Opinion ID: 756999
Heading Depth: 2
Heading Rank: 2

Heading: Applicability of California Proration Statute

Text: 26 State law governs the effect that death taxes have on the interest passing to the surviving spouse. Robinson v. United States, 518 F.2d 1105, 1107 (9th Cir.1975). California has adopted a system under which the estate tax is equitably prorated. See Cal. Prob.Code § 20110(a). Generally then, each beneficiary bears a share of the tax in proportion to the interest in the estate received. Id. at § 20111. However, in making this proration, California permits an allowance for federal estate tax deductions. Id. at § 20112(b). Therefore, under California's proration statute, death taxes do not affect the value of the marital deduction property. Indeed, the Government concedes that if California's general proration scheme applies in this case, the property passing to the surviving spouse will not be charged with death taxes. 27 Nonetheless, the Government argues that the decedent opted out of California's proration statute. Under California law, a decedent may avoid the proration system by stating this desire in a written testamentary instrument. See Cal. Prob.Code § 20110(b)(1). But the direction to opt out must be clear and unambiguous. Estate of Carley v. Hubbard, 90 Cal.App.3d 582, 153 Cal.Rptr. 528, 531 (1979). 28 We find in this case that the decedent did not opt out of the proration statute in a clear and unambiguous manner. The decedent's will specified that death taxes be paid out of the assets making up the residue of my estate, without proration. But there were no funds in the residue. In such an event, the will directed that the trustee shall satisfy such obligations from the trust estate [Trust A]. In the latter direction, there is no mention that payment be made without proration. 29 Under some circumstances, it might be plausible to imply that the without proration provision with regard to the residuary carries over in the event payment from the trust estate were to become necessary. However, such an implication in this case would contradict the decedent's intent. Overall, we are required to construe a will in accordance with the decedent's intentions. In re Brodersen's Estate, 102 Cal.App.2d 896, 229 P.2d 38, 45 (1951) (holding paramount that a will be construed according to the intention of the testator). 30 In this case, it appears that the decedent intended to avoid reducing the marital share by payment of death taxes. This can be inferred from the allocation of marital deduction property to the Survivor's Trust portion of Trust A. The Trust Agreement defines marital deduction property as the minimum pecuniary amount necessary to entirely eliminate, or to reduce, to the maximum extent possible, any Federal Estate Tax. But if the taxes were paid from Trust A which had no funds other than marital deduction property, the federal estate tax would not be minimized. In order to free the net value of the surviving spouse's interest from death taxes and therefore maximize the marital deduction, the estate tax would need to be paid from Trust B, the non-marital trust. 31 The Government asserts that it was not the decedent's intent to burden Trust B with death taxes. But this inference cannot be made, as the Government suggests, solely on the basis that the decedent specified in Trust B that all of her separate property pass to her children, not her husband. That specification addresses only the decedent's choice of beneficiary; it does not necessarily imply any direction against payment of death taxes from Trust B. 32 On the contrary, the marital deduction provision does indicate that the decedent did not want to burden Trust A with death taxes. Therefore, finding that the will directed payment of death taxes without proration would be inconsistent with the decedent's intent. 33 Even if we were to imply that the decedent opted out of California's proration statute in her will, that direction would be made ambiguous by the marital deduction provision. It is well-settled that any ambiguity must be resolved in favor of proration. See Estate of Carley, 153 Cal.Rptr. at 531. 34 Still, the Government asserts that the marital deduction provision does not conflict with the will. It argues that the marital deduction provision is a definitional formula to be considered only in the context of distributing assets within Trust A. The Government concludes on this basis that the formula does not reverse the will's direction to pay taxes from Trust A without proration. 35 But the Government's characterization of the marital deduction provision is unpersuasive. The Government acknowledges that the decedent executed an integrated estate plan, consisting of a will and two trusts. The very nature of an integrated estate plan demands that the various provisions be considered in conjunction with one another. Therefore, it follows that the significance of the marital deduction property in Trust A be considered in an overall testamentary context. We cannot ignore its implications for the payment of death taxes as directed in the will simply because it is contained in one of the trust documents. In this light, the marital deduction provision appears to be more than a mere definitional formula for Trust A. Rather, it is evidence of the decedent's testamentary plan to minimize the estate tax. Thus, if there is any suggestion in the will that death taxes be paid without proration, that instruction is made ambiguous by the marital deduction provision. 36 Since the testamentary documents are ambiguous at best, the proration statute applies presumptively. See In re Estate of Wakefield, 258 Cal.App.2d 274, 65 Cal.Rptr. 664, 668 (1968) (holding the proration statute applicable due to lack of clarity in will regardless of whether such was the actual intent of the testator). Accordingly, we hold that the amount of the marital deduction claimed by the Estate was proper. 1 37 REVERSED.