Opinion ID: 1118867
Heading Depth: 1
Heading Rank: 2

Heading: under the equitable apportionment theory tax generating property is subject to taxation

Text: The question of ultimate responsibility for payment of federal and state estate tax is determined by state law. [5] Traditionally, taxes have been imposed based on two formulas: 1) the burden on the residue rule, and 2) the equitable apportionment rule. The Stearmans argue that estate taxes must be paid from the residue of the estate  a burden on the residue  even though in recent years this Court has consistently equitably apportioned estate tax pursuant to 68 O.S. 1981 § 825. [6] However, the Stearmans assert that In the Matter of the Estate of Doan, 727 P.2d 574 (Okla. 1986); Lomon v. Citizens Nat. Bank & Trust, 689 P.2d 306, 311 (Okla. 1984); Matter of Estate of Bovaird, 645 P.2d 500, 504 (Okla. 1982); and In re Davidson, 641 P.2d 1110, 1113 (Okla. 1982), are narrow exceptions to the burden on the residue rule and, therefore, inapplicable here. The Stearmans, relying on Tapp v. Mitchell, 352 P.2d 900 (Okla. 1960), allege that under the laws of intestate succession they are not required as surviving joint tenants of non-probate assets to pay any estate taxes. Indeed, in Tapp, the Court held that a joint tenant was not subject to payment of the portion of the estate tax generated by the jointly held assets. However, the Tapp Court applying the burden on the residue theory, specifically noted that Oklahoma did not follow the equitable doctrine of estate tax apportionment. Naturally enough, the collateral heirs urge us to apply the doctrine of equitable apportionment. Under the doctrine of equitable apportionment, the taxable estate includes not only real and personal property passing under a will or by the laws of descent and distribution, but many non-probate assets including: gifts made in contemplation of death, inter vivos trusts intended to take effect in possession or enjoyment at or after death; living trusts subject to revocation, life insurance proceeds, and joint tenancy property, which may include stocks, bonds, bank accounts, and powers of appointment. [7] Non-probate assets and specific devises and bequests are included within the residuary estate to compute the amount of tax due. The doctrine of equitable approportionment became firmly entrenched in Oklahoma with the promulgation [8] of In re Davidson, 641 P.2d 1110, 1114 (Okla. 1982). We held that in the absence of a contrary expression of testamentary intent, equitable principles impose the payment of estate tax on the property generating the tax exonerating property which does not incur federal or state estate tax liability. [9] There have been four legislative sessions since Davidson was adopted. Because the presumption is that the legislature is aware of this Court's interpretation of § 825, and because the statute has not been changed, it must be assumed that the legislature has ratified and approved the Court's construction. [10] The rationale for application of equitable apportionment can be clearly illustrated here. If the residuary estate were impressed with the sole burden of taxation, the residuary estate could be exhausted. Here, the residuary assets total $117,352.00 with a tax assessment of $102,671.00. If the residuary estate were required to pay all the estate taxes, the lineal heirs would divide $14,681.00 and the non-related beneficiaries would receive $260,931.00 tax free. It is only logical that all beneficiaries receiving estate assets which create estate tax liabilities bear their relative share of the tax. [11]