### IN THE SUPREME COURT OF IOWA

No. 16

– 1974
Filed February 23, 20 1 8

BEVERLY GARDINER NANCE , Appellant ,

vs.
IOWA DEPARTMENT OF REVENUE , Appellee

.

On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Polk County, Michael D. Huppert , Judge.

The Iowa Department of Revenue seeks further review of decision of court of appeals that allowed taxpayer to avoid state inheri tance tax through a post mortem family settlement agreement. DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT
AFFIRMED.

David M. Repp and F. Richard Lyford of Dickinson, Mackaman, Tyler & Hagen, P.C., Des Moines , for appellant.

Thomas J. Miller, Attorney General, Donald D. Stanley Jr., Special Assistant Attorney General , and Hristo Chaprazov, Assistant Attorney General, for appellee.2

WATERMAN , Justice. In this appeal, we must decide whether the court of appeals correctly held a taxpayer avoided an Iowa inherit ance tax through a private post mortem family settlement agreement (FSA)

. The taxpayer’s
father

- in

- law, over five years before his death, signed a beneficiary form listing her as a contingent beneficiary of his brokerage ac count. That
account transferred to her alone upon his death , and the Iowa Department of Revenue (IDOR) determined the estate owed the
inheritance tax on the full account value. The decedent’s grandchildren from his son’s prior marriage sued the taxpayer , claiming they were entitled to the brokerage account under their grandfather’s will. They alleged their grandfather had dementia and lacked the mental capacity to execute an enforceable beneficiary designation for his brokerage account. The taxpayer set tled the lawsuit by transferring hal f the account value to the grandchildren under a n FSA without any judicial determination of incapacity. She then sought a refund of part of the inheritance tax already paid. The IDOR denied the refund and determined th e taxpayer failed to meet her burden to establish incapacity. T he district court affirmed. The taxpayer appealed , and we transferred the case to the court of appeals, which reversed and held the FSA controlled the tax issue. We granted the IDOR’s application for further review. For the reasons explained below, we hold that the IDOR correctly denied the taxpayer’s refund , and its refusal to give effect to the FSA was not irrational, illogical , or wholly unjustifiable . Without a n adjudication
of incapacity, the beneficiary designation transferred the brokerage
account to the decedent’s daughter

- in

- law upon his d eath , and the postmortem FSA was not binding on the IDOR and could not avoid the
inherit ance tax when the taxpayer failed to prove incapacity in the3

IDOR’s contested case proceeding. The contrary holding of the court of appeals would allow parties to evade inheritance taxes without a n adjudication defeating facially valid beneficiary designa tions. We vacate the decision of the court of appeals and affirm the district court judgment that upheld the IDOR decision.
I. Background Facts and Proceedings. On August 17, 2003, Lester D. Gardiner Sr. and his wife,
Mildred M. Gardiner, executed a transfer on death (TOD) agreement naming their only son, Lester Gardiner Jr., as the so le primary beneficiary of their brokerage accounts at Edward D. Jones

. The TOD agreement designated their son’s wife, Beverly Gardiner (now Beverly Gardiner Nance), as the sole contingent beneficiary. Lester Sr. was nearly age 92 when he signed the beneficiary designation

. James Gibbons, a broker for Edward D. Jones, was present when the TOD agreement was executed and later testified that Lester Sr . and Mildred

were mentally alert when they signed it. Beverly was not informed of her contingent designation at that time

. Lester Jr. had been married and divorced before h e married Beverly in 1979. Lester Jr.’s three children from his pr ior marriage

— Donald Gardiner, Do n i t ta Gardiner, and Dia n ne Gardiner Green

— are Lester Sr.’s only grandchildren

. Donald, Don i t ta, and Dia n ne were the
beneficiaries of Lester Sr.’s will, which h e executed on November 22,
1988 , nearly five years before he executed the TOD agreement

. Leste r Sr. and Mildred moved into the Rowley Masonic Home in Perry i n 2000 and resided in that nursing home until their deaths. Mildred died in 2004, and Lester Jr. died in 2007

. On August 3, 2007

— almost four years after Lester Sr. executed the TOD agreement

— Beverly
and Dianne file d an involuntary petition seeking the appointment of a4 guardian and conservator for Lester Sr . One of his treating physicians opined in a signed statement that Lester Sr.’s “mental condition makes
him incapable of caring for his own personal safety or provid [ing] for the
necessities of life such as food, shelter, clothing and continuing medical care.” Lester Sr. was declared unfit to manage his affairs on
S eptember 11, and Beverly and Dianne were appoi nted coguardians and

co conservators. Lester Sr. d ied testate on January 31, 2009 , at the age
of 97.
After Lester Sr.’s d eath, his grandchildren, as co executors of his estate, sued Beverly , challenging the validity of the beneficiary designation fo rm. They alleged that Lester Sr. lacked the requisite capacity to execute the form in August 2003 due to his dementia. Beverly denied t he allegations, claiming Les t er Sr. was competent when he and his wife signed the beneficiary designation o ver five yea rs before
his death.
W hile the lawsuit was pending, the estate timely filed an
inheritance tax return on October 2 0 , 2009 . The estate paid the required
inheritance tax of $18,988 based on the fact that Beverly received the full
balance of the TOD broker age accounts. With the grandchildren’s lawsuit pending, c ounsel for the estate retained Dr. Robert Bender to review the medical and nursing home
records of Lester Sr. and his wife. Dr. Bender had never examined or

seen Lester Sr. Dr. Bender opined in a June 21, 2010 letter that both
Lester Sr. and his wife suffered from dementia. He noted that the records showed Lester Sr. “was found to have impairment in decision

making skills” by June 2002, and by November of that year , Lester Sr.

“ was often confused[] and unable to manage his own affairs.” Based on his review of the records, Dr. Bender concluded that Lester Sr. was5 incapable of understanding his financ es and “was very vulnerable to undue influence being exerted on him by those arou nd him.” Lester Sr.’s grandchildren used Dr. Bender’ s opinion to support their claim that
Lester Sr. lacked the requisite mental capacity to execute the beneficiary designation form in August 2003

. Beverly found no expert who would opine to the contrary. However, Gibb ons, the broker who was present when the TOD agreement was executed in 2003 , testified at a deposition
that he believed both Lester S r . and Mildred to be mentally alert at the
time

. On Jul y 27, the grandchildren and Beverly settled their dispute in
mediation and entered into a n FSA . The IDOR was not a party to the
FSA. The FSA provided that the brokerage accounts would be liquidated and the proceeds divided e qual ly between Beverly and the estate

. The proceeds had already been reduced by the inheritance tax payment , and the parties agreed that any tax refund would be divided equally between
the estate and Beverly . The probate court approved the FSA on September 3 without any adjudication of Lester Sr.’s incapacity in 2003

. The estate filed an amended inheritance tax return on October 28. The estate requested a refund of $10,034 based on the FSA providing that half of the brokerage accounts were paid to Lester Sr.’s grandchildren. The estate claimed the proceeds passing by operation of
the FSA to the grandchildren were exempt from inheritance tax under
Iowa Code section 450.9 (2009) as property passing to Lester Sr.’s lineal
descendants. The IDOR denied the refund on November 3. The estate protested the denial on December 29. The estate transferred any refund
claim to Beverly. The estate was closed

. On June 26, 2013, t he IDOR received a letter from Beverly’s counsel requesting an informal conference. O n July 24, 2014, Beverly6
filed a formal written demand to initiate a contested case, and the IDOR
filed an an swer denying her right to a refund.
On November 24, a contested case hearing was held before an administrative law judge (ALJ)

. Beverly argued t hat the beneficiary designation was invalid , relying on Dr. Bender ’s letter opining that
Lester Sr. was incompetent in August 2003 because he suffered from
dementia. 1 Dr. Bender

— who had not personally examine d Lester Sr.

— was not called as a witness at the contested case hearing. Beverly
testified that she visit ed her father

- in

- law during the weekends at the nursing h ome. But she did not testify regarding her p ersonal
observations of Lester Sr. ’s mental state at the time he executed the TOD agreement or a t any other time.
The ALJ issued a proposed order on February 3, 2015. The ALJ
found that the IDOR had subject matter jurisdiction over the issue of
Lester Sr. ’s competency to execute the TOD agreement because such determination would be necessary to decide whether a taxable event
occurred. The ALJ concluded that the FSA , e xecuted after the transfer of
the accounts to Beverly through the TOD agreement, “ha[d] n o bearing
on whether a taxable event occurred when the Accou nts passed to [Beverly] .” The ALJ also determined that Beverly failed to prove by clear, convincing, and satisfactory evidence that Lester Sr. lacked sufficient mental capacity to execute the ben eficiary designation. The ALJ
concluded that upon Lester Sr.’s death the TOD accounts passed directly

to Beverly and that the IDOR , therefore , properly denied the refund request.

1 Beverly previously took the opposite position in the lawsuit filed by her stepchildren; before the parties settled, Beverly claimed that Lester Sr. was competent to execute the TOD agreement. Any undue influence on Lester Sr. in 2003 would have been exerted by his son, Lester Jr.

— Beverly’ s husband

.7 Beverly appealed to the director of the IDOR

. She filed a motion to allow witness testimony and a supporti ng brief , requesting the opportunity to pr esent the oral testimony of Dr. Bender. The IDOR filed a resistance. The director granted Beverly ’s motion to allow witness testimony.
T he director held a n eviden tiary hearing on January 14, 2016.
Dr. Bender testified. He described the “ mini

- mental status
examination s ” used to evaluate a patient’s cognitive abilities and elaborated on how Lester Sr.’s performance on such tests demonst rated
his severe dementia. D r. Bender concluded his direct testimony by stating, “My opinion is that [Lester Sr.] was cognitively incapable of understanding the document that he signed in August of ’03 , and that shouldn’t have happened from the medical perspective.” On

cross

- examin ation, Dr. Bender admitted that he did not remember ever personally examining Lester Sr. or Mildred or speaking to any of the treating physicians.
The director found that In re Estate of Bliven , 236 N.W.2d 366 (Iowa 1975) , was controlling and , therefore , agreed with the ALJ that the
FSA ha d no bearing on whether a taxable event occurred when the TOD accounts passed to Beverly

. The director rejected Beverly ’s claim that In re Estate of Van Duzer , 369 N.W.2d 407 (Iowa 1985) (involving a spousal election against the will) , contro l l ed

. The director noted that “the portion of the TOD that [ Beverly ] agreed to give to Decedent’s beneficiaries under the Family Settlement Agreement passed not from Decedent’s estate to
the benefici aries but from [ Beverly ] to the beneficiaries.”
The director also determined the IDOR had subject matter jurisdiction over the issue of Lester Sr. ’s competency and that Beverly8 failed to meet her burden of proof on the issue of her father

- in

- law’ s alleg ed lack of capacity. The director reasoned , N o physician or other medical practitioner who provided care to the decedent at the time that he executed the TOD testified at either the Administrative Law Judge or the Director hearing. In fact, no witness testified regarding any personal observations of the Decedent at the time he executed the TOD. At the h earing before the Director, Dr. Bender testified to explain his opinion regarding the significance of the Decedent’s mini

- mental status examination results. He also testified, based on his review of the mini

- mental status examination results, it was his opinion that Decedent was not competent when he executed the TOD. However, Dr. Bender did not ever personally examine the Decedent. The oral testim ony was consistent with the information provided to the Administrative Law Judge, however, it did not rise to the level of clear and convincing evidence that the contract should be set aside. Based on the foregoing evidence, the Protester has not met her burden to prove by clear, convincing, and satisfactory evidence that the Decedent was incompetent when he executed the TOD. Beverly filed a timely petition for judicial review in the district

court. T he district court agreed with the director that Bli ven controlled
and that the post mortem FSA had no effect on the amount of inheritance
tax owed. The district court concluded that the assets covered by the TOD agreement passed to Beverly at the moment of Lester Sr.’s death, and “any entitle ment to those assets by his grandchildren was created after his death by virtue of the family settlement agreement.” The district
court affirmed the decision of the IDOR denying Beverly ’s request for a
refund of inheritance tax. Beverly appealed, and we transferred t he case to the court of appeals. The court of appeals concluded that Van Duzer

— not Bliven

— controlled and that the FSA changed how half of Lester Sr. ’s brokerage accounts passed upon his death. As a result, the court determined that9 the settlement proceeds paid to the grandchildren under the FSA were exempt from inheritance tax. The IDOR filed an application for furt her review, which we granted.
II. Standard of Review. “Our review is governed by the standards set forth in Iowa’ s Administrative Procedure Act, chapter 17A.” Lange v. Iowa Dep’t of
Revenue , 710 N.W.2d 242, 246 (Iowa 2006). “In exercising its judicial review power, the district court acts in an appellate capacity.” Iowa Ag
Const r . Co. v. Iowa State Bd. of Tax Revi ew , 723 N.W.2d 167, 172 (Iowa 2006) (quoting Mycogen Seeds v. Sands , 686 N.W.2d 457, 463 (Iowa 2004), superseded by statute on other grounds , 2004 Iowa Acts 1st
E xtraordinary Sess. ch. 1001, §§ 12, 20, as recognized in JBS Swift & Co.
v. Ochoa , 888 N.W.2d 887, 890, 898

– 900 (Iowa 2016)). “When we review the district court’s decision, ‘we apply the standards of chapter 17A to
determine whether the conclusions we reach are the same a s those of the
district court.’ ” Id. (quoting Mycogen Seeds , 686 N.W.2d at 464). If we reach the same conclusions, we affirm; if not, we reverse. Id.
The fighting issues here turn on the IDOR’s factual determinations and application of law to th ose facts. W e may grant relief if the taxpayer’s substantial rights have been prejudiced because the agency
action is [b]ased upon a determination of fact clearly vested by a provision of the law in the discretion of the agency that is not supported by substantial evidence in the record before the court when th at record is viewed as a whole. Iowa Code § 1 7A.19(10)( f

); see also Iowa Ag Const r . Co. , 723 N.W.2d at 173 (concluding that factual determinations regarding the applicability of certain sales tax exemptions were clearly vested by a provision of law in
the di scretion of the agency when “[ t ] he case was tried as a contested10 case proceeding in which factual findings were made based on evidence produced”). For purposes of our review, “Substantial evidence” means the quantity and quality of evidence that would be deemed sufficient by a neutral, detached, and reasonable person, to establish the fact at issue when the consequences resulting from the establishment of that fact are understood to be serious and of great importance.
Iowa Code § 17A.19(10)( f

)(1). “ In assessing evi dentiary support for the agency’ s factual determinations, we consider evidence that detracts from the agency’ s findings, as well as evidence that supports them, giving deference to the credibility determinations of the presiding officer. ”
Lan ge , 710 N.W.2d at 247; see also Iowa Code § 17A.19(10)( f

)(3). “Because factual determinations are by law clearly vested in the agency, it follows that application of the law to the facts is likewise vested by a provision of law in the discretion of the agency.” Iowa Ag Const r

. Co. , 723 N.W.2d at 174; see also Mycogen Seeds , 686 N.W.2d at 465

. We therefore can only reverse the agency’s application of the law to the facts if we determine the application was “irrational, illogical, or wholly unjustifiable .” Iowa Ag Const r . Co. , 723 N.W.2d at 174 (quoting Iowa Code § 17A.19(10)( m ) (allowing a court to reverse when the challenger’s substantial rights have been prejudiced by the agency ’s “irrational, illogical, or wholly unjustifiable ” application of law to fact ) )

. We review decisions on statutory interpretation for correction of
errors at law. Branstad v. State ex rel. Nat. Res. Comm’n , 871 N.W.2d 291, 294 (Iowa 2015).
III. Analysis. We must decide whether the IDOR properly d enied Beverly’s refund
claim. We conclude that a n FSA is ineffective to alter the inheritance tax consequences of a TOD agreement when the taxpayer unsuccessfully11 challenges the validity of that transfer. In the contested case proceedings, Beverly litigated and lost her claim that Lester Sr. was mentally incompetent in August 2003 when he executed the TOD

a greement and beneficiary designation. She had the burden of proof, and we must uphold that agency det ermination under our standard of
review. The IDOR therefore correctly determined that t he brokerage accounts transferred to Beverly under the TOD agreement as nonprobate

assets upon Lester Sr.’s death

. The postmortem FSA under these
circumstances could n ot retroactively avoid the inheritance tax liability. The IDOR properly denied Beverly’s refund claim. Because Beverly’s challenge to the TOD agreement failed, the transfer and resulting inheritance tax liability accrued upon Lester Sr.’s
death. See I n re Estate of Myers , 825 N.W.2d 1, 6

– 7 (Iowa 2012). “Nonprobate assets are interests in property th at pass outside of the
decedent’ s probate estate to a designate d beneficiary upon the decedent’ s death.” Id. at 6. “[T]hese asse ts are the personal prope rty of the grantor before death, [but] they become the personal property of the designated beneficiaries upon the grantor’ s death pursuant to a contract between the grantor and the administrator of the account.” Id. at 6

– 7. The brokerage accounts , theref ore , became Beverly’s personal property immediately upon Lester Sr.’s death , pursuant to the TOD agreement

. Iowa’s “inheritance tax is a tax on the receipt of property from a
decedent.” Tremel v. Iowa Dep’t of Revenue , 785 N.W.2d 690, 694 (Iowa 2010) (emphasis added). The inheritance tax differ s from an estate tax, which “is a tax on property held by a decedent at the time of death.” Id. (emphasis added); see also Estate of Dieleman v. Iowa Dep’t of Revenue , 222 N.W.2d 459, 460 (Iowa 1974) (“Unlike t he federal estate tax, which is a tax upon decedent’s estate, the inheritance tax is a tax upon each right12

of succession .

. . .”). Real estate and tangible personal property located in Iowa and intangible personal property owned by a decedent domiciled
i n Iowa are subject to the inheritance tax. Iowa Code § 450.2. The inheritance tax is imposed on “any property passing .

. . [b]y deed, grant, sale, gift , or transfer made or intended to take effect in possession or enjoyment after the death of the gran tor or donor.” Id. § 450.3 (3)

. This means the brokerage accounts transferred by the TOD agreement are subject to the inheritance tax unless they meet the requirements for an exemption provided in the Code. See id. §§ 450.4,
.9. The Code provides for an ex emption for certain individuals. In computing the tax on the net estate, the entire amount of property, interest in property, and income passing to the surviving spouse, and parents, grandparents, great

grandparents, and other lineal ascendants, chil dren including legally adopted children and biological children entitled to inherit under the laws of this state, stepchildren, and grandchildren, great

- grandchildren, and other lineal descendants are exempt from tax.

Id. § 450.9. This exemption did not apply because the brokerage accounts passed to Beverly (who is not a lineal descendant) upon
Lester Sr.’s death.
T he FSA between Beverly and the estate divided the brokerage accounts between Beverly and Lester Sr.’s grandchildren. We therefore
must de termine what effect, if any, the FSA has on the inheritance tax. Regulations of the IDOR address family settlement agreements

. Beneficiaries of an estate may contract to divide real or personal property of the estate, or both, in a manner contrary to the will of the decedent. The court of competent jurisdiction may approve the settlement contract of the beneficiaries. However, t he department is not a party to the contract and is not bound to compute the shares of the estate based on the settlement contract. Instead, the department must compute the shares of the estate based upon the terms of the decedent’ s will, unless a court o f13 competent jurisdiction determines that the will should be set aside.

Iowa Admin. Code r. 701

— 86.14(2). This rule is not directly on point here because the transfer at issue occurred through a TOD agreement, not Lester Sr.’s will. But the principle of law embodied in the rule applies independently

— the IDOR is not bound by an FSA to which it is not a party. However, there is tension in our caselaw as to when an FSA may avoid inheritance taxes. “We have established in our jurisprudence that family settl ement agreements are favored in law.” Gustafson v. Fogleman , 551 N.W.2d 312, 314 (Iowa 1996). Mor e broadly, Iowa has a well

- established public policy favoring the voluntary settlement of disputes

. The law favors settlement of controversies. A settlement agreement is essentially contractual in nature. The typical settlement resolves uncertain claims and defenses, and the settlement obviates the necessity of further legal proceedings between the settling parties. We have long held that voluntary settlements of legal disputes should be encouraged, with the terms of settlements not inordinately scrutinized.
Peak v. Adams , 799 N.W.2d 535, 543 (Iowa 2011) ( quoting Waechter v. Aluminum Co. of Am

. , 454 N.W.2d 565, 568 (Iowa 1990))

. It can be
burdensome on families to require an adjudication of incompetency to avoid an inheritance tax. Recognizing tax relief from an FSA avoids costly litigation.
Yet we also note that “[t]ax exemption statutes are construed strictly, with all doubts resolved in favor of t axation.” Sherwin

– Williams Co. v. Iowa Dep’t of Revenue , 789 N.W.2d 417, 424 (Iowa 2010) (alteration in original) (quoting Dial Corp. v. Iowa Dep’t of Revenue , 634 N.W.2d 643, 646 (Iowa 2001)). Additionally, we have long recognized that the parties to a n FSA providing for a different disposition than that14 provided for in a will “do no t determine to whom the title passes from
decedent .” Seeley v. Seeley , 242 Iowa 220, 225, 45 N.W.2d 881, 884

– 85 (1951) ( holding that because the decedent’s two sons entered into a n FSA
to renounce their gifts under the will , they to ok title as heirs , and one of
the son’s widow w as entitled to her one

- third distributive share of the
real estate ). Against that backdrop, we review our precedent adjudic ating

c laims that FSA s avoided inheritance tax liability.
A. Effect of Family Settlement Agreements on Inheritance
Taxes
. The IDOR claims Bliven applies and is dispositive, while Beverly
argues Van Duzer controls the outcome of this case. We held the FSA did
not avoid the inheritance tax in Bliven but did so in Van Duzer un d er different circumstances. Here, w e conclude the agency’s adjudication rejecting Beverly’s challenge to Lester Sr.’s competency is fatal to her
refund claim regardless of the terms of her FSA. We limit Van Duzer to its facts.
In Bliven , Amy C. Bliven tore up the document identified as her last will and testament. 236 N.W.2d at 368. A copy of the will showed
that most of her estate was bequeathed to two out

- of

- state c harit ies

. Id.
When Bliven died, her heirs at law contended that her will had been effectively revoked and that Bliven therefore died intestate. Id. The charities, however, claimed Bliven lacked the mental capacity to revoke
her will. Id. T o avoid litigation, the heirs and the charities stipulated
that the will had been revoked and that Bliven died intestate. Id. The parties agreed to an estate distribution in which each charity received twenty

- five percent of the estate. Id.
T he execut or filed an inheritance tax return indicating that the distribution to the charities was exempt from the inheritance tax. Id.15

The execu tor claimed the assets going to the charities in accord with the settlement agreement “passed in any manner” under sect ion 450.4 and , therefore , were exempt from taxation

. 2 Id. The IDOR disagreed, claiming, among other things, that “title to property passing under the terms of a settlement agreement does not bypass those who would have
taken under the statutes of intesta te succession.” Id. at 369. We determined that upon Bliven ’s death, her property automatically passed to and title immediately vested in her heirs at law.
Id. at 370. We also noted that “an heir’s interest in property acquired by intestate succession is assignable and transferable immediately on the death by which it vests under the law of descent and distribution.” Id. at
370

– 71. We recognized that any inte rest the charities obtained in property held by Bliven at the time of her death must have been obtained by conveyance or assignment from her heirs at law. Id. at 371. We concluded that the “inheritance tax exemption statute never came into play as to any right in said estate indirectly acquired .

. . by these charitable organization s , i.e., no inheritance, no exemption .” Id. (emphasis added). The property rights acquired by the c harities “passed to them only by assignment from [the] decedent’s heirs, se parate and apart from her death.” Id. We determined under the Code in place at that time, that “passes in any manner” meant “passes in any manner by

2 Section 450.4(2) provided that an inheritance tax shall not be collected [w]hen the property passes in any manner to societies, institutions or associations incorporated or organized under the laws of this state for charitable, educational, or religious purposes, and which are not operated for pecuniary profit,

. . . provided, however, that this exemption shall also include property passing to any society, institution or association incorporated or organized under the laws of any other state for charitable, educational or religious purposes, and which are not operated for pecuniary profit

. . . . Iowa Code § 450.4(2) (197 1 ).16 will or intestate succession directly from a decedent.” Id. at 372 (quoting Iowa Code § 450.4(2) (1971)) . As a result, we held that Bliven ’s entire estate passed by intestate succession to her heirs at law and was subject to the inheritance tax, absent any exemption under section 450.4. Id. The IDOR argues that the holding in Bliven rests on two well

es tablished propositions: (1) Iowa’s inheritance tax is levied only on property passing from a decedent, so the inheritance tax exemption only applies to propert y passing from a deceden t ; and (2) interested parties

cannot , by agreement , determine to whom property passed from a
decedent. See id. at 371; Seeley , 242 Iowa at 225, 45 N.W.2d at 884

– 85 (“The contracting parties do not determine to whom the title passes from
decedent .”). These principles apply here , and we conclude that Blive n is controlling

. Title to the brokerage accounts immediately vested in Beverly upon Lester Sr. ’s death under the TOD agreement. See Iowa Code § 633D.9 (2009) ( “On the death of a sole owner or on the death of the sole surviving owner of multiple owners, the ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners.”); id. § 633D.11 (1) (“A transfer on death resulting from a registration in beneficiary form shall be effective by reason of the contract regarding the registration between the owner and the registering entity under the provisions of this chap t er, and is not testamentary.”); see also Myers , 825 N.W.2d at 7 (recognizing that pay

- on

- death accounts “become the personal property of the designated beneficiaries upon the grantor’s death pursuant to a contract between the grantor and the administrator of the account”). The accounts were therefore subject to the inheritance tax, and no exemption applied.
T he principle that the property in a TOD account becomes the property of the designated beneficiary immediately upon death presumes17

a valid contract. H ere , there has been no determination that the TOD agreement was invalid. The party challenging a contract based on lack of capacity bears the burden of proof. See Urbain v. Speak , 258 Iowa 584, 590, 139 N.W.2d 311, 315 (1966) (explaining that a person is pre sumed sane when the contract is made and the burden of proving otherwise rests on the person claiming incompetency) ; see also Jackson v.
Schrader , 676 N.W.2d 599, 606 (Iowa 2003) ( noting “ t he district court properly disposed of the competency issue on the ground that [the plaintiff] failed to show that [the party to financial transactions] lacked mental capacity” at the time she engaged in such transactions )

. The grandchildren settle d with Beverly without a ny adjudication that Lester Sr. was incompetent to execute the TOD agreement. During the contested case proceedings, t he ALJ determined that Beverly failed to

prove Lester Sr. lacked sufficient mental capacity to execute the TOD agreement

. The director a greed that Beverly d id not meet her burden of proof. In its ruling on the petition for judicial review, t he district court
stated , As noted by both the ALJ and the director, the only proof [of Lester Sr.’s incompetency] offered by the petitioner was the opinions of Dr. Bender, someone who never examined or even observed Lester , Sr. at any point in time prior to his death. The only basis for his opinions was the aforementioned status examinations, which again were not administered by Dr. Bender. As the trier of fact in this contested case proceeding, it was the director’s prerogative to weigh the evidence and make the ultimate decision on whether it met the aforementioned burden; that conclusion was n[ot] irrational, illogical or wholly unjustifiable. (Footnote omitted.) The IDOR ’ s finding regarding Lester Sr.’s competency was not challenged on appeal. That finding is supported by substantial
evidence , and the IDOR’s application of law to fact on the competency determination is not irrational, illogical, or wholly unjustifiable on this18

record. We are bound by that determination. See Iowa Ag Constr. Co. , 723 N.W.2d at 173

– 74 ; see also Christiansen v. I owa Bd. of Educ.
Exam ’ rs , 831 N.W.2d 179, 191

– 92 (Iowa 2013) (discussing deference given to agency determinations in contested case adjudications). T he TOD agreement is therefore valid, and the brokerage accounts became Beverly ’s property immediately upon her father

- in

- law’s death.
As with the charities in Bliven , who had no right to property in the
decedent’s estate but for the settlement agreement, the grandchildren
here had no right to the proceeds of the brokerage accounts but for the
FSA

. We have previously explained, The contracting parties do not determine to whom the title passes from decedent

. . . . In legal effect the contracting parties convey title from themselves without resorting to the usual instruments of conveyance. The probate cour t shapes the administration so as to carry out the contract but by no theory or fiction of law does the title bypass the heirs or beneficiaries and pass direct from decedent to those designated by the contract. Seeley , 242 Iowa at 225, 45 N.W.2d at 884

– 8 5. This remains true despite the language in the FSA providing that “the Grandchildren will
inh erit a portion of the Accounts. ” Beverly argues that Van Duzer control s , and in that case , we held
the FSA avoided inheritance tax

. See 369 N.W.2d at 410

. Charles Wayne Van Duzer executed an irrevocable inter vivos trust , which
transferred farmland to two trustees. Id. at 408. The inter vivos trust gave the trustees absolute discretion to accumulate the trust income or
distribute it to Van Duzer during his lifetime , but Van Duzer retained the power to dispose of the corpus of the trust through a general power of appointment exercisable by will and to appoint successor trustees. Id. The trust instrument provided that if Van Duzer died without exercising19

th e power of appointment, a life income interest in the trust would be
created in his sister and nieces. Id. Upon their death, the corpus of the trust was to be distributed to certain designated beneficiaries. Id.
The next year, Van Duzer got married. Id. He died a few years later without exercising his power of appoint ment. Id. Hi s “ surviving spouse elected to take against the will, ” and she also “ commenced an action against the estate alleging that the tr ust was illusory, failed
ab initio , and that the trust assets were to be considered as part of the probate estate for purposes of computing her statutory share.” Id. She entered into a settlement agreement with the executor of the estate, the trustees, and the beneficiaries of both the estate and the trust

. Id. The surviving spouse received $106,500 pursuant to the settlement agreement. Id.
The IDOR included all of the trust corpus in its computation of the inheritance tax to be paid by the beneficiaries and did n ot allow the $106,500 paid to Van Duzer’s surviving spouse to qualify for the spousal exemption

. Id. The district court reversed the IDOR and determined that this amount qu alified for the spousal exemption. Id. In affirming the district court, we distinguished In re Estate of Wells , 142 Iowa 255, 120 N.W. 713 (1909), and Bliven

. The claimants in Wells were persons not named in decedent’s will or otherwise entitled to claim against the estate. The same is true of the charities which were the claimants in Bliven . In the prese nt case, the claim was made by the person who was the decedent’s surviving spouse and, as such, entitled to a distributive share by reason of her election to take against the will. Her claim was against the executor and the gravamen thereof concerned the amount of such statutory share. While based upon various theories, all aspects of her claim involved the alleged invalidity ab initio of the inter vivos trust, a circumstance which, if correct, would increase the share passing to the surviving spouse.20

Van Duzer , 369 N.W.2d at 410. We viewed the settlement agreement “as

a tripartite agreement whereby the trustee agreed to return $106,500 to the estate, and the executor agreed to pay an identical sum to the surviving spouse in satisfaction of her distrib utive share.” Id. We noted, It doubtless would have made a better record if separate checks were issued for this purpose, a deposit to the estate account had been documented and a court order had been obtained authorizing the payment of a distributive share in the sum agreed to in the settlement.

Id. But we agreed with the district court that such formality was not necessary “in order to recognize the transaction to be that which it clearly was.” Id. We held the district court did not err in conclu ding that the payment of $106,500 to the surviving spouse qualified for the spousal exemption. Id. Beverly characterizes Van Duzer as giving effect

to a n FSA that dictated the inheritance tax consequences. The IDOR, however, reads the language regarding what “would have made a better
record” as clarifying that the surviving spouse did not receive the money pursuant to the settlement agreement but instead received it from the
deceden t by claiming against the will. See id.
Van Duzer recognized that the surviving spouse took the $106,500 by reason of her election to ta ke against her husband’s will, but the effect
of the FSA increase d her statutory share. See id. (noting that the executor would pay the amount “to the surviving spouse in satisfaction of
her distributive share” ); cf. In re Estate of Spurgeon , 572 N.W.2d 595, 59 8 (Iowa 1998) (“ When testator died and his will was admitted to probate,
the widow

. . . had to make a choice: whether to accept the will and forego a statutory sh are, or to reject the will and take a statutory share
instead.

. . . The authorities are clear as to the effect of an election by a surviving spouse: a choice to take against the will is a genuine election21 which nullifies gifts to the surviving spouse in the will but leaves the will to be carried out as to the other devisees as nearly as may be done. ” (q uoting In re Campbell , 319 N.W.2d 275, 277 (Iowa 1982))). A spousal election to take against the decedent’s will transfers title over the
distributive sha re from the decedent to the surviving spouse. See
Watrous v. Watrous , 180 Iowa 884, 898 , 163 N.W. 439, 443 (1917) (“The surviving spouse has the absolute right to elect not to consent to the provisions of the will, the effect of which is to give such survivor absolutely an undivided one

- third interest, in value, of all the property, real and personal, of which the deceased spouse died seised.”). We
conclude that Van Duzer i s inapplicable here and limit its holding to spousal elections against the will

. The IDOR itself has limited its adherence to Van Duzer to spo usal elections against the will , and in other inheritance tax cases that agency
has continued to rely on Bliven

. See Estate of Leland E. Robertson,
Inheritance Tax Assessment Docket No. 86

- 40 2

- 3

- A (1987) . The legislature has not overruled either Van Duzer or Bliven . We can infer the legislature has acquiesced in their holdings interpreting Iowa Code section 450, such that FSAs cannot be used to avoid inheritance taxes except when a spouse el ects against the will. See In re Estate of Vajgrt , 801 N.W.2d 570, 574 (Iowa 2011) (“The rule of stare decisis ‘is especially applicable where the construction placed on a statute by previous decisions has been long acquiesced in by the legislature

. . . .’ ” (quoting Iowa Dep’t. of Transp. v. Soward , 650 N.W.2d 569, 574 (Iowa 2002 ) ) ); see also Crane v. Mann , 162 S.W.2d 117, 118 (Tex. Civ. App. 1942) (“[S]ince the year 1929 that Department has construed the Inheritance Tax Statue to place the tax on the en tire estate passing by virtue of the will, regardless of any compromise agreement which permits a portion of the22 estate to go to a contestant. That Departmental construction having been acquiesced in by the Legislature of Texas for more than twelve years is of itself persuasive and should not be overturned in the absence of strong reason therefor.”).
Van Duzer is distinguishable for another reason

— because t here was no adjudication of the validity of the trust created by Van Duzer

. The surviving spouse i n Van Duzer did not litigate and lose on the issue of the trust’s enforceability. By contrast, Beverly failed to meet her burden of proof to show that Lester Sr. lacked the capacity to execute the
TOD a greement. Here , we have an adjudication that the TOD agreement was valid, and this controls how the property passed at Lester Sr.’s
death. Cf. Ind

. Dep’t of Revenue v. Estate of Binhack , 426 N.E.2d 714,
715

– 16, 718 (Ind. Ct. App. 1981) ( concluding that the court erroneously

re determined the amount of inher itance taxes based on a family settlement agreement , which provided that grandchildre n who were
excluded from and contested the will inherited part of the estate because “[t]he crucial fact remains .

. . that the will .

. . has never been set aside ”);
Bori sh v. Zink , 64 A.2d 461, 461 (N.J. Super. Ct. App. Div. 1949) (acknowledging that “[i]f the appeal from probate had been prosecuted to conclusion, the probate might have been reversed and the fact established that Mr. Borish died intestate” but noting that after the settlement agreement was reached, “the appeal was dismissed and the decree of the Orphans’ Court conclusively establishe[d] the factum of the will[, so t]he transfers made by the will have taken effect and are taxable”). Beverly suggests that the determining factor in Bliven and
Van Duzer was whether there was a bona fide dispute between the23 parties, pointing out that the Bliven parties stipulated that the will was
revoked. Beverly claims that [h]ad [the parties to the settlement agreement] not stipulated that the decedent’s will had been revoked, the Iowa Supreme Court in Bliven would likely have ruled (as it did in Van Duzer ) that the decedent’s property “passed” to the charities by virtue of the settlement agreement rather tha n to the heirs under intestacy.

We disagree. In Bliven we stat ed , [W]e have searched chapter 450 in a futile effort to find therein any provision which even intimates a recognition of the passing of property rights fr om a decedent in any manner other than by terms of a will or intestate succession. 236 N.W.2d at 370. The 2009 version of chapte r 450, which governs this case, applies to the passing of property right s from a decedent by virtue of TOD agreements but not b y virtue of postmortem FSA s
. See Iowa Code § 450.3. Beverly’s argument also ignores the language in Seeley providing that “contracting parties do not determine to whom title passes from decedent .” Seeley , 242 Iowa at 225, 45 N.W.2d at 884

– 85; cf. Ind

. D ep’t of State Revenue v. Estate of Pickerill , 855 N.E.2d 1082, 1086 (Ind. T.C. 2006) ( “[W]hen a family settlement agreement exists, how the agreement came into existence (i.e., whether or not litigation actually ensued or a claim was filed) does not change the fact that the agreement
cannot alter the mann er in which inheritance tax is imposed.”). Our holding in Seeley corresponds with “[t]he majority view .

. . that a succession tax is computable in accordance with the terms of the will, unaffected by [a] compromise agreement.” De Rosa v. Dir. , Div. of
Taxation , 28 N.J. Tax 73, 78 (Tax. Ct. 2014) (quoting Pope v. Kingsley , 191 A.2d 33 , 36 (N.J. 1963)); see also Emanuelson v. Sullivan , 161 A.2d 788, 790 (Conn. 1960) (“[T]he testator’s property devolves by v irtue of the probated will, even though its effect may have been changed24 subsequently by those who took under it. The succession tax should, therefore, be computed an d assessed on the basis of the disposition of the estate in the probated will. The weigh t of authority in other jurisdictions supports this rule.”); Crane , 162 S.W.2d at 118 (“The other line of authorities, the majority, holds that where a contested will is probated by virtue of a compromise agreement all the property is to be
considered as h aving vested at the death of the testator in accordance with the terms of the will, and hence the inheritance tax is to be computed upon all the property of the estate unaffected by the compromise agreement. We think this the sounder rule.” ( C itations

om itted

. )). Additionally, w hile the Bliven parties stipulated that the will was revoked, the facts of Bliven still closely align with the facts presented
here. Lester Sr. ’s grandchildren challenged the TOD agreement, claiming their grandfather lacked capacity. They then compromised their claim by entering into the FSA , in which Beverly was allowed to keep half of the proceeds of the brokerage accounts. Similarly, in Bliven , the charities challenged the will revocation, claiming the decedent lacked t he capacity to revoke her will. They also compromised their claim by entering into a settlement agreement. The charities in Bliven stipul ated that the decedent’s will had been revoked, even though the stipulation was inconsistent with their original clai m of lack of capacity. I n entering into
the FSA , the grandchildren gave up their claim challenging the TOD agreement’s validity. The Estate and the Grandchildren hereby release and acquit and forever discharge Beverly from any and all liability includin g all claims, demands, and causes of action of every nature affecting them which they m ay have or forever claim to have by reason of any and all matters relating to the Litigation described above.25

. . . .

. . . [T]he parties agree that the Litigation shall be dismissed with prejudice, each party to bear its, his or her own costs. The court of appeals noted “the estate’s claim had sufficient merit to cause the parties to enter into an agreement requiring Beverly to forego

one

- half of the value of the brokerage accounts.” But a s that court acknowledged , “[o]ther factors exist that cause parties to reach a compromise beyond the likelihood of success at trial.” While Beverly also released any claims she might have had relating to the litigation, the status quo meant that title to the brokerage accounts passed to her upon
Lester Sr. ’s death. The court of appeals suggested that the IDOR may not have
refused the refund “if the est ate had presented overwhelming evidence that Lester D. Gardiner Sr. was incompetent.” One might expect it would be easy to obtain an adjudication of incompetency when the evidence is overwhelming. But the estate settled its claims without proving
Lester Sr.’s incompetency in probate court

. Beverly in turn failed to

prove Lester Sr. ’s lack of mental capacity in the contested case hearing

. She does not challenge the director’s finding that Lester Sr. was competen t, and that finding is binding on appeal. Iowa Ag Constr. Co. , 723 N.W.2d at 173.
The court of appeals also questioned whether the IDOR would have refused a refund “if there was overwhelming evidence the contract was the product of dependent adult abuse by undue influence.” No dependent adult abuse is claimed here, and in any event , Be verly , who
seeks the refund now , was the beneficiary of the alleged undue influence
on Lester Sr

.26

B
. Adopting a T est for When Family Settlement Agreements
Can Control Inheritance Tax C onsequences. Beverly sug gested that in some circumstances, FSAs should control inheritance tax consequences.
She advocated for a four

- part test gleaned from federal cases: (1) the underlying claim was based on enforceable legal rights of the claimant , (2) the parties to the a gre ement were truly adversarial, (3) “the agreement

was made in good faith as the result of arm’s

- length n egotiations, ” and (4) there is no evidence suggesting the agree ment “was entered into for post mortem tax planning purposes.” See Estate of Hubert v. Comm’r , 101 T.C. 314, 318

– 21 (1993), aff’d , 63 F.3d 1083 (11th Cir. 1995) , aff’d , 520 U.S. 93, 117 S. Ct. 1124 (1997)

. We note that the federal estate tax
differs from Iowa’s inheritance tax

. See Dieleman , 222 N.W.2d at 460 (“Unlike the federal estate ta x, which is a tax upon decedent’s estate, the inheritance tax is a tax upon each right of succession and is chargeable upon the property each beneficiary receives.”). Based on this distinction,

t he court of appeals rejected t he federal test

. T he court of appeals
created a two

- part test for when a n FSA can control inheritance tax consequences: (1) the agreement is entered into in good faith , and (2)
“there is no evidence of a scheme to avoid taxes.” This test incorporates
the third and fourth prongs of th e federal test.
As the IDOR points out, it is unclear what constitutes “evidence of
a scheme to avoid taxes” (and we realize the same concern would arise under the fourth part of the federal test if we adopted it). The IDOR also points out that such evidence may be present here ; the FSA provided that “[b]ecause the Grandchildren will inherit a portion of the Accounts, an amended Inheritance Tax Return shall be filed by the Estate seeking a
refund.” We decline to adopt either the federal test or the t est created by the court of appeals. Estate planning should precede the testator’s27 death. Moreover, even when family me mbers have bona fide disputes, all gain when taxes are avoided because every dollar of inheritance tax
avoided is a dollar that can be reallocated among the family members in the settlement. In that sense, the parties are not truly adversarial as to the tax issue nor are the negotiations on that point truly arms ’ length. Cf. Burditt v. Comm’r , 77 T.C.M. (CCH) 1767, 1999 WL 185163, at *7 (T.C. 1999) (concluding that settlement proceeds allocated to petitioner “individually for mental anguish, pain and suffering, damage to his reputation and loss of good will” could not be excluded from petitioner’s gross income as damages received on acco unt of personal injuries because “the parties to the .

. . settlement were not adversarial with respect to allocations made in the settlement agreement” and because
“the written allocation .

. . was not .

. . made at arm’s length, was entirely

tax

- motivate d, and did not accurately reflect the claims at issue in the lawsuit”). Rather, the interests of the parties are aligned against the taxing authority based on their common interest in avoiding the tax

. W e hold the FSA did not control the inheritance tax consequences after the taxpayer’s challenge to the validity of the TOD agreement failed.
IV. Disposition. For these reasons, we vacate the decision of the court of appeals
and affirm the judgment of the district court upholding the IDOR’s denial of Beverly’s inheritance tax refund claim

. DECISION OF THE COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT AFFIRMED. All justices concur except Wiggins, J., who concurs specially, and Mansfield, J., who dissents.28

#1 6

– 1974, Nance v. Iowa Dep’t of Revenue WIGGINS, Justice (concurring specially). I concur in the result. I agree with Justice Mansfield that the In re Estate of Van Duzer , 369 N.W.2d 407 (Iowa 1985), and In re Estate of
Bliven , 236 N.W.2d 366 (Iowa 1975), decisions are irreconcilable. In my review of the tax statutes and regulations, I find no support to allow a private postmortem family settlement agreement, even if entered in good faith, to circumvent inheritance tax. I do not find the terms “passing to ” and “passes” in Iowa Code sections 450.9 and 450.10 (2009) ambiguous. In those statutes, “passes” and “passing to” mean passing through an estate, not from a contract or a settlement agreement. As Justice Mansfield notes, a federal regulation allows a p rivate postmortem family settlement agreement entered in good faith to circumvent estate tax. Neither our court nor our court of appeals has the power or the authority to write such a provision in the law. Only the legislature or the executive branch thr ough rulemaking has the power and authority to do so. Consequently, I agree with the result reached by the majority and would overrule In re Estate of Van Duzer

.29 #16

– 1974, Nance v. Iowa Dep’t of Rev. MANSFIELD, Justice (dissenting). I respectfully dissent. The terms “passing to” and “passes” in Iowa Code sections 450.9 and 450.10 (2009) are ambiguous. I would continue to follow the approach we took in In re Estate of Van Duzer , 369 N.W.2d 407 (Iowa 1985), and hold that property pass es from the decedent to a beneficiary when it is transferred to that beneficiary pursuant to a good

faith settlement agreement resolving litigation over distribution of the decedent’s assets. Therefore, I would affirm the decision of the court of appeals. Federal estate tax law takes the same approach. See 26 C.F.R. § 20.2056(c)

– 2(d)(2) (2017) (indicating that the marital deduction is available following a will contest when property is assigned to a surviving spouse based on “a bona fide evaluation of the rights of the spouse”); Estate of Hubert v. Comm’r , 101 T.C. 314, 319

– 21 (1993) (“ Although the regulations state that the settlement agreement will not necessarily be accepted as a bona fide evaluation of such rights, they do not require rejection of such settlement agreement. In this instance we think it is appropriate to recognize the amounts passing to Mrs. Hubert under the settlement agreement as passing from decedent, especially in the absence of any suggestion that the settlement agreement was enter ed into for post mortem tax planning purposes .”), aff’d , 63 F.3d 1083 (11th Cir. 1995), aff’d , 520 U.S. 93, 117 S. Ct. 1124 (1997); Estate of Barrett v.
Comm’r , 22 T.C. 606, 611 (1954) (“ We find nothing in the statute or in logic that would deny similar tr eatment to a settlement payment made in
advance of the contest where there is sufficient basis for a reasonable belief that only such payment would avoid a serious and substantial threat to the testamentary plan provided by the decedent .”).30 Notably, the re levant statutory language is similar in both contexts. In Iowa, inheritance tax is imposed (or not imposed) when property is “passing to” or “passes” to certain beneficiaries. Iowa Code §§ 450.9, .10(1)

– (4). Under federal estate tax law, a marital deduc tion is allowed for any interest in property which “passes or has passed” from the decedent to his surviving spouse. See 26 U.S.C. § 2056(a) (2012). In both instances, the terminology is susceptible to more than one reasonable interpretation. See In re Estate of Lamoureux , 412 N.W.2d 628, 632 (Iowa 1987) (indicating that because the term “transfer” is used in both the federal estate tax and the Iowa inheritance tax, federal construction of the term “is applicable by analogy”). Significantly, our most rec ent case in this area, Van Duzer , gave effect to a settlement for inheritance tax purposes. There we held that an additional payment of $106,500 to a surviving spouse under a family settlement agreement was not subject to inheritance tax, because

testamen tary transfers to spouses were exempt. 369 N.W.2d at 409

– 10. We overlooked formalities and “recognize[d] the transaction to be that which it clearly was.” Id . at 410.
It’s true that in the earlier case of In re Estate of Bliven , 236 N.W.2d 366, 370

– 71 ( Iowa 1975), we declined to give inheritance tax effect to a settlement. In that case, two charities had been essentially the
sole beneficiaries of the decedent’s will. Id . at 368. However, the decedent tore up her will before her death. Id. Subsequent ly, the charities brought a claim, contending the decedent had lacked the mental capacity to revoke her will. Id . The charities settled with the family on the basis that the charities would receive half the estate. Id

. We held, regardless, that the amo unts passing to the charities were not31 exempt from inheritance tax under the charitable exemption. Id . at 370

– 71.
Van Duzer and Bliven are impossible to reconcile, in my view. Either you allow good

- faith settlements for tax purposes or you don’t. Nonetheless, in Van Duzer , we said that Bliven and another, older case 3 were “clearly distinguishable.” 369 N.W.2d at 410. The asserted
dis tinction was that the claimants in the earlier cases

— unlike the surviving spouse in Van Duzer

— would not have inherited at all from the
estate but for the settlement . Id

. (noting that the claimants in the earlier cases were “persons not named in decedent’s will or otherwise entitled to claim against the estate”). That distinction seems forced to me. The critical similarity in both Van Duzer and Bliven is that the transfers whose tax status was in dispute would not have occurred without the settlement agre ement. To my mind, Van Duzer therefore controls when the cases are irreconcilable because it is the more recent precedent. Of course, if one accepts the distinction in Van Duzer at face value, the taxpayer still wins here. Here, the settlement benefici aries, i.e., the lineal descendants Donald Gardiner, Donnita Gardiner, and Dianne Gardiner Green, were persons who stood to inherit from the decedent. In fact, they received additional inheritances beside the family settlement agreement. The Department of Revenue itself has struggled to reconcile Bliven
and Van Duzer . In 1987, it wrote to a taxpayer accepting a settlement for the following reasons: While the Department continues to rely on In Re Estate of Wells and In Re Estate of Bliven as authority for the tax treatment of out

- of

- court settlements, the Department recognizes that the Iowa Supreme Court’s decision in Van

3 In re Estate of We lls , 142 Iowa 255, 120 N.W. 713 (1909).32 Duzer does carve out an exception to the long

- established rule enunciated in Wells and Bliven

. . . .

. . . . While the legal theory used by the Court in Van Duzer is not readily apparent, it does appear that the Iowa Supreme Court is of the opinion that when a surviving spouse challenges the distribution to be made from an estate coupled with an election to take against the will, the settle ment of the dispute is entitled to the spousal exemption and tax rates and status provided to surviving spouses by statute. The facts in the instant case being for all practical purposes the same as in Van Duzer , the Committee finds that the estate is ent itled to the spousal exemption for the full amount of the $152,000 received by the surviving spouse. Estate of Leland E. Robertson, Inheritance Tax Assessment Docket No.
86

- 402

- 3

- A (1987). I disagree with this effort to confine Van Duzer to its
narrowest set of facts and don’t think you can read Van Duzer as just a “spousal exemption” case.
Van Duzer is also more faithful to the legislature’s likely intent.
See Iowa Code § 4.6(1). I presume the legislature cared most about who was actually receiving the decedent’s property

— whether it was a close relative (exempt), a charity (exempt), or someone else (not exempt). In addition, allowing parties to settle litigation in good faith without forfeiting tax benefits is sound policy. See id . § 4.4(3). It doesn’t make sense to incentivize heirs to litigate among themselves to the end and delay the closing of estates. 4

4 Other states appear to be divided on whether a good

- faith settlement can affect inheritance tax treatment. “In some jurisdictions, a state inheritance tax properly may be based on the terms of a contested will even where the contest results in a compromise or settlement agreement which changes the estate’s distribution, and in others, the transfer of the property or interest under the compromise or settlement agreement may be considered.” 42 Am. Jur. 2d Inheritance , Estate, and Gift Taxes § 81, at 277 (2010) (footnotes omitted); see also R.D. Hursh, Annotation, Succession, Estate, or Inheritance Tax as Affected by Compromise of Will Contest , 36 A.L.R.2d 917, § 2[a] (1954).33 Another issue is whether we need to give deference to the Department of Revenue’s interpretation of the term “passes” as used in
Iowa Code section 450.10. See Iowa Code § 17A.19(10)( c ), ( l ); Renda v. Iowa Civil Rights Comm’n , 784 N.W.2d 8, 12

– 14 (Iowa 2010); see also Myria Holdings Inc. v. Iowa Dep’t of Revenue , 892 N.W.2d 343, 347 (Iowa 2017) (declining to decide whether the Department of Revenue’s interpretation of a different tax provision was entitled to judicial deference). I believe we do not need to do so because the agency’s rule cites only Bliven and does not take into account or even mention Van
Duzer

. See Iowa Admin. Code r. 701

— 86.14(2)

. Van Duzer , as discussed, is the more recent case. In State v. Iowa District Court , we expressed skepticism about agency retroactive reinterpretations that conflict with prior judicial interpretations of statutes. See 902 N.W.2d 811, 819 & n.6 (Iowa 20 17). While I do not know whether this particular
rule came before or after Van Duzer , the plain fact is it doesn’t attempt to
address it. The majority invokes the principle of legislative acquiescence in support of its position. See In re Estate of Vajgr t , 801 N.W.2d 570, 574 (Iowa 2011) (“The rule of stare decisis ‘is especially applicable where the construction placed on a statute by previous decisions has been long acquiesced in by the legislature .

. . .’ ” (quoting Iowa Dep’t of Transp. v.
Soward , 650 N.W.2d 569, 574 (Iowa 2002))). But what did the legislature acquiesce in? Van Duzer is the more recent decision, it is thirty

- three years old, and it is consistent with my views, not the majority’s. 5 I recognize there is some danger of postmortem fraud by taxpayers. That is, a beneficiary who is due to receive an inheritance and is subject

5 The special concurrence acknowledges this point.34 to inheritance tax could cut a deal with a beneficiary who has exempt status. Under such a corrupt deal, the exempt beneficiary would bring a bogus claim chall enging the testamentary distribution, the parties would enter into a friendly settlement, the exempt beneficiary would receive the assets under the staged settlement, and the exempt beneficiary would
then redirect most of them under the table to the nonexe mpt beneficiary. By this chain of events, inheritance tax could be avoided. Yet the danger of sham transactions exists anyway in many tax

- related situations. It can be minimized here by requiring the taxpayer to affirmatively prove the good

- faith attrib utes of the settlement. Here, the taxpayer established that a litigation settlement was made, and that it was made in good faith and not for purposes of tax
avoidance. 6 Accordingly, I would affirm the decision of the court of appeals.

6 The taxpayer urged two positions in the alternative below. First, it insisted the settlement should be accepted by the Department of Revenue. Second, it maintained that the decedent Lester Gardiner Sr. lacked testamentary capacity, thus rendering the transfer on death invalid under the law. The Department rejected both arguments after conducting an evidentiary hearing. It found that the settlement had “no bearing on whether a taxable event occurred” and, further, the taxpayer did not “me[e]t her burden to prove by, clear, convincing, and satisfactory evidence that the Decedent was incompetent when he executed the [transfer on death].” I would reverse on the first ground. The unrebutted evidence demonstrates the good

- faith character of the settl ement, including the presence of an objective basis for believing that Lester Sr. was not competent when he executed the beneficiary designation form in 2003. Ironically, the Department acknowledged at oral argument that allowing the taxpayer an opportunit y to prove Lester Sr.’s lack of testamentary capacity in a Department hearing was inconsistent with the Department’s own administrative position that only a prior judicial determination of lack of capacity would be accepted.