Title: ESTATE OF MOSBY
Citation: N/A
Docket Number: 13306
State: Montana
Issuer: Montana Supreme Court
Date: September 29, 1976

No. 1-3.106 LN THE SUPEXMI.! COUKT OF '1'HIi STATE OF MONTANA 1976 !W THL MATTER 3F THE ESTATE O F ARTHUR J. MOSBY, a/k/a A. J. MOSBY, Deceased. i p p e d l from: D i s t r i c t Court of t h e Fourth J u d i c i a l D i s t r i c t , Honorable Edward T. Dussault, Judge presiding. Counsel af Record: For Appellant : Skelton & Knight, Missoula, Montana Robert Knight argued, Missoula, Montana Garlington, Lohn and Robinson, Missoula, Montana .Seorge Goodrich argued, Missoula, Montana b o r Kespondent : Boone, Karlberg & Haddon, Missoula, Montana Karl Karlberg argued, Missoula, Montana Submitted : September 1, 1976 ~ecided:$iij; ; ; j , ;; - M r . J u s t i c e Frank I. Haswell delivered t h e Opinion of t h e Court. The question i n t h i s case i s whether t h e widow's e l e c t e d s t a t u t o r y share of her deceased husband's e s t a t e , which q u a l i f i e s f o r t h e m a r i t a l deduction and generates no f e d e r a l estate t a x l i a b i l i t y , is exempt from payment of a proportional s h a r e of t h e f e d e r a l e s t a t e t a x a t t r i b u t a b l e t o t h e e s t a t e . The d i s t r i c t c o u r t held it exempt. W e reverse. Arthur J. Mosby died t e s t a t e , a r e s i d e n t of Missoula County,Montana, on November 26, 1970. H i s w i l l provided, among o t h e r things: "Third: I have made no provision i n t h i s w i l l f o r m y wife, Ruth Greenough Mosby, s i n c e she has a s e p a r a t e estate which is more than adequate t o m e e t her needs." The w i l l w a s admitted t o probate i n t h e d i s t r i c t c o u r t of Missoula County on December 2 1 , 1970. I n March, 1971, Ruth Greenough Mosby, widow of Arthur J. Mosby, by her guardian, f i l e d a "Renunciation of W i l l and Election t o Take Dower and I n t e s t a t e Share" pursuant t o t h e s t a t u t e then i n e f f e c t , s e c t i o n 22-107, R.C.M. 1947, which provides: "Widow may e l e c t . Every d e v i s e o r bequest t o her by her husband's w i l l s h a l l bar a widow's dower i n h i s lands and her share i n h i s personal e s t a t e unless otherwise expressed i n t h e w i l l ; b u t she may e l e c t whether she w i l l t a k e under t h e provi- s i o n s f o r her i n t h e w i l l of her deceased husband o r w i l l renounce t h e b e n e f i t of such provisions f o r her, and t a k e her dower i n t h e lands and her s h a r e i n t h e personal e s t a t e under t h e succession s t a t u t e s , a s i f t h e r e had been no w i l l , but n o t i n excess of two-thirds (2/3) of t h e husband's n e t estate, r e a l and personal, a f t e r t h e payment of c r e d i t o r s ' claims, expenses of administration and any and a l l t a x e s , including state and f e d e r a l i n h e r i t a n c e and estate taxes." The i n t e s t a t e share of Ruth Greenough Mosby was one-third of t h e decedent's n e t e s t a t e i n accordance with succession s t a t u t e , s e c t i o n 91-403 ( I ) , R.C.M. 1947. Ruth Greenough Mosby d i e d on January 24, 1972. The Mosby e s t a t e paid United S t a t e s f e d e r a l estate t a x e s i n excess of $230,000, including a deficiency payment p l u s i n t e r e s t , by May of 1975. Thereafter t h e Mosby e s t a t e r e p r e s e n t a t i v e s f i l e d t h e i r r e p o r t and p e t i t i o n i n t h e d i s t r i c t c o u r t , proposing t o d i s t r i b u t e t o t h e e s t a t e of Rugh Greenough Mosby ( h e r e i n a f t e r t h e Greenough e s t a t e ) , o u t of t h e personal property of t h e Mosby e s t a t e , one-third of t h e inventory and appraisement value, less d e b t s , a d m i n i s t r a t i v e expenses and f e d e r a l e s t a t e t a x e s paid. The p e t i t i o n w a s served on a l l in- t e r e s t e d persons. One week l a t e r t h e personal r e p r e s e n t a t i v e of t h e Green- ough e s t a t e f i l e d o b j e c t i o n s t o t h e Mosby e s t a t e r e p o r t and pe- t i t i o n . H i s primary contention w a s t h a t t h e Greenough estate's e l e c t e d i n t e s t a t e share consisted of one-third of t h e personal property of t h e Mosby e s t a t e reduced only by t h e d e b t s of Arthur J. Mosby, but without reduction f o r c o s t s of administration o r f e d e r a l e s t a t e tax. Following hearings and on January 8 , 1976, t h e d i s t r i c t c o u r t entered an amended order holding, i n s o f a r as i s p e r t i n e n t t o t h i s appeal, t h a t t h e Mosby e s t a t e was required t o d i s t r i b u t e t o t h e Greenough e s t a t e t h e i n t e s t a t e s h a r e of Ruth Greenough Mosby, reduced by d e b t s of Arthur J. Mosby, c o s t s of administration, and Montana i n h e r i t a n c e t a x e s , but n o t s u b j e c t t o payment of f e d e r a l e s t a t e taxes. The d i s t r i c t c o u r t express- l y predicated its r u l i n g upon t h e d e c i s i o n of t h e United S t a t e s Court of Appeals f o r t h e Ninth C i r c u i t i n Robinson v. United S t a t e s , 518 F.2d 1105 (1975) . O n January 16, 1976, counsel f o r the Mosby estate and counsel f o r Fredaline M. Yonce, one of t h e residuary l e g a t e e s of Arthur J. Mosby, f i l e d a motion f o r rehearing and motion t o a l t e r and amend t h e amended order of January 8, 1976. The mo- t i o n a l l e g e d t h a t t h e d i s t r i c t c o u r t erroneously r e l i e d upon Robinson, supra, and erroneously applied t h e r u l e of "equitable apportionment" t o t h e f a c t s before t h e c o u r t . They f u r t h e r alleged t h a t t h e r e p r e s e n t a t i v e of t h e Greenough estate, p r i o r t o h i s f i l i n g o b j e c t i o n s , a f f i r m a t i v e l y acquiesced i n and agreed with t h e a l l o c a t i o n of f e d e r a l e s t a t e t a x e s t o t h e share of Ruth Greenough Mosby; t h a t such acquiescence c r e a t e d an i n e q u i t y t o t h e remaining l e g a t e e s which should prevent t h e Greenough e s t a t e from b e n e f i t i n g from an e q u i t a b l e apportionment r u l e ; and t h a t t h e Greenough e s t a t e ' s o b j e c t i o n s should be barred by laches and e q u i t a b l e estoppel. After a hearing on January 26, 1976, a t which t h e d i s t r i c t c o u r t heard f u r t h e r arguments and an o f f e r of proof, t h e d i s t r i c t c o u r t denied t h e motion i n a l l r e s p e c t s and confirmed its amended order of January 8, 1976. The r e p r e s e n t a t i v e s of t h e Mosby e s t a t e and Fredaline M. Yonce, residuary l e g a t e e , appeal from t h e amended order of Jan- uary 8, 1976. The c o n t r o l l i n g i s s u e on appeal is whether t h e widow's e l e c t e d i n t e s t a t e share of t h e decedent's e s t a t e , which wholly q u a l i f i e s f o r t h e m a r i t a l deduction under f e d e r a l e s t a t e t a x l a w s , i s exempt from payment of a proportionate share of t h e f e d e r a l e s t a t e t a x l i a b i l i t y . Section 2056(a) of t h e I n t e r n a l Revenue Code of 1954, 26 U.S.C. §2056(a), covers t h e m a r i t a l deduction. It allows a deduction: " * * * from t h e value of t h e gross e s t a t e an amount equal t o t h e value of any i n t e r e s t i n property which passes o r has passed from t h e decedent t o h i s surviving spouse, b u t only t o t h e e x t e n t t h a t such i n t e r e s t i s included i n determining t h e value of t h e g r o s s e s t a t e . " The maximum m a r i t a l deduction allowable, however, i s 50 percent of t h e value of t h e adjusted g r o s s e s t a t e . 26 U.S.C. § 2 0 5 6 ( c ) ( l ) . I n t h i s c a s e t h e e l e c t e d i n t e s t a t e share of t h e Greenough e s t a t e q u a l i f i e s f o r t h e m a r i t a l deduction. A s a consequence, t h i s one-third e l e c t e d s h a r e does n o t c o n s t i t u t e a p o r t i o n of t h e g r o s s e s t a t e and does n o t cause, c o n t r i b u t e t o o r g e n e r a t e any f e d e r a l e s t a t e t a x . The Mosby e s t a t e and F r e d a l i n e M. Yonce, a r e s i d u a r y l e g a t e e , argue t h a t because t h e e n t i r e estate i s l i a b l e f o r payment of f e d e r a l e s t a t e t a x e s b e f o r e d i s t r i b u t i o n o f t h e widow's s h a r e , such s h a r e should bear its p r o p o r t i o n a l s h a r e of t h e f e d e r a l e s t a t e t a x . The Greenough e s t a t e , on t h e o t h e r hand, contends t h a t no p a r t of t h e f e d e r a l e s t a t e t a x should be deducted from t h e widow's e l e c t e d s t a t u t o r y s h a r e a s such s h a r e g e n e r a t e s no t a x because of t h e m a r i t a l deduction. A t t h e o u t s e t w e observe t h a t t h e f e d e r a l estate t a x i s an e x c i s e t a x upon t h e t r a n s f e r of an e s t a t e upon t h e d e a t h of t h e owner a s d i s t i n g u i s h e d from an i n h e r i t a n c e t a x imposed upon t h e i n t e r e s t passing t o a p a r t i c u l a r d i s t r i b u t e e . I n re Glover's E s t a t e , 45 Hawaii 569, 371 P.2d 361; S e a t t l e - F i r s t N a t . Bank v. Macomber, 32 Wash.2d 696, 203 P.2d 1078. The f e d e r a l estate t a x is imposed upon t h e v a l u e of t h e e s t a t e reduced by t h e m a r i t a l deduction. Sec. 2056(a) of t h e I n t e r n a l Revenue Code of 1954, 26 U.S.C. Sec. 2056(a). The purpose of t h e m a r i t a l deduction is t o permit a noncomrnunity property s t a t e t o a t t a i n e q u a l i t y of f e d e r a l e s t a t e t a x treatment w i t h a community p r o p e r t y s t a t e i f i t s l e g i s l a t u r e is s o minded. Old Colony T r u s t Co. v . McGowan, 156 M e . 138, 163 A.2d 538. It is n o t t o g r a n t t h e s u r v i v i n g widow a t a x exemption. I n re E s t a t e of Hurlbut, 126 Vt 562, 238 A.2d 68; I n re U i h l e i n ' s W i l l , 264 W i s . 362, 59 N.W.2d 641, 38 ALR2d 961. The m a r i t a l deduction i s f o r t h e b e n e f i t of t h e en- t i r e e s t a t e ; t h e surviving widow s h a r e s i n t h a t b e n e f i t w i t h o t h e r d i s t r i b u t e e s because t h e g r o s s value of t h e e s t a t e i s reduced by t h e m a r i t a l deduction r e s u l t i n g i n a s m a l l e r f e d e r a l e s t a t e t a x ; so t h e widow's d i s t r i b u t i v e s h a r e must bear i t s p r o p o r t i o n a t e share of t h e burden of t h e f e d e r a l e s t a t e t a x unless t h e u l t i - mate burden is otherwise s h i f t e d under state law. I n re E s t a t e of Hurlbut, supra; Old Colony Trust Co. V. McGowan, supra. Congress has not seen f i t t o a l l o c a t e t h e burden of t h e f e d e r a l e s t a t e t a x , but has l e f t it t o s t a t e law t o d e t e r - mine t h e u l t i m a t e t h r u s t of t h e t a x ; thus t h e question of t h e u l t i m a t e burden of f e d e r a l e s t a t e t a x e s is one of s t a t e , r a t h e r than f e d e r a l , law. Riggs v. D e l Drago, 317 U.S. 95, 63 S.Ct. 109, 87 L.Ed 106, 142 A L R 1131 (1942); E s t a t e of Marans v. New- land, 143 Mont. 388, 390 P.2d 443. I n i t i a l l y , we are confronted with t h e p l a i n language of s e c t i o n 22-107, R.C.M. 1947. This s t a t u t e states unequivocally t h a t a widow may renounce and t a k e her i n t e s t a t e share of t h e husband's personal e s t a t e " a f t e r t h e payment of * * * any and a l l t a x e s , including * * * f e d e r a l * * * estate taxes." This provision would appear t o burden t h e Greenough e s t a t e ' s share with a proportionate share of t h e f e d e r a l e s t a t e t a x . However, t h e Ninth C i r c u i t Court of Appeals i n Robinson v. United S t a t e s , 518 F.2d 1105, 1108 (1975), deciding a c a s e a r i s i n g under t h e provisions of a w i l l and t h e e s t a t e t a x l a w s of t h e United S t a t e s , construed Montana law otherwise: "Accordingly, w e f i n d t h a t under Montana l a w f e d e r a l e s t a t e taxes, u n l e s s t h e i r payment is otherwise s p e c i f i c a l l y provided f o r i n t h e w i l l , must be equitably apportioned among residuary i n t e r e s t s s o t h a t a residuary i n t e r e s t not gen- e r a t i n g any e s t a t e t a x e s does not bear any burden f o r payment of such taxes." I n Robinson, t h e "residuary i n t e r e s t n o t generating any estate taxes" was t h e widow's testamentary one-third of t h e r e s i d u e which, as i n t h i s case, f u l l y q u a l i f i e d f o r t h e m a r i t a l deduc- t i o n under 26 U.S.C. 52056. The Robinson c o u r t held t h a t : " * * * t h e share passing t o t h e spouse is one- t h i r d of t h e residuary e s t a t e before payment of f e d e r a l e s t a t e t a x e s and t h a t t h e e s t a t e i s en- t i t l e d under 82056 of t h e I n t e r n a l Revenue Code t o deduct t h e f u l l amount of t h e i n t e r e s t passing t o t h e spouse." The d i s t r i c t c o u r t i n t h e i n s t a n t case held t h a t t h e e q u i t a b l e apportionment r u l e announced i n Robinson applied with equal f o r c e t o t h e Greenough e s t a t e ' s e l e c t e d s t a t u t o r y share qualify- ing f o r t h e m a r i t a l deduction. The c o u r t of appeals i n Robinson recognized t h a t t h e burden of t h e e s t a t e t a x w a s a question of s t a t e law, but a l s o recognized t h a t t h e r e w e r e no Montana cases d i r e c t l y i n p o i n t with t h e question before it. The f e d e r a l appeals c o u r t then proceeded t o determine "as b e s t it can what t h e s t a t e c o u r t would decide". It then looked t o our decision i n E s t a t e of Marans v. Newland, 143 Mont. 388, 390 P.2d 443, f o r guidance and found t h a t t h e c o n t r o l l i n g r a t i o n a l e t h e r e i n was t h a t a widow's share of a deceased husband's e s t a t e which d i d not generate a f e d e r a l estate tax w a s exempt from paying a proportionate share of said tax. W e t h e r e f o r e must decide i f t h e Robinson decision c o r r e c t l y reads Marans and a p p l i e s t o t h e f a c t s of t h e i n s t a n t case. I n Marans, t h e s p e c i f i c i s s u e w a s whether s e c t i o n 22-107 - - should impose a t a x burden from nonprobate assets upon t h e widow's e l e c t e d i n t e s t a t e share of t h e husband's e s t a t e . The e f f e c t o r a p p l i c a b i l i t y of t h e m a r i t a l deduction w a s not i n i s s u e . The deceased husband's e s t a t e was l a r g e l y i n t h e form of property j o i n t l y owned by him and h i s son and daughter. This nonprobate property s u b s t a n t i a l l y increased t h e e s t a t e ' s t a x l i a b i l i t y . The widow renounced t h e w i l l and e l e c t e d t o take her s t a t u t o r y share. It appeared t h a t if t h e widow w e r e required t o discharge t h e e n t i r e e s t a t e t a x l i a b i l i t y from her i n t e s t a t e share of t h e residue, then she would be l e f t without any property t o i n h e r i t . This Court held t h a t a r u l e of equitable apportionment would be invoked t o prevent t h e disinheritance of a widow under s e c t i o n 22-107 where t h e bulk of t h e f e d e r a l e s t a t e taxes was generated by nonprobate a s s e t s . Therefore, e s t a t e taxes were ordered t o be apportioned between t h e widow's residue and t h e c h i l d r e n ' s nonprobate a s s e t s . Marans d i d not hold t h a t t h e widow w a s exempt from payment of a l l f e d e r a l e s t a t e taxes; r a t h e r , she w a s not required t o pay any p a r t of t h e f e d e r a l estate t a x which arose from t h e nonprobate property. The overriding consideration of Marans was expressed by t h i s Court a t 394-395 of 143 Mont.: " * * * I f * * * t h e l e g i s l a t u r e intended t o sub- ordinate t h e widow's s t a t u t o r y share t o taxes . . generated by non-probate a s s e t s , t h e e f f e c t of t h e s t a t u t e [section 22-1071 would be t o c u t o f f t h e widow's only means of protection a g a i n s t ' t a x d i s i n h e r i t a n c e , ' i.e., her option t o take a g a i n s t t h e w i l l and n u l l i f y t h e t e s t a t o r ' s ex- pressed i n t e n t i o n r e l a t i v e t o t h e taxes with which her share would be encumbered. I n view of t h e policy of t h e law t o p r o t e c t a widow from d i s i n - heritance, a s r e f l e c t e d by t h e very s t a t u t e under consideration * * * w e do not impute t o t h e l e g i s - l a t u r e t h e i n t e n t t o give and take away i n one s t a t u t o r y pronouncement." (Emphasis supplied.) While t h e r e s u l t of Marans is sound, t h e f e d e r a l c o u r t of appeals misapplied it i n t h e Robinson case. Robinson d i d not d e a l with t h e problem of t h e t a x burden imposed by nonprobate property, nor did it concern section 22-107. Marans held t h a t taxes generated by nonprobate property would not be charged t o d i s i n h e r i t a widow; Robinson went considerably f u r t h e r and held t h a t property not generating t a x would be exempt from a l l t a x l i a b i l i t y . Marans d i d not announce t h i s l a t t e r proposition. W e hold t h a t t h e equitable apportionment r u l e adopted i n Marans does not apply t o t h e i n s t a n t case. The p a r t i e s agree t h a t t h e Mosby e s t a t e i s almost wholly comprised of probate a s s e t s . ~ h u s t h e r e i s no inequitable burden imposed upon t h e widow's share by nonprobate a s s e t s . I n t h e absence of a compelling equitable argument, a s w a s made i n Marans, we can f i n d no l e g a l o r policy j u s t i f i c a t i o n f o r t h e exemption of an undivided one-third i n t e r e s t i n t h e gross e s t a t e from t h e payment of t a x e s while requiring t h e o t h e r two-thirds t o bear t h e burden. This w a s t h e view expressed i n t h e opinion of Hon. James F. B a t t i n , f e d e r a l d i s t r i c t judge i n Robinson v. United S t a t e s , 369 F.Supp. 925 (1974), which was l a t e r reversed by t h e Ninth C i r c u i t Court of Appeals i n 518 F.2d 1105. W e recognize t h e c o n f l i c t of a u t h o r i t y from o t h e r j u r i s - d i c t i o n s regarding t h e q u e s t i o n of whether a q u a l i f i e d m a r i t a l deduction which g e n e r a t e s no t a x should bear any burden of fed- e r a l e s t a t e t a x . Under t h e f a c t s of t h i s c a s e , where t h e widow renounced and took h e r i n t e s t a t e s h a r e pursuant t o s e c t i o n 22- 107, R.C.M. 1947, w e a r e c o n s t r a i n e d t o forego f u r t h e r a n a l y s i s of t h e c o n f l i c t i n g c a s e s and follow t h e express d i r e c t i o n of our s t a t u t e . The mandate of t h e s t a t u t e i s t h a t t h e Greenough e s t a t e ' s e l e c t e d i n t e s t a t e s h a r e i s s u b j e c t t o its p r o p o r t i o n a t e payment of f e d e r a l e s t a t e t a x e s . This holding r e n d e r s i r r e l e v a n t t h e o t h e r i s s u e s presented i n t h i s appeal. The d i s t r i c t c o u r t ' s amended o r d e r of January 8 , 1976, i s reversed i n s o f a r a s it o r d e r s t h e r e p r e s e n t a t i v e s of t h e Mosby e s t a t e t o d i s t r i b u t e one-third of t h e personal property of t h e e s t a t e t o t h e r e p r e s e n t a t i v e s o f t h e Greenough e s t a t e exempt from payment of f e d e r a l e s t a t e t a x e s . T h i s c a s e is remanded t o t h e d i s t r i c t c o u r t w i t h d i r e c t i o n s t o o r d e r t h e d i s t r i b u t i o n of t h e personal property of t h e Mosby e s t a t e i n accordance w i t h t h i s opinion. J u s t i c e - 9 -