executor
of Murphy's estate.
Standard of Review
In Kershaw v. Kershaw, 848 So. 2d 942, 951 (Ala. 2002),
this Court held that a determination whether a document is
ambiguous is a question of law.  Questions of law are reviewed
de novo.  BT Sec. Corp. v. W.R. Huff Asset Mgmt. Co., 891 So.
2d 310, 313 (Ala. 2004).
Discussion
Scholl contends that the trial court erred in holding
that the provisions in Murphy's will directing the funding of
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9
the spousal trust and the family trust were ambiguous.
According to Scholl, the language of the will clearly
instructed that the family trust was to be funded with as much
of the residuary of Murphy's estate as permitted by her
unified-credit allowance and that any funds left over after
the unified credit had been exhausted were to be placed in a
spousal trust.
"The law in Alabama 
regarding 
the 
interpretation
of wills is well settled:
"'[T]he intention of the testatrix is the
law of the will, which the court should
consider as a whole, giving effect to each
provision where it is possible to do so; it
is the court's duty to carry out the
testatrix's intention where that intent can
be ascertained.  To determine the intent of
a testator or testatrix, the court must
look to the four corners of the instrument,
and if the language is unambiguous and
clearly 
expresses 
the 
testator's 
or
testatrix's intent, then that language must
govern.  Galin v. Johnson, 457 So. 2d 359
(Ala. 1984).  Where a will contains
ambiguous or doubtful expressions, it is
the duty of the court to determine what the
testator or testatrix intended.  Brittain
v. Ingram, 282 Ala. 158, 209 So. 2d 653
(1968).'"
Barnett v. Estate of Anderson, [Ms. 1051676, March 16, 2007]
___ So. 2d ___, ___ (Ala. 2007).  "A document is unambiguous
1060112
10
if only one reasonable meaning emerges."  Kershaw v. Kershaw,
848 So. 2d at 951.
A plain reading of item three, paragraph B, and item four
establishes that Murphy intended to create a spousal trust and
a family trust in which to deposit so much of her estate as
was not disposed of by specific bequests.  A spousal trust
allows a decedent to take advantage of the estate-tax marital
deduction.  The Internal Revenue Code, at 26 U.S.C. § 2056(a),
provides a marital deduction for every married decedent in the
amount of "the value of any interest in property which passes
or has passed from the decedent to his [or her] surviving
spouse."  Thus, the property transferred to the surviving
spouse by use of the marital deduction becomes a part of the
surviving spouse's estate; the decedent spouse's estate is not
taxed; and the property is taxed at the death of the surviving
spouse.  This marital deduction has no monetary limitation.
26 U.S.C. § 2056.
  
In addition to the marital deduction, an estate is also
eligible for a "unified credit," which is a credit against
estate tax each decedent is permitted with respect to all
testamentary transfers and post-1976 inter vivos gifts to
1060112
Murphy's will defined "qualified property" as all of
2
Murphy's property after specific bequests were made and  debts
of the estate were paid.
11
persons other than a surviving spouse.  26 U.S.C. § 2010.  The
parties agree that Murphy was permitted a unified credit at
the time of her death of $675,000.  See Taxpayer Relief Act of
1997, Pub. L. No. 105-34 § 501, 111 Stat. 788, 845 (1997). 
A plain reading of the language in paragraph B of item
three of Murphy's will establishes that Murphy intended to
create a spousal trust, allowing her estate to qualify for the
marital deduction.  Indeed, the parties agree that the spousal
trust created in paragraph B of item three of Murphy's will
was drafted to satisfy the requirements of the Internal
Revenue Code providing for the marital deduction.
Likewise, a plain reading of the language creating the
spousal trust establishes Murphy's intent to take advantage of
the unified credit, which requires that the family trust be
funded before the spousal trust.  In creating the spousal
trust, the will specifically orders the trustee to hold
"in a separate trust named for my spouse that
pecuniary amount which is equal to the value as
finally determined for federal tax purposes of
'qualified 
property' 
(as 
defined 
in 
this
paragraph)
 reduced by the largest amount, if any,
[2]
which, if allocated to the Family Trust (created in
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ITEM FOUR of this will), would result in no increase
in federal estate tax payable at my death by reason
of taking in[to] account the unified credit and the
credit for state death taxes ... allowable to my
estate, but no other credits."
We agree with Scholl, who reasons in her brief to this
Court:
"The only reasonable 
meaning 
of 
the 
above-quoted
funding instruction is that the trustees were to
hold in the spousal trust an amount derived by
calculating the total amount of [Murphy's] property
left after specific bequests and payment of debts
and reducing it by (i.e., subtracting from it) so
much of [Murphy's] property as could go into the
family trust, a trust designed to use her remaining
unified credit [and a trust as to which M.C. Murphy
was 
the 
lifetime 
beneficiary], 
and 
holding
everything left over in the spousal trust, which
would qualify for the marital deduction.  Thus, the
family trust would be funded with so much of
[Murphy's] property as would use her unified credit.
No other interpretation is reasonable."
Indeed, to hold that the spousal trust must be funded first,
in light of the unlimited amount allowable for the marital
deduction, would defeat the purpose and benefit of creating a
family trust and give item four no effect.  However, a reading
of paragraph B of item three in conjunction with item four
clearly establishes Murphy's intent to create both a spousal
trust and a family trust, to fund the family trust to the
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maximum allowed by her unified credit, and then to fund the
spousal trust with any remaining funds.   
The language in Murphy's will is unambiguous; it clearly
expresses her intent to fund the family trust first to take
advantage of her unified credit and then to fund the spousal
trust with any residuary after the amount of her unified
credit is exhausted.  Therefore, the trial court erred in
holding that the spousal trust was to be funded before the
family trust.
Because our decision on this issue is dispositive, we
pretermit discussion of other issues presented by Scholl.
Conclusion
The language of Murphy's will unambiguously provided that
the family trust was to be funded before the spousal trust.
Based on the foregoing, we reverse the trial court's judgment
and remand this cause for proceedings consistent with this
opinion.
REVERSED AND REMANDED.
Cobb, C.J., and Lyons, Bolin, and Murdock, JJ., concur.