Source: https://casetext.com/case/afnb-trustee-et-al-v-afnb-extr-et-al
Timestamp: 2019-04-23 18:21:11+00:00

Document:
American Fletcher National Bank & Trust Co. v. American Fletcher National Bank & Trust Co.
American Fletcher National Bank & Trust Co.v.American Fletcher National Bank & Trust Co.
Filed August 6, 1974. Rehearing denied December 5, 1974. Transfer denied September 19, 1975.
1. DECEDENT'S ESTATE — Wills — Administration of Debts. — Under IC 1971, 29-1-7-23 the general rule is that when a person dies his real and personal property are chargeable with the expenses of administering the estate and with the payment of debts and expenses. p. 171.
2. WILLS — Taxation — Distribution of Tax Burden. — A testator has considerable flexibility in creating a plan of distribution of his estate and may charge or exonerate certain portions of his property to the burdens of debts, taxes, and expenses. p. 172.
3. WILLS — Taxation — Taxing Residue. — In order to determine whether a testator has subjected only the residue of his estate to burdens of debts, taxes and expenses, the will must be examined to determine if such was his intent. p. 172.
4. DECEDENT'S ESTATE — Wills — Fractional Bequest. — The fractional bequest rules state that debts and expenses of administration and like costs are to be deducted from a testator's gross estate in order to determine the base for computing the amount of the fractional bequest, absent a contrary intent expressed in the will. p. 172.
5. WILLS — "Estate" and "Property" — Words and Phrases. — Appellee alleges that the terms "estate" and "property" have different meanings when applied to a will. Unless the testator specifically manifests his intent to apply different meanings to the words "estate" and "property" they have the same generic meaning. p. 179.
6. WILLS — Fractional Bequest. — The fractional bequest of a testator's property is to be treated like any other general legacy unless the will specifically indicates a decedent's intent to bequeath a general legacy free from debts, expenses, taxes, and those liabilities which are deducted from the gross estate. p. 182.
Appellants appeal from a judgment favoring the appellee's will construction.
From the Marion Probate Court, Edward Madinger, Judge. Reversed and remanded by the Second District.
John P. Price, Grace M. Curry, Bingham, Summers, Welsh Spilman, of Indianapolis, Donald R. Willsey, Willsey Willsey, of Indianapolis for appellants.
David I. Day, Jr., Marshall, Batman, Day Swango, of Terre Haute, Alan H. Lobley, D. Robert Webster, Ice, Miller, Donadio Ryan, of Indianapolis, Charles E. Barker, of Indianapolis, for appellees.
Respondents-Appellants Barbara Ann Key Williamson (Barbara) and American Fletcher National Bank and Trust Company (AFNB) appeal from a judgment in favor of Respondents-Appellees Velma P. Key (Velma) and Indiana Central College in a will construction action filed by AFNB, as Executor of the Will of Sheldon A. Key (Key), requiring a fractional bequest to the widow to be computed on the basis of the gross estate.
Key, a lawyer of thirty (30) years experience and a lifetime resident of Marion County, Indiana, died August 23, 1971. His Will, executed on January 15, 1968, and the First Codicil thereto, dated October 6, 1970, were both drafted by Key himself and were duly admitted to probate on September 20, 1971.
Decedent was first married in 1940 to Rosalind Lamb, who died in 1963. They adopted Barbara in 1951. Rosalind established for Barbara a trust with assets of approximately $275,000.00.
Velma and Key were married in 1965 and lived as husband and wife until his death in 1971. At the time of her marriage, Velma's personal assets amounted to $5,000.00, and during his lifetime Key made certain gifts to Velma and her two (2) children and two (2) of her grandchildren. He gave his wife twenty (20) shares of Rosedale Shopping Center, Inc. stock, and purchased a lot at Lamb Lake for Velma. He also gave twenty (20) shares of Rosedale stock to each of his wife's two (2) children and five (5) shares each thereof to two (2) of her grandchildren. At the time of his death this stock was worth $1,676.00 per share.
At the hearing, pertinent testimony was given by the attorney for the Estate of Sheldon A. Key, W. Rudolph Steckler, who recalled from a telephone conversation with the Decedent in October, 1970, that Sheldon was cognizant that some property would need to be sold, but was of the opinion that the Rosedale stock should be split evenly between his daughter and wife.
A complete inventory and appraisement had not been made at the time of the hearing, nor had all of the debts and expenses been ascertained. However, the Executor testified to the assets as being approximately $810,000.00, while estimating the liabilities to be approximately $409,000.00.
I appoint the American Fletcher National Bank and Trust Company of Indianapolis, Indiana, Executor of my Will and direct said Executor to pay all my just debts, funeral expenses and expenses of my last illness out of the first moneys coming into said Executor's hands. I direct said Executor to pay all estate taxes, inheritance taxes and death duties that may be levied against my estate, or any of the individual beneficiaries hereof, out of the residue of my estate, and ask that no charge be made against any of the individual beneficiaries hereof on account of any such payment.
I give my Executor full and complete power and authority to sell any and all real or personal property that may be necessary to carry out the provisions of this Will, without petition, appraisement, order or prior approval of any court, without notice, and upon such terms and conditions as said Executor shall deem best, and to execute all bills of sale, deeds, acquittances and other documents in connection therewith with the same force and authority as though executed by me while living."
It is my will and I do hereby give and bequeath to Indiana Central College for its Endowment Fund the sum of Fifty Thousand Dollars ($50,000.00)."
It is my will and I do hereby give and bequeath to my beloved wife, Velma P. Key, one-half (1/2) of my personal property and a life estate in one-third (1/3) of my real estate."
(a) To pay and apply the income therefrom, or so much of said income as said Trustee deems necessary, to the use and support, maintenance, care and education of my daughter, Barbara Ann Key.
* * * * *"
Is the fractional bequest to Velma of one-half of the personal property and a life estate in one-third of the real estate computed on the gross estate or on the net estate?
Barbara and AFNB contend that a fractional bequest of a portion of the testator's property is computed on the basis of the net distributable estate in the absence of a contrary provision in the Will . . . and there is no such contrary provision expressed in the Will.
Velma argues that the express language of the Will indicates the intention of the testator to give her a specific devise of one-half of the personal property and one-third life estate in real property undiminished by debts, taxes or expenses, and that there is no indication in the Will that this devise is chargeable with any debts or expenses other than in accordance with the rules of abatement set forth in the Probate Code, IC 1971, 29-1-17-3, Ind. Ann. Stat. § 7-1103 (Burns Code Ed).
CONCLUSION — It is our opinion that the fractional bequest to Velma is a general legacy and should be computed on the basis of the net estate available for distribution, because the Will does not express a contrary intent.
To charge or not to charge the residue with the debts and expenses . . . that is the question.
The general statutory scheme, then, is that a testator's property is chargeable with the debts and expenses of administering his estate.
A testator has considerable flexibility in creating a plan of distribution of his estate and may charge or exonerate  certain portions of his property as to the burdens of debts, taxes, and expenses.
In order to determine whether a testator has subjected only the residue of his estate to these charges, the will must be examined to determine if such was his intent. In re Brown's Estate (1969), 145 Ind. App. 591, 252 N.E.2d 142; In re Ensminger's Estate (1969), 144 Ind. App. 338, 246 N.E.2d 217; McCann v. Merchants Nat. Bank Trust Co. of Indianapolis (1967), 141 Ind. App. 321, 227 N.E.2d 697; Weishaar v. Burton (1962), 132 Ind. App. 597, 179 N.E.2d 211.
Applicable to a fractional bequest is the Fractional Bequest Rule which, simply stated, is that debts and expenses of administration and like costs, are deducted from a  testator's gross estate in order to determine the base for computing the amount of the fractional bequest, absent a contrary intent expressed in the will. 6 PAGE ON WILLS §§ 48.2, 52.4, p. 8, 175, (Bowe-Parker 1962 Ed.); 57 Am. Jur. § 1191, p. 781; 169 A.L.R. p. 903.
"Obviously the entire question could have been avoided in this case if, in drafting the will, the word `gross' or the word `net' had been used in connection with the bequest to the appellant. We are faced with a search for what was intended by the testator under the circumstances." 252 Ind. at 666, 251 N.E.2d at 670.
Likewise, we must examine Key's Will for an expression of intention on his part that the debts and expenses of administration be chargeable against the residuary estate which created a trust for his daughter Barbara. The Will's silence as to this crucial intent is not an expression of the contrary intent required by the Fractional Bequest Rule.
"I direct said Executor to pay all estate taxes, inheritance taxes and death duties that may be levied against my Estate, or any of the individual beneficiaries hereof, out of the residue of my Estate, and ask that no charge be made against any of the individual beneficiaries hereof on account of such payments."
It is significant that while the Will specifically charges the residue with payment of death taxes, it fails to direct from which portion of the Estate the debts and expenses of administration are to be paid.
ART. I-A. "It is my will and I do hereby give and bequeath to Indiana Central College . . . the sum of Fifty Thousand Dollars. . . ."
ART. II. "It is my will and I do hereby give and bequeath to . . . Velma . . . one-half (1/2) . . . of my personal property and a life estate in one-third (1/3) of my real estate."
ART. III. "It is my will and I do hereby give, devise and bequeath all the rest and residue of my Estate, both real and personal, . . . to the use and support, maintenance, care and education of . . . Barbara. . . ."
The language used falls short of a clear expression of intent that the debts and expenses be charged to the residuary estate as well as the death taxes.
Faced with a will containing a similar fractional bequest and no clear indication of testator's intent as to whether the bequest was to be calculated on the basis of the gross estate or the net distributable estate, our Supreme Court in Stoner v. Custer, supra, refused to charge the debts and expenses to the residuary estate.
"I hereby authorized and direct my Executor hereinafter named to pay all just debts, the expenses of my last sickness and funeral and all other just debts and charges against my estate. I further direct my Executor to pay all inheritance, transfer and estate taxes which may be charged against my estate or against any legatee or devisee herein named by reason of any legacy or devise herein given, and I specifically direct said Executor that all such inheritance, transfer and estate taxes shall be paid out of the principal of my estate and I hereby waive on behalf of my estate any right to recover from any person any part of such taxes so paid. No legacy or devise in this instrument shall be diminished by the amount of any such taxes assessed as a result of my death and such legacy or devise, but any such taxes shall be paid by my Executor from the residue of my estate.
"Subject to the provisions of Item 2 hereof, I do give and bequeath to my wife, Helen Niblick Stoner, if she shall survive me, the sum of one thousand dollars ($1,000.00) in cash.
"Further, I do hereby give, devise and bequeath to my wife, Helen Niblack Stoner, if she shall survive me, all my jewelry of any description and any automobile which I may own at the time of my death.
Chief Justice Arterburn notes that Item Two of the Stoner Will specifically provided that taxes assessed as a result of Stoner's death were to be paid from the estate's residue and that the absence of a similar provision for payment of debts and expenses was sufficient evidence of testator's intent to subject the gross estate to these liabilities.
"Since Indiana does not provide for apportionment of the Federal Estate Tax, and since the will of the decedent was silent on the question of the incidence of the tax, we are of the opinion . . . determined upon the principle of reason, logic and equity, that those who receive a share of net taxable estate should pay the tax proportionate to the share of that taxed property received by them." Seymour National Bank v. Hiedeman (1961), 133 Ind. App. 104, 123, 178 N.E.2d 771, 780. See also, Pearcy v. Citizens Bank Trust Co. (1950), 121 Ind. App. 136, 96 N.E.2d 918.
"Significantly, no similar provision was inserted which would have provided for the payment of all debts from the residue instead of from the entire corpus of the estate. The testator chose not to charge all of the debts and expenses against the residue. Item Two therefore shows the testator's intent to subject the entire corpus, including appellant's share, to the debts and charges of the estate." (emphasis supplied) 252 Ind. at 667, 251 N.E.2d at 671.
There were two dissents (without opinion) in Stoner and we may reasonably speculate that the dissenters seized on the language of Item Three, set out above, as indicative of an intent by Stoner to give one-third of his gross estate to his wife.
"If testator gives his widow a fractional part of his personal property in lieu of her dower and distributive share, this gift may be construed, in the absence of a contrary intent, as meaning a fractional part of the net value of the personal property after payment of expenses, debts, and taxes." Bowe-Parker: Page on Wills (1962 Ed.) Sec. 52.4, p. 175.
". . . the question as usually presented is whether the bequest was of a proportion of the gross estate or property, or of the estate or property remaining after deduction for debts, funeral and administration expenses, and the like, or of other legacies or devises.
See: In re Kirby (1926), 199 Cal. 135, 248 P. 517; Bell v. Raymond (1850), 20 Conn. 337; Horsey v. Horsey (1857), Del., 1 Houst. 438; Wells v. Menn (1946), 158 Fla. 228, 28 So.2d 881; See also, Briggs v. Hosford (1839), Mass., 22 Pick. 288; Fisk v. McNeil (1837), Miss., 1 How. 535; Smith v. Terry (1888), 43 N.J. Eq. 659, 12 A. 204; Stark v. McEwen (1921), 15 Ohio App. 188; Barnett's Appeal (1884), 104 Pa. 342.
"The general legacy not pecuniary is one to the testator's wife of ` two-thirds of all the personal property of whatever kind of which I may die possessed.' An important question is presented as to the measure of this bequest. The widow claims that she is entitled to two-thirds of the gross amount of the personal estate; the residuary beneficiaries, that she is only entitled to two-thirds of the amount of personal property remaining after the payment of all claims and the expenses attending the settlement of the estate and the satisfaction of all the legacies. We think that she is entitled to two-thirds of the net personal estate; that is, two-thirds of the personal estate less the amount of claims presented and allowed and the expenses of settlement. A gift `of all of which one may die possessed' carries only the net amount of the estate. In like manner a gift of two-thirds carries two-thirds of the same total. There is no peculiar significance to be attached to the testator's choice of words. In their connection they can have no other effect than would the words `of all my personal estate' used in their stead." (our emphasis) 76 Conn. at 267, 56 A. at 505.
"The court further holds that under paragraph First of the Will funeral expenses and debts must be paid before the `one-third of all my property' passing to the widow can be determined. Decedent's right of testamentary disposition is limited to the amount of his property in excess of debts and expenses, and he is deemed to have executed his Will subject to that limitation. See: Matter of Wishart's Estate, 149 Misc. 343, 267 N.Y.S. 391; Matter of Smallman's Estate, 138 Misc. 889, 247 N.Y.S. 593. In the absence of a clear and unequivocal direction to the contrary, a general bequest stated in terms of a percentage is operative only with respect to the disposable, or net, estate. The bequest to the widow is a general legacy computed in terms of a percentage rather than a fixed sum, and as a general bequest it secures the advantage of freedom from tax apportionment but is nevertheless subject to diminution through the payment of debts and expenses of administration." (our emphasis) 125 N.Y.S.2d at 168.
"Where a will leaves a designated beneficiary a stipulated percentage or proportion of the testator's estate or property, the view is generally taken that, absent contrary context, deduction of the debts, expenses of administration, and the like, should be made from the testator's gross holdings in order to determine the base for computing the amount of the bequest." (our emphasis) 252 Ind. at 667, 251 N.E.2d at 671.
See also, In re Keller's Estate (1955), 134 Cal.App.2d 232, 286 P.2d 889; In re Gardner's Estate (1955), 35 N.J. Super. 163, 113 A.2d 527; In re Petroff's Estate (1956), 5 Misc.2d 318, 159 N.Y.S.2d 735; St. Louis Union Trust Co. v. Krueger (1964), Mo., 377 S.W.2d 303.
"`First moneys' in the hands of an Executor are obviously general assets, or `gross estate', as distinguished from residuary estate. Residue does not exist at that point in time. If debts and costs are to be paid first, out of first moneys, and before distribution, they must necessarily be paid `out of' the gross estate."
Velma further differentiates the Key Will from those construed by other jurisdictions applying the fractional bequest rule by asserting that they dealt with fractional bequests of "estates".
She argues that her bequest is not a fractional part of Key's "estate", but is instead specifically devised personal "property" and which is free from any charges against the estate as the Fractional Bequest Rule applies only to fractional bequests of estates.
"A gift of testator's `property' may, if not controlled by the context, pass both realty and personalty, `property' being like `estate' a word of general import." 4 Page on Wills, § 33.4 at p. 297.
See also, Morgan v. McNeeley (1891), 126 Ind. 537, 26 N.E. 395.
"[T]he terms `estate' and `property' are used interchangeably by the courts in this connection [Fractional Bequests Rule], and the cases frequently cite both `estate' and `property' decisions as authority for their conclusions . . ." 169 A.L.R. 903.
In both Blakeslee v. Pardee and In re Whitman's Estate decisions quoted above, the decedents bequeathed fractional portions of their "personal property" and "property" and the court nevertheless applied the fractional bequest rule. See also, In re Estate of West (1969), 203 Kan. 404, 454 P.2d 462; Miller et al. v. Miller (1950), Tex. Civ. App., 230 S.W.2d 237.
Hoping to avoid application of the Fractional Bequest Rule, Velma describes her bequest as a "specific devise of specific, generic property without qualification, condition, or diminution for the debts of the Key estate."
"A bequest or devise of a specified fraction or proportion of testator's property is a general devise, bequest or devise." 6 Page on Wills, § 48.2 at p. 8.
". . . bequests of all testator's personal property, an aliquot part thereof, of all property except certain things, or a residue of testator's property have been held to amount to general legacies." (footnotes omitted) Atkinson, Handbook of the Law of Wills, (2 Ed. 1953) at pp. 733-734.
"A General Legacy, . . . is a bequest out of the general assets of the testator's estate, such as a gift of money or other thing in quantity and not in any way separated or distinguished from other things of the same kind." In re Brown's Estate (1969), 145 Ind. App. 591, 601, 252 N.E.2d 142, 150.
See also, Warters v. Selleck (1930), 201 Ind. 593, 170 N.E. 20; Nye v. Grand Lodge A.O.U.W. (1894), 9 Ind. App. 131, 36 N.E. 429; Roquet v. Eldridge (1888), 118 Ind. 147, 20 N.E. 733; Stout v. LaFollette (1878), 64 Ind. 365.
Abatement is not a rule of construction. The Abatement Statute establishes the order in which the "shares of the distributees" are to be distributed to the beneficiaries after those shares have been determined.
If a deficiency of assets should appear at the time of distribution, then and only then does the abatement statute become relevant.
Velma's reliance upon Easterday v. Easterday (1937), 105 Ind. App. 80, 10 N.E.2d 764 and Whitman v. Whitman (1908), 41 Ind. App. 99, 83 N.E. 520 is misplaced. Neither case applies the principle of abatement in lieu of construing a fractional bequest.
"The appellant cites Easterday v. Easterday (1937), 105 Ind. App. 80, 10 N.E.2d 764 and Whitman v. Whitman (1908), 41 Ind. App. 99, 83 N.E. 520. In our opinion neither case is in point. The Easterday case involved the simple question of abatement of a legacy. The will in the Whitman case contained language that is clearly distinguishable from that involved in this case. 252 Ind. App. 669, 251 N.E.2d at 672.
In sum, the fractional bequest of a testator's property is to be treated like any other general legacy. Unless the will specifically indicates a decedent's intent to bequeath a  general legacy free from debts, expenses and taxes, these liabilities are deducted from the gross estate.
There is no direct expression of intent or reasonable inference in any portion of Key's Will that the residue only be charged with payment of the debts and expenses — only that it be charged with death taxes. Accordingly, the Fractional Bequest Rule operates to reduce Velma's share by debts and expenses.
The trial court's judgment is reversed and this case remanded with instructions that judgment be entered in favor of AFNB and Barbara in a manner not inconsistent with this decision.
Sullivan, P.J. and Garrard, J., concur.
NOTE. — Reported at 314 N.E.2d 810.

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