IN THE SUPREME COURT OF IOWA

No. 16–1974

Filed February 23, 2018

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 inheritance tax 

through a postmortem 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 inheritance tax through a 

private postmortem 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 account. 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 settled the lawsuit by transferring half the account value to 

the grandchildren under an 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 the taxpayer 

failed to meet her burden to establish incapacity. The 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 an adjudication 

of incapacity, the beneficiary designation transferred the brokerage 

account to the decedent’s daughter-in-law upon his death, and the 

postmortem FSA was not binding on the IDOR and could not avoid the 

inheritance tax when the taxpayer failed to prove incapacity in the 
3

IDOR’s contested case proceeding. The contrary holding of the court of 

appeals would allow parties to evade inheritance taxes without an 

adjudication defeating facially valid beneficiary designations. 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 sole 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 he married 

Beverly in 1979. Lester Jr.’s three children from his prior marriage—

Donald Gardiner, Donitta Gardiner, and Dianne Gardiner Green—are 

Lester Sr.’s only grandchildren. Donald, Donitta, and Dianne were the 

beneficiaries of Lester Sr.’s will, which he executed on November 22, 

1988, nearly five years before he executed the TOD agreement. 

Lester Sr. and Mildred moved into the Rowley Masonic Home in 

Perry in 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 filed an involuntary petition seeking the appointment of a 
4

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 

September 11, and Beverly and Dianne were appointed coguardians and 

coconservators. Lester Sr. died testate on January 31, 2009, at the age 

of 97. 

After Lester Sr.’s death, his grandchildren, as coexecutors of his

estate, sued Beverly, challenging the validity of the beneficiary 

designation form. They alleged that Lester Sr. lacked the requisite 

capacity to execute the form in August 2003 due to his dementia. 

Beverly denied the allegations, claiming Lester Sr. was competent when 

he and his wife signed the beneficiary designation over five years before 

his death. 

While the lawsuit was pending, the estate timely filed an 

inheritance tax return on October 20, 2009. The estate paid the required 

inheritance tax of $18,988 based on the fact that Beverly received the full 

balance of the TOD brokerage accounts. 

With the grandchildren’s lawsuit pending, counsel 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 decisionmaking 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. was 
5

incapable of understanding his finances and “was very vulnerable to 

undue influence being exerted on him by those around 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, Gibbons, the broker who was present 

when the TOD agreement was executed in 2003, testified at a deposition 

that he believed both Lester Sr. and Mildred to be mentally alert at the 

time. 

On July 27, the grandchildren and Beverly settled their dispute in 

mediation and entered into an FSA. The IDOR was not a party to the 

FSA. The FSA provided that the brokerage accounts would be liquidated 

and the proceeds divided equally 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, the IDOR received a letter from Beverly’s 

counsel requesting an informal conference. On July 24, 2014, Beverly 
6

filed a formal written demand to initiate a contested case, and the IDOR 

filed an answer denying her right to a refund. 

On November 24, a contested case hearing was held before an 

administrative law judge (ALJ). Beverly argued that 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 examined Lester Sr.—

was not called as a witness at the contested case hearing. Beverly 

testified that she visited her father-in-law during the weekends at the 

nursing home. But she did not testify regarding her personal 

observations of Lester Sr.’s mental state at the time he executed the TOD 

agreement or at 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, executed after the transfer of 

the accounts to Beverly through the TOD agreement, “ha[d] no bearing 

on whether a taxable event occurred when the Accounts 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 beneficiary 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. 

 1Beverly 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 supporting brief, requesting the 

opportunity to present the oral testimony of Dr. Bender. The IDOR filed 

a resistance. The director granted Beverly’s motion to allow witness 

testimony. 

The director held an evidentiary hearing on January 14, 2016. 

Dr. Bender testified. He described the “mini-mental status 

examinations” used to evaluate a patient’s cognitive abilities and 

elaborated on how Lester Sr.’s performance on such tests demonstrated 

his severe dementia. Dr. 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-examination, 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 had 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), controlled. 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 beneficiaries 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 Beverly
8

failed to meet her burden of proof on the issue of her father-in-law’s 

alleged lack of capacity. The director reasoned, 

No 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 hearing 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 testimony 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. The district court agreed with the director that Bliven controlled 

and that the postmortem 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 entitlement 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 the 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 that 
9

the settlement proceeds paid to the grandchildren under the FSA were 

exempt from inheritance tax. The IDOR filed an application for further 

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 

Constr. Co. v. Iowa State Bd. of Tax Review, 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 

Extraordinary 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 as 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 those facts. We 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 that record is viewed as a whole.

Iowa Code § 17A.19(10)(f); see also Iowa Ag Constr. 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 discretion of the agency when “[t]he case was tried as a contested 
10

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 evidentiary 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.” 

Lange, 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 Constr. 

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 Constr. 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 denied Beverly’s refund 

claim. We conclude that an FSA is ineffective to alter the inheritance tax 

consequences of a TOD agreement when the taxpayer unsuccessfully 
11

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 

agreement and beneficiary designation. She had the burden of proof, 

and we must uphold that agency determination under our standard of 

review. The IDOR therefore correctly determined that the brokerage 

accounts transferred to Beverly under the TOD agreement as nonprobate 

assets upon Lester Sr.’s death. The postmortem FSA under these 

circumstances could not 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 In re Estate of Myers, 825 N.W.2d 1, 6–7 (Iowa 2012). 

“Nonprobate assets are interests in property that pass outside of the 

decedent’s probate estate to a designated beneficiary upon the decedent’s 

death.” Id. at 6. “[T]hese assets are the personal property 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, therefore, 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 differs 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 the federal estate tax, which is 

a tax upon decedent’s estate, the inheritance tax is a tax upon each right 
12

of succession . . . .”). Real estate and tangible personal property located 

in Iowa and intangible personal property owned by a decedent domiciled 

in 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 grantor 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 exemption 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, greatgrandparents, and other lineal ascendants, children 

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. 

The FSA between Beverly and the estate divided the brokerage 

accounts between Beverly and Lester Sr.’s grandchildren. We therefore 

must determine 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, the 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 of 
13

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 settlement 

agreements are favored in law.” Gustafson v. Fogleman, 551 N.W.2d 312, 

314 (Iowa 1996). More 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 taxation.” 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 an FSA providing for a different disposition than that 
14

provided for in a will “do not 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 an FSA 

to renounce their gifts under the will, they took title as heirs, and one of 

the son’s widow was entitled to her one-third distributive share of the 

real estate). 

Against that backdrop, we review our precedent adjudicating 

claims that FSAs 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 under 

different circumstances. Here, we 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 charities. 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. To 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. 

The executor filed an inheritance tax return indicating that the 

distribution to the charities was exempt from the inheritance tax. Id. 
15

The executor claimed the assets going to the charities in accord with the 

settlement agreement “passed in any manner” under section 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 intestate 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 interest 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 organizations, i.e., no inheritance, no exemption.” Id.

(emphasis added). The property rights acquired by the charities “passed 

to them only by assignment from [the] decedent’s heirs, separate 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 

 2Section 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) (1971). 
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 wellestablished propositions: (1) Iowa’s inheritance tax is levied only on 

property passing from a decedent, so the inheritance tax exemption only 

applies to property passing from a decedent; 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 Bliven 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 chapter, 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. 

The principle that the property in a TOD account becomes the 

property of the designated beneficiary immediately upon death presumes 
17

a valid contract. Here, 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 presumed 

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 “the 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 settled with Beverly without any adjudication that Lester 

Sr. was incompetent to execute the TOD agreement. During the 

contested case proceedings, the ALJ determined that Beverly failed to 

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

agreement. The director agreed that Beverly did not meet her burden of 

proof. In its ruling on the petition for judicial review, the 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 this 
18

record. We are bound by that determination. See Iowa Ag Constr. Co., 

723 N.W.2d at 173–74; see also Christiansen v. Iowa Bd. of Educ. 

Exam’rs, 831 N.W.2d 179, 191–92 (Iowa 2013) (discussing deference 

given to agency determinations in contested case adjudications). The 

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 court 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 884–85. This remains true 

despite the language in the FSA providing that “the Grandchildren will 

inherit a portion of the Accounts.” 

Beverly argues that Van Duzer controls, 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 exercising 
19

the 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 appointment. Id. His “surviving 

spouse elected to take against the will,” and she also “commenced an 

action against the estate alleging that the trust 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 not 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 qualified 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 present 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 distributive 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 concluding that 

the payment of $106,500 to the surviving spouse qualified for the 

spousal exemption. Id. Beverly characterizes Van Duzer as giving effect 

to an 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 

decedent by claiming against the will. See id.

Van Duzer recognized that the surviving spouse took the $106,500 

by reason of her election to take against her husband’s will, but the effect 

of the FSA increased 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, 598

(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 share, 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 election 
21

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.” 

(quoting 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 share 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 is inapplicable here and limit its holding to 

spousal elections against the will.

The IDOR itself has limited its adherence to Van Duzer to spousal 

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. 86-402-3-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 elects 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 entire estate passing by virtue of the will, 

regardless of any compromise agreement which permits a portion of the 
22

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 there

was no adjudication of the validity of the trust created by Van Duzer. 

The surviving spouse in 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 agreement. 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 

redetermined the amount of inheritance taxes based on a family 

settlement agreement, which provided that grandchildren 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”); 

Borish 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 the 
23

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 than to 

the heirs under intestacy. 

We disagree. In Bliven we stated, 

[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 from 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 chapter 450, which governs this 

case, applies to the passing of property rights from a decedent by virtue 

of TOD agreements but not by virtue of postmortem FSAs. 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.

Dep’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 manner 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 virtue of the 

probated will, even though its effect may have been changed 
24

subsequently by those who took under it. The succession tax should, 

therefore, be computed and assessed on the basis of the disposition of 

the estate in the probated will. The weight 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 having 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.” (Citations 

omitted.)). 

Additionally, while 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 the capacity 

to revoke her will. They also compromised their claim by entering into a 

settlement agreement. The charities in Bliven stipulated that the 

decedent’s will had been revoked, even though the stipulation was 

inconsistent with their original claim of lack of capacity. In 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 

including all claims, demands, and causes of action of every 

nature affecting them which they may 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 as 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 estate 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 

competent, 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, Beverly, who 

seeks the refund now, was the beneficiary of the alleged undue influence 

on Lester Sr. 
26

B. Adopting a Test for When Family Settlement Agreements 

Can Control Inheritance Tax Consequences. Beverly suggested 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 agreement were truly adversarial, (3) “the agreement

was made in good faith as the result of arm’s-length negotiations,” and 

(4) there is no evidence suggesting the agreement “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 tax, 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, 

the court of appeals rejected the federal test. The court of appeals 

created a two-part test for when an 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 the 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 test created by 

the court of appeals. Estate planning should precede the testator’s 
27

death. Moreover, even when family members 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 account 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-motivated, 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. We

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

#16–1974, 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 private 

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 through 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 passes from the decedent to a 

beneficiary when it is transferred to that beneficiary pursuant to a goodfaith 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 entered 

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 treatment 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 relevant 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 deduction 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 recent 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 

testamentary 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. Subsequently, 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 amounts passing to the charities were not 
31

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 case3

were “clearly distinguishable.” 369 N.W.2d at 410. The asserted 

distinction 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 agreement. 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 beneficiaries, 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 

 3In re Estate of Wells, 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 

settlement 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 entitled 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

 4Other 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 2017). 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 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))). 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 

 5The 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 challenging 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 nonexempt 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 attributes 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. 

 6The 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 

settlement, 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 opportunity 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.